-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O5tfGEyXNcTqdUzczosColBUwp/WYXkz4YKn/nQyegvzaKHr8IlcxMf7NDjki1hc PXHlO4IX5Mmi2Oln0uCa1g== 0000950144-01-503780.txt : 20010621 0000950144-01-503780.hdr.sgml : 20010621 ACCESSION NUMBER: 0000950144-01-503780 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOMEPATIENT INC CENTRAL INDEX KEY: 0000879181 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 621474680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19532 FILM NUMBER: 1664378 BUSINESS ADDRESS: STREET 1: 5200 MARYLAND WAY STREET 2: MARYLAND FARMS OFFICE PARK CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6152218884 MAIL ADDRESS: STREET 1: MARYLAND FARMS OFFICE PARK STREET 2: 5200 MARYLAND WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 FORMER COMPANY: FORMER CONFORMED NAME: DIVERSICARE INC /DE DATE OF NAME CHANGE: 19930328 10-K/A 1 g70082ae10-ka.txt AMERICAN HOMEPATIENT,INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A CHECK ONE: [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _____ TO ____. COMMISSION FILE NUMBER 0-19532 AMERICAN HOMEPATIENT, INC. (Exact name of registrant as specified in its charter) DELAWARE 62-1474680 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 5200 MARYLAND WAY, SUITE 400 37027-5018 BRENTWOOD TN (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 221-8884 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [X] The aggregate market value of registrant's voting stock held by non-affiliates of the registrant, computed by reference to the price at which the stock was sold, or average of the closing bid and asked prices, as of June 13, 2001 was $8,163,695. On June 13, 2001, 16,327,389 shares of the registrant's $0.01 par value Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- The following documents are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Form 10-K/A: Portions of the Registrant's definitive proxy statement for its 2001 Annual Meeting of stockholders. 1 2 PART I ITEM 1. BUSINESS INTRODUCTORY SUMMARY American HomePatient, Inc. (the "Company") was incorporated in Delaware in September 1991. The Company's principal executive offices are located at 5200 Maryland Way, Suite 400, Brentwood, Tennessee 37027-5018, and its telephone number at that address is (615) 221-8884. The Company provides home health care services and products consisting primarily of respiratory and infusion therapies and the rental and sale of home medical equipment and home health care supplies. These services and products are paid for primarily by Medicare, Medicaid and other third-party payors. As of December 31, 2000, the Company provided these services to patients primarily in the home through 304 centers in 38 states. From its inception through 1997 the Company experienced substantial growth primarily as a result of its strategy of acquiring and operating home health care businesses. Beginning in 1998, the Company's strategy shifted from acquiring new businesses to focusing more on internal growth, integrating its acquired operations and achieving operating efficiencies. RECENT DEVELOPMENTS Bank Credit Facility. The Company is the borrower under a credit facility (the "Bank Credit Facility") between the Company and Bankers Trust Company, as agent for a syndicate of lenders (the "Lenders"). The Company's breach of several of the financial covenants in its Credit Agreement and its failure to make a scheduled principal payment due March 15, 2001 caused the Company to be not in compliance with certain covenants of its Credit Agreement. The Company, on June 8, 2001, entered into a Fifth Amended and Restated Credit Agreement (the "Amended Credit Agreement") that provided a new loan to the Company from which the proceeds were used to pay off all existing loans under the Credit Agreement. The Amended Credit Agreement also includes modified financial covenants and a revised amortization schedule. In addition, the Amended Credit Agreement no longer contains a revolving loan component; all existing indebtedness is now in the form of a term loan which matures on December 31, 2002. Substantially all of the Company's assets have been pledged as security for borrowings under the Bank Credit Facility. Indebtedness under the Bank Credit Facility, as of June 13, 2001, totals $299.8 million. There can be no assurance that future cash flow from operations will be sufficient to cover debt obligations, especially those obligations due at maturity of the Bank Credit Facility. As part of the Second Amendment to the Fourth Amended and Restated Credit Agreement, the Company agreed to issue on March 31, 2001 warrants to the Lenders representing 19.999% of the Common Stock of the Company issued and outstanding as of March 31, 2001. To fulfill these obligations, warrants to purchase 3,265,315 shares of Common Stock were issued to the Lenders on 2 3 June 8, 2001. Fifty percent of these warrants are exercisable at any time after issuance, and the remaining fifty percent will be exercisable on and after September 30, 2001 (provided loans, letters of credit or commitments have not been terminated subsequent to March 31, 2001 and prior to September 30, 2001). The exercise price of the warrants is $0.01 per share. See "Business - Risk Factors - Substantial Leverage" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Government Investigation. On June 11, 2001, a settlement agreement (the "Settlement") was entered among the Company, the United States of America, acting through the United States Department of Justice ("DOJ") and on behalf of the Office of Inspector General of the Department of Health and Human Services ("OIG") and the TRICARE Management Activity, and a former Company employee, as relator. The Settlement covers alleged improprieties by the Company during the period from January 1, 1995 through December 31, 1998, including allegedly improper billing activities and allegedly improper remuneration to and contracts with physicians, hospitals and other healthcare providers. The Company has been dealing with the issues covered by the Settlement since February 1998, when the OIG served a subpoena on the Company at its Pineville, Kentucky center. Pursuant to the Settlement, the Company has made an initial payment of $3.0 million and has agreed to make additional payments in the principal amount of $4.0 million, together with interest on this amount, in installments due at various times over the next 57 months. The Company has also agreed to pay the relator's attorneys fees and expenses, the amount of which will be determined by binding arbitration. The Company has recorded a reserve in the amount of $7.5 million based upon the Settlement. The Settlement does not resolve the relator's claims that the Company discriminated against him as a result of his reporting alleged violations of the law to the government. The Company denies and intends to vigorously defend these claims. The Settlement has been submitted to Judge Russell of the United States District Court for the Western District of Kentucky for his final approval, which is expected to be received. The Company also was named as a defendant in two other False Claims Act cases. In each of those cases the DOJ declined to intervene and such cases were subsequently dismissed in March 2001. The first of these cases, United States ex. rel. Kirk S. Corsello v. Lincare, et al. (N.D. Ga.), was dismissed with prejudice on the motion of the Company on March 9, 2001. Mr. Corsello's qui tam complaint alleged that the Company and numerous other unrelated defendants, including other large DME suppliers, engaged in a kickback scheme to provide free or below market value equipment and medicine to physicians who would in turn refer patients to the defendants in violation of the False Claims Act. The plaintiff has appealed the dismissal of this action. The other case, United States ex. rel. Alan D. Hutchison v. Respironics, et al. (S.D. NY and N.D. Ga.), was dismissed without prejudice on Mr. Hutchison's own motion on March 22, 2001. Mr. Hutchison's qui tam complaint alleged that the Company and numerous other unrelated defendants, filed false claims with Medicare for ventilators that the defendants allegedly knew were not medically necessary. The Company also has been informed that the United States is investigating its conduct during periods after December 31, 1998, and believes that this investigation was prompted by 3 4 another qui tam complaint against the Company under the False Claims Act. The Company has not seen a complaint in this action, but believes that it contains allegations similar to the ones investigated by the government in connection with the False Claims Act case covered by the Settlement discussed above. The Company believes that this second case will be limited to allegedly improper activities occurring after December 31, 1998. There can be no assurances as to the final outcome of the pending False Claims Act lawsuits or any pending or future investigation by the government. Possible outcomes include, among other things, the repayment of reimbursements previously received by the Company related to improperly billed claims, the imposition of fines or penalties, and the suspension or exclusion of the Company from participation in the Medicare, Medicaid and other government reimbursement programs. The outcome of the pending lawsuits and investigations could have a material adverse effect on the Company. Medicare Oxygen Reimbursement Reductions. The Medicare reimbursement rate for oxygen related services was reduced by 25% beginning January 1, 1998 as a result of the Balanced Budget Act of 1997 (the "Medicare Oxygen Reimbursement Reduction") and an additional reduction of 5% beginning January 1, 1999. The reimbursement rate for certain drugs and biologicals covered under Medicare was also reduced by 5% beginning January 1, 1998. The Company is one of the nation's largest providers of home oxygen services to patients, many of whom are Medicare recipients, and is therefore significantly affected by this legislation. Medicare oxygen reimbursements accounted for approximately 27% of the Company's revenues in 2000. The Company estimates that the Medicare Oxygen Reimbursement Reductions decreased revenue and pre-tax income by approximately $24.5 million during 1998, $29.2 million during 1999 and $29.4 million during 2000. In January 2001, federal legislation was signed into law that provided for a one-time increase beginning July 1, 2001 in Medicare reimbursement rates for home medical equipment, excluding oxygen related services, based on the consumer price index (CPI). The Company estimates that this CPI increase will increase revenue and pre-tax income by approximately $1.0 million over the third and fourth quarters of 2001 and $1.0 million on an annual basis thereafter. 4 5 BUSINESS The Company provides home health care services and products consisting primarily of respiratory therapy services, infusion therapy services and the rental and sale of home medical equipment and home health care supplies. For the year ended December 31, 2000, such services represented 56%, 19% and 25% of revenues, respectively. These services and products are paid for primarily by Medicare, Medicaid and other third-party payors. The Company's objective is to be a leading provider of home health care products and services in the markets in which it operates. The Company's centers are regionally located to achieve the market penetration necessary for the Company to be a cost-effective provider of comprehensive home health care services to managed care and other third-party payors. As of December 31, 2000, the Company provided services to patients primarily in the home through 304 centers in the following 38 states: Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, and Wisconsin. The Company had approximately 3,400 full-time employees and 200 part-time employees at December 31, 2000. Prior to 1998, the Company had significantly expanded its operations through a combination of home health care acquisitions and joint ventures and strategic alliances with integrated health care delivery systems. The Company purposefully slowed its growth by acquisitions during 1998 compared to prior years to focus more on existing operations. During 1999 and 2000, the Company did not acquire any businesses or develop any new joint ventures other than converting previously owned 50% joint ventures to wholly owned operations. See "Business - Joint Ventures" for discussion. The Company does not anticipate renewing its acquisition or joint venture development activities during 2001 as it continues to focus its efforts on internal operational matters. SERVICES AND PRODUCTS The Company provides a diversified range of home health care services and products. The following table sets forth the percentage of revenues represented by each line of business for the periods presented:
YEAR ENDED DECEMBER 31, ---------------------------- 1998 1999 2000 ---- ---- ---- Home respiratory therapy services 48% 53% 56% Home infusion therapy services 22 21 19 Home medical equipment and medical supplies 30 26 25 ---- ---- ---- Total 100% 100% 100% ==== ==== ====
5 6 Home Respiratory Therapy Services. The Company provides a wide variety of home respiratory services primarily to patients with severe and chronic pulmonary diseases. Patients are referred to a Company center most often by primary care and pulmonary physicians as well as by hospital discharge planners and case managers. After reviewing pertinent medical records on the patient and confirming insurance coverage information, a Company respiratory therapist or technician visits the patient's home to deliver and to prepare the prescribed therapy or equipment. Company representatives coordinate the prescribed therapy with the patient's physician, train the patient and caregiver in the correct use of the equipment, and make periodic follow-up visits to the home to provide additional instructions, required equipment maintenance and oxygen and other supplies. The respiratory services that the Company provides include the following: - Oxygen systems to assist patients with breathing. There are three types of oxygen systems: (i) oxygen concentrators, which are stationary units that filter ordinary room air to provide a continuous flow of oxygen; (ii) liquid oxygen systems, which are portable, thermally-insulated containers of liquid oxygen which can be used as stationary units and/or as portable options for patients; and (iii) high pressure oxygen cylinders, which are used primarily for portability with oxygen concentrators. Oxygen systems are used to treat patients with chronic obstructive pulmonary disease, cystic fibrosis and neurologically-related respiratory problems. - Nebulizers to deliver aerosol medications to patients. Nebulizer compressors are used to administer aerosol medications (such as albuterol) to patients with asthma, chronic obstructive pulmonary disease, cystic fibrosis and neurologically-related respiratory problems. "AerMeds" is the Company's branded marketing name for its aerosol medications business. - Home ventilators to sustain a patient's respiratory function mechanically in cases of severe respiratory failure when a patient can no longer breathe normally. - Non-invasive positive pressure ventilation ("NPPV") to provide ventilation support via a face mask for patients with chronic respiratory failure and neuromuscular diseases. This therapy enables patients to receive positive pressure ventilation without the invasive procedure of intubation. - Continuous positive airway pressure ("CPAP") and bi-level positive airway pressure therapies to force air through respiratory passage-ways during sleep. These treatments are used on adults with obstructive sleep apnea (OSA), a condition in which a patient's normal breathing patterns are disturbed during sleep. - Apnea monitors to monitor and to warn parents of apnea episodes in newborn infants as a preventive measure against sudden infant death syndrome. 6 7 - Home sleep screenings and studies to detect sleep disorders and the magnitude of such disorders. Oxygen-related services and systems comprised approximately 48% of the Company's 2000 respiratory revenues with the balance generated from nebulizers and related aerosol medication services, home ventilators, CPAP and bi-level therapies, home sleep studies and infant apnea monitors. The Company provides respiratory therapy services at all but 16 of its 304 centers. Home Infusion Therapy services. The Company provides a wide range of home infusion therapy services. Patients are referred to a Company center most often by primary care and specialist physicians (such as infectious disease physicians and oncologists) as well as by hospital discharge planners and case managers. After confirming the patient's treatment plan with the physician, the pharmacist mixes the medications and coordinates with the nurse the delivery of necessary equipment, medication and supplies to the patient's home. The Company provides the patient and caregiver with detailed instructions on the patient's prescribed medication, therapy, pump and supplies. The Company also schedules follow-up visits and deliveries in accordance with physicians' orders. Home infusion therapy involves the administration of nutrients, antibiotics and other medications intravenously (into the vein), subcutaneously (under the skin), intramuscularly (into the muscle), intrathecally or epidurally (via spinal routes) or through feeding tubes into the digestive tract. The primary infusion therapy services that the Company provides include the following: - Enteral nutrition is the infusion of nutrients through a feeding tube inserted directly into the functioning portion of a patient's digestive tract. This long-term therapy is often prescribed for patients who are unable to eat or to drink normally as a result of a neurological impairment such as a stroke or a neoplasm (tumor). - Antibiotic therapy is the infusion of antibiotic medications into a patient's bloodstream typically for 5 to 14 days to treat a variety of serious infections and diseases. - Total parenteral nutrition ("TPN") is the long-term provision of nutrients through central vein catheters that are surgically implanted into patients who cannot absorb adequate nutrients enterally due to a chronic gastrointestinal condition. - Pain management involves the infusion of certain drugs into the bloodstream of patients, primarily terminally or chronically ill patients, suffering from acute or chronic pain. The Company's other infusion therapies include chemotherapy, hydration, growth hormone and immune globulin therapies. Enteral nutrition services account for approximately 30% of the Company's infusion revenues, while antibiotic therapy, TPN, and pain management accounted for approximately 26%, 7% and 1% respectively. The Company's remaining infusion revenues were derived from the provision of infusion nursing services, chemotherapy, prescription drug sales and 7 8 other miscellaneous infusion therapies. Enteral nutrition services are provided at most of the Company's centers, and the Company currently provides other infusion therapies in 47 of its 304 centers. Home Medical Equipment and Supplies. The Company provides a comprehensive line of equipment to serve the needs of home care patients. Revenues from home equipment services are derived principally from the rental and sale of wheelchairs, hospital beds, ambulatory aids, bathroom aids and safety equipment, and rehabilitation equipment. OPERATIONS Organization. Currently, the Company's operations are divided into two geographic divisions, each headed by a division vice president. Each division is further divided into geographic areas, each area headed by an area vice president. There are a total of 14 geographic areas within the Company. Each area vice president oversees the operations of approximately 15 - 25 centers. Management believes this field organizational structure enhances management flexibility and facilitates communication. Specifically, it provides for a greater focus on local market operations and control at the operating level, while enabling the Company's management to be close to the patients and concentrate on achieving the Company's strategic goals. Area vice presidents focus on revenue development, cost control and accounts receivable management and assist local management with decision making to improve responsiveness in local markets. Effective April 1, 2001 rather than reporting to the area vice presidents, the Company's billing centers began reporting directly to the corporate reimbursement department under the leadership of the Vice President of Reimbursement and six directors of compliance and reimbursement. This new organizational structure allows area management more time to focus on revenue growth as well as add specialized knowledge and focused management resources to the billing function. In addition to the two geographic divisions, the Company has also established a third special division which is specifically dedicated to the operations of the Company's larger rehabilitation centers (centers which specialize in assistive technology devices and specialty wheelchairs). The Company's centers are typically staffed with a general manager, a business office manager, a director of patient services (normally a registered nurse or respiratory therapist), registered nurses, clinical coordinators, respiratory therapists, service technicians and customer service representatives. The Company also has account executives responsible for local market selling efforts in many of its centers. In addition, the Company employs a licensed pharmacist in all centers that provide a significant amount of infusion therapy. The Company has achieved what management believes is an appropriate balance between centralized and decentralized management. Management believes that home care is a local business dependent in large part on personal relationships and, therefore, provides the Company's operating managers with a significant degree of autonomy to encourage prompt and effective responses to local market demands. In conjunction with this local operational authority, the Company provides, through its corporate office (the "Support Center"), sophisticated management support, compliance oversight and training, marketing and managed care expertise, sales training 8 9 and support, product development, and financial and information systems that typically are not readily available to independent operators. The Company retains centralized control over those functions necessary to monitor quality of patient care and to maximize operational efficiency. Services performed at the support center level include financial and accounting functions, corporate compliance, reimbursement oversight, clinical policy and procedure development, regulatory affairs and licensure, and system design. Commitment to Quality. The Company's quality and performance improvement programs are designed to ensure that its service standards are properly implemented. Management believes that the Company has developed and implemented service and procedure standards that not only comply with, but often exceed, the standards required by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). All of the Company's centers are JCAHO-accredited or are in the process of being reviewed for accreditation from the JCAHO. The Company has Quality Improvement Advisory Boards at many of its centers, and center general managers conduct quarterly quality improvement reviews. Area quality improvement ("AQI") specialists conduct quality compliance audits at each center in an effort to ensure compliance with state and federal regulations, JCAHO, FDA and internal standards. The AQI specialist also helps train all new clinical personnel on the Company's policies and procedures. The Company's corporate philosophy for service excellence is its Personal Caring Service Promise, which characterizes the Company's standards for quality care and customer service. The Personal Caring Service Promise is as follows: "We promise to serve our customers with personal caring service. We do this by treating them with dignity and respect, just like members of our own family, giving each of them the individual attention they deserve." The Company's Governing Body, which consists of the President and Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Vice President of Marketing, Vice President of Clinical and Regulatory Affairs, a division vice president, two area vice presidents, two division quality improvement specialists, and a corporate medical director, meets quarterly to review and oversee the Company's quality assurance programs. Training and Retention of Quality Personnel. Management recognizes that home health care is by nature a localized business. General managers attempt to recruit knowledgeable local talent for all positions including account executives who are capable of gaining new business from the local medical community. In addition, the Company provides training to all new nurses, respiratory therapists and pharmacy personnel as well as continuing education for existing employees. Management Information Systems. Management believes that periodic refinement and upgrading of its management information systems, which permit management to monitor closely the activities of the Company's centers, is important to the Company's success. These systems provide monthly budget analyses, financial comparisons to prior periods, comparisons among Company centers, a communication network for electronic mail and access to the Internet. Through these systems management is able to identify areas for improvement. Medicare and many third-party payor claims are billed electronically, thereby facilitating the collection of accounts 9 10 receivable. In addition, the Company's financial reporting system monitors certain key data for each center, such as accounts receivable, payor mix, cash collections, revenues and operating trends. Corporate Compliance. The Company's goal is to operate its business with honesty, integrity and in compliance with the numerous laws that govern its operations. The Company's Corporate Compliance Program is designed to help accomplish these goals through employee training and education, a confidential disclosure program, written policy guidelines, periodic reviews, compliance audits, and other programs. The Company's compliance program is monitored by its Compliance Officer, Assistant Compliance Officer and Compliance Committee. The Compliance Committee is comprised of the Company's President and CEO, Chief Operating Officer, Chief Financial Officer, Vice President of Human Resources, Vice President of Clinical and Regulatory Affairs, Vice President of Reimbursement, Vice President of Purchasing, Director of Internal Audit, both division vice presidents, and two area vice presidents. The Compliance Committee meets quarterly, but there can be no assurance that the Company's compliance activities will prevent violations of the governing laws and regulations. See "Business - Government Regulation." HOSPITAL JOINT VENTURES As of December 31, 2000, the Company operated 12 home health care joint ventures with hospitals or hospital systems. During 1999, the Company converted one of its previously 50% owned joint ventures to a wholly owned operation through the acquisition of the hospital partner's equity. During 2000, the Company converted six of its previously 50% owned joint ventures to wholly owned operations as a result of the withdrawal of the hospital partners from the partnerships. As a result of these transactions, the results of operations of these joint ventures have been consolidated into the financial results of the Company. Previously, these joint ventures were accounted for under the equity method. In the fourth quarter of 2000, the Company and its hospital partner sold substantially all of the assets of the Amarillo, Texas partnership to a third party and discontinued operations in preparation for dissolving the Amarillo partnership in 2001. The Company did not develop any new joint ventures during 1999 and 2000. The Company's joint ventures with hospitals set forth below typically are 50/50% equity partnerships with an initial term of between three and ten years and with the following typical provisions: (i) the Company contributes assets of an existing business in the designated market or contributes cash to fund half of the initial working capital required for the hospital joint venture to commence operations; (ii) the hospital partner contributes similar assets and/or an amount of cash equal, in the aggregate, to the fair market value of the Company's net contribution; (iii) the Company is the managing partner for the hospital joint venture and receives a monthly management and administrative fee; and (iv) distributions, to the extent made, are generally made on a quarterly basis and are consistent with each partners' capital contributions. Within the hospital joint venture's designated market, all revenues generated by the provision of those services for which the 10 11 joint venture was formed are deemed to be revenues of the hospital joint venture, including revenues from sources other than the hospital joint venture partner. The following table lists the Company's hospital joint venture partners and locations for all joint ventures in operation as of December 31, 2000:
HOSPITAL JOINT VENTURE PARTNER LOCATIONS ------------------------------ --------- Baptist Medical Center (5 hospitals) Montgomery, AL Baptist Medical System (3 hospitals) Benton, Little Rock, North Little Rock, AR Central Carolina Hospital Sanford, NC Conway Hospital Conway, SC(1) East Alabama Medical Center Alexander City, Auburn, Sylacauga, AL Frye Regional Medical Center/Grace Franklin, Hickory, Lenoir, Maiden, Morganton, NC Hospital/Caldwell Memorial Midlands Health Resources (12 hospitals) Beatrice, Hastings, Lincoln, Norfolk, Omaha, NE; Clarinda, IA Peninsula Regional Medical Center Salisbury, MD; Onley, VA Piedmont Medical Center Rock Hill, SC Spruce Pine Community Hospital Asheville, Marion, Spruce Pine, NC Tolfree Memorial Hospital West Branch, MI Wallace Thompson Hospital Union, SC(1)
(1) 70% owned consolidated joint venture. REVENUES AND COLLECTIONS The Company derives substantially all of its revenues from third-party payors, including Medicare, private insurers and Medicaid. Medicare is a federally funded and administered health insurance program that provides coverage for beneficiaries who require certain medical services and products. Medicaid is a state administered reimbursement program that provides reimbursement for certain medical services and products. The following table sets forth the percentage of the Company's revenues from each source indicated for the years presented:
Year Ended December 31, ---------------------------- 1998 1999 2000 ---- ---- ---- Medicare .................................... 42% 46% 48% Private pay, primarily private insurance .... 48 44 42 Medicaid .................................... 10 10 10 ---- ---- ---- Total ................................ 100% 100% 100% ==== ==== ====
The Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") created six categories for home medical equipment reimbursement under the Medicare Part B program, for which the Company qualifies. OBRA 1987 also defined whether products would be paid for on a rental or sale basis and established fixed monthly payment rates for oxygen service regardless of the type of 11 12 service (i.e. concentrators, liquid oxygen, etc.) as well as a 15-month rental ceiling on certain medical equipment such as hospital beds. After 15 months of rental, rental payments cease for HME and the Company receives a "maintenance fee" each six months equivalent to one-month's rental. The Omnibus Budget Reconciliation Act of 1990 ("OBRA 1990") made new changes to Medicare Part B reimbursement. The substantive changes relating to OBRA 1990 included a national standardization of Medicare rates for certain equipment categories, which vary slightly state by state and further reductions in amounts paid for HME rentals. In August 1997, President Clinton signed the Balanced Budget Act of 1997 that reduced the Medicare reimbursement rate for oxygen by 25% beginning January 1, 1998 and by another 5% beginning January 1, 1999. The reimbursement rate for certain drugs and biologicals covered under Medicare was also reduced 5% beginning January 1, 1998. In addition, payments from parenteral and enteral nutrition were frozen at 1995 levels through the year 2002. The Company is one of the nation's largest providers of home oxygen services to patients, many of whom are Medicare recipients, and is therefore significantly and adversely affected financially by this legislation. Medicare oxygen reimbursements accounted for approximately 27% of the Company's revenues in 2000. The Company estimates that the Medicare Oxygen Reimbursement Reduction decreased revenues and pre-tax income by approximately $24.5 million in 1998, $29.2 million in 1999 and $29.4 million in 2000. Net patient accounts receivable at December 31, 2000 was $74.5 million compared to net patient accounts receivable of $75.2 million at December 31, 1999. The Company attempts to minimize DSO by screening new patient cases for adequate sources of reimbursement and by providing complete and accurate claims data to relevant payor sources. The table below shows the Company's DSO for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1999 2000 ------- ------- ------- Days' sales outstanding ....... 92 days 81 days 76 days
The decrease in DSO and net patient receivables between 1999 and 2000 is due to improved collection results on current billings in 2000. The Company's level of DSO and net patient receivables reflect the extended time required to obtain necessary billing documentation, the ongoing efforts to implement a standardized model for reimbursement and the consolidation of billing activities. 12 13 SALES AND MARKETING Sales. In 1999, the Company focused its selling efforts in the respiratory services product line, but also broadened sales initiatives to include other profitable products and services such as enteral nutrition, HME rental and select infusion therapy. During 2000, the Company determined that additional sales infrastructure would be required to accelerate revenue growth and in May of 2000, the Company hired a new Vice President of Sales and Marketing. Six directors of sales were subsequently hired with the directive of working in conjunction with the Vice President of Sales and Marketing and the area vice presidents to facilitate the implementation of revenue growth strategies at the field level. The Company also analyzed market data and referral/utilization trends to identify a subset of forty centers with the greatest potential for market share gain. The directors of sales are accountable for sales activity specifically for these forty "target centers". These target centers also serve as primary pilot sites for new sales and marketing initiatives. Also in 2000, the Company committed resources to quarterly sales training meetings. As the Company increased its investment in selling resources, it simultaneously enhanced its systems for measuring individual performance and accountability for results. The incentive plan for account executives has been modified such that incentives have been better aligned with specific products and services offering the greatest opportunities for revenue gain. Managed Care Sales. A new Director of Managed Care joined the Company at the end of 2000. With new expertise in place, the Company is now focusing its efforts on maximizing revenues with existing contracts, as well as new contracts, through more strategic price negotiations and improved operational strategies for implementation. Corporate Marketing Support. The Company's internal marketing department was reorganized to better facilitate product line revenue growth strategies. Today, the marketing team serves the field by analyzing new programs, developing product line strategies, organizing sales training materials and creating sales support collateral materials. 13 14 COMPETITION The home health care industry is still consolidating but remains highly fragmented and competition varies significantly from market to market. In the small and mid-size markets in which the Company primarily operates, the majority of its competition comes from local independent operators or hospital-based facilities, whose primary competitive advantage is market familiarity. In the larger markets, regional and national providers account for a significant portion of competition. In addition, there are still relatively few barriers to entry in the local markets served by the Company, and it may encounter substantial competition from new market entrants. Management believes that the competitive factors most important in the Company's lines of business are quality of care and service, reputation with referral sources, ease of doing business with the provider, ability to develop and to maintain relationships with referral sources, competitive prices, and the range of services offered. Third-party payors and their case managers actively monitor and direct the care delivered to their beneficiaries. Accordingly, relationships with such payors and their case managers and inclusion within preferred provider and other networks of approved or accredited providers has become a prerequisite, in many cases, to the Company's ability to serve many of the patients it treats. Similarly, the ability of the Company and its competitors to align themselves with other health care service providers may increase in importance as managed care providers and provider networks seek out providers who offer a broad range of services and geographic coverage. 14 15 BRANCH LOCATIONS Following is a list of the Company's 304 home health care centers as of December 31, 2000. ALABAMA FLORIDA KENTUCKY NEBRASKA OHIO Rock Hill(1) VIRGINIA - ------- ------- -------- -------- ---- Union(1) -------- Alexander City(1) Crawfordville Bowling Green Beatrice(1) Bryan Charlottesville Andalusia Crystal River Danville Hastings(1) Chillicothe SOUTH DAKOTA Chesapeake Auburn(1) Daytona Beach Jackson Lincoln(1) Cincinnati ------------ Farmville Birmingham Ft. Lauderdale Lexington Norfolk(1) Dayton Sioux Falls Fishersville Dothan Ft. Myers London Omaha(1) Mansfield Harrisonburg Fayette Ft. Walton Beach Louisville Maumee TENNESSEE Onley(1) Florence Gainesville Paducah NEVADA Newark --------- Richmond Foley Jacksonville Pineville ------ Springfield Ashland City Salem Huntsville Leesburg Somerset Las Vegas Twinsburg Chattanooga Mobile Longwood Worthington Clarksville WASHINGTON Montgomery(1) Panama City LOUISIANA NEW JERSEY Zanesville Cookeville ---------- Russellville Pensacola --------- ---------- Dayton Bremerton Sylacauga1 Port St. Lucie Hammond Cedar Grove OKLAHOMA Dickson Kirkland Tuscaloosa Rockledge Slidell Flemington -------- Erin Seattle St. Augustine Antlers Huntington Tacoma ARIZONA Tallahassee(2) MAINE NEW MEXICO Bartlesville Jackson Yakima - ------- Tampa ----- ---------- Claremore Johnson City Bullhead City Winter Haven Bangor Alamogordo Enid Kingsport WEST VIRGINIA Globe Mexico Albuquerque Muskogee Knoxville ------------- Phoenix GEORGIA Clovis Tulsa Manchester Hinton ------- MARYLAND Farmington Murfreesboro Lewisburg ARKANSAS Albany -------- Grants OREGON Nashville Rainelle - -------- Brunswick Cumberland Las Cruces ------ Oak Ridge Batesville Dublin Salisbury(1) Roswell Eugene Oneida WISCONSIN Benton(1) Eastman Medford Union City --------- El Dorado Rossville (Ft. Oglethorpe) MICHIGAN NEW YORK Burlington Ft. Smith(2) Martinez -------- -------- PENNSYLVANIA TEXAS Eau Claire Harrison Savannah West Branch(1) Albany ------------ ----- Elkhorn Hot Springs Valdosta Auburn Brookville Austin Madison Jonesboro(2) Waycross MINNESOTA Cheektowaga Burnham Bay City Marshfield Little Rock(1)(2) --------- Geneva Camp Hill Brownwood Milwaukee Mena ILLINOIS Albert Lea Hudson Chambersburg Bryan Minocqua Mtn. Home -------- Rochester Kingston Clearfield Conroe Onalaska N. Little Rock(1) Elk Grove Marcy Erie Corpus Christi Racine Paragould Mt. Vernon MISSISSIPPI Oneonta Everett Dallas Pine Bluff Peoria ----------- Painted Post Johnstown Ennis Rogers Springfield Tupelo Poughkeepsie Kane Harlingen Russellville Watertown Lock Haven Hereford Salem IOWA MISSOURI Webster McKees Rocks(2) Houston Searcy ---- -------- Mt. Pleasant Irving Springdale Cedar Rapids Cameron NORTH CAROLINA Philipsburg Lake Jackson Warren Clarinda(1) Cape Girardeau -------------- Pottsville Laredo Coralville Columbia(2) Asheboro State College Longview COLORADO Davenport Festus Asheville(1) Titusville Lubbock - -------- Decorah Florissant Charlotte Trevose Lufkin Cortez Des Moines Hannibal Franklin(1) W. Hazleton McAllen Denver Dubuque Ironton Hickory(1) Warren Mount Durango Fort Dodge Joplin Kannapolis Waynesboro Pleasant Pagosa Springs Marshalltown Kansas City Lenoir(1) York Nacogdoches Mason City Kirksville Maiden(1) Paris CONNECTICUT Ottumwa Mountain Grove Marion(1) RHODE ISLAND Plainview - ----------- Sioux City Mt. Vernon Morganton(1) ------------ San Angelo New Britain Waterloo Osage Beach Newland East Providence San Antonio Waterbury West Burlington Perryville Salisbury Temple Potosi Sanford(1) SOUTH CAROLINA Texarkana DELAWARE KANSAS Rolla Spruce Pine(1) -------------- Tyler - -------- ------ Springfield(2) Whiteville Columbia Victoria Dover Pittsburg St. Louis(2) Wilmington Conway(1) Waco Newark St. Robert Wingate Florence Wilmington Warrensburg Winston-Salem Greenville N. Charleston
- --------------- (1) Owned by a joint venture. 15 16 SUPPLIES AND EQUIPMENT The Company purchases home medical equipment, prescription drugs, solutions and other materials and products required in connection with the Company's business from select suppliers. The Company has not experienced, and management does not anticipate that the Company will experience, any significant difficulty in purchasing equipment or supplies or in leasing equipment from current suppliers. In the event that such suppliers are unable or fail to sell supplies or lease equipment to the Company, management believes that other suppliers are available to meet the Company's needs at comparable prices. INSURANCE The Company's professional liability policies are on an occurrence basis and are renewable annually with per claim coverage limits of up to $1.0 million per occurrence and $3.0 million in the aggregate. The Company maintains a commercial general liability policy which includes product liability coverage on the medical equipment that it sells or rents with per claim coverage limits of up to $1.0 million per occurrence with a $2.0 million product liability annual aggregate and a $2.0 million general liability annual aggregate. The Company also maintains excess liability coverage with limits of $50.0 million per occurrence and $50.0 million in the aggregate. While management believes the manufacturers of the equipment it sells or rents currently maintain their own insurance, and in some cases the Company has received evidence of such coverage and has been added by endorsement as additional insured, there can be no assurance that such manufacturers will continue to do so, that such insurance will be adequate or available to protect the Company, or that the Company will not have liability independent of that of such manufacturers and/or their insurance coverage. The Company is self-insured for workers compensation claims for the first $250,000 on a per claim basis and maintains annual aggregate stop loss coverage ranging from $1.5 million to $1.7 million over the last three years. The Company is self-insured for health insurance for substantially all employees for the first $150,000 on a per claim basis and maintains annual aggregate stop loss coverage ranging from $6.0 million to $10.1 million over the last three years. The health insurance policies are limited to a maximum lifetime reimbursement of $1.0 million per person for medical claims and $1.0 million per person for mental illness and drug and alcohol abuse claims. Liabilities in excess of these aggregate amounts are the responsibility of the insurer. The Company provides reserves for the settlement of outstanding claims and claims incurred but not reported at amounts believed to be adequate. The differences between actual settlements and reserves are included in expense in the year finalized. There can be no assurance that any of the Company's insurance will be sufficient to cover any judgments, settlements or cost relating to any pending or future legal proceedings or that any such insurance will be available to the Company in the future on satisfactory terms, if at all. If the insurance carried by the Company is not sufficient to cover any judgments, settlements or cost relating to pending or future legal proceedings, the Company's business and financial condition could be materially adversely affected. 16 17 EMPLOYEES At December 31, 2000, the Company employed approximately 3,400 full-time, 200 part-time and 500 PRN (staff used on an "as needed" basis only) individuals. Of these individuals, approximately 100 were employed at the corporate Support Center in Brentwood, Tennessee. TRADEMARKS The Company owns and uses a variety of marks, including American HomePatient(R), AerMeds(R), EnterCare(TM), Resource(TM) and Extracare, which have either been registered at the federal or state level or are being used pursuant to common law rights. GOVERNMENT REGULATION General. The Company, as a participant in the health care industry, is subject to extensive federal, state and local regulation. In addition to the False Claims Act and other federal and state anti-kickback and self-referral laws applicable to all of the Company's operations (discussed more fully below), the operations of the Company's home health care centers are subject to federal laws covering the repackaging and dispensing of drugs (including oxygen) and regulating interstate motor-carrier transportation. Such centers also are subject to state laws (most notably licensing and controlled substances registration) governing pharmacies, nursing services and certain types of home health agency activities. Additionally, certain of the Company's employees are subject to state laws and regulations governing the professional practice of respiratory therapy, pharmacy and nursing. Information about individuals and other health care providers who have been sanctioned or excluded from participation in government reimbursement programs is readily available on the Internet, and all health care providers, including the Company, are held responsible for carefully screening entities and individuals they employ or do business with, to avoid contracting with an excluded provider. The federal government may impose sanctions, including financial penalties, on companies that contract with excluded providers. The Company's operations are also subject to a series of laws and regulations dating back to the Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") which apply to the Company's operation. Periodic changes have occurred from time to time since OBRA 1987, including reimbursement reduction and changes to payment rules. The Federal False Claims Act imposes civil liability on individuals or entities that submit false or fraudulent claims to the government for payment. False Claims Act penalties for violations can include sanctions, including civil monetary penalties. As a provider of services under the federal reimbursement programs such as Medicare, Medicaid and TRICARE (formerly CHAMPUS), the Company is subject to the anti-kickback statute, also known as the "fraud and abuse law." This law prohibits any bribe, kickback, rebate or remuneration of any kind in return for, or as an inducement for, the referral of patients for government-reimbursed health care services. The Company may also be affected by the federal physician self-referral prohibition, known as the 17 18 "Stark Law", which, with certain exceptions, prohibits physicians from referring patients to entities in which they have a financial relationship. Many states in which the Company operates have adopted similar self-referral laws, as well as laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care providers, under the theory that such arrangements are designed to induce or to encourage the referral of patients to a particular provider. In many states, these laws apply to services reimbursed by all payor sources. In 1996, the Health Insurance Portability and Accountability Act ("HIPAA") introduced a new category of federal criminal health care fraud offenses. If a violation of a federal criminal law relates to a health care benefit, then an individual is guilty of committing a Federal Health Care Offense. The specific offenses are: health care fraud; theft or embezzlement; false statements, obstruction of an investigation; and money laundering. These crimes can apply to claims submitted not only to government reimbursement programs such as Medicare, Medicaid and TRICARE, but to any third-party payor, and carry penalties including fines and imprisonment. The Company must follow strict requirements with paperwork and billing. As required by law, it is Company policy that certain service charges (as defined by Medicare) falling under Medicare Part B are confirmed with a Certificate for Medical Necessity ("CMN") signed by a physician. In January, 1999, the OIG published a draft Model Compliance Plan for the Durable Medical Equipment, Prosthetics, Orthotics and Supply Industry. The OIG has stressed the importance for all health care providers to have an effective compliance plan. The Company has created and implemented a compliance program, which it believes meets the elements of the OIG's Model Plan for the industry. As part of its compliance program, the Company performs internal audits of the adequacy of billing documentation. The Company's policy is to voluntarily refund to the government any reimbursements previously received for claims with insufficient documentation that are identified in this process and that cannot be corrected. The Company regularly reviews and updates its policies and procedures in an effort to comply with applicable laws and regulations; however, certain proceedings have been and may in the future be commenced against the Company alleging violations of applicable laws governing the operation of the Company's business and its billing practices. See "Business -- Government Regulation -- Legal Proceedings." Health care law is an area of extensive and dynamic regulatory oversight. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on permissible activities, the relative costs associated with doing business, and the amount and availability of reimbursement from government and other third-party payors. Compliance with these extensive, complex and frequently changing laws and regulations is difficult. In recent years, various state and federal regulatory agencies have stepped up investigative and enforcement activities with respect to the health care industry, and many health care providers, including the Company and other durable medical equipment suppliers, have received subpoenas and other requests for information in connection with their business operations and practices. From time to time the Company also receives notices and subpoenas from various government agencies concerning plans to audit the Company, or requesting information regarding certain aspects of the Company's business. The Company cooperates with the various agencies in responding to such 18 19 subpoenas and requests. The Company expects to incur additional legal expenses in the future in connection with existing and future investigations. The government has broad authority and discretion in enforcing applicable laws and regulations; therefore, the scope and outcome of any such investigations, inquiries, or legal actions cannot be predicted. There can be no assurance that federal, state or local governments will not impose additional regulations upon the Company's activities nor that the Company's activities will not be found to have violated some of the governing laws and regulations. Any such regulatory changes or findings of violations of laws could adversely affect the Company's business and financial position, and could even result in the exclusion of the Company from participating in Medicare, Medicaid, and other government reimbursement programs. Legal Proceedings. On June 11, 2001, a settlement agreement (the "Settlement") was entered among the Company, the United States of America, acting through the United States Department of Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services ("OIG") and the TRICARE Management Activity, and a former Company employee, as relator. The Settlement covers alleged improprieties by the Company during the period from January 1, 1995 through December 31, 1998, including allegedly improper billing activities and allegedly improper remuneration to and contracts with physicians, hospitals and other healthcare providers. The Company has been dealing with the issues covered by the Settlement since February 1998, when the OIG served a subpoena on the Company at its Pineville, Kentucky center. Pursuant to the Settlement, the Company has made an initial payment of $3.0 million and has agreed to make additional payments in the principal amount of $4.0 million, together with interest on this amount, in installments due at various times over the next 57 months. The Company has also agreed to pay the relator's attorneys fees and expenses, the amount of which will be determined by binding arbitration. The Company has recorded a reserve in the amount of $7.5 million based upon the Settlement. The Settlement does not resolve the relator's claims that the Company discriminated against him as a result of his reporting alleged violations of the law to the government. The Company denies and intends to vigorously defend these claims. The Settlement has been submitted to Judge Russell of the United States District Court for the Western District of Kentucky for his final approval, which is expected to be received. The Company also was named as a defendant in two other False Claims Act cases. In each of those cases the DOJ declined to intervene and such cases were subsequently dismissed in March 2001. The first of these cases, United States ex. rel. Kirk S. Corsello v. Lincare, et al. (N.D. Ga.), was dismissed with prejudice on the motion of the Company on March 9, 2001. Mr. Corsello's qui tam complaint alleged that the Company and numerous other unrelated defendants, including other large DME suppliers, engaged in a kickback scheme to provide free or below market value equipment and medicine to physicians who would in turn refer patients to the defendants in violation of the False Claims Act. The plaintiff has appealed the dismissal of this action. The other case, United States ex. rel. Alan D. Hutchison v. Respironics, et al. (S.D. NY and N.D. Ga.), was dismissed without prejudice on Mr. Hutchison's own motion on March 22, 2001. Mr. Hutchison's qui tam complaint alleged that the Company and numerous other unrelated defendants, filed false 19 20 claims with Medicare for ventilators that the defendants allegedly knew were not medically necessary. The Company also has been informed that the United States is investigating its conduct during periods after December 31, 1998, and believes that this investigation was prompted by another qui tam complaint against the Company under the False Claims Act. The Company has not seen a complaint in this action, but believes that it contains allegations similar to the ones investigated by the government in connection with the False Claims Act case covered by the settlement discussed above. The Company believes that this second case will be limited to allegedly improper activities occurring after December 31, 1998. There can be no assurances as to the final outcome of any pending False Claims Act lawsuits. Possible outcomes include, among other things, the repayment of reimbursements previously received by the Company related to improperly billed claims, the imposition of fines or penalties, and the suspension or exclusion of the Company from participation in the Medicare, Medicaid and other government reimbursement programs. The outcome of any pending lawsuits could have a material adverse effect on the Company. RISK FACTORS This section summarizes certain risks, among others, that should be considered by stockholders and prospective investors in the Company. Many of these risks are discussed in other sections of this report. Substantial Leverage. The Company maintains a significant amount of debt pursuant to the Bank Credit Facility. If an event of default occurs under the Amended Credit Agreement or the indebtedness is not paid at maturity, the Lenders have the right to exercise remedies detailed in the Bank Credit Facility section of this document. In addition, proceeds of all of the Company's accounts receivable are transferred daily into a bank account at PNC Bank, National Association which, under the terms of a Concentration Bank Agreement, requires that all amounts in excess of $3.0 million be transferred to an account at Bankers Trust Company in the Company's name. Upon the occurrence of an event of default under the Amended Credit Agreement, the Lenders have the right to instruct PNC Bank, National Association and Bankers Trust Company to cease honoring any drafts under the accounts and apply all amounts in the bank accounts against the indebtedness owed to the Lenders. Interest is payable on borrowings under the Amended Credit Agreement, at the election of the Company, at either a Base Lending Rate or an Adjusted Eurodollar Rate (each as defined in the Amended Credit Agreement) plus a margin of 2.75% and 3.50%, respectively. Also, additional interest of 4.50% accrues on that portion of the outstanding indebtedness of the Bank Credit Facility that is in excess of four times Adjusted EBITDA as defined by the Amended Credit Agreement. Upon the occurrence of an event of default under the Amended Credit Agreement, interest is payable by the Company at 2.00% per annum in excess of the rate provided by the Amended Credit Agreement and the Company no longer has the right to utilize the 20 21 Adjusted Eurodollar Rate plus the applicable margin. All new loans would bear interest at the Base Lending Rate plus the applicable margin, which is currently a substantially higher rate of interest. An annual fee of .50% per annum is payable by the Company on the average balance of the outstanding indebtedness. The occurrence of a default by the Company under the Amended Credit Agreement could have a material adverse effect on the Company's liquidity, business, financial condition and results of operations. The degree to which the Company is leveraged may impair the Company's ability to finance, through its own cash flow or from additional financing, its future operations or pursue its business strategy and could make the Company more vulnerable to economic downturns, competitive and payor pricing pressures and adverse changes in government regulation. There can be no assurance that future cash flow from operations will be sufficient to cover scheduled debt obligations. Additional sources of funds may be required and there can be no assurance the Company will be able to obtain additional funds on acceptable terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Government Regulation. The Company is subject to extensive and frequently changing federal, state and local regulation. In addition, new laws and regulations are adopted periodically to regulate new and existing products and services in the health care industry. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on operating methods, costs and reimbursement amounts provided by government and other third-party payors. Federal laws governing the Company's activities include regulation of the repackaging and dispensing of drugs as well as Medicare reimbursement and certification and certain financial relationships with health care providers (collectively, the "fraud and abuse laws"). Although the Company intends to comply with all applicable federal and state fraud and abuse laws, these laws are not always clear and may be subject to a range of potential interpretations. There can be no assurance that administrative or judicial clarification or interpretation of existing laws or regulations, or legislative enactments of new laws or regulations, will not have a material adverse effect on the Company's business. The Company is subject to state laws governing Medicaid, professional training, licensure, financial relationships with physicians and the dispensing and storage of pharmaceuticals. The facilities operated by the Company must comply with all applicable laws, regulations and licensing standards and many of the Company's employees must maintain licenses to provide some of the services offered by the Company. In addition, the Balanced Budget Act of 1997 introduced several government initiatives which are either in the planning or implementation stages and which, when fully implemented, could have a material adverse impact on reimbursement for products and services provided by the Company. These initiatives include: (i) Prospective Payment System ("PPS") and Consolidated Billing requirements for skilled nursing facilities and PPS for home health agencies, which do not affect the Company directly but could affect the Company's contractual relationships with such entities; (The consolidated billing requirement was subsequently reversed by the Omnibus Budget bill, signed into law by President Clinton on November 23, 1999); (ii) pilot projects in Polk County, Florida and San 21 22 Antonio, Texas which began on October 1, 1999 and February 1, 2001, respectively, to determine the efficacy of competitive bidding for certain durable medical equipment ("DME"), under which Medicare reimbursements for certain items are reduced between 17% and 31% from the current fee schedules (the Company is participating in both pilot projects); and (iii) deadlines (as yet undetermined) for obtaining Medicare and Medicaid surety bonds for home health agencies and DME suppliers. There can be no assurance that federal, state or local governments will not change existing standards or impose additional standards. Any failure to comply with existing or future standards could have a material adverse effect on the Company's results of operations, financial condition or prospects. Government Investigation and Federal False Claims Act Cases. In addition to the regulatory initiatives mentioned above, the OIG has received funding to expand and intensify its auditing of the health care industry in an effort better to detect and remedy errors in Medicare and Medicaid billing. The Company has reason to believe a qui tam complaint has been filed against the Company under the False Claims Act alleging violations of law occurring after December 31, 1998. The Company has not seen a complaint in this action, but believes that it contains allegations similar to the ones alleged in the Settlement recently entered in connection with the False Claims Act case originating with the Pineville, Kentucky center described above. The Company believes that this second case will be limited to allegedly improper activities occurring after December 31, 1998. There can be no assurances as to the final outcome of the pending False Claims Act lawsuits. Possible outcomes include, among other things, the repayment of reimbursements previously received by the Company related to improperly billed claims, the imposition of fines or penalties, and the suspension or exclusion of the Company from participation in the Medicare, Medicaid and other government reimbursement programs. The outcome of the pending lawsuits could have a material adverse effect on the Company. See "Business - Government Regulation." Collectibility of Accounts Receivable. The Company has substantial accounts receivable, as well as days sales outstanding of 76 days as of December 31, 2000. The Company has implemented four key initiatives to improve accounts receivable performance: (i) proper staffing and training; (ii) process redesign and standardization; (iii) consolidation of billing center activities; and (iv) billing center specific goals geared toward improved cash collections and reduced accounts receivable. No assurances can be given, however, that future bad debt expense will not increase above current operating levels as a result of continuing difficulties associated with the Company's billing activities and meeting payor documentation requirements and claim submission deadlines. Liquidity. Effective at the close of business on September 1, 1999, Nasdaq de-listed the Company's common stock and it is no longer listed for trading on the Nasdaq National Market. As a result, beginning September 2, 1999, trading of the Company's common stock is conducted on the over-the-counter market ("OTC") or, on application by broker-dealers, in the NASD's Electronic Bulletin Board using the Company's current trading symbol, AHOM. As a result of 22 23 the de-listing, the liquidity of the Company's common stock and its price have been adversely affected which may have limited the Company's ability to raise additional capital. Infrastructure. As the Company continues to refine its business model, it may need to implement enhanced operational and financial systems and may require additional employees and management, operational and financial resources. There can be no assurance that the Company will successfully (i) implement and maintain any such operational and financial systems, or (ii) apply the human, operational and financial resources needed to manage a developing and expanding business. Failure to implement such systems successfully and use such resources effectively could have a material adverse effect on the Company's results of operations, financial condition or prospects. Medicare Reimbursement for Oxygen Therapy and Other Services. Oxygen therapy reimbursement from Medicare accounts for approximately 27% of the Company's revenues. The Balanced Budget Act of 1997, as amended, reduced Medicare reimbursement rates for oxygen and certain oxygen equipment to 75% of 1997 levels beginning January 1, 1998 and to 70% of 1997 levels beginning January 1, 1999. Reimbursement for drugs and biologicals was reduced by 5% beginning January 1, 1998. Effective January 1, 1998, payments for parenteral and enteral nutrition ("PEN") were frozen at 1995 levels, through the year 2002. Effective October 1, 1999, Medicare established new guidelines for respiratory assist devices ("RAD"), which include continuous positive airway pressure devices, bi-level respiratory devices (without backup) and bi-level respiratory devices with back up. The changes require additional documentation in order to continue coverage on existing patients as well as new coverage and qualifying criteria for new patients. In addition, the bi-level respiratory device (without backup) was transferred from a frequently serviced item to "capped rental". Currently, respiratory assist devices account for approximately $29 million in annualized revenues. Medicare also has the option of developing fee schedules for PEN and home dialysis supplies and equipment, although currently there is no timetable for the development or implementation of such fee schedules. Following promulgation of a final rule, the Centers for Medicare and Medicaid Services ("CMS"), formerly known as the Healthcare Financing Administration ("HCFA"), will also have "inherent reasonableness" authority to modify payment rates for all Medicare Part B items and services by as much as 15% without industry consultation, publication or public comment if the rates are "grossly excessive" or "grossly deficient." Possible future changes in the basis for calculating Medicare's reimbursement rates for Albuterol and other respiratory medications could result in a reimbursement reduction for these products, the timing and extent of which are not known at this time. The Company cannot be certain that additional reimbursement reductions for oxygen therapy services or other services and products provided by the Company will not occur. Reimbursement reductions already implemented have materially adversely affected the Company's revenues and net income, and any such future reductions could have a similar material adverse effect. Dependence on Reimbursement by Third-Party Payors. For the twelve months ended December 31, 2000, the percentage of the Company's revenues derived from Medicare, Medicaid and private pay was 48%, 10% and 42%, respectively. The revenues and profitability of the 23 24 Company are affected by the continuing efforts of all payors to contain or reduce the costs of health care by lowering reimbursement rates, narrowing the scope of covered services, increasing case management review of services and negotiating reduced contract pricing. Any changes in reimbursement levels under Medicare, Medicaid or private pay programs and any changes in applicable government regulations could have a material adverse effect on the Company's revenues and net income. Changes in the mix of the Company's patients among Medicare, Medicaid and private pay categories and among different types of private pay sources may also affect the Company's revenues and profitability. There can be no assurance that the Company will continue to maintain its current payor or revenue mix. Role of Managed Care. As managed care assumes an increasingly significant role in markets in which the Company operates, the Company's success will, in part, depend on retaining and obtaining profitable managed care contracts. There can be no assurance that the Company will retain or obtain such managed care contracts. In addition, reimbursement rates under managed care contracts are likely to continue to experience downward pressure as a result of payors' efforts to contain or reduce the costs of health care by increasing case management review of services and negotiating reduced contract pricing. Therefore, even if the Company is successful in retaining and obtaining managed care contracts, unless the Company also decreases its cost for providing services and increases higher margin services, it will experience declining profit margins. Health Care Initiatives. The health care industry continues to undergo dramatic changes. With the change in administration, new federal health care initiatives, particularly concerning Medicare, may be launched. For example, the HIPAA has mandated an extensive set of regulations to protect the privacy of identifiable health information, and is currently scheduled to become effective in early 2002. The Company has created a HIPAA Compliance working group that is in the process of identifying information inflow and outflow throughout the organization, which will then be analyzed to determine the appropriate privacy protections the Company will need to put in place to be HIPAA-compliant. There can be no assurance that other equally sweeping federal health care legislation will not be adopted in the future. It is also possible that proposed federal legislation will include language which provides incentives to further encourage Medicare recipients to shift to Medicare at-risk managed care programs. Some states are adopting health care programs and initiatives as a replacement for Medicaid. There can be no assurance that the adoption of such legislation or other changes in the administration or interpretation of governmental health care programs or initiatives will not have a material adverse effect on the Company. Acquisitions. In the past, the Company's strategic focus was on the acquisition of small to medium sized home health care suppliers in targeted markets. Although the Company attempted in its acquisitions to determine the nature and extent of any pre-existing liabilities, and generally has the right to seek indemnification from the previous owners for acts or omissions arising prior to the date of the acquisition, resolving issues of liability between the parties could involve a significant amount of time, manpower and expense on the part of the Company. If the Company or its subsidiary were to be unsuccessful in a claim for indemnity from a seller, the 24 25 liability imposed on the Company or its subsidiary could have a material adverse effect on the Company's financial results and operations. No Assurance of Growth. The Company reported a net loss of $31.7 million for the twelve months ended December 31, 2000. No assurance can be given that the Company will achieve profitable operations in the near term. The Company intends to expand its business primarily through internal growth of existing operations. There can be no assurance that the Company can achieve growth in revenues. The price of the Company's common stock may fluctuate substantially in response to quarterly variations in the Company's operating and financial results, announcements by the Company or other developments affecting the Company, as well as general economic and other external factors. Ability to Attract and Retain Management. The Company is highly dependent upon its senior management, and competition for qualified management personnel is intense. The Company's current financial results and the ongoing OIG investigation, among other factors, may limit the Company's ability to attract and retain qualified personnel, which in turn could adversely affect profitability. Competition. The home health care market is highly fragmented and competition varies significantly from market to market. In the small and mid-size markets in which the Company primarily operates, the majority of its competition comes from local independent operators or hospital-based facilities, whose primary competitive advantage is market familiarity. In the larger markets, regional and national providers account for a significant portion of competition. Some of the Company's present and potential competitors are significantly larger than the Company and have, or may obtain, greater financial and marketing resources than the Company. In addition, there are relatively few barriers to entry in the local markets served by the Company, and it encounters substantial competition from new market entrants. Liability and Adequacy of Insurance. The provision of health care services entails an inherent risk of liability. Certain participants in the home health care industry may be subject to lawsuits which may involve large claims and significant defense costs. It is expected that the Company periodically will be subject to such suits as a result of the nature of its business. The Company currently maintains product and professional liability insurance intended to cover such claims in amounts which management believes are in keeping with industry standards. There can be no assurance that the Company will be able to obtain liability insurance coverage in the future on acceptable terms, if at all. There can be no assurance that claims in excess of the Company's insurance coverage or claims not covered by the Company's insurance coverage will not arise. A successful claim against the Company in excess of the Company's insurance coverage could have a material adverse effect upon the results of operations, financial condition or prospects of the Company. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect upon the Company's ability to attract patients or to expand its business. In addition, the Company is self-insured for its workers compensation and health insurance and is at risk for claims up to the individual stop loss and aggregate stop loss. See "Business - Insurance" for additional discussion. 25 26 ITEM 2. PROPERTIES The Company's corporate headquarters occupy approximately 29,000 square feet leased in the Parklane Building, Maryland Farms, Brentwood, Tennessee. The lease has a base monthly rent of $36,000 and expires in January 2004 unless the Company exercises its option to extend the term an additional 5 years. The Company also leases 17,000 square feet of office space in the Parklane Building that it does not currently occupy. This space is being sublet to other tenants for $22,000 in monthly rent. A sublease comprising $20,000 in monthly rent expires in August 2001. The Company has currently listed the property with a real estate company and anticipates finding a suitable replacement tenant. The Company owns its centers in Tallahassee, Florida, Waterloo, Iowa and North Charleston, South Carolina which consist of approximately 15,000, 35,000 and 10,000 square feet, respectively and owns a 50% interest in its center in Little Rock, Arkansas, which consists of approximately 15,000 square feet. Under the terms of the Amended Credit Agreement, the Company must sell its wholly owned real estate by December 31, 2001 or grant mortgages on the real estate to the Lenders. The Company leases the operating space required for its remaining home health care centers. A typical center occupies between 2,000 and 6,000 square feet and generally combines showroom, office and warehouse space, with approximately two-thirds of the square footage consisting of warehouse space. Lease terms on most of the leased centers range from three to five years. Management believes that the Company's owned and leased properties are adequate for its present needs and that suitable additional or replacement space will be available as required. ITEM 3. LEGAL PROCEEDINGS As with any health care provider, the Company is engaged in routine litigation incidental to its business and which is not material to the Company. Additionally, in recent years, the health care industry has come under increasing scrutiny from various state and federal regulatory agencies, which are stepping up investigative and enforcement activities. The Company is currently the subject of an investigation by the DOJ and OIG of conduct occurring after December 31, 1998, and believes it is a defendant in at least one pending qui tam case in addition to the one covered by the Settlement described above. For a description of these activities, see "Business - Government Regulation - Legal Proceedings." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. 26 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The common stock of the Company was traded on the Nasdaq National Market System under the designation "AHOM" until September 1, 1999. Effective September 2, 1999, trading of the Company's stock has been conducted on the over-the-counter market ("OTC") or, on application by broker-dealers, in the NASD's Electronic Bulletin Board, also under the designation "AHOM." The following table sets forth representative bid quotations of the common stock for each quarter of calendar years 1999 and 2000 as provided by NASDAQ or the over-the-counter bulletin board, as appropriate. The following bid quotations reflect interdealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. See "Business -- Risk Factors -- Liquidity."
