EXHIBIT 10.1

 

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CREDIT AGREEMENT

 

Dated as of January 27, 2004

 

among

 

PEDIATRIC SERVICES OF AMERICA, INC., a Delaware corporation

 

and

 

PEDIATRIC SERVICES OF AMERICA, INC., a Georgia corporation

 

as Borrowers,

 

THE OTHER CREDIT PARTIES SIGNATORY HERETO,

 

as Credit Parties,

 

THE LENDERS SIGNATORY HERETO

 

FROM TIME TO TIME,

 

as Lenders,

 

and

 

GENERAL ELECTRIC CAPITAL CORPORATION,

 

as Agent and Lender

 

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Table of Contents

 

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1.  

AMOUNT AND TERMS OF CREDIT

   2     1.1   

Credit Facilities

   2     1.2   

Letters of Credit

   4     1.3   

Prepayments

   4     1.4   

Use of Proceeds

   6     1.5   

Interest and Applicable Margins

   6     1.6   

Eligible Accounts

   8     1.7   

Qualified Accounts

   11     1.8   

Cash Management Systems

   11     1.9   

Fees

   11     1.10   

Receipt of Payments

   12     1.11   

Application and Allocation of Payments

   12     1.12   

Loan Account and Accounting

   13     1.13   

Indemnity

   13     1.14   

Access

   14     1.15   

Taxes

   15     1.16   

Capital Adequacy; Increased Costs; Illegality

   16     1.17   

Single Loan

   17 2.  

CONDITIONS PRECEDENT

   18     2.1   

Conditions to the Initial Loans

   18     2.2   

Further Conditions to Each Extension of Credit

   18     2.3   

Further Conditions to Each Acquisition Loan Advance

   20 3.  

REPRESENTATIONS AND WARRANTIES

   21     3.1   

Corporate Existence; Compliance with Law

   21     3.2   

Executive Offices, Collateral Locations, FEIN

   21     3.3   

Corporate Power, Authorization, Enforceable Obligations

   21     3.4   

Financial Statements and Projections

   22     3.5   

Material Adverse Effect

   23     3.6   

Ownership of Property; Liens

   23     3.7   

Labor Matters

   24     3.8   

Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness

   24     3.9   

Government Regulation

   24     3.10   

Margin Regulations

   25     3.11   

Taxes

   25     3.12   

ERISA

   25     3.13   

No Litigation

   26     3.14   

Brokers

   26     3.15   

Intellectual Property

   27

 

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Table of Contents

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    3.16   

Full Disclosure

   27     3.17   

Environmental Matters

   27     3.18   

Insurance

   28     3.19   

Deposit and Disbursement Accounts

   28     3.20   

[Reserved]

   28     3.21   

Customer and Trade Relations

   28     3.22   

Agreements and Other Documents

   28     3.23   

Solvency

   29     3.24   

Holding Company Status of Holdings and PSA Capital

   29     3.25   

Compliance with Healthcare Laws

   29     3.26   

HIPAA Compliance

   29     3.27   

Third Party Reimbursement

   30     3.28   

Participation Agreements

   30 4.  

FINANCIAL STATEMENTS AND INFORMATION

   31     4.1   

Reports and Notices

   31     4.2   

Communication with Accountants

   31 5.  

AFFIRMATIVE COVENANTS

   31     5.1   

Maintenance of Existence and Conduct of Business

   31     5.2   

Payment of Charges

   31     5.3   

Books and Records

   32     5.4   

Insurance; Damage to or Destruction of Collateral

   32     5.5   

Compliance with Laws

   33     5.6   

Supplemental Disclosure

   34     5.7   

Intellectual Property

   34     5.8   

Environmental Matters

   34     5.9   

Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases

   35     5.10   

Delivery of Additional Subsidiary Guaranties; Other Collateral Documents; etc

   36     5.11   

Appointment of Agent for Service of Process

   36     5.12   

Further Assurances

   37 6.  

NEGATIVE COVENANTS

   37     6.1   

Mergers, Subsidiaries, Etc

   37     6.2   

Investments; Loans and Advances

   40     6.3   

Indebtedness

   41     6.4   

Employee Loans and Affiliate Transactions

   42     6.5   

Capital Structure and Business

   43     6.6   

Guaranteed Indebtedness

   43

 

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Table of Contents

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    6.7   

Liens

   43     6.8   

Sale of Stock and Assets

   43     6.9   

ERISA

   44     6.10   

Financial Covenants

   44     6.11   

Hazardous Materials

   44     6.12   

Sale-Leasebacks

   44     6.13   

Cancellation of Indebtedness

   44     6.14   

Restricted Payments

   44     6.15   

Change of Corporate Name or Location; Change of Fiscal Year

   45     6.16   

No Impairment of Intercompany Transfers

   46     6.17   

No Speculative Transactions

   46     6.18   

[RESERVED]

   46     6.19   

Changes Relating to Subordinated Debt; Material Contracts

   46     6.20   

Holding Company Status of Holdings and PSA Capital

   46 7.  

TERM

   46     7.1   

Termination

   46     7.2   

Survival of Obligations Upon Termination of Financing Arrangements

   46 8.  

EVENTS OF DEFAULT; RIGHTS AND REMEDIES

   47     8.1   

Events of Default

   47     8.2   

Remedies

   49     8.3   

Waivers by Credit Parties

   50 9.  

ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

   50     9.1   

Assignment and Participations

   50     9.2   

Appointment of Agent

   52     9.3   

Agent’s Reliance, Etc

   53     9.4   

GE Capital and Affiliates

   54     9.5   

Lender Credit Decision

   54     9.6   

Indemnification

   54     9.7   

Successor Agent

   55     9.8   

Setoff and Sharing of Payments

   55     9.9   

Advances; Payments; Non-Funding Lenders; Information; Actions in Concert

   56 10.  

SUCCESSORS AND ASSIGNS

   58     10.1   

Successors and Assigns

   58

 

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Table of Contents

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11.  

MISCELLANEOUS

   58     11.1   

Complete Agreement; Modification of Agreement

   58     11.2   

Amendments and Waivers

   59     11.3   

Fees and Expenses

   60     11.4   

No Waiver

   62     11.5   

Remedies

   62     11.6   

Severability

   62     11.7   

Conflict of Terms

   62     11.8   

Confidentiality

   63     11.9   

GOVERNING LAW

   63     11.10   

Notices

   64     11.11   

Section Titles

   65     11.12   

Counterparts

   65     11.13   

WAIVER OF JURY TRIAL

   65     11.14   

Press Releases and Related Matters

   65     11.15   

Reinstatement

   65     11.16   

Advice of Counsel

   66     11.17   

No Strict Construction

   66 12.  

CROSS-GUARANTY

   66     12.1   

Cross-Guaranty

   66     12.2   

Waivers by Borrowers

   66     12.3   

Benefit of Guaranty

   67     12.4   

Subordination of Subrogation, Etc

   67     12.5   

Election of Remedies

   67     12.6   

Limitation

   68     12.7   

Contribution with Respect to Guaranty Obligations

   68     12.8   

Liability Cumulative

   69

 

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INDEX OF APPENDICES

 

Annex A (Recitals)    -    Definitions Annex B (Section 1.2)    -    Letters of
Credit Annex C (Section 1.8)    -    Cash Management System Annex D (Section
2.1(a))    -    Closing Checklist Annex E (Section 4.1(a))    -    Financial
Statements and Projections — Reporting Annex F (Section 4.1(b))    -   
Collateral Reports Annex G (Section 6.10)    -    Financial Covenants Annex H
(Section 9.9(a))    -    Lenders’ Wire Transfer Information Annex I (Section
11.10)    -    Notice Addresses

Annex J (from Annex A- Commitments definition)

   -    Commitments as of Closing Date Exhibit 1.1(a)(i)    -    Form of Notice
of Revolving Credit Advance Exhibit 1.1(a)(ii)    -    Form of Revolving Note
Exhibit 1.1(b)(ii)    -    Form of Notice of Acquisition Loan Advance Exhibit
1.1(b)(iv)    -    Form of Acquisition Loan Note Exhibit 1.5(e)    -    Form of
Notice of Conversion/Continuation Exhibit 2.2(d)    -    Form of Post-Closing
Solvency Certificate Exhibit 4.1(b)    -    Form of Borrowing Base Certificate
Exhibit 5.9    -    Form of Landlord Agreement Exhibit 6.1    -    Form of
Subordination Agreement Exhibit 9.1(a)    -    Form of Assignment Agreement
Schedule 1.1    -    Agent’s Representatives Disclosure Schedule 3.1    -   
Type of Entity; State of Organization Disclosure Schedule 3.2    -    Executive
Offices, Collateral Locations, FEIN Disclosure Schedule 3.4(A)    -    Financial
Statements Disclosure Schedule 3.4(C)    -    Projections Disclosure Schedule
3.4(D)    -    Fair Salable Balance Sheet Disclosure Schedule 3.6    -    Real
Estate and Leases Disclosure Schedule 3.7    -    Labor Matters Disclosure
Schedule 3.8    -    Ventures, Subsidiaries and Affiliates; Outstanding Stock
Disclosure Schedule 3.11    -    Tax Matters Disclosure Schedule 3.12    -   
ERISA Plans Disclosure Schedule 3.13    -    Litigation Disclosure Schedule 3.15
   -    Intellectual Property Disclosure Schedule 3.17    -    Hazardous
Materials Disclosure Schedule 3.18    -    Insurance Disclosure Schedule 3.19   
-    Deposit and Disbursement Accounts Disclosure Schedule 3.22    -    Material
Agreements Disclosure Schedule 3.24    -    Tax and Insurance Related
Restructuring Disclosure Schedule 3.27    -    Third Party Reimbursement

 

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Disclosure Schedule 3.28    -    Participation Agreements Disclosure Schedule
5.1    -    Trade Names Disclosure Schedule 6.3    -    Indebtedness Disclosure
Schedule 6.4(a)    -    Transactions with Affiliates Disclosure Schedule 6.7   
-    Existing Liens Disclosure Schedule 6.21    -    Business Activities of
Holdings and PSA Capital

 

 

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This CREDIT AGREEMENT (this “Agreement”), dated as of January 27, 2004 among
PEDIATRIC SERVICES OF AMERICA, INC., a Delaware corporation (“Holdings”),
PEDIATRIC SERVICES OF AMERICA, INC., a Georgia corporation (“PSA Georgia”;
Holdings and PSA Georgia are sometimes collectively referred to herein as the
“Borrowers” and individually as a “Borrower”), the other Credit Parties
signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
(in its individual capacity, “GE Capital”), for itself, as Lender, and as Agent
for Lenders, and the other Lenders signatory hereto from time to time.

 

RECITALS

 

WHEREAS, Borrowers have requested that Lenders extend (a) a revolving credit
facility to Borrowers of up to Ten Million Dollars ($10,000,000) in the
aggregate for the purpose of refinancing certain indebtedness of Borrowers and
to provide (i) working capital financing for Borrowers, (ii) funds for other
general corporate purposes of Borrowers and (iii) funds for other purposes
permitted hereunder, and (b) an acquisition credit facility to Borrowers of up
to Ten Million Dollars ($10,000,000) in the aggregate for the purpose of funding
Permitted Acquisitions; and for these purposes, Lenders are willing to make
certain loans and other extensions of credit to Borrowers of up to such amounts
upon the terms and conditions set forth herein; and

 

WHEREAS, Borrowers have agreed to secure all of their obligations under the Loan
Documents by granting to Agent, for the benefit of Agent and Lenders, a security
interest in and lien upon all of their existing and after-acquired personal and
real property and pledging all of the Stock of their respective Subsidiaries to
secure such obligations; and

 

WHEREAS, the Borrowers’ Subsidiaries are willing to guarantee all of the
obligations of Borrowers to Agent and Lenders under the Loan Documents and have
agreed to secure all of their obligations under such guarantees by granting to
Agent, for the benefit of Agent and Lenders, a security interest in and lien
upon all of their existing and after-acquired personal and real property and
pledging all of the Stock of their respective Subsidiaries to secure such
obligations;

 

WHEREAS, capitalized terms used in this Agreement shall have the meanings
ascribed to them in Annex A and, for purposes of this Agreement and the other
Loan Documents, the rules of construction set forth in Annex A shall govern. All
Annexes, Disclosure Schedules, Exhibits and other attachments (collectively,
“Appendices”) hereto, or expressly identified to this Agreement, are
incorporated herein by reference, and taken together with this Agreement, shall
constitute but a single agreement. These Recitals shall be construed as part of
the Agreement.

 

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NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
parties hereto agree as follows:

 

1. AMOUNT AND TERMS OF CREDIT

 

1.1 Credit Facilities.

 

(a) Revolving Credit Facility.

 

(i) Subject to the terms and conditions hereof, each Revolving Lender agrees to
make available to Borrowers from time to time until the Commitment Termination
Date its Pro Rata Share of advances (each, a “Revolving Credit Advance”). The
Pro Rata Share of the Revolving Loan of any Revolving Lender shall not at any
time exceed its separate Revolving Loan Commitment. The obligations of each
Revolving Lender hereunder shall be several and not joint. Until the Commitment
Termination Date, Borrowers may from time to time borrow, repay and reborrow
under this Section 1.1(a); provided, that the amount of any Revolving Credit
Advance to be made at any time shall not exceed Revolving Loan Borrowing
Availability at such time. Each Revolving Credit Advance shall be made on notice
by Borrower Representative on behalf of the applicable Borrower to one of the
representatives of Agent identified in Schedule 1.1 at the address specified
therein. Any such notice must be given no later than (1) 11:00 a.m. (New York
time) on the Business Day of the proposed Revolving Credit Advance, in the case
of an Index Rate Loan, or (2) 11:00 a.m. (New York time) on the date which is 3
Business Days prior to the proposed Revolving Credit Advance, in the case of a
LIBOR Loan. Each such notice (a ”Notice of Revolving Credit Advance”) must be
given in writing (by telecopy or overnight courier) substantially in the form of
Exhibit 1.1(a)(i), and shall include the information required in such Exhibit
and such other information as may be required by Agent. If any Borrower desires
to have the Revolving Credit Advances bear interest by reference to a LIBOR
Rate, Borrower Representative must comply with Section 1.5(e).

 

(ii) Except as provided in Section 1.12, each Borrower shall execute and deliver
to each Revolving Lender a note to evidence the Revolving Loan Commitment of
that Revolving Lender. Each note shall be in the principal amount of the
Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing
Date and substantially in the form of Exhibit 1.1(a)(ii) (each a “Revolving
Note” and, collectively, the “Revolving Notes”). Each Revolving Note shall
represent the obligation of the applicable Borrower to pay the amount of
Revolving Lender’s Revolving Loan Commitment or, if less, such Revolving
Lender’s Pro Rata Share of the aggregate unpaid principal amount of all
Revolving Credit Advances to such Borrower together with interest thereon as
prescribed in Section 1.5. The entire unpaid balance of the Revolving Loan and
all other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.

 

(b) Acquisition Loan Facility.

 

(i) Subject to the terms and conditions hereof, each Acquisition Lender agrees
to make available to Borrowers from time to time until the Commitment
Termination Date its Pro Rata Share of advances (each, an “Acquisition Loan
Advance”). The

 

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Pro Rata Share of the Acquisition Loan of any Acquisition Lender shall not at
any time exceed its separate Acquisition Loan Commitment. The obligations of
each Acquisition Lender hereunder shall be several and not joint. Until the
Commitment Termination Date, Borrowers may from time to time borrow, repay and
reborrow under this Section 1.1(b); provided that the amount of any Acquisition
Loan Advance to be made at any time shall not exceed Acquisition Loan Borrowing
Availability at such time.

 

(ii) Each Acquisition Loan Advance shall be made on notice by Borrower
Representative on behalf of the applicable Borrower to one of the
representatives of Agent identified in Schedule 1.1 at the address specified
therein. Any such notice must be given no later than (1) 11:00 a.m. (New York
time) on the Business Day of the proposed Acquisition Loan Advance, in the case
of an Index Rate Loan, or (2) 11:00 a.m. (New York time) on the date which is 3
Business Days prior to the proposed Acquisition Loan Advance, in the case of a
LIBOR Loan. Each such notice (a ”Notice of Acquisition Loan Advance”) must be
given in writing (by telecopy or overnight courier) substantially in the form of
Exhibit 1.1(b)(ii), and shall include the information required in such Exhibit
and such other information as may be required by Agent. If Borrowers desire to
have the Acquisition Loan Advances bear interest by reference to a LIBOR Rate,
they must comply with Section 1.5(e).

 

(iii) Evidence of Obligation. The Acquisition Loan shall be evidenced by a note
dated as of the date hereof and substantially in the form of Exhibit 1.1(b)(iv)
(the “Acquisition Loan Note”). The Acquisition Loan Note shall represent the
obligation of applicable Borrower to pay the amount of the Acquisition Loan
Commitment or, if less, the aggregate unpaid principal amount of all Acquisition
Loan Advances made by Lender to such Borrower, with interest thereon as
prescribed in Section 1.5. The date and amount of each Acquisition Loan Advance
and each payment of principal with respect thereto shall be recorded on the
books and records of Lender. Such books and records shall, absent manifest
error, constitute prima facie evidence of the accuracy of the information
therein recorded. The entire unpaid balance of the Acquisition Loan shall be
immediately due and payable in full in immediately available funds on the
Commitment Termination Date.

 

(iv) Each payment of principal with respect to the Acquisition Loan shall be
paid to Agent for the ratable benefit of each Acquisition Loan Lender, ratably
in proportion to each such Acquisition Loan Lender’s respective Acquisition Loan
Commitment.

 

(c) Reliance on Notices; Appointment of Borrower Representative. Agent shall be
entitled to rely upon, and shall be fully protected in relying upon, any Notice
of Revolving Credit Advance, Notice of Acquisition Loan Advance, Notice of
Conversion/Continuation or similar notice believed by Agent to be genuine. Agent
may assume that each Person executing and delivering any notice in accordance
herewith was duly authorized, unless the responsible individual acting thereon
for Agent has actual knowledge to the contrary. Each Borrower hereby designates
Holdings as its representative and agent on its behalf for the purposes of
issuing Notices of Revolving Credit Advances, Notices of Acquisition Loan
Advances and Notices of Conversion/Continuation, giving instructions with
respect to the disbursement of the proceeds of the Loans, selecting interest
rate options, requesting Letters of Credit, giving and receiving all other
notices and consents hereunder or under any of the other Loan Documents and
taking all other actions (including in respect of compliance with covenants)

 

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on behalf of any Borrower or Borrowers under the Loan Documents. Borrower
Representative hereby accepts such appointment. Agent and each Lender may regard
any notice or other communication pursuant to any Loan Document from Borrower
Representative as a notice or communication from all Borrowers, and may give any
notice or communication required or permitted to be given to any Borrower or
Borrowers hereunder to Borrower Representative on behalf of such Borrower or
Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower.

 

1.2 Letters of Credit. Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower Representative, on behalf
of the applicable Borrower, shall have the right to request, and Revolving
Lenders agree to incur, or purchase participations in, Letter of Credit
Obligations in respect of each Borrower.

 

1.3 Prepayments.

 

(a) Voluntary Prepayments; Reductions in Loan Commitments.

 

(i) Acquisition Loan. Borrowers may at any time on at least 5 days’ prior
written notice by Borrower Representative to Agent voluntarily prepay all or
part of the Acquisition Loan; provided that (A) any such prepayments shall be in
a minimum amount of $100,000 and integral multiples of $100,000 in excess of
such amounts, (B) no partial reductions in the Acquisition Loan Commitment shall
be permitted in connection with any voluntary partial prepayments and (C) the
Acquisition Loan Commitment shall only be terminated in connection with any
voluntary prepayment of all of the Acquisition Loan in accordance with the
immediately succeeding sentence. Borrowers may at any time on at least 30 days’
prior written notice by Borrower Representative to Agent terminate the
Acquisition Loan Commitment, provided that upon such termination all Acquisition
Loans and accrued interest thereon and fees relating thereto shall be
immediately due and payable in full. Any voluntary prepayment and any
termination of the Acquisition Loan Commitment must be accompanied by the
payment of any LIBOR funding breakage costs in accordance with Section 1.13(b).
Upon any such termination of the Acquisition Loan Commitment, each Borrower’s
right to request Acquisition Loan Advances shall simultaneously be terminated.
Any partial prepayments of the Acquisition Loan shall be applied to prepay the
scheduled principal installments of the Acquisition Loan in inverse order of
maturity.

 

(ii) Revolving Loan. Borrowers may at any time voluntarily prepay all or part of
the Revolving Loan (without any commitment reduction or termination) upon at
least 3 Business Days’ (or, in the case of Index Rate Loans, 1 Business Day’s)
prior written notice; provided that (1) any such prepayments or reductions shall
be in a minimum amount of $100,000 and integral multiples of $100,000 in excess
of such amounts, (2) the Revolving Loan Commitment shall not be reduced to an
amount less than the amount of the Revolving Loan outstanding, (3) after giving
effect to such reductions, Borrowers shall comply with Section 1.3(b)(i) and (4)
no partial commitment reductions shall be permitted in connection with any
voluntarily prepayment of Revolving Loans. Borrowers may at any time on at least
5 Business

 

4

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days’ prior written notice by Borrower Representative to Agent terminate the
Revolving Loan Commitment, provided that upon such termination all Loans
(including Acquisition Loans) and other Obligations shall be immediately due and
payable in full and all Letter of Credit Obligations shall be cash
collateralized or otherwise satisfied in accordance with Annex B hereto. Any
voluntary prepayment and any termination of the Revolving Loan Commitment must
be accompanied by the payment of any LIBOR funding breakage costs in accordance
with Section 1.13(b). Upon any such termination of the Revolving Loan
Commitment, each Borrower’s right to request Revolving Credit Advances or
request that Letter of Credit Obligations be incurred on its behalf shall
simultaneously be permanently terminated, as the case may be. Each notice of
partial prepayment shall designate the Loan or other Obligations to which such
prepayment is to be applied

 

(b) Mandatory Prepayments.

 

(i) If at any time the outstanding balances of the Revolving Loan exceed
Revolving Loan Borrowing Availability, Borrowers shall within 1 Business Day
repay the aggregate outstanding Revolving Credit Advances to the extent required
to eliminate such excess. If any such excess remains after repayment in full of
the aggregate outstanding Revolving Credit Advances, Borrowers shall provide
cash collateral for the Letter of Credit Obligations in the manner set forth in
Annex B to the extent required to eliminate such excess. If at any time the
outstanding balances of the Acquisition Loan exceed Acquisition Loan Borrowing
Availability, Borrowers shall immediately repay the aggregate outstanding
Acquisition Loan Advances to the extent required to eliminate such excess.

 

(ii) Immediately upon receipt by any Credit Party of proceeds of any asset
disposition (excluding proceeds of asset dispositions permitted by Section
6.8(a)) or any sale of Stock of any Subsidiary of any Credit Party, Borrowers
shall prepay the Loans in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees and
expenses properly attributable to such transaction and payable by Borrowers in
connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes,
(C) amounts payable to holders of senior Liens (to the extent such Liens
constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate
reserve for income taxes in accordance with GAAP in connection therewith. Any
such prepayment shall be applied in accordance with Section 1.3(c).

 

(iii) If any Credit Party issues Stock (except for (x) issuances of Stock by any
Subsidiary of a Borrower to a Borrower and (y) the issuance of Stock by Holdings
in connection with the exercise of any employee or director stock options
granted pursuant to a valid employee or director stock option plan; provided
that the aggregate consideration received by Holdings in connection with such
stock issuances does not exceed $100,000 in any Fiscal Year), no later than the
Business Day following the date of receipt of the proceeds thereof, Borrowers
shall prepay the Loans in an amount equal to all such proceeds, net of
underwriting discounts and commissions and other reasonable costs paid to
non-Affiliates in connection therewith ; provided, further that Borrowers shall
not be required to prepay the Loans pursuant to the foregoing provisions of this
Section 1.3(b)(iii) so long as each of the following conditions have been met at
the date of such stock issuance: (A) no Default or Event of Default has occurred
(irrespective of whether or not such Default or Event of Default remains in
existence);

 

5

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and (B) the Borrowers’ Senior Leverage Ratio as of the Fiscal Quarter most
recently ended is not greater than 1.50 to 1.00. Any such prepayment shall be
applied in accordance with Section 1.3(c).

 

(c) Application of Certain Mandatory Prepayments. Any prepayments made by
Borrowers pursuant to Sections 1.3(b)(ii) or (b)(iii) above and Prepayments from
insurance or condemnation proceeds in accordance with Section 5.4(c) and the
Mortgage(s), respectively, shall be applied as follows: first, to Fees and
reimbursable expenses of Agent then due and payable pursuant to any of the Loan
Documents; second, to interest then due and payable on the Loans, ratably in
proportion to the interest accrued as to each Loan; third, ratably to the
aggregate, combined principal balance of the Loans, until the same has been paid
in full; and fourth, to any Letter of Credit Obligations, to provide cash
collateral therefor in the manner set forth in Annex B, until all such Letter of
Credit Obligations have been fully cash collateralized in the manner set forth
in Annex B. None of the Revolving Loan Commitment nor the Acquisition Loan
Commitment shall be permanently reduced by the amount of any such prepayments.

 

(d) No Implied Consent. Nothing in this Section 1.3 shall be construed to
constitute Agent’s or any Lender’s consent to any transaction that is not
permitted by other provisions of this Agreement or the other Loan Documents.

 

1.4 Use of Proceeds. Borrowers shall utilize the proceeds of the Revolving Loan
solely (a) to consummate the Senior Subordinated Note Redemption Transaction
(and to pay any related transaction expenses), (b) for the financing of
Borrowers’ ordinary working capital, permitted capital expenditures and other
general corporate needs, and (c) for Permitted Acquisitions to the extent and
only to the extent that Borrowers are no longer able to use proceeds of
Acquisition Loan Advances to make Permitted Acquisitions because the outstanding
Acquisition Loan equals the Maximum Acquisition Loan Amount. Borrowers shall
utilize the proceeds of the Acquisition Loan solely for Permitted Acquisitions.

 

1.5 Interest and Applicable Margins.

 

(a) Borrowers shall pay interest to Agent, for the ratable benefit of Lenders in
accordance with the various Loans being made by each Lender, in arrears on each
applicable Interest Payment Date, at the following rates: (i) with respect to
the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index
Margin per annum or, at the election of Borrower Representative, the applicable
LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the
aggregate Revolving Credit Advances outstanding from time to time; (ii) with
respect to the Acquisition Loan, the Index Rate plus the Applicable Acquisition
Loan Index Margin per annum or, at the election of Borrower Representative, the
applicable LIBOR Rate plus the Applicable Acquisition Loan LIBOR Margin per
annum.

 

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The Applicable Margins are as follows:

 

Applicable Revolver Index Margin

   1.50 %

Applicable Revolver LIBOR Margin

   3.00 %

Applicable Acquisition Loan Index Margin

   2.00 %

Applicable Acquisition Loan LIBOR Margin

   3.50 %

Applicable L/C Margin

   3.00 %

Applicable Revolver Unused Line Fee Margin

   0.50 %

Applicable Acquisition Loan Unused Line Fee Margin

   0.75 %

 

The Applicable Revolver Unused Line Fee Margin set forth above shall be reduced
by 0.25% for any month in which the average daily balance of the Revolving Loan
is greater than 50% of the Revolving Loan Commitment. The Applicable Acquisition
Loan Unused Line Fee Margin shall be reduced by 0.25% for any month in which the
average daily balance of the Acquisition Loan is greater than 50% of the
Acquisition Loan Commitment.

 

(b) If any payment on any Loan becomes due and payable on a day other than a
Business Day, the maturity thereof will be extended to the next succeeding
Business Day (except as set forth in the definition of LIBOR Period) and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.

 

(c) All computations of Fees calculated on a per annum basis and interest shall
be made by Agent on the basis of a 360-day year, in each case for the actual
number of days occurring in the period for which such interest and Fees are
payable. The Index Rate is a floating rate determined for each day. Each
determination by Agent of an interest rate and Fees hereunder shall be final,
binding and conclusive on Borrowers, absent manifest error.

 

(d) So long as an Event of Default has occurred and is continuing under Section
8.1(a), (h) or (i), or so long as any other Default or Event of Default has
occurred and is continuing and at the election of Agent (or upon the written
request of Requisite Lenders) confirmed by written notice from Agent to Borrower
Representative, the interest rates applicable to the Loans and the Letter of
Credit Fees shall be increased by two percentage points (2%) per annum above the
rates of interest or the rate of such Fees otherwise applicable hereunder
(“Default Rate”), and all outstanding Obligations shall bear interest at the
Default Rate applicable to such Obligations. Interest and Letter of Credit Fees
at the Default Rate shall accrue from the initial date of such Default or Event
of Default until that Default or Event of Default is cured or waived and shall
be payable upon demand.

 

(e) Subject to the conditions precedent set forth in Section 2.2, Borrower
Representative shall have the option to (i) request that any Revolving Credit
Advance or Acquisition Loan Advance be made as a LIBOR Loan, (ii) convert at any
time all or any part of outstanding Loans from Index Rate Loans to LIBOR Loans,
(iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.13(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Loan as a LIBOR Loan upon the expiration of

 

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the applicable LIBOR Period and the succeeding LIBOR Period of that continued
Loan shall commence on the first day after the last day of the LIBOR Period of
the Loan to be continued. Any Loan or group of Loans having the same proposed
LIBOR Period to be made or continued as, or converted into, a LIBOR Loan must be
in a minimum amount of $1,000,000 and integral multiples of $250,000 in excess
of such amount. Any such election must be made by 11:00 a.m. (New York time) on
the 3rd Business Day prior to (1) the date of any proposed Advance which is to
bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect
to any LIBOR Loans to be continued as such, or (3) the date on which Borrower
Representative wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR
Period designated by Borrower Representative in such election. If no election is
received with respect to a LIBOR Loan by 11:00 a.m. (New York time) on the 3rd
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default has occurred and is continuing or the additional
conditions precedent set forth in Section 2.2 shall not have been satisfied),
that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR
Period. Borrower Representative must make such election by notice to Agent in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a “Notice
of Conversion/Continuation”) in the form of Exhibit 1.5(e).

 

(f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a
court of competent jurisdiction determines in a final order that the rate of
interest payable hereunder exceeds the highest rate of interest permissible
under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable hereunder shall be equal to
the Maximum Lawful Rate; provided, however, that if at any time thereafter the
rate of interest payable hereunder is less than the Maximum Lawful Rate,
Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate
until such time as the total interest received by Agent, on behalf of Lenders,
is equal to the total interest that would have been received had the interest
rate payable hereunder been (but for the operation of this paragraph) the
interest rate payable since the Closing Date as otherwise provided in this
Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of
interest and in the manner provided in Sections 1.5(a) through (e), unless and
until the rate of interest again exceeds the Maximum Lawful Rate, and at that
time this paragraph shall again apply. In no event shall the total interest
received by any Lender pursuant to the terms hereof exceed the amount that such
Lender could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum
Lawful Rate is calculated pursuant to this paragraph, such interest shall be
calculated at a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.5(f), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in Section 1.11 and thereafter shall refund any excess to Borrowers or as a
court of competent jurisdiction may otherwise order.

 

1.6 Eligible Accounts. All of the Accounts owned by any Borrowing Base Party and
reflected in the most recent Borrowing Base Certificate delivered by Borrower
Representative to Agent shall be “Eligible Accounts” for purposes of this
Agreement, except any Account to which any of the exclusionary criteria set
forth below applies. Agent shall have the right to establish, modify or
eliminate Reserves against Eligible Accounts from time to time in its

 

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reasonable credit judgment. In addition, Agent reserves the right, at any time
and from time to time after the Closing Date, to adjust any of the criteria set
forth below, to establish new criteria and to adjust advance rates with respect
to Eligible Accounts in its reasonable credit judgment. Eligible Accounts shall
not include any Account of any Borrowing Base Party:

 

(a) that does not arise from the sale of goods or the performance of services by
such Borrowing Base Party in the ordinary course of its business;

 

(b) (i) upon which such Borrowing Base Party’s right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) as to which such Borrowing Base Party is not able to bring suit or
otherwise enforce its remedies against the Account Debtor through judicial
process, or (iii) if the Account represents a progress billing consisting of an
invoice for goods sold or used or services rendered pursuant to a contract under
which the Account Debtor’s obligation to pay that invoice is subject to such
Borrowing Base Party’s completion of further performance under such contract or
is subject to the equitable lien of a surety bond issuer;

 

(c) in the event that any defense, counterclaim, setoff or dispute is asserted
as to such Account;

 

(d) that is not a true and correct statement of bona fide indebtedness incurred
in the amount of the Account for merchandise sold to or services rendered and
accepted by the applicable Account Debtor;

 

(e) with respect to which an invoice, reasonably acceptable to Agent in form and
substance, has not been sent to the applicable Account Debtor, except for any
Account that constitutes an Eligible Unbilled Account;

 

(f) that (i) is not owned by such Borrowing Base Party or (ii) is subject to any
right, claim, security interest or other interest of any other Person, other
than Liens in favor of Agent, on behalf of itself and Lenders;

 

(g) that arises from a sale to any director, officer, other employee or
Affiliate of any Credit Party, or to any entity that has any common officer or
director with any Credit Party;

 

(h) that, except in the case of a Government Account, is the obligation of an
Account Debtor that is the United States government or a political subdivision
thereof, or any state, county or municipality or department, agency or
instrumentality thereof unless Agent, in its sole discretion, has agreed to the
contrary in writing and such Borrowing Base Party, if necessary or desirable,
has complied with respect to such obligation with the Federal Assignment of
Claims Act of 1940, or any applicable state, county or municipal law restricting
the assignment thereof with respect to such obligation;

 

(i) that is payable by an Account Debtor that is not one of the following: (i) a
Third Party Payor that is a commercial insurance company reasonably acceptable
to Agent, organized under the laws of any jurisdiction in the United States, and
has its principal office in the United States; (ii) a Blue Cross/Blue Shield
plan; (iii) Medicaid; (iv) Medicare; (v)

 

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TRICARE, (vi) CHAMPVA; or (vii) a health maintenance organization, preferred
provider organization or other type of Third Party Payor not included in (i)
through (vi) above and which organization or other Third Party Payor is
organized under the laws of any jurisdiction of the United States and has its
principal place of business in the United States;

 

(j) that is the obligation of an Account Debtor located in a foreign country;

 

(k) to the extent such Borrowing Base Party or any Subsidiary thereof is liable
for goods sold or services rendered by the applicable Account Debtor to such
Borrowing Base Party or any Subsidiary thereof but only to the extent of the
potential offset;

 

(l) that arises with respect to goods that are delivered on a bill-and-hold,
cash-on-delivery basis or placed on consignment, guaranteed sale or other terms
by reason of which the payment by the Account Debtor is or may be conditional;

 

(m) that is in default; provided, that, without limiting the generality of the
foregoing, an Account shall be deemed in default upon the occurrence of any of
the following:

 

(i) the Account is not paid within one hundred twenty (120) days following the
original service date with respect to such Account;

 

(ii) the Account Debtor obligated upon such Account suspends business, makes a
general assignment for the benefit of creditors or fails to pay its debts
generally as they come due; or

 

(iii) a petition is filed by or against any Account Debtor obligated upon such
Account under any bankruptcy law or any other federal, state or foreign
(including any provincial) receivership, insolvency relief or other law or laws
for the relief of debtors;

 

(n) that is the obligation of an Account Debtor (other than an Account Debtor
that is a Governmental Third Party Payor) if 50% or more of the Dollar amount of
all Accounts owing by that Account Debtor are ineligible under the other
criteria set forth in this Section 1.6;

 

(o) as to which Agent’s Lien thereon, on behalf of itself and Lenders, is not a
first priority perfected Lien;

 

(p) as to which any of the representations or warranties in the Loan Documents
are untrue;

 

(q) to the extent such Account is evidenced by a judgment, Instrument or Chattel
Paper;

 

(r) that is payable in any currency other than Dollars;

 

(s) that was not originated in accordance with and/or does not satisfy in all
material respects all applicable requirements of the Credit and Collection
Policies; or

 

(t) that is otherwise unacceptable to Agent in its reasonable credit judgment.

 

10

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1.7 Qualified Accounts. Notwithstanding anything to the contrary in Section 1.6,
upon the request of Borrower Representative, Agent in its sole credit judgment,
may include Qualified Accounts of any Borrowing Base Party in the Borrowing Base
for purposes of determining Borrowing Availability provided that:

 

(a) Borrower Representative shall have furnished to Agent a senior officer
certificate requesting one or more Qualified Accounts in the Borrowing Base,
which certificate shall (i) identify with particularity each of the Qualified
Accounts to be included in the Borrowing Base and (ii) contain a certification
by a senior officer of the Borrower Representative that such Accounts constitute
“Qualified Accounts” as defined in Annex A of this Agreement;

 

(b) Agent shall have completed a collateral audit of such Qualified Accounts
with results satisfactory to it;

 

(c) the advance rate for such Qualified Accounts shall be 85% subject to
adjustment from time to time in Agent’s reasonable credit judgment (such advance
rate as so adjusted from time to time is referred to herein as the “Qualified
Accounts Advance Rate”); and

 

(d) no Qualified Accounts may be included in the Borrowing Base after the first
anniversary of the Closing Date.

 

1.8 Cash Management Systems. On or prior to the Closing Date, Borrowers will
establish and will maintain until the Termination Date, the cash management
systems described in Annex C (the “Cash Management Systems”).

 

1.9 Fees.

 

(a) Borrowers shall pay to GE Capital, individually, the Fees specified in that
certain commitment letter dated August 21, 2003, as modified by that certain
letter agreement dated November 18, 2003 by and between Holdings and GE Capital
(as so modified, the “GE Capital Commitment Letter”), at the times specified for
payment therein.

 

(b) As additional compensation for the Revolving Lenders, without duplication of
the Fees described in subsection (a) above, Borrowers shall pay to Agent, for
the ratable benefit of such Lenders, in arrears, on the first Business Day of
each month prior to the Commitment Termination Date and on the Commitment
Termination Date, a Fee for Borrowers’ non-use of available funds in an amount
equal to the sum of (i) the Applicable Revolver Unused Line Fee Margin per annum
(calculated on the basis of a 360 day year for actual days elapsed) multiplied
by the difference between (x) the Maximum Revolver Amount (as it may be reduced
from time to time) and (y) the average for the period of the daily closing
balances of the Revolving Loan outstanding during the period for which such Fee
is due and (ii) the Applicable Acquisition Loan Unused Line Fee Margin per annum
(calculated on the basis of a 360 day year for actual days elapsed) multiplied
by the difference between (x) the Maximum Acquisition Loan Amount (as it may be
reduced from time to time) and (y) the average for the period of the daily
closing balances of the Acquisition Loan outstanding during the period for which
the such Fee is due.

 

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(c) Borrowers shall pay to Agent, for the ratable benefit of Revolving Lenders,
the Letter of Credit Fee as provided in Annex B, without duplication of the Fees
described in subsection (a) above.

 

1.10 Receipt of Payments. Borrowers shall make each payment under this Agreement
not later than 2:00 p.m. (New York time) on the day when due in immediately
available funds in Dollars to the Collection Account. For purposes of computing
interest and Fees and determining Revolving Loan Borrowing Availability and
Acquisition Loan Borrowing Availability as of any date, all payments shall be
deemed received on the Business Day on which immediately available funds
therefor are received in the Collection Account prior to 2:00 p.m. New York
time. Payments received after 2:00 p.m. New York time on any Business Day or on
a day that is not a Business Day shall be deemed to have been received on the
following Business Day.

 

1.11 Application and Allocation of Payments.

 

(a) So long as no Default or Event of Default has occurred and is continuing,
(i) payments consisting of proceeds of Accounts received in the ordinary course
of business shall be applied to the Revolving Loan; (ii) payments matching
specific scheduled payments then due shall be applied to those scheduled
payments; (iii) voluntary prepayments shall be applied as determined by Borrower
Representative, subject to the provisions of Section 1.3(a); and (iv) mandatory
prepayments shall be applied as set forth in Sections 1.3(b) and 1.3(c). All
payments and prepayments applied to a particular Loan shall be applied ratably
to the portion thereof held by each Lender as determined by its Pro Rata Share.
As to any other payment, and as to all payments made when a Default or Event or
Default has occurred and is continuing or following the Commitment Termination
Date, each Borrower hereby irrevocably waives the right to direct the
application of any and all payments received from or on behalf of such Borrower,
and each Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply any and all such payments against the Obligations of
Borrowers as Agent may deem advisable notwithstanding any previous entry by
Agent in the Loan Account or any other books and records. In the absence of a
specific determination by Agent with respect thereto, payments shall be applied
to amounts then due and payable in the following order: (1) to Fees and Agent’s
expenses reimbursable hereunder; (2) to interest on the Loans, ratably in
proportion to the interest accrued as to each Loan; (3) to principal payments on
the Loans and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B, ratably to the aggregate, combined principal
balance of the other Loans and outstanding Letter of Credit Obligations; and (4)
to all other Obligations including expenses of Lenders to the extent
reimbursable under Section 11.3.

 

(b) Agent is authorized to, and at its sole election may, charge to the
Revolving Loan balance on behalf of each Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrowers under this Agreement or any of the other Loan
Documents if and to the extent Borrowers fail to pay promptly any such amounts
as and when due, even if the amount of such charges would exceed Revolving Loan
Borrowing Availability at such time. At Agent’s option and to the extent
permitted by law, any charges so made shall constitute part of the Revolving
Loan hereunder.

 

12

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1.12 Loan Account and Accounting. Agent shall maintain a loan account (the “Loan
Account”) on its books to record: all Advances, all payments made by Borrowers,
and all other debits and credits as provided in this Agreement with respect to
the Loans or any other Obligations. All entries in the Loan Account shall be
made in accordance with Agent’s customary accounting practices as in effect from
time to time. The balance in the Loan Account, as recorded on Agent’s most
recent printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Agent and Lenders by each
Borrower; provided that any failure to so record or any error in so recording
shall not limit or otherwise affect any Borrower’s duty to pay the Obligations.
Agent shall render to Borrower Representative a monthly accounting of
transactions with respect to the Loans setting forth the balance of the Loan
Account as to each Borrower for the immediately preceding month. Unless Borrower
Representative notifies Agent in writing of any objection to any such accounting
(specifically describing the basis for such objection), within 30 days after the
date thereof, each and every such accounting shall, absent manifest error, be
deemed final, binding and conclusive on Borrowers in all respects as to all
matters reflected therein. Only those items expressly objected to in such notice
shall be deemed to be disputed by Borrowers. Notwithstanding any provision
herein contained to the contrary, any Lender may elect (which election may be
revoked) to dispense with the issuance of Notes to that Lender and may rely on
the Loan Account as evidence of the amount of Obligations from time to time
owing to it.

 

1.13 Indemnity.

 

(a) Each Credit Party that is a signatory hereto shall jointly and severally
indemnify and hold harmless each of Agent, Lenders and their respective
Affiliates, and each such Person’s respective officers, directors, employees,
attorneys, agents and representatives (each, an “Indemnified Person”), from and
against any and all suits, actions, proceedings, claims, damages, losses,
liabilities and expenses (including reasonable attorneys’ fees and disbursements
and other costs of investigation or defense incurred, including those incurred
upon any appeal) that may be instituted or asserted against or incurred by any
such Indemnified Person as the result of credit having been extended, suspended
or terminated under this Agreement and the other Loan Documents and the
administration of such credit, and in connection with or arising out of the
transactions contemplated hereunder and thereunder and any actions or failures
to act in connection therewith, including any and all Environmental Liabilities
and legal costs and expenses arising out of or incurred in connection with
disputes between or among any parties to any of the Loan Documents
(collectively, “Indemnified Liabilities”); provided, that no such Credit Party
shall be liable for any indemnification to an Indemnified Person to the extent
that any such suit, action, proceeding, claim, damage, loss, liability or
expense results from that Indemnified Person’s gross negligence or willful
misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY
OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.

 

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(b) To induce Lenders to provide the LIBOR Rate option on the terms provided
herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last
day of any applicable LIBOR Period (whether that repayment is made pursuant to
any provision of this Agreement or any other Loan Document or occurs as a result
of acceleration, by operation of law or otherwise); (ii) any Borrower shall
default in payment when due of the principal amount of or interest on any LIBOR
Loan; (iii) any Borrower shall refuse to accept any borrowing of, or shall
request a termination of any borrowing, conversion into or continuation of LIBOR
Loans after Borrower Representative has given notice requesting the same in
accordance herewith; or (iv) any Borrower shall fail to make any prepayment of a
LIBOR Loan after Borrower Representative has given a notice thereof in
accordance herewith, then Borrowers shall jointly and severally indemnify and
hold harmless each Lender from and against all losses, costs and expenses
resulting from or arising from any of the foregoing. Such indemnification shall
include any loss (including loss of margin) or expense arising from the
reemployment of funds obtained by it or from fees payable to terminate deposits
from which such funds were obtained. For the purpose of calculating amounts
payable to a Lender under this subsection, each Lender shall be deemed to have
actually funded its relevant LIBOR Loan through the purchase of a deposit
bearing interest at the LIBOR Rate in an amount equal to the amount of that
LIBOR Loan and having a maturity comparable to the relevant LIBOR Period;
provided, that each Lender may fund each of its LIBOR Loans in any manner it
sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower Representative with its
written calculation of all amounts payable pursuant to this Section 1.13(b), and
such calculation shall be binding on the parties hereto unless Borrower
Representative shall object in writing within 10 Business Days of receipt
thereof, specifying the basis for such objection in detail.