Bid Quotations ------------------ Fiscal Period High Low ---------------- ------ ------ 1999 1st Quarter.................. $ 3.94 $ 1.06 1999 2nd Quarter.................. $ 2.41 $ .97 1999 3rd Quarter.................. $ 1.69 $ .69 1999 4th Quarter.................. $ .97 $ .44 2000 1st Quarter.................. $ 1.25 $ .53 2000 2nd Quarter.................. $ .94 $ .25 2000 3rd Quarter.................. $ .41 $ .23 2000 4th Quarter.................. $ .25 $ .13
On June 13, 2001, there were 1,792 holders of record of the Common Stock and the closing bid quotation for the Common Stock was $0.50 per share, as reported by the over-the-counter bulletin board. Most of the Company's stockholders have their holdings in the street name of their broker/dealer. The Company has not paid cash dividends on its Common Stock and anticipates that, for the foreseeable future, any earnings will be retained for use in its business and no cash dividends will be paid. The Company is prohibited from declaring and paying dividends under its Credit Agreement. See -- "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 27 28 Pursuant to a Stock Purchase Warrant issued to Age Wave, Inc. in 1993, Age Wave, Inc. purchased 12,000 shares of the Company's Common Stock for $8.33 per share in August 1998. The Common Stock was issued to Age Wave, Inc. in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and upon Regulation D. These statutory and regulatory exemptions were available because less than $5,000,000 of the Company's Common Stock was issued and no general solicitation or advertising was made with respect thereto. In connection with the Second Amendment to the Fourth Amended and Restated Credit Agreement, the Company agreed to issue on March 31, 2001, warrants to the Lenders representing 19.999% of the Common Stock of the Company issued and outstanding as of March 31, 2001. These warrants were issued to the Lenders on June 8, 2001, in reliance upon Section 4(2) of the Securities Act and upon Regulation D. These statutory and regulatory exemptions were available because less than $5,000,000 of the Company's securities were issued and no general solicitation or advertising was made with respect thereto. Fifty percent of these warrants are exercisable at any time after issuance and the remaining fifty percent will be exercisable from and after September 30, 2001. The exercise price of the warrants is $0.01 per share. The Company has accounted for the fair value of these warrants during the fourth quarter of 2000 as the issuance of these warrants was determined to be probable. As such, the Company increased deferred financing costs to recognize the fair value of the warrants as of December 31, 2000 and adjusted the related amortization of these costs on a cumulative basis using the effective interest method. 28 29 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA FINANCIAL STATEMENTS PRESENTED AND DERIVATION OF INFORMATION The following selected financial data below is derived from the audited financial statements of the Company and should be read in conjunction with those statements, including the related notes thereto. The addition of new operations through acquisitions in 1997 and 1998 materially affects the comparability of the financial data presented. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, 1996 1997 1998 1999 2000 ------------ ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues $ 268,348 $ 387,277 $ 403,868 $ 357,580 $ 363,372 Cost of sales and related services, excluding depreciation and amortization expense 58,575 97,418 98,166 90,142 85,473 Operating expenses 138,213 216,532 235,269 224,018 214,075 General and administrative expenses 14,664 15,953 22,262 13,895 15,823 Depreciation and amortization expense 23,266 33,075 39,105 39,682 37,121 Amortization of deferred financing costs 579 661 548 1,778 2,517 Interest expense 8,294 16,494 24,249 28,659 31,929 Restructuring -- 33,829 (3,614) (1,450) -- Goodwill impairment -- 8,165 37,805 40,271 -- Provision for litigation settlement -- -- -- -- 7,500 ------------ ------------ ------------ ------------ ------------ Total expenses 243,591 422,127 453,790 436,995 394,438 ------------ ------------ ------------ ------------ ------------ Income (Loss) before taxes 24,757 (34,850) (49,922) (79,415) (31,066) Provision (Benefit) for income taxes 9,556 (8,942) (10,944) 20,445 600 ------------ ------------ ------------ ------------ ------------ Net Income (Loss) $ 15,201 $ (25,908) $ (38,978) $ (99,860) $ (31,666) ============ ============ ============ ============ ============ Net Income (Loss) per share - basic $ 1.13 $ (1.75) $ (2.60) $ (6.55) $ (2.01) ============ ============ ============ ============ ============ Net Income (Loss) per share - diluted $ 1.10 $ (1.75) $ (2.60) $ (6.55) $ (2.01) ============ ============ ============ ============ ============ Weighted average shares outstanding - basic 13,473,000 14,839,000 14,986,000 15,236,000 15,783,000 Weighted average shares outstanding - diluted 13,841,000 14,839,000 14,986,000 15,236,000 15,783,000 YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 84,012 $112,721 $ 99,115 $ 60,530 $ 54,671 Total assets 395,611 558,366 531,892 424,000 378,514 Total debt and capital leases, including current portion 149,703 301,324 323,942 315,422 299,152 Shareholders' equity 215,642 194,089 156,499 56,988 26,239
29 30 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS ANNUAL REPORT ON FORM 10-K/A INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," "ESTIMATES," "MAY," "WILL", "LIKELY" AND WORDS OF SIMILAR IMPORT. SUCH STATEMENTS INCLUDE STATEMENTS CONCERNING THE COMPANY'S BUSINESS STRATEGY, OPERATIONS, COST SAVINGS INITIATIVES, FUTURE COMPLIANCE WITH ACCOUNTING STANDARDS, INDUSTRY, ECONOMIC PERFORMANCE, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES, EXISTING GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENTAL REGULATIONS, FUTURE COMPLIANCE WITH BANK CREDIT FACILITY COVENANTS, LEGISLATIVE PROPOSALS FOR HEALTH CARE REFORM, THE ABILITY TO ENTER INTO JOINT VENTURES, STRATEGIC ALLIANCES AND ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN ACCEPTABLE BASIS, AND CHANGES IN REIMBURSEMENT POLICIES. SUCH STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K/A. THE FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS ANNUAL REPORT ON FORM 10-K/A AND THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS THAT ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. The Company provides home health care services and products to patients through its 304 centers in 38 states. These services and products are primarily paid for by Medicare, Medicaid and other third-party payors. The Company has three principal services or product lines: home respiratory services, home infusion services and home medical equipment and supplies. Home respiratory services include oxygen systems, nebulizers, aerosol medications and home ventilators and are provided primarily to patients with severe and chronic pulmonary diseases. Home infusion services are used to administer nutrients, antibiotics and other medications to patients with medical conditions such as neurological impairments, infectious diseases or cancer. The Company also sells and rents a variety of home medical equipment and supplies, including wheelchairs, hospital beds and ambulatory aids. The following table sets forth the percentage of the Company's revenues represented by each line of business for the periods presented:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1999 2000 ---- ---- ---- Home respiratory therapy services 48% 53% 56% Home infusion therapy services 22 21 19 Home medical equipment and medical supplies 30 26 25 ---- ---- ---- Total 100% 100% 100% ==== ==== ====
30 31 Prior to 1998, the Company had significantly expanded its operations through a combination of acquisitions of home health care companies, development of joint ventures and strategic alliances with health care delivery systems, as well as internal growth. From 1996 through 1998, the Company acquired 72 home health care companies (40, 28 and 4 companies in 1996, 1997, and 1998 respectively). In 1998, the Company purposefully slowed its acquisition activity compared to prior years to focus on existing operations. As amended, the Company's Credit Agreement now requires bank consent for acquisitions or investments in new joint ventures. The Company did not acquire any home health care businesses or develop any new joint ventures in 1999 and 2000. During 2000, the Company converted six of its previously owned 50% joint ventures to wholly owned operations as a result of the withdrawal of the hospital partners from the partnerships. See "Business -- Hospital Joint Ventures" for additional discussion. The Company's strategy for 2001 is to maintain a diversified offering of home health care services reflective of its current business mix. Respiratory services will remain a primary focus with increased emphasis on home medical equipment rental, enteral nutrition products and services and select infusion therapies. MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES The Medicare reimbursement rate for oxygen related services was reduced by 25% beginning January 1, 1998 as a result of the Balanced Budget Act of 1997 (the "Medicare Oxygen Reimbursement Reduction") and an additional reduction of 5% beginning January 1, 1999. The reimbursement rate for certain drugs and biologicals covered under Medicare was also reduced by 5% beginning January 1, 1998. American HomePatient is one of the nation's largest providers of home oxygen services to patients, many of whom are Medicare recipients, and is therefore significantly affected by this legislation. Medicare oxygen reimbursements accounted for approximately 27% of the Company's revenues in 2000. The Company estimates that the Medicare Oxygen Reimbursement Reduction decreased revenue and pre-tax income by approximately $24.5 million during 1998, $29.2 million during 1999 and $29.4 million during 2000. Effective January 1, 1998, payments for parenteral and enteral nutrition ("PEN") were frozen at 1995 levels, through the year 2002. In January 2001, federal legislation was signed into law that provided for a one-time increase in Medicare reimbursement rates for home medical equipment, excluding oxygen related services, based on the consumer price index (CPI). The increase is scheduled to go into effect July 1, 2001. The Company estimates that this CPI increase will increase revenue and pre-tax income by approximately $1.0 million over the third and fourth quarters of 2001 and $1.0 million on an annual basis thereafter. Medicare also has the option of developing fee schedules for PEN and home dialysis supplies and equipment, although currently there is no timetable for the development or implementation of such fee schedules. Following promulgation of a final rule, CMS will also have "inherent reasonableness" authority to modify payment rates for all Medicare Part B items and services by as much as 15% without industry consultation, publication or public comment, if the rates are "grossly excessive" or "grossly deficient." Therefore, the Company cannot be certain that additional reimbursement reductions for oxygen therapy services or other services and products provided by the Company will not occur. See "Business -- Risk Factors -- Government Regulation." 31 32 RESULTS OF OPERATIONS ACCOUNTING CHARGES 1998 The Company recorded pre-tax accounting charges in the third quarter of 1998 in the amount of $15.2 million related to: (i) expenses of approximately $3.2 million related to executive officer transition, abandoned acquisitions and a provision for adverse settlements related to accounting disputes with certain sellers of acquired businesses; and (ii) increased bad debt expense of approximately $16.0 million resulting from the Company's restructuring and disruption in collections due to the consolidation of billing centers and changes in certain billing procedures; offset by (iii) the reversal into income of approximately $4.0 million of excess 1997 restructuring reserves. In the fourth quarter of 1998, goodwill was written down by $37.8 million as required under SFAS 121. This write down was based upon management's estimate of the negative impact of the Company's inability to replace the decreased cash flows associated with the Medicare oxygen reimbursement reductions to the extent originally planned, as well as certain business strategies implemented in the latter half of 1998 which decreased revenue and increased operating expenses (See -- "Results of Operations" for additional discussion). Also, in the fourth quarter of 1998, the Company expensed $1.3 million in severance-related costs associated with former senior executives of the Company. 1999 The Company recorded pre-tax accounting charges in the fourth quarter of 1999 in the amount of $77.5 million related to: (i) $17.1 million to increase the Company's accounts receivable reserves which resulted in increased bad debt expense above previous quarters of 1999; (ii) $41.1 million related to the write off of impaired goodwill; (iii) $19.9 million to establish a valuation allowance for deferred tax assets; (iv) $0.9 million to record the anticipated loss on the dissolution of one of the Company's joint ventures; offset by (v) a credit of $1.5 million for the reversal of excess restructuring reserves originally recorded in 1997. The charge of $17.1 million in additional accounts receivable reserves relates to several changes experienced in the receivables portfolio during 1999. During 1999, the Company placed a greater emphasis than in previous years on collecting current billings with less emphasis on pursuing the collection of older accounts. As a result of this strategy, overall collections of current billings in 1999 improved over the prior year; however, accounts greater than 120 days increased. In addition, some of the billing and collection issues experienced in 1998 continued to contribute to the deterioration in the aging statistics, particularly accounts aged over one year. Also during 1999, the Company continued to experience increased delays between the date services were provided and the actual billing date due to delays in obtaining necessary documentation. Finally, Medicare reimbursement changes which limited coverage of immune globulin therapies were implemented in 32 33 1999. These changing characteristics experienced in the receivable portfolio during 1999 prompted the Company to record additional specific reserves related to certain issues and to adopt a reserve methodology which provides additional reserves for accounts with advanced agings. This accounts receivable charge is included in operating expense and as a reduction of earnings from joint ventures in the accompanying 1999 consolidated statements of operations. The Company wrote off $40.3 million of impaired goodwill in accordance with SFAS No. 121 due to a continuation of poor performance into 1999 of certain acquisitions. A deterioration in performance of many of these acquired businesses began in mid-1998 and, contrary to management's expectations, the negative trends did not reverse in 1999. The Company also wrote off impaired goodwill of several of the Company's joint ventures which adversely impacted earnings from joint ventures by $0.8 million. The Company recorded a valuation allowance for deferred tax assets in the amount of $19.9 million due to uncertainty as to their realizability. Due to the fact that the Company is currently not generating taxable income and achieving future taxable income is uncertain, management believes a full valuation allowance to be appropriate. The Company received formal notice from three of its joint venture partners indicating a desire to dissolve their respective partnerships. The Company anticipated that the transaction to dissolve one of these partnerships would result in a loss to the Company in the amount of $0.9 million. After the dissolutions, these businesses are operated as wholly owned operations. Subsequent to year end 1999, the Company settled a dispute with the owner of a business that the Company had previously managed under the terms of a management agreement. The potential loss on the settlement had been accrued as part of the Company's restructuring charge recorded in 1997. Due to the favorable outcome of the settlement, the Company reversed $1.5 million in excess restructuring reserves. 2000 The Company recorded a pre-tax accounting charge in the fourth quarter of 2000 in the amount of $7.5 million to establish a reserve for the Settlement in the government OIG investigation. See "Business -- Government Regulation." 33 34 The total accounting charges discussed above were recorded in the 1998, 1999 and 2000 consolidated statements of operations in the following classifications:
1998 1999 2000 ------------ ------------ ----------- Earnings from joint ventures $ -0- $ 2,192,000 $ -0- Cost of sales (386,000) -0- -0- Operating expenses 14,500,000 16,638,000 -0- General & administrative expenses 6,041,000 -0- -0- Restructuring charge (3,614,000) (1,450,000) -0- Goodwill impairments 37,805,000 40,271,000 -0- Provision for litigation settlement -0- -0- 7,500,000 Deferred income tax provision -0- 19,847,000 -0- ------------ ------------ ----------- $ 54,346,000 $ 77,498,000 $ 7,500,000 ============ ============ ===========
The Company will continue to evaluate the operations of individual acquisitions to determine if additional goodwill impairments will need to be recorded in future periods. In addition, the Company continues to evaluate the impact of its compliance efforts, the current payor environment and other factors which could impact the level of bad debt expense. There can be no assurance that similar accounting charges will not be recorded in future periods. The Company's operating results for 1998, 1999 and 2000 were significantly lower than previous years and were significantly impacted by the following factors: First, the Company has been greatly impacted by the 30% reduction in Medicare oxygen reimbursement rates (25% reduction effective January 1, 1998 with an additional 5% reduction effective January 1, 1999). The Company estimates that revenue and pre-tax income have been reduced by approximately $24.5 million in 1998, $29.2 million in 1999 and $29.4 million in 2000 as a result of the 25% and the additional 5% reductions. Second, beginning in the latter half of 1998, the Company experienced a decline in revenues attributable to the exit and de-emphasis of certain lower margin business lines and by the termination of several managed care contracts (with continued effect into 1999 and 2000). Third, the Company has halted the acquisition of home health care businesses and its joint venture development program. Fourth, accounts receivable have been adversely affected by a tougher payor environment and by process problems at the operating and billing center levels (caused by the consolidation of billing centers and employee turnover) which has resulted in higher bad debt expense in 1998 and 1999. Further, the Company's implementation of process improvements in the billing and collection functions was slower than anticipated. In order to drive internal revenue growth during the latter half of 1998, the Company embarked on a strategy to increase market share by focusing primarily on increasing respiratory revenues in existing centers. Concurrently, the Company determined that certain "non-core", lower margin products and services should be eliminated during the year. It also exited certain contracts and businesses perceived to be lower margin during the third and fourth quarters of 1998. The result was a substantial decrease in revenues as well as in profitability during the latter half of 1998 and into 1999 and 2000. 34 35 A new management team joined the Company in the fourth quarter of 1998, consisting of a new president and chief executive officer, a new chief operating officer and a new chief financial officer. Recognizing the negative impacts of the Company's business strategy, the new management ceased the exiting of business lines and contracts by mid-December of 1998. A new strategy was developed and implemented in 1999 and continued in 2000 to restore the Company's revenues and decrease expenses. Key points of this strategy are: 1. Stabilize and increase profitable revenues - respiratory therapies remain a primary focus of the Company. However, the Company has broadened its offering and sales focus to include other profitable business lines such as enteral nutrition, HME rental, and select infusion therapy services. The Company has also re-directed its efforts to increase revenues for certain managed care contracts - both new and existing. The Company is actively pursuing, and has entered into, new managed care contracts that it considers an opportunity for profitable revenue. 2. Decrease and control operating expenses - the Company took aggressive steps in 1999 to decrease operating and general and administrative expenses. The Company continues to monitor and closely manage its field and overhead expenses. 3. Decrease DSO and bad debt - the Company has four key initiatives in place to improve accounts receivable performance: (i) proper staffing and training; (ii) process redesign and standardization; (iii) consolidation of billing center activities; and (iv) billing center specific goals geared toward improved cash collections and reduced accounts receivable. Concurrent with these activities, an enhanced program to ensure compliance with all government reimbursement requirements has been rolled out and is being followed throughout the Company. This program seeks to ensure that American HomePatient acts at all times in a diligent and ethical fashion. The Company's recovery of revenues is taking longer than originally anticipated. During 2000, the Company determined that additional sales infrastructure would be required to accelerate revenue growth and in May, 2000, the Company hired a new Vice President of Sales and Marketing. Six directors of sales were subsequently hired with the directive of working in conjunction with the Vice President of Sales and Marketing and the area vice presidents to facilitate the implementation of revenue growth strategies at the field level. The Company also analyzed market data and referral/utilization trends to identify a subset of forty centers with the greatest potential for market share gain. The directors of sales are accountable for sales activity specifically for these forty "target centers". These target centers also serve as primary pilot sites for new sales and marketing initiatives. In addition, a new Director of Managed Care joined the Company at the end of 2000. With new expertise in place, the Company is now focusing its efforts on maximizing 35 36 revenues with existing contracts, as well as new contracts, through more strategic price negotiations and improved operational strategies for implementation. Effective April 1, 2001 rather than reporting to the area vice presidents, the Company's billing centers will begin reporting directly to the Corporate Reimbursement Department under the leadership of the Vice President of Reimbursement and six directors of compliance and reimbursement. This new organizational structure will allow area management more time to focus on revenue growth as well as add specialized knowledge and focused management resources to the billing function. The Company does not anticipate renewing its acquisition activities nor its joint venture development during 2001 as it continues focusing its efforts on existing operations. The Company reports its revenues as follows: (i) sales and related services; (ii) rentals and other; and (iii) earnings from joint ventures. Sales and related services revenues are derived from the provision of infusion therapies, the sale of home health care equipment and supplies, the sale of aerosol and respiratory therapy equipment and supplies and services related to the delivery of these products. Rentals and other revenues are derived from the rental of home health care equipment, enteral pumps and equipment related to the provision of respiratory therapies. The majority of the Company's hospital joint ventures are not consolidated for financial statement reporting purposes. Earnings from hospital joint ventures represent the Company's equity in earnings from unconsolidated hospital joint ventures and management and administrative fees for unconsolidated joint ventures. Cost of sales and related services includes the cost of equipment, drugs and related supplies sold to patients. Operating expenses include operating center labor costs, delivery expenses, division and area management expenses, selling costs, occupancy costs, costs related to rentals other than depreciation, billing center costs, provision for doubtful accounts and other operating costs. General and administrative expenses include corporate and senior management expenses. 36 37 The following table and related discussion set forth items from the Company's consolidated statements of operations as a percentage of revenues, excluding the 1998, 1999 and 2000 accounting charges previously discussed, for the periods indicated:
YEAR ENDED DECEMBER 31, ---------------------------- 1998 1999 2000 ---- ---- ---- Revenues 100% 100% 100% Cost of sales and related services, excluding depreciation and amortization expense 24 25 24 Operating expenses 55 58 59 General and administrative expense 4 4 4 Depreciation and amortization expense 10 11 10 Amortization of deferred financing costs -- -- 1 Interest expense 6 8 9 ---- ---- ---- Total expenses 99 106 107 ---- ---- ---- Income (loss) from operations before taxes 1 (6) (7) Provision for income taxes 0 0 0 ---- ---- ---- Income (loss) from operations 1% (6)% (7)% ==== ==== ==== OTHER DATA: EBITDA(1) 17% 13% 13% ==== ==== ====
(1) EBITDA represents income before interest, taxes, depreciation and amortization. While EBITDA should not be construed as a substitute for operating income, net income, or cash flows from operating activities as determined under GAAP, in analyzing the referenced company's operating performance, financial position or cash flows, the referenced company has included EBITDA because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. As all companies may not calculate EBITDA in the same manner, these amounts may not be comparable to other companies. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 - EXCLUDING ACCOUNTING CHARGES The comparison of the results of operations between 2000 and 1999 is impacted by the conversions of several unconsolidated joint ventures to wholly owned businesses. The following discussion excludes the accounting charges recorded in 2000 and 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Accounting Charges -- 1999 and 2000." REVENUES. Revenues increased from $359.8 million in 1999 to $363.4 million in 2000, an increase of $3.6 million, or 1%. The accounting consolidation of six of the Company's joint ventures added approximately $8.8 million to revenue in the current year. Without this additional revenue, revenue in the current year would have decreased by $5.2 million compared to 1999. This 37 38 decrease is primarily attributable to lower sales of non-core low margin products and the exiting of lower margin contracts, offset somewhat by increases in rentals and sales of certain respiratory products. The following is a discussion of the components of revenues: Sales and Related Services Revenues. Sales and related services revenues decreased from $172.4 million in 1999 to $171.7 million in 2000, a decrease of $0.7 million. This decrease is primarily attributable to lower sales of non-core low margin products and the exiting of lower margin contracts, offset somewhat by additional sales revenue from the accounting consolidation of six of the Company's previously owned 50% joint ventures. Rentals and Other Revenues. Rentals and other revenues increased from $184.9 million in 1999 to $186.4 million in 2000, an increase of $1.5 million, or 1%. This increase is also attributable to the accounting consolidation of six of the Company's previously owned 50% joint ventures, offset by the exiting of lower margin contracts, many of which did not terminate until the end of the first quarter of 1999 or later. Earnings from Joint Ventures. Earnings from joint ventures increased from $2.5 million in 1999 to $5.3 million in 2000, an increase of $2.8 million, or 112%, which is primarily attributable to revenue growth, decreased bad debt expense and the related increased profitability of certain joint venture locations. COST OF SALES AND RELATED SERVICES. Cost of sales and related services decreased from $90.1 million in 1999 to $85.5 million in 2000, a decrease of $4.6 million, or 5%. As a percentage of sales and related services revenues, cost of sales and related services decreased from 52% to 50%. This decrease is primarily attributable to the Company recording a provision in 1999 for inventory related to exiting certain contracts and the de-emphasis of soft goods. OPERATING EXPENSES. Operating expenses increased from $207.4 million in 1999 to $214.1 million in 2000, an increase of $6.7 million, or 3%. This increase is primarily attributable to the accounting consolidation of six of the Company's previously owned 50% joint ventures which added approximately $7.2 million to operating expenses in 2000. Bad debt expense was 6.5% of revenue for 2000 compared to 10.0% of revenue for 1999 including the $17.1 million charge recorded in the fourth quarter of 1999. This improvement in bad debt expense is the result of improved cash collections resulting from the process redesign, standardization and consolidation of billing center activities. 38 39 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased from $13.9 million in 1999 to $15.8 million in 2000, an increase of $1.9 million, or 14%. This increase is attributable to higher personnel expenses as a result of the billing initiatives, corporate compliance activities and increased marketing efforts as well as higher consulting fees, offset somewhat by lower legal fees. As a percentage of revenues, general and administrative expenses remained constant at 4% for both 1999 and 2000. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses decreased from $39.7 million in 1999 to $37.1 million in 2000, a decrease of $2.6 million, or 7%. The decrease in depreciation expense is primarily attributable to a lower level of unfavorable book-to-physical adjustments of rental equipment which are classified as depreciation expense. Lower amortization expense is a result of the $40.3 million write off of impaired goodwill in the fourth quarter of 1999. AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred financing costs increased from $1.8 million in 1999 to $2.5 million in 2000, an increase of $0.7 million, or 39%. This increase is primarily attributable to additional deferred financing costs associated with amendments to the Credit Agreement. In addition, in the fourth quarter of 2000, the Company recorded the estimated fair value of warrants ($686,000) to be issued to the banks in connection with the Second Amendment and the related amortization of these costs on a cumulative basis using the effective interest rate method. INTEREST EXPENSE. Interest expense increased from $28.7 million in 1999 to $31.9 million in 2000, an increase of $3.2 million, or 11%. This increase is attributable to higher interest rates on borrowings under the Bank Credit Facility. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 - EXCLUDING ACCOUNTING CHARGES The operations of acquired centers are included in the operations of the Company from the effective date of each acquisition. Because of the acquisition activity, the comparison of the results of operations between 1999 and 1998 is impacted by the operations of these acquired businesses. The following discussion excludes the accounting charges recorded in 1999 and 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Accounting Charges -- 1998 and 1999". REVENUES. Revenues decreased from $403.9 million in 1998 to $359.8 million in 1999, a decrease of $44.1 million, or 11%. This decrease is primarily attributable to lower sales of non-core low margin products, the exiting of lower margin contracts, and the additional 5% Medicare oxygen reimbursement reduction, offset somewhat by additional revenue from the 1998 acquisitions. 39 40 The following is a discussion of the components of revenues: Sales and Related Services Revenues. Sales and related services revenues decreased from $192.9 million in 1998 to $172.4 million in 1999, a decrease of $20.5 million, or 11%. This decrease is primarily attributable to lower sales of non-core low margin products and the exiting of lower margin contracts, offset somewhat by additional sales revenue from the 1998 acquisitions. Rentals and Other Revenues. Rentals and other revenues decreased from $206.5 million in 1998 to $184.9 million in 1999, a decrease of $21.6 million, or 10%. This decrease is primarily attributable to the exiting of lower margin contracts, the additional 5% Medicare oxygen reimbursement reduction and less than expected sales force effectiveness, offset somewhat by additional rental revenue of the 1998 acquisitions. Earnings from Joint Ventures. Earnings from joint ventures decreased from $4.5 million in 1998 to $2.5 million in 1999, a decrease of $2.0 million, or 44%, which was due primarily to the additional 5% Medicare oxygen reimbursement reduction and higher bad debt expense at certain joint venture locations. COST OF SALES AND RELATED SERVICES. Cost of sales and related services decreased from $98.6 million in 1998 to $90.1 million in 1999, a decrease of $8.5 million, or 9%. As a percentage of sales and related services revenues, cost of sales and related services increased from 51% to 52%. This increase is primarily attributable to lower vendor rebates in 1999, a higher level of favorable book-to-physical inventory adjustments recorded in 1998 compared to 1999 and the losses incurred in 1999 related to exiting certain contracts and the de-emphasis of soft goods. OPERATING EXPENSES. Operating expenses decreased from $220.8 million in 1998 to $207.4 million in 1999, a decrease of $13.4 million, or 6%. This decrease is primarily attributable to lower salary expense in 1999 as a result of the Company's aggressive steps to control expenses which included the elimination of 300 positions in the field. The lower salary expense was partially offset by higher bad debt expense before the fourth quarter accounting charge. Even though the dollar level of operating expenses decreased, operating expenses as a percentage of revenue increased from 55% for 1998 to 58% for 1999 as a result of decreased revenue. Bad debt expense before accounting charges was 5.3% of revenue for 1999 compared to 3.8% of revenue for 1998. Total bad debt expense, including accounting charges, was 10.0% of revenues for 1999 compared to 7.4% of revenues for 1998. The Company analyzes its accounts receivable portfolio for collectibility on an ongoing basis. Negative trends in cash collections were experienced in the fourth quarter of 1998 and in the first quarter of 1999. Cash collections showed improvement beginning in the second quarter of 1999. However, the Company's accounts greater than 1 year old have continued to increase as collection efforts have focused more on current accounts receivable. The Company continues to evaluate the impact of additional compliance 40 41 efforts, the current payor environment and other factors to determine the level of bad debt expense which should be recorded. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased from $17.6 million in 1998 to $13.9 million in 1999, a decrease of $3.7 million, or 21%. As a percentage of revenues, general and administrative expenses remained constant at 4% for both 1998 and 1999. This decrease is attributable to lower salary expense as a result of the 41 positions eliminated at the Corporate Support Center and reduced consulting expenses. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses increased from $39.1 million in 1998 to $39.7 million in 1999, an increase of $0.6 million, or 2%, which was primarily attributable to an increase in 1999 of unfavorable book-to-physical adjustments of rental equipment which are classified as depreciation expense. AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred financing costs increased from $0.5 million in 1998 to $1.8 million in 1999, an increase of $1.3 million. This increase is primarily attributable to additional deferred financing costs associated with amendments to the Credit Agreement. INTEREST EXPENSE. Interest expense increased from $24.2 million in 1998 to $28.7 million in 1999, an increase of $4.5 million, or 19%. This increase was attributable to higher interest rates on borrowings and to additional interest expense on increased borrowings under the Bank Credit Facility to fund acquisitions during 1998. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had current assets of $104.7 million and current liabilities of $50.1 million, resulting in working capital of $54.7 million and a current ratio of 2.1x. This compares to working capital of $60.5 million and a current ratio of 2.0x at December 31, 1999. The Company is the borrower under a credit facility (the "Bank Credit Facility") between the Company and Bankers Trust Company, as agent for a syndicate of lenders (the "Lenders"). The Company's breach of several of the financial covenants in its Credit Agreement and its failure to make a scheduled principal payment due March 15, 2001 caused the Company to be not in compliance with certain covenants of its Credit Agreement. The Company, on June 8, 2001, entered into a Fifth Amended and Restated Credit Agreement (the "Amended Credit Agreement") that provided a new loan to the Company from which the proceeds were used to pay off all existing loans under the Credit Agreement. The Amended Credit Agreement also includes modified financial covenants and a revised amortization schedule. In addition, the Amended Credit Agreement no longer contains a revolving loan component; all existing indebtedness is now in the form of a term loan which matures on December 31, 2002. Substantially all of the Company's assets have been pledged as security for borrowings under the Bank Credit Facility. Indebtedness under the Bank Credit Facility, as of June 13, 2001, totals $299.8 million. The Amended Credit 41 42 Agreement further provides for mandatory prepayments of principal from the Company's excess cash flow, as defined, or from the proceeds of the Company's sales of securities, sales of assets, tax refunds or excess casualty payments. The Amended Credit Agreement further provides for the payment to the Lenders of certain fees. These fees include a restructuring fee of $1.2 million (paid on the effective date of the Amended Credit Agreement), $200,000 payable on each of December 31, 2001, March 31, 2002 and June 30, 2002, as well as $459,000 payable on September 30, 2002. In addition, the Company has an obligation to pay the agent an annual administrative fee of $75,000 and an annual fee of .50% of the average outstanding indebtedness on each anniversary of the Amended Credit Agreement. The Amended Credit Agreement contains various financial covenants, the most restrictive of which relate to measurements of EBITDA, leverage, interest coverage ratios, and collections of accounts receivable. The Amended Credit Agreement also contains provisions for periodic reporting. The Amended Credit Agreement also contains restrictions which, among other things, impose certain limitations or prohibitions on the Company with respect to the incurrence of indebtedness, the creation of liens, the payment of dividends, the redemption or repurchase of securities, investments, acquisitions, capital expenditures, sales of assets and transactions with affiliates. The Company is not permitted to make acquisitions or investments in joint ventures without the consent of Lenders holding a majority of the lending commitments under the Bank Credit Facility. In addition, proceeds of all of the Company's accounts receivable are transferred daily into a bank account at PNC Bank, National Association which, under the terms of a Concentration Bank Agreement, requires that all amounts in excess of $3.0 million be transferred to an account at Bankers Trust Company in the Company's name. Upon occurrence of an event of default under the Amended Credit Agreement, the Lenders have the right to instruct PNC Bank, National Association and Bankers Trust Company to cease honoring any drafts under the accounts and apply all amounts in the bank accounts against the indebtedness owed to the Lenders. Interest is payable on the unpaid principal amount under the Amended Credit Agreement, at the election of the Company at either a "Base Lending Rate" or an "Adjusted Eurodollar Rate" (each defined in the Amended Credit Agreement), plus an applicable margin of 2.75% and 3.50%, respectively. The Company is also required to pay additional interest in the amount of 4.50% per annum on that principal portion outstanding of the Amended Credit Agreement that is in excess of four times adjusted EBITDA. Upon the occurrence and during the continuation of any events of noncompliance, interest is payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under the Amended Credit Agreement. In addition, in the event of noncompliance, the Adjusted Eurodollar Rate is no longer available for selection by the Company. There can be no assurance that future cash flow from operations will be sufficient to cover debt obligations, especially those obligations due upon maturity of the Bank Credit Facility. 42 43 The Credit Agreement was previously amended on April 6, 2000. The Company, on that date, entered into a Third Amendment to the Fourth Amended and Restated Credit Agreement (the "Third Amendment"). The Third Amendment waived then existing events of default, required a $5.0 million principal repayment with the effectiveness of the amendment, modified existing financial covenants, froze the borrowing availability under the Bank Credit Facility at the amounts outstanding at the time of the amendment and made a number of other changes to the Credit Agreement. The Company was required to employ a bank financial advisor to review and evaluate the Company's finances. Substantially all of the Company's assets have been pledged as security for borrowings under the Bank Credit Facility. In addition, the Third Amendment states that any development in the government investigation, which the Lenders determine could reasonably be expected to have a material adverse effect on the Company, constitutes an event of default. As of December 31, 2000, $299.5 million was outstanding under the Credit Facility, including $248.7 million under the revolving line of credit (which includes letters of credit totaling $2.8 million) and $50.8 million under the term loan. The Credit Agreement was also previously amended on April 14, 1999. The Company, on that date, entered into a Second Amendment to the Fourth Amended and Restated Credit Agreement (the "Second Amendment"). The Second Amendment waived then existing events of default, modified financial covenants and made a number of other changes to the Credit Agreement. The Company was required to employ a manager, acceptable to the Lenders, with expertise in managing companies that are in workout situations with their lenders. The term of such manager's employment has expired. As part of the Second Amendment, the Company's credit availability was reduced from $360 million to $328.6 million, including a $75 million term loan and $253.6 million revolving line of credit. As of December 31, 1999, the Company's credit availability was further reduced through paydowns of the term loan portion of the Bank Credit Facility to $318.4 million, including a $64.8 million term loan and a $253.6 revolving line of credit. As of September 30, 2000, the Company's credit availability was further reduced to $303.0 million through paydowns of the term loan to $53.8 million and freezing availability under the revolving loan to $249.2 million. As part of the Second Amendment, the Company agreed to issue on March 31, 2001 warrants to the Lenders representing 19.999% of the Common Stock of the Company issued and outstanding as of March 31, 2001. To fulfill these obligations, warrants to purchase 3,265,315 shares of Common Stock were issued to the Lenders on June 8, 2001. Fifty percent of these warrants are exercisable at any time after issuance, and the remaining fifty percent will be exercisable from and after September 30, 2001 (provided loans, letters of credit or commitments have not been terminated subsequent to March 31, 2001 and prior to September 30, 2001). The exercise price of the warrants is $0.01 per share. Interest was payable on borrowings under the Credit Agreement, at the election of the Company, at either a Base Lending Rate or an Adjusted Eurodollar Rate (each as defined in the 43 44 Credit Agreement) plus a margin of 2.75% and 3.50%, respectively. Also, additional interest of 4.50% accrued on that portion of the outstanding indebtedness of the Bank Credit Facility that was in excess of four times Adjusted EBITDA as defined by the Credit Agreement. Upon the occurrence of an event of default under the Credit Agreement, interest was payable by the Company at 2.00% per annum in excess of the rates charged under the Bank Credit Facility and the Company no longer had the right to borrow at the Adjusted Eurodollar Rate plus the applicable margin. In addition, upon the occurrence of an event of default, all new borrowings would have to be subject to the Base Lending Rate plus the applicable margin, which was a substantially higher rate of interest. As of December 31, 2000 the weighted average borrowing rate was 12.4%. Management has plans to improve financial performance through stabilizing and increasing profitable revenues, decreasing and controlling operating expenses and improving accounts receivable performance. Management's cash flow projections and related operating plans indicate the Company can remain in compliance with the new financial covenants under the Amended Credit Agreement and meet its expected obligations throughout 2001. However, as with all projections, there is uncertainty as to whether management's projections can be achieved. In any event of noncompliance or default under the Amended Credit Agreement, the Lenders have the ability to demand payment of all outstanding amounts and there is currently no commitment as to how any such demand would be satisfied by the Company. Any demands for repayment by Lenders or the inability to obtain waivers or refinance the related debt would have a material adverse impact on the financial position, results of operations and cash flows of the Company. The Company's future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on the Company's liquidity. The Company has various types of accounts receivable, such as receivables from patients, contracts, and former owners of acquisitions. The majority of the Company's accounts receivable are patient receivables. Accounts receivable are generally outstanding for longer periods of time in the health care industry than many other industries because of requirements to provide third-party payors with additional information subsequent to billing and the time required by such payors to process claims. Certain accounts receivable frequently are outstanding for more than 90 days, particularly where the account receivable relates to services for a patient receiving a new medical therapy or covered by private insurance or Medicaid. Net patient accounts receivable were $75.2 million and $74.5 million at December 31, 1999 and December 31, 2000, respectively. Average days' sales in accounts receivable was approximately 81 and 76 days at December 31, 1999, and December 31, 2000, respectively. The Company's level of DSO and net patient receivables reflect the extended time required to obtain necessary billing documentation, the ongoing efforts to implement a standardized model for reimbursement and the consolidation of billing activities. Net cash provided by operating activities decreased from $46.6 million in 1999 to $14.0 million in 2000, a decrease of $32.6 million. This decrease is primarily due to the prior year decrease in various receivables. Net cash used in investing activities decreased from $13.9 million in 1999 to $13.5 million in 2000, a decrease of $0.4 million, and primarily relates to capital expenditures. Capital expenditures increased from $14.6 million in 1999 to $17.8 million in 2000, an increase of $3.2 million. Net cash used in financing activities increased from $8.8 million in 1999 to $16.5 million in 2000, an increase of $7.7 million. The cash used in financing activities for 1999 and 2000 primarily relates to principal payments and deferred financing costs net of proceeds from the Bank Credit Facility. 44 45 The Company's principal capital requirements are for working capital, capital expenditures and debt service. The Company has financed and intends to continue to finance these requirements with existing cash balances, net cash provided by operations and other available capital expenditure financing vehicles. Management believes that these sources will support the Company's current level of operations as long as the Company maintains compliance with its debt covenants and the due dates of amounts outstanding under the Bank Credit Facility are not accelerated. Management also believes these sources are adequate to fund the Settlement in the government investigation based upon the payment terms, as more fully described in "Business -- Government Regulation." IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 133, as amended, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") has been issued effective for fiscal years beginning after June 15, 2000. SFAS No. 133, as amended, requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. The Company is required to adopt the provisions of SFAS No. 133, as amended, effective January 1, 2001; however, the Company does not expect the adoption to have a material effect on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") regarding revenue recognition in financial statements. SAB 101 was effective January 1, 2000 but implementation was delayed until the fourth quarter of 2000. The Company's implementation of SAB 101 in the fourth quarter did not have a material impact on its financial position, results of operations or cash flows on a quarterly or annual basis. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The chief market risk factor affecting the financial condition and operating results of the Company is interest rate risk. The Company's Bank Credit Facility uses a floating interest rate. As of December 31, 2000, the Company had outstanding borrowings of approximately $296.6 million. In the event that interest rates associated with this facility were to increase by 10%, the impact on future cash flows would be approximately $2.0 million. Interest expense associated with other debts would not materially impact the Company as most interest rates are fixed. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements are contained on pages 50 through 81 of this Report and are incorporated herein by reference. 45 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors and executive officers of the Company is incorporated by reference to the Company's definitive proxy statement dated April 30, 2001 ("Proxy Statement") for the annual meeting of stockholders held on May 30, 2001. ITEM 11. EXECUTIVE COMPENSATION Executive compensation information is incorporated by reference to the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security ownership of certain beneficial owners and management information is incorporated by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions of the Company is incorporated by reference to the Proxy Statement. 46 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial statements and schedules of the Company and its subsidiaries required to be included in Part II, Item 8 are listed below.
FORM 10-K PAGES --------------- FINANCIAL STATEMENTS Report of Independent Public Accountants F-50 Consolidated Balance Sheets, December 31, 1999 and 2000 F-51 - F-52 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999, and 2000 F-53 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1999, and 2000 F-54 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999, and 2000 F-55 - F-56 Notes to Consolidated Financial Statements, December 31, 2000 F-57 - F-81 FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants S-1 Schedule II -- Valuation and Qualifying Accounts S-2
EXHIBITS The Exhibits filed as part of the Report on Form 10-K/A are listed in the Index to Exhibits immediately following the financial statement schedules. REPORTS ON FORM 8-K DURING THE LAST QUARTER OF THE YEAR ENDED DECEMBER 31, 2000. None. 47 48 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN HOMEPATIENT, INC. /s/JOSEPH F. FURLONG III ------------------------------------ Joseph F. Furlong III, President, Chief Executive Officer and Director /s/MARILYN A. O'HARA ------------------------------------ Marilyn A. O'Hara Executive Vice President and Chief Financial Officer Date: June 20, 2001 48 49 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Henry T. Blackstock Director June 20, 2001 - ------------------------------------ Henry T. Blackstock /s/Joseph F. Furlong III Director, President, June 20, 2001 - ------------------------------------ and Chief Executive Joseph F. Furlong III Officer /s/Mark Manner Director June 20, 2001 - ------------------------------------ Mark Manner /s/Donald R. Millard Director June 20, 2001 - ------------------------------------ Donald R. Millard /s/Marilyn A. O'Hara Chief Financial June 20, 2001 - ------------------------------------ Officer and Marilyn A. O'Hara Chief Accounting Officer
49 50 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To American HomePatient, Inc.: We have audited the accompanying consolidated balance sheets of AMERICAN HOMEPATIENT, INC. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 2000, as restated (see Note 2), and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of American HomePatient, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We have conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American HomePatient, Inc. and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Nashville, Tennessee March 6, 2001 (except with respect to the matters discussed in Notes 2 and 7, as to which the date is June 8, 2001 and the matter discussed in Note 8, as to which the date is June 11, 2001) F-50 51 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 2000
ASSETS 1999 2000 ------ -------------- -------------- CURRENT ASSETS: Cash and cash equivalents $ 28,123,000 $ 12,081,000 Restricted cash -- 179,000 Accounts receivable, less allowance for doubtful accounts of $56,876,000 and $40,862,000, respectively 75,956,000 75,465,000 Inventories 16,499,000 15,522,000 Prepaid expenses and other current assets 982,000 1,489,000 -------------- -------------- Total current assets 121,560,000 104,736,000 -------------- -------------- PROPERTY AND EQUIPMENT, AT COST: 174,558,000 184,661,000 Less accumulated depreciation and amortization (113,465,000) (131,663,000) -------------- -------------- Property and equipment, net 61,093,000 52,998,000 -------------- -------------- OTHER ASSETS: Excess of cost over fair value of net assets acquired, net 202,622,000 197,491,000 Investment in joint ventures 17,473,000 7,918,000 Deferred financing costs, net 3,703,000 3,269,000 Other assets, net 17,549,000 12,102,000 -------------- -------------- Total other assets 241,347,000 220,780,000 -------------- -------------- $ 424,000,000 $ 378,514,000 ============== ==============
(Continued) F-51 52 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 2000 (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 2000 ------------------------------------ -------------- -------------- CURRENT LIABILITIES: Current portion of long-term debt and capital leases $ 16,644,000 $ 2,679,000 Accounts payable 23,327,000 16,449,000 Other payables 1,854,000 2,478,000 Accrued expenses: Payroll and related benefits 7,472,000 8,204,000 Interest 596,000 1,748,000 Insurance 3,979,000 5,162,000 Other 7,158,000 13,345,000 -------------- -------------- Total current liabilities 61,030,000 50,065,000 -------------- -------------- NONCURRENT LIABILITIES: Long-term debt and capital leases, less current portion 298,778,000 296,473,000 Other noncurrent liabilities 7,204,000 5,737,000 -------------- -------------- Total noncurrent liabilities 305,982,000 302,210,000 -------------- -------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized, 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value; authorized, 35,000,000 shares; issued and outstanding, 15,160,000 and 15,856,000 shares, respectively 152,000 159,000 Paid-in capital 172,867,000 173,777,000 Accumulated deficit (116,031,000) (147,697,000) -------------- -------------- Total shareholders' equity 56,988,000 26,239,000 -------------- -------------- $ 424,000,000 $ 378,514,000 ============== ==============
The accompanying notes are an integral part of these consolidated balance sheets. F-52 53 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000 -------------- -------------- -------------- REVENUES: Sales and related service revenues $ 192,863,000 $ 172,364,000 $ 171,685,000 Rentals and other revenues 206,464,000 184,913,000 186,386,000 Earnings from joint ventures 4,541,000 303,000 5,301,000 -------------- -------------- -------------- Total revenues 403,868,000 357,580,000 363,372,000 -------------- -------------- -------------- EXPENSES: Cost of sales and related services, excluding depreciation and amortization 98,166,000 90,142,000 85,473,000 Operating 235,269,000 224,018,000 214,075,000 General and administrative 22,262,000 13,895,000 15,823,000 Depreciation and amortization 39,105,000 39,682,000 37,121,000 Amortization of deferred financing costs 548,000 1,778,000 2,517,000 Interest 24,249,000 28,659,000 31,929,000 Restructuring (3,614,000) (1,450,000) -- Goodwill impairment 37,805,000 40,271,000 -- Provision for litigation settlement -- -- 7,500,000 -------------- -------------- -------------- Total expenses 453,790,000 436,995,000 394,438,000 -------------- -------------- -------------- LOSS BEFORE INCOME TAXES (49,922,000) (79,415,000) (31,066,000) -------------- -------------- -------------- PROVISION (BENEFIT) FOR INCOME TAXES: Current (4,674,000) 7,223,000 600,000 Deferred (6,270,000) 13,222,000 -- -------------- -------------- -------------- (10,944,000) 20,445,000 600,000 -------------- -------------- -------------- NET LOSS $ (38,978,000) $ (99,860,000) $ (31,666,000) ============== ============== ============== NET LOSS PER COMMON SHARE: BASIC $ (2.60) $ (6.55) $ (2.01) ============== ============== ============== DILUTED $ (2.60) $ (6.55) $ (2.01) ============== ============== ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 14,986,000 15,236,000 15,783,000 ============== ============== ============== DILUTED 14,986,000 15,236,000 15,783,000 ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-53 54 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
RETAINED COMMON STOCK EARNINGS/ ---------------------- PAID-IN (ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT) TOTAL ---------- -------- ------------ -------------- -------------- BALANCE, DECEMBER 31, 1997 14,901,000 $149,000 $171,133,000 $ 22,807,000 $ 194,089,000 ---------- -------- ------------ -------------- -------------- Issuance of shares through exercise of employee stock options 35,000 -- 518,000 -- 518,000 Issuance of shares through employee stock purchase plan 38,000 1,000 734,000 -- 735,000 Issuance of shares through exercise of stock warrants 12,000 -- 100,000 -- 100,000 Tax benefit of stock options exercised -- -- 35,000 -- 35,000 Net loss -- -- -- (38,978,000) (38,978,000) ---------- -------- ------------ -------------- -------------- BALANCE, DECEMBER 31, 1998 14,986,000 150,000 172,520,000 (16,171,000) 156,499,000 ---------- -------- ------------ -------------- -------------- Issuance of shares through exercise of employee stock options 10,000 -- 10,000 -- 10,000 Issuance of shares through employee stock purchase plan 164,000 2,000 337,000 -- 339,000 Net loss -- -- -- (99,860,000) (99,860,000) ---------- -------- ------------ -------------- -------------- BALANCE, DECEMBER 31, 1999 15,160,000 152,000 172,867,000 (116,031,000) 56,988,000 ---------- -------- ------------ -------------- -------------- Issuance of shares to management 385,000 4,000 62,000 -- 66,000 Issuance of shares through employee stock purchase plan 311,000 3,000 162,000 -- 165,000 Fair value of stock warrants to be issued to lenders -- -- 686,000 -- 686,000 Net loss -- -- -- (31,666,000) (31,666,000) ---------- -------- ------------ -------------- -------------- BALANCE, DECEMBER 31, 2000 15,856,000 $159,000 $173,777,000 $ (147,697,000) $ 26,239,000 ========== ======== ============ ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-54 55 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(38,978,000) $(99,860,000) $(31,666,000) Adjustments to reconcile net loss to net cash provided from operating activities: Depreciation and amortization 39,105,000 39,682,000 37,121,000 Amortization of deferred financing costs 548,000 1,778,000 2,517,000 Equity in earnings of unconsolidated joint ventures 90,000 1,324,000 (2,462,000) Deferred income taxes (6,270,000) 13,222,000 -- Minority interest 306,000 112,000 395,000 Goodwill impairment and write-off 37,805,000 40,271,000 -- Other non-cash charges (4,000,000) 742,000 -- Change in assets and liabilities, net of acquisitions: Restricted cash (1,000) 51,000 (179,000) Accounts receivable, net 10,182,000 21,897,000 3,898,000 Inventories 4,206,000 4,388,000 1,399,000 Prepaid expenses and other current assets (2,000,000) 2,160,000 (510,000) Income tax receivable (4,607,000) 13,090,000 425,000 Accounts payable, accrued expenses and other current liabilities 79,000 4,982,000 (576,000) Restructuring accruals (8,602,000) (578,000) (1,097,000) Deferred costs 35,000 -- -- Other assets and liabilities (554,000) 3,321,000 4,696,000 ------------ ------------ ------------ Net cash provided from operating activities 27,344,000 46,582,000 13,961,000 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired (58,420,000) (450,000) -- Additions to property and equipment, net (26,780,000) (14,632,000) (17,811,000) Distributions to minority interest owners (80,000) (196,000) (250,000) Distributions from (advances to) unconsolidated joint ventures, net (5,506,000) 1,560,000 3,747,000 Proceeds from (payments for) joint venture dissolutions 69,000 (200,000) 781,000 ------------ ------------ ------------ Net cash used in investing activities (90,717,000) (13,918,000) (13,533,000) ============ ============ ============
(Continued) F-55 56 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (Continued)
1998 1999 2000 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Deferred financing costs $ (992,000) $ (1,425,000) $ (1,398,000) Proceeds from long-term debt 74,777,000 4,500,000 377,000 Principal payments on long-term debt and capital leases (19,539,000) (12,241,000) (15,680,000) Proceeds from employee stock purchase plan 735,000 339,000 165,000 Proceeds from sale of stock, net of issuance costs 618,000 10,000 66,000 ------------ ------------ ------------ Net cash provided from (used in) financing activities 55,599,000 (8,817,000) (16,470,000) ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,774,000) 23,847,000 (16,042,000) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,050,000 4,276,000 28,123,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,276,000 $ 28,123,000 $ 12,081,000 ============ ============ ============ SUPPLEMENTAL INFORMATION: Cash payments of interest $ 22,413,000 $ 31,045,000 $ 30,761,000 ============ ============ ============ Cash payments of income taxes $ 2,303,000 $ 528,000 $ 453,000 ============ ============ ============
In connection with the acquisitions of home health care businesses, the Company issued debt of $1,500,000 in 1998. The accompanying notes are an integral part of these consolidated financial statements. F-56 57 AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. ORGANIZATION AND BACKGROUND American HomePatient, Inc. and subsidiaries (the "Company" or "American HomePatient") is a health care services company engaged in the provision of home health care services. The Company's home health care services are comprised of the rental and sale of home medical equipment and home health care supplies, and the provision of infusion therapies and respiratory therapies. As of December 31, 2000, the Company provides these services to patients in the home through 304 branches in 38 states. 2. OPERATING LOSSES, DEBT COVENANTS AND NEW DEBT AGREEMENT The Company has incurred net losses of $38,978,000, $99,860,000 and $31,666,000 for the years ending December 31, 1998, 1999 and 2000, respectively, and has a tangible shareholders' deficit at December 31, 2000. In addition, the Company's breach of several of the financial covenants in its Credit Agreement (see Note 7) and its failure to make a scheduled principal payment due March 15, 2001 caused the Company to be not in compliance with certain covenants of its Credit Agreement (see Note 7). These defaults gave lenders the right to demand payment of $296,608,000 of the Company's debt and to seize the Company's assets. On June 8, 2001, management and the lenders entered into the Fifth Amended and Restated Credit Agreement (the "Amended Credit Agreement") that provided a new loan to the Company from which the proceeds were used to pay off all existing loans under the Credit Agreement. The Amended Credit Agreement also includes modified financial covenants, a revised amortization schedule, and an extended maturity date of December 31, 2002. In addition, the Amended Credit Agreement no longer contains a revolving loan component; all existing indebtedness is now in the form of a term loan. Substantially all of the Company's assets have been pledged as security for borrowings under the Amended Credit Agreement. Based upon the Credit Agreement defaults discussed above and in Note 7, the Company's previously issued consolidated financial statements included all debt outstanding under the Credit Agreement as a current liability. As a result of the Amended Credit Agreement, the financial statements have been restated to reflect the revised amortization schedule, which allows a significant portion of the debt under the Amended Credit Agreement to be classified as non-current. Management has plans to improve financial performance through stabilizing and increasing profitable revenues, decreasing and controlling operating expenses and improving accounts receivable performance. Management's cash flow projections and related operating plans indicate the Company can remain in compliance with the new financial covenants under the Amended Credit Agreement and meet its expected obligations throughout 2001. However, as with all projections, there is uncertainty as to whether management's projections can be achieved. In any event of noncompliance or default under the Amended Credit Agreement, the lenders have the ability to demand payment of all outstanding amounts and there is currently no commitment as to how any such demand would be satisfied by the Company. Any demands for repayment by lenders or the inability to obtain waivers or refinance the related debt would have a material adverse impact on the financial position, results of operations and cash flows of the Company. F-57 58 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies and other entities acquired in purchase transactions are included from the effective dates of their respective acquisitions. Investments in 50% owned joint ventures are accounted for using the equity method. REVENUES The Company's principal business is the operation of home health care centers. Approximately 52%, 56% and 58% of the Company's net revenues in 1998, 1999 and 2000, respectively, are from participation in Medicare and state Medicaid programs. Amounts paid under these programs are generally based on a fixed rate. Revenues are recorded at the expected reimbursement rates when the services are provided, merchandise delivered or equipment rented to patients. Amounts earned under the Medicare and Medicaid programs are subject to review by such third party payors. In the opinion of management, adequate provision has been made for any adjustment that may result from such reviews. Any differences between estimated settlements and final determinations are reflected in operations in the year finalized. Sales and related services revenues are derived from the provision of infusion therapies, the sale of home health care equipment and supplies, the sale of aerosol medications and respiratory therapy equipment and supplies and services related to the delivery of these products. Rentals and other patient revenues are derived from the rental of home health care equipment, enteral pumps and equipment related to the provision of respiratory therapy. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments that have an original maturity of less than three months. F-58 59 ACCOUNTS RECEIVABLE The Company's accounts receivable, before allowance for doubtful accounts, consists of the following components:
DECEMBER 31, -------------------------------- 1999 2000 ------------ ------------ Patient receivables: Medicare $ 45,334,000 $ 38,225,000 All other, principally commercial insurance 86,710,000 77,135,000 ------------ ------------ 132,044,000 115,360,000 Other receivables, principally due from vendors and former owners 788,000 967,000 ------------ ------------ Total $132,832,000 $116,327,000 ============ ============
The Company provides credit for a substantial portion of its non-third party reimbursed revenues and continually monitors the credit worthiness and collectibility of amounts due from its clients. The Company is subject to accounting losses from uncollectible receivables in excess of its reserves. PROVISION FOR DOUBTFUL ACCOUNTS The Company includes provisions for doubtful accounts in operating expenses in the accompanying consolidated statements of operations. The provisions for doubtful accounts were $29,857,000, $35,729,000 and $23,449,000 in 1998, 1999 and 2000, respectively. INVENTORIES All inventories represent goods or supplies and are priced at the lower of cost (on a first-in, first-out basis) or net realizable value. PROPERTY AND EQUIPMENT Property and equipment are depreciated or amortized primarily using the straight-line method over the estimated useful lives of the assets for financial reporting purposes and the accelerated cost recovery method for income tax reporting purposes. Assets under capital leases are amortized over the term of the lease for financial reporting purposes. The estimated useful lives are as follows: buildings and improvements, 18-30 years; rental equipment, 3-7 years; furniture, fixtures and equipment, 4-5 years; leasehold improvements, 5 years; and delivery equipment, 3-5 years. The provision for depreciation includes the amortization of equipment and vehicles under capital leases. In 1998, 1999 and 2000, depreciation expense includes $23,537,000, $25,400,000 and $25,640,000, respectively, related to the depreciation of rental equipment. Maintenance and repairs are charged to expense as incurred, and major betterments and improvements are capitalized. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and the resulting gain or loss is reflected in the consolidated statements of operations. Property and equipment obtained through purchase acquisitions are stated at their estimated fair value determined on their respective dates of acquisition. F-59 60 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost over fair value of net assets acquired ("goodwill") is amortized over 40 years using the straight-line method. Accumulated amortization related to goodwill totaled $20,512,000 and $25,927,000 as of December 31, 1999 and 2000, respectively. The Company believes its estimated goodwill life is reasonable given the continuing movement of patient care to noninstitutional settings, expanding demand due to demographic trends, the emphasis of the Company on establishing significant coverage in each local and regional market, the consistent practice with other home care companies and other factors. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets", management evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management utilizes estimated undiscounted future cash flows to determine if an impairment exists. When this analysis indicates an impairment exists, the amount of loss is determined based upon a comparison of estimated fair value with the net book value of the asset. Estimated fair value is based upon the present value of estimated future cash flows or other objective criteria. In 1998 and 1999, the Company's evaluation of goodwill indicated impairments related to certain acquisitions of approximately $37,805,000 and $40,271,000, respectively, which were charged to expense in the 1998 and 1999 consolidated statements of operations. The write-downs were based upon management's estimate of the negative impact of the Company's inability to replace the decreased cash flows associated with the Medicare oxygen reimbursement reductions to the extent originally planned, as well as certain business strategies implemented in the latter half of 1998 which decreased revenue and increased operating expenses. During 1999, the Company was unable to re-establish its presence in previously exited lines of business as rapidly as originally projected, and thus, continued to experience negative operating results. DEFERRED FINANCING COSTS Financing costs are amortized using methods which are not materially different from the effective interest method over the periods of the related indebtedness. OTHER ASSETS The estimated value of non-compete agreements are amortized over the lives of the agreements, generally periods of up to seven years. As of December 31, 1999 and 2000, the net amounts of non-compete agreements of $97,000 and $150,000, respectively, are reflected in other assets in the accompanying consolidated balance sheets. Other intangibles are amortized over their expected benefit period of two to three years. The net balance at December 31, 1999 and 2000 is $376,000 and $6,000, respectively, and is reflected in other assets in the accompanying consolidated balance sheets. Investments under split dollar value life insurance arrangements of $10,422,000 and $6,487,000 at December 31, 1999 and 2000, respectively, were recorded in connection with the acquisitions of certain home health care businesses and are reflected in other assets in the accompanying consolidated balance sheets. These investments are held in escrow accounts and are restricted for premiums owed on the split dollar value life insurance arrangements. Premiums owed on the split dollar value life insurance polices of $4,711,000 and $1,097,000 at December 31, 1999 and 2000, respectively, are classified as other noncurrent liabilities in the accompanying consolidated balance sheets. The Company is the holder of promissory notes receivable from joint ventures, totaling $2,802,000 and $1,666,000 as of December 31, 1999 and 2000, respectively. The Company also has deposits with vendors and lessors which total $2,402,000 and $2,570,000 as of December 31, 1999 and 2000, respectively. F-60 61 INCOME TAXES The Company utilizes SFAS No. 109, "Accounting for Income Taxes", which requires an asset and liability approach for financial accounting and reporting of income taxes. Under this method, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse. See Note 10 for additional information related to the provision (benefit) for income taxes. STOCK BASED COMPENSATION SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related Interpretations. Under APB Opinion No. 25, no compensation cost related to stock options has been recognized because all options are issued with exercise prices equal to the fair market value at the date of grant. See Note 9 for further discussion. COMPREHENSIVE INCOME Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and displaying comprehensive income or losses and its components in a full set of general purpose financial statements. Comprehensive income or loss encompasses all changes in shareholders' equity and includes net income (loss), net unrealized capital gains or losses on available for sale securities and foreign currency translation adjustments. Adoption of this pronouncement has not had a material impact on the Company's results of operations, as comprehensive loss for the years ended December 31, 1998, 1999 and 2000 was the same as net loss for the Company. SEGMENT DISCLOSURES SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way that public business enterprises or other enterprises that are required to file financial statements with the Securities & Exchange Commission report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company manages its business as one industry segment and the provisions of SFAS No. 131 have no significant effect on the Company's disclosures. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accruals approximate fair value because of the short-term nature of these items. Based on the current market F-61 62 rates offered for debt with similar risks and debt with similar maturities, the carrying amount of the Company's long-term debt, including current portion, also approximates fair value at December 31, 2000. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" has been issued effective for fiscal years beginning after June 15, 2000. SFAS No. 133, as amended, requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. The Company is required to adopt the provisions of SFAS No. 133, as amended, effective January 1, 2001; however, the Company does not expect the adoption to have a material effect on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") regarding revenue recognition in financial statements. SAB 101 was effective January 1, 2000 but implementation was delayed until the fourth quarter of 2000. The Company's implementation of SAB 101 in the fourth quarter did not have a material impact on its financial position, results of operations or cash flows on a quarterly or annual basis. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and 1999 consolidated financial statements to conform to the 2000 presentation. 4. ACCOUNTING CHARGES 1999 ACCOUNTING CHARGES In the fourth quarter of 1999, the Company recorded pre-tax accounting charges totaling $77,498,000 related to: (a) the recording of additional reserves related to accounts receivable that resulted in increased bad debt expense above previous quarters in 1999 ($17,133,000), (b) the write off of impaired goodwill ($41,032,000), (c) the recording of a valuation allowance for deferred tax assets ($19,847,000), (d) the recording of the anticipated loss on the dissolution of one of the Company's joint ventures ($936,000), and (e) the reversal of excess restructuring reserves originally recorded in 1997 ($1,450,000). The charge of $17,133,000 in additional accounts receivable reserves relates to several changes experienced in the receivables portfolio during 1999. During 1999, the Company placed a greater emphasis than in previous years on collecting current billings with less emphasis on pursuing the collection of older accounts. As a result of this strategy, overall collections for current billings in 1999 improved over the prior year; however, accounts greater than 120 days increased. In addition, some of the billing and collection issues experienced in 1998 continued to contribute to the deterioration in the aging statistics, particularly accounts aged over one year. Also during 1999, the Company continued to experience increased delays between the date services are provided and the actual billing date due to delays in obtaining necessary documentation. Finally, Medicare reimbursement changes which limited coverage of immune globulin therapies were implemented in 1999. These changing characteristics experienced in the receivable portfolio in 1999 prompted the Company to record additional specific reserves related to certain issues and adopt a reserve methodology, which provides additional reserves for accounts with advanced agings. This accounts receivable charge is included in operating expense and as a reduction of earnings from joint ventures in the accompanying 1999 consolidated statement of operations. The Company wrote off $40,271,000 of impaired goodwill as required under SFAS No. 121 due to a continuation of poor performance into 1999 of certain acquisitions. A deterioration in performance of many of these acquired businesses began in mid-1998 and, contrary to management's expectations, the negative trends did not reverse in 1999. The Company also wrote off impaired goodwill of certain of the F-62 63 Company's joint ventures which adversely impacted earnings from joint ventures by $761,000 in the accompanying 1999 consolidated statement of operations. The Company also recorded a valuation allowance for deferred tax assets in the amount of $19,847,000 due to uncertainty as to their realizability. Due to the fact that the Company has not generated taxable income for the three years ended December 31, 2000 and achieving future taxable income is uncertain, management believes a full valuation allowance to be appropriate. The Company received formal notice from three of its joint venture partners of their desire to dissolve their respective partnerships. The Company anticipated that the transaction to dissolve one of these partnerships would result in a loss to the Company in the amount of $936,000. This charge is included as a reduction in earnings from joint ventures in the accompanying 1999 consolidated statement of operations. After the dissolutions, these businesses are operated as wholly-owned operations. Subsequent to December 31, 1999, the Company settled a dispute with the owner of a business that the Company had previously managed under the terms of a management agreement. The potential loss on the settlement had been accrued as part of the Company's restructuring charge recorded in 1997. Due to the favorable outcome of the settlement, the Company reversed $1,450,000 in excess restructuring reserves in the year ended December 31, 1999. This reversal is included in restructuring in the accompanying 1999 consolidated statement of operations. 1998 ACCOUNTING CHARGES In the quarter ended September 30, 1998, the Company recorded pre-tax accounting charges totaling $15,243,000 related to: (a) certain events which occurred in the third quarter ($3,243,000), (b) the recording of additional reserves related to accounts receivable ($16,000,000), and (c) the reversal of excess restructuring accruals originally recorded in 1997 ($4,000,000). The charges of $3,243,000 relate to certain expenses associated with the retirement package of the former CEO, CEO transition expenses, deal costs of abandoned mergers and acquisitions, and a provision for adverse settlements related to accounting disputes with certain sellers of acquired businesses. These charges are included in general and administrative expenses in the accompanying 1998 consolidated statement of operations. The accounts receivable charge of $16,000,000 relates primarily to disruptions in collections as a result of the consolidation of billing centers and changes in certain billing procedures continuing from the 1997 restructuring. Billing center efficiencies have been affected because of personnel turnover and other adverse impacts of previous cost reduction plans. The termination of unprofitable contracts with certain health care institutions has also adversely affected collections on existing receivables. This accounts receivable charge is included in operating expense ($14,500,000) and general and administrative expense ($1,500,000) in the accompanying 1998 consolidated statement of operations. The Company adjusted its original estimates of restructuring costs related to the 1997 restructuring activities. This adjustment resulted in a $4,000,000 reversal of certain restructuring accruals and other reserves recorded in connection with the restructuring. This reversal is included in cost of sales ($386,000) and restructuring ($3,614,000) in the accompanying 1998 consolidated statement of operations. In addition to the 1998 third quarter charges, $1,291,000 of severance expense, related to former senior executive officers, was recorded as general and administrative expense, and $37,805,000 of impaired goodwill was written off (see Note 3). F-63 64 5. INVESTMENT IN JOINT VENTURE PARTNERSHIPS The Company owns 50% of 10 home health care businesses (the "Partnerships") that are operational as of December 31, 2000. The remaining 50% of each business is owned by local hospitals or other investors within the same community. The Company is solely responsible for the management of these businesses and receives management fees based upon a percentage of net revenues, net income or cash collections (ranging from 2% to 15%) or flat monthly fees (ranging from $500 to $18,500). During 2000, the Company converted six of its previously owned 50% joint ventures to wholly-owned operations as a result of the withdrawal of the hospital partners from the Partnerships. As a result of these transactions, the results of operations of these joint ventures have been consolidated into the financial results of the Company. Previously, these six joint ventures were accounted for under the equity method. In addition, the Company sold substantially all of the assets of one joint venture to a third-party and discontinued operations in preparation for dissolving the partnership in 2001. The Company provides accounting and receivable billing services to the Partnerships. The Partnerships are charged for their share of such costs based on contract terms. The Company's earnings from joint ventures include equity in earnings, management fees and fees for accounting and receivable billing services. The Company's investment in unconsolidated joint ventures includes receivables from (payables to) joint ventures of $10,728,000 and $(8,000) at December 31, 1999 and 2000, respectively. F-64 65 The Company guarantees a mortgage payable of one of the Partnerships. The balance of the guaranteed debt at December 31, 2000 is $414,000. Summarized financial information of all 50% owned partnerships at December 31, 1999 and 2000 and for the years then ended is as follows:
1999 2000 ------------ ------------ Cash $ 1,450,000 $ 772,000 Accounts receivable, net 10,379,000 6,499,000 Property and equipment, net 13,046,000 6,346,000 Other assets 5,886,000 4,843,000 ------------ ------------ Total assets $ 30,761,000 $ 18,460,000 ============ ============ Accounts payable and accrued expenses $ 12,078,000 $ 1,035,000 Debt 3,692,000 1,953,000 Partners' capital 14,991,000 15,472,000 ------------ ------------ Total liabilities and partners' capital $ 30,761,000 $ 18,460,000 ============ ============ Net sales and rental revenues $ 48,958,000 $ 38,667,000 Cost of sales 7,265,000 5,701,000 Operating and management fees 36,340,000 23,022,000 Depreciation, amortization and interest expense 9,287,000 4,679,000 ------------ ------------ Total expenses 52,892,000 33,402,000 ------------ ------------ Pre-tax income (loss) $ (3,934,000) $ 5,265,000 ============ ============
F-65 66 6. PROPERTY AND EQUIPMENT Property and equipment, at cost, consist of the following:
DECEMBER 31, -------------------------------- 1999 2000 ------------ ------------ Land $ 734,000 $ 647,000 Buildings and improvements 8,287,000 7,934,000 Rental equipment 134,292,000 143,000,000 Furniture, fixtures and equipment 26,660,000 29,202,000 Delivery equipment 4,585,000 3,878,000 ------------ ------------ $174,558,000 $184,661,000 ============ ============
Property and equipment under capital leases are included under the various equipment categories. 7. LONG-TERM DEBT AND LEASE COMMITMENTS Long-term debt and capital lease obligations consist of the following:
DECEMBER 31, -------------------------------- 1999 2000 -------------- -------------- Secured revolving line of credit $ 246,400,000 $ 245,843,000 Secured term loan 64,765,000 50,765,000 Notes payable, primarily secured with acquired assets, interest at 6.8%, principal and interest due annually, final principal and interest payment due on February 15, 2016 806,000 778,000 Mortgage note payable, secured by a building, interest at 8%, principal and interest due monthly, with balloon payment of $442,000 due July 1, 2004 548,000 527,000 Notes payable, primarily secured with acquired assets, with interest rates from 7% to prime, interest due quarterly, principal payment due at maturity date, final maturities through 2000. Amounts unpaid as of December 31, 2000 1,233,000 906,000 Acquisition note payable, interest at 7%, principal repaid in February 2000 1,000,000 -- Capital lease obligations, monthly principal and interest payments until 2003 670,000 333,000 -------------- -------------- 315,422,000 299,152,000 Less current portion (16,644,000) (2,679,000) -------------- -------------- $ 298,778,000 $ 296,473,000 ============== ==============
F-66 67 On April 14, 1999, the Company entered into a Second Amendment to the Fourth Amended and Restated Credit Agreement (the "Credit Agreement") in order to remain in compliance with certain financial covenants. This Second Amendment waived events of default as of December 31, 1998 and modified previously existing financial covenants. The Second Amendment established among other things, new covenants, a more limited borrowing availability and higher interest rates. As part of the amendment, the Company's credit availability under the Credit Agreement was reduced from $360,000,000 (temporarily reduced to $340,000,000 through April 1, 1999 pursuant to the First Amendment) to $328,600,000. The Credit Agreement included a $75,000,000 five-year Secured Term Loan and a $253,600,000 five-year Secured Revolving Line of Credit with a maturity of April 15, 2002. At December 31, 1999, the Company was not in compliance with certain covenants of the Credit Agreement. Noncompliance with these covenants gave the lenders the right to demand payment of outstanding amounts under the Credit Agreement. In addition, the Company was not able to borrow additional amounts under the Credit Agreement. On April 6, 2000, the Company entered into a Third Amendment to the Fourth Amended and Restated Credit Agreement in order to remain in compliance with certain financial covenants. The terms of the Third Amendment waived events of default as of December 31, 1999, modified existing financial covenants, required a $5,000,000 principal repayment with the effectiveness of the amendment, and froze the borrowing availability at the amounts outstanding at the time of the amendment. The Company's credit availability was reduced from $328,600,000 to $307,508,000, including a $58,265,000 term loan, a $246,400,000 revolving line of credit and a $2,843,000 letter of credit. As of January 31, 2001, the Company was not in compliance with several of the financial covenants of the Fourth Amended and Restated Credit Agreement; in addition, the Company failed to make the scheduled principal payment due March 15, 2001. Noncompliance with these covenants and failure to make the scheduled principal payment gave the lenders the right to demand payment of the Company's debt and to seize the Company's assets. On June 8, 2001, the Company entered into the Fifth Amended and Restated Credit Agreement (the "Amended Credit Agreement") that provided a new loan to the Company from which the proceeds were used to pay off all existing loans under the Credit Agreement. The Amended Credit Agreement also includes modified financial covenants and a revised amortization schedule. In addition, the Amended Credit Agreement no longer contains a revolving loan component, and all existing indebtedness is now in the form of a term loan which matures on December 31, 2002. Substantially all of the Company's assets have been pledged as security for borrowings under the Amended Credit Agreement. The Amended Credit Agreement further provides for the payment to the lenders of certain fees. These fees include a restructuring fee of $1,200,000 (paid on the effective date of the Amended Credit Agreement), $200,000 payable on each of December 31, 2001, March 31, 2002 and June 30, 2002, as well as $459,000 payable on September 30, 2002. In addition, the Company has an obligation to pay the agent an annual administrative fee of $75,000 and an annual fee of .50% of the average outstanding debt on each anniversary of the Amended Credit Agreement. The Amended Credit Agreement contains various financial covenants, the most restrictive of which relate to measurements of EBITDA, leverage, interest coverage ratios, and collections of accounts receivable. The Amended Credit Agreement also contains provisions for periodic reporting. The Amended Credit Agreement also contains restrictions which, among other things, impose certain limitations or prohibitions on the Company with respect to the incurrence of indebtedness, the creation of liens, the payment of dividends, the redemption or repurchase of securities, investments, acquisitions, capital expenditures, sales of assets and transactions with affiliates. The Company is not permitted to make acquisitions or investments in joint ventures without the consent of lenders holding a majority of the lending commitments under the Amended Credit Agreement. In addition, proceeds of all of the F-67 68 Company's accounts receivable are transferred daily into a bank account at PNC Bank, National Association which, under the terms of a Concentration Bank Agreement, requires that all amounts in excess of $3,000,000 be transferred to an account at Bankers Trust Company in the Company's name. Upon the occurrence of an event of default under the Amended Credit Agreement, the lenders have the right to instruct PNC Bank, National Association and Bankers Trust Company to cease honoring any drafts under the accounts and apply all amounts in the bank accounts against the indebtedness owed to the lenders. Interest is payable on the unpaid principal amount under the Amended Credit Agreement, at the election of the Company at either a "Base Lending Rate" or an "Adjusted Eurodollar Rate" (each defined in the Amended Credit Agreement), plus an applicable margin of 2.75% and 3.5%, respectively. The Company is also required to pay additional interest in the amount of 4.5% per annum on that principal portion outstanding of the Amended Credit Agreement that is in excess of four times adjusted EBITDA. Upon the occurrence and during the continuation of any events of noncompliance, interest is payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under the Amended Credit Agreement. In addition, in the event of noncompliance, the Adjusted Eurodollar Rate is no longer available for selection by the Company. In connection with the Second Amendment, the Company agreed to issue on March 31, 2001 warrants to the lenders representing 19.999% of the common stock of the Company issued and outstanding as of March 31, 2001. To fulfill these obligations, warrants to purchase 3,265,315 shares of common stock were issued to the Lenders on June 8, 2001. Fifty percent of these warrants are exercisable immediately and the remaining fifty percent will be exercisable on and after September 30, 2001 (provided loans, letters of credit or commitments are outstanding). The exercise price of the warrants is $0.01 per share. The Company has accounted for the fair value of these warrants during the fourth quarter of 2000 as the issuance of these warrants was determined to be probable. As such, the Company increased deferred financing costs to recognize the estimated fair value of the warrants as of December 31, 2000 ($686,000). As a result, in 2000, the Company also adjusted the related amortization of these costs on a cumulative basis using the effective interest method. Interest was payable on borrowings under the Credit Agreement, at the election of the Company, at either a "Base Lending Rate" or an "Adjusted Eurodollar Rate" (each as defined in the Credit Agreement), plus a margin of 2.50% and 3.25%, respectively, through September 30, 2000 and a margin of 2.75% and 3.50%, respectively, thereafter. Beginning September 30, 2000 the Company was required to pay additional interest in the amount of 4.5% per annum on that principal portion outstanding of the Credit Agreement that is in excess of four times adjusted EBITDA. In events of noncompliance, interest was payable by the Company at 2.0% per annum in excess of the rate defined by the Credit Agreement and the Company no longer had the right to borrow at the Adjusted Eurodollar rate, plus the applicable margin. All new borrowings would have to be subject to the Base Lending Rate, plus the applicable margin, which was a substantially higher rate of interest. At December 31, 2000, the weighted average borrowing rate was 12.4%. On September 15, 1999, the Company began making quarterly principal payments on the Secured Term Loan of $1,500,000 per quarter, and continued to make these quarterly principal payments through and including June 15, 2000. In addition, in connection with the Third Amendment a $5,000,000 principal repayment was required to be paid to the lenders upon the effectiveness of the amendment. On September 15, 2000, the Company began making quarterly principal payments on the Secured Term Loan of $3,000,000 per quarter through and including December 15, 2000. The Company was scheduled to make an additional quarterly principal payment of $3,000,000 on March 15, 2001, which was not made, and payments of $6,000,000 per quarter, beginning June 15, 2001, through and including December 15, 2001; and a $29,765,000 balloon payment due April 15, 2002. The Amended Credit Agreement requires principal payments of $750,000 on September 30, 2001 and December 31, 2001; a principal payment of $11,600,000 on March 31, 2002; principal payments of $1,000,000 on June 30, 2002 and September 30, 2002; and a $281,508,000 balloon payment due December 31, 2002. The Amended Credit Facility further provides for mandatory prepayments of principal from the Company's excess cash flow, as defined, or F-68 69 from the proceeds of the Company's sales of securities, sales of assets, tax refunds or excess casualty payments. Principal payments required on long-term debt (excluding capital leases) for the next five years and thereafter beginning January 1, 2001, based on the Amended Credit Agreement, are as follows: 2001 $ 2,458,000 2002 295,165,000 2003 60,000 2004 491,000 2005 38,000 Thereafter 607,000 ------------- $ 298,819,000 =============
CAPITAL LEASES The Company leases certain equipment under capital leases. Future minimum rental payments required on capital leases beginning January 1, 2001, less amounts representing interest, are as follows: 2001 $ 243,000 2002 127,000 2003 18,000 --------- 388,000 Less amounts representing interest (55,000) --------- $ 333,000 =========
8. COMMITMENTS AND CONTINGENCIES OPERATING LEASE COMMITMENTS The Company has noncancelable operating leases on certain land, vehicles, buildings and equipment. The approximate minimum future rental commitments on the operating leases for the next five years beginning January 1, 2001 are as follows: 2001 $ 13,143,000 2002 9,376,000 2003 5,167,000 2004 2,259,000 2005 1,117,000 Thereafter 1,643,000 ------------ $ 32,705,000 ============
Rent expense for all operating leases was approximately $15,695,000, $15,057,000 and $14,672,000, in 1998, 1999 and 2000, respectively. LITIGATION The Company is subject to certain known or possible litigation incidental to the Company's business, which, in management's opinion, will not have a material adverse effect on the Company's results of operations or financial condition. See discussion of government investigation issues under the Health Care Industry section of this Note. F-69 70 Professional liability insurance up to certain limits is carried by the Company for coverage of such claims. See Note 11 for further discussion. EMPLOYMENT AND CONSULTING AGREEMENTS The Company has employment agreements with certain members of management which provide for the payment to these members of amounts up to one to three times their annual compensation in the event of a termination without cause, a constructive discharge (as defined) or upon a change in control of the Company (as defined). The terms of such agreements are from one to three years and automatically renew for one year. The maximum contingent liability under these agreements at December 31, 2000 is approximately $5,749,000. SELF-INSURANCE The Company is self-insured for workers compensation claims for the first $250,000 on a per claim basis and maintains annual aggregate stop loss coverage ranging from $1,500,000 to $1,700,000 over the last three years. The Company is self-insured for health insurance for substantially all employees for the first $150,000 on a per claim basis and maintains annual aggregate stop loss coverage ranging from $6,000,000 to $10,100,000 over the last three years. The health insurance policies are limited to a maximum lifetime reimbursement of $1,000,000 per person for medical claims and $1,000,000 per person for mental illness and drug and alcohol abuse claims. Liabilities in excess of these aggregate amounts are the responsibility of the insurer. The Company provides reserves for the settlement of outstanding claims and claims incurred but not reported at amounts believed to be adequate. The differences between actual settlements and reserves are included in expense in the year finalized. LETTERS OF CREDIT The Company has in place three letters of credit totaling $2,843,000 securing obligations with respect to its workers' compensation self-insurance program and its capital equipment under operating leases. Effective January 1, 2001, the Company was required to increase these letters of credit to $3,400,000. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Company established a Supplemental Executive Retirement Plan (the "SERP") to provide retirement benefits for officers and employees of the Company at the level of manager and above who have been designated for participation by the President of the Company. Participants in the SERP were eligible to receive benefits thereunder after reaching normal retirement age, which was defined in the SERP as either (i) age 65, (ii) age 60 and 10 years of service, or (iii) age 55 and 15 years of service. Under the SERP, participants could defer up to 6% of their base pay. The Company made matching contributions of 100% of the amount deferred by each participant. Benefits under the SERP became fully vested upon the participant reaching normal retirement age or the participant's disability or death. In addition, if there was a change in control of the Company as defined in the SERP, all participants would be fully vested and each participant would be entitled to receive their benefits under the SERP upon termination of employment. The SERP trust funds were at risk of loss. If the Company became insolvent, its creditors would be entitled to a claim to the funds superior to the claim of SERP participants. F-70 71 Due to limited participation in the SERP, the Company's Board of Directors on February 3, 1999, approved the termination of the SERP and authorized appropriate amendments to the SERP to allow the prompt distribution in 1999 of all funds thereunder to participants. 401K RETIREMENT SAVINGS PLAN The Company maintains a 401k Retirement Savings Plan (the "401k"), administered by ReliaStar Life Insurance Company, to provide a tax deferred retirement savings plan to its employees. To qualify, employees must be at least 21 years of age, with twelve months of continuous employment and must work at least twenty hours per week. The 401k is 100% employee funded with contributions limited to 1% to 15% of employee compensation. Effective January 1, 2001 the Company will match 25% of the first 3% of employee contributions. HEALTH CARE INDUSTRY The Company, as a participant in the health care industry, is subject to extensive federal, state and local regulation. In addition to the False Claims Act and other federal and state anti-kickback and self-referral laws applicable to all of the Company's operations (discussed more fully below), the operations of the Company's home health care centers are subject to federal laws covering the repackaging and dispensing of drugs (including oxygen) and regulating interstate motor-carrier transportation. Such centers also are subject to state laws (most notably licensing and controlled substances registration) governing pharmacies, nursing services and certain types of home health agency activities. Additionally, certain of the Company's employees are subject to state laws and regulations governing the professional practice of respiratory therapy, pharmacy and nursing. Information about individuals and other health care providers who have been sanctioned or excluded from participation in government reimbursement programs is readily available on the Internet, and all health care providers, including the Company, are held responsible for carefully screening entities and individuals they employ or do business with, to avoid contracting with an excluded provider. The federal government may impose financial penalties on companies that contract with excluded providers. The Company's operations are also subject to a series of laws and regulations dating back to the Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") which apply to the Company's operation. Periodic changes have occurred from time to time since OBRA 1987, including reimbursement reduction and changes to payment rules. The Federal False Claims Act imposes civil liability on individuals or entities that submit false or fraudulent claims to the government for payment. False Claims Act penalties for violations can include sanctions, including civil monetary penalties. As a provider of services under the federal reimbursement programs such as Medicare, Medicaid and TRICARE (formerly CHAMPUS), the Company is subject to the anti-kickback statute, also known as the "fraud and abuse law." This law prohibits any bribe, kickback, rebate or remuneration of any kind in return for, or as an inducement for, the referral of patients for government-reimbursed health care services. The Company may also be affected by the federal physician self-referral prohibition, known as the "Stark Law", which, with certain exceptions, prohibits physicians from referring patients to entities in which they have a financial relationship. Many states in which the Company operates have adopted similar self-referral laws, as well as laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care providers, under the theory that such arrangements are designed to induce or to encourage the referral of patients to a particular provider. In many states, these laws apply to services reimbursed by all payor sources. In 1996, the Health Insurance Portability and Accountability Act introduced a new category of federal criminal health care fraud offenses. If a violation of a federal criminal law relates to a health care benefit, then an individual is guilty of committing a Federal Health Care Offense. The specific offenses are: health care fraud; theft or embezzlement; false statements, obstruction of an investigation; and money laundering. These crimes can apply to claims submitted not only to government reimbursement programs F-71 72 such as Medicare, Medicaid and TRICARE, but to any third-party payor, and carry penalties including fines and imprisonment. The Company must follow strict requirements with paperwork and billing. As required by law, it is Company policy that certain service charges (as defined by Medicare) falling under Medicare Part B are confirmed with a Certificate for Medical Necessity ("CMN") signed by a physician. In January, 1999, the Office of Inspector General of the U.S. Department of Health and Human Services ("OIG") published a draft Model Compliance Plan for the Durable Medical Equipment, Prosthetics, Orthotics and Supply Industry. The OIG has stressed the importance for all health care providers to have an effective compliance plan. The Company has created and implemented a compliance program, which it believes meets the elements of the OIG's Model Plan for the industry. As part of its compliance program, the Company performs internal audits of the adequacy of billing documentation. The Company's policy is to voluntarily refund to the government any reimbursements previously received for claims with insufficient documentation that are identified in this process and that cannot be corrected. The Company regularly reviews and updates its policies and procedures in an effort to comply with applicable laws and regulations; however, certain proceedings have been and may in the future be commenced against the Company alleging violations of applicable laws governing the operation of the Company's business and its billing practices. Health care law is an area of extensive and dynamic regulatory oversight. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on permissible activities, the relative costs associated with doing business, and the amount and availability of reimbursement from government and other third-party payors. Compliance with these extensive, complex and frequently-changing laws and regulations is difficult. In recent years, various state and federal regulatory agencies have stepped up investigative and enforcement activities with respect to the health care industry, and many health care providers, including the Company and other durable medical equipment suppliers, have received subpoenas and other requests for information in connection with their business operations and practices. From time to time the Company also receives notices and subpoenas from various government agencies concerning plans to audit the Company, or requesting information regarding certain aspects of the Company's business. The Company cooperates with the various agencies in responding to such subpoenas and requests. The Company expects to incur additional legal expenses in the future in connection with existing and future investigations. The government has broad authority and discretion in enforcing applicable laws and regulations; therefore, the scope and outcome of any such investigations, inquiries, or legal actions cannot be predicted. There can be no assurance that federal, state or local governments will not impose additional regulations upon the Company's activities nor that the Company's activities will not be found to have violated some of the governing laws and regulations. Any such regulatory changes or findings of violations of laws could adversely affect the Company's business and financial position, and could even result in the exclusion of the Company from participating in Medicare, Medicaid, and other government reimbursement programs. On June 11, 2001, a settlement agreement (the "Settlement") was entered among the Company, the United States of America, acting through the United States Department of Justice ("DOJ") and on behalf of the OIG and the TRICARE Management Activity, and a former Company employee, as relator. This settlement covers alleged improprieties by the Company during the period from January 1, 1995 through December 31, 1998, including allegedly improper billing activities and allegedly improper remuneration to, and contracts with physicians, hospitals and other healthcare providers. The Company has been dealing with the issues covered by the Settlement since February 1998, when the OIG served a subpoena on the Company at its Pineville, Kentucky center. Pursuant to the Settlement, the Company has made an initial payment of $3,000,000 and has agreed to make additional payments in the principal amount of $4,000,000, together with interest on this amount, in installments due at various times over the next 57 months. The Company has also agreed to pay the relator's attorneys fees and expenses, the amount of which will be determined by binding arbitration. The Company has recorded a reserve in the amount of $7,500,000 based upon the F-72 73 Settlement Agreement. The Settlement does not resolve the relator's claims that the Company discriminated against him as a result of his reporting alleged violations of the law to the government. The Company denies and intends to vigorously defend these claims. The Settlement has been submitted to Judge Russell of the United States District Court for the Western District of Kentucky for his final approval, which is expected to be received. The Company also was named as a defendant in two other False Claims Act cases. In each of those cases the DOJ declined to intervene and such cases were subsequently dismissed in March 2001. In one of these cases, the plaintiff has appealed the dismissal of this action. The Company also has been informed that the United States is investigating its conduct during periods after December 31, 1998, and believes that this investigation was prompted by another qui tam complaint against the Company under the False Claims Act. The Company has not seen a complaint in this action, but believes that it contains allegations similar to the ones investigated by the government in connection with the False Claims Act case covered by the settlement discussed above. The Company believes that this second case will be limited to allegedly improper activities occurring after December 31, 1998. There can be no assurances as to the final outcome of the pending False Claims Act lawsuits or any pending or future investigation by the government. Possible outcomes include, among other things, the repayment of reimbursements previously received by the Company related to improperly billed claims, the imposition of fines or penalties, and the suspension or exclusion of the Company from participation in the Medicare, Medicaid and other government reimbursement programs. The outcome of any pending lawsuits and investigations could have a material adverse effect on the Company. F-73 74 9. SHAREHOLDERS' EQUITY AND STOCK PLANS NONQUALIFIED STOCK OPTION PLANS Under the 1991 Nonqualified Stock Option Plan (the "Plan"), as amended as of November 8, 2000, 4,500,000 shares of common stock have been reserved for issuance upon exercise of options granted thereunder. The maximum term of any option granted pursuant to the Plan is ten years. Shares subject to options granted under the Plan which expire, terminate or are canceled without having been exercised in full become available again for future grants. An analysis of stock options outstanding is as follows:
WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- -------------- OUTSTANDING AT DECEMBER 31, 1997 1,603,058 $17.85 Granted 1,274,500 $ 7.70 Exercised (35,109) $13.33 Canceled (787,118) $17.34 ---------- ------ OUTSTANDING AT DECEMBER 31, 1998 2,055,331 $11.82 Granted 424,000 $ 0.56 Exercised (10,000) $ 1.06 Canceled (310,725) $16.72 ---------- ------ OUTSTANDING AT DECEMBER 31, 1999 2,158,606 $ 8.96 Granted 803,000 $ 0.18 Canceled (226,577) $10.97 ---------- ------ OUTSTANDING AT DECEMBER 31, 2000 2,735,029 $ 6.22 ========== ====== EXERCISABLE AT DECEMBER 31, 2000 1,800,191 $ 8.75 ========== ======
F-74 75 Options granted under the Plan have the following characteristics:
WEIGHTED AVERAGE WEIGHTED EXERCISE PRICE AVERAGE OPTIONS OF OPTIONS WEIGHTED REMAINING EXERCISABLE AT EXERCISABLE AT OPTIONS EXERCISE AVERAGE CONTRACTUAL DECEMBER 31, DECEMBER 31, OUTSTANDING PRICES EXERCISE PRICE LIFE IN YEARS 2000 2000 ----------- --------- -------------- ------------- -------------- -------------- 17,338 $ 6.00 $ 6.00 0.7 17,338 $ 6.00 30,000 $10.04 $10.04 3.5 30,000 $10.04 192,188 $15.83 to $16.53 4.1 192,188 $16.53 $20.67 345,203 $17.50 to $17.93 5.1 345,203 $17.93 $22.50 96,500 $21.50 $21.50 6.1 96,500 $21.50 836,800 $ 2.13 to $ 5.70 7.8 711,212 $ 5.28 $18.13 414,000 $ 0.56 $ 0.56 8.9 207,000 $ 0.56 803,000 $ 0.17 to $ 0.18 9.8 200,750 $ 0.18 $ 0.54 --------- --------- 2,735,029 1,800,191 ========= =========
Options granted during 1996 have a two year vesting period and expire in ten years. Options granted during 1997 have two and three year vesting periods and expire in ten years. Options granted during 1998 to all employees, except officers and directors, have one, two, three and four year vesting periods and expire in ten years. Options granted during 1999 vested upon grant or have a three year vesting period and expire in ten years. Options granted during 2000 have a three year vesting period and expire in ten years. As of December 31, 2000, shares available for future grants of options under the Plan total 530,581. F-75 76 Under the 1995 Nonqualified Stock Option Plan for Directors (the "1995 Plan"), as amended as of February 10, 2000, 600,000 shares of common stock have been reserved for issuance upon exercise of options granted thereunder. The maximum term of any option granted pursuant to the 1995 Plan is ten years. Shares subject to options granted under the Plan which expire, terminate or are canceled without having been exercised in full become available for future grants. In 1996, the Company granted options for 24,000 shares of common stock at an exercise price of $26.25. In 1997, the Company granted options for 24,000 shares of common stock at an exercise price of $21.06. In 1998, the Company granted options for 31,500 shares of common stock at exercise prices of $1.69 and $19.00. In 1999, the Company granted options for 24,000 shares of common stock at an exercise price of $.53. In 2000, the Company granted options for 215,000 shares of common stock at exercise prices of $0.30, $0.22 and $0.20. The issued options are fully vested and expire in ten years. None of these options have been exercised. The Company has adopted the disclosure provisions of SFAS No. 123. Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option and employee stock purchase plans been determined based on the fair value at the grant date of awards in 1998, 1999 and 2000 consistent with the provisions of SFAS No. 123, the Company's net loss and net loss per common share would have been increased to the pro forma amounts indicated below:
1998 1999 2000 ------------ -------------- ------------ Net loss - as reported $(38,978,000) $ (99,860,000) $(31,666,000) Net loss - pro forma (40,796,000) (100,998,000) (32,158,000) Net loss per common share - as reported Basic (2.60) (6.55) (2.01) Diluted (2.60) (6.55) (2.01) Net loss per common share - pro forma Basic (2.72) (6.63) (2.04) Diluted (2.72) (6.63) (2.04)
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The weighted average fair value of options granted were $2.44, $0.20 and $0.08 for 1998, 1999 and 2000, respectively. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1998, 1999 and 2000:
1998 1999 2000 ------------ ------------ ------------ Dividend yield 0% 0% 0% Expected volatility 42.0 45.0 45.0 Expected lives 1 to 4 years 1 to 3 years 1 to 3 years Risk-free interest rate range 4.6% to 5.6% 4.8% to 6.0% 5.87% to 6.42%
F-76 77 EMPLOYEE STOCK PURCHASE PLAN The Company's 1993 Stock Purchase Plan (the "Stock Purchase Plan") originally reserved 750,000 shares for issuance to employees. Under the Stock Purchase Plan, employees may purchase common stock, subject to certain limitations, at 85% of the lower of the closing market price at the beginning or at the end of each plan year, which is the last day of February. As of December 31, 2000, 648,268 shares have been issued under this plan. COMMON STOCK ISSUED TO COMPANY MANAGEMENT On November 8, 2000, the Company's Board of Directors granted certain members of Company management the right to immediately purchase 385,000 shares of common stock directly from the Company at the closing market price of $0.17 per share on that date. WARRANTS In 1998, warrants were exercised for 12,000 shares of common stock at $8.33 per share. There are no outstanding warrants as of December 31, 2000. In connection with the Second Amendment to the Fourth Amended and Restated Credit Agreement, the Company agreed to issue on March 31, 2001, warrants to the lenders representing 19.999% of the common stock of the Company issued and outstanding as of March 31, 2001. To fulfill these obligations, warrants to purchase 3,265,315 shares of common stock were issued to the lenders on June 8, 2001. Fifty percent of these warrants are exercisable immediately, and the remaining fifty percent will be exercisable on and after September 30, 2001. The exercise price of the warrants is $0.01 per common share. The Company has accounted for the estimated fair value of these warrants ($686,000) during the fourth quarter of 2000 as the issuance of these warrants was determined to be probable. As such, the Company increased deferred financing costs to recognize the fair value of the warrants as of December 31, 2000, and adjusted the related amortization. PREFERRED STOCK The Company's certificate of incorporation was amended in 1996 to authorize the issuance of up to 5,000,000 shares of preferred stock. The Company's Board of Directors is authorized to establish the terms and rights of each such series, including the voting powers, designations, preferences, and other special rights, qualifications, limitations or restrictions thereof. As of December 31, 2000, no preferred shares have been issued. EARNINGS (LOSS) PER SHARE SFAS No. 128 "Earnings Per Share" establishes standards for computing and presenting earnings per share. Under the standards established by SFAS No. 128, earnings per share is measured at two levels: basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares after considering the additional dilution related to convertible preferred stock, convertible debt, options and warrants. In computing diluted earnings per share, the outstanding stock warrants and stock options are considered dilutive using the treasury stock method. F-77 78 The following table information is necessary to calculate earnings per share for the years ending December 31, 1998, 1999 and 2000:
1998 1999 2000 ---------------- ---------------- ------------ Net loss $ (38,978,000) $ (99,860,000) $(31,666,000) ================ ================ ============ Weighted average common shares outstanding 14,986,000 15,236,000 15,783,000 Effect of dilutive options and warrants -- -- -- ---------------- ---------------- ------------ Adjusted diluted common shares outstanding 14,986,000 15,236,000 15,783,000 ================ ================ ============ Net loss per common share Basic $ (2.60) $ (6.55) $ (2.01) ================ ================ ============ Diluted $ (2.60) $ (6.55) $ (2.01) ================ ================ ============
Securities that could potentially dilute basic earnings (loss) per share that were not included in the calculations above, because of the anti-dilutive effects for 1998, 1999 and 2000, include all outstanding stock options and warrants previously discussed. 10. INCOME TAXES The provision (benefit) for income taxes is comprised of the following components:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------ 1998 1999 2000 ------------ ------------ -------- Current Federal $ (4,528,000) $ 6,625,000 $ -- State (146,000) 598,000 600,000 ------------ ------------ -------- (4,674,000) 7,223,000 600,000 ------------ ------------ -------- Deferred Federal (6,074,000) 12,931,000 -- State (196,000) 291,000 -- ------------ ------------ -------- (6,270,000) 13,222,000 -- ------------ ------------ -------- Provision (benefit) for income taxes $(10,944,000) $ 20,445,000 $600,000 ============ ============ ========
F-78 79 The difference between the actual income tax provision (benefit) and the tax provision (benefit) computed by applying the statutory federal income tax rate to earnings before taxes is attributable to the following:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1998 1999 2000 ------------ ------------ ------------ Provision (benefit) for federal income taxes at statutory rate $(17,473,000) $(27,795,000) $(10,873,000) State income taxes, net of federal tax benefit (564,000) (627,000) (1,081,000) Valuation allowance -- 47,906,000 8,768,000 Other, principally non-deductible goodwill and other expenses 7,093,000 961,000 3,786,000 ------------ ------------ ------------ Provision (benefit) for income taxes $(10,944,000) $ 20,445,000 $ 600,000 ============ ============ ============
The net deferred tax assets and liabilities, at the respective income tax rates, are as follows:
DECEMBER 31, ---------------------------- 1999 2000 ------------ ------------ Current deferred tax assets (liabilities): Accrued restructuring liabilities $ 481,000 $ 209,000 Accounts receivable reserves 19,294,000 13,133,000 Accrued liabilities and other 3,710,000 4,643,000 ------------ ------------ 23,485,000 17,985,000 Less valuation allowance (23,485,000) (17,985,000) ------------ ------------ Net current deferred tax asset $ -- $ -- ============ ============ Noncurrent deferred tax assets (liabilities): Financial reporting amortization in excess of tax amortization $ 15,211,000 $ 15,463,000 Alternative minimum tax credit 1,809,000 2,164,000 Net operating loss carryforward 5,674,000 19,929,000 Noncurrent asset valuation reserves 738,000 638,000 Other 5,050,000 5,687,000 Acquisition costs (2,739,000) (2,739,000) Tax depreciation in excess of financial reporting depreciation (1,322,000) (2,453,000) ------------ ------------ 24,421,000 38,689,000 Less valuation allowance (24,421,000) (38,689,000) ------------ ------------ Net noncurrent deferred tax assets $ -- $ -- ============ ============
Due to the Company's continuing historical losses and projected future losses, there is uncertainty surrounding the realization of the deferred tax assets; thus, the Company recorded a valuation allowance to fully reserve all net deferred tax assets as of December 31, 1999 and 2000. At December 31, 2000, the Company had net operating loss carryforwards of approximately $51,431,000 available to offset future taxable income which expire in varying amounts in 2020 and 2021. In 1998, the Company realized tax deductions resulting from employees' exercise of non-qualified stock options and recorded tax benefits of $35,000 to paid-in capital. There was no exercise of employees' non-qualified stock options in 1999 or 2000. F-79 80 11. PROFESSIONAL LIABILITY INSURANCE The Company's professional liability policies are on an occurrence basis and are renewable annually with per claim coverage limits of up to $1,000,000 per occurrence and $3,000,000 in the aggregate. The Company maintains a commercial general liability policy which includes product liability coverage on the medical equipment that it sells or rents with per claim coverage limits of up to $1,000,000 per occurrence with a $2,000,000 product liability annual aggregate and a $2,000,000 general liability annual aggregate. The Company also maintains excess liability coverage with a limit of $50,000,000 per occurrence and $50,000,000 in the aggregate. While management believes the manufacturers of the equipment it sells or rents currently maintain their own insurance, and in some cases the Company has received evidence of such coverage and has been added by endorsement as additional insured, there can be no assurance that such manufacturers will continue to do so, that such insurance will be adequate or available to protect the Company, or that the Company will not have liability independent of that of such manufacturers and/or their insurance coverage. There can be no assurance that any of the Company's insurance will be sufficient to cover any judgments, settlements or costs relating to any pending or future legal proceedings or that any such insurance will be available to the Company in the future on satisfactory terms, if at all. If the insurance carried by the Company is not sufficient to cover judgments, settlements or costs relating to pending or future legal proceedings, the effect would be material to the Company's business and financial condition. 12. RELATED PARTY TRANSACTIONS Effective January 1, 1992 and for a term of one year, the Company entered into a consulting agreement with the then chairman of the Company and the chairman and chief executive officer of Counsel Corporation ("Counsel"). The agreement was renewed each year through 1998, but not renewed in 1999. The agreement provided for a base consulting fee of $20,000 per month, with additional compensation at the discretion of the Board of Directors of up to $60,000 per year. The Company paid $240,000 pursuant to this agreement for 1998. Effective May 1994 through May 2000, the president of Counsel became chairman of the Company and received a consulting fee of $8,500 per month for his service as chairman. The Company paid $102,000, $102,000 and $43,000 under this agreement for 1998, 1999 and 2000, respectively. As of December 31, 1999 Counsel owned approximately 26% of the Company's common stock. In 2000, Counsel distributed its holdings of the Company's common stock to Counsel's shareholders. A director of the Company is a partner in the law firm of Harwell Howard Hyne Gabbert & Manner, P.C. ("H3GM") which the Company engaged during 1998, 1999 and 2000 to render legal advice in a variety of activities for which H3GM was paid $1,727,000, $931,000 and $687,000, respectively. F-80 81 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The unaudited quarterly financial data for December 31, 1999 and 2000 consists of the following:
FIRST SECOND THIRD FOURTH 2000 QUARTER QUARTER QUARTER QUARTER TOTAL ---- -------- -------- -------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------------------------------------------------- Net revenues $ 87,890 $ 91,135 $ 91,504 $ 92,843 $ 363,372 ======== ======== ======== ========= ========= Net loss $ (8,574) $ (5,830) $ (5,409) $ (11,853)(1) $ (31,666) ======== ======== ======== ========= ========= Basic loss per share $ (.55) $ (.37) $ (.35) $ (.74)(1) $ (2.01) ======== ======== ======== ========= ========= Diluted loss per share $ (.55) $ (.37) $ (.35) $ (.74)(1) $ (2.01) ======== ======== ======== ========= ========= FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER TOTAL ---- -------- -------- -------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------------------------------------------------- Net revenues $ 91,238 $ 90,423 $ 89,312 $ 86,607 $ 357,580 ======== ======== ======== ========= ========= Net loss $ (5,576) $ (4,877) $ (5,182) $ (84,225)(2) $ (99,860) ======== ======== ======== ========= ========= Basic loss per share $ (.37) $ (.32) $ (.34) $ (5.52)(2) $ (6.55) ======== ======== ======== ========= ========= Diluted loss per share $ (.37) $ (.32) $ (.34) $ (5.52)(2) $ (6.55) ======== ======== ======== ========= =========
1) Includes $7,500,000 pre-tax charge related to a provision for litigation settlement. 2) Includes $77,500,000 of pre-tax charges primarily related to goodwill, accounts receivable and deferred income taxes (see Note 4). F-81 82 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------- ---------------------- 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 33-42777 on Form S-1). 3.2 Certificate of Amendment to the Certificate of Incorporation of the Company dated October 31, 1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Company's Registration Statement No. 33-42777 on Form S-1). 3.3 Certificate of Amendment to the Certificate of Incorporation of the Company Dated May 14, 1992 (incorporated by reference to the Company's Registration Statement on Form S-8 dated February 16, 1993). 3.4 Certificate of Ownership and Merger merging American HomePatient, Inc. into Diversicare Inc. dated May 11, 1994 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement No.33-89568 on Form S-2). 3.5 Certificate of Amendment to the Certificate of Incorporation of the Company dated July 8, 1996 (incorporated by reference to Exhibit 3.5 to the Company's Report of Form 10-Q for the Quarter ended June 30, 1996). 3.6 Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement No. 33-42777 on Form S-1). 10.1 Subsidiary Security Agreement dated October 20, 1994 by and among Bankers Trust Company and certain direct and indirect subsidiaries of American HomePatient, Inc. (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.2 Borrower Security Agreement dated October 20, 1994, by and between Bankers Trust Company and American HomePatient, Inc. (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.3 1991 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.4 Amendment No. 4 to 1991 Nonqualified Stock Option Plan (incorporated herein by reference to Exhibit A of Schedule 14A dated April 17, 1995). 10.5 1995 Nonqualified Stock Option Plan for Directors (incorporated herein by reference to Exhibit B of Schedule 14A dated April 17, 1995).
83
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------- ---------------------- 10.6 1993 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.7 Trust Agreement for the Company Master Plan dated January 1, 1992, by and between the Company and C&S/Sovran Trust Company (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.8 Restated Master Agreement and Supplemental Executive Retirement Plan (restated as of December 31, 1993) (incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.9 Agreement of Partnership of Homelink Home Healthcare Partnership dated February 28, 1985, by and between Med-E-Quip Rental and Leasing, Inc. and Homelink Home Health Care Services, Inc., as amended by First Amendment to Agreement of Partnership of Homelink Home Health Care Partnership dated February 28, 1988, by and between Med-E-Quip Rental and Leasing, Inc. and Homelink Home Healthcare Services, Inc. and Second Amendment to Agreement of Partnership of Homelink Home Health Care Partnership dated October 1, 1988, by and between Med-E-Quip Rental and Leasing, Inc. and Homelink Home Health Care Services, Inc. and Third Amendment to Agreement of Partnership of Homelink Healthcare Partnership dated October 1, 1991, by and between Med-E-Quip Rental and Leasing, Inc. and Homelink Home Health Care Services, Inc. (incorporated by reference to Exhibit 10.46 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.10 Form of Underwriting Agreement (incorporated by reference to Exhibit 1 to the Company's Registration Statement No. 33-89568 on Form S-2). 10.11 Borrower Partnership Security Agreement dated December 28, 1995 by and between Bankers Trust Company and the Company (incorporated by reference to Exhibit 10.69 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.12 Subsidiary Partnership Security Agreement dated December 28, 1995 by and between Bankers Trust Company and certain direct and indirect subsidiaries of the Company (incorporated by reference to Exhibit 10.70 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
84
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------- ---------------------- 10.13 Amended and Restated Borrower Pledge Agreement dated December 28, 1995 by and between Bankers Trust Company and the Company (incorporated by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.14 Amended and Restated Subsidiary Pledge Agreement dated December 28, 1995 by and among Bankers Trust Company and certain direct and indirect subsidiaries of the Company (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.15 Subsidiary Guaranty dated October 20, 1994 by certain direct and indirect subsidiaries of the Company (incorporated by reference to Exhibit 10.73 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.16 Lease and addendum as amended dated October 25, 1995 by and between Principal Mutual Life Insurance Company and American HomePatient, Inc. (incorporated by reference to Exhibit 10.47 to the Company's Report on Form 10-K for the year ended December 31, 1996). 10.17 Amendment No. 7 to 1991 Nonqualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended March 31, 1998). 10.18 Employment Agreement effective December 1, 2000 between the Company and Joseph F. Furlong, III (incorporated by reference to Exhibit 10.57 to the Company's Report on Form 10-K for the year ended December 31, 2000). 10.19 Employment Agreement dated January 1, 2001 between the Company and Marilyn O'Hara (incorporated by reference to Exhibit 10.58 to the Company's Report on Form 10-K for the year ended December 31, 2000). 10.20 Employment Agreement dated January 1, 2001 between the Company and Thomas E. Mills (incorporated by reference to Exhibit 10.59 to the Company's Report on Form 10-K for the year ended December 31, 2000). 10.21 Fifth Amended and Restated Credit Agreement dated June 12, 2001 by and among American HomePatient, Inc., the Lenders named therein and Bankers Trust Company. 10.22 Form of Promissory Note dated May 25, 2001 by and between American HomePatient, Inc. and each of Bankers Trust Company, Longacre Master Fund Ltd. and Citibank, N.A. 10.23 Warrant Agreement dated June 12, 2001 by and among American HomePatient, Inc., the Lenders and Bankers Trust Company.
85
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------- ---------------------- 21 Subsidiary List (incorporated by reference to Exhibit 21 to the Company's Report on Form 10-K for the year ended December 31, 2000). 23.1 Consent of Arthur Andersen LLP. 99.1 Press Release.