 

1.14 Access. Each Credit Party that is a party hereto shall, during normal
business hours, from time to time upon 3 Business Days’ prior notice as
frequently as Agent reasonably determines to be appropriate: (a) provide Agent
and any of its officers, employees and agents access to its properties,
facilities, advisors and employees (including officers) of each Credit Party and
to the Collateral, (b) permit Agent, and any of its officers, employees and
agents, to inspect, audit and make extracts from any Credit Party’s books and
records, and (c) permit Agent, and its officers, employees and agents, to
inspect, review, evaluate and make test verifications and counts of the Accounts
and other Collateral of any Credit Party; provided that in the absence of a
Default or Event of Default, Agent shall be responsible for the expense of any
field examinations in excess of one such examination per year. If a Default or
Event of Default has occurred and is continuing or if access is necessary to
preserve or protect the Collateral as determined by the Agent, each such Credit
Party shall provide such access to Agent and to each Lender at all times and
with reasonable prior notice. Furthermore, so long as any Event of Default has
occurred and is continuing, Borrowers shall provide Agent and each Lender with
access to their suppliers and customers. Each Credit Party shall promptly make
available to Agent and its counsel originals or copies of all books and records
that Agent may reasonably request. Each Credit Party shall deliver any document
or instrument necessary for Agent, as it may from time to time reasonably
request, to obtain records from any service bureau or other Person that
maintains records for such Credit Party, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by
such Credit

 

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Party. Agent will give Lenders at least 10 days’ prior written notice of
regularly scheduled audits. Representatives of other Lenders may accompany
Agent’s representatives on regularly scheduled audits at no charge to Borrowers.

 

1.15 Taxes.

 

(a) Any and all payments by each Borrower hereunder (including any payments made
pursuant to Section 12) or under the Notes shall be made, in accordance with
this Section 1.15, free and clear of and without deduction for any and all
present or future Taxes. If any Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder (including any sum payable
pursuant to Section 12) or under the Notes, (i) the sum payable shall be
increased as much as shall be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.15) Agent or Lenders, as applicable, receive an amount equal to
the sum they would have received had no such deductions been made, (ii) such
Borrower shall make such deductions, and (iii) such Borrower shall pay the full
amount deducted to the relevant taxing or other authority in accordance with
applicable law. Within 30 days after the date of any payment of Taxes, Borrower
Representative shall furnish to Agent the original or a certified copy of a
receipt evidencing payment thereof. Agent and Lenders shall not be obligated to
return or refund any amounts received pursuant to this Section, unless such
amounts were paid or received in error.

 

(b) The Credit Parties jointly and severally agree to pay Agent, L/C Issuer and
each Lender, promptly following demand therefor, all Taxes (excluding income or
other similar taxes imposed on L/C Issuer or any Lender or any holder of a Note
by the jurisdictions under the laws of which such Person seeking payment is
organized or conducts business or any political subdivision thereof), including
any interest or penalties thereon, at any time payable or ruled to be payable in
respect of the existence, execution or delivery of this Agreement, the Related
Transactions Documents or the making of any Loan or issuance of any Letter of
Credit, and to indemnify and hold Agent, L/C Issuer and each Lender, and each
and every holder of the Notes or any other Obligation harmless against liability
in connection with any such Taxes. If any Lender, L/C Issuer or the Agent
receives a refund in respect of any Taxes for which such Person has received
payment from any Borrower hereunder, it promptly shall repay such refund (plus
interest received, if any) to such Borrower (but only to the extent of indemnity
payments made, or additional amounts paid, by such Borrower under this Section
1.15(b) with respect to Taxes giving rise to such refund), provided that such
Borrower, upon the request of such Lender, L/C Issuer or the Agent, as
applicable, agrees to return such refund (plus any penalties, interest or other
charges required to be paid) to such Lender, L/C Issuer or the Agent in the
event such Lender, L/C Issuer or the Agent is required to repay such refund to
the relevant taxing authority. Nothing contained in this Section 1.15(b) shall
require the Agent, the L/C Issuer or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential).

 

(c) Each Lender organized under the laws of a jurisdiction outside the United
States (a “Foreign Lender”) as to which payments to be made under this Agreement
or under the Notes are exempt from United States withholding tax under an
applicable statute or tax treaty shall provide to Borrower Representative and
Agent a properly completed and executed IRS Form W-8ECI or Form W-8BEN or other
applicable form, certificate or document prescribed by

 

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the IRS or the United States certifying as to such Foreign Lender’s entitlement
to such exemption (a “Certificate of Exemption”). Any foreign Person that seeks
to become a Lender under this Agreement shall provide a Certificate of Exemption
to Borrower Representative and Agent prior to becoming a Lender hereunder. No
foreign Person may become a Lender hereunder if such Person fails to deliver a
Certificate of Exemption in advance of becoming a Lender.

 

1.16 Capital Adequacy; Increased Costs; Illegality.

 

(a) If any Lender shall have determined that any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by any
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law),
in each case, adopted after the Closing Date, from any central bank or other
Governmental Authority increases or would have the effect of increasing the
amount of capital, reserves or other funds required to be maintained by such
Lender and thereby reducing the rate of return on such Lender’s capital as a
consequence of its obligations hereunder, then Borrowers shall from time to time
upon demand by such Lender (with a copy of such demand to Agent) pay to Agent,
for the account of such Lender, additional amounts sufficient to compensate such
Lender for such reduction. A certificate as to the amount of that reduction and
showing the basis of the computation thereof submitted by such Lender to
Borrower Representative and to Agent shall, absent manifest error, be final,
conclusive and binding for all purposes. If Agent or any Lender shall be
entitled to seek a refund of all or a portion of the costs or expenses paid by
any Borrower to Agent or such Lender, as applicable, under this Section, then
Agent or such Lender, as applicable, shall promptly seek such refund and, upon
receipt thereof, pay such refund to such Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by such Borrower under this
Section 1.16); provided that nothing contained in this sentence shall require
Agent or any Lender to change any of its business affairs or practices or the
location of any office in which it conducts business, or to make available any
information relating to its taxes or operations which it deems confidential).

 

(b) If, due to either (i) the introduction of or any change in any law or
regulation (or any change in the interpretation thereof) or (ii) the compliance
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), in each case adopted after
the Closing Date, there shall be any increase in the cost to any Lender of
agreeing to make or making, funding or maintaining any Loan, then Borrowers
shall from time to time, upon demand by such Lender (with a copy of such demand
to Agent), pay to Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost. A certificate as
to the amount of such increased cost, submitted to Borrower Representative and
to Agent by such Lender, shall be conclusive and binding on Borrowers for all
purposes, absent manifest error. Each Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above which
would result in any such increased cost, the affected Lender shall, to the
extent not inconsistent with such Lender’s internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrowers pursuant to this Section 1.16(b).

 

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(c) Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender’s
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower Representative
through Agent, (i) the obligation of such Lender to agree to make or to make or
to continue to fund or maintain LIBOR Loans shall terminate and (ii) each
Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing by
such Borrower to such Lender, together with interest accrued thereon, unless
Borrower Representative on behalf of such Borrower, within 5 Business Days after
the delivery of such notice and demand, converts all LIBOR Loans into Index Rate
Loans.

 

(d) Within 15 days after receipt by Borrower Representative of written notice
and demand from any Lender (an “Affected Lender”) for payment of additional
amounts or increased costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b),
Borrower Representative may, at its option, notify Agent and such Affected
Lender of its intention to replace the Affected Lender. So long as no Default or
Event of Default has occurred and is continuing, Borrower Representative, with
the consent of Agent, may obtain, at Borrowers’ expense, a replacement Lender
(“Replacement Lender”) for the Affected Lender, which Replacement Lender must be
reasonably satisfactory to Agent. If Borrowers obtain a Replacement Lender
within 90 days following notice of their intention to do so, the Affected Lender
must sell and assign its Loans and Commitments to such Replacement Lender for an
amount equal to the principal balance of all Loans held by the Affected Lender
and all accrued interest and Fees with respect thereto through the date of such
sale; provided, that Borrowers shall have reimbursed such Affected Lender for
the additional amounts or increased costs that it is entitled to receive under
this Agreement through the date of such sale and assignment. Notwithstanding the
foregoing, Borrowers shall not have the right to obtain a Replacement Lender if
the Affected Lender rescinds its demand for increased costs or additional
amounts within 15 days following its receipt of Borrowers’ notice of intention
to replace such Affected Lender. Furthermore, if Borrowers give a notice of
intention to replace and do not so replace such Affected Lender within 90 days
thereafter, Borrowers’ rights under this Section 1.16(d) shall terminate and
Borrowers shall promptly pay all increased costs or additional amounts demanded
by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b).

 

1.17 Single Loan. All Loans to each Borrower and all of the other Obligations of
each Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of that Borrower secured, until the
Termination Date, by all of the Collateral.

 

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2. CONDITIONS PRECEDENT

 

2.1 Conditions to the Initial Loans. No Lender shall be obligated to make any
Loan or incur any Letter of Credit Obligations on the Closing Date, or to take,
fulfill, or perform any other action hereunder, until the following conditions
have been satisfied or provided for in a manner satisfactory to Agent, or waived
in writing by Agent and Lenders:

 

(a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof
shall have been duly executed by, and delivered to, Borrowers, each other Credit
Party, Agent and Lenders; and Agent shall have received such documents,
instruments, agreements and legal opinions as Agent shall reasonably request in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, all as listed in the Closing Checklist attached hereto as Annex
D, each in form and substance reasonably satisfactory to Agent.

 

(b) Approvals. Agent shall have received (i) satisfactory evidence, in its
reasonable discretion, that (A) the Credit Parties have obtained all required
consents and approvals of all Persons including all requisite Governmental
Authorities and third party approvals or consents (including any landlord’s,
bailee’s, warehouseman’s or other waivers or consents), to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the Related Transactions and (B) all applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority that would restrain, prevent or otherwise impose adverse conditions on
the execution, delivery and performance of this Agreement and the other Loan
Documents or (ii) an officer’s certificate in form and substance reasonably
satisfactory to Agent affirming that no such consents or approvals are required.

 

(c) Payment of Fees. Borrowers shall have paid the Fees required to be paid on
the Closing Date in the respective amounts specified in Section 1.9 (including
the Fees specified in the GE Capital Commitment Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Closing Date.

 

(d) Capital Structure; Other Indebtedness. The corporate, capital and
organizational structure of each Credit Party and the terms and conditions of
all Indebtedness of each Credit Party shall be acceptable to Agent in its sole
discretion.

 

(e) Due Diligence. Agent shall have completed its business, financial,
operational and legal due diligence with results reasonably satisfactory to
Agent.

 

(f) Minimum EBITDA. Holdings and its Subsidiaries shall have on a consolidated
basis EBITDA of at least $13,000,000 for the twelve consecutive Fiscal Months
most recently ended.

 

(g) Disclosure. Agent shall not have become aware of any information or other
matter affecting any Credit Party or the transactions contemplated hereby that
is inconsistent in a material and adverse manner with any such information or
other matters disclosed to the Agent prior to the date of this Agreement.

 

2.2 Further Conditions to Each Extension of Credit. Except as otherwise
expressly provided herein, no Lender shall be obligated to fund any Advance,
convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit
Obligation, if, as of the date thereof:

 

(a) any representation or warranty by any Credit Party contained herein or in
any other Loan Document is untrue or incorrect as of such date (i) as stated if
such representation

 

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and warranty contains an express materiality qualification or (ii) in all
material respects if such representation and warranty does not contain such a
qualification, except to the extent that such representation or warranty
expressly relates to an earlier date and except for changes therein expressly
permitted or expressly contemplated by this Agreement, and Agent or Requisite
Lenders have determined not to make such Advance, convert or continue any Loan
as LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact
that such warranty or representation is untrue or incorrect;

 

(b) any event or circumstance having a Material Adverse Effect has occurred
since the date hereof as determined by the Requisite Lenders, and Agent or
Requisite Lenders have determined not to make such Advance, convert or continue
any Loan as a LIBOR Loan or incur such Letter of Credit Obligation as a result
of the fact that such event or circumstance has occurred;

 

(c) any Default or Event of Default has occurred and is continuing or would
result after giving effect to any Advance (or the incurrence of any Letter of
Credit Obligation), and Agent or Requisite Lenders shall have determined not to
make any Advance, convert or continue any Loan as a LIBOR Loan or incur any
Letter of Credit Obligation as a result of that Default or Event of Default;

 

(d) if the proceeds of such requested Advance are to be used by any Borrower to
consummate the Senior Subordinated Note Redemption Transaction and any of the
following conditions are not satisfied in full: (i) Borrowers shall have
delivered to Agent a certificate of the Chief Financial Officer, or, in his
absence, the Chief Accounting Officer, of Borrowers, substantially in the form
attached hereto as Exhibit 2.2(d), certifying and demonstrating that prior to
and after giving effect to the making of such requested Advance and the
consummation of the Senior Subordinated Note Redemption Transaction (A) each
Credit Party will be Solvent and (B) Borrowers are in compliance with the
financial covenants in Annex G as of the most recently ended Fiscal Month (on a
pro forma basis after giving effect to the proposed Senior Subordinated Note
Redemption Transaction and the requested Advance in connection therewith), (ii)
no Default or Event of Default exists or would result therefrom, and (iii)
Borrowers shall have unrestricted cash on hand plus Revolving Loan Borrowing
Availability of at least $1,000,000 after giving effect to any such Advance;

 

(e) after giving effect to any Revolving Credit Advance (or the incurrence of
any Letter of Credit Obligations), the outstanding principal amount of the
Revolving Loan would exceed the Revolving Loan Borrowing Availability;

 

(f) after giving effect to any Revolving Credit Advance (or the incurrence of
any Letter of Credit Obligations), the Total Leverage Ratio or the Senior
Leverage Ratio for Holdings and its Subsidiaries on a consolidated basis
(computed on a pro forma basis to give effect to such Revolving Credit Advance
or the incurrence of any Letter of Credit Obligations and any substantially
concurrent application of the proceeds thereof to repay outstanding Advances or
Letter of Credit Obligations) would be greater than the applicable maximum Total
Leverage Ratio or maximum Senior Leverage Ratio, as the case may be, permitted
pursuant to Section 6.10 and Annex G for the immediately preceding Fiscal
Quarter; or

 

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(g) (i) at the time of and after giving effect to any Revolving Credit Advance
(or the incurrence of any Letter of Credit Obligations), Borrowers would not be
permitted to incur such Indebtedness under the terms of the Senior Subordinated
Note Indenture, or (ii) if the Notice of Revolving Credit Advance required to be
delivered in connection with any Revolving Credit Advance (or the incurrence of
any Letter of Credit Obligations) does not contain a certification by the
Borrower Representative that at the time of and after giving effect to any
Revolving Credit Advance (or the incurrence of any Letter of Credit
Obligations), Borrowers would be permitted to incur such Indebtedness under the
terms of the Senior Subordinated Note Indenture and no default or event of
default has occurred and is continuing under the Senior Subordinated Note
Indenture.

 

The request and acceptance by any Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Revolving Loan or Acquisition Loan into, or as, a LIBOR Loan shall be
deemed to constitute, as of the date thereof, (i) a representation and warranty
by Borrowers that the conditions in this Section 2.2 have been satisfied and
(ii) a reaffirmation by Borrowers of the granting and continuance of Agent’s
Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

 

2.3 Further Conditions to Each Acquisition Loan Advance. Except as otherwise
expressly provided herein, no Lender shall be obligated to fund any Acquisition
Loan Advance if as of the date thereof:

 

(a) the conditions precedent in Section 2.2 shall not have been fully satisfied;

 

(b) after giving effect to any Acquisition Loan Advance, the outstanding
principal amount of the Acquisition Loan would exceed the Acquisition Loan
Borrowing Availability;

 

(c) Borrowers have failed to deliver to Agent a certificate of the Chief
Financial Officer, or, in his absence, the Chief Accounting Officer, of
Borrowers, in form and substance satisfactory to Agent, demonstrating that after
giving effect to such requested Acquisition Loan Advance Borrowers are in
compliance with the Maximum Senior Leverage Ratio covenant in paragraph (d) of
Annex G as of the most recently ended Fiscal Month (on a pro forma basis after
giving effect to the requested Acquisition Loan Advance);

 

(d) after giving effect to any Acquisition Loan Advance, the Total Leverage
Ratio or the Senior Leverage Ratio for Holdings and its Subsidiaries on a
consolidated basis (computed on a pro forma basis after giving effect to such
Acquisition Loan Advance) would be greater than the applicable maximum Total
Leverage Ratio or the maximum Senior Leverage Ratio, as the case may be,
permitted pursuant to Section 6.10 and Annex G for the immediately preceding
Fiscal Quarter; or

 

(e) (i) at the time of and after giving effect to any Acquisition Loan Advance,
Borrowers would not be permitted to incur such Indebtedness under the terms of
the Senior Subordinated Note Indenture, or (ii) if the Notice of Acquisition
Loan Advance required to be delivered in connection with any Acquisition Loan
Advance does not contain a certification by the Borrower Representative that at
the time of and after giving effect to any Acquisition Loan

 

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Advance, Borrowers would be permitted to incur such Indebtedness under the terms
of the Senior Subordinated Note Indenture and no default or event of default has
occurred and is continuing under the Senior Subordinated Note Indenture.

 

The request and acceptance by any Borrower of the proceeds of any Acquisition
Loan Advance shall be deemed to constitute, as of the date thereof, (i) a
representation and warranty by Borrowers that the conditions in this Sections
2.2 and 2.3 have been satisfied and (ii) a reaffirmation by Borrowers of the
cross-guaranty provisions set forth in Section 12 and of the granting and
continuance of Agent’s Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.

 

3. REPRESENTATIONS AND WARRANTIES

 

To induce Lenders to make the Loans and to incur Letter of Credit Obligations,
the Credit Parties executing this Agreement, jointly and severally, make the
following representations and warranties to Agent and each Lender with respect
to all Credit Parties, each and all of which shall survive the execution and
delivery of this Agreement.

 

3.1 Corporate Existence; Compliance with Law. Each Credit Party (a) is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization set forth in Disclosure Schedule
(3.1); (b) is duly qualified to conduct business and is in good standing in each
other jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to result in a Material Adverse
Effect; (c) has the requisite power and authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to conduct its business as now, heretofore
and proposed to be conducted; (d) subject to specific representations regarding
Environmental Laws, has all material licenses, permits, consents or approvals
from or by, and has made all material filings with, and has given all material
notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct; (e) is in compliance with
its charter and bylaws or partnership or operating agreement, as applicable; and
(f) subject to specific representations set forth herein regarding ERISA,
Environmental Laws, tax and other laws, is in compliance with all applicable
provisions of law, except where the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

3.2 Executive Offices, Collateral Locations, FEIN. As of the Closing Date, the
current location of each Credit Party’s chief executive office, pharmacy
locations and warehouses and premises at which any Collateral is located are set
forth in Disclosure Schedule (3.2), and none of the locations of the chief
executive offices, pharmacy locations, or warehouses or other premises
containing Inventory with values in excess of $250,000 has changed within 12
months preceding the Closing Date. In addition, Disclosure Schedule (3.2) lists
the federal employer identification and organization number of each Credit
Party.

 

3.3 Corporate Power, Authorization, Enforceable Obligations. The execution,
delivery and performance by each Credit Party of the Loan Documents to which it
is a party and

 

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the creation of all Liens provided for therein: (a) are within such Person’s
power; (b) have been duly authorized by all necessary corporate, limited
liability company or limited partnership action; (c) do not contravene any
provision of such Person’s charter, bylaws or partnership or operating agreement
as applicable; (d) do not violate any law or regulation, or any order or decree
of any court or Governmental Authority; (e) do not conflict with or result in
the breach or termination of, constitute a default under or accelerate or permit
the acceleration of any performance required by, any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which such Person is a party
or by which such Person or any of its property is bound; (f) do not result in
the creation or imposition of any Lien upon any of the property of such Person
other than those in favor of Agent, on behalf of itself and Lenders, pursuant to
the Loan Documents; and (g) do not require the consent or approval of any
Governmental Authority or any other Person, except those referred to in Section
2.1(c), all of which will have been duly obtained, made or complied with prior
to the Closing Date. Each Loan Document and each Related Transactions Document
to which any Credit Party is a party constitutes a valid and binding agreement
of such Credit Party in each case enforceable in accordance with its terms,
subject to (i) the effect of any applicable bankruptcy, fraudulent transfer,
moratorium, insolvency, reorganization or other similar laws affecting the
rights of creditors generally and (ii) the effect of general principles of
equity whether applied by a court of equity or law.

 

3.4 Financial Statements and Projections. Except for the Projections and the
Fair Salable Balance Sheet, all Financial Statements concerning Holdings and its
Subsidiaries that are referred to below have been prepared in accordance with
GAAP consistently applied throughout the periods covered (except as disclosed
therein and except, with respect to unaudited Financial Statements, for the
absence of footnotes and normal year-end audit adjustments) and present fairly
in all material respects the financial position of the Persons covered thereby
as at the dates thereof and the results of their operations and cash flows for
the periods then ended.

 

(a) Financial Statements. The following Financial Statements attached hereto as
Disclosure Schedule (3.4(a)) have been delivered on the date hereof:

 

(i) The audited consolidated and consolidating balance sheets at September 30,
2002 and September 30, 2003 and the related statements of income and cash flows
of Holdings and its Subsidiaries for the Fiscal Years then ended, certified by
Ernst & Young LLP.

 

(ii) The unaudited balance sheets at December 31, 2002, March 31, 2003 and June
30, 2003 and the related statement(s) of income and cash flows of Holdings and
its Subsidiaries for the Fiscal Quarters then ended.

 

(b) [reserved]

 

(c) Projections. The Projections delivered on the date hereof and attached
hereto as Disclosure Schedule (3.4(c)) have been prepared by Borrowers in light
of the past operations of its businesses, but including future payments of known
contingent liabilities reflected on the Fair Salable Balance Sheet, and reflect
projections for the fiscal year period beginning on September 30, 2003 on a
quarterly basis for the first year and on a year-by-year basis thereafter. The
Projections are based upon estimates and assumptions stated therein, all of

 

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which Borrowers believe to be reasonable and fair in light of current conditions
and current facts known to Borrowers and, as of the Closing Date, reflect
Borrowers’ good faith and reasonable estimates of the future financial
performance of Borrowers and of the other information projected therein for the
period set forth therein.

 

(d) Fair Salable Balance Sheet. The Fair Salable Balance Sheet delivered on the
date hereof and attached hereto as Disclosure Schedule (3.4(d)) was prepared by
Borrowers on the same basis as the unaudited balance sheets described in Section
3.4(a)(ii), except that Borrowers’ assets are set forth therein at their fair
salable values on a going concern basis and the liabilities set forth therein
include all contingent liabilities of Borrowers stated at the reasonably
estimated fair values thereof.

 

3.5 Material Adverse Effect. Between September 30, 2003 and the Closing Date,
(a) no Credit Party has incurred any obligations, contingent or noncontingent
liabilities, liabilities for Charges, long-term leases or unusual forward or
long-term commitments that are not reflected in the audited financial statements
described in Section 3.4(a)(i) and that alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (b) no contract, lease
or other agreement or instrument has been entered into by any Credit Party or
has become binding upon any Credit Party’s assets and no law or regulation
applicable to any Credit Party has been adopted that has had or could reasonably
be expected to have a Material Adverse Effect, and (c) no Credit Party is in
default and to the best of Borrowers’ knowledge no third party is in default
under any material contract, lease or other agreement or instrument, that alone
or in the aggregate could reasonably be expected to have a Material Adverse
Effect. Between September 30, 2003 and the Closing Date no event has occurred,
that alone or together with other events, could reasonably be expected to have a
Material Adverse Effect.

 

3.6 Ownership of Property; Liens. As of the Closing Date, the Credit Parties do
not own any real estate other than as set forth on Disclosure Schedule (3.6).
The Real Estate listed in Disclosure Schedule (3.6) (“Real Estate”) constitutes
all of the real property, leased, subleased, or used by any Credit Party. Each
Credit Party has valid and marketable leasehold interests in all of its leased
Real Estate, all as described on Disclosure Schedule (3.6), and copies of all
such leases or a summary of terms thereof reasonably satisfactory to Agent have
been delivered to Agent. Disclosure Schedule (3.6) further describes any Real
Estate with respect to which any Credit Party is a lessor, sublessor or assignor
as of the Closing Date. Each Credit Party also has good and marketable title to,
or valid leasehold interests in, all of its personal property and assets. As of
the Closing Date, none of the properties and assets of any Credit Party are
subject to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Credit Party has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party’s right, title and
interest in and to all such Real Estate and other properties and assets.
Disclosure Schedule (3.6) also describes any purchase options, rights of first
refusal or other similar contractual rights pertaining to any Real Estate. As of
the Closing Date, no portion of any Credit Party’s Real Estate has suffered any
material damage by fire or other casualty loss that has not heretofore been
repaired and restored in all material respects to its original condition or
otherwise remedied.

 

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As of the Closing Date, all material permits required to have been issued or
appropriate to enable the Real Estate to be lawfully occupied and used for all
of the purposes for which it is currently occupied and used have been lawfully
issued and are in full force and effect.

 

3.7 Labor Matters. As of the Closing Date (a) no strikes or other material labor
disputes against any Credit Party are pending or, to any Credit Party’s
knowledge, threatened; (b) hours worked by and payment made to employees of each
Credit Party comply with the Fair Labor Standards Act and each other federal,
state, local or foreign law applicable to such matters, except where any
non-compliance could not reasonably be expected to have a Material Adverse
Effect; (c) all payments due from any Credit Party for employee health and
welfare insurance have been paid or accrued as a liability on the books of such
Credit Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit
Party is a party to or bound by any collective bargaining agreement, management
agreement, consulting agreement, employment agreement, bonus, restricted stock,
stock option, or stock appreciation plan or agreement or any similar plan,
agreement or arrangement (and true and complete copies of any agreements
described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there
is no organizing activity involving any Credit Party pending or, to any Credit
Party’s knowledge, threatened by any labor union or group of employees; (f)
there are no representation proceedings pending or, to any Credit Party’s
knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of any Credit Party has made a pending demand
for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there
are no material complaints or charges against any Credit Party pending or, to
the knowledge of any Credit Party, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by any Credit
Party of any individual.

 

3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.
Except as set forth in Disclosure Schedule (3.8), as of the Closing Date, no
Credit Party has any Subsidiaries, is engaged in any joint venture or
partnership with any other Person, or is an Affiliate of any other Person. All
of the issued and outstanding Stock of each Credit Party is owned by each of the
Stockholders and in the amounts set forth in Disclosure Schedule (3.8). Except
as set forth in Disclosure Schedule (3.8), there are no outstanding rights to
purchase, options, warrants or similar rights or agreements pursuant to which
any Credit Party may be required to issue, sell, repurchase or redeem any of its
Stock or other equity securities or any Stock or other equity securities of its
Subsidiaries. All outstanding Indebtedness and Guaranteed Indebtedness of each
Credit Party as of the Closing Date (except for the Obligations) is described in
Section 6.3 (including Disclosure Schedule (6.3)). Except as set forth on
Disclosure Schedule (3.8), none of the Credit Parties other than Borrowers have
any assets (except Stock of their Subsidiaries) or any Indebtedness or
Guaranteed Indebtedness (except the Obligations).

 

3.9 Government Regulation. No Credit Party is an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company,” as such terms are defined in the Investment Company Act of
1940. No Credit Party is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, or any other federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder. The making of the Loans by Lenders to

 

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Borrowers, the incurrence of the Letter of Credit Obligations on behalf of
Borrowers, the application of the proceeds thereof and repayment thereof and the
consummation of the Related Transactions will not violate any provision of any
such statute or any rule, regulation or order issued by the Securities and
Exchange Commission.

 

3.10 Margin Regulations. No Credit Party is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” as such
terms are defined in Regulation U of the Federal Reserve Board as now and from
time to time hereafter in effect (such securities being referred to herein as
“Margin Stock”). No Credit Party owns any Margin Stock, and none of the proceeds
of the Loans or other extensions of credit under this Agreement will be used,
directly or indirectly, for the purpose of purchasing or carrying any Margin
Stock, for the purpose of reducing or retiring any Indebtedness that was
originally incurred to purchase or carry any Margin Stock or for any other
purpose that might cause any of the Loans or other extensions of credit under
this Agreement to be considered a “purpose credit” within the meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or
permit to be taken any action that might cause any Loan Document to violate any
regulation of the Federal Reserve Board.

 

3.11 Taxes. All tax returns, reports and statements, including information
returns, required by any Governmental Authority to be filed by any Credit Party
have been filed with the appropriate Governmental Authority and all Charges have
been paid prior to the date on which any fine, penalty, interest or late charge
may be added thereto for nonpayment thereof (or any such fine, penalty,
interest, late charge or loss has been paid), excluding Charges or other amounts
being contested in accordance with Section 5.2(b). Proper and accurate amounts
have been withheld by each Credit Party from its respective employees for all
periods in compliance with all applicable federal, state, local and foreign laws
and such withholdings have been timely paid to the respective Governmental
Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those
taxable years for which any Credit Party’s tax returns are currently being
audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or
otherwise currently outstanding. Except as described in Disclosure Schedule
(3.11), no Credit Party has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges.
None of the Credit Parties and their respective predecessors are liable for any
Charges: (a) under any agreement (including any tax sharing agreements) or (b)
to each Credit Party’s knowledge, as a transferee. As of the Closing Date, no
Credit Party has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
would have a Material Adverse Effect.

 

3.12 ERISA.

 

(a) Disclosure Schedule (3.12) lists all Plans and separately identifies all
Pension Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare
Plans, including all Retiree Welfare Plans. Copies of all such listed Plans,
together with a copy of the latest form. IRS/DOL 5500-series for each such Plan
have been delivered to Agent. Except with respect to Multiemployer Plans, each
Qualified Plan has been determined by the IRS to qualify

 

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under Section 401 of the IRC, the trusts created thereunder have been determined
to be exempt from tax under the provisions of Section 501 of the IRC, and
nothing has occurred that would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the timely filing of all reports required under the
IRC or ERISA, including the statement required by 29 CFR Section 2520.104-23,
except where any noncompliance could not reasonably be expected to result in a
Material Adverse Effect. Neither any Credit Party nor ERISA Affiliate has failed
to make any contribution or pay any amount due as required by either Section 412
of the IRC or Section 302 of ERISA or the terms of any such Plan. Neither any
Credit Party nor ERISA Affiliate has engaged in a “prohibited transaction,” as
defined in Section 406 of ERISA and Section 4975 of the IRC, in connection with
any Plan, that would subject any Credit Party to a material tax on prohibited
transactions imposed by Section 502(i) of ERISA or Section 4975 of the IRC.

 

(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has
any Unfunded Pension Liability; (ii) no ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party
or ERISA Affiliate has incurred or reasonably expects to incur any liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan of any Credit Party or ERISA
Affiliate has been terminated, whether or not in a “standard termination” as
that term is used in Section 404(b)(1) of ERISA, nor has any Title IV Plan of
any Credit Party or ERISA Affiliate (determined at any time within the past five
years) with Unfunded Pension Liabilities been transferred outside of the
“controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any
Credit Party or ERISA Affiliate; (vi) except in the case of any ESOP, Stock of
all Credit Parties and their ERISA Affiliates makes up, in the aggregate, no
more than 10% of fair market value of the assets of any Plan measured on the
basis of fair market value as of the latest valuation date of any Plan; and
(vii) no liability under any Title IV Plan has been satisfied with the purchase
of a contract from an insurance company that is not rated AAA by the Standard &
Poor’s Corporation or an equivalent rating by another nationally recognized
rating agency.

 

3.13 No Litigation. No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the knowledge of any Credit Party, threatened
against any Credit Party, before any Governmental Authority or before any
arbitrator or panel of arbitrators (collectively, “Litigation”), (a) that
challenges any Credit Party’s right or power to enter into or perform any of its
obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) that
has a reasonable risk of being determined adversely to any Credit Party and
that, if so determined, could reasonably be expected to have a Material Adverse
Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing
Date there is no Litigation pending or threatened that seeks damages in excess
of $250,000 or injunctive relief against, or alleges criminal misconduct of, any
Credit Party.

 

3.14 Brokers. No broker or finder acting on behalf of any Credit Party or
Affiliate thereof brought about the obtaining, making or closing of the Loans or
the Related

 

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Transactions, and no Credit Party or Affiliate thereof has any obligation to any
Person in respect of any finder’s or brokerage fees in connection therewith.

 

3.15 Intellectual Property. As of the Closing Date, each Credit Party owns or
has rights to use all Intellectual Property necessary to continue to conduct its
business as now or heretofore conducted by it or proposed to be conducted by it,
and each Patent, Trademark, Copyright and License is listed, together with
application or registration numbers, as applicable, in Disclosure Schedule
(3.15). Each Credit Party conducts its business and affairs without infringement
of or interference with any Intellectual Property of any other Person in any
material respect. Except as set forth in Disclosure Schedule (3.15), no Credit
Party is aware of any infringement claim by any other Person with respect to any
Intellectual Property.

 

3.16 Full Disclosure. No information contained in this Agreement, any of the
other Loan Documents, Financial Statements or Collateral Reports or other
written reports from time to time delivered hereunder or any written statement
or certificate furnished by or on behalf of any Credit Party to Agent or any
Lender pursuant to the terms of this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they were made. The Projections are
based upon estimates and assumptions stated therein, all of which the Borrowers
believe to be reasonable and fair in light of current conditions and current
facts known to the Borrowers and, as of the Closing Date, reflect the Borrowers’
good faith and reasonable estimates of the future financial performance of the
Borrowers and its Subsidiaries and of the other information projected therein
for the period set forth therein. The Liens granted to Agent, on behalf of
itself and Lenders, pursuant to the Collateral Documents will at all times be
fully perfected first priority Liens in and to the Collateral described therein,
subject, as to priority, only to Permitted Encumbrances.

 

3.17 Environmental Matters.

 

(a) (i) The Real Estate is free of contamination from any Hazardous Material
except for such contamination that would not adversely impact the value or
marketability of such Real Estate and that would not result in Environmental
Liabilities that could reasonably be expected to exceed $300,000; (ii) no Credit
Party has caused or suffered to occur any Release of Hazardous Materials on, at,
in, under, above, to, from or about any of its Real Estate; (iii) the Credit
Parties are and have been in compliance with all Environmental Laws, except for
such noncompliance that would not result in Environmental Liabilities which
could reasonably be expected to exceed $300,000; (iv) the Credit Parties have
obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits would not result in
Environmental Liabilities that could reasonably be expected to exceed $300,000,
and all such Environmental Permits are valid, uncontested and in good standing;
(v) no Credit Party is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party which
could reasonably be expected to exceed $300,000, and no Credit Party has
permitted any current or former tenant or occupant of the Real Estate to engage
in any such operations; (vi) there is no Litigation arising under or related to
any Environmental Laws, Environmental Permits or Hazardous Material that

 

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seeks damages, penalties, fines, costs or expenses in excess of $300,000 or
injunctive relief against, or that alleges criminal misconduct by, any Credit
Party; (vii) no notice has been received by any Credit Party identifying it as a
“potentially responsible party” or requesting information under CERCLA or
analogous state statutes, and to the knowledge of the Credit Parties, there are
no facts, circumstances or conditions that may result in any Credit Party being
identified as a “potentially responsible party” under CERCLA or analogous state
statutes; and (viii) the Credit Parties have provided to Agent copies of all
existing environmental reports, reviews and audits and all written information
pertaining to actual or potential Environmental Liabilities, in each case
relating to any Credit Party.

 

(b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now,
and has not ever been, in control of any of the Real Estate or any Credit
Party’s affairs, and (ii) does not have the capacity through the provisions of
the Loan Documents or otherwise to influence any Credit Party’s conduct with
respect to the ownership, operation or management of any of its Real Estate or
compliance with Environmental Laws or Environmental Permits.

 

3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies of any
nature maintained, as of the Closing Date, for current occurrences by each
Credit Party, as well as a summary of the terms of each such policy.

 

3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all
banks and other financial institutions at which any Credit Party maintains
deposit or other accounts as of the Closing Date, including any Disbursement
Accounts, and such Schedule correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number therefor.

 

3.20 [Reserved]

 

3.21 Customer and Trade Relations. As of the Closing Date, there exists no
actual or, to the knowledge of any Credit Party, threatened termination or
cancellation of, or any material adverse modification or change in: the business
relationship of any Credit Party with any customer or group of customers whose
purchases during the preceding 12 months caused them to be ranked among the ten
largest customers of such Credit Party; or the business relationship of any
Credit Party with any supplier material to its operations.

 

3.22 Agreements and Other Documents. As of the Closing Date, each Credit Party
has provided to Agent or its counsel, on behalf of Lenders, accurate and
complete copies (or summaries) of all of the following agreements or documents
to which it is subject and each of which is listed in Disclosure Schedule
(3.22): supply agreements and purchase agreements not terminable by such Credit
Party within 60 days following written notice issued by such Credit Party and
involving transactions in excess of $1,000,000 per annum; leases of Equipment
having a remaining term of one year or longer and requiring aggregate rental and
other payments in excess of $500,000 per annum; licenses and permits held by the
Credit Parties, the absence of which could be reasonably likely to have a
Material Adverse Effect; instruments and documents evidencing any Indebtedness
or Guaranteed Indebtedness of such Credit Party and any Lien granted by such
Credit Party with respect thereto; and instruments and agreements evidencing

 

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the issuance of any equity securities, warrants, rights or options to purchase
equity securities of such Credit Party.

 

3.23 Solvency. Both before and after giving effect to (a) the Loans and Letter
of Credit Obligations to be made or incurred on the Closing Date or such other
date as Loans and Letter of Credit Obligations requested hereunder are made or
incurred, (b) the disbursement of the proceeds of such Loans pursuant to the
instructions of Borrower Representative, (c) the Senior Subordinated Note
Redemption Transaction and the consummation of the other Related Transactions
and (d) the payment and accrual of all transaction costs in connection with the
foregoing, each Credit Party is and will be Solvent.

 

3.24 Holding Company Status of Holdings and PSA Capital. Prior to the Closing
Date and at all times on and thereafter, Holdings and PSA Capital will not have
engaged in any business, except as described in Disclosure Schedule (6.21) or
incurred any Indebtedness or any other liabilities, except (a) in connection
with corporate formation, the Related Transactions Documents and this Agreement,
(b) for Indebtedness described on Disclosure Schedule (6.3), (c) any other
Indebtedness expressly permitted under Section 6.3 and (d) Indebtedness and
liabilities described on Disclosure Schedule (3.24) in connection with tax
and/or insurance related restructuring that occurs prior to the Closing Date.

 

3.25 Compliance with Healthcare Laws. Each of the Credit Parties, and each of
their licensed employees and contractors (other than contracted agencies) in the
exercise of their respective duties on behalf of the Credit Parties, are in
compliance with all applicable Healthcare Laws, except to the extent that
non-compliance could not reasonably be expected to result in a Material Adverse
Effect. Each of the Credit Parties has maintained in all material respects all
records required to be maintained by the Joint Commission on Accreditation of
Healthcare Organizations, the Food and Drug Administration, Drug Enforcement
Agency and State Boards of Pharmacy or similar organizations and the federal and
state Medicare and Medicaid programs as required by the Healthcare Laws and, to
the knowledge of the Borrowers, there are no presently existing circumstances
which would result or likely would result in material violations of the
Healthcare Laws. Each of the Credit Parties have such permits, licenses,
franchises, certificates and other approvals or authorizations of governmental
or regulatory authorities as are necessary under applicable law to own its
properties and to conduct its business (including, without limitation, such
permits as are required under such federal, state and other health care laws,
and under such HMO or similar licensure laws and such insurance laws and
regulations, as are applicable thereto), and with respect to those businesses
that participate in Medicare and/or Medicaid, to receive reimbursement under
Medicare and Medicaid. To the Borrowers’ knowledge, there currently exist no
material restrictions, deficiencies, required plans of correction actions or
other such remedial measures with respect to any Credit Party’s federal and
state Medicare Certifications and Medicaid Certifications or licensure.

 

3.26 HIPAA Compliance.

 

(a) To the extent that and for so long as (i) a Credit Party is a “covered
entity” as defined in 45 C.F.R. § 160.103, (ii) a Credit Party and/or its
business and operations are subject to or covered by the HIPAA Administrative
Requirements codified at 45 C.F.R. Parts 160 & 162 (the “Transactions Rule”)
and/or the HIPAA Security and Privacy Requirements

 

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codified at 45 C.F.R. Parts 160 & 164 (the “Privacy and Security Rules”), and/or
(iii) a Credit Party sponsors any “group health plans” as defined in 45 C.F.R. §
160.103, each such Credit Party has: (x) completed, or will complete on or
before any applicable compliance date, thorough and detailed surveys, audits,
inventories, reviews, analyses and/or assessments, including risk assessments,
(collectively “Assessments”) of all areas of its business and operations subject
to HIPAA and/or that could be adversely affected by the failure of such Credit
Party to be HIPAA Compliant (as defined below) to the extent these Assessments
are appropriate or required for such Credit Party to be HIPAA Compliant; (y)
developed, or will develop on or before any applicable compliance date, a
detailed plan and time line for becoming HIPAA Compliant (a “HIPAA Compliance
Plan”); and (z) implemented, or will implement on or before any applicable
compliance date, those provisions of its HIPAA Compliance Plan necessary to
ensure that such Credit Party is HIPAA Compliant. For purposes of this
Agreement, “HIPAA Compliant” shall mean that an applicable Credit Party (1) is,
or on or before any applicable compliance date will be, in compliance in all
material respects with any and all of the applicable requirements of HIPAA,
including all requirements of the Transactions Rule and the Privacy and Security
Rules and (2) is not subject to, and could not reasonably be expected to become
subject to, any civil or criminal penalty or any investigation, claim or process
that could reasonably be expected to have a Material Adverse Effect in
connection with any violation by such Credit Party of the then effective
requirements of HIPAA.

 

(b) Each Credit Party represents that it, collectively with certain other
affiliates of such Credit Party have elected to be treated as a single covered
entity in accordance with the Privacy and Security Rules (45 C.F.R. §
164.504(d)) (the “Affiliated Entity”). As such, each Credit Party represents and
warrants that it has the legal right, power and authority to execute the
Business Associate Agreement on behalf of the Affiliated Entity, in accordance
with the Privacy and Security Rules, and that the provisions of the Business
Associate Agreement shall be binding upon each Credit Party and all of such
Credit Party’s affiliates that are participating in the Affiliated Entity, in
accordance with the Privacy and Security Rules, as if each and every such
affiliate were a party to such Business Associate Agreement directly.

 

3.27 Third Party Reimbursement. Except as set forth on Disclosure Schedule
(3.27), if any Credit Party is or has been audited by Medicare, Medicaid,
TRICARE, CHAMPVA or similar governmental payors, none of such audits provides
for adjustments in reimbursable costs or asserts claims for reimbursement or
repayment by such Credit Party of costs and/or payments theretofore made by such
governmental payor that, if adversely determined, could reasonably be expected
to have or result in a Material Adverse Effect.

 

3.28 Participation Agreements. Disclosure Schedule (3.28) hereto sets forth an
accurate, complete and current list of all participation agreements with health
maintenance organizations, insurance programs, Third Party Payors and preferred
provider organizations with respect to each Credit Party.

 

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4. FINANCIAL STATEMENTS AND INFORMATION

 

4.1 Reports and Notices.

 

(a) Each Credit Party executing this Agreement hereby agrees that from and after
the Closing Date and until the Termination Date, it shall deliver to Agent or to
Agent and Lenders, as required, the Financial Statements, notices, Projections
and other information at the times, to the Persons and in the manner set forth
in Annex E.

 

(b) Each Credit Party executing this Agreement hereby agrees that from and after
the Closing Date and until the Termination Date, it shall deliver to Agent or to
Agent and Lenders, as required, the various Collateral Reports (including
Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the times, to the
Persons and in the manner set forth in Annex F.

 

4.2 Communication with Accountants. Each Credit Party executing this Agreement
authorizes (a) Agent and (b) so long as an Event of Default has occurred and is
continuing, each Lender, to communicate directly with its independent certified
public accountants, including Ernst & Young LLP, and authorizes and, at Agent’s
request, shall instruct those accountants and advisors to disclose and make
available to Agent and each Lender any and all Financial Statements and other
supporting financial documents, schedules and information relating to any Credit
Party (including copies of any issued management letters) with respect to the
business, financial condition and other affairs of any Credit Party.