86 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS to American HomePatient, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements, as restated, included in American HomePatient, Inc. and subsidiaries' annual report to shareholders in this Form 10-K/A, and have issued our report thereon, dated March 6, 2001 (except with respect to the matters discussed in Notes 2 and 7, as to which the date is June 8, 2001 and the matter discussed in Note 8, as to which the date is June 11, 2001). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of American HomePatient, Inc.'s management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Nashville, Tennessee March 6, 2001 (except with respect to the matters discussed in Notes 2 and 7, as to which the date is June 8, 2001 and the matter discussed in Note 8, as to which the date is June 11, 2001) S-1 87 AMERICAN HOMEPATIENT, INC. SCHEDULE II - VALUATION AND QUALIFYING Accounts For the Years Ended December 31, 1998, 1999 and 2000
Column A Column B Column C Column D Column E -------- -------- -------- ------------- ----------- Additions --------------------------------------- Balance at Charged Balance at Beginning Bad Debt to Other End of Description of Period Expense Accounts Other Deductions(3) Period ----------- ----------- ----------- ---------- ---------- ------------- ----------- FOR THE YEAR ENDED DECEMBER 31, 2000: Allowance for doubtful accounts $56,876,000 $23,449,000 $ -- $3,766,000(1) $43,229,000 $40,862,000 ----------- ----------- ---------- ---------- ----------- ----------- FOR THE YEAR ENDED DECEMBER 31, 1999: Allowance for doubtful accounts $41,147,000 $35,729,000 $ -- $1,045,000(1) $21,045,000 $56,876,000 ----------- ----------- ---------- ---------- ----------- ----------- FOR THE YEAR ENDED DECEMBER 31, 1998: Allowance for doubtful accounts $43,862,000 $29,857,000 $ -- $ 868,295(2) $33,440,295 $41,147,000 ----------- ----------- ---------- ---------- ----------- -----------
(1) Amounts recorded as a result of dissolving and consolidating previously 50% owned joint ventures. (2) Amounts recorded in connection with acquisitions. (3) Amounts written off as uncollectible accounts, net of recoveries. S-2 EX-10.21 2 g70082aex10-21.txt FIFTH AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.21 FIFTH AMENDED AND RESTATED CREDIT AGREEMENT BY AND AMONG AMERICAN HOMEPATIENT, INC., THE LENDERS NAMED HEREIN AND BANKERS TRUST COMPANY, AS THE AGENT ---------------------------------- DATED AS OF MAY 25, 2001 ---------------------------------- 2 TABLE OF CONTENTS*
Page Section 1. Definitions and Principles of Construction.............................1 1.01 Defined Terms................................................................1 1.02 Principles of Construction..................................................20 Section 2. Amount and Terms of Credit............................................20 2.01 The Loans...................................................................20 2.02 Prepayment of Loans Outstanding on Effective Date; Notes....................20 2.03 Interest on the Loans.......................................................21 2.04 Increased Costs; Taxes......................................................24 2.05 Use of Proceeds.............................................................27 2.06 Special Provisions Governing Eurodollar Rate Loans..........................27 2.07 Letters of Credit...........................................................32 2.08 Loan Accounts...............................................................38 Section 3. Fees..................................................................38 3.01 Fees........................................................................38 Section 4. Prepayments and Payments..............................................39 4.01 Scheduled Payments of Loans.................................................39 4.02 Prepayments.................................................................39 4.03 Application of Prepayments..................................................41 4.04 General Provisions Regarding Payments.......................................42 Section 5. Conditions Precedent..................................................43 5.01 Conditions to Effectiveness.................................................43 5.02 Conditions to all Loans and Letters of Credit...............................47 Section 6. Representations, Warranties and Agreements............................48 6.01 Corporate Status............................................................48 6.02 Corporate Power and Authority...............................................48 6.03 No Violation................................................................48 6.04 Governmental Approvals......................................................49 6.05 Financial Statements; Financial Condition; Undisclosed Liabilities; etc.....49 6.06 Litigation..................................................................49 6.07 True and Complete Disclosure................................................50
- -------- *This Table of Contents is provided for convenience only and is not a part of the attached Credit Agreement. i 3 6.08 Use of Proceeds; Margin Regulations.........................................50 6.09 Tax Returns and Payments....................................................50 6.10 Compliance with ERISA.......................................................50 6.11 Capitalization..............................................................51 6.12 Subsidiaries................................................................51 6.13 Compliance with Statutes, etc...............................................51 6.14 Investment Company Act......................................................51 6.15 Public Utility Holding Company Act..........................................51 6.16 Labor Relations.............................................................51 6.17 Patents, Licenses, Franchises and Formulas..................................52 6.18 No Material Adverse Change..................................................52 6.19 Fraud and Abuse.............................................................52 6.20 Title to Properties; Liens..................................................54 6.21 Joint Ventures..............................................................54 6.22 Accounts Receivable Collateral..............................................54 6.23 Reimbursement Programs......................................................54 6.24 Survival of Rights Created Under Existing Credit Agreement..................55 Section 7. Affirmative Covenants.................................................55 7.01 Information Covenants.......................................................55 7.02 Books, Records and Inspections..............................................59 7.03 Maintenance of Property, Insurance..........................................59 7.04 Corporate Franchises........................................................60 7.05 Compliance with Statutes, etc...............................................60 7.06 ERISA.......................................................................60 7.07 End of Fiscal Years; Fiscal Quarters........................................61 7.08 Performance of Obligations..................................................61 7.09 Payment of Taxes and Claims.................................................61 7.10 Licensing...................................................................62 7.11 Further Assurances; New Subsidiaries........................................62 7.12 Accounts Receivable.........................................................62 7.13 Retention of Consultant.....................................................63 7.14 Refinancing.................................................................63 7.15 Real Estate.................................................................63
ii 4 7.16 Deposit Account Agreements..................................................63 7.17 Security Agreements.........................................................63 Section 8. Negative Covenants....................................................65 8.01 Liens.......................................................................66 8.02 Consolidation, Merger, Sale of Assets, etc..................................67 8.03 Dividends...................................................................68 8.04 Indebtedness................................................................69 8.05 Advances, Investments and Loans.............................................70 8.06 Transactions with Affiliates................................................71 8.07 Capital Expenditures........................................................72 8.08 Leverage Ratio..............................................................72 8.09 Minimum Interest Coverage Ratio.............................................72 8.10 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc............................................73 8.11 Restrictions on Subsidiary Dividends and Other Distributions................73 8.12 Business....................................................................74 8.13 Transfer of Copyrights, Patents and Trademarks..............................74 8.14 Joint Ventures..............................................................74 8.15 Deposit Accounts............................................................74 8.16 Minimum Consolidated EBITDA.................................................75 8.17 Accounts Receivable Collections.............................................76 Section 9. Events of Default.....................................................76 9.01 Payments....................................................................76 9.02 Representations, etc........................................................76 9.03 Covenants...................................................................76 9.04 Default Under Other Agreements..............................................77 9.05 Bankruptcy, etc.............................................................77 9.06 ERISA.......................................................................77 9.07 Credit Documents............................................................78 9.08 Changes of Control..........................................................78 9.09 Judgments...................................................................78 9.10 Governmental Policies.......................................................78 9.11 Loss of Licenses............................................................79
iii 5 9.12 O.I.G. Investigation.......................................................79 Section 10. The Agent............................................................80 10.01 Appointment................................................................80 10.02 Nature of Duties...........................................................81 10.03 Lack of Reliance on the Agent..............................................81 10.04 Certain Rights of the Agent................................................81 10.05 Reliance...................................................................81 10.06 Indemnification............................................................82 10.07 The Agent in its Individual Capacity.......................................82 10.08 Holders....................................................................82 10.09 Resignation by the Agent...................................................82 10.10 Release of Collateral......................................................83 Section 11. Miscellaneous........................................................83 11.01 Payment of Expenses, etc...................................................83 11.02 Right of Setoff............................................................84 11.03 Notices....................................................................84 11.04 Benefit of Agreement.......................................................85 11.05 Assignments and Participations in Loans and Letters of Credit..............85 11.06 No Waiver; Remedies Cumulative.............................................87 11.07 Payments Pro Rata..........................................................88 11.08 Calculations; Computations.................................................88 11.09 Governing Law; Waiver of Jury Trial; Service of Process....................88 11.10 Confidentiality............................................................89 11.11 Counterparts...............................................................89 11.12 Headings Descriptive.......................................................89 11.13 Amendment or Waiver........................................................89 11.14 Survival...................................................................91 11.15 Domicile of Loans..........................................................91 11.16 Integration................................................................91 11.17 Secured Obligations........................................................91 11.18 Release....................................................................92 11.19 Settlement.................................................................92
iv 6 SCHEDULES SCHEDULE 1.01(a) Pro Rata Shares SCHEDULE 6.01 Good Standing of Guarantor Subsidiaries SCHEDULE 6.06 Litigation SCHEDULE 6.11 Rights With Respect to Capital Stock SCHEDULE 6.12 Subsidiaries SCHEDULE 6.21 Joint Ventures SCHEDULE 7.03 Insurance SCHEDULE 8.01 Permitted Liens SCHEDULE 8.04(ii) Existing Indebtedness EXHIBITS TO CREDIT AGREEMENT EXHIBIT A Form of Notice of Conversion/Continuation EXHIBIT B Form of Notice of Issuance or Extension of Letter of Credit EXHIBIT C Form of Term Note EXHIBIT D Form of Concentration Bank Agreement EXHIBIT E Form of Assignment and Acceptance Agreement EXHIBIT F Form of Compliance Certificate EXHIBIT G Form of Opinion of Counsel to Borrower EXHIBIT H Consent to Amendment and Restatement EXHIBIT I Form of Warrant Agreement EXHIBIT J Form of Amended and Restated Borrower Security Agreement EXHIBIT K Form of Amended and Restated Subsidiary Security Agreement EXHIBIT L Form of Collection Bank Agreement EXHIBITS TO EXISTING CREDIT AGREEMENT EXHIBIT G Subsidiary Guaranty EXHIBIT H Borrower Pledge Agreement EXHIBIT I Subsidiary Pledge Agreement EXHIBIT J Borrower Security Agreement EXHIBIT K Subsidiary Security Agreement EXHIBIT L-1 Trademark Security Agreement EXHIBIT L-2 Subsidiary Trademark Security Agreement EXHIBIT M Subordination Agreement EXHIBIT N Form of Collection Bank Agreement EXHIBIT T Borrower Partnership Security Agreement EXHIBIT U Subsidiary Partnership Security Agreement v 7 EXHIBIT 10.21 AMERICAN HOMEPATIENT, INC. FIFTH AMENDED AND RESTATED CREDIT AGREEMENT This FIFTH AMENDED AND RESTATED CREDIT AGREEMENT is dated as of May 25, 2001 and entered into by and among AMERICAN HOMEPATIENT, INC. (the "BORROWER"), a corporation organized and existing under the laws of Delaware, BANKERS TRUST COMPANY and THE OTHER FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each a "LENDER" and, collectively, the "LENDERS"), BANKERS TRUST COMPANY, as the issuer of the letters of credit pursuant to Section 2.07 (in such capacity, the "ISSUING BANK") and BANKERS TRUST COMPANY, acting in the manner and to the extent described in Section 10 (in such capacity, the "AGENT"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 1.01 of this Agreement. R E C I T A L S WHEREAS, pursuant to that certain Fourth Amended and Restated Credit Agreement dated as of December 19, 1997, as amended, supplemented or otherwise modified to the date hereof (said Fourth Amended and Restated Credit Agreement, as so amended, supplemented or otherwise modified, is referred to hereinafter as the "EXISTING CREDIT AGREEMENT"), by and among the Borrower, the Lenders and the Agent, the Lenders have made certain credit facilities available to the Borrower in accordance with the terms thereof; and WHEREAS, the parties hereto desire to amend and restate the Existing Credit Agreement in its entirety for the purposes of, among other things, (i) amending certain provisions thereof relating to the interest rates, maturity and loan amortization provisions applicable to the term loan facility, (ii) eliminating the revolving loan facility, and (ii) making certain other amendments to and modifications of the provisions of the Existing Credit Agreement as provided herein: A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the Borrower, the Lenders and the Agent agree to amend and restate the Existing Credit Agreement in its entirety as follows: SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION. 1.01 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCOUNT DEBTOR" means any Person obligated on an Account Receivable of the Borrower or any of its Subsidiaries, including without limitation, any Insurer and any Medicaid/Medicare Account Debtor. 1 8 "ACCOUNTS RECEIVABLE" means all accounts receivable pledged as Collateral. "ACQUISITION" means any acquisition of the capital stock of, or all (or substantially all) of the assets of, any Person or any division of such Person permitted pursuant to Section 8.02(v). "ADJUSTED CONSOLIDATED EBITDA" means, as to any Person, Consolidated EBITDA, as adjusted by adding thereto, if applicable, (i) $190,000 per month, commencing upon completion of Sale 1 (as described in the Sales Letter) and ending March 31, 2002, (ii) $53,000 per month, commencing upon completion of Sale 2 (as described in the Sales Letter) and ending March 31, 2002, (iii) $121,000 per month, commencing upon completion of Sale 3 (as described in the Sales Letter) and ending on March 31, 2002, and (iii) $100,000, commencing upon completion of Sale 4 (as described in the Sales Letter) and ending on March 31, 2002; provided, however, that the monthly adjustment for the month of any Sale shall be prorated based upon the actual number of days in the month and the number of days since completion of such Sale. "ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date, the rate (rounded upward to the next highest one hundredth of one percent) obtained by dividing (i) the Eurodollar Rate for that date by (ii) a percentage equal to 100% minus the stated maximum rate of all reserves required to be maintained against "EUROCURRENCY LIABILITIES" as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined or any category of extensions of credit or other assets that includes loans by a non-United States office of a bank to United States residents). "ADJUSTED NET REVENUES" means, for any period, reported net revenues of the Borrower and its Subsidiaries for such period, in each case as adjusted for (i) revenues that are associated with locations in which cash collections are not statistically tracked and (ii) revenues associated with Joint Ventures. "AFFECTED LENDER" means any Lender affected by any of the events described in Section 2.06(b) or (c). "AFFILIATE" means, with respect to any Person, any other Person (other than an individual) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 8.06, an Affiliate of the Borrower shall include any Person (including an individual) that directly or indirectly owns more than 10% of the Borrower and any officer or director of the Borrower or any such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" has the meaning assigned to that term in the first paragraph of this Agreement and shall include any successor to the Agent appointed pursuant to Section 10.09. "AGREEMENT" means this Fifth Amended and Restated Credit Agreement, as it may be amended, amended and restated, supplemented or otherwise modified from time to time. 2 9 "AHPF" means AHP Finance, Inc., a Tennessee corporation. "AHPT" means American HomePatient, Inc., a Tennessee corporation. "APPLICABLE BASE MARGIN" means a percentage per annum equal to 2.75%. "APPLICABLE EURODOLLAR MARGIN" means a percentage per annum equal to 3.50%. "ASSET SALE" means any sale, lease or other transfer (including any such transaction effected by way of merger or consolidation) of any asset by Borrower or any of its Subsidiaries, including, without limitation, any sale-leaseback transaction, whether or not involving a capital lease, but excluding (i) any sale of inventory, Cash or Cash Equivalents and obsolete, unused or unnecessary equipment, in each case in the Ordinary Course of Business, (ii) sales of equipment other than in the Ordinary Course of Business with an aggregate Book Value of not more than $50,000 in any 12 month period, and (iii) any transfer of assets by any Guarantor Subsidiary to another Guarantor Subsidiary or to Borrower. "ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance Agreement entered into by a Lender and an Eligible Assignee, and accepted by the Agent, substantially in the form annexed hereto as EXHIBIT E. "BANKRUPTCY CODE" has the meaning assigned to that term in Section 9.05. "BASE LENDING RATE" means, at any time, the higher of, (a) the Prime Rate and (b) the rate that is 1/2 of 1% in excess of the Federal Funds Effective Rate. "BASE RATE LOANS" means Loans maintained or made by the Lenders bearing interest at rates determined by reference to the Base Lending Rate as provided in Section 2.03. "BLOCKED ACCOUNT AGREEMENT" means a blocked account agreement (with activation) to be entered into by Agent and Borrower pursuant to Section 7.16(iii) in form and substance satisfactory to Agent and Borrower for the deposit of Excess Cash Balances and investment earnings thereon. "BOOK VALUE" means, with respect to any stock, property or assets of Borrower or any of its Subsidiaries as of any date of determination, the book value thereof on the consolidated balance sheet of the Borrower on such date, after taking into account any reserves specifically related to such stock, property or assets, or a proportionate share of any unallocated reserves applicable to stock, property or assets of the type being valued, in each case, as reflected on the books of Borrower at least ninety (90) days preceding the date of determination, as adjusted to reflect property or assets not included on such date of determination based on a physical count of the property or assets in connection with the valuation thereof. "BORROWER" has the meaning assigned to that term in the first paragraph of this Agreement. 3 10 "BORROWER COMMON STOCK" means common stock of the Borrower, par value $0.01 per share. "BORROWER PARTNERSHIP SECURITY AGREEMENT" means a Borrower Partnership Security Agreement executed and delivered by the Agent and the Borrower pursuant to the Prior Credit Agreement or this Agreement, substantially in the form annexed to the Existing Credit Agreement as Exhibit T, as such Borrower Partnership Security Agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "BORROWER PLEDGE AGREEMENT" means that certain Borrower Pledge Agreement dated as of October 20, 1994, executed and delivered by the Borrower and the Agent pursuant to the Original Credit Agreement, a copy of which was annexed to the Existing Credit Agreement as Exhibit H, as such Borrower Pledge Agreement has heretofore been, and as it hereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "BORROWER SECURITY AGREEMENT" means that certain Borrower Security Agreement dated as of October 20, 1994 executed and delivered by Borrower and Agent pursuant to the Original Credit Agreement, a copy of which is annexed to the Existing Credit Agreement as Exhibit J, as such Borrower Security Agreement is hereafter amended and restated pursuant to Section 7.17 in substantially in the form annexed hereto as EXHIBIT J, as such amended and restated Borrower Security Agreement thereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "BUSINESS DAY" means any day except Saturday, Sunday and any day that shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close. "CASH" means money, currency or a credit balance in a Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either Standard & Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund as regulated by Rule 2a-7 under the Investment Company Act of 1940 that (a) has a net asset value which 4 11 remains a constant $1.00 per share, (b) has net assets of not less than $500,000,000, and (c) has the highest rating then obtainable from either S&P or Moody's. "CASUALTY EVENT" means (i) any Condemnation Event with respect to any property owned by or leased to the Borrower or any of its Subsidiaries, or (ii) any damage to, or destruction of, any property owned by or leased to Borrower or any of its Subsidiaries. "CASUALTY PROCEEDS" means (i) with respect to any Condemnation Event, all awards or payments received by Borrower or any of its Subsidiaries by reason of such Condemnation Event, including all amounts received with respect to any transfer in lieu or anticipation of such Condemnation Event or in settlement of any proceeding relating to such Condemnation Event, and (ii) with respect to any other Casualty Event, all insurance proceeds or payments (excluding payments with respect to business interruption) which the Borrower or any of its Subsidiaries receives by reason of such other Casualty Event. "CERTIFICATE OF EXEMPTION" has the meaning assigned to that term in Section 2.06(g)(iii). "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL" means all the personal and mixed property and, if required by Section 7.15, Real Estate made subject to a Lien pursuant to the Credit Documents. "COLLECTED FUNDS" means, with respect to any financial institution, funds in a Deposit Account which are not subject to hold for uncollected funds pursuant to Federal Reserve Regulation CC or such financial institution's customary procedures. "COLLECTION BANK AGREEMENTS" means (i) those certain Collection Bank Agreements executed and delivered pursuant to the Prior Credit Agreement in substantially the form delivered pursuant to the Prior Credit Agreement, a copy of which is annexed to the Existing Credit Agreement as Exhibit N, as such Collection Bank Agreements are hereafter amended and restated pursuant to Sections 7.16(i) or 8.15 by each of the Borrower or any of its Subsidiaries and any of the Lenders that have executed Collection Bank Agreements pursuant to the Prior Credit Agreement in substantially the form annexed hereto as EXHIBIT N, or such other form as may be reasonably acceptable to Agent, as each such revised Collection Bank Agreement thereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time, and (ii) those certain Collection Bank Agreements executed and delivered pursuant to Sections 7.16(i) or 8.15 by each of the Borrower or any of its Subsidiaries and the Concentration Bank and any Lender into which proceeds of Accounts Receivable of each of the Borrower or its Subsidiaries are deposited and in substantially the form annexed hereto as EXHIBIT N, or such other form as may be reasonably acceptable to Agent, as such Collection Bank Agreements thereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "COLLECTION DAY" means each day of the calendar year other than (i) Saturday and Sunday of each week during such year and (ii) the following holidays during such year: Christmas, New Year's Day, Thanksgiving, Fourth of July, Memorial Day, and Labor Day. 5 12 "COMPLIANCE CERTIFICATE" means a certificate substantially in the form annexed hereto as EXHIBIT F delivered to the Agent and Lenders by the Borrower under Section 7.01(f). "CONCENTRATION BANK" means (i) Bank of America, N.A., until such time as all amounts in the concentration account held by it are transferred to PNC Bank, National Association, and (ii) PNC Bank, National Association commencing on the date funds are first transferred by Bank of America, N.A. from the concentration account held by it, or any permitted successor thereto. "CONCENTRATION BANK AGREEMENT" means (i) that certain Concentration Bank Agreement to be executed and delivered by the Borrower, the Agent and the Concentration Bank, pursuant to Section 7.16(ii) in substantially the form annexed hereto as EXHIBIT D, as such Concentration Bank Agreement hereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time, and (ii) until Bank of America, N.A. shall have transferred all amounts in the concentration account held by it, as Concentration Bank, that certain Concentration Bank Agreement dated as of November 1, 2000 among Bank of America, N.A., Borrower and Agent. "CONDEMNATION EVENT" means any condemnation or other taking or temporary or permanent requisition of any property, any interest therein or right appurtenant thereto, or any change of grade affecting any property, as a result of the exercise of any right of condemnation or eminent domain. A transfer to a Governmental Authority in lieu or anticipation of condemnation shall be deemed to be a Condemnation Event. "CONPHARMA NOTE" has the meaning assigned to that term in the Existing Credit Agreement. "CONSENT TO AMENDMENT AND RESTATEMENT" means the Consent to Amendment and Restatement to be executed and delivered by each Guarantor Subsidiary pursuant to Section 5.01(a)(v), substantially in the form annexed hereto as EXHIBIT H. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures by the Borrower and its Subsidiaries during that period for fixed or capital assets (including, without limitation, expenditures for product development and maintenance and repairs that should be capitalized in accordance with generally accepted accounting principles consistently applied and including capitalized lease obligations). "CONSOLIDATED EBITDA" means, as to any Person and for any period, the Consolidated Net Income of such Person and its Subsidiaries and Joint Ventures for such period, (i) before interest, provision for taxes, amortization of intangibles and depreciation and other non-cash income or expense that was deducted or added in arriving at such Consolidated Net Income for such period, extraordinary gains or losses, gains or losses from the sale of assets (other than the sale of inventory in the Ordinary Course of Business), any costs or expenses incurred by the Borrower at the request of the Lenders related to the engagement of the Consultant or the Investment Banker and any costs and expenses incurred by Borrower pursuant to Section 11.01, including, without limitation, the costs and expenses of the Lender Financial Advisor, and (ii) excluding therefrom amounts attributable to (x) minority interests held by third 6 13 Persons and/or their Subsidiaries, and (y) Joint Ventures that remain invested in such Joint Ventures and are not distributed to the Borrower. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to capitalized interest and capital leases in accordance with generally accepted accounting principles consistently applied) of the Borrower and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Section 3 payable to the Agent and Lenders on or before the Effective Date and amortization of deferred loan costs and warrants. "CONSOLIDATED NET INCOME" means, as to any Person and for any period, the net income (or loss) of such Person and its Subsidiaries, after provisions for taxes, on a consolidated basis for such period taken as a single accounting period determined in conformity with generally accepted accounting principles consistently applied. "CONSULTANT" means an outside consultant selected by Borrower satisfactory to Agent with expertise in improving cash collection procedures and performance of health care companies. "CONTINGENT OBLIGATION" means, as to any Person, (A) any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business; and (B) any obligations of such Person under any Interest Rate Agreement. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "CREDIT DOCUMENTS" means this Agreement, each Note, if any, the Letters of Credit, the Subsidiary Guaranty, the Borrower Pledge Agreement, the Subsidiary Pledge Agreement, the Borrower Security Agreement, the Subsidiary Security Agreement, the Borrower Partnership Security Agreement, the Subsidiary Partnership Security Agreement, the Collection Bank Agreements, the Concentration Bank Agreement, the Consent to Amendment and 7 14 Restatement, the Trademark Security Agreement, the Subsidiary Trademark Security Agreement, the Warrant Agreement, the Warrant Certificates, the Blocked Account Agreement and the Mortgages. "DEFAULT" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DOLLARS" and "$" means the lawful money of the United States of America. "EBITDA PAYMENT" means, as to Borrower and its Subsidiaries for any quarter, 95% of the excess of Modified Consolidated EBITDA over the minimum Consolidated EBITDA for such quarter as determined pursuant to Section 8.16. "EFFECTIVE DATE" means the first date upon which all of the conditions set forth in Section 5.01 of this Agreement shall have been satisfied or waived. "ELIGIBLE ASSIGNEE" means (i) (A) a commercial bank organized under the laws of the United States or any state thereof; (B) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (C) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; or (D) any other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as amended) that extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds and lease financing companies, or (ii) any Lender and any Affiliate of any Lender or the Issuing Bank; provided that no Affiliate of the Borrower shall be an Eligible Assignee. "ENGAGEMENT DATE" means the earlier of (i) 30 days after the Effective Date, and (ii) 30 days after resolution of any investigation by the O.I.G. or any other Governmental Authority. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA AFFILIATE" means any person (as defined in Section 3(9) of ERISA) that together with the Borrower or any of its Subsidiaries would be a member of the same "CONTROLLED GROUP" within the meaning of Section 414(b), (m), (c) and (o) of the Code. "EURODOLLAR RATE" means, for any Interest Rate Determination Date, the arithmetic average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the offered 8 15 quotation, if any, to first class banks in the Eurodollar market by Bankers Trust Company for Dollar deposits of amounts in immediately available funds comparable to the principal amount of the Eurodollar Rate Loan of the Agent for which the Eurodollar Rate is being determined with maturities comparable to the Interest Period for which such Eurodollar Rate will apply as of approximately 10:00 A.M. (New York time) two Business Days prior to the commencement of such Interest Period. "EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined by reference to the Eurodollar Rate as provided in Section 2.03. "EURODOLLAR RATE TAXES" has the meaning assigned to that term in Section 2.06(g)(i). "EVENT OF DEFAULT" has the meaning assigned to that term in Section 9. "EXCESS CASH BALANCES" means as of any Business Day, the difference between (i) all Collected Funds in the Concentration Account at the end of such Business Day prior to any automatic sweep of excess balances into overnight investments pursuant to the terms of the Concentration Bank Agreement, and (ii) $3,000,000. "EXCESS CASUALTY PROCEEDS" means any Casualty Proceeds received by Borrower or any of its Subsidiaries which have not been expended or committed to be expended within 180 days after a Casualty Event to restore, repair, replace or build the asset in respect of which such Casualty Proceeds were received. "EXISTING BANK LOANS" means the "Revolving Loans", "Term Loans" and the "Swing Loans" as defined in the Existing Credit Agreement and extended to the Borrower thereunder. "EXISTING CREDIT AGREEMENT" has the meaning assigned to that term in the Recitals to this Agreement. "EXISTING INDEBTEDNESS" has the meaning assigned to that term in Section 8.04(ii). "EXISTING NOTES" means the "Revolving Notes", the "Term Notes" and the "Swing Line Note" as defined in the Existing Credit Agreement and issued to the Lenders thereunder. "FDA" means the United States Food and Drug Administration. "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding 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 of the quotations for such day on such transactions 9 16 received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. "FEES" means all amounts payable pursuant to or referred to in Section 3.01. "FIRST AMENDED AND RESTATED CREDIT AGREEMENT" means that certain Amended and Restated Credit Agreement dated as of October 26, 1995 by and among the Borrower, the "Banks" party thereto and Bankers Trust Company, as the "Agent", as amended, supplemented or otherwise modified prior to the effective date of the Second Amended and Restated Credit Agreement. "FISCAL YEAR" means the fiscal year of the Borrower and its Subsidiaries (other than Joint Ventures) ending on December 31 of each calendar year. "FOREIGN LENDER" has the meaning assigned to that term in Section 2.06(g)(iii). "FUNDING DATE" means the date of the funding of a Loan or the date of the issuance of a Letter of Credit, as applicable. "GOVERNMENT ACTS" has the meaning assigned to such term in Section 2.07(h). "GOVERNMENTAL REIMBURSEMENT PROGRAMS" means (i) the United States of America acting under the Medicaid/Medicare program established pursuant to the Social Security Act or the Civilian Health & Medicaid Program for the Uniform Services, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act, or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GUARANTOR SUBSIDIARY" means each Subsidiary of the Borrower listed in Schedule 6.12 annexed hereto and each other Subsidiary of the Borrower that executes a Subsidiary Guaranty pursuant to Section 7.11(b). "GUARANTOR SUBSIDIARY DOCUMENTS" means collectively the Subsidiary Guaranty, Subsidiary Pledge Agreement, Subsidiary Security Agreement, Subsidiary Trademark Security Agreement and Subsidiary Partnership Security Agreement. "INDEBTEDNESS" means, as to any Person, without duplication, (i) all indebtedness (including principal, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum undrawn amount of or maximum unreimbursed amount under all letters of credit issued for the account of such Person and all drafts drawn thereunder, (iii) all liabilities secured by any Lien on any property owned by such Person, whether or not such liabilities have been assumed by such Person; provided that 10 17 liabilities that are nonrecourse to the credit of the Borrower and its Subsidiaries, shall be deemed to constitute Indebtedness only in an amount equal to the lesser of (a) the fair market value (on the date of determination of Indebtedness for purposes of this Agreement) of such property or (b) the amount of such liabilities, (iv) the aggregate amount required to be capitalized under generally accepted accounting principles under leases under which such Person is the lessee, (v) all Contingent Obligations of such Person and (vi) the total redemption price (including, without limitation, the liquidation preference, par value, premium and accrued dividends) of any preferred stock of such Person with a mandatory redemption date prior to the Termination Date. "INSURER" means a Person that insures a Patient against certain of the costs incurred in the receipt by such Patient of Medical Services, or that has an agreement with the Borrower or any of its Subsidiaries to compensate the Borrower or such Subsidiary for providing Medical Services to such Patient. "INTERCOMPANY ACQUISITION NOTE" means any promissory note evidencing Indebtedness under a loan or advance by AHPF to AHPT permitted under Section 8.05(vii) to fund an Acquisition by AHPT; provided that the obligations of AHPT under any Intercompany Acquisition Note shall be expressly subordinated, on terms satisfactory in form and substance to the Agent, to the Obligations of AHPT under the Subsidiary Guaranty. "INTERCOMPANY ACQUISITION GUARANTY/SECURITY AGREEMENT" means any guaranty, security agreement or guaranty and security agreement pursuant to which (x) a newly-acquired Subsidiary of AHPT guaranties the obligations of AHPT under an Intercompany Acquisition Note issued to AHPF in connection with the Acquisition of such Subsidiary and/or grants a security interest to AHPF in its inventory to secure its obligations under such a guaranty or (y) AHPT grants a security interest to AHPF in its inventory to secure its obligations under an Intercompany Acquisition Note issued to AHPF in connection with an Acquisition of assets; provided that (i) any such guaranty shall be expressly subordinated in right of payment, on terms satisfactory in form and substance to the Agent, to the Obligations of such Subsidiary under the Subsidiary Guaranty, (ii) any such security interest shall be expressly subordinated, on terms satisfactory in form and substance to the Agent, to the security interest in the inventory of such Subsidiary created in favor of the Agent pursuant to the Subsidiary Security Agreement, and (iii) any such guaranty or security interest shall be assigned to the Agent on terms satisfactory in form and substance to the Agent. "INTEREST PAYMENT DATE" means, with respect to any Eurodollar Rate Loan, the last day of the Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than one month "Interest Payment Date" shall mean the date that is one month after the commencement of such Interest Period and each successive date that is one month after that. "INTEREST PERIOD" means any period applicable to a Loan as determined pursuant to Section 2.03(b). "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement or other similar agreement or arrangement designed to protect the Borrower against fluctuations in interest rates. 11 18 "INTEREST RATE DETERMINATION DATE" means each date for calculating the Eurodollar Rate for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period for a Eurodollar Rate Loan. "INVESTMENT BANKER" means an investment banking firm selected by Borrower and reasonably satisfactory to Required Lenders with expertise in the sale, refinancing of obligations and sale of equity interests of health care companies or other means of restructuring health care companies. "ISSUING BANK" means Bankers Trust Company or its Affiliate or any successor Lender or its Affiliate in the capacity of issuer of Letters of Credit pursuant to Section 2.07. "JOINT VENTURE" means a single-purpose corporation, partnership, joint venture or other similar legal arrangement (whether created pursuant to contract or conducted through a separate legal entity) now or hereafter formed by the Borrower or any of its Subsidiaries with another Person (other than the Borrower or any of its Subsidiaries) in order to conduct a common venture or enterprise with such other Person. "LENDER" has the meaning assigned to that term in the first paragraph of this Agreement and shall include each successor and assignee pursuant to Section 11.05. "LENDER FINANCIAL ADVISOR" means Zolfo Cooper, LLC, and shall include any successor or replacement therefor. "LENDING OFFICE" means, with respect to each Lender, the office of such Lender specified opposite its signature below as its lending office or such other office of such Lender as such Lender may from time to time specify as such to the Borrower and the Agent. "LETTER OF CREDIT" means any of the standby letters of credit issued (or deemed issued under Section 2.07(a)) or to be issued by the Issuing Bank for the account of the Borrower pursuant to Section 2.07 and for the purposes described in Section 2.05(b); provided that, notwithstanding anything to the contrary contained herein, any such letter of credit may be issued by an Affiliate of the Issuing Bank; provided, further, that to the extent that a letter of credit is issued by an Affiliate of the Issuing Bank, such Affiliate shall, for all purposes under this Agreement, the Credit Documents and all other instruments and documents referred to herein and therein be deemed to be the "ISSUING BANK" with respect to such letter of credit. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount that is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Bank and not theretofore reimbursed by the Borrower. "LETTER OF NON-EXEMPTION" has the meaning assigned to that term in Section 2.06(g)(iii). 12 19 "LIEN" means any mortgage, pledge, hypothecation, assignment for security, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, any agreement to give any security interest and any lease having substantially the same effect as any of the foregoing). "LOAN" or "LOANS" means the Loans made by Lenders to Borrower pursuant to Section 2.01. "MARGIN STOCK" has the meaning provided in Regulation U of the Board of Governors of the Federal Reserve System. "MEDICAID/MEDICARE ACCOUNT DEBTOR" means any Account Debtor under any Government Reimbursement Program. "MEDICAL SERVICES" means medical and health care services provided to a Patient, including, but not limited to, medical and health care services provided to a Patient and performed by the Borrower or any of its Subsidiaries which are covered by a policy of insurance issued by an Insurer, and includes physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, residential and out-patient behavioral healthcare services, and medicine or health care equipment provided by the Borrower or any of its Subsidiaries to a Patient for a necessary or specifically requested valid and proper medical or health purpose. "MODIFIED CONSOLIDATED EBITDA" means, as to any Person and for any period, the Consolidated Net Income of such Person and its Subsidiaries and Joint Ventures for such period, (i) before interest, provision for taxes, amortization of intangibles and depreciation and other non-cash income or expense that was deducted or added in arriving at such Consolidated Net Income for such period and extraordinary gains or losses, gains or losses from the sale of assets (other than the sale of inventory in the Ordinary Course of Business), and (ii) excluding therefrom amounts attributable to (x) minority interests held by third Persons and/or their Subsidiaries, and (y) Joint Ventures that remain invested in such Joint Ventures and are not distributed to the Borrower. "MORTGAGE" means any mortgage, deed of trust or other instrument or document evidencing the security interest of Agent on behalf of Lenders in the Real Estate to be executed and delivered by Borrower or any of its Subsidiaries pursuant to Section 7.15. "NONGOVERNMENTAL PAYORS" means third party payors that reimburse providers for Medical Services, such as private insurers and managed care systems. "NOTE" means a promissory note of the Borrower issued at the request of a Lender in its favor to evidence the Loan of such Lender, substantially in the form annexed hereto as EXHIBIT C, as it may be amended, supplemented or otherwise modified from time to time. 13 20 "NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the form of EXHIBIT A annexed hereto with respect to a proposed conversion or continuation of a Loan. "NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice in the form of EXHIBIT B annexed hereto with respect to a proposed issuance or extension of a Letter of Credit. "NOTICE OFFICE" means the office of the Agent set forth on the signature page of Agent or such other office or offices as the Agent may hereafter designate in writing as such to the other parties hereto. "OBLIGATIONS" means all amounts now or hereafter owing to the Agent, Issuing Bank (including for this purpose any obligation to cash collateralize the Letters of Credit) or any Lender pursuant to the terms of this Agreement or any other Credit Document. For the purposes of the Credit Documents, the Obligations shall include all "Obligations", as such term is defined in the Existing Credit Agreement, to the extent such Obligations are not otherwise continued pursuant to this Agreement. "OFFICERS' CERTIFICATE" means, as applied to any corporation, association or joint venture, a certificate executed on behalf of such corporation, association or joint venture, by the Chairman of the Board (if an officer) or the President or one of its Vice Presidents and by the Chief Financial Officer or the Chief Accounting Officer or the Treasurer or an Assistant Treasurer of such corporation or the managing partner (or Person with equivalent authority) of such association or joint venture; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans or issuance of any Letters of Credit hereunder shall include (i) a statement that the officer or officers or managing partner (or Person with equivalent authority) making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "O.I.G." means the Office of Inspector General of the United States Department of Health and Human Services. "ORDINARY COURSE OF BUSINESS" means, in respect of any transaction involving the Borrower or any Subsidiary of the Borrower, the ordinary course of such Person's business, as conducted by any such Person in accordance with past practice (including, without limitation, such Person's past practice of consultation with legal counsel) and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Credit Document. "ORIGINAL CREDIT AGREEMENT" means that certain Credit Agreement dated as of October 20, 1994 by and among the Borrower, the "Banks" party thereto, and Banker's Trust Company, as the "Agent", as amended, supplemented or otherwise modified prior to the effective date of the First Amended and Restated Credit Agreement. "OSHA" means the United States Occupational Safety and Health Administration. 14 21 "PATIENT" means any Person receiving Medical Services from the Borrower or any of its Subsidiaries and all Persons legally liable to pay the Borrower or any of its Subsidiaries for such Medical Services other than Insurers. "PAYMENT OFFICE" means the office of the Agent located at One Bankers Trust Plaza, New York, New York 10006, Attention: Commercial Loan Division Ref: AHP, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA or any successor thereto. "PERMITTED LIENS" has the meaning assigned to that term in Section 8.01(iii). "PERSON" means any individual, partnership, limited liability company, joint venture, firm, corporation, association, trust, insurance company or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "PERFORMANCE PLAN" has the meaning assigned to that term in Section 7.01(d). "PLAN" means any multiemployer plan or single-employer plan as defined in Section 4001 of ERISA, that is maintained or contributed to, or at any time during the five calendar years preceding the date of this Agreement was maintained or contributed to, by the Borrower or by a Subsidiary of the Borrower or an ERISA Affiliate. "PRIME RATE" means the rate that Bankers Trust Company announces from time to time as its prime lending rate, and the Prime Rate shall change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bankers Trust Company may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "PRIOR CREDIT AGREEMENT" means, collectively, the Original Credit Agreement, the First Amended and Restated Credit Agreement, the Second Amended and Restated Credit Agreement, the Third Amended and Restated Credit Agreement and the Existing Credit Agreement. "PRO RATA SHARE" means, except to the extent otherwise expressly provided herein (i) with respect to all payments, computations and other matters relating solely to the Term Loan Commitment or the Loan of any Lender pursuant to Section 4.01, mandatory prepayments of the Loans pursuant to Section 4.02(b)(ii) to be applied to the March 31, 2002 scheduled payment or mandatory payments pursuant to Section 4.02(b)(v), the percentage obtained by dividing (x) the Term Loan Exposure of that Lender by (y) the aggregate Term Loan Exposure of all Lenders, (ii) with respect to all principal and interest payments relating to the Loans and reimbursement and cash collateralization obligations related to the Letters of Credit, the percentage obtained by dividing (x) all Obligations due and owing on the date of determination to that Lender (including all Obligations due and owing to the Issuing Bank if that Lender is the Issuing Bank, which Obligations shall include any obligation to cash collateralize the Letters of Credit pursuant to Section 2.07(c) or Section 9) by (y) the sum of all Obligations due and owing on the date of determination to all Lenders (including all Obligations due and 15 22 owing to the Issuing Bank, which Obligations shall include any obligation to cash collateralize the Letters of Credit pursuant to Section 2.07(c) or Section 9), and (iii) for all other purposes with respect to each Lender and the Issuing Bank, including payment of Fees due hereunder, the percentage obtained by dividing (x) the sum of the Term Loan Exposure of that Lender plus the Letter of Credit Usage if that Lender is the Issuing Bank by (y) the sum of the aggregate Term Loan Exposure of all Lenders plus the Letter of Credit Usage, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to Section 11.05. The initial Pro Rata Share of each Lender for purposes of clause (i) and all determinations to be made pursuant to clauses (ii) and (iii) of the preceding sentence is set forth opposite the name of that Lender in SCHEDULE 1.01(A) annexed hereto and SCHEDULE 1.01(a) shall be amended and the Lenders' Pro Rata Shares shall be adjusted from time to time to give effect to the addition of any new Lenders and any reallocations among existing Lenders necessary to reflect assignments pursuant to Section 11.05. The sum of the Pro Rata Shares of all Lenders for purposes of clause (i) of the preceding sentence at any date of determination shall equal 100%. The sum of the Pro Rata Shares of all Lenders and the Issuing Bank for purposes of clauses (ii) and (iii) of the preceding sentence at any date of determination shall equal 100%. "PROPOSAL DATE" means 150 days after the retention of the Investment Banker by Borrower pursuant to Section 7.14. "REAL ESTATE" means the real property owned by Borrower located at (i) 2030 Harley Street, Berkeley County, North Charleston, South Carolina, (ii) 1307 N. Monroe St., Leon County, Tallahassee, Florida, and (iii) 1051 Southtown Drive, Black Hawk County, Waterloo, Iowa, and any other real property owned by Borrower or any of its Subsidiaries. "REFINANCING DEFAULT" means any of the following: (i) the failure of the Borrower to retain the Investment Banker by the Engagement Date, or (ii) the failure of the Borrower to submit a Refinancing Proposal to Agent by the Proposal Date. "REFINANCING PROPOSAL" means a proposal by Borrower to refinance or otherwise address the outstanding Obligations, including, without limitation, refinancing the Obligations, Asset Sales, sales of equity interests in the Borrower or other reasonably possible means of addressing the Obligations and a detailed timeline for the implementation thereof. "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement, to be executed and delivered by the Borrower pursuant to Section 5.01(a)(vi), substantially in the form of the Registration Rights Agreement set forth in Exhibit C to the Warrant Agreement. "REPORTABLE EVENT" means an event described in Section 4043(b) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "REQUIRED LENDERS" means Lenders having or holding 51% or more of the sum of the aggregate Term Loan Exposure of all Lenders plus the Letter of Credit Usage. "RESTRUCTURING NOTE" has the meaning assigned to that term in the Existing Credit Agreement. 16 23 "SALES" means Sale 1, Sale 2, Sale 3 and Sale 4, as described in the Sales Letter. "SALES LETTER" means the certain letter dated the date hereof from Borrower to Agent describing certain Asset Sales. "SEC" means the Securities and Exchange Commission or any governmental agency substituted therefor. "SECOND AMENDED AND RESTATED CREDIT AGREEMENT" means that certain Second Amended and Restated Credit Agreement dated as of May 1, 1996 by and among the Borrower, the "Banks" party thereto and Bankers Trust Company, as the "Agent", as amended, supplemented or otherwise modified prior to the effective date of the Third Amended and Restated Credit Agreement. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SETTLEMENT" means the settlement agreement with the Department of Justice concerning the investigation related to the legal action entitled United States ex rel. Kenneth E. Hollis vs. American HomePatient, Inc., American HomePatient, Inc., Delaware and Jesse & Jesse Enterprises, Inc. in substantially the form of the settlement agreement provided to counsel for Agent on May 15, 2001. "SOCIAL SECURITY ACT" means the Social Security Act as codified at 42 U.S.C. ss.1395 et. seq. "SUBORDINATION AGREEMENTS" means the Subordination Agreements executed pursuant to the Prior Credit Agreement among the Borrower, the Agent and certain holders of the Unsecured Seller Debt, substantially in the form annexed to the Existing Credit Agreement as Exhibit M. "SUBSIDIARY" means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency which has not occurred by the date of determination) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "SUBSIDIARY GUARANTY" means that certain Guaranty Agreement dated as of October 20, 1994, executed and delivered by each Guarantor Subsidiary for the benefit of the Agent pursuant to Section 5.01 of the Prior Credit Agreement and any Guarantor Subsidiary 17 24 required to deliver the same pursuant to Section 7.11(b) of the Prior Credit Agreement or this Agreement, a copy of which (executed by each Subsidiary of the Borrower which is a Guarantor Subsidiary on the Effective Date) is annexed to the Existing Credit Agreement as Exhibit G, as such Guaranty Agreement has heretofore been, and as it hereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "SUBSIDIARY PARTNERSHIP SECURITY AGREEMENT" means a Subsidiary Partnership Security Agreement executed and delivered by the Agent and any Guarantor Subsidiary required to deliver the same pursuant to Section 7.11(b) of the Prior Credit Agreement or this Agreement, substantially in the form annexed to the Existing Credit Agreement as Exhibit U, as such Subsidiary Partnership Security Agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "SUBSIDIARY PLEDGE AGREEMENT" means that certain Subsidiary Pledge Agreement dated as of October 20, 1994, executed and delivered by the Agent and each Guarantor Subsidiary pursuant to Section 5.01 of the Prior Credit Agreement and any Guarantor Subsidiary required to deliver the same pursuant to Section 7.11(b) of the Prior Credit Agreement or this Agreement, a copy of which (executed by each Subsidiary of the Borrower which is a Guarantor Subsidiary on the Effective Date) is annexed to the Existing Credit Agreement as Exhibit I, as such Subsidiary Pledge Agreement has heretofore been, and as it hereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "SUBSIDIARY SECURITY AGREEMENT" means that certain Subsidiary Security Agreement dated as of October 20, 1994 executed and delivered by Borrower and Agent pursuant to the Original Credit Agreement, a copy of which is annexed to the Existing Credit Agreement as Exhibit L, as such Subsidiary Security Agreement is hereafter amended and restated pursuant to Section 7.17 in substantially the form annexed hereto as EXHIBIT K, as such Subsidiary Security Agreement thereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "SUBSIDIARY TRADEMARK SECURITY AGREEMENT" means the trademark security agreement dated as of May 1, 1996, executed and delivered by the Agent and each Guarantor Subsidiary which is not party to the Trademark Security Agreement pursuant to Section 5.01 of the Prior Credit Agreement, and any Guarantor Subsidiary required to deliver the same pursuant to Section 7.11(b) of the Prior Credit Agreement or this Agreement, a copy of which (executed by each Subsidiary of the Borrower which is a Guarantor Subsidiary on the Effective Date) is annexed to the Existing Credit Agreement as Exhibit L-2, as such Subsidiary Trademark Security Agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "TARGET" means the Person to be acquired, or the Person whose assets are to be acquired, in any Acquisition. "TAX" or "TAXES" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "TAX 18 25 ON THE OVERALL NET INCOME" of a Person shall be construed as a reference to a tax imposed by the jurisdiction (whether local, state, federal or foreign) in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person is deemed to be doing business on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise). "TERM LOAN COMMITMENT" means the commitment of a Lender to make a Loan to the Borrower pursuant to Section 2.01, and "TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "TERM LOAN EXPOSURE" means, with respect to any Lender as of any date of determination (i) prior to the funding of the Loans, that Lender's Term Loan Commitment and (ii) after the funding of the Loans, the outstanding principal amount of the Loan of that Lender. "TERMINATION DATE" means December 31, 2002. "THIRD AMENDED AND RESTATED CREDIT AGREEMENT" means that certain Third Amended and Restated Credit Agreement dated as of June 6, 1997 by and among the Borrower, the "Banks" party thereto and Bankers Trust Company, as "Agent", as amended, supplemented or otherwise modified prior to the effective date of the Existing Credit Agreement. "TOTAL DEBT" means all Indebtedness of the Borrower and its Subsidiaries on a consolidated basis outstanding on any date of determination, but excluding Indebtedness with respect to Letters of Credit and Interest Rate Agreements. "TRADEMARK SECURITY AGREEMENT" means that certain Trademark Security Agreement dated as of October 20, 1994, executed and delivered by the Borrower, the Agent and each Guarantor Subsidiary which is a Guarantor Subsidiary prior to the Effective Date pursuant to Section 5.01 of the Prior Credit Agreement, a copy of which is annexed to the Existing Credit Agreement as Exhibit L-1, as such Trademark Security Agreement has heretofore been, and as it hereafter may be, amended, amended and restated, supplemented or otherwise modified from time to time. "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "UNFUNDED CURRENT LIABILITY" means, as to any Plan, the amount, if any, by which the present value of the accrued benefits under such Plan as of the close of its most recent plan year determined in accordance with Section 412 of the Code exceeds the fair market value of the assets allocable thereto. "UNSECURED SELLER DEBT" means the Indebtedness permitted by Section 8.04(xiii). "WARRANT AGREEMENT" means that certain Warrant Agreement, to be executed and delivered by the Borrower pursuant to Section 5.01(a)(iii), substantially in the form annexed 19 26 hereto as EXHIBIT I, as such Warrant Agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "WARRANT CERTIFICATE" means each of the warrant certificates, to be executed and delivered by the Borrower pursuant to Section 5.01(a)(iv), substantially in the form of the warrant certificates set forth in Exhibits A and B to the Warrant Agreement. "WHOLLY-OWNED SUBSIDIARY" means, as to any Person, (i) any corporation 100% of whose capital stock is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. 1.02 PRINCIPLES OF CONSTRUCTION. (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in conformity with those used in the preparation of the financial statements referred to in Sections 6.05(a). Except in connection with the preparation of the financial statements and other information required to be delivered by the Borrower to the Lenders pursuant to Sections 7.01(a), (b), (d), (e) and (h), calculations made with respect to the definitions, covenants and other provisions of this Agreement shall give effect to adjustments in component amounts required or permitted by Accounting Principles Board Opinions Nos. 16 and 17 as a result of any Acquisition. SECTION 2. AMOUNT AND TERMS OF CREDIT. 2.01 THE LOANS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower set forth herein, each Lender severally agrees to lend to the Borrower, in a single borrowing on the Effective Date, an amount not exceeding its Pro Rata Share of the Term Loan Commitments to be used for the purposes identified in Section 2.05. The amount of each Lender's Term Loan Commitment is set forth opposite its name on SCHEDULE 1.01(a) annexed hereto and the aggregate amount of the Term Loan Commitments is $296,608,020.09. The Loans made on the Effective Date shall be Base Rate Loans. 2.02 PREPAYMENT OF LOANS OUTSTANDING ON EFFECTIVE DATE; NOTES. (a) On the Effective Date, the Existing Bank Loans shall be prepaid with the proceeds of the Loans. (b) On and after the Effective Date, the Existing Notes shall be of no further force and effect, and each Lender shall deliver any Existing Notes issued to such Lender, marked to show their cancellation, to the Borrower. The Borrower shall execute and deliver to each 20 27 Lender that requests that a Note be delivered to it (or to the Agent for that Lender) on the Effective Date a Note substantially in the form of EXHIBIT C to evidence that Lender's Loan, in the principal amount of that Lender's Term Loan Commitment and with other appropriate insertions. Each Lender will note on its internal records the amount of the Loan made by it and each payment in respect thereof and, prior to any transfer of its Note, will endorse on the reverse side thereof the outstanding principal amount of the Loan evidenced thereby. Failure to make any such notation shall not affect the Borrower's obligations in respect of its Loan. 2.03 INTEREST ON THE LOANS. (a) RATE OF INTEREST. Subject to the provisions of Sections 2.03(e), 2.03(g), 2.03(h) and 2.06(g), each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Lending Rate or the Adjusted Eurodollar Rate. The applicable basis for determining the rate of interest for Loans made on the Effective Date shall be Base Rate Loans. The basis for determining the interest rate with respect to a Loan may be changed from time to time pursuant to Section 2.03(d). If on any day a Loan is outstanding with respect to which notice has not been delivered to the Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Lending Rate. The Loans shall bear interest through maturity as follows: (i) if a Base Rate Loan, then at the sum of the Base Lending Rate plus the Applicable Base Margin; and (ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin. (b) INTEREST PERIODS. In connection with each Eurodollar Rate Loan, the Borrower may, pursuant to the applicable Notice of Conversion/Continuation select an interest period (each an "INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall be, at the Borrower's option, either a one or two week period or a one, two or three month period; provided that: (i) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (ii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; 21 28 (iv) no Interest Period with respect to the Loans shall extend beyond the Termination Date; (v) no Interest Period with respect to any portion of the Loans shall extend beyond a date on which the Borrower is required to make a scheduled payment of principal of the Loans unless the sum of (a) the aggregate principal amount of Loans that are Base Rate Loans plus (b) the aggregate principal amount of Loans that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Loans on such date; and (vi) there shall be no more than ten (10) Eurodollar Rate Loans with different maturities outstanding at any time. (c) INTEREST PAYMENTS. Subject to Section 2.03(e), interest shall be payable on the Loans as follows: (i) interest on each Base Rate Loan shall be payable monthly in arrears on and to the last Business Day of each month (each a "REGULAR INTEREST PAYMENT DATE" with respect to Base Rate Loans), upon any prepayment of any such Loan (to the extent accrued on the amount being prepaid), and at maturity (including final maturity). (ii) interest on each Eurodollar Rate Loan shall be payable in arrears on and to (but not including) each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity. (d) CONVERSION OR CONTINUATION. Subject to the provisions of Section 2.06, the Borrower shall have the option (i) to convert at any time all or any part of the outstanding Loans from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis, or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan and the succeeding Interest Period(s) of such continued Loan shall commence on the last day of the Interest Period of the Loan to be continued; provided, however, Eurodollar Rate Loans may only be converted into Base Rate Loans on the expiration date of an Interest Period applicable thereto; provided further that no outstanding Loan may be continued as, or be converted into, a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing; and provided further that the Base Rate Loans made on the Effective Date may not be converted to Eurodollar Rate Loans prior to three Business Days after the Effective Date. The Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later than (i) 12:00 Noon (New York time) at least two Business Days in advance of the proposed conversion/continuation date in the case of a conversion to a Base Rate Loan, and (ii) at least three Business Days in advance of the proposed conversion/continuation date in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan. A Notice of Conversion/Continuation shall certify (i) the proposed conversion/continuation date (which shall 22 29 be a Business Day), (ii) the amount of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) that no Default or Event of Default has occurred and is continuing, and shall reaffirm the statements made by Borrower in Section 11.18. In lieu of delivering the above-described Notice of Conversion/Continuation, the Borrower may give the Agent telephonic notice by the required time of any proposed conversion/continuation under this Section 2.03(d); provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Agent on or before the proposed conversion/continuation date. Neither the Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of the Borrower or for otherwise acting in good faith under this Section 2.03(d) and upon conversion/continuation by the Agent in accordance with this Agreement, pursuant to any telephonic notice the Borrower shall have effected such conversion or continuation, as the case may be, hereunder. Except as provided in Section 2.06(d), a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to convert or continue in accordance therewith. (e) DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective, such Eurodollar Rate Loans shall thereupon become Base Rate Loans and thereafter bear interest payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. The payment or acceptance of the increased rate provided by this Section 2.03(e) shall not constitute a waiver of any Event of Default or an amendment to this Agreement or otherwise prejudice or limit any rights or remedies of the Agent or any Lender. (f) COMPUTATION OF INTEREST. Interest on the Loans shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, shall be included; and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan, or with respect to a Base Rate Loan being converted to a 23 30 Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. (g) ADDITIONAL INTEREST. Anything in this Agreement to the contrary notwithstanding, without duplication of any other amounts of interest payable under this Agreement in respect of the Loans, (i) on the last Business Day of May 2001, the Borrower shall pay to Agent for distribution to each Lender in proportion to its Pro Rata Share, additional interest in respect of the Existing Bank Loans that would have been required to be paid on such date pursuant to Section 2.06(g) of the Existing Credit Agreement if such Existing Bank Loans and all Loans made hereunder (including for this purpose unreimbursed draws on Letters of Credit) on and after the Effective Date had been outstanding under the Existing Credit Agreement, and (ii) the Borrower shall pay additional interest in respect of the Loans (including for this purpose unreimbursed draws on Letters of Credit) on the last Business Day of each month commencing June 2001 to Agent for distribution to each Lender in proportion to its Pro Rata Share additional interest in respect of the Loans (and any unreimbursed draws on Letters of Credit) for each day during such month, in each case, at an annual rate of 4.50% on the difference between (x) the aggregate principal amount of all Loans (including for this purpose unreimbursed draws on Letters of Credit) outstanding on the date of calculation, and (y) Consolidated EBITDA for the four quarters ending on such Business Day multiplied by 400%. (h) REFINANCING DEFAULT RATE. Upon the occurrence and during the continuation of a Refinancing Default during any period in which an Event of Default has not occurred and is continuing, the outstanding principal amount of all Loans shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) at a rate that is 2.00% per annum in excess of the interest otherwise payable under this Agreement with respect to the applicable Loans. 2.04 INCREASED COSTS; TAXES. (a) INCREASED COSTS. If any Lender shall determine that the adoption of any applicable law, rule or regulation concerning capital adequacy or any applicable change therein, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, in each case occurring after the Effective Date, has or will have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligation to make a Loan hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by any amount deemed by such Lender to be material, then from time to time, within fifteen (15) days after demand by such Lender, the Borrower shall pay to such Lender such additional amounts as shall compensate such Lender for such reduction. Each Lender shall promptly notify the Borrower of any of the matters set forth in the preceding sentence. A certificate as to additional amounts owed any such Lender, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the Borrower and the Agent by such Lender shall be presumed to be correct. 24 31 (b) WITHHOLDING OF TAXES. (i) Payments to Be Free and Clear. All sums payable by the Borrower under this Agreement and the other Credit Documents shall be paid free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax (other than franchise taxes and Taxes on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of the Borrower or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If the Borrower or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by the Borrower to the Agent or any Lender under any of the Credit Documents: (A) the Borrower shall notify the Agent of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it; (B) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Borrower) for its own account or (if that liability is imposed on the Agent or such Lender, as the case may be) on behalf of and in the name of the Agent or such Lender; (C) the sum payable by the Borrower in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (D) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax that it is required by clause (B) above to pay, the Borrower shall deliver to the Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any Lender under clause (C) above except to the extent that any change, after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the assignment under Section 11.05 by which such Lender became a Lender (in the case of each other Lender), in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or 25 32 payment from that in effect at the date of this Agreement or at the date of such assignment, as the case may be, in respect of payments to such Lender. (iii) Alternatives. Notwithstanding the provisions of Section 2.04(b)(ii), in lieu of paying a Lender such additional moneys as are required by Section 2.04(b)(ii), the Borrower may exercise any one of the following options: (A) If the requirement to make a deduction or withholding of a Tax referred to in Section 2.04(b)(ii) relates only to Eurodollar Rate Loans then being requested by the Borrower pursuant to a Notice of Conversion/Continuation, the Borrower may by giving notice (by telephone promptly confirmed in writing) to the Agent (who shall promptly give similar notice to each other Lender) no later than the date immediately prior to the date on which such Eurodollar Rate Loans are to be made, withdraw that Notice of Conversion/Continuation and the Eurodollar Rate Loans then being requested shall be made by the Lenders as Base Rate Loans; or (B) If the requirement to make a deduction or withholding of a Tax referred to in Section 2.04(b)(ii) relates only to Eurodollar Rate Loans outstanding at the time the requirement is discovered, upon written notice to the Agent and each Lender, the Borrower may terminate the obligations of the Lenders to make or maintain Loans as, and to convert Loans into, Eurodollar Rate Loans and, in such event, the Borrower shall at the end of the then current Interest Period, convert all of the Eurodollar Rate Loans into Base Rate Loans in the manner contemplated by Section 2.03(d) but without satisfying the advance notice requirements therein in which case the Borrower must take the actions referred to in Section 2.04(b)(ii) until such conversion; or (C) If the requirement to make a deduction or withholding of a Tax referred to in Section 2.04(b)(ii) relates to Loans other than Eurodollar Rate Loans, the Borrower may notify each Lender to which such requirement relates that the Borrower will not make the payments required under Section 2.04(b)(ii)(C) with respect to such Loans at the end of the 30 day period described below and each such Lender will have 30 days in which to notify the Agent (which will notify the Borrower) that it will continue as a Lender under this Agreement without such payments or that it refuses so to continue, and, if any such Lender refuses to continue, (i) the Borrower shall pay to such Lender, on a date 15 days after notice of such refusal is made, all interest and fees and other amounts due and owing to such Lender including amounts due under Section 2.04(b)(ii) through the end of such 30 day period (and, to the extent such Lender is the Issuing Bank, any Letters of Credit shall be returned to the Issuing Bank marked "cancelled" or Cash shall be deposited with the Issuing Bank in an amount equal to the maximum amount that may at any time be drawn on such Letters of Credit) on such date and the principal amount of all such Loans of such Lender or (ii) another financial institution that is an Eligible Assignee, shall purchase for cash such Loans of such Lender and become a Lender for all purposes under this Agreement and assume all obligations of such Lender 26 33 pursuant to an Assignment and Acceptance that shall have become effective pursuant to Section 11.05. 