 

5. AFFIRMATIVE COVENANTS

 

Each Credit Party executing this Agreement jointly and severally agrees as to
all Credit Parties that from and after the date hereof and until the Termination
Date:

 

5.1 Maintenance of Existence and Conduct of Business. Each Credit Party shall:
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and its rights and franchises; continue to
conduct its business substantially as now conducted or as otherwise permitted
hereunder; at all times maintain, preserve and protect all of its assets and
properties used or useful in the conduct of its business, and keep the same in
good repair, working order and condition in all material respects (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices; and transact business only in such
corporate and trade names as are set forth in Disclosure Schedule (5.1).

 

5.2 Payment of Charges.

 

(a) Subject to Section 5.2(b), each Credit Party shall pay and discharge or
cause to be paid and discharged promptly all Charges payable by it, including
(i) Charges imposed upon it, its income and profits, or any of its property
(real, personal or mixed) and all Charges with respect to tax, social security
and unemployment withholding with respect to its employees, (ii) lawful claims
for labor, materials, supplies and services or otherwise, and (iii) all storage
or rental charges payable to warehousemen and bailees, in each case, before any
thereof shall become past due.

 

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(b) Each Credit Party may in good faith contest, by appropriate proceedings, the
validity or amount of any Charges, Taxes or claims described in Section 5.2(a);
provided, that (i) adequate reserves with respect to such contest are maintained
on the books of such Credit Party, in accordance with GAAP; (ii) no Lien shall
be imposed to secure payment of such Charges (other than payments to
warehousemen and/or bailees) that is superior to any of the Liens securing
payment of the Obligations and such contest is maintained and prosecuted
continuously and with diligence and operates to suspend collection or
enforcement of such Charges, (iii) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest, (iv) such Credit Party shall
promptly pay or discharge such contested Charges, Taxes or claims and all
additional charges, interest, penalties and expenses, if any, and shall deliver
to Agent evidence reasonably acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this Section 5.2(b) are no longer
met, and (v) Agent has not advised Borrowers in writing that Agent reasonably
believes that nonpayment or nondischarge thereof could have or result in a
Material Adverse Effect.

 

5.3 Books and Records. Each Credit Party shall keep adequate books and records
with respect to its business activities in which proper entries, reflecting all
financial transactions, are made in accordance with GAAP and on a basis
consistent with the Financial Statements attached as Disclosure Schedule
(3.4(a)).

 

5.4 Insurance; Damage to or Destruction of Collateral.

 

(a) The Credit Parties shall, at their sole cost and expense, maintain the
policies of insurance described on Disclosure Schedule (3.18) as in effect on
the date hereof or otherwise in form and amounts and with insurers reasonably
acceptable to Agent, including maintenance of insurance pursuant to the Approved
Insurance Plan. Such policies of insurance (or the loss payable and additional
insured endorsements delivered to Agent) shall contain provisions pursuant to
which the insurer agrees to provide 30 days prior written notice to Agent in the
event of any non-renewal, cancellation or amendment of any such insurance
policy. If any Credit Party at any time or times hereafter shall fail to obtain
or maintain any of the policies of insurance required above or to pay all
premiums relating thereto, Agent may at any time or times thereafter obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto that Agent deems advisable in its reasonable
discretion. Agent shall have no obligation to obtain insurance for any Credit
Party or pay any premiums therefor. By doing so, Agent shall not be deemed to
have waived any Default or Event of Default arising from any Credit Party’s
failure to maintain such insurance or pay any premiums therefor. All sums so
disbursed, including reasonable attorneys’ fees, court costs and other charges
related thereto, shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.

 

(b) Each Credit Party shall deliver to Agent, in form and substance reasonably
satisfactory to Agent, endorsements to (i) all “All Risk” and business
interruption insurance naming Agent, on behalf of itself and Lenders, as loss
payee, and (ii) all general liability and other liability policies naming Agent,
on behalf of itself and Lenders, as additional insured. Each Credit Party
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent), so long as any Event of Default has occurred and
is continuing or

 

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the anticipated insurance proceeds exceed $500,000, as such Credit Party’s true
and lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims under such “All Risk” policies of insurance, endorsing the name
of each Credit Party on any check or other item of payment for the proceeds of
such “All Risk” policies of insurance and for making all determinations and
decisions with respect to such “All Risk” policies of insurance. Agent shall
have no duty to exercise any rights or powers granted to it pursuant to the
foregoing power-of-attorney. Borrowers shall promptly notify Agent of any loss,
damage, or destruction to the Collateral in the amount of $500,000 or more,
whether or not covered by insurance. After deducting from such proceeds the
expenses, if any, incurred by Agent in the collection or handling thereof, Agent
may, at its option, apply such proceeds to the reduction of the Obligations in
accordance with Section 1.3(d), provided that in the case of insurance proceeds
pertaining to any Credit Party other than Borrowers, such insurance proceeds
shall be applied to the Loans owing by Borrowers, or permit or require Borrowers
to use such money, or any part thereof, to replace, repair, restore or rebuild
the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction. Notwithstanding the foregoing, if the casualty giving rise to
such insurance proceeds could not reasonably be expected to have a Material
Adverse Effect and such insurance proceeds do not exceed $500,000 in the
aggregate, Agent shall permit the applicable Credit Party to replace, restore,
repair or rebuild the property; provided that if the applicable Credit Party has
not completed or entered into binding agreements to complete such replacement,
restoration, repair or rebuilding within 180 days of such casualty, Agent may
apply such insurance proceeds to the Obligations in accordance with Section
1.3(d), provided that in the case of insurance proceeds pertaining to any Credit
Party other than Borrowers, such insurance proceeds shall be applied to the
Loans owing by Borrowers. All insurance proceeds that are to be made available
to Borrowers to replace, repair, restore or rebuild the Collateral shall be
applied by Agent to reduce the outstanding principal balance of the Revolving
Loan (which application shall not result in a permanent reduction of the
Revolving Loan Commitment) and upon such application, Agent shall establish a
Reserve against the Borrowing Base in an amount equal to the amount of such
proceeds so applied. All insurance proceeds made available to any Credit Party
that is not a Borrower to replace, repair, restore or rebuild Collateral shall
be deposited in a cash collateral account. Thereafter, such funds shall be made
available to such Credit Party to provide funds to replace, repair, restore or
rebuild the Collateral as follows: (i) Borrower Representative shall request a
Revolving Credit Advance be made to Borrowers in the amount requested to be
released; (ii) so long as the conditions set forth in Section 2.2 have been met,
Revolving Lenders shall make such Revolving Credit Advance or Agent shall
release funds from the cash collateral account; and (iii) in the case of
insurance proceeds applied against the Revolving Loan, the Reserve established
with respect to such insurance proceeds shall be reduced by the amount of such
Revolving Credit Advance. To the extent not used to replace, repair, restore or
rebuild the Collateral, such insurance proceeds shall be applied in accordance
with Section 1.3(d).

 

5.5 Compliance with Laws. Each Credit Party shall comply with all federal,
state, local and foreign laws and regulations applicable to it, including those
relating to Healthcare Laws, ERISA and labor matters (but excluding compliance
with Environmental Laws and Environmental Permits, which compliance is addressed
in Section 5.8 below), except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

 

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5.6 Supplemental Disclosure. From time to time as may be reasonably requested by
Agent (which request will not be made more frequently than once each year absent
the occurrence and continuance of a Default or an Event of Default), the Credit
Parties shall supplement each Disclosure Schedule hereto, or any representation
herein or in any other Loan Document, with respect to any matter hereafter
arising that, if existing or occurring at the date of this Agreement, would have
been required to be set forth or described in such Disclosure Schedule or as an
exception to such representation or that is necessary to correct any information
in such Disclosure Schedule or representation which has been rendered inaccurate
thereby (and, in the case of any supplements to any Disclosure Schedule, such
Disclosure Schedule shall be appropriately marked to show the changes made
therein); provided that (a) no such supplement to any such Disclosure Schedule
or representation shall amend, supplement or otherwise modify any Disclosure
Schedule or representation, or be or be deemed a waiver of any Default or Event
of Default resulting from the matters disclosed therein, except as consented to
by Agent and Requisite Lenders in writing, and (b) no supplement shall be
required or permitted as to representations and warranties that relate solely to
the Closing Date.

 

5.7 Intellectual Property. Each Credit Party will conduct its business and
affairs without infringement of or interference with any Intellectual Property
of any other Person in any material respect.

 

5.8 Environmental Matters. Each Credit Party shall and shall cause each Person
within its control to: (a) conduct its operations and keep and maintain its Real
Estate in compliance with all Environmental Laws and Environmental Permits other
than noncompliance that, individually or in the aggregate, could not reasonably
be expected to result in Environmental Liabilities in excess of $300,000; (b)
implement any and all investigation, remediation, removal and response actions
that are appropriate or necessary to maintain the value and marketability of the
Real Estate or to otherwise comply with Environmental Laws and Environmental
Permits pertaining to the presence, generation, treatment, storage, use,
disposal, transportation or Release of any Hazardous Material on, at, in, under,
above, to, from or about any of its Real Estate; (c) notify Agent promptly after
such Credit Party becomes aware of any violation of Environmental Laws or
Environmental Permits or any Release on, at, in, under, above, to, from or about
any Real Estate that is reasonably likely to result in Environmental Liabilities
in excess of $300,000; and (d) promptly forward to Agent a copy of any order,
notice, request for information or any communication or report received by such
Credit Party in connection with any such violation or Release or any other
matter relating to any Environmental Laws or Environmental Permits that could
reasonably be expected to result in Environmental Liabilities in excess of
$300,000, in each case whether or not the Environmental Protection Agency or any
Governmental Authority has taken or threatened any action in connection with any
such violation, Release or other matter. If Agent at any time has a reasonable
basis to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Environmental Liability arising
thereunder, or a Release of Hazardous Materials on, at, in, under, above, to,
from or about any of its Real Estate, that, individually or in the aggregate,
could reasonably be expected to result in Environmental Liabilities in excess of
$300,000, then each Credit Party shall, upon Agent’s written request (i) cause
the performance of such environmental audits including subsurface sampling of
soil and groundwater, and preparation of such environmental reports, at
Borrowers’ expense, as Agent may from time to time reasonably request, which
shall be conducted by reputable environmental consulting firms

 

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reasonably acceptable to Agent and shall be in form and substance reasonably
acceptable to Agent, and (ii) permit Agent or its representatives to have access
to all Real Estate for the purpose of conducting such environmental audits and
testing as Agent deems reasonably appropriate, including subsurface sampling of
soil and groundwater. Borrowers shall reimburse Agent for the costs of such
audits and tests and the same will constitute a part of the Obligations secured
hereunder.

 

5.9 Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases. Each Credit Party shall obtain a Landlord Agreement, mortgagee
agreement or bailee letter, as applicable, from the lessor of each leased
property, mortgagee of owned property or bailee with respect to (i) the chief
executive office of such Credit Party, (ii) any location where books and records
relating to the Accounts of any Credit Party are located, (iii) any pharmacy
location of any Credit Party and (iv) any warehouse, processor or converter
facility or other location of any Credit Party where Inventory or other
Collateral having value in excess of $250,000 in the aggregate is stored or
located, which agreement or letter shall contain a waiver or subordination of
all Liens or claims that the landlord, mortgagee or bailee may assert against
the Collateral at that location, and shall otherwise be reasonably satisfactory
in form and substance to Agent. If on the Closing Date, any Credit Party has
failed to obtain a Landlord Waiver with respect to any leased location existing
on the Closing Date of the type described under clause (iii) or (iv) of the
immediately preceding sentence then, in such case, Agent may in it is sole
discretion impose a Reserve against Borrowing Availability in the amount equal
to three months rent for each such leased location where no Landlord Waiver is
obtained. In addition to the foregoing, until such time as a Landlord Agreement
satisfactory to Agent is obtained with respect to the leased premises located at
located at 15535 West Hardy Road, Suite 102A &B, Houston, Texas, or a properly
authorized UCC 3 termination statement is filed which results in the termination
of the financing statement naming Houston Industrial Assets, L.P., as secured
party, Borrowers shall not permit Collateral having value in excess of $500,000
in the aggregate to be stored or located at 15535 West Hardy Road, Suite 102A
&B, Houston, Texas. After the Closing Date, no real property or warehouse space
shall be leased by any Credit Party unless and until a satisfactory landlord
agreement or bailee letter, as appropriate, shall first have been obtained with
respect to any such location, (i) which is the chief executive office, (ii)
location of books and records regarding Accounts of any Credit Party, (iii) any
pharmacy location of any Credit Party and (iv) any warehouse, processor or
converter facility or other location of any Credit Party where Inventory or
other Collateral having value in excess of $250,000 in the aggregate is stored
or located, which agreement or letter shall contain a waiver or subordination of
all Liens or claims that the landlord, mortgagee or bailee may assert against
the Collateral at that location, and shall otherwise be reasonably satisfactory
in form and substance to Agent. Each Credit Party shall timely and fully pay and
perform its obligations under all leases and other agreements with respect to
each leased location or public warehouse where any Collateral is or may be
located. If any Credit Party proposes to acquire a fee ownership interest in
Real Estate after the Closing Date, it shall first provide to Agent a mortgage
or deed of trust granting Agent a first priority Lien (subject to Permitted
Encumbrances) on such Real Estate, together with environmental audits, mortgage
title insurance commitment, real property survey, local counsel opinion(s), and,
if required by Agent, supplemental casualty insurance and flood insurance, and
such other documents, instruments or agreements reasonably requested by Agent,
in each case, in form and substance reasonably satisfactory to Agent.

 

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5.10 Delivery of Additional Subsidiary Guaranties; Other Collateral Documents;
etc.

 

(a) Promptly (and in any event within 3 Business Days) after the creation or
acquisition of any Subsidiary of Borrowers (other than the Insurance
Subsidiary), Borrowers shall cause to be executed and delivered to Agent for the
benefit of the Lenders, at Borrowers’ expense, (i) by such new Subsidiary, a
guaranty agreement in substantially the form of the Subsidiary Guaranty executed
by the Subsidiary Guarantors on the Closing Date, (ii) by such new Subsidiary, a
security agreement in substantially the form of the Subsidiary Security
Agreement executed by the Subsidiary Guarantors on the Closing Date, (iii) by
the applicable Credit Party that is the parent company of such new Subsidiary, a
Pledge Agreement in substantially the form of the Pledge Agreement executed on
the Closing Date or a Pledge Amendment in substantially the form attached to the
Pledge Agreement executed on the Closing Date, together with any certificates
evidencing such pledged stock or interests, and (iv) all other Collateral
Documents necessary or advisable to ensure that each such Subsidiary has fully
guaranteed all of the Obligations and has pledged to Agent, for the benefit of
Lenders, all of its assets constituting Collateral.

 

(b) Promptly (and in any event within 3 Business Days) after the acquisition of
any real property by any Credit Party on or after the Closing Date, Borrowers
shall cause to be executed and delivered by such Credit Party to Agent for the
benefit of the Lenders, at Borrowers’ expense, the following documents and
instruments, in each case, in form and substance satisfactory to Agent:

 

(i) a duly executed Mortgage with respect to such real property;

 

(ii) a Title Insurance Commitment/ALTA Policy with respect to such real
property; and

 

(iii) a survey with respect to such real property.

 

(c) Borrowers shall and shall cause each other Credit Party, at such Credit
Party’s expense, to from time to time, upon request by Agent, make, execute and
deliver, or cause to be made, executed and delivered, any and all other and
further instruments, documents, certificates, agreements, letters,
representations and other writings as may be necessary or desirable, in the
reasonable opinion of Agent, in order to effectuate, complete, correct, perfect
or continue and preserve the lien, security interest and security title of Agent
under any Mortgage.

 

(d) Notwithstanding anything in this agreement to the contrary, Borrowers shall
not be required to obtain a Mortgage, Title Insurance Commitment/ALTA Policy or
survey pursuant to this Section 5.10(b) with respect to the Excluded Real
Property if and for so long as the fair market value of the Excluded Property
does not at any time exceed $200,000.

 

5.11 Appointment of Agent for Service of Process. If Borrowers or any other
Credit Party at any time moves its chief executive office to a location outside
of the State of Georgia, Borrowers shall, and shall cause such Credit Party, as
applicable, to promptly (and in any event within three (3) Business Days after
moving such location) appoint CT Corporation (or

 

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another service corporation acceptable to Agent) as its agent for service of
process and deliver written evidence of such appointment to Agent.

 

5.12 Further Assurances. Each Credit Party executing this Agreement agrees that
it shall and shall cause each other Credit Party to, at such Credit Party’s
expense and upon request of Agent, duly execute and deliver, or cause to be duly
executed and delivered, to Agent such further instruments and do and cause to be
done such further acts as may be necessary or proper in the reasonable opinion
of Agent to carry out more effectively the provisions and purposes of this
Agreement or any other Loan Document.

 

6. NEGATIVE COVENANTS

 

Each Credit Party executing this Agreement jointly and severally agrees as to
all Credit Parties that from and after the date hereof until the Termination
Date:

 

6.1 Mergers, Subsidiaries, Etc. No Credit Party shall directly or indirectly, by
operation of law or otherwise, (a) form or acquire any Subsidiary (other than
the formation or acquisition of a Subsidiary in full compliance with Section
5.10 or the formation of the Insurance Subsidiary in accordance with an Approved
Insurance Plan) or (b) merge with, consolidate with, acquire all or
substantially all of the assets or Stock of, or otherwise combine with or
acquire, any Person (other than the merger of a wholly owned Subsidiary of a
Borrower with and into another wholly owned Subsidiary of a Borrower that is a
Guarantor). Notwithstanding the foregoing, Borrowers may acquire all or
substantially all of the assets or Stock of any Person (the “Target”) (in each
case, a “Permitted Acquisition”) subject to the satisfaction of each of the
following conditions (which conditions shall apply in the case of any such
acquisition irrespective of whether or not such acquisition is funded in whole
or in part with the proceeds of any Loan):

 

(i) Agent shall receive (A) at least 15 days’ prior written notice of such
proposed Permitted Acquisition if the purchase price paid and/or payable
(whether in cash, Stock or other form of consideration, including all
transaction costs and all Indebtedness, liabilities and contingent obligations
incurred or assumed in connection therewith or otherwise reflected in a
consolidated balance sheet of Borrowers and Target) is equal to or less than
$5,000,000, which notice shall include (x) a reasonably detailed description of
such proposed Permitted Acquisition, (y) calculations showing covenant
compliance with the financial covenants in Annex G as of the most recently ended
Fiscal Month (on a pro forma basis after giving effect to the proposed
Acquisition and any Loan Advance to be requested in connection therewith), and
(z) a draft of the acquisition agreement or a letter of intent if a draft of the
acquisition agreement is not available, and (B) at least 45 days’ prior written
notice of such proposed Permitted Acquisition if the purchase price paid and/or
payable (whether in cash, Stock or other form of consideration, including all
transaction costs and all Indebtedness, liabilities and contingent obligations
incurred or assumed in connection therewith or otherwise reflected in a
consolidated balance sheet of Borrowers and Target) is greater than $5,000,000,
which notice shall include (x) a reasonably detailed description of such
proposed Permitted Acquisition, (y) calculations showing covenant compliance
with the financial covenants in Annex G as of the most recently ended Fiscal
Month (on a pro forma basis after giving effect to the proposed Acquisition and
any Loan Advance to be requested in connection therewith), and (z) a draft of

 

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the acquisition agreement or a letter of intent if a draft of the acquisition
agreement is not available;

 

(ii) such Permitted Acquisition shall only involve assets located in the United
States and comprising a business, or those assets of a business, of the type
engaged in by Borrowers as of the Closing Date, and which business would not
subject Agent or any Lender to regulatory or third party approvals in connection
with the exercise of its rights and remedies under this Agreement or any other
Loan Documents other than approvals applicable to the exercise of such rights
and remedies with respect to Borrowers prior to such Permitted Acquisition;

 

(iii) such Permitted Acquisition shall be consensual and shall have been
approved by the Target’s board of directors;

 

(iv) no additional Indebtedness, Guaranteed Indebtedness, contingent obligations
or other liabilities shall be incurred, assumed or otherwise be reflected on a
consolidated balance sheet of Borrowers and Target after giving effect to such
Permitted Acquisition, except (A) Loans made hereunder, (B) ordinary course
trade payables, accrued expenses and unsecured Indebtedness of the Target to the
extent no Default or Event of Default has occurred and is continuing or would
result after giving effect to such Permitted Acquisition, and (C) unsecured
Indebtedness, “earnouts” and similar contingent payment obligations of any
Credit Party, provided that any such Indebtedness is and at all times remains
subordinated to the Obligations as to right and time of payment and as to any
other rights and remedies thereunder pursuant to a subordination agreement
substantially in the form of Exhibit 6.1 (such Indebtedness is referred to
herein as “Seller Subordinated Debt”);

 

(v) the purchase price paid and/or payable (whether in cash, Stock or other form
of consideration) in connection with all Permitted Acquisitions (including all
transaction costs and all Indebtedness, liabilities and contingent obligations
incurred or assumed in connection therewith or otherwise reflected in a
consolidated balance sheet of Borrowers and Target) shall not exceed
$100,000,000 in the aggregate for all Permitted Acquisitions during the term
hereof;

 

(vi) if the purchase price paid and/or payable (whether in cash, Stock or other
form of consideration, including all transaction costs and all Indebtedness,
liabilities and contingent obligations incurred or assumed in connection
therewith or otherwise reflected in a consolidated balance sheet of Borrowers
and Target) in respect of such proposed Permitted Acquisition is greater than
$5,000,000 individually or, together with all other Permitted Acquisitions since
the Closing Date, is greater than $15,000,000 in the aggregate, immediately
prior to and after giving effect to such Permitted Acquisition Borrowers shall
have Excess Availability of not less than $1,000,000, as demonstrated in a
certificate delivered of the Chief Financial Officer, or, in his absence, the
Chief Accounting Officer, of Borrowers in form and substance reasonably
satisfactory to Agent;

 

(vii) the Borrowers’ pro forma of Target shall not have incurred an operating
loss for the trailing twelve-month period preceding the date of the Permitted
Acquisition, as determined based upon the Target’s financial statements for its
most recently

 

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completed fiscal year and its most recent interim financial period completed
within 60 days prior to the date of consummation of such Permitted Acquisition;

 

(viii) the business and assets acquired in such Permitted Acquisition shall be
free and clear of all Liens (other than Permitted Encumbrances);

 

(ix) at or prior to the closing of any Permitted Acquisition, Agent will be
granted a first priority perfected Lien (subject to Permitted Encumbrances) in
all assets acquired pursuant thereto (including the assets and Stock of the
Target), and Guarantors and Borrowers and the Target shall have executed such
documents and taken such actions as may be required by Agent in connection
therewith;

 

(x) Concurrently with delivery of the notice referred to in clause (i) above,
Borrowers shall have delivered to Agent, in form and substance reasonably
satisfactory to Agent:

 

(A) a pro forma consolidated balance sheet, income statement and cash flow
statement of Holdings and its Subsidiaries (the “Acquisition Pro Forma”), based
on recent financial statements, which shall be complete and shall fairly present
in all material respects the assets, liabilities, financial condition and
results of operations of Holdings and its Subsidiaries in accordance with GAAP
consistently applied, but taking into account such Permitted Acquisition and the
funding of all Loans in connection therewith, and such Acquisition Pro Forma
shall reflect that (x) on a pro forma basis, Holdings and its Subsidiaries would
be in compliance with the financial covenants set forth in paragraphs (c) and
(d) of Annex G for the four quarter period reflected in the Compliance
Certificate most recently delivered to Agent pursuant to Annex E prior to the
consummation of such Permitted Acquisition (after giving effect to such
Permitted Acquisition and all Loans funded in connection therewith as if made on
the first day of such period), and (y) on a pro forma basis, no Event of Default
has occurred and is continuing or would result after giving effect to such
Permitted Acquisition and Borrowers would have been in compliance with the
financial covenants set forth in Annex G for the four quarter period reflected
in the Compliance Certificate most recently delivered to Agent pursuant to Annex
E prior to the consummation of such Permitted Acquisition (after giving effect
to such Permitted Acquisition and all Loans funded in connection therewith as if
made on the first day of such period);

 

(B) updated versions of the most recently delivered Projections covering the 1
year period commencing on the date of such Permitted Acquisition and otherwise
prepared in accordance with the Projections (the “Acquisition Projections”) and
based upon historical financial data of a recent date reasonably satisfactory to
Agent, taking into account such Permitted Acquisition; and

 

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(C) a certificate of the chief financial officer of Holdings and each Borrower
to the effect that: (w) each Borrower (after taking into consideration all
rights of contribution and indemnity such Borrower has against Holdings and each
other Subsidiary of Holdings) will be Solvent upon the consummation of the
Permitted Acquisition; (x) the Acquisition Pro Forma fairly presents in all
material respects the financial condition of Holdings and Borrower (on a
consolidated basis) as of the date thereof after giving effect to the Permitted
Acquisition; (y) the Acquisition Projections are reasonable estimates at such
time of the future financial performance of Holdings and Borrowers subsequent to
the date thereof based upon the historical performance of Holdings, Borrowers
and the Target and show that Guarantors and Borrowers shall continue to be in
compliance with the financial covenants set forth in Annex G for the 3-year
period thereafter; and (z) Holdings and Borrower have completed their due
diligence investigation with respect to the Target and such Permitted
Acquisition, which investigation was conducted in a manner similar to that which
would have been conducted by a prudent purchaser of a comparable business and
the results of which investigation were delivered to Agent and Lenders;

 

(xi) on or prior to the date of such Permitted Acquisition, Agent shall have
received, in form and substance reasonably satisfactory to Agent, copies of the
acquisition agreement and related agreements and instruments, and all opinions,
certificates, lien search results and other documents reasonably requested by
Agent, including those specified in the last sentence of Section 5.9; and

 

(xii) at the time of such Permitted Acquisition and after giving effect thereto,
no Default or Event of Default has occurred and is continuing.

 

Notwithstanding the foregoing, the Accounts of the Target shall not be included
in Eligible Accounts unless and until Agent has conducted a collateral audit of
such Accounts (at Borrowers’ expense), with results satisfactory to Agent in its
reasonable credit judgment. The collateral audit rights of Agent provided for in
this paragraph are in addition to, and not in limitation of, any other rights
that Agent has in this Agreement to conduct audits at Borrowers’ expense.

 

6.2 Investments; Loans and Advances. Except as otherwise expressly permitted by
this Section 6, no Credit Party shall make or permit to exist any investment in,
or make, accrue or permit to exist loans or advances of money to, any Person,
through the direct or indirect lending of money, holding of securities or
otherwise, except that: (a) Borrowers and their respective Subsidiaries may hold
investments comprised of notes payable, or stock or other securities issued by
Account Debtors to any Borrower pursuant to negotiated agreements with respect
to settlement of such Account Debtor’s Accounts in the ordinary course of
business, so long as the aggregate amount of such Accounts so settled by
Borrower and such Subsidiaries does not exceed $100,000; (b) each Credit Party
may maintain its existing investments in its Subsidiaries as of the Closing
Date; (c) so long as no Default or Event of Default has occurred and is
continuing and there is no outstanding Revolving Loan balance, Borrowers may
make

 

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investments, subject to Control Letters in favor of Agent for the benefit of
Lenders or otherwise subject to a perfected security interest in favor of Agent
for the benefit of Lenders, in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor’s
Ratings Group or Moody’s Investors Service, Inc., (iii) certificates of deposit
maturing no more than one year from the date of creation thereof issued by
commercial banks incorporated under the laws of the United States of America,
each having combined capital, surplus and undivided profits of not less than
$300,000,000 and having a senior unsecured rating of “A” or better by a
nationally recognized rating agency (an “A Rated Bank”), (iv) time deposits
maturing no more than 30 days from the date of creation thereof with A Rated
Banks and (v) mutual funds that invest solely in one or more of the investments
described in clauses (i) through (iv) of the immediately above; (d) so long as
(i) no Default or Event of Default or Activation Event (as such term is defined
in Annex C) has occurred and is continuing and (ii) Borrowers are not in default
in the payment of any fees or other amounts due and owing to Wachovia Bank, N.A.
or Wachovia Capital Markets, LLC, Borrowers may make and hold investments of the
type described in clauses (i) through (iv) of the immediately preceding clause
(c) in PSA Georgia’s existing overnight investment account maintained with
Wachovia Capital Markets, LLC, provided that the aggregate value of all
financial assets and funds on deposit or held in such investment account shall
not at any time exceed $3,500,000; and (e) other investments not exceeding
$100,000 in the aggregate at any time outstanding.

 

6.3 Indebtedness.

 

(a) No Credit Party shall create, incur, assume or permit to exist any
Indebtedness, except (without duplication) (i) Indebtedness secured by purchase
money security interests and Capital Leases permitted in Section 6.7(c), (ii)
the Loans and the other Obligations, (iii) existing Indebtedness described in
Disclosure Schedule (6.3) and refinancings thereof or amendments or
modifications thereof that do not have the effect of increasing the principal
amount thereof or changing the amortization thereof (other than to extend the
same) and that are otherwise on terms and conditions no less favorable to any
Credit Party, Agent or any Lender, as determined by Agent, than the terms of the
Indebtedness being refinanced, amended or modified, provided that no
refinancing, amendment or modification of any Subordinated Debt shall be
permitted unless the terms thereof are no less favorable than the Subordinated
Debt being refinanced, amended or modified or Borrowers have obtained the prior
written consent of the Agent and Requisite Lenders not to be unreasonably
withheld or delayed, (iv) Indebtedness specifically permitted under Section 6.1,
(v) Indebtedness specifically permitted under Section 6.17, (vi) Indebtedness
consisting of intercompany loans and advances made by any Borrower to any other
Credit Party that is a Guarantor or by any such Guarantor to any Borrower;
provided, that: (A) each Borrower shall have executed and delivered to each such
Guarantor, and each such Guarantor shall have executed and delivered to each
Borrower, on the Closing Date, a demand note (collectively, the “Intercompany
Notes”) to evidence any such intercompany Indebtedness owing at any time by such
Borrower to such Guarantor or by such Guarantor to Borrower, which Intercompany
Notes shall be in form and substance reasonably satisfactory to Agent and shall
be pledged and delivered to Agent pursuant to the applicable Pledge Agreement or
Security Agreement as additional collateral security for the Obligations; (B)
each Borrower

 

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shall record all intercompany transactions on its books and records in a manner
reasonably satisfactory to Agent; (C) the obligations of each Borrower under any
such Intercompany Notes shall be subordinated to the Obligations of such
Borrower hereunder in a manner reasonably satisfactory to Agent; (D) at the time
any such intercompany loan or advance is made by any Borrower and after giving
effect thereto, each Borrower shall be Solvent; (E) no Default or Event of
Default would occur and be continuing after giving effect to any such proposed
intercompany loan; (F) in the case of any such intercompany loans made by such
Borrower, the Borrower advancing such funds shall have unrestricted cash on hand
plus Revolving Loan Borrowing Availability of not less than $1,000,000 after
giving effect to such intercompany loan; (G) the aggregate amount of such
intercompany loans owing by Borrowers to all such Guarantors shall not exceed
$100,000 at any one time outstanding; (H) the aggregate balance of all such
intercompany loans owing to such Borrowers shall not exceed $100,000 at any
time; and (I) the recipient of any such intercompany loans shall be creditworthy
as determined by Agent, and (viii) other unsecured Indebtedness in an aggregate
principal amount not to exceed $500,000 at any one time outstanding.

 

(b) No Credit Party shall, directly or indirectly, voluntarily purchase, redeem,
defease or prepay any principal of, premium, if any, interest or other amount
payable in respect of any Indebtedness, other than (i) the Obligations; (ii)
Indebtedness secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with Sections
6.8(b) or (c); (iii) Indebtedness permitted by Section 6.3(a)(iv) upon any
refinancing thereof in accordance with Section 6.3(a)(iv); (iv) other
Indebtedness (excluding Subordinated Debt) not in excess of $100,000; (v) the
repayment of the Senior Subordinated Notes in connection with the Senior
Subordinated Note Redemption Transaction subject to the terms and conditions set
forth in Section 2.2(d) (to the extent the proceeds of a Revolving Credit
Advance is requested in connection with such transaction) and Section 6.14; and
(vi) as otherwise permitted in Section 6.14.

 

6.4 Employee Loans and Affiliate Transactions.

 

(a) Except as otherwise expressly permitted in this Section 6 with respect to
Affiliates, no Credit Party shall enter into or be a party to any transaction
with any other Credit Party or any Affiliate thereof except in the ordinary
course of and pursuant to the reasonable requirements of such Credit Party’s
business and upon fair and reasonable terms that are no less favorable to such
Credit Party than would be obtained in a comparable arm’s length transaction
with a Person not an Affiliate of such Credit Party. In addition, if any such
transaction or series of related transactions involves payments in excess of
$100,000 in the aggregate, the terms of these transactions must be disclosed in
advance to Agent and Lenders. All such transactions existing as of the date
hereof are described in Disclosure Schedule (6.4(a)).

 

(b) No Credit Party shall enter into any lending or borrowing transaction with
any employees of any Credit Party, except loans to its respective employees on
an arm’s-length basis in the ordinary course of business consistent with past
practices for travel and entertainment expenses, relocation costs and similar
purposes and stock option financing up to a maximum of $50,000 to any employee
and up to a maximum of $250,000 in the aggregate at any one time outstanding.

 

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6.5 Capital Structure and Business. No Credit Party shall (a) make any changes
in any of its business objectives, purposes or operations that could reasonably
be expected to have or result in a Material Adverse Effect, (b) make any change
in its capital structure as described in Disclosure Schedule (3.8), including
the issuance or sale of any shares of Stock, warrants or other securities
convertible into Stock or any revision of the terms of its outstanding Stock;
provided, that (A) Holdings may issue or sell its Stock for cash so long as (i)
the proceeds thereof are applied in prepayment of the Obligations as required by
Section 1.3(b)(iii), and (ii) no Change of Control occurs after giving effect
thereto and (B) the Credit Parties may form Subsidiaries so long as such Credit
Party shall fully comply with Section 5.10 hereof, or (c) amend its charter or
bylaws in a manner that would adversely affect Agent or Lenders or such Credit
Party’s duty or ability to repay the Obligations. No Credit Party shall engage
in any business other than the businesses currently engaged in by it or
businesses reasonably related thereto.

 

6.6 Guaranteed Indebtedness. No Credit Party shall create, incur, assume or
permit to exist any Guaranteed Indebtedness except (a) by endorsement of
instruments or items of payment for deposit to the general account of any Credit
Party, and (b) for Guaranteed Indebtedness incurred for the benefit of any other
Credit Party if the primary obligation is expressly permitted by this Agreement
other then Indebtedness, if any, of a Target existing at the time such Target is
acquired.

 

6.7 Liens. No Credit Party shall create, incur, assume or permit to exist any
Lien on or with respect to its Accounts or any of its other properties or assets
(whether now owned or hereafter acquired) except for (a) Permitted Encumbrances;
(b) Liens in existence on the date hereof and summarized on Disclosure Schedule
(6.7) securing purchase money Indebtedness and Capital Leases described on
Disclosure Schedule (6.3) and permitted refinancings, extensions and renewals
thereof, including extensions or renewals of any such Liens; provided that the
principal amount so secured is not increased and the Lien does not attach to any
additional assets; (c) Liens created after the date hereof by conditional sale
or other title retention agreements (including Capital Leases) or in connection
with purchase money Indebtedness with respect to Equipment and Fixtures acquired
by any Credit Party in the ordinary course of business, involving the incurrence
of an aggregate amount of purchase money Indebtedness and Capital Lease
Obligations of not more than $1,000,000 (excluding motor vehicle leases)
outstanding at any one time for all such Liens (provided that such Liens attach
only to the assets subject to such purchase money debt and such Indebtedness is
incurred within 20 days following such purchase and does not exceed 100% of the
purchase price of the subject assets); and (d) other Liens securing Indebtedness
not exceeding $100,000 in the aggregate at any time outstanding, so long as such
Liens do not attach to any Accounts. In addition, no Credit Party shall become a
party to any agreement, note, indenture or instrument, or take any other action,
that would prohibit the creation of a Lien on any of its properties or other
assets in favor of Agent, on behalf of itself and Lenders, as additional
collateral for the Obligations, except operating leases, Capital Leases or
Licenses which prohibit Liens upon the assets that are subject thereto.

 

6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer, convey,
assign or otherwise dispose of any of its properties or other assets, including
the Stock of any of its Subsidiaries (whether in a public or a private offering
or otherwise) or any of its Accounts,

 

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other than (a) the sale of Inventory in the ordinary course of business, and (b)
the sale, transfer, conveyance or other disposition by a Credit Party of
Equipment, Fixtures that are obsolete or no longer used or useful in such Credit
Party’s business and having a sales price not exceeding $50,000 in any single
transaction or $250,000 in the aggregate in any Fiscal Year and (c) other
Equipment and Fixtures having a value not exceeding $50,000 in any single
transaction or $250,000 in the aggregate in any Fiscal Year. With respect to any
disposition of assets or other properties permitted pursuant to clauses (b) and
(c) above, subject to Section 1.3(b), Agent agrees on reasonable prior written
notice to release its Lien on such assets or other properties in order to permit
the applicable Credit Party to effect such disposition and shall execute and
deliver to Borrowers, at Borrowers’ expense, appropriate UCC-3 termination
statements and other releases as reasonably requested by Borrowers.

 

6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA Affiliate
to, cause or permit to occur an event that could result in the imposition of a
Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or
permit to occur an ERISA Event to the extent such ERISA Event could reasonably
be expected to have a Material Adverse Effect.

 

6.10 Financial Covenants. Borrowers shall not breach or fail to comply with any
of the Financial Covenants.

 

6.11 Hazardous Materials. No Credit Party shall cause or permit a Release of any
Hazardous Material on, at, in, under, above, to, from or about any of the Real
Estate where such Release would (a) violate in any respect, or form the basis
for any Environmental Liabilities under, any Environmental Laws or Environmental
Permits or (b) otherwise adversely impact the value or marketability of any of
the Real Estate or any of the Collateral, other than such violations or
Environmental Liabilities that individually or in the aggregate could reasonably
be expected to result in Environmental Liabilities in excess of $300,000.

 

6.12 Sale-Leasebacks. No Credit Party shall engage in any sale-leaseback,
synthetic lease or similar transaction involving any of its assets.

 

6.13 Cancellation of Indebtedness. No Credit Party shall cancel any claim or
debt owing to it, except for reasonable consideration negotiated on an
arm’s-length basis and in the ordinary course of its business consistent with
past practices.

 

6.14 Restricted Payments. No Credit Party shall make any Restricted Payment,
except: (a) intercompany loans and advances between Borrowers and Guarantors to
the extent permitted by Section 6.3;(b) dividends and distributions by
Subsidiaries of any Borrower paid to such Borrower; (c) employee loans permitted
under Section 6.4(b); (d) payments of principal and interest of Intercompany
Notes issued in accordance with Section 6.3; (e) the repayment of the Senior
Subordinated Notes in connection with the Senior Subordinated Note Redemption
Transaction, provided that each of the following conditions is satisfied in
full, in each case after giving effect to the consummation of the Senior
Subordinated Note Redemption Transaction and the making of any Advance in
connection therewith, on or prior to the making of such Restricted Payment (i)
Borrowers shall have delivered to Agent a certificate of the Chief Financial
Officer, or, in his absence, the Chief Accounting Officer, of Borrowers,
substantially in the form attached

 

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hereto as Exhibit 2.2(e), certifying and demonstrating that prior to and after
giving effect to the consummation of the Senior Subordinated Note Redemption
Transaction and the making of any Advance in connection therewith (A) each
Credit Party will be Solvent and (B) Borrowers are in compliance with the
financial covenants in Annex G as of the most recently ended Fiscal Month (on a
pro forma basis after giving effect to the proposed Senior Subordinated Note
Redemption Transaction and any requested Advance in connection therewith), (ii)
no Default or Event of Default exists or would result therefrom, (iii) Borrowers
shall have unrestricted cash on hand plus Revolving Loan Borrowing Availability
of at least $1,000,000, and (iv) the timing of such payments shall be set at
dates that permit the delivery of Financial Statements necessary to determine
current compliance with the Financial Covenants prior to each such payment; (f)
regularly scheduled payments of interest with respect to Subordinated Debt
(other than the Senior Subordinated Notes), provided that each of the following
conditions are satisfied in full (i) no Default or Event of Default has occurred
and is continuing or would result after giving effect to any Restricted Payment,
(ii) Borrowers shall have unrestricted cash on hand plus Revolving Loan
Borrowing Availability of at least $1,000,000 after giving effect to any
Restricted Payment; and (iii) the timing of such payments above shall be set at
dates that permit the delivery of Financial Statements necessary to determine
current compliance with the Financial Covenants prior to each such payment; (g)
regularly scheduled payments of principal and interest under the Senior
Subordinated Notes, provided that (i) no payment Default has occurred and is
continuing or would result therefrom, and (ii) no Event of Default has occurred
and is continuing or would result therefrom; (h) regularly scheduled payments of
principal and interest under that certain $500,000 promissory note issued in
connection with the acquisition by Holdings of the assets of the skilled
pediatric nursing home health division of the MedLink Group, Inc.; and (i) the
repurchase by Holdings of its Stock, provided that (i) no Default or Event of
Default has occurred and is continuing or would result after giving effect to
such repurchase, (ii) no Loan proceeds shall be used to make such repurchases
and, upon request of Agent, Borrowers shall furnish Agent with evidence
reasonably satisfactory to Agent that such repurchases are made solely from
Borrowers’ cash on hand, (iii) Borrowers shall have delivered to Agent a
certificate of the Chief Financial Officer, or, in his absence, the Chief
Accounting Officer, of Borrowers in form and substance satisfactory to Agent,
demonstrating that Borrowers would be in compliance with the financial covenants
in Annex G as of the most recently ended Fiscal Month on a pro forma basis after
giving effect to such repurchase, and (iv) the aggregate amount of all such
Stock repurchases in any Fiscal Year shall not exceed $500,000.

 

6.15 Change of Corporate Name or Location; Change of Fiscal Year. No Credit
Party shall (a) change its corporate name or trade name without at least 30 days
prior written notice to Agent, or (b) change its chief executive office,
principal place of business, corporate offices or warehouses or locations at
which Collateral is held or stored, or the location of its records concerning
the Collateral, in each case without at least 15 days prior written notice to
Agent, and provided that any such new location shall be in the continental
United States and Credit Parties shall have fully complied with Section 5.9.
Without limiting the foregoing, no Credit Party shall change its name, identity
or corporate structure in any manner that might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-507 of the Code or any other then applicable provision
of the Code except upon at least 30 days prior written notice to Agent and
Lenders. No Credit Party shall change its Fiscal Year.

 

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6.16 No Impairment of Intercompany Transfers. No Credit Party shall directly or
indirectly enter into or become bound by any agreement, instrument, indenture or
other obligation (other than this Agreement and the other Loan Documents) that
could directly or indirectly restrict, prohibit or require the consent of any
Person with respect to the payment of dividends or distributions or the making
or repayment of intercompany loans by a Subsidiary of any Borrower to any
Borrower or between borrowers.

 

6.17 No Speculative Transactions. No Credit Party shall engage in any
transaction involving commodity options, futures contracts or similar
transactions.

 

6.18 [RESERVED]

 

6.19 Changes Relating to Subordinated Debt; Material Contracts. No Credit Party
shall change or amend the terms of any Subordinated Debt (or any indenture or
agreement in connection therewith) if the effect of such amendment is to: (a)
increase the interest rate on such Subordinated Debt; (b) change the dates upon
which payments of principal or interest are due on such Subordinated Debt other
than to extend such dates; (c) change any default or event of default other than
to delete or make less restrictive any default provision therein, or add any
covenant with respect to such Subordinated Debt; (d) change the redemption or
prepayment provisions of such Subordinated Debt other than to extend the dates
therefor or to reduce the premiums payable in connection therewith; (e) grant
any security or collateral to secure payment of such Subordinated Debt; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the Credit Party thereunder or confer additional
material rights on the holder of such Subordinated Debt in a manner adverse to
any Credit Party, Agent or any Lender.

 

6.20 Holding Company Status of Holdings and PSA Capital. From and after the
Closing Date, neither Holdings nor PSA Capital shall (a) incur any Indebtedness
(other than the Obligations), (b) engage in any business activity other than as
described on Disclosure Schedule (6.21) attached hereto, or (c) incur any
liabilities other than the Obligations and liabilities ancillary to the
activities described on Disclosure Schedule (6.21) attached hereto.

 

7. TERM

 

7.1 Termination. The financing arrangements contemplated hereby shall be in
effect until the Commitment Termination Date, and the Loans and all other
Obligations shall be automatically due and payable in full on such date.

 

7.2 Survival of Obligations Upon Termination of Financing Arrangements. Except
as otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of the Credit Parties or the rights of Agent and Lenders
relating to any unpaid portion of the Loans or any other Obligations, due or not
due, liquidated, contingent or unliquidated or any transaction or event
occurring prior to such termination, or any transaction or event, the
performance of which is required after the Commitment Termination Date. Except
as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and

 

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representations of or binding upon the Credit Parties, and all rights of Agent
and each Lender, all as contained in the Loan Documents, shall not terminate or
expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until the Termination Date; provided, that the
provisions of Section 11, the payment obligations under Sections 1.15 and 1.16,
and the indemnities contained in the Loan Documents shall survive the
Termination Date.