2.05 USE OF PROCEEDS. (a) LOANS. The proceeds of the Loans borrowed on the Effective Date shall be applied by the Borrower to prepay all the Existing Bank Loans. The Borrower hereby represents that the proceeds of the Existing Bank Loans were used in compliance with Section 2.08(a) of the Existing Credit Agreement. (b) LETTERS OF CREDIT. The Letters of Credit shall be used for the purpose of supporting (x) workers' compensation liabilities of the Borrower or its Subsidiaries, (y) the obligations of the Borrower or its Subsidiaries to third party insurers arising (1) by virtue of the laws of any jurisdiction requiring third party insurers and (2) in lieu of payments in cash of insurance obligations or (z) performance, payment, deposit or surety obligations of the Borrower or its Subsidiaries, in any case if required by law or governmental rule or regulation, by any landlord under any real estate lease, or by custom and practice in the business of the Borrower and its Subsidiaries (including in connection with the participation by the Borrower and its Subsidiaries in Medicare or Medicaid programs). (c) MARGIN REGULATIONS. No portion of the proceeds of any borrowing under this Agreement shall be used by the Borrower to purchase or carry any Margin Stock in any manner that might cause the borrowing or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of the Board or to violate the Securities Exchange Act of 1934, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.06 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS. Notwithstanding any other provision of this Agreement, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: (a) DETERMINATION OF INTEREST RATE. As soon as practicable after 10:00 A.M. (New York time) on each Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender. (b) SUBSTITUTED RATE OF BORROWING. If on any Interest Rate Determination Date any Lender (including the Agent) shall have determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i) and (ii)(B), shall be made only after consultation with the Borrower and the Agent) that: (i) by reason of any changes arising after the date of this Agreement affecting the Eurodollar market or affecting the position of that Lender in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the 27 34 Eurodollar Rate with respect to the Eurodollar Rate Loans as to which an interest rate determination is then being made; or (ii) by reason of (A) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof and including the introduction of any new law or governmental rule, regulation or order) or (B) other circumstances affecting that Lender or the Eurodollar market or the position of that Lender in such market (such as for example, but not limited to, official reserve requirements required by Regulation D of the Board of Governors of the Federal Reserve System to the extent not given effect in the Eurodollar Rate), the Eurodollar Rate shall not represent the effective pricing to that Lender for Dollar deposits of comparable amounts for the relevant period; then, and in any such event, that Lender shall be an Affected Lender and it shall promptly (and in any event as soon as possible after being notified of a conversion or continuation) give notice (by telephone promptly confirmed in writing) to the Borrower and the Agent (which notice the Agent shall promptly transmit to each other Lender) of such determination. Thereafter, the Borrower shall pay to the Affected Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Affected Lender in its sole discretion shall reasonably determine) as shall be required to cause the Affected Lender to receive interest with respect to its Eurodollar Rate Loans for the Interest Period following that Interest Rate Determination Date at a rate per annum equal to 1.00% per annum in excess of the effective pricing to the Affected Lender for Dollar deposits to make or maintain its Eurodollar Rate Loans. A certificate as to additional amounts owed the Affected Lender, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the Borrower and the Agent by the Affected Lender shall be presumed to be correct. (c) REQUIRED TERMINATION AND PREPAYMENT. If on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Eurodollar Rate Loans has become unlawful or impossible by reason of compliance by that Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, and in any such event, that Lender shall be an Affected Lender and it shall promptly give notice (by telephone promptly confirmed in writing) to the Borrower and the Agent (which notice the Agent shall promptly transmit to each other Lender) of that determination. Subject to the prior withdrawal of a Notice of Conversion/Continuation or prepayment of the Eurodollar Rate Loans of the Affected Lender as contemplated by the following Section 2.06(d), the obligation of the Affected Lender to make or maintain its Eurodollar Rate Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the Borrower shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this Section 2.06(c) is made or, earlier, when required by law, repay or prepay the Eurodollar Rate Loans of the Affected Lender, together with all interest accrued thereon. 28 35 (d) OPTIONS OF THE BORROWER. In lieu of paying an Affected Lender such additional moneys as are required by Section 2.06(b) or the prepayment of an Affected Lender required by Section 2.06(c), the Borrower may exercise any one of the following options: (i) If the determination by an Affected Lender relates only to Eurodollar Rate Loans then being requested by the Borrower pursuant to a Notice of Conversion/Continuation, the Borrower may by giving notice (by telephone promptly confirmed in writing) to the Agent (who shall promptly give similar notice to each other Lender) no later than the date immediately prior to the date on which such Eurodollar Rate Loans are to be made, withdraw that Notice of Conversion/Continuation and the Eurodollar Rate Loans then being requested shall be made by the Lenders as Base Rate Loans; or (ii) Upon written notice to the Agent and each Lender, the Borrower may terminate the obligations of the Lenders to maintain Loans as, and to convert Loans into, Eurodollar Rate Loans and in such event, the Borrower shall, prior to the time any payment pursuant to Section 2.06(c) is required to be made or, if the provisions of Section 2.06(b) are applicable, at the end of the then current Interest Period, convert all of the Eurodollar Rate Loans into Base Rate Loans in the manner contemplated by Section 2.03(d) but without satisfying the advance notice requirements therein. (e) COMPENSATION. The Borrower shall compensate each Lender, upon written request by that Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any loss (including interest paid) sustained by that Lender in connection with the re-employment of such funds), that such Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for borrowing or conversion/continuation or a successive Interest Period does not commence after notice therefor is given pursuant to Section 2.03(d), (ii) if any prepayment of any of its Eurodollar Rate Loans occurs on a date that is not the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by the Borrower, or (iv) as a consequence of any other default by the Borrower to repay its Eurodollar Rate Loans when required by the terms of this Agreement. (f) QUOTATION OF EURODOLLAR RATE. Anything herein to the contrary notwithstanding, if on any Interest Rate Determination Date the Agent is as a matter of general practice not quoting rates to first class banks in the Eurodollar market for the offering of Dollars for deposit with maturities comparable to the Interest Period and in amounts comparable to the Eurodollar Rate Loans requested, the Agent shall contact the other Lenders, if any, for their quotes for rates to first class banks in the Eurodollar market with respect to the requested Eurodollar Rate Loan, such other Lenders to be contacted in decreasing order of their respective Pro Rata Shares (and in alphabetical order in the case of two or more Lenders having the same Pro Rata Shares). In the event that none of the Lenders are making Eurodollar quotes in the applicable amount and with the applicable maturity, the Agent shall give the Borrower and each Lender prompt notice thereof and the Loans requested shall be made as Base Rate Loans. 29 36 (g) EURODOLLAR RATE TAXES. The Borrower agrees that: (i) Promptly upon notice from any Lender to the Borrower, the Borrower will pay, prior to the date on which penalties attach thereto, all present and future income, stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of a Loan solely as a result of the interest rate being determined by reference to the Eurodollar Rate and/or the provisions of this Agreement relating to the Eurodollar Rate and/or the recording, registration, notarization or other formalization of any thereof and/or any payments of principal, interest or other amounts made on or in respect of a Loan when the interest rate is determined by reference to the Eurodollar Rate (all such taxes, levies, costs and charges being herein collectively called "EURODOLLAR RATE TAXES"); provided, however, that Eurodollar Rate Taxes shall not include any other Taxes. The Borrower shall also pay such additional amounts equal to increases in Taxes payable by that Lender which increases are attributable to payments made by the Borrower described in the immediately preceding sentence or this sentence. A certificate as to additional amounts owed by the Borrower pursuant to this clause (i), showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the Borrower and the Agent by any Lender shall be presumed to be correct. Promptly after the date on which payment of any such Eurodollar Rate Tax is due pursuant to applicable law, the Borrower will, at the request of that Lender, furnish to that Lender evidence, in form and substance satisfactory to that Lender, that the Borrower has met its obligations under this Section 2.06(g). (ii) The Borrower will indemnify each Lender against, and reimburse each Lender on demand for, any Eurodollar Rate Taxes, as determined by that Lender in its good faith discretion; provided that such Lender shall provide the Borrower with appropriate receipts for any payments or reimbursements made by the Borrower pursuant to this clause (ii) of Section 2.06(g). (iii) Each Lender organized under the laws of a jurisdiction outside of the United States (referred to in this Section 2.06(g) as a "FOREIGN LENDER") as to which payments to be made hereunder or under the Notes, if any, are exempt from United States withholding tax or are subject to such tax at a reduced rate under an applicable statute or tax treaty shall provide to the Borrower and the Agent (x) a properly completed and executed Internal Revenue Service Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Foreign Lender's entitlement to such exemption or reduced rate with respect to payments to be made to such Foreign Lender hereunder and under the Notes, if any (referred to in this Section 2.06(g) as a "CERTIFICATE OF EXEMPTION") or (y) a letter from such Foreign Lender stating that it is not entitled to any such exemption or reduced rate (referred to in this Section 2.06(g) as a "LETTER OF NON-EXEMPTION"). Each Foreign Lender shall provide such a Certificate of Exemption or a Letter of Non-Exemption before the Effective Date. Each Foreign Lender that becomes a Lender pursuant to an Assignment and Acceptance that has become effective pursuant to Section 11.05 shall provide a Certificate of Exemption or a Letter of Non-Exemption on the date such Foreign Lender becomes a Lender. Until the Borrower and the Agent have received from such Foreign Lender a Certificate of Exemption, the accuracy of which shall be 30 37 reasonably satisfactory to the Borrower, the Borrower shall, subject to its obligations under Sections 2.06(g)(i), 2.06(g)(ii) and 2.06(i), be entitled to withhold taxes from such payments to such Foreign Lender at the statutory rate applicable to amounts to be paid hereunder to such Foreign Lender. (iv) Notwithstanding anything to the contrary contained in this Section 2.06g), the Borrower shall not be required to pay any amounts pursuant to this Section 2.06(g) to any Foreign Bank unless such Foreign Bank has provided to the Borrower, within 60 days after the receipt by such Foreign Bank of a written request therefor, either a Certificate of Exemption or a Letter of Non-Exemption. (h) BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices or the office of an Affiliate of that Lender. (i) INCREASED COSTS. Except as provided in Section 2.06(b) with respect to certain determinations on Interest Rate Determination Dates, if, after the date hereof by reason of, (x) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in, or in the interpretation of, any law or regulation, or (y) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Lender (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans (except for changes in the rate of tax on the overall net income of such Lender or its applicable lending office imposed by the jurisdiction (whether local, state, federal or foreign) in which such Lender's principal executive office or applicable lending office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable lending office shall be imposed or deemed applicable or any other condition affecting its Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans shall be imposed on any Lender or its applicable lending office or the interbank Eurodollar market, and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans, or there shall be a reduction in the amount received or receivable by that Lender or its applicable lending office, then the Borrower shall from time to time, upon written notice from and demand by that Lender (with a copy of such notice and demand to the Agent), pay to the Agent for the account of that Lender, within five Business Days after receipt of such notice and demand, additional amounts sufficient to indemnify that Lender against such increased cost or reduced amount. A certificate as to the 31 38 amount of such increased cost or reduced amount, submitted to the Borrower and the Agent by that Lender, shall be presumed to be correct. Any payments to be made by the Borrower under Sections 2.06(b), 2.06(g) or 2.06(i) are to be without duplication. (j) ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of all amounts payable to a Lender under this Section 2.06 shall be made as though that Lender had actually funded its relevant Eurodollar Rate Loan through the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.06. (k) EURODOLLAR RATE LOANS AFTER DEFAULT. Unless the Agent and the Required Lenders shall otherwise agree, after the occurrence of and during the continuance of a Default or an Event of Default, the Borrower may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan. (l) AFFECTED LENDERS' OBLIGATION TO MITIGATE. Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Lender under Section 2.06(b) or 2.06(c) or that would entitle such Lender to receive payments under Section 2.06(g) or 2.06(i), it will, to the extent not inconsistent with such Lender's internal policies, use reasonable efforts to make, fund or maintain the affected Eurodollar Rate Loans of such Lender through another lending office of such Lender if as a result thereof the additional moneys which would otherwise be required to be paid to such Lender pursuant to Section 2.06(b), 2.06(g) or 2.06(i) would be materially reduced or the illegality or other adverse circumstances which would otherwise require prepayment of such Loans pursuant to Section 2.06(c) would cease to exist, and if, as determined by such Lender in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise materially adversely affect such Loans or such Lender. The Borrower hereby agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this Section 2.06(l). 2.07 LETTERS OF CREDIT. (a) LETTERS OF CREDIT. All Letters of Credit outstanding under the Existing Credit Agreement on the Effective Date shall be deemed to be Letters of Credit issued pursuant to the terms of this Agreement. In addition to the Borrower requesting that the Issuing Bank continue Letters of Credit existing on the Effective Date, the Borrower may request, in accordance with the provisions of this Section 2.07, on and after the Effective Date to and excluding the Termination Date, that the Issuing Bank issue Letters of Credit for the account of the Borrower; provided that the Borrower shall not request that the Issuing Bank issue (and the Issuing Bank shall not issue) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $3,400,000. In no event shall the Issuing Bank issue any Letter of Credit having an expiration date later than the Termination Date or the date that is one 32 39 year after the issuance thereof except as expressly provided herein; provided, however, that the Issuing Bank may agree to renew any Letter of Credit automatically annually for a period not to exceed one year if the Issuing Bank does not cancel such renewal. If the Issuing Bank, in its sole discretion, determines to issue a Letter of Credit expiring after the scheduled Termination Date or to renew an existing Letter of Credit to a date expiring after the scheduled Termination Date, the Borrower shall be required on the third Business Day immediately preceding the Termination Date to deposit with the Issuing Bank cash collateral for the repayment of any drawings under the Letter of Credit, such deposit to be in an amount equal to the maximum amount that may be drawn under such Letter of Credit and to be upon such terms and conditions as the Issuing Bank may require. The issuance or renewal of any Letter of Credit in accordance with the provisions of this Section 2.07 shall require the satisfaction of the conditions set forth in Section 5.02. Each Letter of Credit supporting the payment of Indebtedness may provide that the Issuing Bank may (but shall not be required to) pay the beneficiary thereof upon the occurrence of a Default or an Event of Default and the acceleration of the maturity of the Loans or, if payment is not then due to the beneficiary, provide for the deposit of funds in an account to secure payment to the beneficiary and that any funds so deposited shall be paid to the beneficiary of the Letter of Credit if conditions to such payment are satisfied or returned to the Issuing Bank (or, if all Obligations shall have been indefeasibly paid in full, to the Borrower) if no payment to the beneficiary has been made and the final date available for drawings under the Letter of Credit has passed. Each payment or deposit of funds by the Issuing Bank as provided in this paragraph shall be treated for all purposes of this Agreement as a drawing duly honored by the Issuing Bank under the related Letter of Credit. (b) NOTICE OF ISSUANCE. Whenever the Borrower desires to cause the Issuing Bank to issue or renew a Letter of Credit, it shall deliver to the Issuing Bank and the Agent a Notice of Issuance of Letter of Credit in the form of EXHIBIT B (i) no later than 1:00 P.M. (New York time) at least four Business Days in advance of the proposed date of issuance or such shorter time as may be acceptable to the Issuing Bank, with respect to the issuance of a Letter of Credit, and (ii) as provided in the Letter of Credit with respect to a renewal of a Letter of Credit. The Notice of Issuance of Letter of Credit shall specify (i) the proposed date of issuance or renewal (which shall be a Business Day), (ii) the face amount of the Letter of Credit, (iii) the expiration date of the Letter of Credit, (iv) the name and address of the beneficiary, (v) such other documents or materials as the Issuing Bank may reasonably request, and (vi) a precise description of the documents and the verbatim text of any certificate to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Bank to make payment under the Letter of Credit; provided that the Issuing Bank, in its sole judgment, may require changes in any such documents and certificates. In determining whether to pay any Letter of Credit, the Issuing Bank shall be responsible only to use reasonable care to determine that the documents and certificates required to be delivered under that Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. (c) PAYMENT OF AMOUNTS DRAWN UNDER OR NECESSARY TO COLLATERALIZE LETTERS OF CREDIT. In the event (i) the beneficiary of any Letter of Credit makes a drawing thereunder or (ii) the Borrower is required under Section 2.07(a) or Section 9 to cash collateralize any Letter of Credit, the Issuing Bank immediately shall notify the Borrower, and 33 40 the Borrower shall reimburse the Issuing Bank or make a deposit with the Issuing Bank, as appropriate, on the day on which such drawing is honored or such cash collateral deposit is required in an amount in same day funds equal to the amount of such drawing or, in the case of such a deposit, the maximum amount that may be drawn under the applicable Letter of Credit. (d) FAILURE OF BORROWER TO REIMBURSE THE ISSUING BANK. If the Borrower shall fail to reimburse the Issuing Bank, for any reason, as provided in Section 2.07(c), the Issuing Bank shall promptly notify the Agent. The Agent shall promptly thereafter notify the Lenders. The Agent shall thereafter apply all amounts received by it in accordance with the Pro Rata Shares of Lender and the Issuing Bank as provided in clause (ii) of the definition of "Pro Rata Shares" until such time as all unreimbursed draws on the Letters of Credit are paid in full and, if applicable, any requirement to cash collateralize the Letters of Credit is satisfied. (e) COMPENSATION. The Borrower agrees to pay the following amounts to the Issuing Bank with respect to each Letter of Credit issued by it: (i) with respect to each Letter of Credit, (A) a letter of credit fee equal to the Applicable Eurodollar Margin multiplied by the maximum amount available from time to time for drawing under such Letter of Credit (calculated on the basis of a 360-day year and the actual number of days elapsed) and (B) a facing fee equal to 0.25% per annum multiplied by the maximum amount available from time to time for drawing under such Letter of Credit (calculated on the basis of a 360-day year and the actual number of days elapsed), which amounts payable under clauses (A) and (B) shall be payable to the Issuing Bank quarterly in arrears on and to the last Business Day of each January, April, July and October commencing October, 2001; provided that if the aggregate amount of the facing fee payable under clause (B) in respect of any Letter of Credit will be less than $500, the Borrower shall pay to the Issuing Bank, on the date of issuance of such Letter of Credit, a facing fee of $500 which shall be in lieu of the facing fee otherwise payable pursuant to such clause (B); (ii) with respect to drawings made under any Letter of Credit, interest, payable on demand, on the amount paid by the Issuing Bank in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by the Borrower at a rate that is equal to the sum of the Base Lending Rate and the Applicable Base Margin; provided that if such amount is not paid on demand, such amount shall bear interest thereafter at a rate that is equal to 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans which such rate shall not thereafter be increased pursuant to Section 2.03(e); and (iii) with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the Issuing Bank's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be, or as otherwise agreed to by the Issuing Bank. (iv) On the last Business Day of July, 2001, the Borrower shall pay to the Issuing Bank an amount equal to all amounts that would have been payable by Borrower 34 41 under the terms of the Existing Credit Agreement if the Letters of Credit had continued to be issued thereunder instead of pursuant hereto. The Agent shall distribute to the Lenders according to their respective Pro Rata Shares under the Existing Credit Agreement an aggregate amount equal to the amounts paid by the Borrower pursuant to this clause (iv) multiplied by a fraction, the numerator of which is the number of days between April 30, 2001 and the Effective Date and the denominator of which is 90. (f) OBLIGATIONS ABSOLUTE. The obligation of the Borrower to reimburse the Issuing Bank for drawings made under the Letters of Credit issued by it shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such transferee may be acting), the Agent, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between the Borrower and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; provided that the Issuing Bank shall use reasonable care to determine that the documents and certificates required to be delivered under any Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit; (iv) payment by the Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document that does not comply with the terms of such Letter of Credit; provided that the Issuing Bank shall use reasonable care to determine that the documents and certificates required to be delivered under any Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit; (v) any adverse change in the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower or any of its Subsidiaries; (vi) any breach of this Agreement or any other Credit Document by the Borrower or any of its Subsidiaries, the Agent or any Lender (other than the Issuing Bank); (vii) any other circumstance or happening whatsoever, that is similar to any of the foregoing; or (viii) the fact that a Default or an Event of Default shall have occurred and be continuing; 35 42 provided that the Borrower shall not be required to pay any such amounts to the extent they arise from the gross negligence or willful misconduct of the Issuing Bank (as determined by a court of competent jurisdiction). (g) ADDITIONAL PAYMENTS. If by reason of: (i) any change in any applicable law, regulation, rule, decree or regulatory requirement or any change in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement, in each case occurring after the Effective Date; or (ii) compliance by the Issuing Bank with any direction, request or requirement (whether or not having the force of law) announced or issued after the Effective Date by any governmental or monetary authority, including, without limitation, any announcements or issuances under Regulation D of the Board of Governors of the Federal Reserve System; THEN: (i) the Issuing Bank shall be subject to any tax, levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Section 2.07, whether directly or by such being imposed on or suffered by the Issuing Bank; (ii) any reserve, special deposit, premium, FDIC assessment, capital adequacy or similar requirement is or shall be applicable, imposed or modified in respect of any Letters of Credit issued by the Issuing Bank; or (iii) there shall be imposed on the Issuing Bank any other condition regarding this Section 2.07 or any Letter of Credit; AND the result of the foregoing is to directly or indirectly increase the cost to the Issuing Bank of issuing, making or maintaining any Letter of Credit, or to reduce the amount receivable in respect thereof by the Issuing Bank, THEN and in any such case the Issuing Bank may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify the Borrower, and the Borrower shall pay within five Business Days of the date of such notice such amounts as the Issuing Bank may specify to be necessary to compensate the Issuing Bank for such additional cost or reduced receipt, together with interest on such amount from the date demanded until payment in full thereof at a rate equal at all times to the Base Lending Rate plus 2.00% per annum. The determination by the Issuing Bank, as the case may be, of any amount due pursuant to this Section 2.07(g) as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall be presumed to be correct. (h) INDEMNIFICATION; NATURE OF THE ISSUING BANK'S DUTIES. In addition to amounts payable as elsewhere provided in this Section 2.07, the Borrower hereby agrees to protect, indemnify, pay and save harmless the Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees and reasonable allocated costs of internal counsel) that the Issuing Bank may 36 43 incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, other than as a result of gross negligence or willful misconduct of the Issuing Bank or the Issuing Bank's failure to use reasonable care to determine that the documents and certificates required to be delivered under such Letter of Credit had been delivered and that they complied on their face with the requirements of that Letter of Credit as determined by a court of competent jurisdiction or (ii) the failure of the Issuing Bank to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENT ACTS"). As between the Borrower and the Issuing Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by the Issuing Bank by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank shall not be responsible (absent gross negligence or willful misconduct (as determined by a court of competent jurisdiction)): (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Issuing Bank, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of any of the Issuing Bank's rights or powers hereunder; provided that, notwithstanding the foregoing, the Issuing Bank shall use reasonable care to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Bank under or in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith and absent gross negligence or willful misconduct of the Issuing Bank (as determined by a court of competent jurisdiction), shall not put the Issuing Bank under any resulting liability to the Borrower. Notwithstanding anything to the contrary contained in this Section 2.07(h), the Borrower shall have no obligation to indemnify the Issuing Bank in respect of any liability incurred by the Issuing Bank arising solely out of the gross negligence or willful misconduct of the Issuing Bank as determined by a court of competent jurisdiction, or out of the wrongful dishonor by the Issuing Bank of a proper demand for payment made under the Letters of Credit; 37 44 provided that the Issuing Bank shall use reasonable care to determine that the documents and certificates required to be delivered under any Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. (i) COMPUTATION OF INTEREST. Interest payable pursuant to this Section 2.07 shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. 2.08 LOAN ACCOUNTS. Each Lender shall open and maintain on its books one or more loan accounts in the name of Borrower; provided that the failure to open and maintain such loan accounts shall not affect the obligations of Borrower hereunder. Each loan account shall show (without duplication) as debits thereto each Lender's portion of each Base Rate Loan and each Eurodollar Loan and as credits thereto all Loan payments received for the account of such Lender with respect to such Lender's portion of each such Loan and applied to principal so that the balance of the loan account(s) at all times reflects the principal amount due such Lender from Borrower with respect to all Base Rate Loans and all Eurodollar Loans. All entries in said books shall be presumptive evidence of the making of such Base Rate Loans and such Eurodollar Loans, the obligation of Borrower to repay each such Loan, and all payments received and disbursed by such Lender. Borrower agrees that if, in the opinion of any Lender, a promissory note or other evidence of indebtedness is required or appropriate to reflect or enforce any Loan outstanding to or to be made by such Lender then Borrower shall promptly execute and deliver to such Lender a promissory note to evidence such Lender's Loan in substantially the form of EXHIBIT C in the amount of such Lender's Term Loan Commitment with appropriate insertions, together with such documents as such Lender may reasonably request to evidence the due authorization, execution, delivery and enforceability of such Note. If any Note is issued hereunder, Agent and the Borrower may treat the payee of that Note as the owner thereof for all purposes. SECTION 3. FEES. 3.01 FEES. (a) AGENCY FEE. The Borrower agrees to pay to the Agent on the Effective Date an amount separately agreed to by the Agent and the Borrower. (b) ADMINISTRATIVE FEE. The Borrower agrees to pay to the Agent an annual administrative fee in the amount and at the times separately agreed to by the Agent and the Borrower. (c) RESTRUCTURING FEE. The Borrower shall pay to the Agent, for distribution to each of the Lenders in accordance with its Pro Rata Share, restructuring fees of (i) $1,200,000 on the Effective Date, (ii) $200,000 on each of December 31, 2001, March 31, 2002 and June 30, 2002, and (iii) $459,000 on September 30, 2002; provided that the Pro Rata Share of the restructuring fee to be paid to each Lender, other than the Bank of Montreal, on the Effective Date shall be reduced by the amount owed by each Lender, other than the Bank of Montreal, to the Issuing Bank pursuant to Section 5.01(m). 38 45 (d) ANNUAL FEE. Within five Business Days after each anniversary of the Effective Date and on the Termination Date, the Borrower agrees to pay to the Agent a fee for distribution to each of the Lenders in accordance with its Pro Rata Share an amount equal to 0.5% of the sum of the average of the principal amount outstanding on the Loans during the preceding one year period and the Letter of Credit Usage (or, with respect to the Termination Date, the period from the prior anniversary of the Effective Date and the Termination Payment Date). The annual fee due on the Termination Date shall be prorated based on the actual number of days in the period from the prior anniversary of the Effective Date and the Termination Date and a 360-day year. SECTION 4. PREPAYMENTS AND PAYMENTS. 4.01 SCHEDULED PAYMENTS OF LOANS. The Borrower shall make principal payments on the Loans in installments on the dates and in the amounts set forth below:
============================================================= DATE SCHEDULED PAYMENT ------------------------------------------------------------- September 30, 2001 $ 750,000.00 ------------------------------------------------------------- December 31, 2001 $ 750,000.00 ------------------------------------------------------------- March 31, 2002 $ 11,600,000.00 ------------------------------------------------------------- June 30, 2002 $ 1,000,000.00 ------------------------------------------------------------- September 30, 2002 $ 1,000,000.00 ------------------------------------------------------------- December 31, 2002 $281,508,020.09
provided that the scheduled installments of principal of the Loans set forth above shall be reduced in connection with (i) any voluntary prepayments of the Loans in accordance with Section 4.02(a) and (ii) any mandatory prepayments in accordance with Section 4.02(b); and provided, further that the Loans and all other amounts owed hereunder with respect to the Loans shall be paid in full no later than the Termination Date, and the final installment payable by the Borrower in respect of the Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by the Borrower under this Agreement with respect to the Loans. 4.02 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part from time to time on the following terms and conditions: (i) the Borrower shall deliver to the Agent at its Notice Office prior notice of its intent to prepay the Loans and the amount of such prepayment no later than 12:00 Noon (New York time) one Business Day in advance of the proposed prepayment date (in the case of a Base Rate Loan) and three Business Days in advance of the proposed prepayment date (in the case of a Eurodollar Rate Loan), which notice the Agent shall promptly transmit to each of the Lenders, and (ii) Eurodollar Rate Loans prepaid other than on the expiration of the Interest Period applicable thereto shall be subject to payment of breakage costs by the Borrower. Any such voluntary prepayment shall be applied as specified in Section 4.03(a). 39 46 (b) MANDATORY PREPAYMENTS. The Loans shall be prepaid in the amounts and under the circumstances set forth below, all such prepayments to be applied as specified in Section 4.03: (i) Prepayments and Reductions Due to Issuance of Securities. No later than the second Business Day following the date of receipt by the Borrower of the cash proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) from the issuance of any Securities of the Borrower, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of such net cash proceeds. Concurrently with any prepayment of the Loans pursuant to this Section 4.02(b)(i), the Borrower shall deliver to Agent an Officers' Certificate demonstrating the calculation of the net cash proceeds that gave rise to such prepayment. In the event that the Borrower shall subsequently determine that the actual net cash proceeds were greater than the amount set forth in such Officers' Certificate, the Borrower shall promptly make an additional prepayment of the Loans in an amount equal to the amount of such excess, and the Borrower shall concurrently therewith deliver to Agent an Officers' Certificate demonstrating the derivation of the additional net cash proceeds resulting in such excess. (ii) Prepayments and Reductions Due to Asset Sales. No later than the fifth Business Day following the date of receipt by the Borrower or any of its Subsidiaries of the cash proceeds (net of any expenses reasonably incurred by the Borrower or any of its Subsidiaries in respect of such Asset Sales, including, without limitation, reasonable attorneys' fees and expenses and the amount of any taxes actually paid or to become payable by the Borrower, as reasonably estimated by its Chief Financial Officer, in respect of such Asset Sale), the Borrower shall prepay the Loans in an aggregate amount equal to the net cash proceeds. Concurrently with any prepayment of the Loans pursuant to this Section 4.02(b)(ii), the Borrower shall deliver to Agent an Officers' Certificate demonstrating the calculation of the net cash proceeds that gave rise to such prepayment. In the event that the Borrower shall subsequently determine that the actual net cash proceeds were greater than the amount set forth in such Officers' Certificate, the Borrower shall promptly make an additional prepayment of the Loans in an amount equal to the amount of such excess, and the Borrower shall concurrently therewith deliver to Agent an Officers' Certificate demonstrating the derivation of the additional net cash proceeds resulting in such excess. Cash proceeds for this purpose shall include the collection of Accounts Receivable associated with the assets sold in such Asset Sale even if such Accounts Receivable are not included in the assets sold in such Asset Sale. (iii) Prepayments Due to Tax Refunds. No later than the second Business Day following the date of receipt by the Borrower or any of its Subsidiaries of any cash proceeds from any tax refunds made by the Internal Revenue Service or any state or local Governmental Authority, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of such cash proceeds. Concurrently with any prepayment of the Loans pursuant to this Section 4.02(b)(iii), the Borrower shall deliver to the Agent an Officers' Certificate demonstrating the calculation of the cash proceeds that gave rise to such prepayment. In the event that the Borrower shall subsequently determine that the actual cash proceeds were greater than the amount set forth in such Officers' Certificate, the Borrower shall promptly make an additional prepayment of the Loans in an amount equal 40 47 to the amount of such excess, and the Borrower shall concurrently therewith deliver to the Agent an Officers' Certificate demonstrating the derivation of the additional cash proceeds resulting in such excess. (iv) Prepayments Due to Excess Casualty Proceeds. No later than the second Business Day following the receipt by the Borrower or any of its Subsidiaries of any Excess Casualty Proceeds, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of such Excess Casualty Proceeds. Concurrently with any prepayment of the Loans pursuant to this Section 4.02(b)(iv), the Borrower shall deliver to the Agent an Officers' Certificate demonstrating the calculation of the Excess Casualty Proceeds that gave rise to such prepayment. In the event that the Borrower shall subsequently determine that the Excess Casualty Proceeds are greater than the amount set forth in such Officers' Certificate, the Borrower shall promptly make an additional prepayment of the Loans in an amount equal to the amount of the additional Excess Casualty Proceeds, and the Borrower shall concurrently therewith deliver to the Agent an Officers' Certificate demonstrating the derivation of the additional Excess Casualty Proceeds. (v) EBITDA Payments. On or prior to 45 days after the end of each quarter commencing June 30, 2001, the Borrower shall prepay the Loans in the aggregate amount of the EBITDA Payment for such quarter. 4.03 APPLICATION OF PREPAYMENTS. (a) APPLICATION OF VOLUNTARY PREPAYMENTS BY ORDER OF MATURITY. Subject to Section 2.07(d), any voluntary prepayments of the Loans pursuant to Section 4.02(a) shall be applied to reduce the scheduled installments of principal of the Loans set forth in Section 4.01 in forward order of maturity and to cash collateralize a proportionate share of the Letters of Credit as determined in accordance with clause (iii) of the definition of "Pro Rata Share". (b) APPLICATION OF CERTAIN OTHER MANDATORY PREPAYMENTS. All proceeds of Asset Sales held by Agent in escrow on the Effective Date shall be immediately applied as a mandatory prepayment of the Loans pursuant to Section 4.02(b)(ii) to the principal installment due on March 31, 2002, including, without limitation, the net cash proceeds of the sale of certain assets of AHPT to Option Care Enterprises, Inc. Subject to Section 2.07(d), any amount required to be applied as a mandatory prepayment of the Loans pursuant to Section 4.02(b)(ii) shall first be applied to the principal installment due on the Loans on March 31, 2002. Subject to Section 2.07(d), any mandatory prepayments of the Loans pursuant to Section 4.02(b)(i), Section 4.02(b)(ii) in excess of the principal payment due on March 31, 2002, Section 4.02(b)(iii) or Section 4.02(b)(iv) shall be applied to reduce the scheduled installments of principal of the Loans set forth in Section 4.01 in inverse order of maturity and to cash collateralize a proportionate share of the Letters of Credit as determined in accordance with clause (iii) of the definition of Pro Rata Share. Subject to Section 2.07(d), any mandatory prepayments of the Loans pursuant to Section 4.02(b)(v) shall be applied to reduce the scheduled installments of principal of the Loans in Section 4.01 in forward order of maturity. (c) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND EURODOLLAR RATE LOANS. Any prepayment of the Loans shall be applied first to Base Rate Loans to the full extent 41 48 thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by the Borrower pursuant to subsection 2.06(e). (d) APPLICATION OF PREPAYMENTS TO PRINCIPAL AND INTEREST. All payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (e) DIRECT PAYMENTS. Borrower shall, and shall cause each of its Subsidiaries to, cause all amounts payable to Agent pursuant to Section 4.02(b)(i) to be paid directly to Agent by execution of irrevocable payment instructions or powers of attorney in form and substance satisfactory to Agent or otherwise in a manner satisfactory to Agent. 4.04 GENERAL PROVISIONS REGARDING PAYMENTS. (a) METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Agent for the account of the Lender or the Lenders entitled thereto not later than 1:00 P.M. (New York time), on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day that is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under any Note or of the Fees hereunder, as the case may be; provided, however, that if the day on which payment relating to a Eurodollar Rate Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day. All voluntary prepayments shall be made in an aggregate minimum amount of $100,000 and integral multiples of $10,000 in excess of that amount. (b) NET PAYMENTS. All payments made by the Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. (c) APPORTIONMENT OF PAYMENTS. Aggregate principal and interest payments attributable to the Loans shall be apportioned among all outstanding Loans to which such payments relate, and such payments shall be apportioned ratably to the Lenders, proportionately to the Lenders' respective Pro Rata Shares as set forth in clause (i) of the definition of "Pro Rata Shares". The Agent promptly shall distribute to each Lender at its primary address set forth below its name on the appropriate signature page hereof or such other address as any Lender may request its Pro Rata Share of all such payments received by the Agent. The Fees of such Lender when received by the Agent pursuant to Section 3.01 shall be distributed to the respective Pro Rata Shares as set forth in clause (iii) of the definition of "Pro Rata Shares". Anything contained in this Agreement or the Credit Documents to the contrary notwithstanding, upon the occurrence and during the continuance of any Event of Default specified in Section 9 or after the acceleration of the maturity of the Loans and the other amounts referred to in Section 9, all payments relating to the Loans and the other Obligations shall be 42 49 made to the Agent for the account of the Lenders and Issuing Bank and all amounts received by the Agent that are to be applied to the payment of the Obligations shall be distributed to the Lenders and the Issuing Bank in accordance with their Pro Rata Shares as set forth in clause (ii) of the definition of "Pro Rata Shares". SECTION 5. CONDITIONS PRECEDENT. 5.01 CONDITIONS TO EFFECTIVENESS. This Agreement shall become effective only upon satisfaction of all of the following conditions on or prior to June 8, 2001: (a) EXECUTION OF AGREEMENT; CREDIT DOCUMENTS; NOTES. The Agent shall have received: (i) an original of this Agreement (whether the same or different copies) duly executed by the Borrower, each Lender and the Agent, (ii) an original Note made to the order of each Lender that has requested that a Note be issued to it on the Effective Date, duly executed by the Borrower in the amount, maturity and as otherwise provided herein, (iii) an original of the Warrant Agreement, duly executed by the Borrower in favor of each of the Lenders, (iv) original Warrant Certificates in favor of each of the Lenders, duly executed by the Borrower, in the amounts set forth in the Warrant Agreement, (v) an original Consent to Amendment and Restatement duly executed by each Guarantor Subsidiary, (vi) an original Registration Rights Agreement duly executed by Borrower, Agent and Lenders, (vii) an original Concentration Bank Agreement duly executed by Borrower and PNC Bank, National Association, (viii) a duly executed Blocked Account Agreement duly executed by Borrower, and (ix) to the extent not already received, signed copies of the other Credit Documents (whether the same or different copies) duly executed by the parties thereto, including, without limitation, the Guarantor Subsidiary Documents duly executed by each Guarantor Subsidiary that has not previously executed such documents. (b) NO DEFAULT; REPRESENTATION AND WARRANTIES; MATERIAL ADVERSE CHANGES. All representations and warranties of the Borrower and its Subsidiaries set forth in this Agreement and in each of the other Credit Documents shall be true, correct and complete in all material respects on and as of the Effective Date and after giving effect to the transactions contemplated to occur on such date, and the Borrower shall have delivered to the Agent an Officer's Certificate, dated as of the Effective Date, signed by the President or Vice President of the Borrower, and attested to by the Secretary or any Assistant Secretary of the Borrower, in form and substance satisfactory to the Agent, to the effect that on and as of the Effective Date and after giving effect to the transactions contemplated to occur on such date, (i) no Default or Event of Default shall have occurred and be continuing, (ii) all representations and warranties contained herein and in the other Credit Documents are true, correct and complete in all material respects and (iii) no material adverse change has occurred in the business, operations, properties, assets or condition (financial or otherwise) or prospects of any of the Borrower and its Subsidiaries taken as whole since December 31, 2000. (c) CORPORATE DOCUMENTS; PROCEEDINGS. (i) On the Effective Date, the Agent shall have received a certificate, dated the Effective Date, signed by the President or Vice President of the Borrower, and attested to by the Secretary or any Assistant Secretary of the Borrower, in form and 43 50 substance satisfactory to the Agent, certifying (A) resolutions of the Board of Directors of the Borrower authorizing and approving this Agreement, the Notes, if any, the Warrant Agreement, the Warrant Certificates, the Registration Rights Agreement, the Concentration Bank Agreement, the Blocked Account Agreement, the other Credit Documents and the transactions contemplated hereby, (B) the signatures and incumbency of the Borrower's officers executing this Agreement, the Notes, if any, the Warrant Agreement, the Warrant Certificates, the Registration Rights Agreement, the Concentration Bank Agreement, the Blocked Account Agreement, any other Credit Documents to which the Borrower is a party and the documents, instruments or other certificates to be delivered in connection with this Agreement and the other Credit Documents, and (C) the Certificate of Incorporation and By-Laws of the Borrower together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certificate. In lieu of delivering a copy of its Certificate of Incorporation or By-Laws to the Agent pursuant to the preceding sentence, the Borrower may certify in its certificate delivered pursuant to this clause (i) that such Certificate of Incorporation or By-Laws, as the case may be, were delivered to the Agent pursuant to the Existing Credit Agreement and that there has been no change in such Certificate of Incorporation or By-Laws, as the case may be, since the date of such delivery. (ii) On the Effective Date, the Agent shall have received a certificate, dated the Effective Date, signed by the President or Vice President of each of the Borrower's Subsidiaries party to any Credit Document, and attested to by the Secretary or any Assistant Secretary of such Subsidiary, in form and substance satisfactory to the Agent, certifying (A) the resolutions adopted by the Board of Directors of such Subsidiary approving and authorizing the Consent to Amendment and Restatement and the transactions contemplated thereby and by this Agreement and, with respect to any Guarantor Subsidiary that has not executed the Guaranty Subsidiary, the Guarantor Subsidiary Documents, (B) the signatures and incumbency of the officers of such Subsidiary executing the Credit Documents to which such Subsidiary is a party and the documents, instruments or other certificates to be delivered in connection with this Agreement and the other Credit Documents, and (C) the Articles or Certificate of Incorporation or other charter documents and By-Laws of such Subsidiary, together with copies of the Articles or Certificate of Incorporation or other charter documents and By-Laws of such Subsidiary and the resolutions of such Subsidiary referred to in such certificate. In lieu of delivering a copy of its Articles or Certificate of Incorporation or other charter documents or By-Laws to the Agent pursuant to the preceding sentence, any of the Borrower's Subsidiaries may certify in its certificate delivered pursuant to this clause (ii) that such Articles or Certificate of Incorporation, other charter documents or By-Laws, as the case may be, were delivered to the Agent pursuant to the Existing Credit Agreement and that there has been no change in such Articles or Certificate of Incorporation, other charter documents or By-Laws, as the case may be, since the date of such delivery. (iii) On the Effective Date, the Agent shall have received copies of the Articles or Certificate of Incorporation or other charter documents of each of the Borrower and each of the Borrower's Subsidiaries party to any Credit Document, 44 51 certified as of a recent date prior to delivery by the Secretary of State of its jurisdiction of incorporation, together with a good standing certificate from its jurisdiction of incorporation dated a recent date prior to delivery; provided, however, that the Articles or Certificate of Incorporation or other charter documents of a Subsidiary need not be delivered pursuant to this clause (iii) if such Subsidiary certifies pursuant to clause (ii) above that such Articles or Certificate of Incorporation or other charter documents were delivered to the Agent pursuant to the Existing Credit Agreement and that there has been no change in such Articles or Certificate of Incorporation or other charter documents since the date of such delivery. (iv) All corporate, partnership and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Lenders, and the Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings and governmental approvals, if any, that any Lender reasonably may have requested in connection therewith, such documents and papers as appropriate to be certified by proper corporate, partnership or governmental authorities. (d) PERFECTION OF SECURITY INTERESTS. The Borrower and its Subsidiaries shall have taken or caused to be taken such actions in such a manner so that the Agent has or maintains a valid and perfected first priority security interest in all Collateral (subject to Liens consented to by the Required Lenders with respect to such Collateral and other Liens permitted by Section 8.01) encumbered or to be encumbered under the Credit Documents. Such actions shall include, without limitation: (i) the delivery, to the extent not theretofore delivered, pursuant to the applicable Credit Documents by the Borrower and its Subsidiaries of such certificates (which certificates shall be registered in the name of the Agent or properly endorsed in blank for transfer or accompanied by irrevocable undated stock powers duly endorsed in blank, all in form and substance satisfactory to the Agent) representing all of the capital stock required to be pledged pursuant to the Credit Documents; (ii) the delivery, to the extent not theretofore delivered, pursuant to the applicable Credit Documents by the Borrower and its Subsidiaries of such promissory notes (which promissory notes shall be endorsed to the order of the Agent, all in form and substance satisfactory to the Agent) representing all of the pledged debt required to be pledged pursuant to the Credit Documents; (iii) the delivery, to the extent not theretofore delivered, to the Agent of Uniform Commercial Code financing statements, or amendments thereto, executed by the Borrower and its Subsidiaries as to the Collateral granted by the Borrower and its Subsidiaries for all jurisdictions as may be necessary or desirable to perfect the Agent's security interest in such Collateral; and (iv) evidence reasonably satisfactory to the Agent that all other filings (including, without limitation, filings with the United States Patent and Trademark Office), recordings and other actions the Agent deems necessary or advisable to establish, preserve and perfect the first priority Liens (subject to Liens permitted under this Agreement or consented to by the Required Lenders with respect to such Collateral) granted to the Agent in personal and mixed property and the Real Estate shall have been made. (e) PAYMENT OF FEES. The Borrower shall have paid (i) the Fees required by Section 3.01 to be paid on or prior to the Effective Date, and (ii) to the Agent, Issuing Bank and 45 52 the Lenders (as such terms are defined in the Existing Credit Agreement) all unpaid fees accrued under the Existing Credit Agreement prior to the Effective Date. (f) CONVERSION OF EXISTING REVOLVING LOANS; PAYMENT OF INTEREST AND FEES. On or before the Effective Date, notwithstanding anything contained in the Existing Credit Agreement or Section 2.03 of this Agreement to the contrary, (i) the Borrower shall pay to Agent, for distribution (as appropriate) to Lenders, all accrued and unpaid interest with respect to all Existing Bank Loans outstanding on the Effective Date, other than interest accrued pursuant to Section 2.06(e) of the Existing Credit Agreement, and (ii) the Borrower shall pay to Agent, for distribution (as appropriate) to Lenders, all commitment fees and letter of credit fees which are accrued and unpaid as of the Effective Date under Sections 3.01(b) and 2.10(e) of the Existing Credit Agreement. (g) FINANCIAL STATEMENTS. The Lenders shall have received final projected financial statements (including balance sheets and statements of operations, stockholders' equity and cash flows) of the Borrower and its Subsidiaries for the three-year period after the Effective Date in form and substance satisfactory to the Lenders. (h) EXISTING AND CONTINUING INDEBTEDNESS. The Existing Indebtedness that shall remain outstanding after the Effective Date shall be as set forth on SCHEDULE 8.04(ii) annexed hereto, and the Borrower shall have delivered to the Agent an Officers' Certificate to such effect. (i) SATISFACTION OF CONDITIONS TO FUNDING. All conditions precedent to the making of Loans and the issuance of Letters of Credit described in Section 5.02 shall be satisfied on and as of the Effective Date with respect to the Loans and the Letters of Credit to be continued on such date. (j) OPINIONS OF COUNSEL. On the Effective Date, the Agent shall have received from Harwell Howard Hyne Gabbert & Manner, P.C., counsel to the Borrower, an opinion substantially in the form annexed hereto as EXHIBIT G, addressed to each of the Lenders and dated the date of delivery, covering such matters incident to the transactions contemplated herein as the Agent may reasonably request. (k) CERTAIN APPROVALS AND AGREEMENTS. Borrower and its Subsidiaries shall have obtained all third party consents, waivers, amendments, and approvals that may be necessary under Borrower's and its Subsidiaries' existing contracts and agreements in connection with the borrowings under this Agreement and all related transactions, and Borrower and its Subsidiaries shall otherwise be in material compliance with such agreements. (l) COMPLIANCE CERTIFICATE. On the Effective Date, Borrower shall have received a Compliance Certificate in form and substance satisfactory to Lenders with respect to the period ending March 31, 2001. (m) LENDER OBLIGATIONS. Each Lender, other than the Bank of Montreal, shall pay to the Issuing Bank an amount equal to 25% of its Pro Rata Share (as defined in the Existing Credit Agreement) of the outstanding Letters of Credit to be continued on the Effective Date in the manner provided in Section 3.01(c). The Bank of Montreal and the Issuing Bank shall enter 46 53 into a participation agreement in form and substance satisfactory to each pursuant to which Bank of Montreal shall exchange its existing interest in the Letters of Credit and purchase a participation interest in the Letters of Credit consistent with the provisions of Section 11.05(f). All the Notes, certificates, legal opinions and other documents and papers referred to in this Section 5, unless otherwise specified, shall be delivered to the Agent for the account of each of the Lenders and, except for the Notes and the Warrant Certificates, in sufficient counterparts for each of the Lenders and shall be satisfactory in form and substance to the Lenders. 5.02 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The obligations of the Lenders to make Loans on the Effective Date and the Issuing Bank to issue or renew Letters of Credit on each Funding Date are subject to the following further conditions precedent: (a) The Issuing Bank shall have received, in accordance with the provisions of Section 2.07(b) before the Funding Date (other than with respect to any Letters of Credit issued on the Effective Date), an originally executed Notice of Issuance of Letter of Credit signed by the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Borrower or by any officer of the Borrower designated by the Board of Directors of the Borrower or any of the above-described officers on behalf of the Borrower in writing delivered to the Issuing Bank. The obligation of the Issuing Bank to issue or renew any Letter of Credit is subject to the further condition precedent that on or before the date of issuance or renewal of such Letter of Credit, the Issuing Bank shall have received, in accordance with the provisions of Section 2.07(b), all other information specified in Section 2.07(b) and such other documents as the Issuing Bank reasonably may require in connection with the issuance or renewal of such Letter of Credit. (b) As of the Funding Date (or, with respect to the renewal of a Letter of Credit, the date of notice of renewal thereof): (i) The representations and warranties contained herein shall be true, correct and complete in all material respects on and as of that date to the same extent as though made on and as of that date taking into account any amendments to the Schedules or Exhibits hereto as a result of any disclosures made by the Borrower to the Agent and the Lenders after the Effective Date approved by the Agent and the Required Lenders in their reasonable discretion; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by the making of the Loans on or the continuation of the Letters of Credit on the Effective Date or the issuance or renewal of any Letter of Credit thereafter that would constitute a Default or an Event of Default; (iii) The Borrower shall have performed in all material respects all agreements and satisfied all conditions that this Agreement provides shall be performed by it on or before that date; (iv) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans or the Issuing Bank from continuing, issuing or renewing the Letters of Credit; and 47 54 (v) The making of the Loans or the continuing, issuing or renewing of the Letters of Credit requested on such date shall not violate any law, including, without limitation, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System. SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to induce the Lenders to enter into this Agreement and to maintain and make the Loans and the Issuing Bank to continue, issue and renew the Letters of Credit, the Borrower makes the following representations, warranties and agreements, which shall survive the execution and delivery of this Agreement and the Notes, if any, the making of the Loans and the continuation, issuance or renewal of the Letters of Credit: 6.01 CORPORATE STATUS. Except as set forth on SCHEDULE 6.01 Each of the Borrower and its Subsidiaries (i) is a duly organized and validly existing corporation, partnership or association, as the case may be, in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its property and assets and to transact the business in which it is engaged, (iii) is duly qualified as a foreign corporation, partnership or association, as the case may be, and in good standing in each jurisdiction where its ownership, leasing or operation of property or the conduct of its business requires such qualification, except if the failure to be so qualified could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole and (iv) is in compliance with all requirements of law, including, but not limited to, all federal, state and local statutes, regulations and ordinances relating to the delivery of healthcare services of the type provided by the Borrower and its Subsidiaries and payment therefor, except to the extent that the failure to do so could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.02 CORPORATE POWER AND AUTHORITY. The Borrower and each of its Subsidiaries has the corporate, partnership or other power to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary corporate, partnership or other action to authorize the execution, delivery and performance by it of each of such Credit Documents. The Borrower and each of its Subsidiaries has duly executed and delivered each of the Credit Documents to which it is party, and each of such Credit Documents constitutes the legal, valid and binding obligation of the Borrower or such Subsidiary, as the case may be, enforceable against the Borrower or such Subsidiary, as the case may be, in accordance with its terms except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 6.03 NO VIOLATION. Neither the execution, delivery or performance by the Borrower or a Subsidiary of the Borrower of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions of any such Credit Documents, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or 48 55 result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (other than Liens permitted under Section 8.01) upon any of the property or assets of the Borrower or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument to which the Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or By-Laws (or other documents of formation and governance, as the case may be) of the Borrower or any of its Subsidiaries. 6.04 GOVERNMENTAL APPROVALS. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the Effective Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance by the Borrower or any of its Subsidiaries of any Credit Document to which the Borrower or any of such Subsidiaries is a party, or (ii) the legality, validity, binding effect or enforceability of any such Credit Document, except, in any case, filings, approvals and authorizations that could not reasonably be expected to have a material adverse effect on the business, operations, properties, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED LIABILITIES; ETC. (a) The financial statements delivered to the Lenders pursuant to Sections 7.01(a) and (b) of the Existing Credit Agreement and to the Lenders pursuant to Section 5.01(g) present fairly the consolidated financial condition of the Borrower and its Subsidiaries as at the respective dates thereof and the consolidated results of operations and changes in financial condition of the Borrower and its Subsidiaries for each of the periods covered thereby, subject (in the case of any unaudited interim financial statements) to changes resulting from normal year-end adjustments. All such consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied. (b) Except as fully reflected in the financial statements described in Section 6.05(a), and except for Interest Rate Agreements permitted hereunder, there were as of the Effective Date no liabilities or obligations with respect to the Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) that, either individually or in aggregate, would be material to the Borrower and its Subsidiaries taken as a whole. As of the Effective Date the Borrower does not know of any basis for the assertion against the Borrower or any of its Subsidiaries of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements described in Section 6.05(a) that, either individually or in the aggregate, would be material to the Borrower and its Subsidiaries taken as a whole. 6.06 LITIGATION. Except as set forth on SCHEDULE 6.06, there is no action, suit or arbitration or other proceeding pending or, to the best knowledge of the Borrower), threatened with respect to (i) any Credit Document, (ii) any tax return, (iii) any Acquisition that has been consummated, if any, or (iv) any other matter that, if adversely determined, is reasonably likely 49 56 to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.07 TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a whole) heretofore or contemporaneously furnished by the Borrower or on behalf of the Borrower with its knowledge in writing to any Lender (including, without limitation, all information contained in the Credit Documents) for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Borrower in writing to any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not materially misleading at such time in light of the circumstances under which such information was provided. 6.08 USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds of the Loans and any Letters of Credit have been and will be used by the Borrower for the purposes set forth in Section 2.05; provided that no part of the proceeds of any Loan or any Letter of Credit was or will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan or the issuance or renewal of any Letter of Credit nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System. 6.09 TAX RETURNS AND PAYMENTS. Each of the Borrower and its Subsidiaries has filed all tax returns required to be filed by it and has paid all income taxes payable by it that have become due pursuant to such tax returns and all other taxes and assessments payable by it that have become due, other than those not yet delinquent, those being contested in good faith and those listed on SCHEDULE 6.06. 6.10 COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with ERISA; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability, no Plan has an accumulated or waived funding deficiency or permitted decreases in its funding standard account within the meaning of Section 412 of the Code; neither the Borrower nor any Subsidiary of the Borrower nor ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Sections 502(c), (i) or (l), 515, 4062, 4063, 4064, 4071, 4201 or 4204 of ERISA or Chapter 43 of the Code or expects to incur any liability under any of the foregoing sections; no proceedings have been instituted to terminate any Plan; no condition exists that presents a material risk to the Borrower or any of its Subsidiaries of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no Lien imposed under the Code or ERISA on the assets of the Borrower or any of its Subsidiaries exists or is likely to arise on account of any Plan; the Borrower and its Subsidiaries may terminate contributions to any other employee benefit plans maintained by them without incurring any material liability to any Person interested therein; and no Plan has received notice from the Internal Revenue Service of the failure of such Plan to qualify under Section 401(a) of the Code. 50 57 6.11 CAPITALIZATION. The authorized capital stock of the Borrower consists of 35,000,000 shares of Borrower Common Stock, of which 16,327,389 shares were issued and outstanding as of the date hereof and 5,000,000 shares of preferred stock, $0.01 par value per share, of which none are issued and outstanding. All such outstanding shares have been duly and validly issued, are fully paid and non-assessable. The Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock except as described on SCHEDULE 6.11 or as issued under any employee stock option plan of the Borrower and reported to the Agent each fiscal quarter. 6.12 SUBSIDIARIES. On the Effective Date, the corporations listed on SCHEDULE 6.12 and the associations or joint ventures listed on SCHEDULE 6.21 are the only Subsidiaries of the Borrower. SCHEDULE 6.12 and SCHEDULE 6.21 correctly set forth, as of the Effective Date, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock or partnership interests of each of its Subsidiaries and also identify the direct owner thereof. 6.13 COMPLIANCE WITH STATUTES, ETC. Each of the Borrower and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliance as would not, in the aggregate, have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.14 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6.15 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 6.16 LABOR RELATIONS. Neither the Borrower nor any of its Subsidiaries is engaged in any unfair labor practice that would have a material adverse effect on the Borrower and its Subsidiaries taken as a whole. There is (i) no significant unfair labor practice complaint pending or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, (ii) no significant strike, labor dispute, slowdown or stoppage pending or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, and (iii) to the best knowledge of the Borrower, no union representation question existing with respect to the employees of the Borrower or any of its Subsidiaries and, to the best knowledge of the Borrower, no union organizing activities are taking place, except (with respect to any matter 51 58 specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as would not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of the Borrower and its Subsidiaries owns all the patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business. No proceedings, claims, actions or oppositions have been instituted or are pending or, to the best of the Borrower's and its Subsidiaries' knowledge, after due inquiry, are threatened that challenge the validity of the Borrower's or its Subsidiaries' use of such patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, that would result in a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.18 NO MATERIAL ADVERSE CHANGE. Since December 31, 2000, there has been no material adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole other than change due to action expressly permitted by the terms of this Agreement. 6.19 FRAUD AND ABUSE. The Borrower and its Subsidiaries, and, to the knowledge of the Borrower and its Subsidiaries after reasonable inquiry, their respective officers and directors, and persons who provide professional services under agreements with the Borrower or any of its Subsidiaries have been and are in material compliance with federal Medicare and Medicaid statutes, 42 U.S.C. ss.ss. 1320a-7, 1320a-7(a), 1320a-7b and 1395nn, as amended, and the regulations promulgated thereunder or related state and local statutes and regulations and rules of professional conduct, and have not at anytime: (i) knowingly and willfully made or caused to be made a false statement or representation of a material fact in any application for any benefit or payment; (ii) knowingly and willfully made or caused to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (iii) presented or caused to be presented a claim for reimbursement for services under Medicare or Medicaid, or other state health care programs that is for an item or service that is known or should be known to be (a) not provided as claimed, or (b) false or fraudulent; (iv) failed to disclose knowledge by a claimant of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with intent fraudulently to secure such benefit or payment; (v) knowingly and willfully illegally offered, paid, solicited or received any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind (a) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may 52 59 be made in whole or in part by Medicare or Medicaid, or other state health care programs, or (b) in return for purchasing, leasing or ordering or arranging for or recommending purchasing, leasing or ordering any good, facility, service, or item for which payment may be made in whole or in part by Medicare or Medicaid or other state health care programs; (vi) knowingly made a payment, directly or indirectly, to a physician as an inducement to reduce or limit services to individuals who are under the direct care of the physician and who are entitled to benefits under Medicare or Medicaid, or other state health care programs; (vii) provided to any person information that is known or should be known to be false or misleading that could reasonably be expected to influence the decision when to discharge a hospital in-patient from the hospital; (viii) knowingly and willfully made or caused to be made or induced or sought to induce the making of any false statement or representation (or omitted to state a fact required to be stated therein or necessary to make the statements contained therein not misleading) of a material fact with respect to (a) the conditions or operations of a facility in order that the facility may qualify for Medicare or Medicaid or other state health care program certification, or (b) information required to be provided under ss. 1124A of the Social Security Act (42 U.S.C. ss. 1320a-3); (ix) knowingly and willfully (a) charged for any Medicaid service, money or other consideration at a rate in excess of the rates established by the state, or (b) for services covered (in whole or in part) by Medicaid, charged, solicited, accepted or received, in addition to amounts paid by Medicaid, any gift, money, donation or other consideration (other than a charitable, religious or philanthropic contribution from an organization or from a person unrelated to the patient) (y) as a precondition of treating the patient, or (z) as a requirement for the patient's continued treatment; (x) completed Certificates of Medical Necessity on behalf of physicians in violation of the Health Care Financing Administration's carrier directives prohibiting home health care providers from so doing; (xi) violated the federal Food, Drug and Cosmetic Act and the so-called "pharmacy exemption" contained therein and the FDA's Compliance Policy Guide Number 7132.16 entitled "Manufacture, Distribution, and Promotion of Adulterated, Misbranded, or Unapproved New Drugs for Human Use by State-Licensed Pharmacies;" or (xii) violated the FDA's guidelines or OSHA regulations including those in connection with any oxygen filling stations maintained or operated by the Borrower or any of its Subsidiaries and 29 C.F.R. 1910, 1030 Occupational Exposure to Bloodborne Pathogens; 53 60 such that the actions or inactions in the foregoing clauses (i) through (xii), individually or in the aggregate, would have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole. 6.20 TITLE TO PROPERTIES; LIENS. The Borrower and its Subsidiaries have good, sufficient and legal title to all of their respective properties and assets reflected in the most recent financial statements delivered pursuant to Sections 7.01(a) and (b) of this Agreement (or, if no such financial statements have yet been delivered, the most recent financial statements delivered pursuant to Sections 7.01(a) and (b) of the Existing Credit Agreement), except for assets disposed of since the date of such financial statements in the Ordinary Course of Business or as otherwise permitted under Section 8.02. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. 6.21 JOINT VENTURES. The Borrower and its Subsidiaries are not party to any Joint Venture other than the Joint Ventures set forth on SCHEDULE 6.21. 6.22 ACCOUNTS RECEIVABLE COLLATERAL. The Accounts Receivable and any related reimbursement contracts with the payor of such Accounts Receivable have not been satisfied, subordinated or rescinded in any manner (other than settlements in the Ordinary Course of Business with payors of such Accounts Receivable reached to facilitate collection); such Accounts Receivable were created through the provision of services or merchandise supplied by either (a) the Borrower and its Subsidiaries and the related charges were usual, customary and reasonable, or (b) a target of an Acquisition prior to such Acquisition and the Borrower believes, after due investigation, that the related charges were usual, customary and reasonable; such Accounts Receivable are owned by the Borrower and its Subsidiaries free and clear of any adverse claim and the Borrower and its Subsidiaries have the right to assign and transfer such Accounts Receivable except as such assignment or transfer would be prohibited by Section 1815(c) of the Social Security Act, 42 U.S.C. ss. 1395g(c) and the regulations promulgated thereunder; and there are no procedures or investigations pending or threatened before any Governmental Authority seeking a determination or ruling that might affect the validity or enforceability of a material portion of such Accounts Receivable subject to the review or jurisdiction of such Governmental Authority. All Accounts Receivable have been appropriately adjusted to reflect changes in reimbursement policies of any Medicaid/Medicare Account Debtor or Nongovernmental Payor that are known by Borrower. 