 

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES

 

8.1 Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an “Event of Default”
hereunder:

 

(a) Any Borrower (i) fails to make any payment of principal of the Loans or any
of the other Obligations when due and payable or (ii) fails to make any payment
of interest and Fees owing in respect of the Loans or any of the other
Obligations when due and payable and such failure remains unremedied for more
than 3 Business Days or (iii) fails to pay or reimburse Agent or Lenders for any
expense reimbursable hereunder or under any other Loan Document within 10 days
following Agent’s demand for such reimbursement or payment of expenses.

 

(b) Any Credit Party fails or neglects to perform, keep or observe any of the
provisions of Sections 1.4, 1.8, 5.4(a) or 6, or any of the provisions set forth
in Annexes C or G, respectively.

 

(c) Any Credit Party fails or neglects to perform, keep or observe any of the
provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for 3 days or more.

 

(d) Any Credit Party fails or neglects to perform, keep or observe any other
provision of this Agreement or of any of the other Loan Documents (other than
any provision embodied in or covered by any other clause of this Section 8.1)
and the same shall remain unremedied for 30 days or more.

 

(e) A default or breach occurs under any other agreement, document or instrument
to which any Credit Party is a party that is not cured within any applicable
grace period therefor, and such default or breach (i) involves the failure to
make any payment when due in respect of any Indebtedness or Guaranteed
Indebtedness (other than the Obligations) of any Credit Party in excess of
$500,000 in the aggregate (including (x) undrawn committed or available amounts
and (y) amounts owing to all creditors under any combined or syndicated credit
arrangements), or (ii) causes, or permits any holder of such Indebtedness or
Guaranteed Indebtedness or a trustee to cause, Indebtedness or Guaranteed
Indebtedness or a portion thereof in excess of $500,000 in the aggregate to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, or cash collateral to be demanded in respect thereof, in each
case, regardless of whether such default is waived, or such right is exercised,
by such holder or trustee.

 

(f) Any information contained in any Borrowing Base Certificate is untrue or
incorrect in any respect (other than inadvertent, immaterial errors not
exceeding $15,000 in the

 

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aggregate in any Borrowing Base Certificate), or any representation or warranty
herein or in any Loan Document or in any written statement, report, financial
statement or certificate (other than a Borrowing Base Certificate) made or
delivered to Agent or any Lender by any Credit Party pursuant to the Loan
Documents or in connection with the transactions contemplated by this Agreement
or any other Loan Document is untrue or incorrect in any material respect as of
the date when made or deemed made (i) as stated if such representation and
warranty contains an express materiality qualification or (ii) in all material
respects if such representation and warranty does not contain such a
qualification.

 

(g) Assets of any Credit Party with a fair market value of $500,000 or more are
attached, seized, levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors of any Credit Party and such condition continues for 30
days or more.

 

(h) A case or proceeding is commenced against any Credit Party seeking a decree
or order in respect of such Credit Party (i) under the Bankruptcy Code or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) for such Credit Party or for any substantial part of any
such Credit Party’s assets, or (iii) ordering the winding-up or liquidation of
the affairs of such Credit Party, and such case or proceeding shall remain
undismissed or unstayed for 60 days or more or a decree or order granting the
relief sought in such case or proceeding by a court of competent jurisdiction.

 

(i) Any Credit Party (i) files a petition seeking relief under the Bankruptcy
Code or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) consents to or fails to contest in a timely and appropriate
manner to the institution of proceedings thereunder or to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for such
Credit Party or for any substantial part of any such Credit Party’s assets,
(iii) makes an assignment for the benefit of creditors, or (iv) takes any action
in furtherance of any of the foregoing, or (v) admits in writing its inability
to, or is generally unable to, pay its debts as such debts become due.

 

(j) A final judgment or judgments for the payment of money in excess of $250,000
in the aggregate at any time are outstanding against one or more of the Credit
Parties and the same are not, within 30 days after the entry thereof, discharged
or execution thereof stayed or bonded pending appeal, or such judgments are not
discharged prior to the expiration of any such stay.

 

(k) (i) Any material provision of any Loan Document for any reason ceases to be
valid, binding and enforceable in accordance with its terms (or any Credit Party
shall challenge the enforceability of any Loan Document or shall assert in
writing, or engage in any action or inaction based on any such assertion, that
any provision of any of the Loan Documents has ceased to be or otherwise is not
valid, binding and enforceable in accordance with its terms), or (ii) any Lien
created under any Loan Document ceases to be a valid and perfected first
priority Lien (except as otherwise permitted herein or therein) in any of the
Collateral purported to be

 

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covered thereby for any reason other than the negligent or willful failure of
the Agent to take any action within its control.

 

(l) (i) any Change of Control occurs, or (ii) any “Change of Control” under and
as defined in the Senior Subordinated Note Indenture occurs and any holder of
Senior Subordinated Notes has given Holdings a notice of its election to have
all or any portion of the Senior Subordinated Notes held by such noteholder
purchased by Holdings as a result of such Change of Control.

 

(m) Any material damage to, or loss, theft or destruction of, any Collateral,
whether or not insured, or any strike, lockout, labor dispute, embargo,
condemnation, act of God or public enemy, or other casualty which causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of any Credit Party,
if any such event or circumstance, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

 

(n) Any default or breach by Holdings or any of its Subsidiaries party thereto
occurs and is continuing under the Senior Subordinated Note Indenture or any
Senior Subordinated Notes, or the Senior Subordinated Note Indenture shall be
terminated for any reason (other than as a result of the repayment or redemption
of the Senior Subordinated Notes in full in accordance with the terms of such
indenture).

 

(o) The loss, suspension or revocation of, or failure to renew, any license or
permit now held or hereafter acquired by any Credit Party, in each case, if such
loss, suspension, revocation or failure to renew, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

 

(p) Any Credit Party shall be suspended or excluded from (i) any Medicaid
Provider Agreement, Medicaid Certification, Medicare Provider Agreement,
Medicare Certification or (ii) any medical reimbursement program, where such
exclusion or suspension arises from fraud or other claims or allegations that
could reasonably be expected to have a Material Adverse Effect.

 

8.2 Remedies.

 

(a) If any Default or Event of Default has occurred and is continuing, Agent may
(and at the written request of the Requisite Lenders shall), without notice,
suspend the Revolving Loan facility with respect to additional Advances and/or
the incurrence of additional Letter of Credit Obligations, whereupon any
additional Advances and additional Letter of Credit Obligations shall be made or
incurred in Agent’s sole discretion (or in the sole discretion of the Requisite
Lenders, if such suspension occurred at their direction) so long as such Default
or Event of Default is continuing. If any Default or Event of Default has
occurred and is continuing, Agent may (and at the written request of Requisite
Lenders shall), without notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.

 

(b) If any Event of Default has occurred and is continuing, Agent may (and at
the written request of the Requisite Lenders shall), without notice: (i)
terminate the Revolving

 

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Loan facility with respect to further Advances or the incurrence of further
Letter of Credit Obligations; (ii) declare all or any portion of the
Obligations, including all or any portion of any Loan to be forthwith due and
payable, and require that the Letter of Credit Obligations be cash
collateralized as provided in Annex B, all without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by Borrowers
and each other Credit Party; or (iii) exercise any rights and remedies provided
to Agent under the Loan Documents or at law or equity, including all remedies
provided under the Code; provided, that upon the occurrence of an Event of
Default specified in Sections 8.1(h) or (i), the Revolving Loan facility shall
be immediately terminated and all of the Obligations, including the Revolving
Loan, shall become immediately due and payable without declaration, notice or
demand by any Person.

 

8.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement or by applicable law, each Credit Party waives (including for purposes
of Section 12): (a) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Agent on which any
Credit Party may in any way be liable, and hereby ratifies and confirms whatever
Agent may do in this regard, (b) all rights to notice and a hearing prior to
Agent’s taking possession or control of, or to Agent’s replevy, attachment or
levy upon, the Collateral or any bond or security that might be required by any
court prior to allowing Agent to exercise any of its remedies, and (c) the
benefit of all valuation, appraisal, marshaling and exemption laws.

 

9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

 

9.1 Assignment and Participations.

 

(a) Subject to the terms of this Section 9.1, any Lender may make an assignment
to a Qualified Assignee of, or sale of participations in, at any time or times,
the Loan Documents, Loans, Letter of Credit Obligations and any Commitment or
any portion thereof or interest therein, including any Lender’s rights, title,
interests, remedies, powers or duties thereunder; provided that Lender may not
assign any portion of its Revolving Loan Commitment without a pro rata
assignment of its Acquisition Loan Commitment and Lender may not assign any
portion of its Acquisition Loan Commitment without a pro rata assignment of its
Revolving Loan Commitment. Any assignment by a Lender shall: (i) require the
consent of Agent (which consent shall not be unreasonably withheld or delayed
with respect to a Qualified Assignee) and the execution of an assignment
agreement (an “Assignment Agreement” substantially in the form attached hereto
as Exhibit 9.1(a) and otherwise in form and substance reasonably satisfactory
to, and acknowledged by, Agent; (ii) be conditioned on such assignee Lender
representing to the assigning Lender and Agent that it is purchasing the
applicable Loans to be assigned to it for its own account, for investment
purposes and not with a view to the distribution thereof; (iii) after giving
effect to any such partial assignment, the assignee Lender shall have
Commitments in an amount at least equal to $2,500,000 and the assigning Lender
shall have retained Commitments in an amount at least equal to $2,500,000; (iv)
include a payment to Agent of an assignment fee of $3,500 and (v) so long as no
Event of Default has occurred and is continuing, require the consent of
Borrowers, which shall not be unreasonably withheld or delayed; provided that no
such consent shall be required for an assignment to a Qualified Assignee. In the
case of an

 

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assignment by a Lender under this Section 9.1, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as all
other Lenders hereunder. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Each Borrower hereby
acknowledges and agrees that any assignment shall give rise to a direct
obligation of Borrowers to the assignee and that the assignee shall be
considered to be a “Lender”. In all instances, each Lender’s liability to make
Loans hereunder shall be several and not joint and shall be limited to such
Lender’s Pro Rata Share of the applicable Commitment. In the event Agent or any
Lender assigns or otherwise transfers all or any part of the Obligations, Agent
or any such Lender shall so notify Borrowers and Borrowers shall, upon the
request of Agent or such Lender, execute new Notes in exchange for the Notes, if
any, being assigned. Notwithstanding the foregoing provisions of this Section
9.1(a), any Lender may at any time pledge the Obligations held by it and such
Lender’s rights under this Agreement and the other Loan Documents to a Federal
Reserve Bank, and any Lender that is an investment fund may assign the
Obligations held by it and such Lender’s rights under this Agreement and the
other Loan Documents to another investment fund managed by the same investment
advisor; provided, that no such pledge to a Federal Reserve Bank shall release
such Lender from such Lender’s obligations hereunder or under any other Loan
Document.

 

(b) Any participation by a Lender of all or any part of its Commitments shall be
made with the understanding that all amounts payable by Borrowers hereunder
shall be determined as if that Lender had not sold such participation, and that
the holder of any such participation shall not be entitled to require such
Lender to take or omit to take any action hereunder except actions directly
affecting (i) any reduction in the principal amount of, or interest rate or Fees
payable with respect to, any Loan in which such holder participates, (ii) any
extension of the scheduled amortization of the principal amount of any Loan in
which such holder participates or the final maturity date thereof, and (iii) any
release of all or substantially all of the Collateral (other than in accordance
with the terms of this Agreement, the Collateral Documents or the other Loan
Documents). Solely for purposes of Sections 1.13, 1.15, 1.16 and 9.8, each
Borrower acknowledges and agrees that a participation shall give rise to a
direct obligation of such Borrower to the participant and the participant shall
be considered to be a “Lender”. Except as set forth in the preceding sentence no
Borrower or Credit Party shall have any obligation or duty to any participant.
Neither Agent nor any Lender (other than the Lender selling a participation)
shall have any duty to any participant and may continue to deal solely with the
Lender selling a participation as if no such sale had occurred.

 

(c) Except as expressly provided in this Section 9.1, no Lender shall, as
between Borrowers and that Lender, or Agent and that Lender, be relieved of any
of its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender.

 

(d) Each Credit Party executing this Agreement shall assist any Lender permitted
to sell assignments or participations under this Section 9.1 as reasonably
required to enable the assigning or selling Lender to effect any such assignment
or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing

 

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this Agreement shall certify the correctness, completeness and accuracy of all
descriptions of the Credit Parties and their respective affairs contained in any
selling materials provided by them and all other information provided by them
and included in such materials, except that any Projections delivered by
Borrowers shall only be certified by Borrowers as having been prepared by
Borrowers in compliance with the representations contained in Section 3.4(c).

 

(e) A Lender may furnish any information concerning Credit Parties in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that such Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 11.8.

 

(f) So long as no Event of Default has occurred and is continuing, no Lender
shall assign or sell participations in any portion of its Loans or Commitments
to a potential Lender or participant, if, as of the date of the proposed
assignment or sale, the assignee Lender or participant would be subject to
capital adequacy or similar requirements under Section 1.16(a), increased costs
under Section 1.16(b), an inability to fund LIBOR Loans under Section 1.16(c),
or withholding taxes in accordance with Section 1.15(a).

 

(g) Notwithstanding anything to the contrary contained herein, any Lender (a
“Granting Lender”), may grant to a special purpose funding vehicle (an “SPC”),
identified as such in writing by the Granting Lender to Agent and Borrowers, the
option to provide to Borrowers all or any part of any Loans that such Granting
Lender would otherwise be obligated to make to Borrowers pursuant to this
Agreement; provided that (i) nothing herein shall constitute a commitment by any
SPC to make any Loan; and (ii) if an SPC elects not to exercise such option or
otherwise fails to provide all or any part of such Loan, the Granting Lender
shall be obligated to make such Loan pursuant to the terms hereof. The making of
a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender
to the same extent, and as if such Loan were made by such Granting Lender. No
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Lender). Any
SPC may (i) with notice to, but without the prior written consent of, Borrowers
and Agent and without paying any processing fee therefor assign all or a portion
of its interests in any Loans to the Granting Lender or to any financial
institutions (consented to by Borrowers and Agent) providing liquidity and/or
credit support to or for the account of such SPC to support the funding or
maintenance of Loans and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency, commercial paper dealer
or provider of any surety, guarantee or credit or liquidity enhancement to such
SPC. This Section 9.1(g) may not be amended without the prior written consent of
each Granting Lender, all or any of whose Loans are being funded by an SPC at
the time of such amendment. For the avoidance of doubt, the Granting Lender
shall for all purposes, including without limitation, the approval of any
amendment or waiver of any provision of any Loan Document or the obligation to
pay any amount otherwise payable by the Granting Lender under the Loan
Documents, continue to be the Lender of record hereunder.

 

9.2 Appointment of Agent. GE Capital is hereby appointed to act on behalf of all
Lenders as Agent under this Agreement and the other Loan Documents. The
provisions of this Section 9.2 are solely for the benefit of Agent and Lenders
and no Credit Party nor any other Person shall have any rights as a third party
beneficiary of any of the provisions hereof. In

 

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performing its functions and duties under this Agreement and the other Loan
Documents, Agent shall act solely as an agent of Lenders and does not assume and
shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for any Credit Party or any other Person. Agent shall
have no duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. The duties of Agent shall be mechanical
and administrative in nature and Agent shall not have, or be deemed to have, by
reason of this Agreement, any other Loan Document or otherwise a fiduciary
relationship in respect of any Lender. Except as expressly set forth in this
Agreement and the other Loan Documents, Agent shall not have any duty to
disclose, and shall not be liable for failure to disclose, any information
relating to any Credit Party or any of their respective Subsidiaries or any
Account Debtor that is communicated to or obtained by GE Capital or any of its
Affiliates in any capacity. Neither Agent nor any of its Affiliates nor any of
their respective officers, directors, employees, agents or representatives shall
be liable to any Lender for any action taken or omitted to be taken by it
hereunder or under any other Loan Document, or in connection herewith or
therewith, except for damages caused by its or their own gross negligence or
willful misconduct.

 

If Agent shall request instructions from Requisite Lenders, Supermajority
Revolving Lenders or all affected Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, then Agent shall be entitled to refrain from such act or taking such
action unless and until Agent shall have received instructions from Requisite
Lenders, Supermajority Revolving Lenders, or all affected Lenders, as the case
may be, and Agent shall not incur liability to any Person by reason of so
refraining. Agent shall be fully justified in failing or refusing to take any
action hereunder or under any other Loan Document (a) if such action would, in
the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders, Supermajority Revolving Lenders or all affected Lenders,
as applicable.

 

9.3 Agent’s Reliance, Etc. Neither Agent nor any of its Affiliates nor any of
their respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for damages caused by
its or their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, Agent: (a) may treat the payee of any Note as the
holder thereof until Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form reasonably satisfactory to Agent; (b)
may consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit

 

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Party; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (f) shall incur no liability under or
in respect of this Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.

 

9.4 GE Capital and Affiliates. With respect to its Commitments hereunder, GE
Capital shall have the same rights and powers under this Agreement and the other
Loan Documents as any other Lender and may exercise the same as though it were
not Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly
indicated, include GE Capital in its individual capacity. GE Capital and its
Affiliates may lend money to, invest in, and generally engage in any kind of
business with, any Credit Party, any of their Affiliates and any Person who may
do business with or own securities of any Credit Party or any such Affiliate,
all as if GE Capital were not Agent and without any duty to account therefor to
Lenders. GE Capital and its Affiliates may accept fees and other consideration
from any Credit Party for services in connection with this Agreement or
otherwise without having to account for the same to Lenders. Each Lender
acknowledges the potential conflict of interest between GE Capital as a Lender
holding disproportionate interests in the Loans and GE Capital as Agent.

 

9.5 Lender Credit Decision. Each Lender acknowledges that it has, independently
and without reliance upon Agent or any other Lender and based on the Financial
Statements referred to in Section 3.4(a) and such other documents and
information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

 

9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not
reimbursed by Credit Parties and without limiting the obligations of Borrowers
hereunder), ratably according to their respective Pro Rata Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against Agent
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted to be taken by Agent in connection
therewith; provided, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent’s gross negligence or
willful misconduct. Without limiting the foregoing, each Lender agrees to
reimburse Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including reasonable counsel fees) incurred by Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of

 

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rights or responsibilities under, this Agreement and each other Loan Document,
to the extent that Agent is not reimbursed for such expenses by Credit Parties.

 

9.7 Successor Agent. Agent may resign at any time by giving not less than 30
days’ prior written notice thereof to Lenders and Borrower Representative. Upon
any such resignation, the Requisite Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent’s giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, within 30 days after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower Representative, such approval not to be unreasonably withheld or
delayed; provided that such approval shall not be required if a Default or an
Event of Default has occurred and is continuing. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Agent. Upon the earlier of the acceptance of any appointment as
Agent hereunder by a successor Agent or the effective date of the resigning
Agent’s resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent’s resignation hereunder, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was acting as Agent under this Agreement and the other
Loan Documents.

 

9.8 Setoff and Sharing of Payments. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default and
subject to Section 9.9(f), each Lender is hereby authorized at any time or from
time to time, without notice to any Credit Party or to any other Person, any
such notice being hereby expressly waived, to offset and to appropriate and to
apply any and all balances held by it at any of its offices for the account of
any Borrower or any Guarantor (regardless of whether such balances are then due
to such Borrower or Guarantor) and any other properties or assets at any time
held or owing by that Lender or that holder to or for the credit or for the
account of any Borrower or any Guarantor against and on account of any of the
Obligations that are not paid when due. Any Lender exercising a right of setoff
or otherwise receiving any payment on account of the Obligations in excess of
its Pro Rata Share thereof shall purchase for cash (and the other Lenders or
holders shall sell) such participations in each such other Lender’s or holder’s
Pro Rata Share of the Obligations as would be necessary to cause such Lender to
share the amount so offset or otherwise received with each other Lender or
holder in accordance with their respective Pro Rata Shares, (other than offset
rights exercised by any Lender with respect to Sections 1.13, 1.15 or 1.16).
Each Borrower and each Guarantor agrees, to the fullest extent permitted by law,
that (a)

 

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any Lender may exercise its right to offset with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such
amounts so offset to other Lenders and holders and (b) any Lender so purchasing
a participation in the Loans made or other Obligations held by other Lenders or
holders may exercise all rights of offset, bankers’ lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of the Loans and the other Obligations in the amount
of such participation. Notwithstanding the foregoing, if all or any portion of
the offset amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of offset, the purchase of participations by
that Lender shall be rescinded and the purchase price restored without interest.

 

9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert.

 

(a) Advances; Payments.

 

(i) Each Revolving Lender shall make the amount of such Lender’s Pro Rata Share
of such Revolving Credit Advance available to Agent in same day funds by wire
transfer to Agent’s account as set forth in Annex H not later than 3:00 p.m.
(New York time) on the requested funding date, in the case of an Index Rate Loan
and not later than 11:00 a.m. (New York time) on the requested funding date in
the case of a LIBOR Loan. After receipt of such wire transfers (or, in the
Agent’s sole discretion, before receipt of such wire transfers), subject to the
terms hereof, Agent shall make the requested Revolving Credit Advance to the
Borrower designated by Borrower Representative in the Notice of Revolving Credit
Advance. All payments by each Revolving Lender shall be made without setoff,
counterclaim or deduction of any kind.

 

(ii) On the 2nd Business Day of each calendar week or more frequently at Agent’s
election (each, a “Settlement Date”), Agent shall advise each Lender by
telephone, or telecopy of the amount of such Lender’s Pro Rata Share of
principal, interest and Fees paid for the benefit of Lenders with respect to
each applicable Loan. Provided that each Lender has funded all payments and
Advances required to be made by it and purchased all participations required to
be purchased by it under this Agreement and the other Loan Documents as of such
Settlement Date, Agent shall pay to each Lender such Lender’s Pro Rata Share of
principal, interest and Fees paid by Borrowers since the previous Settlement
Date for the benefit of such Lender on the Loans held by it. To the extent that
any Lender (a “Non-Funding Lender”) has failed to fund all such payments and
Advances or failed to fund the purchase of all such participations, Agent shall
be entitled to set off the funding short-fall against that Non-Funding Lender’s
Pro Rata Share of all payments received from Borrowers. Such payments shall be
made by wire transfer to such Lender’s account (as specified by such Lender in
Annex H or the applicable Assignment Agreement) not later than 2:00 p.m. (New
York time) on the next Business Day following each Settlement Date.