6.23 REIMBURSEMENT PROGRAMS. Borrower and its Subsidiaries are qualified to participate in Government Reimbursement Programs and are entitled to reimbursement thereunder for services rendered to qualified beneficiaries and have complied in all materials respects with the conditions of participation in all Governmental Reimbursement Programs and related contracts. Borrower and its Subsidiaries are in compliance in all material respects with contracts with Nongovernmental Payors. With respect to Government Reimbursement Programs and contracts with Nongovernmental Payors, (i) no notice of any offsets against future reimbursement has been received by Borrower or any of its Subsidiaries, nor to the knowledge of Borrower is there any reasonable basis therefor, except with respect to offsets in the Ordinary Course of Business that could not reasonably be expected to materially and adversely affect the business of the Borrower and its Subsidiaries, taken as a whole, (ii) there are no pending appeals, 54 61 adjustments, challenges, audits, litigation, notices of intent to open or reopen completed payments, except such adjustments made in the Ordinary Course of Business that could not, individually or in the aggregate, reasonably be expected to materially and adversely affect the business of the Borrower and its Subsidiaries, taken as a whole, and (iii) neither Borrower nor any of its Subsidiaries has received notice of pending threatened or possible suspension, exclusion, decertification or other loss of participation. 6.24 SURVIVAL OF RIGHTS CREATED UNDER EXISTING CREDIT AGREEMENT. Notwithstanding the modification effected by this Agreement of the representations, warranties and covenants of the Borrower contained in the Existing Credit Agreement, the Borrower hereby acknowledges and agrees that any choses in action or other rights created in favor of the Lenders and the Agent (as defined in the Existing Credit Agreement) and their respective successors and assigns, if any, arising out of the representations and warranties of the Borrower contained in or delivered (including representations and warranties delivered in connection with the making of any loans thereunder) in connection with the Existing Credit Agreement, including all amendments and waivers relating thereto, shall survive the execution and delivery of this Agreement. SECTION 7. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that on and after the Effective Date and until the Loans and the Notes, if any, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full and all Letters of Credit are cancelled, expired or otherwise provided for to the satisfaction of the Issuing Bank: 7.01 INFORMATION COVENANTS. The Borrower will furnish to each Lender: (a) QUARTERLY FINANCIAL STATEMENTS. Within 60 days (or 90 days in the case of the fourth fiscal quarter) after the close of each quarterly accounting period in each Fiscal Year, the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such quarterly period and the related consolidated statements of operations and statements of cash flows for the elapsed portion of the Fiscal Year ended with the last day of such quarterly period and for such quarterly period and setting forth comparative figures for the related periods in the prior Fiscal Year for the statements of operations and cash flows, all of which shall be certified by the Chief Executive Officer or the Chief Financial Officer of the Borrower, subject to normal year-end audit adjustments and, promptly, commencing with the quarter ended March 31, 2001, the financial review provided quarterly to the Board of Directors of the Borrower. (b) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close of each Fiscal Year, the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of operations and statements of cash flows for such Fiscal Year, in each case setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated financial statements, without qualification by independent certified public accountants of recognized national standing reasonably acceptable to the Required Lenders, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default related to accounting or financial reporting matters 55 62 that has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. (c) MANAGEMENT LETTERS. Promptly after the Borrower's receipt thereof, a copy of any "management letter" received by the Borrower from its certified public accountants. (d) PERFORMANCE PLAN. On or before February 15, 2002), a performance plan (a "PERFORMANCE PLAN") for such year, in a form no less detailed than the financial projections delivered to the Lenders prior to the Effective Date pursuant to the Existing Credit Agreement, for the Borrower and its Subsidiaries as a whole (in each case including forecast consolidated statements of operations and cash flow and balance sheets) and prepared by the Borrower for the quarter ending March 31, 2002 and for the elapsed portion of such Fiscal Year ended with the last day of such quarter accompanied by the statement of the Chief Executive Officer or the Chief Financial Officer of the Borrower to the effect that, to the best of such officer's knowledge, the Performance Plan is a reasonable estimate and forecast for the period covered thereby. (e) PERFORMANCE REPORTS. Within 60 days after the end of each fiscal quarter (or 90 days after the end of the Fiscal Year), a performance report, in a form reasonably satisfactory to the Lenders, containing consolidated balance sheets for the Borrower and its Subsidiaries as a whole as at the end of that quarter and the related consolidated statements of operations and cash flows for the quarter and the elapsed portion of the Fiscal Year then ended, and comparing actual results of operations and financial position to that forecast in the Performance Plan for the quarter and for the elapsed portion of the Fiscal Year ended with the last day of that quarter, as the case may be, setting forth comparative figures for the related periods in the prior Fiscal Year and stating the reasons for any variance between the actual results of operations, financial position and cash flows and forecasted results of operations, financial position and cash flows and explanations of the variances that are adverse to the Borrower or any of its Subsidiaries. Such performance report shall also contain a statement of receivables (including an aging report) held by the Borrower and its Subsidiaries as a whole. (f) COMPLIANCE CERTIFICATES. At the time of the delivery of the financial statements provided for in Sections 7.01(a) and (b) and the quarterly performance reports provided for in Section 7.01(e), a Compliance Certificate of the Chief Executive Officer or the Chief Financial Officer of the Borrower to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which Compliance Certificate also shall set forth the calculations required to establish whether the Borrower was in compliance with those provisions of Section 8 identified on the Compliance Certificate at the end of such quarter, fiscal quarter or Fiscal Year, as the case may be. (g) NOTICE OF DEFAULT, LITIGATION OR HEALTH CARE COMPLIANCE. Promptly, and in any event within three Business Days after any of the Chief Executive Officer, Chief Financial Officer or Chief Operating Officer of the Borrower obtains knowledge thereof, notice of (i) the occurrence of any event that constitutes a Default or an Event of Default, (ii) any litigation or governmental or arbitration proceeding pending (x) against the Borrower or any of its Subsidiaries that could reasonably be expected to materially and adversely affect the business, 56 63 operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, or (y) with respect to any Credit Document, (iii) any material adverse changes in the status of any litigation or other proceeding reported by the Borrower pursuant to Section 6.06 or this Section 7.01(g), (iv) any material claim, complaint, notice or request for information received by the Borrower or any of its Subsidiaries with respect to compliance with health care regulatory requirements relating to the delivery of health care services of the type provided by the Borrower and payment therefor (excluding malpractice claims), including, but not limited to, any violation or alleged violation of any federal, state or local statute, regulation, or ordinance relating to the delivery of medical services and payment therefor, including, but not limited to, the requirements set forth under federal Medicare and Medicaid statutes, 42 U.S.C. ss.ss. 1320a-7, 1320a-7a, 1320a-7b and 1395nn, and the regulations promulgated thereunder and related state or local statutes or regulations, (v) any material development in any proceeding with respect to the Borrower's or any of its Subsidiaries' qualification or right to participate in any Governmental Reimbursement Program or the right to receive or retain amounts received or due or to become due from any Government Reimbursement Programs or any Nongovernmental Payor that could have or could reasonably be expected to have a material adverse affect on the business, operations, property assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, and (vi) any other event that could reasonably be expected to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole. Borrower shall furnish the Agent (with sufficient copies for each Lender) no later than five days after the end of each month until completion of the Settlement, a narrative report summarizing the status of the Settlement. Additionally, Borrower shall furnish Agent (with sufficient copies for each Lender) no later than five days after the end of any month in which any material claim, complaint, notice or request for information has been received by the Borrower or any of its Subsidiaries from any Governmental Authority and each month thereafter until such claim, complaint, notice or request is resolved, a narrative report summarizing the status of such claim, complaint, notice or request for information. (h) OTHER REPORTS AND FILINGS. Promptly, copies of all financial information, proxy materials and other information and reports, if any, that the Borrower or any of its Subsidiaries shall file with the SEC. (i) REPORTS OF ASSET TRANSFERS TO SUBSIDIARIES OR JOINT VENTURES. No later than 10 Business Days after any transfer to any Joint Venture that is not a Guarantor Subsidiary of (i) any assets of the Borrower or any of its Subsidiaries having a fair market value exceeding $1,000,000 in the aggregate or (ii) any intangible assets material to the business, operations, properties, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, the Borrower shall notify the Agent of the nature of such transaction and the business purpose therefor. (j) MONTHLY FINANCIAL STATEMENTS. Within 30 days after the end of each calendar month, (i) the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related consolidated statements of operations and statements of cash flows for such month and for the elapsed portion of the Fiscal Year ended with the last day of such month, all of which shall be certified by the Chief Executive Officer or the Chief Financial 57 64 Officer of the Borrower, subject to normal year-end audit adjustments, (ii) a performance report, in a form reasonably satisfactory to the Lenders, comparing the actual results of operations, financial position and cash flows for such month and for the elapsed portion of the Fiscal Year ended with the last day of such month to those forecasted in the Performance Plan and stating the reasons for any variance between such actual and forecasted results of operations, financial position and cash flows and explanations for any such variances that are adverse to the Borrower or any of its Subsidiaries, (iii) a narrative report, in the form prepared for presentation to senior management, describing the operations of the Borrower and its Subsidiaries (including placements of oxygen concentrators) for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, (iv) an Accounts Receivable report for such month, in form and substance satisfactory to the Lenders, consisting of (a) detailed Accounts Receivable agings (including both billed and unbilled Accounts Receivable, on both a current and an over-90-days-old basis), (b) an analysis of trends of held revenue, and (c) an analysis of collections of Accounts Receivable, (v) a Joint Venture report, in form and substance satisfactory to the Lenders, including details with respect to investments by the Borrower and its Subsidiaries in Joint Ventures, advances by the Borrower and its Subsidiaries to Joint Ventures and the amount of restricted cash held for Joint Ventures, for such month and the year-to-date, and (vi) a breakdown of revenues of the Borrower and its Subsidiaries for such month by individual product line, all of which shall be certified by the Chief Executive Officer or the Chief Financial Officer of the Borrower. (k) OTHER MONTHLY REPORTS. Within ten working days after the end of each calendar month, (i) a "flash" report, in form and substance satisfactory to the Lenders, setting forth the net revenues and Consolidated EBITDA of the Borrower and its Subsidiaries for such month, (ii) a report, in form and substance satisfactory to the Lenders, setting forth a breakdown of Accounts Receivable by billing center for such month, with a comparison of operating data (i.e., reject rates, etc.) to the Borrower's established targets/goals and a revised time frame, if appropriate, for meeting such targets/goals, (iii) a report, in form and substance satisfactory to the Lenders, setting forth the location and account number of each bank account of Borrower and each of its Subsidiaries and the closing balance thereof at the end of the preceding month, and (iv) a report, in form and substance satisfactory to the Lenders, on the status of the consolidation of the billing centers in accordance with the plan provided by Borrower to Lenders, Agent and the Lender Financial Advisor. Within ten (10) working days after the delivery of such reports, Borrower shall schedule a conference call with each of the Lenders to discuss such reports and any material developments during the prior month, including, without limitation, any material deviations from the Performance Plan for such month. (l) WEEKLY AND BI-WEEKLY FORECASTS AND CENSUS INFORMATION. (i) Within two working days after the beginning of each week, a weekly cash disbursement forecast for such week and for each of the following 11 weeks, in form and substance satisfactory to the Lenders, which forecasts shall include details on receipts and disbursements for the Borrower and its Subsidiaries for each week of the applicable 12-week period and shall include cumulative year-to-date totals and prior week variances, and (ii) within seven working days after the end of every second week, census information for the two-week period then ended, all of which shall be certified by the Chief Executive Officer or the Chief Financial Officer of the Borrower. 58 65 (m) COLLATERAL QUESTIONNAIRE. The Borrower shall complete and deliver to Agent an updated collateral questionnaire, substantially in the form of the collateral questionnaire dated April 2000 and in any case in form and substance satisfactory to the Agent on or prior to July 1, 2001. (n) OTHER INFORMATION. From time to time, such other information or documents (financial or otherwise) as any Lender reasonably may request. 7.02 BOOKS, RECORDS AND INSPECTIONS. (a) 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 in conformity with generally accepted accounting principles consistently applied and all requirements of law (including, without limitation, Section 13(b)(2) of the Securities Exchange Act of 1934, as amended) shall be 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 the officers and designated representatives of the Agent or any Lender to visit and inspect any of the properties of the Borrower or such Subsidiary, and to examine the books of record and account of the Borrower or such Subsidiary (including, without limitation, any cost or other reimbursement reports submitted to a Governmental Authority in contemplation of any receivable, any responses, statements or reports relating thereto prepared by any Person and any medical record audits) and discuss the affairs, finances and accounts of the Borrower or such Subsidiary with, and be advised as to the same by, its and their management, officers and independent accountants, all at reasonable times and upon reasonable notice, as the Agent or such Lender or any of their officers or designated representatives may request. (b) Without limiting the generality of clause (a) of this Section 7.02, the Borrower will, and will cause each of its Subsidiaries to, permit the Lender Financial Advisor to visit and inspect, on a daily basis, any of the properties of the Borrower or such Subsidiary, and to examine the books of record and account of the Borrower or such Subsidiary and discuss the affairs, finances and accounts of the Borrower or such Subsidiary with, and to be advised as to the same by, its and their management, officers and independent accountants in order to, among other things (w) render accounting and reporting assistance to the Agent and the Lenders in connection with the Borrower's compliance or noncompliance with the covenants set forth in this Agreement, (x) review monthly, quarterly, annual and any other financial information delivered to the Agent and the Lenders or included in reports to be filed with the SEC, (y) review, evaluate and provide the Agent and the Lenders recommendations regarding the Borrower's and its Subsidiaries' short and long term financial projections and (z) develop for the Agent and the Lenders strategies and initiatives and perform such other duties as the Agent or the Lenders may request from time to time. 7.03 MAINTENANCE OF PROPERTY, INSURANCE. SCHEDULE 7.03 sets forth a true and complete listing of all insurance maintained by the Borrower and its Subsidiaries as of the Effective Date and the amounts of such insurance. The Borrower will, and will cause each of its Subsidiaries to, (i) keep all property useful and necessary in its business in good working order and condition, (ii) maintain with financially sound and reputable insurance companies insurance on all its property and its directors and officers in at least such amounts and against at least such 59 66 risks as are described in SCHEDULE 7.03; provided that the Borrower and its Subsidiaries may self-insure against risks consistent with standard industry practices for companies in the same or similar businesses, and (iii) furnish to each Lender, within 45 days after the end of each Fiscal Year and otherwise, upon written request, full information as to the insurance carried. 7.04 CORPORATE FRANCHISES. Except as permitted by Section 8.02, the Borrower will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 7.04 shall prevent (a) the withdrawal by the Borrower or any of its Subsidiaries of its qualification as a foreign corporation, association or joint venture in any jurisdiction where such withdrawal would not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the merger of AHPT, with and into the Borrower under Section 8.02(vii), or (c) the discontinuance of any Subsidiary of the Borrower if such discontinuance would not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 7.05 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business, including, without limitation, the laws and regulations referred to in Section 6.19, and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliance as could not, in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 7.06 ERISA. (a) As soon as possible and, in any event, within ten days after the Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason to know any of the following, the Borrower will deliver to each of the Lenders a certificate of the Chief Executive Officer or the Chief Financial Officer of the Borrower setting forth details as to such occurrence and such action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability giving rise to a Lien under ERISA or the Code; that proceedings may be or have been instituted to terminate a Plan; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower, any of its Subsidiaries or ERISA Affiliates will or may incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; that the Borrower, any of its Subsidiaries or ERISA Affiliates 60 67 will or may incur any liability under Chapter 43 of the Code or under Sections 502(c), (i) or (1) or 4071 of ERISA; that there exists a condition that presents a material risk to the Borrower, any of its Subsidiaries or ERISA Affiliates of incurring a liability to or on account of a Plan pursuant to the assertion of a material claim (other than a routine claim for benefits) against any such Plan; or that any Plan has been determined by the Internal Revenue Service to fail to qualify under Section 401(a) of the Code. (b) The Borrower will deliver to each of the Lenders a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. (c) In addition to any certificates or notices delivered to the Lenders pursuant to clause (a) of this Section 7.06, copies of annual reports and any other notices received by the Borrower or any of its Subsidiaries required to be delivered to the Lenders hereunder shall be delivered to the Lenders no later than ten days after the later of the date such report or notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants or received by the Borrower or such Subsidiary. 7.07 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower shall cause (i) each of its fiscal years, and the fiscal years of each of its Subsidiaries other than Joint Ventures, to end on December 31 and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30, September 30 and December 31; provided that any Subsidiary acquired subsequent to the Effective Date that has different fiscal year ends, fiscal quarter ends or both than those set forth in this Section 7.07 shall conform such periods to those set forth herein in the ordinary course consistent with past practice. 7.08 PERFORMANCE OF OBLIGATIONS. The Borrower will, and will cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement and other debt instrument by which it is bound, except such non-performances as could not in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 7.09 PAYMENT OF TAXES AND CLAIMS. The Borrower will, and will cause each of its Subsidiaries to, pay or cause to be paid all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a material Lien upon any of its properties or assets, prior to the time when any material penalty or fine shall be incurred with respect thereto; provided that so long as no property or assets (other than money for such charge or claim and the interest or penalty accruing thereof) of the Borrower or any of its Subsidiaries is in danger of being lost or forfeited as a result thereof, no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles consistently applied shall have been made therefor. 61 68 7.10 LICENSING. The Borrower will and will cause each of its Subsidiaries to be operated at all times in compliance in all material respects with all federal, state and local statutes, regulations and ordinances relating to the licensing of health care services of the type provided by the Borrower and to maintain, at all times, accreditation for no less than 90% of the branches owned by the Borrower and its Subsidiaries longer than one year with the Joint Commission on Accreditation of Healthcare Organizations. 7.11 FURTHER ASSURANCES; NEW SUBSIDIARIES. (a) At any time and from time to time upon the request of the Agent, the Borrower shall and shall cause each of its Wholly-Owned Subsidiaries to execute and deliver such further documents and do such other acts and things as the Agent reasonably may request in order to effect fully the purposes of this Agreement and the other Credit Documents and to provide for payment of the Obligations in accordance with the terms of this Agreement and the other Credit Documents. Without limiting the generality of the foregoing, the Borrower shall promptly take all such actions, and shall promptly provide the Agent with all such information, as the Agent may reasonably request in order to (i) enable the Agent to perform an audit of the Collateral for the purpose of confirming that the Agent has a valid and perfected security interest in all personal and mixed property and Real Estate of the Borrower and its Subsidiaries and (ii) create, perfect and/or continue the Agent's security interest in any such property to the extent necessary to effect fully the purposes of this Agreement and the other Credit Documents. (b) In the event a Person becomes a Subsidiary of the Borrower after the Effective Date, the Borrower shall, within 10 Business Days of such event, cause such Subsidiary to execute and deliver the Subsidiary Guaranty, the Subsidiary Pledge Agreement, a Subsidiary Partnership Security Agreement, the Subsidiary Security Agreement, Collection Bank Agreements, the Subsidiary Trademark Security Agreement and, if applicable, Mortgages, in each case together with such other agreements, pledges, assignments, documents and certificates (including, without limitation, any amendments to the Credit Documents) as may be necessary or desirable or as the Agent may request and do such other acts and things as the Agent reasonably may request in order to have such domestic Subsidiary guaranty and/or secure the Obligations and effect fully the purposes of this Agreement and the other Credit Documents and to provide for payment of the Obligations in accordance with the terms of this Agreement and the other Credit Documents. (c) Notwithstanding any provision contained herein or in any of the Credit Documents, none of the Borrower nor any of its Guarantor Subsidiaries shall be deemed to be in default under (or to have breached any provision of) this Agreement or any Credit Document solely by virtue of permitting to exist any Lien described in Section 8.01(xv) until such time as such Lien is required to be terminated under such Section. 7.12 ACCOUNTS RECEIVABLE. The Borrower and its Subsidiaries will submit all necessary documentation and supply all necessary information for payment of all Accounts Receivable (other than settlements in the Ordinary Course of Business with payors of such Accounts Receivable reached to facilitate collection to the payor for each of such Accounts Receivable); will not subordinate or rescind any of the Accounts Receivable; and will notify Agent promptly if any procedures or investigations are pending or threatened before any 62 69 Governmental Authority seeking a determination or ruling that might materially and adversely affect the validity or enforceability of a material portion of such Accounts Receivable subject to the review or jurisdiction of such Governmental Authority. 7.13 RETENTION OF CONSULTANT. On or prior to December 31, 2001, the Borrower shall retain the Consultant to analyze and evaluate the existing operations of Borrower and its Subsidiaries and recommend procedures to improve cash collections, reduce operating costs and other procedures to improve the overall performance of Borrower and its Subsidiaries. 7.14 REFINANCING. The Borrower will: (a) RETENTION OF INVESTMENT BANKER. On or prior to the Engagement Date, retain the Investment Banker to consider all options available to the Borrower to refinance or otherwise address the outstanding Obligations to the Lenders, including, without limitation, refinancing the Obligations, Asset Sales, sales of equity interests in the Borrower and other reasonably possible means of addressing the Obligations to the satisfaction of the Lenders. The terms of the engagement of the Investment Banker shall be reasonably acceptable to Agent. (b) INFORMATION. Cause the Investment Banker to provide Agent with all information and proposals suggested by the Investment Banker to Borrower with respect to refinancing or otherwise addressing the Obligations as Agent may reasonably request. (c) REFINANCING PROPOSAL. On or prior to the Proposal Date, provide the Refinancing Proposal to the Lenders. 7.15. REAL ESTATE. On or prior to December 31, 2001, Borrower shall either (i) sell each Real Estate property and apply the net proceeds thereof as provided in Sections 2.07(d) and 4.02(b)(ii), or (ii) execute and deliver a Mortgage with respect to each Real Property in recordable form and otherwise in form and substance satisfactory to Agent, or (iii) any combination of (i) and (ii). 7.16. DEPOSIT ACCOUNT AGREEMENTS. On or prior to August 1, 2001, Borrower shall, and shall cause its Subsidiaries to, deliver to Agent Collection Bank Agreements duly executed by the Concentration Bank and each Lender into which proceeds of Accounts Receivable of each of Borrower or its Subsidiaries are deposited. 7.17 SECURITY AGREEMENTS. On or prior to July 31, 2001, (i) Borrower shall execute and deliver to Agent a Borrower Security Agreement in substantially the form set forth in EXHIBIT J, (ii) Borrower shall cause each of its Guarantor Subsidiaries to execute and deliver to Agent a Subsidiary Security Agreement in substantially the form of EXHIBIT K, (iii) the Agent shall have received from Harwell Howard Hyne Gabbert & Manner, P.C., counsel to Borrower, an opinion in form and substance satisfactory to Agent, addressed to each of the Lenders and dated the date of delivery of the Borrower Security Agreement and the Subsidiary Security Agreement, covering such matters 63 70 incident to the execution and delivery of such Borrower Security Agreement and the Subsidiary Security Agreement and the perfection of the security interests created thereunder, under the Borrower Security Agreement or the Subsidiary Security Agreement executed pursuant to the Original Credit Agreement, the Concentration Bank Agreement executed by PNC Bank, National Association and the Blocked Account Agreement as the Agent may reasonably request, (iv) the Agent shall have received a certificate, dated the date of delivery of the Borrower Security Agreement, signed by the President or Vice President of the Borrower, and attested to by the Secretary or any Assistant Secretary of the Borrower, in form and substance satisfactory to the Agent, certifying (A) resolutions of the Board of Directors of the Borrower authorizing and approving the Borrower Security Agreement, (B) the signatures and incumbency of the Borrower's officers executing the Borrower Security Agreement and the documents, instruments or other certificates to be delivered in connection with the execution and delivery thereof, and (C) the Certificate of Incorporation and By-Laws of the Borrower together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certificate. In lieu of delivering a copy of its Certificate of Incorporation or By-Laws to the Agent pursuant to the preceding sentence, the Borrower may certify in its certificate delivered pursuant to this clause (iv) that such Certificate of Incorporation or By-Laws, as the case may be, were previously delivered to the Agent and that there has been no change in such Certificate of Incorporation or By-Laws, as the case may be, since the date of such delivery, (v) the Agent shall have received a certificate, dated the date of delivery of the Subsidiary Security Agreement, signed by the President or Vice President of each of the Borrower's Subsidiaries party to the Subsidiary Security Agreement, and attested to by the Secretary or any Assistant Secretary of such Subsidiary, in form and substance satisfactory to the Agent, certifying (A) the resolutions adopted by the Board of Directors of such Subsidiary approving and authorizing the Subsidiary Security Agreement, (B) the signatures and incumbency of the officers of such Subsidiary executing the Subsidiary Security Agreement and the documents, instruments or other certificates to be delivered in connection with the execution and delivery of the Subsidiary Security Agreement, and (C) the Articles or Certificate of Incorporation or other charter documents and By-Laws of such Subsidiary, together with copies of the Articles or Certificate of Incorporation or other charter documents and By-Laws of such Subsidiary and the resolutions of such Subsidiary referred to in such certificate. In lieu of delivering a copy of its Articles or Certificate of Incorporation or other charter documents or By-Laws to the Agent pursuant to the preceding sentence, any of the Borrower's Subsidiaries may certify in its certificate delivered pursuant to this clause (v) that such Articles or Certificate of Incorporation, other charter documents or By-Laws, as the case may be, were previously delivered to the Agent and that there has been no change in such Articles or Certificate of Incorporation, other charter documents or By-Laws, as the case may be, since the date of such delivery. (vi) the Agent shall have received copies of the Articles or Certificate of Incorporation or other charter documents of each of the Borrower and each of the Borrower's Subsidiaries party to the Subsidiary Security Agreement, certified as of a 64 71 recent date prior to delivery by the Secretary of State of its jurisdiction of incorporation, together with a good standing certificate from its jurisdiction of incorporation dated a recent date prior to delivery; provided, however, that the Articles or Certificate of Incorporation or other charter documents of a Subsidiary need not be delivered pursuant to this clause (vi) if such Subsidiary certifies pursuant to clause (v) above that such Articles or Certificate of Incorporation or other charter documents were previously delivered to the Agent and that there has been no change in such Articles or Certificate of Incorporation or other charter documents since the date of such delivery. (vii) all corporate, partnership and legal proceedings and all instruments and agreements in connection with the Borrower Security Agreement and the Subsidiary Security Agreement shall be satisfactory in form and substance to the Lenders, and the Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings and governmental approvals, if any, that any Lender reasonably may have requested in connection therewith, such documents and papers as appropriate to be certified by proper corporate, partnership or governmental authorities. (viii) the Borrower and its Subsidiaries shall have taken or caused to be taken such actions in such a manner so that the Agent has or maintains a valid and perfected first priority security interest in all Collateral (subject to Liens consented to by the Required Lenders with respect to such Collateral and other Liens permitted by Section 8.01) encumbered or to be encumbered under the Credit Documents. Such actions shall include, without limitation, the delivery, to the extent not theretofore delivered, to the Agent of Uniform Commercial Code financing statements, or amendments thereto, executed by the Borrower and its Subsidiaries as to the Collateral granted by the Borrower and its Subsidiaries for all jurisdictions as may be necessary or desirable to perfect the Agent's security interest in such Collateral. (ix) the Borrower shall cause each of it Guarantor Subsidiaries to be in good standing under the laws of its jurisdiction of organization and to be duly qualified as a foreign corporation in each jurisdiction where its ownership, leasing or operation of property or the conduct of its business requires qualification, to the extent provided in Section 6.01. (x) Agent shall terminate on behalf of Lenders all obligations of Neogenesis, Inc. under the Credit Documents to which it is a party and shall file such termination statements under the Uniform Commercial Code with respect to security interests of Agent in property of Neogenesis as may be reasonably necessary to terminate Agent's security interest therein. SECTION 8. NEGATIVE COVENANTS. The Borrower covenants and agrees that on and after the Effective Date and until the Loans and the Notes, if any, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full and all Letters of Credit are cancelled, expired or otherwise provided for to the satisfaction of the Issuing Bank: 65 72 8.01 LIENS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired; provided that the provisions of this Section 8.01 shall not prevent the creation, incurrence, assumption or existence of: (i) Liens for taxes not yet due, or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established the failure to pay which would not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; (ii) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, that were incurred in the Ordinary Course of Business, such as carriers', warehousemen's and mechanics' liens and other similar Liens arising in the Ordinary Course of Business and (x) that do not in the aggregate materially detract from the value of property or assets having a value individually or in the aggregate in excess of $50,000, or materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries or (y) that are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on the Effective Date that are listed, and the property subject thereto described, in SCHEDULE 8.01 (Liens described in this clause (iii), "PERMITTED LIENS"); (iv) Liens in favor of the Agent; (v) Liens relating to leases and subleases granted to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries; (vi) Easements, rights-of-way, restrictions, minor defects or irregularities of title and other similar charges or encumbrances not interfering in any material respect with the Ordinary Course of Business of the Borrower or any of its Subsidiaries; (vii) Liens relating to any interest or title of a lessor under any lease; (viii) Liens relating to Interest Rate Agreements permitted under Section 8.04(xi); (ix) Liens relating to bankers' liens and other rights of setoff; (x) Pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (xi) Liens on assets purchased using the proceeds of non-recourse purchase money Indebtedness permitted by Section 8.04(ix); 66 73 (xii) Any attachment or judgment Lien not constituting an Event of Default under Section 9.09; (xiii) Any deposit arrangement, made in connection with a transaction to secure performance of obligations in connection with such transaction, not in excess (either individually or in the aggregate) of $5,000,000; provided that such deposit arrangement is terminated on the date upon which such performance obligations are required to be discharged under the terms of the document creating such deposit arrangement; (xiv) Liens created to secure Indebtedness of the Borrower and its Subsidiaries incurred after the Effective Date as permitted in 8.04(xiii); (xv) Liens consisting of Uniform Commercial Code financing statements relating to property or assets acquired (whether in Acquisitions or otherwise) after the Effective Date, so long as (A) none of such financing statements shall secure any outstanding Indebtedness and (B) as soon as practicable but in any event within 45 days of the date of any such acquisition, the Borrower shall take all action (including without limitation the filing of termination statements with the appropriate filing offices) necessary to terminate all such financing statements relating to property or assets acquired in such acquisition; and (xvi) Liens in favor of AHPF created pursuant to one or more Intercompany Acquisition Guaranty/Security Agreements. 8.02 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its property or assets, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the Ordinary Course of Business) of any Person, or permit any of its Subsidiaries to do any of the foregoing, except that: (i) the Borrower and its Subsidiaries may make sales of inventory in the Ordinary Course of Business; (ii) the Borrower and its Subsidiaries may dispose of equipment and capital assets (x) that are obsolete or in need of replacement in the Ordinary Course of Business, or (y) with a Book Value of $50,000 in the aggregate, other than in the Ordinary Course of Business, in any 12 month period; (iii) the Borrower and its Subsidiaries may, in addition to any sales permitted in clauses (i) and (ii) above, sell (by way of merger or otherwise) for cash and/or promissory notes permitted under Section 8.05(viii), stock, property or assets of the Borrower or any of its Subsidiaries if the Book Value of all such stock, property and assets sold by Borrower and its Subsidiaries during any 12 month period pursuant to this clause (iii) does not exceed $1,000,000 in the aggregate (excluding for this purpose the Book Value of the property and assets in St. Louis, Missouri sold to Option Care 67 74 Enterprises, Inc. prior to the Effective Date and the Book Value of the property and assets to be sold to SBH Medical, Ltd., an Ohio limited liability company, with respect to its infusion pharmacy business located at 655 Dearborn Park Lane, Worthington, Ohio); (iv) any Subsidiary of the Borrower may merge or consolidate (a) into the Borrower or (b) with any other domestic Wholly-Owned Subsidiary of the Borrower, so long as such Wholly-Owed Subsidiary is the surviving corporation, association or joint venture, and in the case of any merger or consolidation involving a Guarantor Subsidiary, the Guarantor Subsidiary (or a Subsidiary of the Borrower that will become a Guarantor Subsidiary on or before consummation of such merger) is the surviving corporation; (v) the Borrower and its Wholly-Owned Subsidiaries may (without regard to the limitations set forth in Section 8.07) acquire property and assets of other Persons (including any assets or property acquired in any Acquisition) with the prior written consent of the Required Lenders; (vi) the Borrower and its Subsidiaries may make capital expenditures to the extent not in violation of Section 8.07; (vii) notwithstanding the provisions of clauses (i) through (vi) of this Section 8.02, AHPT, may merge with and into the Borrower, provided that the Borrower shall acquire any and all assets of such entity, and provided such merger will not have a material adverse effect on (A) the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, (B) the value of the Collateral, or (C) the ability of the Borrower to pay or the Lenders to collect the Obligations; (viii) any Subsidiary of the Borrower may be dissolved if such dissolution will not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; and (ix) (a) the Borrower may convey, sell or otherwise transfer any assets of the Borrower to any domestic Wholly-Owned Subsidiary and (b) any Subsidiary of the Borrower may convey, sell or otherwise transfer any assets of such Subsidiary to the Borrower or to any domestic Wholly-Owned Subsidiary; provided that, in each case, such sale, conveyance or transfer will not have a material adverse effect on (A) the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, (B) the value of the Collateral, or (C) the ability of the Borrower to pay or the Lenders to collect the Obligations. 8.03 DIVIDENDS. (a) The Borrower will not declare or pay any dividends (other than dividends that are payable solely to the holders of any class of stock of the Borrower in shares of that class of stock), or return any capital, to its stockholders or authorize or make any other distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital 68 75 stock now or hereafter outstanding (or any options or warrants issued by the Borrower with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of the Borrower now or hereafter outstanding (or any options or warrants issued by the Borrower with respect to its capital stock), except that the Borrower may acquire stock options or restricted stock from its employees or former employees in an aggregate amount not to exceed $250,000 in any calendar year. (b) The Borrower will not permit any of its Subsidiaries to declare or pay any dividends, or return any capital, to its stockholders or authorize or make any other distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock now or hereafter outstanding (or any options or warrants issued by such Subsidiary with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Subsidiary now or hereafter outstanding (or any options or warrants issued by such Subsidiary with respect to its capital stock) (each of the foregoing being a "RESTRICTED SUBSIDIARY PAYMENT"), except that any Subsidiary of the Borrower may make Restricted Subsidiary Payments to the Borrower or any Wholly-Owned Subsidiary of the Borrower and any Joint Venture that is a Subsidiary of the Borrower may make Restricted Subsidiary Payments in proportion to the ownership interests therein. 8.04 INDEBTEDNESS. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness of the Borrower and its Subsidiaries incurred under the Credit Documents; (ii) Indebtedness listed on SCHEDULE 8.04(II) ("EXISTING INDEBTEDNESS") and Indebtedness incurred by the Borrower or any of its Subsidiaries to renew or refinance the Existing Indebtedness of the Borrower or such Subsidiary; provided that the new Indebtedness shall not exceed the principal amount of the Existing Indebtedness so renewed or refinanced and shall not contain any terms or conditions, taken as a whole, less favorable to the Borrower and the Lenders than the Existing Indebtedness being renewed or refinanced; (iii) accrued expenses and current trade accounts payable incurred in the Ordinary Course of Business and obligations under trade letters of credit incurred by the Borrower or any of its Subsidiaries in the Ordinary Course of Business, that are to be repaid in full not more than one year after the date on which such Indebtedness is originally incurred to finance the purchase of goods by the Borrower or such Subsidiary; (iv) obligations under letters of credit incurred by the Borrower or any of its Subsidiaries in the Ordinary Course of Business in support of obligations incurred in connection with worker's compensation, unemployment insurance and other social security legislation, or as a result of participation by the Borrower and its Subsidiaries in Medicare or Medicaid programs; 69 76 (v) Indebtedness incurred as a result of loans and advances permitted under Section 8.05(ii)-(iv); (vi) obligations under letters of credit incurred by the Borrower or any of its Subsidiaries in the Ordinary Course of Business and to the extent consistent with past practice in support of obligations under leases, bonds posted for judgments being appealed or as a condition to bringing any action, suit or other proceeding not to exceed $500,000 other than letters of credit listed on SCHEDULE 8.04(II); (vii) non-recourse Indebtedness payable solely from and secured solely by life insurance policies and annuities (and any related trusts or escrows) maintained by the Borrower and its Subsidiaries for their respective officers, employees and directors; (viii) surety bonds, performance bonds and other completion bonds in the Ordinary Course of Business and consistent with past practice or as required by law; (ix) non-recourse purchase money Indebtedness not exceeding the purchase price of the asset so purchased and secured solely by such asset; (x) capitalized leases; (xi) Interest Rate Agreements (and guaranties thereof) entered into by the Borrower and its Subsidiaries with respect to Indebtedness in an aggregate notional principal amount not to exceed $150,000,000; (xii) Contingent Obligations in respect of any guaranty by the Borrower or a Subsidiary of any obligations of any of their respective Subsidiaries permitted under this Agreement; (xiii) Indebtedness incurred as a result of loans permitted under Section 8.05(vii); (xiv) Contingent Obligations created pursuant to any Intercompany Acquisition Guaranty/Security Agreements; and (xv) Indebtedness of Borrower and its Subsidiaries incurred after the Effective Date in an aggregate principal amount not to exceed $1,000,000 at any time outstanding. 8.05 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not, and will not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock or other ownership interest (other than stock or ownership interests issued as part of the formation of a Subsidiary of the Borrower for consideration not to exceed $150,000 in the aggregate with respect to all such Subsidiaries), obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, except that the following shall be permitted: (i) the Borrower and its Subsidiaries may each acquire and hold receivables owing to it, if created or acquired in the Ordinary Course of Business and payable or 70 77 dischargeable in accordance with customary trade terms to the extent consistent with past practice; (ii) loans and advances by any Subsidiary of the Borrower to the Borrower; provided such loans or advances are at all times subordinated to the Obligations of the Borrower on terms satisfactory to the Required Lenders; (iii) loans and advances by the Borrower to any Guarantor Subsidiary in the Ordinary Course of Business so long as after giving effect to such loan or advance there shall not have occurred a Default or an Event of Default; (iv) loans and advances by any Guarantor Subsidiary to any other Guarantor Subsidiary in the Ordinary Course of Business so long as after giving effect to such loan or advance there shall not have occurred a Default or Event of Default; (v) the Borrower and its Subsidiaries (a) may make new loans and advances to officers, employees and agents in the Ordinary Course of Business (for purposes other than purchasing stock or stock options or exercising stock options) equal, in the aggregate for the Borrower and its Subsidiaries, to no more than $100,000 at any one time outstanding and may make loans to officers, directors and employees in connection with the purchase or exercise of options for the Borrower Common Stock, provided that no cash is advanced and (b) may make interest-free loans or advances to officers and employees of the Borrower and its Subsidiaries in the form of payment by the Borrower of premiums in respect of so-called "split-dollar" life insurance policies in an amount which shall not in the aggregate exceed $1,000,000 per annum; (vi) the Borrower and its Subsidiaries may make and own investments in Cash Equivalents; provided that such Cash Equivalents are not subject to setoff rights in favor of the financial institution (other than a Lender or the Concentration Bank to the extent provided in the Concentration Bank Agreement) issuing or selling any such Cash Equivalents arising from any banking relationship of the Borrower and its Subsidiaries; (vii) loans made by AHPF to AHPT and evidenced by one or more Intercompany Acquisition Notes; (viii) investments consisting of promissory notes, in an aggregate principal amount not to exceed $1,000,000 at any time outstanding, received as part of the consideration in connection with sales of stock, property or assets of any of its Subsidiaries permitted under Section 8.02(iii); and (ix) loans and advances to Joint Ventures set forth on SCHEDULE 6.21 in an aggregate amount not to exceed $5,000,000 at any time outstanding, but only to the extent required to be advanced under the terms of Joint Venture agreements as in effect on the date hereof. 8.06 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the Ordinary Course of Business, with any Affiliate of the Borrower, other than on terms 71 78 and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate. 8.07 CAPITAL EXPENDITURES. The Borrower will not, and will not permit any of its Subsidiaries to, make Consolidated Capital Expenditures during any Fiscal Year set forth below in an aggregate amount in excess of the correlative amount set forth below opposite such Fiscal Year:
============================================= FISCAL YEAR AMOUNT --------------------------------------------- 2001 $20,000,000 --------------------------------------------- 2002 $22,000,000
8.08 LEVERAGE RATIO. The Borrower shall not permit the ratio of (i) Total Debt to (ii) Adjusted Consolidated EBITDA for any consecutive four-fiscal quarter period ending as of the last day of any fiscal quarter of the Borrower set forth below to be more than the correlative amount set forth below:
========================================================== FISCAL QUARTER LEVERAGE RATIO ---------------------------------------------------------- 2001 FQ2 5.901:1.00 ---------------------------------------------------------- 2001 FQ3 5.993:1.00 ---------------------------------------------------------- 2001 FQ4 6.204:1.00 ---------------------------------------------------------- 2002 FQ1 5.919:1.00 ---------------------------------------------------------- 2002 FQ2 5.982:1.00 ---------------------------------------------------------- 2002 FQ3 6.134:1.00 ---------------------------------------------------------- 2002 FQ4 6.306:1.00
8.09 MINIMUM INTEREST COVERAGE RATIO. The Borrower shall not permit the ratio of (i) Adjusted Consolidated EBITDA of the Borrower and its Subsidiaries to (ii) Consolidated Interest Expense for any consecutive four-fiscal quarter period ending as of the last day of any fiscal quarter of the Borrower set forth below to be less than the correlative amount set forth below: 72 79
========================================================= MINIMUM INTEREST FISCAL QUARTER COVERAGE RATIO --------------------------------------------------------- 2001 FQ2 1.544:1.00 --------------------------------------------------------- 2001 FQ3 1.513:1.00 --------------------------------------------------------- 2001 FQ4 1.512:1.00 --------------------------------------------------------- 2002 FQ1 1.552:1.00 --------------------------------------------------------- 2002 FQ2 1.552:1.00 --------------------------------------------------------- 2002 FQ3 1.514:1.00 --------------------------------------------------------- 2002 FQ4 1.501:1.00
8.10 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND CERTAIN OTHER AGREEMENTS; ETC. The Borrower will not, and will not permit any of its Subsidiaries to, (i) make any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) any Indebtedness on which it is an obligor which payment, prepayment or redemption or acquisition for value (in the case of this clause (y)) is in excess of $100,000 per year in the aggregate except (in the case of this clause (y)) with respect to payments or prepayments on or redemptions or acquisitions for value of the (A) Obligations under the terms of this Agreement or (B) any Indebtedness for which failure to make such payment, prepayment, redemption or acquisition for value would constitute a violation of a law or regulation enacted, adopted or becoming effective after the Effective Date, or (C) any trade payables prepaid in the Ordinary Course of Business to take advantage of favorable prepayment terms, (ii) amend or modify, or permit the amendment or modification of, any provision of any Indebtedness or of any agreement (including, without limitation, any purchase agreement, indenture, loan agreement or security agreement) relating to any of the foregoing other than amendments that (A) only extend the maturity of or lower the interest rate on Indebtedness and amendments of this Agreement permitted by its terms or (B) are immaterial and would not have a material adverse effect on the business, operations, property, assets, liabilities (contingent or otherwise), condition (financial or otherwise) or prospects of the Borrower or any of its Subsidiaries, or (iii) amend, modify or change the Certificate or Articles of Incorporation (including, without limitation, by the filing or modification of any certificate of designation) or the By-Laws (or any other documents of formation and governance, as the case may be) of the Borrower or any of its Subsidiaries party to any of the Credit Documents or any Subsidiary of such Subsidiaries (except to reflect a name change previously noticed to the Agent and except as permitted under Section 8.02(vii), provided that such amendment shall not adversely affect the Lenders' position as creditors hereunder). 8.11 RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction, other than as set forth in this Agreement, on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits 73 80 owned by the Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or a Subsidiary of the Borrower, (b) make loans or advances to the Borrower or (c) transfer any of its properties or assets to the Borrower, except for such encumbrances or restrictions existing under or by reasons of (i) applicable law, (ii) this Agreement, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower that exists on the Effective Date and (iv) customary provisions restricting transactions with Affiliates of Persons party to a Joint Venture. The Borrower will not, and will not permit any of its Subsidiaries to, amend, modify or otherwise change the terms of, or permit the modification of, any provision of any Restructuring Note, any Intercompany Term Note, the ConPharma Note, any Intercompany Acquisition Note or any Intercompany Acquisition Guaranty/Security Agreement if the effect of such change is to change the subordination provisions thereof (or of any guaranty thereof) or to change any collateral therefor (other than to release such collateral). 8.12 BUSINESS. The Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than the business in which it was engaged on the Effective Date and any business directly related to such business. 8.13 TRANSFER OF COPYRIGHTS, PATENTS AND TRADEMARKS. The Borrower will not, and will not permit any of its Subsidiaries to, transfer any of their respective copyrights, licenses, patents, trademarks, permits, service marks, trade names, franchises and formulas, or rights with respect to the foregoing, except transfers pursuant to licenses granted in the Ordinary Course of Business that would not have a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 8.14 JOINT VENTURES. The Borrower shall not, and shall not suffer or permit any of its Subsidiaries to enter into any Joint Venture not set forth on SCHEDULE 6.21. 8.15 DEPOSIT ACCOUNTS. Except as otherwise permitted in this Section 8.15, the Borrower shall not, and shall not suffer nor permit any of its Subsidiaries to, (i) maintain any Deposit Account with an average daily balance in excess of $100,000 in any given month with any financial institution that has not executed a Collection Bank Agreement, other than pursuant to the Concentration Bank Agreement or the Blocked Account Agreement, (ii) maintain amounts in excess of $5,000,000 in the aggregate at any time outstanding in Deposit Accounts with financial institutions that have not executed Collection Bank Agreements, other than pursuant to the Concentration Bank Agreement or the Blocked Account Agreement, (iii) maintain any amounts in Deposit Accounts with the Concentration Bank or any Lender, other than pursuant to the Collection Bank Agreement or the Blocked Account Agreement, unless such financial institution has executed a Collection Bank Agreement in substantially the form of EXHIBIT N, or such other form as may be reasonably acceptable to Agent, on or prior to August 1, 2001, (iv) maintain more than $1,500,000 in Deposit Accounts on behalf of Joint Ventures listed on SCHEDULE 6.21, (v) deposit any amount into a Deposit Account that is the subject of a Collection Bank Agreement that does not represent proceeds of Collateral, or (vi) maintain any Deposit Account with the Agent, other than pursuant to the Blocked Account Agreement. Borrower shall, and shall cause its Subsidiaries to use reasonable efforts to obtain Collection Bank 74 81 Agreements in substantially the form of EXHIBIT N, or such other form as may be reasonably acceptable to Agent, from all financial institutions with which it maintains Deposit Accounts. 8.16. MINIMUM CONSOLIDATED EBITDA. The Borrower shall not permit Consolidated EBITDA for the three-month (quarterly) period ending on the last day of any month set forth below to be less than the correlative amount indicated:
=========================================================== MONTH ENDING MINIMUM CONSOLIDATED EBITDA ----------------------------------------------------------- May 2001 $11,819,000 ----------------------------------------------------------- June 2001 $11,794,000 ----------------------------------------------------------- July 2001 $11,588,000 ----------------------------------------------------------- August 2001 $11,759,000 ----------------------------------------------------------- September 2001 $11,985,000 ----------------------------------------------------------- October 2001 $12,329,000 ----------------------------------------------------------- November 2001 $12,954,000 ----------------------------------------------------------- December 2001 $12,637,000 ----------------------------------------------------------- January 2002 $12,325,000 ----------------------------------------------------------- February 2002 $12,540,000 ----------------------------------------------------------- March 2002 $12,548,000 ----------------------------------------------------------- April 2002 $12,441,000 ----------------------------------------------------------- May 2002 $11,225,000 ----------------------------------------------------------- June 2002 $11,112,000 ----------------------------------------------------------- July 2002 $10,758,000 ----------------------------------------------------------- August 2002 $10,687,000 ----------------------------------------------------------- September 2002 $10,627,000 ----------------------------------------------------------- October 2002 $10,815,000 ----------------------------------------------------------- November 2002 $11,290,000 ----------------------------------------------------------- December 2002 $11,196,000
, less, if applicable, (i) $190,000 per month commencing upon completion of Sale 1, as described in the Sales Letter, and ending March 31, 2002, (ii) $53,000 per month commencing upon completion of Sale 2, as described in the Sales Letter, and ending March 31, 2002, (iii) $121,000 per month, commencing upon completion of Sale 3, as described in the Sales Letters and ending on March 31, 2002, and (i) $100,000, commencing upon completion of Sale 4 and ending on 75 82 March 31, 2002; provided, however, that the monthly adjustment for the month of any Sale shall be prorated based upon the actual number of days in the month and the number of days since completion of such Sale. 8.17 ACCOUNTS RECEIVABLE COLLECTIONS. (a) The Borrower shall not permit the average daily amount collected by the Borrower and its Subsidiaries in respect of Accounts Receivable for each Collection Day during any consecutive three-month period (the "CURRENT THREE-MONTH PERIOD") to be less than the Applicable Three-Month Percentage (as hereinafter defined) of the average daily Adjusted Net Revenues for each Collection Day during the consecutive three-month period immediately preceding the commencement of such Current Three-Month Period. For purposes of this Section 8.17(a), the term "APPLICABLE THREE-MONTH PERCENTAGE" shall mean (i) for any Current Three-Month Period ending during the fourth fiscal quarter of 2000, 87%, and (ii) for any Current Three-Month Period ending during the first fiscal quarter of 2001 or thereafter, 90%. (b) The Borrower shall not permit the average daily amount collected by the Borrower and its Subsidiaries in respect of Accounts Receivable for each Collection Day during any month (the "CURRENT MONTH") to be less than the Applicable Monthly Percentage (as hereinafter defined) of the average daily Adjusted Net Revenues for each Collection Day during the third month immediately preceding such Current Month. For purposes of this Section 8.17(b), the term "APPLICABLE MONTHLY PERCENTAGE" shall mean (i) for any Current Month ending during the fourth fiscal quarter of 2000, 85%, and (ii) for any Current Month ending during the first fiscal quarter of 2001 or thereafter, 86%. SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of any of the following specified events (each an "EVENT OF DEFAULT"); 9.01 PAYMENTS. The Borrower shall (i) default in the payment when due of any principal of any Loan or any Note, (ii) default in the payment when due of any amount payable to the Issuing Bank in reimbursement of any drawing under a Letter of Credit or any cash collateralization requirements, or (iii) default, and such default shall continue unremedied for two Business Days, in the payment when due of interest on any Loan, any Fees or any other amounts owing hereunder or under any Note; or 9.02 REPRESENTATIONS, ETC. Any representation, warranty or statement made by the Borrower or any of its Subsidiaries herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 9.03 COVENANTS. The Borrower shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.01(g)(i), Section 7.13 or Section 8, (ii) default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.01(j), Section 7.01(k) or Section 7.01(l) and such default shall continue unremedied for a period of five days after written notice to the Borrower by the Agent, or (iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Sections 9.01 and 9.02 and clause (i) or clause (ii) of 76 83 this Section 9.03) contained in this Agreement and such default shall continue unremedied for a period of 30 days after written notice to the Borrower by the Agent. 9.04 DEFAULT UNDER OTHER AGREEMENTS. The Borrower or any of its Subsidiaries shall (i) default in any payment of Indebtedness in an aggregate principal amount equal to or exceeding $1,500,000 (other than the Loans, the Restructuring Notes, the Intercompany Term Notes, the ConPharma Note and the Intercompany Acquisition Notes) beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to Indebtedness in an aggregate principal amount equal to or exceeding $3,750,000 (other than the Loans, the Restructuring Notes, the Intercompany Term Notes, the ConPharma Note and the Intercompany Acquisition Notes) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity; or Indebtedness of the Borrower or any of its Subsidiaries, in an aggregate principal amount equal to or exceeding $3,750,000, shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or 9.05 BANKRUPTCY, ETC. The Borrower or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "BANKRUPTCY," as now or hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE"); or an involuntary case is commenced against the Borrower or any of its Subsidiaries, and the petition is not controverted within ten days, or is not dismissed within 60 days, after commencement of the case (provided that the Borrower expressly authorizes the Agent and each Lender to appear in any court conducting any such proceeding during such 60 day period to preserve, protect and defend their rights under this Agreement and the other Credit Documents); or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Subsidiaries; or there is commenced against the Borrower or any of its Subsidiaries any such proceeding that remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt, or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 30 days; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate, partnership or other action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or 9.06 ERISA. Any Plan shall fail to maintain the minimum funding standard required for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code; any Plan is, shall have been or is likely to be terminated or the subject of a termination proceeding under ERISA; any 77 84 Plan shall have an Unfunded Current Liability, or the Borrower or any of its Subsidiaries or ERISA Affiliates has incurred or is likely to incur a liability to or on account of a Plan under Sections 502(c), (i) or (l), 515, 4062, 4063, 4064, 4071, 4201 or 4204 of ERISA or Chapter 43 of the Code; and there shall result from any such event or events the imposition of a Lien upon or the granting of a security interest in the assets of the Borrower or any of its Subsidiaries, or a liability or a material risk of incurring a liability to the PBGC or a Plan or a trustee appointed under ERISA, that will have a material adverse effect upon the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; or 9.07 CREDIT DOCUMENTS. Any of the Credit Documents or any material provision thereof shall cease to be in full force and effect for any reason, other than the satisfaction in full of all Obligations and the termination of this Agreement or otherwise in accordance with the provisions of Section 10.10, or is declared to be null and void, or any Guarantor Subsidiary shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to any of the Credit Documents to which it is a party, or any Guarantor Subsidiary denies that it has any further liability under any of the Credit Documents to which it is a party or gives notice to such effect, or any junior creditor claims or asserts the invalidity or unenforceability of any subordination provisions of any Unsecured Seller Debt; or 9.08 CHANGES OF CONTROL. (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of the Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Borrower representing 20% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors; or (ii) during any period of up to 12 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 12-month period were directors of the Borrower shall cease for any reason to constitute a majority of the Board of Directors of the Borrower; or (iii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that upon consummation shall result in its or their acquisition of or control over, securities of the Borrower representing 20% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors; or 9.09 JUDGMENTS. One or more judgments, decrees or arbitration awards shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate for the Borrower and its Subsidiaries a liability (not paid or fully covered by insurance as to which the insurer has acknowledged coverage in writing) of $3,000,000 or more, and all such judgments, decrees or awards shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days after the entry thereof; or 9.10 GOVERNMENTAL POLICIES. Any change shall occur in state or federal laws, rules or governmental regulations or budgetary allocations that reasonably could be expected to have a material adverse effect on the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; or 78 85 9.11 LOSS OF LICENSES. Any Governmental Authority shall finally revoke or fail to renew any license, permit or franchise of the Borrower or the Borrower shall for any reason lose any license, permit or franchise or the Borrower or any of its Subsidiaries shall suffer the imposition of any restraining order, escrow, suspension or impound of funds in connection with any proceeding (judicial or administrative) with respect to any license, permit or franchise which event could reasonably be expected to have a material adverse effect on the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; or 9.12 O.I.G. INVESTIGATION. (a) any investigation and/or audit of the Borrower and its Subsidiaries by the O.I.G. or any other Governmental Authority (other than the Settlement) shall result in a liability (whether or not being contested) on the part of the Borrower and its Subsidiaries and/or a reduction or set-off in respect of future Accounts Receivable of the Borrower and its Subsidiaries in an aggregate amount which, in the opinion of the Required Lenders, could reasonably be expected to have a material adverse effect on the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; (b) there shall have been a development in any investigation and/or audit (other than the Settlement) that the Required Lenders determine could reasonably be expected to have material adverse effect on the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; (c) the Borrower and its Subsidiaries shall have been assessed or otherwise shall have incurred any cost, expense, fine, demand or liability (however denominated or asserted) that exceeds $1,000,000 or any reduction or set-off in respect of future Accounts Receivable of the Borrower and its Subsidiaries in an aggregate amount in excess of $1,000,000 with respect to any investigation and/or audit (other than the Settlement); (d) there shall have been any development in any investigation and/or audit (other than the Settlement) that the Required Lenders determine could reasonably be expected to result in any cost, expense, fine, demand or liability (however denominated or asserted) that exceeds $1,000,000 or any reduction or set-off in respect of future Accounts Receivable of the Borrower and its Subsidiaries in an aggregate amount in excess of $1,000,000; (e) any amount is owed or is demanded by any Governmental Authority to be paid with respect to the Settlement, other than $7,000,000, plus interest thereon, and the fees and expenses of the relator or there has been any acceleration or any voluntary prepayment of any installment thereof; (f) any representation and warranty set forth in the Settlement is not true and correct or any claim is made by any Governmental Authority that any such representation and warranty is not true and correct; or (g) the Borrower or any of its Subsidiaries has breached or any claim has been made by any Governmental Authority that Borrower or any of its Subsidiaries has breached the 79 86 terms of the Settlement or any claim is otherwise made by any Governmental Authority for rescission of the Settlement; THEN, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Agent, upon the written request of the Required Lenders, shall by written notice to the Borrower, (provided, that, if an Event of Default specified in Section 9.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Agent to the Borrower as hereafter shall occur automatically without the giving of any such notice) declare the principal of and any accrued interest in respect of all Loans and the Notes, if any, and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and the obligation of each Lender to make any Loan and the obligation of the Issuing Bank to issue or renew any Letter of Credit shall thereupon terminate. So long as any Letter of Credit shall remain outstanding, any amounts received by the Agent shall be held by the Agent, pursuant to such documentation as the Agent shall request, as cash collateral for the obligation of the Borrower to reimburse the Issuing Bank in the event of any drawing under any outstanding Letters of Credit, and so much of such funds shall at all times remain on deposit as cash collateral as aforesaid as shall equal the maximum amount available at any time for drawing under all Letters of Credit (the "MAXIMUM AVAILABLE AMOUNT"); provided that in the event of cancellation or expiration of any Letter of Credit or any reduction in the Maximum Available Amount, the Agent shall apply the difference between the cash collateral held by the Agent immediately prior to such cancellation, expiration or reduction and the Maximum Available Amount immediately after such cancellation, expiration or reduction first to the payment of any outstanding Obligations, and second to the payment to whomsoever shall be lawfully entitled to receive such funds; provided further that to the extent that any payments of principal and/or interest on the Loans shall not have been paid when due, Agent shall apply the cash collateral held by it to payment of all Obligations of Borrower to the Lenders and the Issuing Bank as provided in Section 11.07, Agent may thereafter demand that Borrower make such additional deposits as cash collateral as may be necessary to equal the Maximum Available Amount, and Agent, at the request of Required Lenders may make demand for such additional amounts as may be owed to Lenders. SECTION 10. THE AGENT. 10.01 APPOINTMENT. The Lenders hereby designate Bankers Trust Company as the Agent (for purposes of this Section 10, the term "AGENT" shall include Bankers Trust Company in its capacity as the Agent pursuant to the other Credit Documents) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Loan by the acceptance of such Loan shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its officers, directors, agents or employees. 80 87 10.02 NATURE OF DUTIES. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents. Neither the Agent nor any of its officers, directors, agents or employees shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Loan; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein. 10.03 LACK OF RELIANCE ON THE AGENT. Independently and without reliance upon the Agent, each Lender and the holder of each Loan, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and, except as expressly provided in this Agreement, the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Loan with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent shall not be responsible to any Lender or the holder of any Loan for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrower or the existence or possible existence of any Default or Event of Default. 10.04 CERTAIN RIGHTS OF THE AGENT. If the Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Lenders; and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender or the holder of any Loan shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders unless the agreement of all Lenders is required by the terms of this Agreement. 10.05 RELIANCE. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, e-mail, order or other document or telephone message signed, sent or made by any Person that the Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by it. 81 88 10.06 INDEMNIFICATION. To the extent the Agent is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Agent, in proportion to their respective proportionate shares of the aggregate amount of the Loans as of the date of determination, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Agent in performing its duties hereunder or under any other Credit Document, or in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgment, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. 10.07 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation to maintain and make Loans under this Agreement, the Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "LENDERS," "REQUIRED LENDERS," "HOLDERS OF LOANS" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any Affiliate of the Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 10.08 HOLDERS. The Agent may deem and treat the payee of any Note and the holder of any Loan as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Loan shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Loan or of any Loan or Loans issued in exchange therefor, whether or nor evidenced by a Note. 10.09 RESIGNATION BY THE AGENT. (a) The Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days prior written notice to the Borrower and the Required Lenders. Such resignation shall take effect upon the appointment of a successor to the Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Lenders shall appoint a successor to the Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If no successor to the Agent has been appointed pursuant to clause (b) above by the 20th Business Day after the date such notice of resignation was given by the Agent, the Agent's resignation shall become effective and the Lenders shall thereafter perform all the duties of the Agent hereunder and/or under any other Credit Document until such time, if any, as the Lenders appoint a successor to the Agent as provided above. 82 89 (d) Any resignation of the Agent pursuant to Section 10.09(a) shall also constitute the resignation of Bankers Trust Company or its successor as Issuing Bank, and any successor Agent appointed pursuant to Section 10.09(b) shall, upon its acceptance of such appointment, become the successor Issuing Bank. 10.10 RELEASE OF COLLATERAL. Without further written consent or authorization from Lenders, Agent may, in its sole discretion, execute any documents or instruments necessary to release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted by this Agreement or otherwise consented to in accordance with Section 11.13(a); provided that the proceeds of any Asset Sale have been applied to prepayment of the Loans as provided in Sections 2.07(d) and 4.02(b)(ii). SECTION 11. MISCELLANEOUS. 11.01 PAYMENT OF EXPENSES, ETC. The Borrower shall: (i) pay all the actual costs and reasonable expenses (w) of the Agent (including, without limitation, the reasonable fees and disbursements of O'Melveny & Myers LLP, special counsel to the Agent) in connection with the preparation, execution, delivery and syndication of this Agreement and the other Credit Documents and the Existing Credit Agreement and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, (x) of the Agent and each of the Lenders in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of O'Melveny & Myers LLP, special counsel to the Agent, and such other counsel as any other Lender may retain from time to time in connection herewith), (y) of the Agent (including, without limitation, the reasonable fees and disbursements of O'Melveny & Myers LLP, special counsel to the Agent) in connection with the custody or preservation of any of the Collateral or in connection with creating, perfecting and preserving Liens in favor of the Agent on behalf of the Lenders pursuant to any Credit Document, including any filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees and title insurance premiums and (z) of the Lender Financial Advisor and any other consultants, advisors, agents, auditors or accountants chosen by the Agent or the Required Lenders, to perform, investigate, test or review such matters relating to the Borrower and its Subsidiaries as the Agent or the Required Lenders shall designate (including, without limitation, any review, investigation or evaluation conducted pursuant to Section 7.02); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify the Agent and each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not the Agent or any Lender is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of the proceeds of any Loans or Letters of Credit hereunder or the consummation of any transactions contemplated herein or in any other Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in 83 90 connection with any such investigation, litigation or other proceeding (but excluding any such liabilities, obligations, losses, etc., to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). After the occurrence of an Event of Default or upon the acceleration of the Obligations (whether pursuant to the terms hereof or applicable law), the Borrower shall pay all costs and expenses, including reasonable attorneys' fees (including, without limitation, allocated costs of internal counsel) and costs of settlement, incurred by the Agent and/or the Lenders in enforcing any Obligations of, or in collecting any payments due from, the Borrower or any Subsidiary hereunder or under the other Credit Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 11.02 RIGHT OF SETOFF. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, Issuing Bank and each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by the Issuing Bank or such Lender or any affiliate thereof (including without limitation, by branches and agencies of the Issuing Bank or such Lender wherever located) to or for the credit or the account of the Borrower or any Guarantor Subsidiary against and on account of the Obligations and liabilities of the Borrower to Issuing Bank or such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by Issuing Bank or such Lender pursuant to Section 11.05(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document or otherwise, irrespective of whether or not the Issuing Bank or such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 11.03 NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic telecopier or cable communication) and mailed, telegraphed, telecopied, cabled or delivered: if to the Borrower, at its address specified opposite its signature below; if to any Lender, at its office specified opposite its signature below; and if to the Agent, at its Notice Office; or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. In addition, a copy of all notices sent to the Borrower or the Agent in accordance with Sections 7.01(g) or 9 shall also be sent to Harwell Howard Hyne Gabbert & Manner, P.C., 1800 First American Center, 315 Deaderick Street, Nashville, Tennessee 37238, Attn: John Brittingham, Esq., and to O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California 90071, Attn: Stephen Warren, Esq. All such notices and communications shall, when mailed, telegraphed, telecopied, e-mailed or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by 84 91 telecopier or e-mail, except that notices and communications to the Agent shall not be effective until received by the Agent. 11.04 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of each Lender. 11.05 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT. (a) GENERAL. Each Lender shall have the right at any time to (i) sell, assign, transfer or negotiate to any Eligible Assignee, or (ii) sell participations to any Eligible Assignee in, all or any part of any Loan or Loans made by it or any other interest herein or in any other Obligations owed to it; provided that no such sale, assignment, transfer or participation shall, without the consent of the Borrower, require the Borrower to file a registration statement with the SEC, apply to qualify such assignment or participation of the Loans or the other Obligations under the securities laws of any state or otherwise become subject to any federal or state securities laws requirements with respect thereto; provided, further that no such sale, assignment or transfer described in clause (i) above shall be effective unless and until an Assignment and Acceptance effecting such sale, assignment or transfer shall have been accepted by the Agent and recorded in the Agent's records as provided in Section 11.05(b)(ii). Except as otherwise provided in this Section 11.05, no Lender shall, as between the Borrower and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or any granting of participations in, all or any part of the Loans or the other Obligations owed to such Lender. (b) ASSIGNMENTS. (i) Amounts and Terms of Assignments. Each Loan or other Obligation may (A) be assigned in any amount (of a constant and not a varying percentage) to another Lender, or to an Affiliate of the assigning Lender or another Lender, with the giving of notice to the Borrower and the Agent or (B) be assigned in an amount of not less than $5,000,000 (or such lesser amount as shall constitute the aggregate amount of the Loans and other Obligations of the assigning Lender), to any other Eligible Assignee with the giving of notice to the Borrower and the Agent and with the consent of the Borrower and the Agent, in the case of an assignment made by a Lender other than the Agent, or with the consent of the Borrower, in the case of an assignment made by the Agent (which consent of the Borrower and the Agent shall not be unreasonably withheld or delayed); provided that in no event shall the Borrower's consent be required if a Default or an Event of Default has occurred and is continuing. To the extent of any such assignment in accordance with this Section 11.05, the assigning Lender shall be relieved of its obligations with respect to its Loans. The parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in its records, an Assignment and Acceptance, together with, with respect to assignments that occur following the Effective Date, a processing and recordation fee of $3,500, and such certificates, documents or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment and Acceptance may be 85 92 required to deliver to the Agent pursuant to Section 2.06(g)(iii). Upon such execution, delivery and acceptance, from and after the effective date specified in such Assignment and Acceptance, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). A new Note, if requested by the assignee shall, upon surrender of the assigning Lender's Note, if any, be issued to the assignee and to the assigning Lender, substantially in the form of EXHIBIT C annexed hereto with appropriate insertions, to reflect the outstanding Loans of the assignee and the assigning Lender. (ii) Acceptance by the Agent; Recordation in Records. Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in Section 11.05(b)(i) and any certificates, documents or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to the Agent pursuant to Section 2.06(g)(iii), the Agent shall, if such Assignment and Acceptance has been completed and is in the form of EXHIBIT E hereto and if the Agent and the Borrower have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to Section 11.05(b)(i)), (a) accept such Assignment and Acceptance by executing a counterpart thereof as provided therein (which acceptance shall not be unreasonably withheld or delayed and shall evidence any required consent of the Agent to such assignment), (b) record the information contained therein in its records, and (c) give prompt notice thereof to the Borrower. The Agent shall maintain a copy of each Assignment and Acceptance delivered to and accepted by it as provided in this Section 11.05(b)(ii). (c) LOAN PARTICIPATIONS. The holder of any Loan participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity of any Loan allocated to such participation, (ii) a reduction of the principal amount of or the rate of interest payable on any Loan, and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, (iii) the release of the Liens held by Agent on behalf of the Lenders with respect to all or substantially all of the Collateral, or (iv) a reduction of the amount of any fees payable hereunder to the extent subject to such participation. The Borrower hereby acknowledges and agrees that, only for purposes of Sections 2.04, 2.06, 11.02 and 11.07(b), any participation will give rise to a direct obligation of the Borrower to the participant and the participant shall be considered to be a "Lender"; provided that no participant shall be entitled to receive any greater amount pursuant to Section 2.04 or 2.06 than the transferor Lender would have been entitled to receive in respect of the amount of the participation effected by such transferor Lender to such participant had no such participation occurred. 86 93 (d) ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this Section 11.05, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between the Borrower and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. (e) INFORMATION. Each Lender and the Issuing Bank may furnish any information concerning the Borrower and its Subsidiaries in the possession of that Lender or the Issuing Bank from time to time to assignees and participants (including prospective assignees and participants). (f) LETTERS OF CREDIT. Neither the Issuing Bank nor any participant in the Letters of Credit may sell, assign, transfer or negotiate any portion of the Letters of Credit, other than the grant or transfer of participations therein or any other Obligations owed to it with respect to such Letters of Credit as provided herein. No such grant or transfer of a participation in the Letters of Credit shall, without the consent of the Borrower, require the Borrower to file a registration statement with the SEC, apply to qualify such grant or transfer of a participation in the Letters of Credit or the other Obligations under the securities laws of any state or otherwise become subject to any federal or state securities laws requirements with respect thereto. Except as otherwise provided in this Section 11.05, the Issuing Bank shall, as between the Borrower and the Issuing Bank, not be relieved of any of its obligations hereunder as a result of any granting or transfer of participations in, any portion of the Letters of Credit or the other Obligations owed to the Issuing Bank. The Borrower's consent shall not be required in connection with any grant or transfer of participations in the Letters of Credit. The holder of any participation in the Letters of Credit shall not be entitled to require the Issuing Bank to take any action hereunder of any kind or nature, including, without limitation, any actions with respect to approvals, consents, amendments or waivers pursuant to Section 11.13. The Borrower hereby acknowledges and agrees that, only for purposes of Sections 11.02 and 11.07(b), any participation will give rise to a direct obligation of the Borrower to the participant and the participant shall be considered to be a "Lender". Nothing herein shall restrict the Issuing Bank from selling, assigning, transferring, or negotiating its interest in the Loans separate from the Letters of Credit. 11.06 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent or any Lender or the holder of any Loan in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Agent or any Lender or the holder of any Loan shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Agent or any Lender or the holder of any Loan would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the 87 94 rights of the Agent or any Lender or the holder of any Loan to any other or further action in any circumstances without notice or demand. 11.07 PAYMENTS PRO RATA. (a) The Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations of the Borrower hereunder, it shall distribute by the next Business Day such payment to the Lenders and Issuing Bank pro rata based upon their respective Pro Rata Shares, if any, of the Obligations then due and owing. (b) Each of the Lenders and Issuing Bank agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), that is applicable to the payment of the principal of, or interest on, the Loans, or under any Letter of Credit of a sum which with respect to the related sum or sums received by other Lenders or the Issuing Bank, as the case may be, is in a greater proportion than the total amount of such Obligation then owed and due to such Lender or Issuing Bank bears to the total amount of such Obligation then owed and due to all of the Lenders and the Issuing Bank immediately prior to such receipt, then such Lender or the Issuing Bank, as the case may be, receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders and the Issuing Bank an interest in the Obligations of the Borrower to such Lenders and the Issuing Bank in such amount as shall result in a proportional participation by all the Lenders and the Issuing Bank in such amount in accordance with their Pro Rata Share of the Obligations then due and owing as provided in clause (ii) of the definition of "Pro Rata Share"; provided, however, that if all or any portion of such excess amount is thereafter recovered from such Lender or Issuing Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 11.08 CALCULATIONS; COMPUTATIONS. The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders); provided that, except as otherwise specifically provided herein, all computations determining compliance with Section 8 shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements delivered to the Lenders pursuant to Section 7.01 of the Existing Credit Agreement; provided, further that, without limiting the generality of the foregoing proviso, in no event shall the Borrower change the Accounts Receivable reserve policies applied by the Borrower for purposes of such computations without the consent of the Required Lenders. 11.09 GOVERNING LAW; WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK. THE AGENT, THE LENDERS AND THE BORROWER HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS 88 95 AGREEMENT OR ANY OTHER CREDIT DOCUMENT. The Borrower hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to the Borrower at its address provided on the signature pages hereto, such service being hereby acknowledged by the Borrower to be sufficient for personal jurisdiction in any action against the Borrower in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Agent or any Lender to bring proceedings against the Borrower in the courts of any other jurisdiction. 11.10 CONFIDENTIALITY. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by the Borrower in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by the Borrower that in any event a Lender may make disclosures to Affiliates of such Lender or disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or disclosures required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by the Borrower or any of its Subsidiaries. 11.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts by facsimile or otherwise, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Agent. 11.12 HEADINGS DESCRIPTIVE. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 11.13 AMENDMENT OR WAIVER. (a) No approval, consent, amendment or waiver of this Agreement or any of the Credit Documents shall be effective unless it is in writing signed by the Agent and the Required Lenders; provided, however, that any such approval, consent, amendment or waiver that (a) reduces the amount of any interest, principal, fees or other amounts owing to any Lender hereunder, including, without limitation, amounts payable under Section 4 (but excluding any waiver of any increase in the interest rate applicable to the Loans pursuant to Section 2.03(e)); (b) releases any Person from all or any portion of its liabilities under the Subsidiary Guaranty; (c) amends any provisions of this Section 11.13; (d) reduces the percentage specified in the definition of the term "REQUIRED LENDERS" or changes the definition of "PRO RATA SHARE"; (e) postpones the scheduled final maturity date (but not the date of any scheduled installment of 89 96 principal) of any of the Loans or the date on which any interest or any fees are payable under this Agreement or any of the Credit Documents; (f) releases all or substantially all of the Collateral (except as set forth in Sections 8.02(i), (ii) or (iii) or 8.13, or if the sale or disposition of such Collateral is permitted under any of the Credit Documents), or (g) by the terms of any provision of this Agreement requires the approval of all the Lenders shall be effective only if it is in writing signed by all the Lenders directly affected; provided, further, that no amendment, modification or waiver of any provision of Section 10 or of any other provision of this Agreement expressly requiring the approval or concurrence of the Agent shall be effective without the written concurrence of the Agent; and provided, further, that no amendment, modification or waiver of any provision of Section 2.07 or any other provision of this Agreement for the benefit of the Issuing Bank shall be effective without the concurrence of the Issuing Bank. (b) If in connection with any proposed approval, consent, amendment or waiver with respect to any of the provisions of this Agreement as contemplated by clauses (a) through (g) of the first proviso of Section 11.13(a) the consent of the Required Lenders is obtained but the consent of one or more of the other Lenders whose consent is also required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described below, to replace each such non-consenting Lender or Lenders with one or more Replacement Lenders (as defined in Section 11.13(c) pursuant to Section 11.13(c) so long as at the time of such replacement, each such Replacement Lender consents to the proposed approval, consent, amendment or waiver. (c) In the event of certain refusals by a Lender as provided in Section 11.13(b) to consent to certain proposed approvals, amendments, consents or waivers with respect to this Agreement which have been approved by the Required Lenders, the Borrower may, upon five Business Days' written notice to the Agent (which notice the Agent shall promptly transmit to each of the Lenders) repay all Loans, together with accrued and unpaid interest, fees and other amounts owing to such Lender (a "Replaced Lender") in accordance with, and subject to the requirements of, said subsection 11.13(b) so long as the consents required by Section 11.13(b) in connection with the repayment pursuant to this Section 11.13(c) have been obtained. (i) At the time of any replacement pursuant to this subsection 11.13(c), the lender replacing such Replaced Lender (the "Replacement Lender") shall enter into one or more assignment agreements, in form and substance satisfactory to the Agent, pursuant to which the Replacement Lender shall acquire all of the outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, and (B) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender; and (ii) all obligations of the Borrower owing to the Replaced Lender (excluding those specifically described in clause (a) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. 90 97 Upon the execution of the respective assignment documentation, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to the Borrower's obligations regarding the indemnification provisions under this Agreement, which shall survive for the benefit of such Replaced Lender. Notwithstanding anything to the contrary contained above, no Issuing Bank may be replaced hereunder at any time while it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Issuing Bank (including the furnishing of a standby letter of credit in form and substance, and issued by an issuer satisfactory to such Issuing Bank or the furnishing of cash collateral in amounts and pursuant to arrangements satisfactory to such Issuing Bank) have been made with respect to such outstanding Letters of Credit. 11.14 SURVIVAL. All indemnities set forth herein including, without limitation, in Sections 2.04, 10.06 and 11.01 shall survive the execution and delivery of this Agreement and the Notes, if any, and the making and repayment of the Loans and the Letters of Credit. 11.15 DOMICILE OF LOANS. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. 11.16 INTEGRATION. This Agreement, together with the exhibits to this Agreement and the other documents described herein, is intended by the parties hereto as a complete statement of the terms and conditions of their agreement. 11.17 SECURED OBLIGATIONS. The Borrower hereby agrees and confirms that on and after the Effective Date each Credit Document to which the Borrower is a party, including, as applicable, the Borrower Security Agreement, the Borrower Pledge Agreement and the Trademark Security Agreement, and all collateral encumbered thereby shall continue to secure to the fullest extent possible the payment and performance of all "Obligations" and "Secured Obligations" (as defined in each applicable Credit Document), including without limitation the payment and performance of all such "Secured Obligations" in respect of the Obligations of the Borrower now or hereafter existing under or in respect of this Agreement and the Loans. Without limiting the generality of the foregoing, the Borrower hereby acknowledges and confirms its understanding and intent that, upon the Effective Date and as a result thereof, the definition of "Obligations" contained in this Agreement includes the obligations of the Borrower under the Loans, whether or not evidenced by a Note. The Borrower acknowledges and agrees that any of the Credit Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its respective obligations thereunder shall be valid and enforceable and shall not be impaired, limited or otherwise affected by the execution, delivery or effectiveness of this Agreement or any future amendment or modification of this Agreement. The Borrower represents and warrants that all representations and warranties contained in each Credit Document to which it is a party, including the Borrower Security Agreement, the Borrower Pledge Agreement and the Trademark Security Agreement, are true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent any such representation or warranty specifically relates to an earlier date, in which case such 91 98 representation or warranty shall have been true, correct and complete in all material respects on and as of such earlier date. The Borrower hereby acknowledges and agrees that on and after the Effective Date, each reference in the Credit Documents to the "Credit Agreement", "thereunder", "thereof" and words of like import referring to the Existing Credit Agreement shall mean and be a reference to this Agreement. 11.18 RELEASE. The Borrower, its successors and assigns and any Person that may derivatively or otherwise assert a claim through or by any of the foregoing to the fullest extent permitted by applicable law (collectively, the "RELEASORS") hereby releases, remises, acquits and forever discharges the Agent, each Lender and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "RELEASED PARTIES"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the Effective Date, and in any way directly or indirectly arising out of or in any way connected to this Agreement, the Existing Credit Agreement or the other Credit Documents (all of the foregoing hereinafter called the "RELEASED MATTERS"). Each Releasor acknowledges that the agreements in this Section 11.18 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters and constitute a complete waiver of any right of setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the Effective Date to payment or performance of the Obligations. Borrower represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the Effective Date would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Borrower represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters. Borrower has been advised by counsel of its choosing and have granted this release freely, and voluntarily and without duress. The foregoing release shall be effective as a bar to any and all actions, fees, damages, losses, claims, liabilities and demands of whatsoever character, nature and kind, known or unknown, suspected or unsuspected, notwithstanding any provisions of applicable law restricting the effect of such a release. In furtherance thereof, the Borrower expressly waives any and all rights conferred upon them by any provisions of applicable law to the effect that a general release does not extend to claims which the creditor does not know or suspect to exist in its factor at the time of executing the release, which if known by it must have materially affected its settlement with the debtor. 11.19 SETTLEMENT. Notwithstanding anything herein, the Lenders have not agreed or otherwise consented to any of the terms of the Settlement and reserve all rights with respect thereto, except to the extent that what constitutes a Default or Event of Default is expressly limited as provided in Section 9.12. 92 99 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. AMERICAN HOMEPATIENT, INC., a Delaware corporation By: ---------------------------------------- Name: Title: Notice Address: American HomePatient, Inc. Maryland Farms Office Park 5200 Maryland Way, Suite 400 Brentwood, Tennessee 37027-5018 Attn: S-1 100 BANKERS TRUST COMPANY, Individually and as the Agent By: ---------------------------------------- Name: Title: Notice Address: Deutsche Banc Alex. Brown Incorporated 130 Liberty Street, 28th Floor New York, New York 10006 Attn: Silvia L. Spear Tel: 212/250-5089 Fax: 212/250-6314 With a copy to: Deutsche Banc Alex. Brown Incorporated 31 West 52nd Street, 3rd Floor New York, New York 10019 Attn: Tom Fitzgerald Tel: 212/469-2578 Fax: 212/469-2884 Lending Office: Deutsche Banc Alex. Brown Incorporated One Bankers Trust Plaza, 14th Floor New York, New York 10006 Attn: -------------------------------------- Tel: 212/ Fax: 212/ Deutsche Banc Alex. Brown Incorporated 130 Liberty Street, 28th Floor New York, New York 10006 Attn: Ryan Zanin Tel: 212/250-5089 Fax: 212/250-6314 Deutsche Banc Alex. Brown Incorporated 130 Liberty Street, 27th Floor New York, New York 10006 Attn: Siantoro Goeyardi Tel: 212/250-7014 Fax: 212/669-1575 S-2 101 BANK OF AMERICA SECURITIES By: ---------------------------------------- Name: Title: Bank of America Securities 9 West 57th Street, 31st Floor New York, New York 10019 Attn: Peter Santry Tel: 212/583-8244 Fax: 212/583-8277 S-3 102 BANK OF MONTREAL By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Bank of Montreal 115 S. LaSalle, 12th Floor Chicago, Illinois 60603 Attn: Jack Kane Heather L. Turf Tel: 312/750-5900 (Kane) Tel: 312/750-3466 (Turf) Fax: 312/750-6057 S-4 103 BARCLAYS CAPITAL PLC By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Barclays Capital Plc. 5 The North Colonnade Canary Wharf London E14 4 PU United Kingdom Attn: Leslie Burden Tel: 011-44-207-773-6426 Fax: 011-44-207-516-9791 S-5 104 BEAR, STEARNS & CO., INC. By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Bear, Stearns & Co., Inc. 245 Park Avenue New York, New York 10167 Attn: Paul M. Marhan Tel: 212/272-7836 Fax: 212/272-8102 S-6 105 CITIBANK, N.A. By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Citibank, N.A. 599 Lexington Avenue, 21st Floor New York, New York 10043 Attn: Carlton Klein Attn: Harry P. Vlandis Tel: 212/559-3890 (Klein) Tel: 212/793-3030 (Vlandis) Fax: 212/793-9470 S-7 106 LEGAL NOTICES: CONTINENTAL CASUALTY COMPANY By: ---------------------------------------- Name: Karla L. Kambic, Esq. Title: Continental Casualty Company c/o CNA 333 South Wabash Avenue CNA Plaza - 23 South Chicago, IL 60685 Attn: Karla L. Kambic, Esq. Phone: 312/822-1337 Fax: 312/817-1680 FINANCIAL NOTICES: Continental Casualty Company c/o CNA 333 South Wabash Avenue CNA Plaza - 23 South Chicago, IL 60685 Attn: Phone: Fax: and Continental Casualty Company c/o Loews Corporation 667 Madison Avenue, 7th Floor - High Yield New York, NY 10021-8087 Attn: Jeff Eisenberger/Diane Rogers Phone: 212/521-2864 Fax: 212/521-2858 S-8 107 PAYMENT INSTRUCTIONS FOR CONTINENTAL CASUALTY COMPANY: Chase NYC ABA No. 021-000-021 New York City, NY Acct. Name: North America Insurance F/B/O CNA Insurance Credit Acct. No: 323-512968 For Subacct. No: G 07400 Subacct. Name: Continental Casualty Company Attn: John Tsokolas 312/822-5270 S-9 108 EVEREST CAPITAL LIMITED By: ---------------------------------------- Name: Title: Notice Address: Everest Capital Limited The Bank of Butterfield Building 65 Front Street, Sixth Floor Hamilton HM JX Bermuda Attn: Damian Resnik Tel: 441/ 296-0222 Fax: 441/292-0866 S-10 109 FERNWOOD ASSOCIATES By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Fernwood Associates c/o Intermarket Corporation 667 Madison Avenue New York, New York 10021 Attn: Jay Teevan Tel: 212/593-1550 Fax: 212/832-4997 S-11 110 LONGACRE MASTER FUND LTD. By: ---------------------------------------- Name: Title: Longacre Master Fund Ltd. c/o Longacre Management, LLC 1700 Broadway, Suite 1403 New York, New York 10019 Attn: Steve Weissman Tel: 212/752-6104 Fax: 212/752-6146 S-12 111 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Merrill Lynch, Pierce, Fenner & Smith, Incorporated World Financial Center North Tower, 7th Floor 225 Liberty Street New York, New York 10281 Attn: Thomas Lott Tel: 212/449-4969 Fax: 212/449-0769 S-13 112 RCG CARPATHIA MASTER FUND, LTD. By: ---------------------------------------- Name: Title: Notice Address and Lending Office: RCG Carpathia Master Fund, Ltd. c/o Ramius Capital 666 Third Avenue, 26th Floor New York, New York 10017 Attn: Howard J. Golden Tel: 212/845-7976 Fax: 212/845-7994 S-14 113 SATELLITE SENIOR INCOME FUND, LLC C/O SATELLITE ASSET MANAGEMENT, LP By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Satellite Senior Income Fund, LLC c/o Satellite Asset Management, LP 10 East 50th Street, 21st Floor New York, New York 10022 Attn: Gene Ko Tel: 212/209-2032 Fax: 212/209-2010 S-15 114 SUMITOMO MITSUI BANKING CORPORATION By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Sumitomo Mitsui Banking Corporation 277 Park Avenue, 6th Floor New York, New York 10172 Attn: Eduardo Goya Tel: 212/224-4041 Fax: 212/224-5198 S-16 115 FRANKLIN FLOATING RATE TRUST By: ---------------------------------------- Name: Title: Notice Address and Lending Office: Franklin Floating Rate Trust 777 Mariners Island Boulevard, 3rd Floor San Mateo, California 94404 Attn: Madeline Lam Tel: 650/312-3865 Fax: 650/312-3346 S-17 116 SCHEDULE 1.01 PRO RATA SHARES
% of Term Loan Lenders Commitments Amount of Loans ------- ----------- --------------- Bankers Trust Company 18.7500801978 $ 55,614,241.64 Bank of America Securities 1.4166603953 4,201,928.35 Bank of Montreal 6.2499999981 18,538,001.25 Barclays Capital PLC 3.6667175037 10,875,778.19 Bear, Stearns & Co., Inc. 26.0093176296 77,145,722.06 Citibank, N.A 6.1842654708 18,343,027.37 Continental Casualty Company 3.9167290441 11,617,332.47 Everest Capital Limited 3.3332442248 9,886,669.70 Fernwood Associates 12.3117807162 36,517,729.02 Franklin Floating Rate Trust 3.3332442147 9,886,669.67 Longacre Master Fund Ltd. 1.6666221124 4,943,334.85 Merrill, Lynch, Pierce, Fenner & Smith, Incorporated 5.5781744691 16,545,312.85 RCG Carpathia Master Fund, Ltd. 1.9999465349 5,932,001.82 Satellite Senior Income Fund, LLC 4.3332174923 12,852,670.61 Sumitomo Mitsui Banking Corporation 1.2499999996 3,707,600.25 -------------- ---------------- 100% $ 296,608,020.09
S-18 EX-10.22 3 g70082aex10-22.txt PROMISSORY NOTE 1 EXHIBIT 10.22 AMERICAN HOMEPATIENT, INC. PROMISSORY NOTE $___________ New York, New York May 25, 2001 FOR VALUE RECEIVED, AMERICAN HOMEPATIENT, INC., a Delaware corporation ("BORROWER"), promises to pay to the order of ____________________ ("PAYEE"), the principal amount of ________________________________ ($________________) in the installments referred to below. Borrower also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Fifth Amended and Restated Credit Agreement dated as of May 25, 2001 by and among Borrower, the financial institutions listed therein as Lenders, and Bankers Trust Company, as Agent (said Fifth Amended and Restated Credit Agreement, as it may be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined). Borrower shall make principal payments on this Note on the dates specified in the Credit Agreement and in the amounts determined in accordance with the provisions thereof; provided that the last such installment shall be in an amount sufficient to repay the entire unpaid principal balance of this Note, together with all accrued and unpaid interest thereon. This Note is one of Borrower's "Notes" in the aggregate principal amount of $296,608,020.09 and is issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Loan evidenced hereby was made and is to be repaid. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of the Agent located at One Bankers Trust Plaza, New York, New York, or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment and Acceptance effecting the assignment or transfer of this Note shall have been accepted by the Agent as provided in Section 11.05(b)(ii) of the Credit Agreement, the Borrower and the Agent shall be entitled to treat Payee as the owner and holder of this Note. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest on this Note. 2 This Note is subject to mandatory prepayment as provided in subsection 4.02(b) of the Credit Agreement and to prepayment at the option of Borrower as provided in subsection 4.02(a) of the Credit Agreement. THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement. This Note is subject to restrictions on transfer or assignment as provided in subsection 11.05 of the Credit Agreement. No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligations of Borrower, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in subsection 11.01 of the Credit Agreement, incurred in the collection and enforcement of this Note. The Borrower and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above. AMERICAN HOMEPATIENT, INC. By: ---------------------------------------- Title: ------------------------------------- EX-10.23 4 g70082aex10-23.txt WARRANT AGREEMENT 1 EXHIBIT 10.23 WARRANT AGREEMENT among AMERICAN HOMEPATIENT, INC. THE FINANCIAL INSTITUTIONS PARTIES HERETO and BANKERS TRUST COMPANY, AS AGENT Dated as of May 25, 2001 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS 1.1 Definitions................................................................1 1.2 Other Defined Terms........................................................5 ARTICLE 2 ISSUANCE OF WARRANTS 2.1 Initial Issuance...........................................................5 2.2 Percentage of Company Equity...............................................5 2.3 Representations and Warranties.............................................5 2.4 Warrant Certificates.......................................................7 2.5 Restricted Securities......................................................7 2.6 Legend.....................................................................7 2.7 Execution of Warrant Certificates..........................................7 2.8 REPRESENTATIONS AND WARRANTIES OF LENDERS AND AGENT........................7 ARTICLE 3 EXERCISE OF WARRANTS 3.1 Manner of Exercise.........................................................8 3.2 When Exercise Effective....................................................9 3.3 Delivery of Certificates, Etc..............................................9 3.4 Cancellation of Tranche 2 Warrants.........................................9 3.5 Warrant Holder Not Deemed a Stockholder...................................10 3.6 Registration Rights.......................................................10 ARTICLE 4 ADJUSTMENTS 4.1 Stock Dividends, Splits, etc..............................................10 4.2 Distributions.............................................................10 4.3 Issuance of Common Stock (or Other Securities) Rights, Options, Warrants or Convertible Securities for Less Than Fair Value...............11 4.4 Adjustments for Mergers and Consolidations................................13 4.5 Notice of Adjustment of Exercise Price....................................16 4.6 Other Notices.............................................................16
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE 4.7 No Change in Warrant Terms on Adjustment..................................16 4.8 Treasury Shares...........................................................16 4.9 Consideration for Stock...................................................16 4.10 Determination of Consideration in Connection with Certain Acquisitions....17 4.11 Certain Events............................................................18 4.12 Corporate Action..........................................................18 4.13 No Dilution by Company....................................................18 ARTICLE 5 WARRANT REGISTRATION 5.1 Registration..............................................................19 5.2 Transfer or Exchange......................................................19 5.3 Valid and Enforceable.....................................................19 5.4 Endorsement...............................................................19 5.5 Service Charge............................................................19 5.6 Payment of Taxes..........................................................20 5.7 Cancellation..............................................................20 5.8 Loss or Mutilation........................................................20 5.9 Agreement of Warrant Holders..............................................20 ARTICLE 6 ADDITIONAL COMPANY OBLIGATIONS 6.1 Notification of Certain Events............................................21 6.2 Reservation; Due Authorization, Etc.......................................22 6.3 Compliance With Law.......................................................22 6.4 Listing of Warrant Shares.................................................22 ARTICLE 7 MISCELLANEOUS 7.1 Notices...................................................................22 7.2 Governing Law and Consent to Forum........................................22 7.3 Alternative Dispute Resolution............................................23 7.4 Remedies..................................................................23 7.5 Right of Action...........................................................23 7.6 Benefits of this Agreement................................................23 7.7 Amendments................................................................23 7.8 Counterparts..............................................................24 7.9 Headings..................................................................24 7.10 Reservation of Rights.....................................................24
-ii- 4 WARRANT AGREEMENT THIS WARRANT AGREEMENT, is made and entered into as of May 25, 2001, by and among American HomePatient, Inc., a Delaware corporation (the "Company"), each of the financial institutions listed on the signature pages hereof (each a "Lender" and collectively the "Lenders") and Bankers Trust Company, as agent for the Lenders (the "Agent") pursuant to the Fifth Amended and Restated Credit Agreement, dated as of May 25, 2001 by and among the Company, as borrower, the Lenders and the Agent, as amended (the "Credit Agreement"). WITNESSETH: WHEREAS, in connection with the Credit Agreement, the Company has agreed to issue two series of warrants which, in aggregate, are exercisable to purchase up to 3,265,315 shares of the Company's Common Stock, $0.01 par value, constituting nineteen and nine hundred ninety-nine thousandths percent (19.999%) of the Company's outstanding shares of Common Stock, subject to adjustment and cancellation, in part, as provided herein, to the Lenders as partial consideration for the promises and covenants contained under the Credit Agreement; and WHEREAS, the Company desires to enter into this Agreement to set forth the terms and conditions of such warrants and the rights of the holders thereof; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements set forth herein, the Company, the Agent and the Lenders hereby agree as follows: ARTICLE 1 DEFINITIONS 1.1 Definitions. As used herein, the following terms have the following respective meanings: "AGENT" has the meaning given such term in the introduction hereto. "AGREEMENT" means this Warrant Agreement, as it may hereafter be amended or modified. "ACQUIRING COMPANY COMMON STOCK" means the common stock of the successor entity or acquirer in a reorganization, merger or consolidation transaction of the Company, or a transfer, sale or other disposition of all or substantially all of the assets of the Company. "BUSINESS DAY" means any day other than a Saturday or a Sunday or a day on which commercial banking institutions in New York City, New York are authorized or required 1 5 by law to be closed; PROVIDED THAT, in determining the period within which certificates or Warrants are to be issued and delivered at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Fair Value of any securities listed or admitted to trading on any national securities exchange or in the over-the-counter market, "Business Day" shall mean any day when the principal exchange on which such securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such market is open for trading; AND PROVIDED FURTHER that any reference in this Agreement to "days" (unless Business Days are specified) shall mean calendar days. "COMBINATION MERGER" has the meaning specified in Section 4.4(c). "COMMON STOCK" means the Company's Common Stock, par value $0.01 per share. "COMPANY" means American HomePatient, Inc., a Delaware corporation, and any successor entity or acquirer thereof in a reorganization, merger or consolidation transaction or a transfer, sale or other disposition of all or substantially all of its assets. "CONVERTIBLE SECURITIES" means any stock or securities convertible or exercisable into or exchangeable for Common Stock (or Other Securities). "CREDIT AGREEMENT" has the meaning given such term in the introduction hereto. "EQUITY AND EQUITY LINKED SECURITIES" means Acquiring Company Common Stock, securities of any Person (corporate or otherwise) which are convertible into Acquiring Company Common Stock including preferred stock convertible into Acquiring Company Common Stock or debt securities convertible into Acquiring Company Common Stock (but in each case specifically excluding non-convertible preferred stock or non-convertible debt securities) that the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock (or Other Securities), or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock (or Other Securities). "EQUITY MERGER" has the meaning specified in Section 4.4(a). "EXERCISE PERIOD" means (a) with respect to a Tranche 1 Warrant, the period commencing on the Original Issue Date and ending on May 31, 2011 and (b) with respect to a Tranche 2 Warrant that has not been cancelled, the period commencing on September 30, 2001 and ending on September 29, 2011. "EXERCISE PRICE" means $0.01 per share, as adjusted pursuant to Article 4. 2 6 "FAIR VALUE" means (a) with respect to property other than cash, Common Stock (or Other Securities), Equity and Equity Linked Securities, Non-Equity Securities or Convertible Securities, the fair value thereof as determined reasonably and in good faith by the Board of Directors of the Company, (b) if the Company's Common Stock (or Other Securities) is not traded on a public market, the fair value thereof as determined reasonably and in good faith by the Board of Directors of the Company, (c) if the Company shall have effected a public offering of Common Stock (or Other Securities) and the Common Stock (or Other Securities) is actively traded on a public market, Fair Value means, with respect to Common Stock (or Other Securities), in each case if such security is listed on one or more stock exchanges or quoted on the National Market System of NASDAQ (the "National Market System"), the average of the closing sales prices of a share of such Common Stock (or, if Other Securities, in the minimum denomination in which such securities are traded) on the primary national or regional stock exchange on which such security is listed or on the National Market System if quoted thereon, or if the Common Stock (or Other Securities) is not so listed or quoted but is traded in the over-the-counter market (other than the National Market System), the average of the closing bid and asked prices of a share of such Common Stock (or Other Securities) in each case for the 30 Business Days (or such lesser number of Business Days as such Common Stock (or Other Securities) shall have been so listed, quoted or traded) next preceding the date of measurement; PROVIDED, HOWEVER, that if no such sales price or bid and asked prices have been quoted during the preceding 30-Business Day period or there is otherwise no established trading market for such security, then "Fair Value" means the value of such Common Stock (or Other Securities) as determined reasonably and in good faith by the Board of Directors of the Company; PROVIDED FURTHER, HOWEVER, that in the event the current market price of a share of such Common Stock (or of the minimum traded denomination of such Other Securities) is determined during a period following the announcement by the Company of (i) a dividend or distribution on the Common Stock (or Other Securities) payable in shares of Common Stock (or Other Securities), or (ii) any subdivision, combination or reclassification of the Common Stock (or Other Securities), and prior to the expiration of 30 Business Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "Fair Value" shall be appropriately adjusted to take into account ex-dividend trading, or (d) with respect to Equity and Equity Linked Securities, Non-Equity Securities or Convertible Securities, Fair Value shall be determined in substantially the same manner as Fair Value of Common Stock (or Other Securities) is to be determined in accordance with clauses (b) and (c) above. Anything herein to the contrary notwithstanding, in case the Company shall issue any shares of Common Stock (or Other Securities) or Convertible Securities in connection with the acquisition by the Company of the stock or assets of any other Person or the merger of any other Person with or into the Company, the Fair Value of the Common Stock (or Other Securities) so issued shall be determined as of the date the number of shares of Common Stock (or Other Securities) or Convertible Securities was determined (as set forth in a written agreement between the Company and the other party to the transaction) rather than on the date of issuance of such shares of Common Stock (or Other Securities) or Convertible Securities. Notwithstanding anything herein to the contrary, if any holder of Warrants contests any determination made by the Board of Directors of the Company related to any of the Fair Value determinations other than a determination made by reference to trading 3 7 prices during the preceding 30-Business Day period, then Fair Value shall be determined pursuant to the procedures set forth in Section 7.3. "LENDERS" has the meaning given such term in the introduction hereto. "NON-EQUITY MERGER" has the meaning specified in Section 4.4(b). "NON-EQUITY SECURITIES" means all securities of the successor entity or acquirer in a reorganization, merger or consolidation transaction of the Company, or a transfer, sale or other disposition of all or substantially all of the assets of the Company other than Equity and Equity-Linked Securities. "ORIGINAL ISSUE DATE" means June 1, 2001. "OTHER SECURITY" or "OTHER SECURITIES" means (a) any stock (other than Common Stock and Non-Equity Securities) and other securities of the Company or any other Person (corporate or otherwise) that the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or (b) that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or any successor security thereto. "PERSON" means any individual, partnership, limited liability company, association, joint venture, corporation, insurance company, business, trust, unincorporated organization, government or department, agency or subdivision thereof, or other person or entity. "REGISTRATION RIGHTS AGREEMENT" means an agreement among the Company, the Agent and the Lenders, substantially in the form of Exhibit C hereto, providing to the Warrant Holders rights to have the Warrant Shares publicly registered by the Company. "SECURITIES ACT" means the Securities Act of 1933, as amended. "TRANCHE 1 WARRANTS" means, collectively, any and all Warrants issued to the Lenders pursuant to Section 2.1(a) or Section 2.2 and evidenced by a Tranche 1 Warrant Certificate. "TRANCHE 1 WARRANT CERTIFICATE" means a certificate in substantially the form attached hereto as Exhibit A. "TRANCHE 2 WARRANTS" means, collectively, any and all Warrants issued to the Lenders pursuant to Section 2.1(b) or Section 2.2 and evidenced by a Tranche 2 Warrant Certificate. "TRANCHE 2 WARRANT CERTIFICATE" means a certificate in substantially the form attached hereto as Exhibit B. 4 8 "WARRANT CERTIFICATES" means, collectively, the Tranche 1 Warrant Certificates and the Tranche 2 Warrant Certificates. "WARRANT HOLDER" means initially each Lender and thereafter each Person to whom a Lender or other Warrant Holder may transfer any Warrants. "WARRANTS" means, collectively, the Tranche 1 Warrants and the Tranche 2 Warrants. "WARRANT SHARES" mean each share of Common Stock (or Other Securities) issued or issuable upon the exercise of the Warrants. 1.2 Other Defined Terms. Capitalized terms used, but not defined herein, shall have the meanings given them in the Credit Agreement. ARTICLE 2 ISSUANCE OF WARRANTS 2.1 Initial Issuance. On the Original Issue Date, Company shall deliver to the Agent: (a) Tranche 1 Warrant Certificates duly executed by Company in the name of each Lender for the aggregate number of Tranche 1 Warrants set forth opposite such Lender's name on Schedule 1 hereto, (b) Tranche 2 Warrant Certificates duly executed by Company in the name of each Lender for an equivalent number of Tranche 2 Warrants, and (c) a duly executed copy of the Registration Rights Agreement. On the Original Issue Date, each of the Lenders shall deliver to the Agent duly executed copies of the Registration Rights Agreement. 2.2 Percentage of Company Equity. Company represents and warrants that the Warrants issued pursuant to Section 2.1, assuming all such Warrants were exercisable and had been exercised on the Original Issue Date, are sufficient to purchase a number of shares representing at least nineteen and nine hundred ninety-nine thousandths percent (19.999%) of the shares of the Company's Common Stock outstanding on the Original Issue Date ("Minimum Warrant Requirement"). If for any reason the number of Warrants issued in connection herewith is less than the Minimum Warrant Requirement, then Company shall deliver to the Agent on behalf of the each Lender Warrant Certificates for the number of Warrants as is necessary to raise the total number of Warrants issued and delivered pursuant to Section 2.1 to the Minimum Warrant Requirement; such Warrants shall be issued to each Lender in accordance with each Lender's pro rata share as set forth on Schedule 1 hereto; fifty percent (50%)of such Warrants shall be issued as Tranche 1 Warrants and fifty percent (50%) shall be issued as Tranche 2 Warrants. 2.3 Representations and Warranties. In order to induce the Agent and the Lenders to enter into this Agreement, the Company represents and warrants to the Agent and to each of the Lenders as of the date of execution hereof and as of the Original Issue Date, which representations and warranties shall survive the execution and delivery of this Agreement and the issuance of the Warrants: 5 9 (a) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Company has the corporate power to execute, deliver and perform the terms and provisions of this Agreement and the Warrants and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Warrants. (c) The Company has duly executed and delivered this Agreement and, upon the issuance thereof, will have duly executed and delivered the Warrant Certificates. (d) This Agreement constitutes and, upon the execution and delivery thereof, the Warrant Certificates will constitute, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). (e) Neither the execution and delivery of this Agreement or the Warrant Certificates, nor the compliance by the Company with the terms and provisions hereof or thereof: (i) will contravene any provision of any law, statute, rule, regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Company or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or any of their property or assets is bound or to which any of them is subject, or (iii) violate any provision of its Certificate of Incorporation or Bylaws. (f) No order, consent, approval, license, authorization or validation of, or filing, recording or registration with or exemption by, any governmental instrumentality is required to authorize, or is required in connection with (i) the execution, delivery or performance by the Company of this Agreement or the Warrants, or (ii) the legality, validity, binding effect or enforceability of this Agreement or the Warrants. (g) 16,327,389 shares of Common Stock are issued and outstanding on the date hereof and will be issued and outstanding on the Original Issue Date, and other than such shares of Common Stock the Company has not issued any shares of preferred or other class of stock or equity securities nor any other warrants, 6 10 options or other rights to purchase Common Stock or Convertible Securities, other than approximately 3,081,478 options that have been issued pursuant to the Company's directors and employee stock option plans, all of which were issued at the closing price of the Common Stock on the day next preceding the date of grant. 2.4 Warrant Certificates. Each Warrant Certificate shall be dated as of the date on which it is signed by the Company, which shall be on the Original Issue Date and, in the event of a division, exchange, substitution or transfer of any of the Warrants, on the date of such event. The Warrant Certificate may have such further legends and endorsements stamped, printed, lithographed or engraved thereon as the Company reasonably may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation pursuant thereto or with any rule or regulation of any securities exchange on which the Warrants may be listed. 2.5 Restricted Securities. The Company and each Lender acknowledges that the Warrants are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in limited circumstances. In this regard, the Company and each Lender represents that it is familiar with SEC Rule 144, as presently in effect, and that it understands the resale limitations imposed thereby and by the Securities Act. 2.6 Legend. The Warrant Certificates issued on the Original Issue Date, at any time during the following two years and at any time that the Warrant Holder is an affiliate of the Company (as defined in SEC Rule 144(a)(1)) shall bear the following legend: "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required." 2.7 Execution of Warrant Certificates. Warrant Certificates shall be executed on behalf of the Company by its President, any Vice President, its Treasurer or its Secretary, either manually or by facsimile signature printed thereon. 2.8 Representations and Warranties of Lenders and Agent. In order to induce the Company to enter into this Agreement, each of the Lenders represents and warrants to the Company as of the date of execution hereof and as of the Original Issue Date, which representations and warranties shall survive the execution and delivery of this Agreement and the issuance of the Warrants, that: (a) the Company has made available to such Lender, or to representatives of such Lender, the opportunity to ask questions of its officers and to acquire such additional information about the business and financial condition 7 11 of the Company as such Lender has requested (including but not limited to any government investigations and pending or threatened claims against the Company); (b) each Lender or representatives of such Lender, have reviewed the public securities filings of the Company including, but not limited to, the Company's 2000 Annual Report on Form 10-K filed on April 17, 2001 and its Quarterly Report for the first quarter of fiscal year 2001 filed on May 15, 2001 (the "Disclosure Documents"); (c) such Lender has performed such additional due diligence as it and its advisors have deemed prudent; (d) such Lender is an "Accredited Investor" as such term is defined in Rule 501 of Regulation D; (e) such Lender has the power and authority to execute, deliver and perform the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement; (f) such Lender does not have any current plan, agreement, arrangement or understanding to make investment decisions relating to the exercise of the Warrants or voting decisions relating to the underlying Common Stock upon exercise thereof; (g) the Warrants are being acquired by such Lender solely for such Lender's own account, for investment, with no present intention of making or participating in a distribution thereof within the meaning of the Securities Act; (h) the financial condition of such Lender is such that it can bear the risk of this investment indefinitely; and (i) the offer and sale of the Warrants to such Lender was made at the location set forth on the signature pages to the Registration Rights Agreement. ARTICLE 3 EXERCISE OF WARRANTS 3.1 Manner of Exercise. All or any of the Warrants represented by a Warrant Certificate may be exercised by the registered holder thereof during normal business hours on any Business Day, by surrendering such Warrant Certificate, with the subscription form set forth therein duly executed by such holder, by hand or by mail to the Company at its office addressed to the Corporate Secretary at the Company's principal executive offices as provided in Section 8 12 7.1, along with payment in an amount equal to the total Exercise Price for all Warrants being exercised for the number of shares of Common Stock (or Other Securities) in respect of which such Warrants are then being exercised, payable as follows: (a) by payment to the Company of the Exercise Price in cash, by check or wire transfer of funds, provided that a registration statement is in effect with respect to the Common Stock to be issued upon exercise of the Warrants or the Company has received an opinion of counsel satisfactory to the Company that such registration is not required; (b) by surrender to the Company for cancellation of securities of the Company having a Fair Value (or, in the case of securities other than Common Stock (or Other Securities), fair value determined in substantially the same manner as Fair Value of Common Stock (or Other Securities) is to be determined pursuant to this Agreement) on the date of exercise equal to the Exercise Price for such shares; or (c) by surrender to the Company for cancellation of notes or debt securities of the Company having a principal balance plus accrued interest on the date of exercise equal to the Exercise Price for such shares or (b) by a combination of the methods described in clauses (a), (b) and (c) above. 3.2 When Exercise Effective. Each exercise of any Warrant pursuant to Section 3.1 shall be deemed to have been effected immediately prior to the close of business on the Business Day on which the Warrant Certificate representing such Warrant, duly executed, with accompanying payment, shall have been delivered as provided in Section 3.1, and at such time the Person or Persons in whose name or names the certificate or certificates for Common Stock (or Other Securities) shall be issuable upon such exercise as provided in Section 3.3 shall be deemed to have become the holder or holders of record thereof. 3.3 Delivery of Certificates, Etc. As promptly as practicable after the exercise of any Warrant by a Warrant Holder, and in any event within five (5) Business Days thereafter, the Company at its expense (other than as to payment of transfer taxes which will be paid by the Warrant Holder) will cause to be issued and delivered to such Warrant Holder, or as such Warrant Holder may otherwise direct in writing (subject to Section 5.6), a Warrant Certificate or Warrant Certificates for the number of shares of Common Stock (or Other Securities) to which such Warrant Holder is entitled, plus cash in lieu of issuance of fractional shares (rounded to the nearest $0.01). In the event less than all the Warrants represented by a Warrant Certificate are exercised by a Warrant Holder, the Company shall promptly issue and deliver in the name of such Warrant Holder or as such Warrant Holder may otherwise direct in writing (subject to Section 5.6), in conjunction with such certificate or certificates, a new Warrant Certificate or Certificates of the same tenor and for the aggregate number of Warrants that were not exercised. 3.4 Cancellation of Tranche 2 Warrants. In the event that, prior to September 30, 2001, the Loans and all other Obligations have been paid in full and all Letters of Credit have been cancelled, expired or otherwise provided for to the satisfaction of the Issuing Bank and the Revolving Loan Commitments have been terminated, the Tranche 2 Warrant Certificates shall be automatically cancelled and shall no longer be of any force or effect. In such event, each Lender agrees to return promptly to the Company, upon request, each Tranche 2 Warrant Certificate issued to it which has been cancelled as provided herein. 9 13 3.5 Warrant Holder Not Deemed a Stockholder. Prior to the exercise of any Warrants, no Warrant Holder (solely by reason of holding Warrants) shall be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or, except as otherwise provided herein, to receive any notice of meetings of stockholders, and no such Warrant Holder shall be entitled to receive notice of any proceedings of the Company except as provided in this Agreement. Nothing contained in this Agreement shall be construed as imposing any liabilities on such Warrant Holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 3.6 Registration Rights. Each Warrant Holder shall be entitled to the registration rights set forth in the Registration Rights Agreement. ARTICLE 4 ADJUSTMENTS 4.1 Stock Dividends, Splits, etc. In case the Company shall at any time after the Original Issue Date (a) pay a dividend or make a distribution on its Common Stock (or Other Securities) which is paid or made (i) in Common Stock (or Other Securities) or (ii) in rights to purchase Common Stock (or Other Securities) if such rights are not exercisable or separable from the Common Stock except upon the occurrence of a contingency, (b) subdivide its outstanding Common Stock (or Other Securities) into a greater number of shares of Common Stock (or Other Securities), (c) combine its outstanding shares into a smaller number of shares of Common Stock (or Other Securities) or (d) issue by reclassification of its Common Stock (or Other Securities) other securities of the Company, then, in any such event the number of Warrant Shares purchasable upon the exercise of each of the respective Warrants immediately prior thereto shall be adjusted so that the Warrant Holder shall be entitled to receive upon exercise of such Warrants the number of shares of Common Stock (or Other Securities) that he, she or it would have owned or have been entitled to receive after the happening of any of the events described above had such Warrants been exercised immediately prior to the happening of such event. The Exercise Price for the Warrants provided for herein for each Warrant Share shall also be adjusted up or down by a percentage equal to the inverse proportion in the diminution or increase in the number of outstanding shares of Common Stock (or Other Securities) as a result of the happening of any of the above events, so that the Exercise Price of the Warrants provided for herein for all Warrant Shares shall not increase or decrease as a result of such an event. Adjustments made pursuant to this paragraph shall become effective immediately after the opening of business on the next Business Day following the record date in the case of dividends or other distributions and shall become effective immediately after the opening of business on the next Business Day following the effective date in the case of a subdivision, combination or reclassification. 4.2 Distributions. If after the date hereof the Company shall distribute to all holders of its shares of Common Stock (or Other Securities) evidences of its indebtedness or 10 14 assets (excluding cash distributions made as a dividend payable out of earnings or out of surplus determined in accordance with generally accepted accounting principles and legally available for dividends under the laws of the jurisdiction of incorporation of the Company) or rights to subscribe to shares of Common Stock (or Other Securities), then in each such case the Exercise Price of the Warrants provided for herein in effect immediately prior to such distribution shall be adjusted to an amount determined by multiplying the Exercise Price by a fraction, (a) the numerator of which is the Fair Value of a share of the Common Stock (or Other Securities) at the date of such distribution less the Fair Value of the assets or evidences of indebtedness so distributed on a per share of Common Stock (or Other Securities) basis outstanding at the date of such distribution and (b) the denominator of which is the Fair Value of a share of Common Stock (or Other Securities) at such date. Such adjustment shall be made whenever any such distribution is made, and shall become effective retroactively on the date immediately after the record date for the determination of stockholders entitled to receive such distribution. For the purposes of the foregoing, a dividend other than in cash shall be considered payable out of earnings or surplus (other than revaluation or paid-in-surplus) only to the extent that such earnings or surplus are charged an amount equal to the Fair Value of such dividend. 4.3 Issuance of Common Stock (or Other Securities) Rights, Options, Warrants or Convertible Securities for Less Than Fair Value. (a) Less than Fair Value Calculations. If at any time or from time to time after the Original Issue Date (i) shares of Common Stock (or Other Securities) shall be issued, distributed or sold to any Person for less than Fair Value, (ii) the Company shall grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options or warrants for the purchase of (A) Common Stock (or Other Securities) or (B) Convertible Securities, whether or not such rights or options or warrants or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock (or Other Securities) is issuable upon the exercise of such rights or options or warrants or upon conversion or exchange of such Convertible Securities (determined as set forth in Section 4.3(b)) is less than the Fair Value of such Common Stock (or Other Securities) determined as of the date of the granting of such rights or options or warrants, or (iii) the Company shall issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock (or Other Securities) is issuable upon such conversion or exchange (determined as set forth in Section 4.3(b)) shall be less than the Fair Value of such Common Stock (or Other Securities) determined as of the date of such issuance or sale of such Convertible Securities, (the Common Stock (or Other Securities) set forth in clause (i) and the maximum number of shares of Common Stock (or Other Securities) issued underlying the securities set forth in clauses (ii) and (iii), determined as of the date of the grant, issuance or sale of such securities, as the case may be, being referred to herein as the "Below Fair Value Shares"), then adjustments to the Exercise Price and the number of Warrant Shares in respect of the Warrants shall be made in accordance with Section 4.3(d) hereof. For purposes of such adjustments, all Below Fair Value Shares underlying the securities set forth in clauses (ii) and (iii) above shall be deemed to have been issued or sold as of the date of the grant, issuance or sale of such securities set forth in clauses (ii) and (iii) above. 11 15 (b) Rights, Options, Warrants, Convertible Securities. For purposes of this Agreement, and except as otherwise provided herein, the Common Stock (or Other Securities) underlying any rights, options, warrants or Convertible Securities shall be deemed to have been issued for a consideration per share determined by dividing: (i) the total amount, if any, received and receivable by the Company as consideration for the issuance, sale, grant or assumption of the relevant rights, options, warrants or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision thereof for subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such rights, options or warrants or the conversion or exchange of such Convertible Securities (and in the case of rights, options or warrants for Convertible Securities, the exercise of such rights, options or warrants and the conversion or exchange of such Convertible Securities), by (ii) the maximum number of shares of Common Stock issuable (as set forth in the instruments relating thereto, without regard to any provision thereof for subsequent adjustment of such number) upon the exercise of such rights, options or warrants or the conversion or exchange of such Convertible Securities (and in the case of rights, options or warrants for Convertible Securities, the exercise of such rights, options or warrants and the conversion or exchange of such Convertible Securities). (c) Changes in Purchase Price for Rights, Options, Warrants, Etc. For purposes of this Agreement, upon the happening of any of the following events, namely, if the purchase price provided for in any right, option or warrant referred to in clause (ii) of Section 4.3(a), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Security referred to in clause (ii) or (iii) of Section 4.3(a), or the rate at which any Convertible Securities referred to in clause (ii) or (iii) of Section 4.3(a) are convertible into or exchangeable for Common Stock (or Other Securities), shall change at any time, such change shall be treated as if it were a new issuance of such securities. The parties agree that the purpose of this clause is to protect the holders of the Warrants against further dilution pursuant to changes in the terms of such securities which are not otherwise accounted for under this Article 4, and the provisions of this Section 4.3(c) shall be interpreted accordingly. (d) (i) Adjustment to Exercise Price. If and whenever subsequent to the issuance of the Warrants the Company shall issue or sell any Below Fair Value Shares, then, forthwith upon such issue or sale, the Exercise Price shall be reduced by multiplying the Exercise Price in effect immediately prior to the time of such issue or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock (or Other Securities) outstanding immediately prior to such issue or sale multiplied by the Fair Value of the Common Stock (or Other Securities) immediately prior to such issue or sale plus (B) the consideration received by the Company upon such issue or sale, and the denominator of which shall be the product of (X) the total number of shares of Common Stock outstanding immediately after such issue or sale (i.e., giving effect to such issue or sale of Below Fair Value Shares), multiplied by (Y) the Fair Value of the Common Stock (or Other Securities) immediately prior to such issue or sale. 12 16 (i) Adjustment to Warrant Shares. Upon each adjustment of the Exercise Price pursuant to section 4.3(d)(i), the holders of the Warrants shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 4.4 Adjustments for Mergers and Consolidations. (a) Equity Mergers. In case the Company, after the date hereof, shall effect a reorganization, shall merge or consolidate with another Person or shall sell, transfer or dispose of all or substantially all of its property, assets or business in each case in exchange for Equity and Equity Linked Securities (but not, in any event, for cash or cash-equivalents) of the successor entity or the acquirer (an "Equity Merger"), then, in the case of any such Equity Merger, proper provision shall be made so that, upon the basis and terms and in the manner provided in this Warrant Agreement, the Warrant Holders, upon the exercise thereof at any time after the consummation of such Equity Merger (subject to the Exercise Period), shall be entitled to receive (at the Exercise Price in effect at the time of the transaction for all Common Stock (or Other Securities) issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, the greatest amount of Equity and Equity Linked Securities to which such Warrant Holder would have been entitled as a holder of Common Stock (or Other Securities) upon such consummation if such Warrant Holder had exercised the rights represented by the Warrants held by such holder immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Sections 4.1, 4.2 and 4.3 hereof. Upon any Equity Merger, the Warrants shall continue in full force and effect after the consummation of such reorganization, consolidation, merger or transfer, as the case may be. The Company shall not effect any Equity Merger unless prior to the consummation thereof the successor or acquiring entity shall, by written instrument executed and mailed to each registered Warrant Holder at the last address of such Warrant Holder appearing on the books of the Company, (i) assume the obligation to deliver to such Warrant Holder such Equity and Equity Linked Securities as such Warrant Holder may be entitled in accordance with the foregoing provisions of this Section 4.4(a), and (ii) agree to be bound by all the terms of the Warrants to the same extent as if the successor or acquiring entity were the Company hereunder. (b) Non-Equity Mergers. If the Company shall effect a reorganization, shall merge or consolidate with another Person or shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business, as a result of which transaction the holders of Common Stock (or Other Securities) shall be entitled to cash, cash-equivalent consideration, Non-Equity Securities or other property (other than Equity and Equity-Linked Securities) (such transaction, a "Non-Equity Merger"), then: (i) Cash or Other Property. If the consideration to be received in the Non-Equity Merger is cash, cash-equivalents or such other property (other than Non-Equity 13 17 Securities) (with any such other property valued at its Fair Value), (such consideration, the "Non-Equity Consideration") then: (A) In the Money. In the event that the Exercise Price of any Warrant is less than the amount of Non-Equity Consideration on a per share basis of Common Stock (or Other Securities) paid in such Non-Equity Merger (the "Per Share Consideration Paid"), the Warrant Holder, upon surrender and cancellation thereof, before or concurrently with the consummation of such Non-Equity Merger shall be entitled to receive a payment, solely in the form of such Non-Equity Consideration, from the Company or the successor or acquiring entity, per Warrant Share equal to the difference between the Per Share Consideration Paid and such Exercise Price in effect at the time of the transaction (the "Price Difference"); (B) Out of the Money. In the event that the Exercise Price of any Warrant is greater than the Per Share Consideration Paid, the Warrant Holder, upon surrender and cancellation thereof, before or concurrently with the consummation of such Non-Equity Merger shall be entitled to receive from the Company or the successor or acquiring entity consideration, solely in the form of such Non-Equity Consideration, from the Company or the successor or acquiring entity equal to the theoretical value of such Warrant, at the time of the consummation of such transaction (assuming no such Non-Equity Merger as further detailed below) as reasonably determined by the Board of Directors of the Company in good faith utilizing such assumptions as are applicable under customary investment banking practices and as are consistent with this Agreement. (ii) Non-Equity Combination Merger. If the consideration to be received is (x) solely Non-Equity Securities, or (y) a combination of (A) cash, cash-equivalents and/or other property (other than Equity and Equity-Linked Securities), and (B) Non-Equity Securities (any such merger, a "Non-Equity Combination Merger"), then (A) Determination of Non-Equity Combination Per Share Consideration Paid. The Non-Equity Combination Per Share Consideration Paid for purposes of determining the considerations to be received by Warrant Holders in such circumstances shall be calculated by adding (A) the value of any cash and/or other property (the value of such other property to be its Fair Value) to be paid, plus (B) a value that shall be equal to the Fair Value of the Non-Equity Securities being received in the merger or sale transaction, all on a per share basis of Common Stock (or Other Securities) (the sum of (A) and (B) being the "Non-Equity Combination Per Share Consideration Paid"); and (B) Form and Amount of Consideration. A Warrant Holder, upon surrender and cancellation thereof, before or concurrently with the consummation of such Non-Equity Combination Merger shall be entitled to receive consideration, solely in the form and/or in the relative amounts of the Non-Equity Combination Per Share Consideration Paid, from the Company or the successor or acquiring entity per Warrant Share as follows: 14 18 (I) In the Money. In the event that the Exercise Price of any Warrant is less than the amount of Non-Equity Combination Per Share Consideration Paid, the Warrant Holder shall be entitled to receive consideration equal to the difference between the Non-Equity Combination Per Share Consideration Paid and such Exercise Price in effect at the time of the transaction; (II) Out of the Money. In the event that the Exercise Price of any Warrant is greater than the amount of Non-Equity Combination Per Share Consideration Paid, the Warrant Holder shall be entitled to receive consideration with a Fair Value equal to the theoretical value of such Warrant applying substantially the same principles as are set forth in Section 4.4(b)(i)(B). (iii) Assumption of Obligations. The Company shall not effect any Non-Equity Merger (including any Non-Equity Combination Merger) unless prior to the consummation thereof the successor or acquiring entity shall, by written instrument executed and mailed to each registered Warrant Holder at the last address of such Warrant Holder appearing on the books of the Company, assume the obligation to deliver to such Warrant Holder such consideration as such Warrant Holder may be entitled to in accordance with the foregoing provisions of this Section 4.4(b). (c) Non-Equity Merger and Equity Merger Combination. In case the Company, after the date hereof, shall effect a reorganization, shall merge or consolidate with another Person or shall sell, transfer or dispose of all or substantially all of its property, assets or business which would qualify, in part, as an Equity Merger, and, in part, as a Non-Equity Merger (including any Non-Equity Combination Merger) (a "Combination Merger"), then the provisions of Section 4.4(a) shall apply with appropriate adjustments consistent with the intent of the parties hereto; it being the agreement of the parties hereto that the Warrants shall survive such transaction and be exercisable only for Equity and Equity-Linked Securities of the successor or acquiring entity in the manner provided for in respect of an Equity Merger, with an equitable adjustment of the Exercise Price to compensate the Warrant Holders for the Fair Value of that portion of the per share consideration payable to the holders of Common Stock (or Other Securities) in such Combination Merger that is not Equity and Equity-Linked Securities. Upon any Combination Merger, the Warrants shall continue in full force and effect after the consummation of such reorganization, consolidation, merger or transfer, as the case may be. The Company shall not effect any Combination Merger unless prior to the consummation thereof the successor or acquiring entity shall, by written instrument executed and mailed to each registered Warrant Holder at the last address of such Warrant Holder appearing on the books of the Company, (i) assume the obligation to deliver to such Warrant Holder such securities as such Warrant Holder may be entitled to acquire in accordance with the foregoing provisions of this Section 4.4(c), and (ii) agree to be bound by all the terms of the Warrants. (d) Successive Mergers, Reorganizations, Etc. Subject to Section 4.5 hereof, subsequent to any Equity Merger or Combination Merger, the provisions of this Section 4.4 shall 15 19 similarly apply to successive reorganizations, mergers, consolidations, sales, transfers or dispositions. 4.5 Notice of Adjustment of Exercise Price. Whenever the Exercise Price and securities issuable upon exercise of the Warrants shall be adjusted as provided in this Article 4, the Company shall forthwith send a statement to each Warrant Holder, signed by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company, stating in detail the facts requiring such adjustment, the Exercise Price that will be effective after such adjustment and the impact of such adjustment on the number and kind of securities issuable upon exercise of the Warrants, with such statement being accompanied by an opinion of a firm of independent certified public accountants (which may be the regular auditors of the Company) of recognized standing selected by the Board of Directors of the Company, which opinion shall confirm the mathematical accuracy of the information in such statement. The Company shall also cause a notice setting forth any such adjustments to be sent by mail, first class, postage prepaid, to each registered Warrant Holder at his, her or its address appearing on the Warrant register. 4.6 Other Notices. In case the Company after the date hereof shall propose to take any action of the type described in Sections 4.1, 4.2, 4.3 or 4.4, the Company shall give notice to each registered Warrant Holder in the manner set forth in Section 4.5, which notice shall specify, in the case of action of the type specified in Section 4.2, 4.3 or 4.4, the date on which a record shall be taken with respect to any such action. Such notice shall be given, in the case of any action of the type specified in Section 4.2, 4.3 or 4.4, at least twenty days prior to the record date with respect thereto. Where appropriate, such notice may be included as part of a notice required to be mailed under the provisions of Section 4.5. 4.7 No Change in Warrant Terms on Adjustment. Irrespective of any adjustments in the Exercise Price or the number of shares of Common Stock (or Other Securities) issuable upon exercise, Warrants theretofore or thereafter issued may continue to express the same prices and number of shares as are stated in the similar Warrants issuable initially, or at some subsequent time, pursuant to this Agreement, and the Exercise Price and such number of shares issuable upon exercise specified thereon shall be deemed to have been so adjusted. 4.8 Treasury Shares. Shares of Common Stock (or Other Securities) at any time owned or held by or for the account of the Company shall not be deemed to be outstanding for the purposes of any computation under this Article 4 and the disposition (but not a cancellation of such Shares by the Company) of any such shares shall be considered an issuance or sale of Common Stock (or Other Securities) for the purpose of this Article 4. 4.9 Consideration for Stock. In case any shares of Common Stock (or Other Securities), or Convertible Securities or any rights or options or warrants to purchase any such Common Stock (or Other Securities) or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any shares of Common Stock (or Other Securities) or Convertible Securities or 16 20 any rights or options or warrants to purchase any such Common Stock (or Other Securities) or Convertible Securities shall be issued or sold in whole or in part for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the Fair Value of such consideration, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In case any shares of Common Stock (or Other Securities) or Convertible Securities or any rights or options or warrants to purchase any such Common Stock (or Other Securities) or Convertible Securities shall be issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the Fair Value of such portion of the assets and business of the non-surviving corporation or corporations as shall be attributable to such Common Stock (or Other Securities), Convertible Securities, rights, options or warrants, as the case may be. In the event of any consolidation or merger of the Company in which the Company is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock (or Other Securities) computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the Fair Value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Exercise Price, the determination of the number of shares of Common Stock (or Other Securities) issuable upon exercise of the Warrants immediately prior to such merger, conversion or sale, for purposes of Section 4.4 shall be made after giving effect to such adjustment of the Exercise Price. If any event occurs as to which in the reasonable opinion of the Board of Directors of the Company the provisions relating to the valuation of the consideration received of this Section 4.9 are not strictly applicable or if strictly applicable would not fairly and practicably protect the rights of the Warrant Holder, the Board of Directors shall, in good faith, determine the value of the consideration received. 4.10 Determination of Consideration in Connection with Certain Acquisitions. Anything in Section 4.9 to the contrary notwithstanding, in the case of an acquisition where all or part of the purchase price is payable in Common Stock (or Other Securities) or Convertible Securities but is stated as a dollar amount, where the Company upon making the acquisition pays only part of a maximum dollar purchase price which is payable in Common Stock (or Other Securities) or Convertible Securities and where the balance of such purchase price is deferred or is contingently payable under a formula related to earnings over a period of time, (a) the consideration received for any Common Stock (or Other Securities) or Convertible Securities delivered at the time of the acquisition shall be deemed to be such part of the total consideration as the portion of the dollar purchase price then paid in Common Stock (or Other Securities) or Convertible Securities bears to the total maximum dollar purchase price payable in Common Stock (or Other Securities) or Convertible Securities, and (b) in connection with each issuance of additional Common Stock (or Other Securities) or Convertible Securities pursuant to the terms of the agreement relating to such acquisition, the consideration received shall be deemed to be that portion of the dollar purchase price then and theretofore paid pursuant to such agreement in Common Stock (or Other Securities) or Convertible Securities multiplied by a fraction, the numerator of which shall be such number of shares (or in the case of Convertible Securities other than stock, the aggregate principal amount) then issued pursuant to such agreement and the 17 21 denominator of which shall be the total number of shares (or in the case of Convertible Securities other than stock, the aggregate principal amount) then and theretofore issued under such agreement. In the event that only a part of the purchase price for an acquisition is paid in Common Stock (or Other Securities) or Convertible Securities in the manner referred to in this Section 4.10, the term "total consideration" as used in this Section 4.10 shall mean that part of the aggregate consideration as is fairly allocable to the purchase price paid in Common Stock (or Other Securities) or Convertible Securities in the manner referred to in this Section 4.10, as reasonably determined in good faith by the Board of Directors of the Company. 4.11 Certain Events. If any event occurs as to which in the reasonable and good faith opinion of the Board of Directors of the Company the other provisions of this Article 4 are not strictly applicable or if strictly applicable would not fairly and practicably protect the rights of the Warrant Holder in accordance with the essential intent and principles of such provisions, then such Board shall make an equitable adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights. 4.12 Corporate Action. If pursuant to the terms of this Article 4 the Exercise Price is adjusted such that the Exercise Price per Warrant Share would be less than the par value of such Warrant Share, then the Exercise Price per Warrant Share after such adjustment shall not be the price as calculated by the adjustment but instead shall be the par value of such Warrant Share, provided that this subsection shall not affect the number of Warrant Shares purchasable upon the exercise of the Warrants and the number of Warrant Shares purchasable upon exercise of the Warrants shall be the number as calculated by the adjustment. 4.13 No Dilution by Company. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issuance or sale of securities or any other voluntary action or omission, avoid or seek to avoid the observance or performance of any of the terms of this Agreement or any of the Warrants issued hereunder, but will at all times in good faith observe and perform all such terms and take all such action as may be necessary or appropriate in order to protect the rights of each Warrant Holder of a Warrant against dilution or other impairment of the kind specified herein; PROVIDED, HOWEVER, that, subject to compliance with the applicable provisions of this Agreement, the Company shall not be prohibited by this Section 4.13 or by any provision of this Agreement from making decisions providing for, INTER ALIA, the merger or consolidation of the Company or the sale of its assets which transactions, in the reasonable judgment in good faith of the Company's Board of Directors, are in the best interests of the Company and the stockholders. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of any Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action that results in any adjustment of the shares issuable upon exercise of the Warrants if the total number of shares of Common Stock (or Other Securities) issuable after such action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of 18 22 incorporation and available for the purpose of issuance upon such exercise, (d) will not issue any capital stock of any class that is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless such stock is sold for a consideration at least equal to the amount of such preference upon voluntary or involuntary dissolution, liquidation or winding-up and (e) will not take any other action that would dilute or impair the right of the registered Warrant Holders to purchase, in the aggregate, if all such Warrants were exercised on the Original Issue Date, a number of shares of Common Stock (or Other Securities) representing at least nineteen and nine hundred ninety-nine thousandths percent (19.999%) of the Common Stock of the Company issued and outstanding on the Original Issue Date (or, if the Tranche 2 Warrants are cancelled as provided in Section 3.4, nine and nine hundred ninety-nine thousandths percent (9.999%)). ARTICLE 5 WARRANT REGISTRATION 5.1 Registration. The Warrant Certificates shall be issued in registered form only and shall be registered in the names of the record holders of the Warrant Certificates to whom they are to be delivered. The Company shall maintain or cause to be maintained a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrants and of transfers or exchanges of Warrant Certificates as provided in this Agreement. Such register shall be maintained at the office of the Company located at the address therefor as provided in Section 7.1. Such register shall be open for inspection upon notice at all reasonable times by each Warrant Holder. 5.2 Transfer or Exchange. At the option of the holder, Warrant Certificates may be exchanged or transferred for other Warrant Certificates for a like aggregate number of Warrants and like kind, upon surrender of the Warrant Certificates to be exchanged at the office of the Company maintained for such purpose at the address therefor as provided in Section 7.1, and upon payment of the charges herein provided. Whenever any Warrant Certificates are so surrendered for exchange or transfer, the Company shall execute the Warrant Certificates that the holder making the exchange is entitled to receive. 5.3 Valid and Enforceable. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. 5.4 Endorsement. Every Warrant Certificate surrendered for registration of transfer or exchange shall (if so required by the Company) be duly endorsed, or be accompanied by an instrument of transfer in form reasonably satisfactory to the Company and duly executed by the registered holder thereof or such holder's officer or representative duly authorized in writing. 5.5 Service Charge. No service charge shall be made for a request by any Warrant Holder to transfer or exchange any Warrant Certificates. 19 23 5.6 Payment of Taxes. The Company will pay any and all documentary stamp or similar issue taxes payable to the United States of America or any State, or any political subdivision or taxing authority thereof or therein, in respect of the issuance or delivery of shares of Common Stock (or Other Securities) upon exercise of the Warrants, PROVIDED that the Company shall not be required to pay any tax that may be payable in respect of any transfer of a Warrant or Warrants or any transfer involved in the issuance and delivery of Common Stock (or Other Securities) in a name other than that of the registered Warrant Holder of the Warrants to be exercised, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax or has established, to the reasonable satisfaction of the Company, that such tax has been paid. 5.7 Cancellation. Any Warrant Certificate surrendered for registration of transfer, exchange, exercise or cancellation of the Warrants represented thereby shall, if surrendered to the Company, be promptly canceled by the Company. Any such Warrant Certificate shall not be reissued by the Company and, except as provided in Section 5.2 in case of an exchange or transfer, in Section 5.8 in case of a mutilated Warrant Certificate and in Article 3 in case of the exercise of less than all the Warrants represented thereby, no Warrant Certificate shall be issued hereunder in lieu thereof. 5.8 Loss or Mutilation. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and of an indemnity bond reasonably satisfactory to it in form and amount, or in the case of mutilation upon surrender and cancellation thereof, then, in the absence of notice to the Company that the Warrants represented thereby have been acquired by a bona fide purchaser or cancelled as provided in Section 3.4, the Company shall execute and deliver to the registered holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Section 5.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 5.8 in lieu of any lost, stolen, destroyed or mutilated Warrant Certificate shall be entitled to the same benefits of this Agreement equally and proportionately with any and all other Warrant Certificates, whether or not the allegedly lost, stolen, destroyed or mutilated Warrant Certificate shall be at any time enforceable by anyone. The provisions of this Section 5.8 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. 5.9 Agreement of Warrant Holders. Every Warrant Holder, by accepting the same, covenants and agrees with the Company and with every other Warrant Holder that the Warrant Certificates are transferable on the registry books of the Company only upon the terms and conditions set forth in this Agreement, and the Company may deem and treat the Person in whose name the Warrant Certificate is registered as the absolute owner for all purposes whatsoever and the Company shall not be affected by any notice to the contrary. 20 24 ARTICLE 6 ADDITIONAL COMPANY OBLIGATIONS 6.1 Notification of Certain Events. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a regular periodic dividend payable in cash out of earned surplus) or other distribution of any kind, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right or interest of any kind; or (b) (i) any capital reorganization of the Company, (ii) any reclassification of the capital shares of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a split-up or combination), (iii) the consolidation or merger of the Company with or into any other corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the shares of Common Stock (or Other Securities)), (iv) the sale of the properties and assets of the Company as, or substantially as, an entirety to another Person, or (v) an exchange offer for Common Stock (or Other Securities); or (c) the voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to each Warrant Holder a notice specifying (x) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution, rights, event, transaction or amendment (or vote thereon) and the amount and character of any such dividend, distribution, exchange, rights, or vote, or, if a record is not to be taken, the date as of which the holders of Common Stock (or Other Securities) of record to be entitled to such dividend, distribution, exchange or rights are to be determined, and the amount and character of such dividend, distribution or rights, or (y) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, exchange offer, dissolution, liquidation or winding up is expected to become effective, and the time, if any such time is to be fixed, as of which holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, exchange offer, dissolution, liquidation or winding up and in the case of a transaction which would cause the cancellation of any outstanding Warrants, the effect of such transaction, if known. Such notice shall be delivered not less than 20 days prior to such date therein specified, in the case of any such date referred to in clause (x) of the preceding sentence, and, to the extent practicable, not less than 30 days (but in no event less than 20 days) prior to such date therein specified, in the case of any such date referred to in clause (y) of the preceding sentence. Failure to give such notice within the time provided or any defect therein shall not affect the legality or validity of any such action. 21 25 6.2 Reservation; Due Authorization, Etc. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock (or out of authorized Other Securities), solely for issuance and delivery upon exercise of Warrants, the full number of shares of Common Stock (and Other Securities) from time to time issuable upon the exercise of all Warrants. All shares of Common Stock (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be duly and validly issued, and (in the case of shares) fully paid and nonassessable, and free from all taxes, liens, charges, security interests, encumbrances and other restrictions created by or through the Company. 6.3 Compliance With Law. The Company will use its best efforts, at its expense and on a continual basis, to assure that all shares of Common Stock (and Other Securities) that may be issued upon exercise of Warrants may be so issued and delivered without violation of any Federal or state securities law or regulation, or any other law or regulation applicable to the Company or any of its subsidiaries, PROVIDED THAT with respect to any such exercise involving a sale or transfer of Warrants or any securities issuable upon exercise thereof, the Company shall have no obligation to register such Warrants or such securities, other than as provided in the Registration Rights Agreement. 6.4 Listing of Warrant Shares. The Company, at its expense, shall use its best efforts to cause all Warrant Shares to be listed (subject to issuance or notice of issuance) on all stock exchanges, if any, on which the Common Stock (or Other Securities) becomes listed. ARTICLE 7 MISCELLANEOUS 7.1 Notices. Any notice, demand or delivery authorized by this Agreement shall be sufficiently given or made if sent by registered or certified mail, postage prepaid, addressed to any Warrant Holder at such Warrant Holder's last known address appearing on the register of the Company, and if to the Company: American HomePatient, Inc. 5200 Maryland Way Brentwood, Tennessee 37027 Attention: President or such other address as shall have been furnished in writing, in accordance with this Section 7.1, to the party giving or making such notice, demand or delivery. 7.2 Governing Law and Consent to Forum. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY AND THE OTHER PARTIES HERETO EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT 22 26 SITTING IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PERSON TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. 7.3 Alternative Dispute Resolution. Notwithstanding anything else herein to the contrary, for purposes of this Agreement, if any dispute arises between the Company and/or the Board of Directors of the Company, on the one hand, and any Warrant Holder, on the other hand, with respect to any determination by the Company and/or its Board of Directors of Fair Value of any security, such dispute shall be settled by referring the dispute to a nationally recognized investment banking firm as may be selected by the Company and such Warrant Holder, whose determination as to Fair Value shall be conclusive, absent manifest error; provided, however, that any dispute with respect to the valuation described in Section 4.4(b) shall be settled in accordance with the mechanism provided in Section 4.4(b). 7.4 Remedies. Subject to the provisions of Section 7.3, the Company stipulates that the remedies at law of each Warrant Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Agreement are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 7.5 Right of Action. Subject to the provisions of Section 7.3, all rights of action in respect of this Agreement are vested in the registered holders of the Warrants. Any registered holder of any Warrant, without the consent of the Company, may in such Warrant Holder's own behalf and for such Warrant Holder's own benefit enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, such Warrant Holder's right to exercise such holder's Warrants in the manner provided in the Warrant Certificate representing such Warrants and the Company's obligations under this Agreement and the Warrants. 7.6 Benefits of this Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its respective successors and assigns, and the registered and beneficial holders from time to time of the Warrants and of holders of the Common Stock (or Other Securities) issuable upon exercise of the Warrants, where applicable. Nothing in this Agreement is intended or shall be construed to confer upon any other Person, any right, remedy or claim under or by reason of this Agreement or any part hereof. 7.7 Amendments. No approval, consent, amendment or waiver of this Agreement shall be effective unless in writing and signed by the Company and all Warrant Holders affected by such amendment. 23 27 7.8 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 7.9 Headings. The table of contents hereto and the descriptive headings of the several sections hereof are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 7.10 Reservation of Rights. Notwithstanding anything to the contrary herein, this Agreement shall not be interpreted to confer any greater rights on Company than Company may have under the Credit Agreement, and no provision of this Agreement shall modify any of the Company's obligations to Agent and Lenders under the Credit Agreement or other Credit Documents. Notwithstanding anything to the contrary herein, in the event of any conflict between the terms of this Agreement and the Credit Agreement, the terms of the Credit Agreement shall control. [SIGNATURE PAGE FOLLOWS] 24 28 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. AMERICAN HOMEPATIENT, INC. By: ---------------------------------------- Name: Title: S-1 29 BANKERS TRUST COMPANY, as Agent and Individually By: ---------------------------------------- Name: Title: S-2 30 BANK OF AMERICA SECURITIES By: ---------------------------------------- Name: Title: S-3 31 BANK OF MONTREAL By: ---------------------------------------- Name: Title: S-4 32 BARCLAYS CAPITAL PLC By: ---------------------------------------- Name: Title: S-5 33 BEAR STEARNS & CO., INC. By: ---------------------------------------- Name: Title: S-6 34 CITIBANK, N.A. By: ---------------------------------------- Name: Title: S-7 35 CONTINENTAL CASUALTY COMPANY By: ---------------------------------------- Name: Title: S-8 36 EVEREST CAPITAL LIMITED By: ___________________ as general partner By: ---------------------------------------- Name: Title: S-9 37 FERNWOOD ASSOCIATES By: ---------------------------------------- Name: Title: S-10 38 FRANKLIN FLOATING RATE TRUST By: ---------------------------------------- Name: Title: S-11 39 LONGACRE MASTER FUND LTD. By: ---------------------------------------- Name: Title: S-12 40 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED By: ---------------------------------------- Name: Title: S-13 41 RCG CARPATHIA MASTER FUND, LTD. By: ---------------------------------------- Name: Title: S-14 42 SATELLITE SENIOR INCOME FUND LLC BY: SATELLITE ASSET MANAGEMENT, LP By: ---------------------------------------- Name: Title: S-15 43 SUMITOMO MITSUI BANKING CORPORATION By: ---------------------------------------- Name: Title: S-16 44 SCHEDULE 1
# of Tranche 1 Pro Rata Lender Warrants Share(%) - ----- -------- -------- Bankers Trust Company 320,002.00 19.6000565659 Bank of America Securities 22,867.00 1.4006053401 Bank of Montreal 102,041.00 6.2499999981 Barclays Capital PLC 59,186.50 3.6251624829 Bear, Stearns & Co., Inc. 419,830.50 25.7145532432 Citibank, N.A 99,823.50 6.1141790024 Continental Casualty Company 63,222.00 3.8723406349 Everest Capital Limited 53,803.50 3.2954684668 Fernwood Associates 198,731.00 12.1722509315 Franklin Floating Rate Trust 53,803.50 3.2954684568 Longacre Master Fund Ltd. 26,902.00 1.6477342334 Merrill, Lynch, Pierce, Fenner & Smith, 90,040.50 5.5149568485 Incorporated RCG Carpathia Master Fund, Ltd. 32,282.00 1.9772810801 Satellite Senior Income Fund, LLC 69,945.00 4.2841090069 Sumitomo Mitsui Banking Corporation 20,177.00 1.2358337117 -------------- -------------- 3,265,315.00 100.00%
S-1 45 EXHIBIT A FORM OF TRANCHE 1 WARRANT CERTIFICATE Warrant No. Number of Warrant(s): ____________ Exercisable During the Period Commencing June 1, 2001 and Ending May 31, 2011 WARRANT TO PURCHASE COMMON STOCK OF AMERICAN HOMEPATIENT, INC. This Certifies that [LENDER] ("Warrant Holder") or registered assigns, is the owner of the number of WARRANTS set forth above, each of which represents the right, at any time during the period commencing on June 1, 2001 and ending on May 31, 2011, to purchase from American HomePatient, Inc., a Delaware corporation (the "Company"), at the price of $.01 (the "Exercise Price"), one share of Common Stock, $0.01 par value, of the Company, subject to adjustment as provided in the Warrant Agreement hereinafter referred to, upon surrender hereof, with the subscription form on the reverse hereof duly executed, by hand or by mail to the Company, and simultaneous payment in full (in accordance with the terms of the Warrant Agreement) of the Exercise Price in respect of each Warrant represented by this Warrant Certificate that is so exercised, all subject to the terms and conditions hereof and of the Warrant Agreement. Upon any partial exercise of the Warrants represented by this Warrant Certificate, there shall be issued to the holder hereof a new Warrant Certificate representing the Warrants that were not exercised. This Warrant Certificate is issued under and in accordance with a Warrant Agreement, dated as of May 25, 2001 (the "Warrant Agreement"), among the Company, Bankers Trust Company, as agent, and the financial institutions parties thereto and is subject to the terms and provisions contained therein, all of which terms and provisions the holder of this Warrant Certificate consents to by acceptance hereof. Copies of the Warrant Agreement are on file at the Company and may be obtained by writing to the Company. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. This Warrant Certificate shall not be valid for any purpose until it shall have been manually countersigned by an authorized signatory of the Company. Witness the facsimile seal of the Company and the signature of its duly authorized officer. Dated: May __, 2001 American HomePatient, Inc. By: ----------------------------- Name: Title: A-1 46 AMERICAN HOMEPATIENT, INC. The transfer of this Warrant Certificate and all rights hereunder is registrable by the registered holder hereof, in whole or in part, on the register of the Company upon surrender of this Warrant Certificate at the address of the Company as provided in the Warrant Agreement, duly endorsed or accompanied by a written instrument of transfer duly executed and in form satisfactory to the Company, by the registered holder hereof or the registered holder's attorney duly authorized in writing and upon payment of any transfer tax or other governmental charge imposed upon such transfer or registration thereof to the extent required by the Warrant Agreement. Upon any partial transfer the Company will cause to be delivered to such holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. This Warrant Certificate may be exchanged at the address of the Company as provided in the Warrant Agreement, for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant Certificate, as such, shall not be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or, except as provided in the Warrant Agreement, to receive any notice of meetings of stockholders, and shall not be entitled to receive notice of any proceedings of the Company except as provided in the Warrant Agreement. Nothing contained herein shall be construed as imposing any liabilities upon the holder of this Warrant Certificate to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. [Include on all Warrant Certificates issued during the period June 1, 2001-May 31, 2003 and on all Warrants issued to affiliates of the Company (as defined in SEC Rule 144(a)(1)): THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNLESS SOLD PURSUANT TO RULE 144.] A-2 47 SUBSCRIPTION FORM (TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT) TO AMERICAN HOMEPATIENT, INC. Attention: --------------------------- The undersigned (i) irrevocably exercises ________ of the Warrants (the "Exercised Warrants") represented by the within Warrant Certificate; (ii) purchases one share of Common Stock of American HomePatient, Inc. (before giving effect to the adjustments provided in the Warrant Agreement referred to in the within Warrant Certificate) for each Exercised Warrant and herewith makes payment in full of the purchase price of $______ in respect of each Exercised Warrant as provided in the Warrant Agreement by, herewith, (1) paying an amount equal to $_______ in cash, by check or by wire transfer of funds (payable to the order, or for the account of, American HomePatient, Inc.), (2) surrendering securities of American HomePatient, Inc. having a Fair Value (or, in the case of securities other than Common Stock (or Other Securities), such fair value as is determined pursuant to the Warrant Agreement) that equals $_________, and/or (3) surrendering notes or debt securities of American HomePatient, Inc. having a principal balance plus accrued interest equal to $_________; (iii) surrenders, with respect to the Exercised Warrants, this Warrant Certificate and all right, title and interest therein to American HomePatient, Inc.; and (iv) directs that the securities or other property deliverable upon the exercise of such Exercised Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated: , 20 ------------ --- (Owner)* (Signature of Authorized Representative) (Street Address) (City) (State) (Zip Code) Securities or property to be issued and delivered to: ------------------------------------- Signature Guaranteed** Please insert taxpayer identification number Name -------------------------------------------------------------------------- Street Address ---------------------------------------------------------------- City, State and Zip Code ----------------------------------------------------- * The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. ** The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from American HomePatient, Inc. A-3 48 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant Certificate hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant Certificate, with respect to the number of Warrants set forth below:
Name of No. of ASSIGNEE ADDRESS WARRANTS --------------------------------------------------------------------- Please insert taxpayer identification number of Assignee
and does hereby irrevocably constitute and appoint __________ attorney to make such transfer on the books of American HomePatient, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: , 20 ---------- --- Name * ----------------------------------------------------- Signature of Authorized Representative -------------------------------------------- Signature Guaranteed ** -------------------------------------- * The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. ** The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from American HomePatient, Inc. A-4 49 EXHIBIT B FORM OF TRANCHE 2 WARRANT CERTIFICATE Warrant No. Number of Warrant(s): ------------------------ Exercisable During the Period Commencing September 30, 2001 and Ending September 29, 2011. WARRANT TO PURCHASE COMMON STOCK OF AMERICAN HOMEPATIENT, INC. This Certifies that [LENDER] ("Warrant Holder") or registered assigns, is the owner of the number of WARRANTS set forth above, each of which represents the right, for the period commencing September 30, 2001 and ending September 29, 2011, subject to cancellation as provided in the Warrant Agreement, to purchase from American HomePatient, Inc., a Delaware corporation (the "Company"), at the price of $.01 (the "Exercise Price"), one share of Common Stock, $0.01 par value, of the Company, subject to adjustment as provided in the Warrant Agreement hereinafter referred to, upon surrender hereof, with the subscription form on the reverse hereof duly executed, by hand or by mail to the Company, and simultaneous payment in full (in accordance with the terms of the Warrant Agreement) of the Exercise Price in respect of each Warrant represented by this Warrant Certificate that is so exercised, all subject to the terms and conditions hereof and of the Warrant Agreement. Upon any partial exercise of the Warrants represented by this Warrant Certificate, there shall be issued to the holder hereof a new Warrant Certificate representing the Warrants that were not exercised. This Warrant Certificate is subject to cancellation prior to September 30, 2001 in the circumstances described in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement, dated as of May 25, 2001 (the "Warrant Agreement"), among the Company, Bankers Trust Company, as agent, and the financial institutions parties thereto and is subject to the terms and provisions contained therein, all of which terms and provisions the holder of this Warrant Certificate consents to by acceptance hereof. Copies of the Warrant Agreement are on file at the Company and may be obtained by writing to the Company. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. This Warrant Certificate shall not be valid for any purpose until it shall have been manually countersigned by an authorized signatory of the Company. Witness the facsimile seal of the Company and the signature of its duly authorized officer. Dated: May , 2001 American HomePatient, Inc. -- By: --------------------------- Name: Title: B-1 50 AMERICAN HOMEPATIENT, INC. The transfer of this Warrant Certificate and all rights hereunder is registrable by the registered holder hereof, in whole or in part, on the register of the Company upon surrender of this Warrant Certificate at the address of the Company as provided in the Warrant Agreement, duly endorsed or accompanied by a written instrument of transfer duly executed and in form satisfactory to the Company, by the registered holder hereof or the registered holder's attorney duly authorized in writing and upon payment of any transfer tax or other governmental charge imposed upon such transfer or registration thereof to the extent provided in the Warrant Agreement. Upon any partial transfer the Company will cause to be delivered to such holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. This Warrant Certificate may be exchanged at the address of the Company as provided in the Warrant Agreement, for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant Certificate, as such, shall not be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or, except as provided in the Warrant Agreement, to receive any notice of meetings of stockholders, and shall not be entitled to receive notice of any proceedings of the Company except as provided in the Warrant Agreement. Nothing contained herein shall be construed as imposing any liabilities upon the holder of this Warrant Certificate to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. [TO BE INCLUDED ON WARRANT CERTIFICATES ISSUED DURING THE PERIOD COMMENCING JUNE 1, 2001 AND ENDING ON MAY 31, 2003 AND ON ALL WARRANTS ISSUED TO AFFILIATES (AS DEFINED IN SEC RULE 144(A)(1)): THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.] B-2 51 SUBSCRIPTION FORM (TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT) TO AMERICAN HOMEPATIENT, INC. Attention: _________________ The undersigned (i) irrevocably exercises ________ of the Warrants (the "Exercised Warrants") represented by the within Warrant Certificate; (ii) purchases one share of Common Stock of American HomePatient, Inc. (before giving effect to the adjustments provided in the Warrant Agreement referred to in the within Warrant Certificate) for each Exercised Warrant and herewith makes payment in full of the purchase price of $______ in respect of each Exercised Warrant as provided in the Warrant Agreement by, herewith, (1) paying an amount equal to $_______ in cash, by check or by wire transfer of funds (payable to the order, or for the account of, American HomePatient, Inc.), (2) surrendering securities of American HomePatient, Inc. having a Fair Value (or, in the case of securities other than Common Stock (or Other Securities), such fair value as is determined pursuant to the Warrant Agreement) that equals $_________, and/or (3) surrendering notes or debt securities of American HomePatient, Inc. having a principal balance plus accrued interest equal to $_________; (iii) surrenders, with respect to the Exercised Warrants, this Warrant Certificate and all right, title and interest therein to American HomePatient, Inc.; and (iv) directs that the securities or other property deliverable upon the exercise of such Exercised Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated: , 20 ------------- --- (Owner)* (Signature of Authorized Representative) (Street Address) (City) (State) (Zip Code) Securities or property to be issued and delivered to: ------------------------------------- Signature Guaranteed** Please insert taxpayer identification number Name ----------------------------------------------------- Signature of Authorized Representative -------------------------------------------- Signature Guaranteed -------------------------------------- * The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. ** The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from American HomePatient, Inc. B-3 52 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant Certificate hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant Certificate, with respect to the number of Warrants set forth below:
Name of No. of ASSIGNEE ADDRESS WARRANTS --------------------------------------------------------------------- Please insert taxpayer identification number of Assignee
and does hereby irrevocably constitute and appoint __________ attorney to make such transfer on the books of American HomePatient, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: , 20 ----------- -- Name * -------------------------------------- Signature of Authorized Representative ---------------------------- Signature Guaranteed ** ----------------------- * The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. ** The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from American HomePatient, Inc. B-4 53 EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT is made and entered into as of May 25, 2001 (this "Agreement"), by and between American HomePatient, Inc, a Delaware corporation (the "Company"), and each of the financial institutions set forth on the signature pages hereof (each an "Investor" and collectively the "Investors"). WHEREAS, pursuant to that certain Warrant Agreement, dated as of May 25, 2001 (the "Warrant Agreement"), by and among the Company, Bankers Trust Company, as agent, and the Investors, the Company has agreed to issue warrants (the "Warrants") to acquire 3,265,315 shares of its Common Stock, par value $.01 per share; and WHEREAS, in connection with the Warrant Agreement, the Company has agreed to register for sale by each of the Holders (as defined below), the Registrable Shares (as defined below) ; and WHEREAS, the parties hereto desire to enter into this Agreement to evidence the foregoing agreement of the Company and the mutual covenants of the parties relating thereto. NOW, THEREFORE, in consideration of the foregoing and the covenants of the parties set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, subject to the terms and conditions set forth herein, the parties hereby agree as follows: Section 1. Certain Definitions. In this Agreement the following terms shall have the following respective meanings: "Accredited Investor" shall have the meaning set forth in Rule 501 of the General Rules and Regulations promulgated under the Securities Act. "Affiliate" shall mean, when used 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. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. "Holders" shall mean initially each Investor and thereafter each Person to whom an Investor or other Holder may transfer any Warrants. C-1 54 "Indemnified Party" shall have the meaning ascribed to it in Section 6(c) of this Agreement. "Indemnifying Party" shall have the meaning ascribed to it in Section 6(c) of this Agreement. "Person" shall mean any individual, partnership, limited liability company, association, joint venture, corporation, insurance company, business, trust, unincorporated organization, government or department, agency or subdivision thereof, or other person or entity. "Piggyback Notice" shall have the meaning ascribed to it in Section 3(a) of this Agreement. "Piggyback Registration" shall have the meaning ascribed to it in Section 3(a) of this Agreement. "Registrable Shares" shall mean (i) the Common Stock (or Other Securities) (as defined in the Warrant Agreement) issued or issuable upon exercise of the Warrants, and (ii) any other securities issued or issuable as a result of or in connection with any stock dividend, stock split or reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange, distribution or similar transaction in respect of the Common Stock (or Other Securities), except that as to any particular Registrable Shares, such securities shall cease to be Registrable Shares when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, or (b) such securities shall have been sold or are capable of being sold in accordance with Rule 144 (or any successor provision) under the Securities Act, without any restriction as to amount under Rule 144(e). "Registration Expenses" shall mean all out-of-pocket expenses (excluding Selling Expenses) incurred by the Company in connection with any attempted or completed registration pursuant to Sections 2, 3 and 4 hereof, including, without limitation, the following: (a) all registration, filing and listing fees; (b) fees and expenses of compliance with federal and state securities laws (including, without limitation, reasonable fees and disbursements of counsel in connection with state securities qualifications of the Registrable Shares under the laws of such jurisdictions as the Holders may reasonably designate); (c) printing (including, without limitation, expenses of printing or engraving certificates for the Registrable Shares in a form eligible for deposit with The Depository Trust Company and otherwise meeting the requirements of any securities exchange on which they are listed and of printing registration statements and prospectuses), messenger, telephone, shipping and delivery expenses; (d) fees and disbursements of counsel for the Company; (e) fees and disbursements of all independent public accountants of the Company (including, without limitation, the expenses of any annual or special audit and "cold comfort" letters required by the managing underwriter); (f) Securities Act liability insurance if the Company so desires; (g) fees and expenses of other Persons reasonably necessary in connection with the registration, including any experts, retained by the Company; (h) fees and expenses incurred in connection with the listing of the Registrable Shares on each securities exchange on which securities of the same class or series are then listed; (i) fees and expenses associated with any filing with the National Association of Securities Dealers, Inc. required C-2 55 to be made in connection with the registration statement; (j) fees and expenses of one counsel for the Holders selected by the Holders of a majority of the Registrable Shares being registered (on a Common Stock equivalent basis); and (k) reasonable out-of-pocket expenses incurred by the Holders. "Registration Request" shall have the meaning ascribed to it in Section 2(a) of this Agreement. "Rule 144" shall mean Rule 144 promulgated by the Commission under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to any sale of Registrable Shares. "Warrants" shall have the meaning ascribed to them in the recitals to this Agreement. Section 2. Demand Registration. (a) Upon receipt of a written request (a "Registration Request") from Holders holding at least a majority of the then outstanding Registrable Shares requesting that the Company effect the registration under the Securities Act of Registrable Shares at any time that the Company's Common Stock is traded on a public market with a Fair Value (as defined in the Warrant Agreement) of the Registrable Shares of $5.00 or more (as adjusted to reflect any stock dividend, stock split or reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange, distribution or similar transaction), the Company shall (i) promptly give notice of the Registration Request to all non-requesting Holders and (ii) prepare and file with the Commission, within 45 days after its receipt of such Registration Request a registration statement for the purpose of effecting a registration of the Registrable Shares which the Company has been so requested to register by the requesting Holders and any other Holder who requests to have its Registrable Shares included in such registration statement within 10 days after receipt of notice by such Holder of the Registration Request. The Company shall use its reasonable best efforts to effect such registration as soon as practicable but not later than 120 days after its receipt of such Registration Request (including, without limitation, the execution of an undertaking to file post-effective amendments and appropriate qualification under applicable state securities laws); and shall keep such registration continuously effective until the earlier of (i) the second anniversary of the date hereof, and (ii) the date on which all Registrable Shares registered pursuant to such registration have been sold pursuant to such registration statement or Rule 144; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2 in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction. Notwithstanding the foregoing, the Company shall have the right (the "Suspension Right") to defer such filing (or suspend sales under any filed registration statement or defer the C-3 56 updating of any filed registration statement and suspend sales thereunder) for a period of not more than 60 days during any twelve-month period, if the Company shall furnish to the Holders a certificate signed by an executive officer or any director of the Company stating that, in the good faith and reasonable judgment of the Company, it would be materially detrimental to the Company and its stockholders to file such registration statement or amendment thereto at such time (or continue sales under a filed registration statement) and therefore the Company has elected to defer the filing of such registration statement (or suspend sales under a filed registration statement). (b) The Company shall not be required to effect more than two demand registrations pursuant to this Section 2; provided that if any registration is suspended or otherwise adversely affected by the issuance of a stop order by the Commission or any state securities commission or any injunction is issued by any court or other governmental agency that results in a suspension of the registration statement or otherwise adversely affects the registration, the Holders shall be entitled to an additional demand registration. Section 3. Piggyback Registrations. (a) If the Company proposes to register under the Securities Act any of its common equity securities (other than pursuant to (i) a registration on Form S-4 or any successor form, or (ii) an offering of securities in connection with an employee benefit, share dividend, share ownership or dividend reinvestment plan), or (iii) a registration statement filed pursuant to Section 2), the Company will give prompt written notice to all Holders of Registrable Shares of its intention to effect such a registration (each a "Piggyback Notice") at least 20 days before the anticipated filing date of such registration statement, and, subject to Section 3(c) below, the Company will include in such registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the date of sending the Piggyback Notice (a "Piggyback Registration"), unless, if the Piggyback Registration is not an underwritten offering, the Company in its reasonable and good faith judgment determines that, or in the case of an underwritten Piggyback Registration, the managing underwriters advise the Company in writing that in their opinion, the inclusion of Registrable Shares would materially adversely interfere with such offering. Nothing herein shall affect the right of the Company to withdraw any such registration in its sole discretion. (b) If a Piggyback Registration is a primary registration on behalf of the Company and, if the Piggyback Registration is not an underwritten offering, the Company in its reasonable and good faith judgment determines that, or in the case of an underwritten Piggyback Registration, the managing underwriters advise the Company in writing that in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner within a price range acceptable to the Company, the Company will include in such registration (i) first, the securities the Company proposes to sell and (ii) second, the Registrable Shares requested to be included in such registration and any other securities requested to be included in such registration, pro rata among the holders of Registrable Shares requesting such registration and the holders of such other securities on the basis of the number of shares requested for inclusion in such registration by each such holder. C-4 57 (c) If a Piggyback Registration is a secondary registration on behalf of holders of the Company's securities other than the holders of Registrable Shares, and, if the Piggyback Registration is not an underwritten offering, the Company determines in its reasonable and good faith judgment that, or in the case of an underwritten Piggyback Registration, the managing underwriters advise the Company in writing that in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration, the Company will include in such registration the securities requested to be included therein by the holders requesting such registration and the Registrable Shares requested to be included in such registration, pro rata among the holders of securities requesting such registration on the basis of the number of shares initially requested for inclusion in such registration by each such holder. (d) In the case of an underwritten Piggyback Registration, the Company will have the right to select the investment banker(s) and manager(s) to administer the offering. In a registration pursuant to Section 2(a), the Holders requesting registration shall have the right to select the investment banker(s) and manager(s) to administer the offering, which shall be reasonably acceptable to the Company. If requested by the underwriters for any underwritten offerings by Holders, under a registration requested pursuant to Section 2(a), the Company will enter into a customary underwriting agreement with such underwriters for such offering, to contain such representations and warranties by the Company and such other terms as are customarily contained in agreements of that type. The Holders shall not be required to make any representations or warranties to or agreement with the Company or the underwriters other than representations, warranties or agreements regarding the Holders and the Holders' intended method of distribution and any other representation or warranties required by law. (e) The Holders shall have a right to review the registration statement and all other materials filed with the Commission prior to the filing thereof. Section 4. Registration Procedures. (a) The Company shall promptly notify the Holders of the occurrence of the following events: (i) when any registration statement relating to the Registrable Shares or post-effective amendment thereto filed with the Commission has become effective; (ii) the issuance by the Commission of any stop order suspending the effectiveness of any registration statement relating to the Registrable Shares; (iii) the suspension of an effective registration statement by the Company in accordance with the last paragraph of Section 2(a) hereof; (iv) the Company's receipt of any notification of the suspension of the qualification of any Registrable Shares covered by a registration statement for sale in any jurisdiction; and C-5 58 (v) the existence of any event, fact or circumstance that results in a registration statement or prospectus relating to Registrable Shares or any document incorporated therein by reference containing an untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading during the distribution of securities. The Company agrees to use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any such registration statement or any state qualification as promptly as possible. Each Holder agrees by acquisition of the Registrable Shares that upon receipt of any notice from the Company of the occurrence of any event of the type described in Section 4(a)(ii), (iii), (iv) or (v) to immediately discontinue its disposition of Registrable Shares pursuant to any registration statement relating to such securities until such Holder's receipt of written notice from the Company that such disposition may be made. The Company shall use its best efforts to limit the duration of any discontinuance with respect to the disposition of Registrable Shares pursuant to this paragraph. (b) The Company shall provide to the Holders, at no cost to the Holders, a copy of the registration statement and any amendment thereto used to effect the registration of the Registrable Shares, each prospectus contained in such registration statement or post-effective amendment and any amendment or supplement thereto and such other documents as the requesting Holders may reasonably request in order to facilitate the disposition of the Registrable Shares covered by such registration statement. The Company consents to the use of each such prospectus and any supplement thereto by the Holders in connection with the offering and sale of the Registrable Shares covered by such registration statement or any amendment thereto. The Company shall also file a sufficient number of copies of the prospectus and any post-effective amendment or supplement thereto with any securities exchange or market on which the Common Stock, par value $ .01 per share, of the Company is then listed so as to enable the Holders to have the benefits of the prospectus delivery provisions of Rule 153 under the Securities Act. (c) The Company agrees to use its reasonable best efforts to cause the Registrable Shares covered by a registration statement to be registered with or approved by such state securities authorities as may be necessary to enable the Holders to consummate the disposition of such shares pursuant to the plan of distribution set forth in the registration statement; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 4 in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction. (d) Subject to the Company's Suspension Right, if any event, fact or circumstance requiring an amendment to a registration statement relating to the Registrable Shares or supplement to a prospectus relating to the Registrable Shares shall exist, immediately upon becoming aware thereof the Company agrees to notify the Holders and prepare and furnish to the Holders a post-effective amendment to the registration statement or supplement to the prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares, the prospectus will not contain an untrue statement of a material C-6 59 fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (e) The Company agrees to use its reasonable best efforts (including the payment of any listing fees) to obtain the listing of all Registrable Shares covered by the registration statement on each securities exchange on which securities of the same class or series are then listed. (f) The Company agrees to use its reasonable best efforts to comply with the Securities Act and the Exchange Act in connection with the offer and sale of Registrable Shares pursuant to a registration statement, and, as soon as reasonably practicable following the end of any fiscal year during which a registration statement effecting a registration of the Registrable Shares shall have been effective, to make available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act. (g) The Company agrees to cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold pursuant to a registration and not bearing any Securities Act legend; and enable certificates for such Registrable Shares to be issued for such numbers of shares and registered in such names as the Holders may reasonably request at least two business days prior to any sale of Registrable Shares. (h) The Company agrees to use its reasonable best efforts to take all action necessary or advisable to effect the registration of the Registrable Shares in the manner contemplated by this Agreement. Section 5. Expenses of Registration. The Company shall pay all Registration Expenses incurred in connection with the registration, qualification or compliance pursuant to Sections 2, 3 and 4 hereof. All Selling Expenses incurred in connection with the sale of Registrable Shares by any of the Holders shall be borne by the Holder selling such Registrable Shares. Section 6. Indemnification and Contribution. (a) The Company will (i) indemnify each Holder, each Holder's officers, directors, employees, partners, principals, equity holders, managed or advised accounts, advisors, representatives and agents, and each Person controlling such Holder or such other Person within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (including reasonable legal fees and expenses), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or prospectus relating to the Registrable Shares, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) reimburse each Holder for all reasonable legal or other fees and expenses incurred in connection with investigating or defending any such action or claim as such fees or expenses are incurred, provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with information furnished in writing to the Company by such Holder for inclusion therein; and provided further, that in the case of a nonunderwritten offering, the Company shall not be liable in C-7 60 any such case with respect to any preliminary prospectus or preliminary prospectus supplement to the extent that any such expenses, claims, losses, damages and liabilities result from the fact that Registrable Shares were sold to a person as to whom it shall be established that there was not sent or given at or prior to the written confirmation of such sale a copy of the prospectus as then amended or supplemented under circumstances were such delivery is required under the Securities Act, if the Company shall have previously furnished copies thereof to such Indemnified Party in sufficient quantities to enable such Indemnified Party to satisfy such obligations and the expense, claim, loss, damage or liability of such Indemnified Party results from an untrue statement or omission of a material fact contained in the preliminary prospectus or the preliminary prospectus supplement which was corrected in the prospectus. The Company shall also indemnify underwriters of the Registrable Shares, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, and their officers, directors, employees, partners, principals, equity holders, advisors, representatives and agents, and each Person controlling such underwriters or other Persons within the meaning of Section 15 of the Securities Act, to the same extent as provided above with respect to the indemnification of the Holders of Registrable Shares and other specified Persons. This indemnity is in addition to any liability that the Company may otherwise have. (b) Each Holder selling shares pursuant to a Registration (and, in the case of a nonunderwritten offering, any agents of each Holder that facilitate the distribution of Registrable Shares) will (i) indemnify the Company, each of its directors and each of its officers who signs the registration statement, each underwriter, if any, of the Company's securities covered by such registration statement, and each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (including reasonable legal fees and expenses) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or prospectus, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus, in reliance upon and in conformity with information furnished in writing to the Company by such Holder for inclusion therein, and (ii) reimburse the Company for all reasonable legal and other fees or expenses incurred in connection with investigating or defending any such action or claim as such fees or expenses are incurred. (c) Each party entitled to indemnification under this Section 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, but the omission to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to the Indemnified Party pursuant to the provisions of this Section 6 except to the extent of the actual damages suffered by such delay in notification. The Indemnifying Party shall assume the defense of such action, including the employment of counsel to be chosen by the Indemnifying Party to be reasonably satisfactory to the Indemnified Party, and payment of the fees and expenses of such counsel. The Indemnified Party shall have the right to employ its own counsel in any such case, but the legal fees and expenses of such counsel shall be at the expense of the Indemnified Party, unless the employment of such counsel shall C-8 61 have been authorized in writing by the Indemnifying Party in connection with the defense of such action, or the Indemnifying Party shall not have employed counsel to take charge of the defense of such action or the Indemnified Party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which events such fees and expenses of the Indemnifying Party's counsel shall be borne by the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. An Indemnifying Party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such Indemnifying Party with respect to such claim, as well as one local counsel in each relevant jurisdiction. (d) If the indemnification provided for in this Section 6 is unavailable to a party that would have been an Indemnified Party under this Section 6 in respect of any expenses, claims, losses, damages and liabilities referred to herein, then each party that would have been an Indemnifying Party hereunder shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such expenses, claims, losses, damages and liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and such Indemnified Party on the other in connection with the statement or omission which resulted in such expenses, claims, losses, damages and liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or such Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the expenses, losses, claims, damages and liabilities referred to above shall be deemed to include, subject to the limitations set forth herein, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 6(d). (e) No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) In no event shall any Holder be liable for any expenses, claims, losses, damages or liabilities pursuant to this Section 6 in excess of the net proceeds to such Holder of any Registrable Shares sold by such Holder. Section 7. Information to be Furnished by Holders. Each Holder shall furnish to the Company such information as the Company may reasonably request and as shall be required in C-9 62 connection with the registration and related proceedings referred to in Section 2 or Section 3 hereof. If any Holder fails to provide the Company with such information within 10 days of receipt of the Company's request, the Company's obligations under Section 2 or Section 3 hereof, as applicable, with respect to such Holder or the Registrable Shares owned by such Holder, shall be suspended until such Holder provides such information. Section 8. Rule 144 Sales. (a) The Company covenants that it will use its best efforts to file the reports required to be filed by the Company under the Exchange Act, so as to enable any Holder to sell Registrable Shares pursuant to Rule 144 under the Securities Act. (b) In connection with any sale, transfer or other disposition by any Holder of any Registrable Shares pursuant to Rule 144 under the Securities Act, the Company shall cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Registrable Shares to be for such number of shares and registered in such names as the selling Holder may reasonably request at least two business days prior to any sale of Registrable Shares. Section 9. Transfer of Registration Rights. The rights and obligations of a Holder under this Agreement may be transferred or otherwise assigned to a transferee or assignee of Registrable Shares provided that (i) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if such transferee or assignee were an original party hereunder and (ii) the Company is given written notice by such Holder of such transfer or assignment stating the name and address of such transferee or assignee and identifying the securities with regard to which such rights and obligations are being transferred or assigned. Section 10. Miscellaneous. (a) Governing Law; Consent to Forum. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE COMPANY AND THE OTHER PARTIES HERETO EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PERSON TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (b) Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. C-10 63 (c) Amendment. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Company and the Holders of at least a majority of the Registrable Shares then outstanding. (d) Notices, etc. Any notice, demand or delivery authorized by this Agreement shall be sufficiently given or made if sent by registered or certified mail, postage prepaid, addressed to any Holder at such Holder's last known address appearing on the register of the Company, and if to the Company: American HomePatient, Inc. 5200 Maryland Way Brentwood, Tennessee 37027 Attention: President or such other address as shall have been furnished in writing, in accordance with this Section 10(d), to the party giving or making such notice, demand or delivery. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by fewer than all of the parties hereto (provided that each party executes one or more counterparts), each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. (f) Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. (g) Section Titles. Section titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text. (h) Successors and Assigns. This Agreement shall be binding upon the parties hereto and their respective successors and assigns. (i) Remedies. The Company and each Investor acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that the Company and each Holder, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of another party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction. (j) Attorneys' Fees. If the Company or any Holder brings an action to enforce its rights under this Agreement, the prevailing party in the action shall be entitled to recover its costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred in connection with such action, including any appeal of such action. [signature page follows] C-11 64 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERICAN HOMEPATIENT, INC. By: -------------------------------------------- Name: Title: C-12 65 BANKERS TRUST COMPANY, as Agent and Individually By: -------------------------------------------- Name: Title: Address: Fax Number: C-13 66 [Page left intentionally blank] C-14 67 BANK OF AMERICA SECURITIES By: -------------------------------------------- Name: Title: Address: Fax Number: C-15 68 BANK OF MONTREAL By: -------------------------------------------- Name: Title: Address: Fax Number: C-16 69 BARCLAYS CAPITAL PLC By: -------------------------------------------- Name: Title: Address: Fax Number: C-17 70 BEAR, STEARNS & CO., INC. By: -------------------------------------------- Name: Title: Address: Fax Number: C-18 71 CITIBANK, N.A. By: -------------------------------------------- Name: Title: Address: Fax Number: C-19 72 CONTINENTAL CASUALTY COMPANY By: -------------------------------------------- Name: Title: Address: Fax Number: C-20 73 EVEREST CAPITAL LIMITED By: , as general partner ---------------------------- By: ----------------------------------------------- Name: Title: Address: Fax Number: C-21 74 FERNWOOD ASSOCIATES By: ---------------------------------------------- Name: Title: Address: Fax Number: C-22 75 [Page left intentionally blank] C-23 76 FRANKLIN FLOATING RATE TRUST By: -------------------------------------------- Name: Title: Address: Fax Number: C-24 77 LONGACRE MASTER FUND LTD. By: ----------------------------------------------- Name: Title: Address: Fax Number: C-25 78 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED By: ----------------------------------------------- Name: Title: Address: Fax Number C-26 79 RCG CARPATHIA MASTER FUND, LTD. By: ----------------------------------------------- Name: Title: Address: Telephone: Fax Number: C-27 80 SATELLITE SENIOR INCOME FUND LLC c/o SATELLITE ASSET MANAGEMENT, LP By: ----------------------------------------------- Name: Title: Address: Fax Number: C-28 81 SUMITOMO MITSUI BANKING CORPORATION By: ------------------------------------------------ Name: Title: Address: Fax Number: C-29 EX-23.1 5 g70082aex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated March 6, 2001 (except with respect to the matters discussed in Notes 2 and 7, as to which the date is June 8, 2001 and the matter discussed in Note 8, as to which the date is June 11, 2001), included in this Annual Report on Form 10-K/A of American HomePatient, Inc. and subsidiaries into the Company's previously filed Registration Statement File Number 000-19532. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 2000, or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP Nashville, Tennessee June 19, 2001 EX-99.1 6 g70082aex99-1.txt PRESS RELEASE 1 EXHIBIT 99.1 (AMERICAN HOMEPATIENT LOGO) NEWS RELEASE - -------------------------------------------------------------------------------- Contacts: Joseph F. Furlong or Marilyn O'Hara President and CEO Exec. Vice President and CFO (615) 221-8884 (615) 221-8884 (Primary Contact) FOR IMMEDIATE RELEASE AMERICAN HOMEPATIENT REACHES SETTLEMENT WITH GOVERNMENT ON INVESTIGATION -------------------------------------------------------------------- BRENTWOOD, TN. (June 20, 2001) - American HomePatient, Inc. (OTC: AHOM) announced today that it has reached a settlement with the federal government to resolve an investigation by the Civil Division of the U.S. Department of Justice ("DOJ"), the Office of the Inspector General of the Department of Health and Human Services ("HHS-OIG"), and the TRICARE Management Activity (CHAMPUS) relating to alleged improprieties by the Company during the period from January 1, 1995 through December 31, 1998. While the Company has denied these allegations and admitted no liability, the terms of the settlement provide that American HomePatient will pay $7.0 million, including an initial $3.0 million payment. The balance, including interest, is payable in installments over the next 57 months. The Settlement has been submitted to Judge Russell of the United States District Court for the Western District of Kentucky for his final approval, which is expected to be received. American HomePatient has been dealing with this matter since February 1998. The Company agreed to the settlement in order to avoid delay, uncertainty, inconvenience and expense of protracted litigation. Certain statements made in the press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual results or performance to materially differ from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. Such factors may include the level of effectiveness of and compliance with the Company's corporate compliance program, current or future legal proceedings commenced against the Company, acceleration of all indebtedness under the Company's credit facility, the foreclosure of all of the Company's assets by the lenders under the Company's credit facility, the increased cost of borrowing under the Company's credit agreement, changes to the Company's business strategy and operation, the effect of healthcare legislation and regulation, and the ability to retain or obtain business. The Company cautions investors that any forward-looking statements made by the Company are not necessarily indicative of the future performance. -----END PRIVACY-ENHANCED MESSAGE-----