 

(b) Availability of Lender’s Pro Rata Share. Agent may assume that each
Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance
available to Agent on each funding date. If such Pro Rata Share is not, in fact,
paid to Agent by such Revolving Lender when due, Agent will be entitled to
recover such amount on demand from

 

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such Revolving Lender without setoff, counterclaim or deduction of any kind. If
any Revolving Lender fails to pay the amount of its Pro Rata Share forthwith
upon Agent’s demand, Agent shall promptly notify Borrower Representative and
Borrowers shall immediately repay such amount to Agent. Nothing in this Section
9.9(b) or elsewhere in this Agreement or the other Loan Documents shall be
deemed to require Agent to advance funds on behalf of any Revolving Lender or to
relieve any Revolving Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that Borrowers may have against any
Revolving Lender as a result of any default by such Revolving Lender hereunder.
To the extent that Agent advances funds to any Borrower on behalf of any
Revolving Lender and is not reimbursed therefor on the same Business Day as such
Advance is made, Agent shall be entitled to retain for its account all interest
accrued on such Advance until reimbursed by the applicable Revolving Lender.

 

(c) Return of Payments.

 

(i) If Agent pays an amount to a Lender under this Agreement in the belief or
expectation that a related payment has been or will be received by Agent from
Borrowers and such related payment is not received by Agent, then Agent will be
entitled to recover such amount from such Lender on demand without setoff,
counterclaim or deduction of any kind.

 

(ii) If Agent determines at any time that any amount received by Agent under
this Agreement must be returned to any Borrower or paid to any other Person
pursuant to any insolvency law or otherwise, then, notwithstanding any other
term or condition of this Agreement or any other Loan Document, Agent will not
be required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to any Borrower or such other Person, without setoff,
counterclaim or deduction of any kind.

 

(d) Non-Funding Lenders. The failure of any Non-Funding Lender to make any
Revolving Credit Advance or any payment required by it hereunder shall not
relieve any other Lender (each such other Revolving Lender, an “Other Lender”)
of its obligations to make such Advance or purchase such participation on such
date, but neither any Other Lender nor Agent shall be responsible for the
failure of any Non-Funding Lender to make an Advance, purchase a participation
or make any other payment required hereunder. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
“Lender” or a “Revolving Lender” (or be included in the calculation of
“Requisite Lenders” or “Supermajority Revolving Lenders” hereunder) for any
voting or consent rights under or with respect to any Loan Document. At Borrower
Representative’s request, Agent or a Person acceptable to Agent shall have the
right with Agent’s consent and in Agent’s sole discretion (but shall have no
obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender
agrees that it shall, at Agent’s request, sell and assign to Agent or such
Person, all of the Commitments of that Non-Funding Lender for an amount equal to
the principal balance of all Loans held by such Non-Funding Lender and all
accrued interest and fees with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement.

 

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(e) Dissemination of Information. Agent shall use reasonable efforts to provide
Lenders with any notice of Default or Event of Default received by Agent from,
or delivered by Agent to, any Credit Party, with notice of any Event of Default
of which Agent has actually become aware and with notice of any action taken by
Agent following any Event of Default; provided, that Agent shall not be liable
to any Lender for any failure to do so, except to the extent that such failure
is attributable to Agent’s gross negligence or willful misconduct. Lenders
acknowledge that Borrowers are required to provide Financial Statements and
Collateral Reports to Lenders in accordance with Annexes E and F hereto and
agree that Agent shall have no duty to provide the same to Lenders.

 

(f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of setoff) without first
obtaining the prior written consent of Agent and Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Agent or Requisite Lenders.

 

10. SUCCESSORS AND ASSIGNS

 

10.1 Successors and Assigns. This Agreement and the other Loan Documents shall
be binding on and shall inure to the benefit of each Credit Party, Agent,
Lenders and their respective successors and assigns (including, in the case of
any Credit Party, a debtor-in-possession on behalf of such Credit Party), except
as otherwise provided herein or therein. No Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express
written consent of Agent and Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by any Credit Party without the prior express
written consent of Agent and Lenders shall be void. The terms and provisions of
this Agreement are for the purpose of defining the relative rights and
obligations of each Credit Party, Agent and Lenders with respect to the
transactions contemplated hereby and no Person shall be a third party
beneficiary of any of the terms and provisions of this Agreement or any of the
other Loan Documents.

 

11. MISCELLANEOUS

 

11.1 Complete Agreement; Modification of Agreement. The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2. Any letter of interest, commitment letter (except the GE
Capital Commitment Letter solely to the extent that such letter relates to the
obligations of any Borrower to pay fees, without duplication of the other fees
specifically set forth in this Agreement) or fee letter between any Credit Party
and Agent or any Lender or any of their respective Affiliates, predating this
Agreement and relating to a financing of substantially similar form, purpose or
effect shall be superseded by this Agreement.

 

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11.2 Amendments and Waivers.

 

(a) Except for actions expressly permitted to be taken by Agent, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or any consent to any departure by any Credit Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Agent and Borrowers, and by Requisite Lenders, Supermajority
Revolving Lenders or all affected Lenders, as applicable. Except as set forth in
clauses (b) and (c) below, all such amendments, modifications, terminations or
waivers requiring the consent of any Lenders shall require the written consent
of Requisite Lenders.

 

(b) No amendment, modification, termination or waiver of or consent with respect
to any provision of this Agreement that increases the percentage advance rates
set forth in the definition of the Borrowing Base, or that makes less
restrictive the nondiscretionary criteria for exclusion from Eligible Accounts
set forth in Sections 1.6 and 1.7, shall be effective unless the same shall be
in writing and signed by Agent, Supermajority Revolving Lenders and Borrowers.
No amendment, modification, termination or waiver of or consent with respect to
any provision of this Agreement that waives compliance with the conditions
precedent set forth in Section 2.2 to the making of any Loan or the incurrence
of any Letter of Credit Obligations shall be effective unless the same shall be
in writing and signed by Agent, Requisite Lenders and Borrowers. Notwithstanding
anything contained in this Agreement to the contrary, no waiver or consent with
respect to any Default or any Event of Default shall be effective for purposes
of the conditions precedent to the making of Loans or the incurrence of Letter
of Credit Obligations set forth in Section 2.2 and Section 2.3 unless the same
shall be in writing and signed by Agent, Requisite Lenders and Borrowers.

 

(c) No amendment, modification, termination or waiver shall, unless in writing
and signed by Agent and each Lender directly affected thereby: (i) increase the
principal amount of any Lender’s Commitment (which action shall be deemed only
to affect those Lenders whose Commitments are increased and may be approved by
Requisite Lenders, including those lenders whose Commitments are increased);
(ii) reduce the principal of, rate of interest on or Fees payable with respect
to any Loan or Letter of Credit Obligations of any affected Lender; (iii) extend
any scheduled payment date (other than payment dates of mandatory prepayments
under Section 1.3(b)(ii)-(iv)) or final maturity date of the principal amount of
any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone
any payment of interest or Fees as to any affected Lender; (v) release any
Guaranty or, except as otherwise permitted herein or in the other Loan
Documents, release, or permit any Credit Party to sell or otherwise dispose of,
any Collateral with a value exceeding $5,000,000 in the aggregate (which action
shall be deemed to directly affect all Lenders); (vi) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Loans that
shall be required for Lenders or any of them to take any action hereunder; and
(vii) amend or waive this Section 11.2 or the definitions of the terms
“Requisite Lenders” or “Supermajority Revolving Lenders” insofar as such
definitions affect the substance of this Section 11.2. Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of
Agent or L/C Issuer under this Agreement or any other Loan Document shall be
effective unless in writing and signed by Agent or L/C Issuer, as the case may
be, in addition to Lenders required hereinabove to take such action. Each
amendment, modification, termination or waiver shall be effective only in the
specific instance and for the

 

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specific purpose for which it was given. No amendment, modification, termination
or waiver shall be required for Agent to take additional Collateral pursuant to
any Loan Document. No amendment, modification, termination or waiver of any
provision of any Note shall be effective without the written concurrence of the
holder of that Note. No notice to or demand on any Credit Party in any case
shall entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 11.2 shall be binding upon each holder of the Notes at the time
outstanding and each future holder of the Notes.

 

(d) If, in connection with any proposed amendment, modification, waiver or
termination (a “Proposed Change”):

 

(i) requiring the consent of all affected Lenders, the consent of Requisite
Lenders is obtained, but the consent of other Lenders whose consent is required
is not obtained (any such Lender whose consent is not obtained as described in
this clause (i) and in clauses (ii), (iii) and (iv) below being referred to as a
“Non-Consenting Lender”),

 

(ii) requiring the consent of Supermajority Revolving Lenders, the consent of
Requisite Lenders is obtained, but the consent of Supermajority Revolving
Lenders is not obtained,

 

(iii) requiring the consent of Requisite Lenders, the consent of Revolving
Lenders holding 51% or more of the aggregate Revolving Loan Commitments is
obtained, but the consent of Requisite Lenders is not obtained, or

 

(iv) requiring the consent of Requisite Lenders, the consent of Lenders holding
51% or more of the aggregate Commitments is obtained, but the consent of
Requisite Lenders is not obtained,

 

then, so long as Agent is not a Non-Consenting Lender, at Borrower
Representative’s request Agent, or a Person reasonably acceptable to Agent,
shall have the right with Agent’s consent and in Agent’s sole discretion (but
shall have no obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent’s request, sell and
assign to Agent or such Person, all of the Commitments of such Non-Consenting
Lenders for an amount equal to the principal balance of all Loans held by the
Non-Consenting Lenders and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.

 

(e) Upon payment in full in cash and performance of all of the Obligations
(other than indemnification Obligations), termination of the Commitments and a
release of all claims against Agent and Lenders, and so long as no suits,
actions proceedings, or claims are pending or threatened against any Indemnified
Person asserting any damages, losses or liabilities that are Indemnified
Liabilities, Agent shall deliver to Borrowers termination statements, mortgage
releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.

 

11.3 Fees and Expenses. Borrowers shall reimburse (i) Agent for all fees, costs
and expenses (including the reasonable fees and expenses of all of its counsel,
advisors,

 

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consultants and auditors; provided, however, that, absent an Event of Default,
Borrowers shall only be responsible for the fees, costs and expenses of one
field examination or audit per year performed pursuant to Section 1.14, and (ii)
Agent (and, with respect to clauses (c) and (d) below, all Lenders) for all
fees, costs and expenses, including the reasonable fees, costs and expenses of
counsel or other advisors (including environmental and management consultants
and appraisers) incurred in connection with the negotiation and preparation of
the Loan Documents and incurred in connection with:

 

(a) the forwarding to Borrowers or any other Person on behalf of Borrowers by
Agent of the proceeds of any Loan (including a wire transfer fee of $25 per wire
transfer);

 

(b) any amendment, modification or waiver of, or consent with respect to, or
termination of, any of the Loan Documents or Related Transactions Documents or
advice in connection with the syndication and administration of the Loans made
pursuant hereto or its rights hereunder or thereunder;

 

(c) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Agent, any Lender, any Borrower or any other Person and whether as
a party, witness or otherwise) in any way relating to the Collateral, any of the
Loan Documents or any other agreement to be executed or delivered in connection
herewith or therewith, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection with a
case commenced by or against any or all of the Borrowers or any other Person
that may be obligated to Agent by virtue of the Loan Documents, including any
such litigation, contest, dispute, suit, proceeding or action arising in
connection with any work-out or restructuring of the Loans during the pendency
of one or more Events of Default; provided that in the case of reimbursement of
counsel for Lenders other than Agent, such reimbursement shall be limited to one
counsel for all such Lenders; provided, further, that no Person shall be
entitled to reimbursement under this clause (c) in respect of any litigation,
contest, dispute, suit, proceeding or action to the extent any of the foregoing
results from such Person’s gross negligence or willful misconduct;

 

(d) any attempt to enforce any remedies of Agent or any Lender against any or
all of the Credit Parties or any other Person that may be obligated to Agent or
any Lender by virtue of any of the Loan Documents, including any such attempt to
enforce any such remedies in the course of any work-out or restructuring of the
Loans during the pendency of one or more Events of Default; provided, that in
the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders;

 

(e) any workout or restructuring of the Loans during the pendency of one or more
Events of Default; and

 

(f) efforts to (i) monitor the Loans or any of the other Obligations, (ii)
evaluate, observe or assess any of the Credit Parties or their respective
affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of any of the Collateral;

 

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including, as to each of clauses (a) through (f) above, all reasonable
attorneys’ and other professional and service providers’ fees incurred in
connection with such services and other advice, assistance or other
representation, including those in connection with any appellate proceedings,
and all expenses, costs, charges and other fees incurred by such counsel and
others in connection with or relating to any of the events or actions described
in this Section 11.3, all of which shall be payable, on demand, by Borrowers to
Agent. Without limiting the generality of the foregoing, such expenses, costs,
charges and fees may include: fees, costs and expenses of accountants,
environmental advisors, appraisers, investment bankers, management and other
consultants and paralegals; court costs and expenses; photocopying and
duplication expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram or telecopy charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal or other advisory
services.

 

11.4 No Waiver. Agent’s or any Lender’s failure, at any time or times, to
require strict performance by the Credit Parties of any provision of this
Agreement or any other Loan Document shall not waive, affect or diminish any
right of Agent or such Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrowers specifying
such suspension or waiver.

 

11.5 Remedies. Agent’s and Lenders’ rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies that Agent
or any Lender may have under any other agreement, including the other Loan
Documents, by operation of law or otherwise. Recourse to the Collateral shall
not be required.

 

11.6 Severability. Wherever possible, each provision of this Agreement and the
other Loan Documents shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Agreement or any
other Loan Document shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such other Loan Document.

 

11.7 Conflict of Terms. Except as otherwise provided in this Agreement or any of
the other Loan Documents by specific reference to the applicable provisions of
this Agreement, if any provision contained in this Agreement conflicts with any
provision in any of the other Loan Documents, the provision contained in this
Agreement shall govern and control.

 

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11.8 Confidentiality.

 

(a) Any information from time to time delivered to the Agent and/or the Lenders
by the Borrowers or any other Credit Party which is identified as confidential
and which is not in the public domain shall be held by the Agent or such Lender
as confidential for a period of at least three years following receipt thereof;
provided, that the Agent and each Lender may make disclosure of such information
(i) to its independent accountants and legal counsel (which Persons shall be
likewise bound by the provisions of this Section 11.8), (ii) pursuant to
statutory and regulatory requirements, (iii) pursuant to any mandatory court
order or subpoena or in connection with any legal process, (iv) pursuant to any
written agreement hereafter made between the Agent, any Lender and the Borrowers
or any other Credit Party to which such information relates, which agreement
permits such disclosure, (v) as necessary in connection with the exercise of any
remedy by Agent or any Lender under the Loan Documents, (vi) consisting of
general portfolio information that does not identify any Credit Party, (vii)
which was heretofore been publicly disclosed or is otherwise available to such
Agent and/or Lender on a non-confidential basis from a source that is not, to
its knowledge, subject to a confidentiality agreement with any Credit Party,
(viii) in connection with any litigation to which Agent or any Lender or its
Affiliates is a party, or (ix) subject to an agreement containing provisions
substantially the same as those set forth in this Section 11.8, to any assignee
of or participant in, or prospective assignee of or participant in, any of the
Obligations.

 

(b) Notwithstanding anything to the contrary set forth herein or in any other
agreement to which the parties hereto are parties or by which they are bound,
the obligations of confidentiality contained herein and therein, as they relate
to the transactions contemplated by the Credit Agreement and the other loan
documents (the “Transaction”), shall not apply to the federal tax structure or
federal tax treatment of the Transaction, and each party hereto (and any
employee, representative, agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the federal tax structure and federal
tax treatment of the Transaction. The preceding sentence is intended to cause
the Transaction to be treated as not having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
Internal Revenue Code of 1986, as amended, and shall be construed in a manner
consistent with such purpose. In addition, each party hereto acknowledges that
it has no proprietary or exclusive rights to the federal tax structure of the
Transaction or any federal tax matter or federal tax idea related to the
Transaction.

 

11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN FULTON COUNTY,
CITY OF FULTON, GEORGIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING

 

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TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
FULTON COUNTY AND; PROVIDED, FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET
FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY’S ACTUAL RECEIPT THEREOF OR 3
BUSINESS DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.

 

11.10 Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties desires to give or serve upon any
other parties any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt and 3 Business Days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 11.10); (c) 1 Business
Day after deposit with a reputable overnight courier with all charges prepaid or
(d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Annex I or to such other address (or facsimile number) as
may be substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to any Person
(other than Borrower Representative or Agent) designated in Annex I to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.

 

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11.11 Section Titles. The Section titles and Table of Contents contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

 

11.12 Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
agreement.

 

11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

 

11.14 Press Releases and Related Matters. Each Credit Party executing this
Agreement agrees that neither it nor its Affiliates will in the future issue any
press releases or other public disclosure using the name of GE Capital or its
affiliates or referring to this Agreement, the other Loan Documents or the
Related Transactions Documents without at least 2 Business Days’ prior notice to
GE Capital and without the prior written consent of GE Capital unless (and only
to the extent that) such Credit Party or Affiliate is required to do so under
law and then, in any event, such Credit Party or Affiliate will consult with GE
Capital before issuing such press release or other public disclosure. Each
Credit Party consents to the publication by Agent or any Lender of a tombstone
or similar advertising material relating to the financing transactions
contemplated by this Agreement. Agent or such Lender shall provide a draft of
any such tombstone or similar advertising material to each Credit Party for
review and comment prior to the publication thereof. Agent reserves the right to
provide to industry trade organizations information necessary and customary for
inclusion in league table measurements.

 

11.15 Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against any Borrower
for liquidation or reorganization, should any Borrower become insolvent or make
an assignment for the benefit of any creditor or creditors or should a receiver
or trustee be appointed for all or any significant part of any Borrower’s
assets, and shall continue to be effective or to be reinstated, as the case may
be, if at any time payment and performance of the Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be

 

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reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

 

11.16 Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Agreement and, specifically, the provisions of
Sections 11.9 and 11.13, with its counsel.

 

11.17 No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.

 

12. CROSS-GUARANTY

 

12.1 Cross-Guaranty. Each Borrower hereby agrees that such Borrower is jointly
and severally liable for, and hereby absolutely and unconditionally guarantees
to Agent and Lenders and their respective successors and assigns, the full and
prompt payment (whether at stated maturity, by acceleration or otherwise) and
performance of, all Obligations owed or hereafter owing to Agent and Lenders by
each other Borrower. Each Borrower agrees that its guaranty obligation hereunder
is a continuing guaranty of payment and performance and not of collection, that
its obligations under this Section 12 shall not be discharged until payment and
performance, in full, of the Obligations has occurred, and that its obligations
under this Section 12 shall be absolute and unconditional, irrespective of, and
unaffected by,

 

(a) the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Agreement, any other Loan Document or any other
agreement, document or instrument to which any Borrower is or may become a
party;

 

(b) the absence of any action to enforce this Agreement (including this Section
12) or any other Loan Document or the waiver or consent by Agent and Lenders
with respect to any of the provisions thereof;

 

(c) the existence, value or condition of, or failure to perfect its Lien
against, any security for the Obligations or any action, or the absence of any
action, by Agent and Lenders in respect thereof (including the release of any
such security);

 

(d) the insolvency of any Credit Party; or

 

(e) any other action or circumstances that might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor.

 

Each Borrower shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder.

 

12.2 Waivers by Borrowers. Each Borrower expressly waives all rights it may have
now or in the future under any statute, or at common law, or at law or in
equity, or otherwise, to compel Agent or Lenders to marshall assets or to
proceed in respect of the

 

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Obligations guaranteed hereunder against any other Credit Party, any other party
or against any security for the payment and performance of the Obligations
before proceeding against, or as a condition to proceeding against, such
Borrower. It is agreed among each Borrower, Agent and Lenders that the foregoing
waivers are of the essence of the transaction contemplated by this Agreement and
the other Loan Documents and that, but for the provisions of this Section 12 and
such waivers, Agent and Lenders would decline to enter into this Agreement.

 

12.3 Benefit of Guaranty. Each Borrower agrees that the provisions of this
Section 12 are for the benefit of Agent and Lenders and their respective
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between any other Borrower and Agent or Lenders, the
obligations of such other Borrower under the Loan Documents.

 

12.4 Subordination of Subrogation, Etc. Notwithstanding anything to the contrary
in this Agreement or in any other Loan Document, and except as set forth in
Section 12.7, each Borrower hereby expressly and irrevocably subordinates to
payment of the Obligations any and all rights at law or in equity to
subrogation, reimbursement, exoneration, contribution, indemnification or set
off and any and all defenses available to a surety, guarantor or accommodation
co-obligor until the Obligations are indefeasibly paid in full in cash. Each
Borrower acknowledges and agrees that this subordination is intended to benefit
Agent and Lenders and shall not limit or otherwise affect such Borrower’s
liability hereunder or the enforceability of this Section 12, and that Agent,
Lenders and their respective successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 12.4.

 

12.5 Election of Remedies. If Agent or any Lender may, under applicable law,
proceed to realize its benefits under any of the Loan Documents giving Agent or
such Lender a Lien upon any Collateral, whether owned by any Borrower or by any
other Person, either by judicial foreclosure or by non-judicial sale or
enforcement, Agent or any Lender may, at its sole option, determine which of its
remedies or rights it may pursue without affecting any of its rights and
remedies under this Section 12. If, in the exercise of any of its rights and
remedies, Agent or any Lender shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Borrower or any
other Person, whether because of any applicable laws pertaining to “election of
remedies” or the like, each Borrower hereby consents to such action by Agent or
such Lender and waives any claim based upon such action, even if such action by
Agent or such Lender shall result in a full or partial loss of any rights of
subrogation that each Borrower might otherwise have had but for such action by
Agent or such Lender. Any election of remedies that results in the denial or
impairment of the right of Agent or any Lender to seek a deficiency judgment
against any Borrower shall not impair any other Borrower’s obligation to pay the
full amount of the Obligations. In the event Agent or any Lender shall bid at
any foreclosure or trustee’s sale or at any private sale permitted by law or the
Loan Documents, Agent or such Lender may bid all or less than the amount of the
Obligations and the amount of such bid need not be paid by Agent or such Lender
but shall be credited against the Obligations. The amount of the successful bid
at any such sale, whether Agent, Lender or any other party is the successful
bidder, shall be conclusively deemed to be the fair market value of the
Collateral and the difference between such bid amount and the remaining balance
of the Obligations shall be conclusively deemed to be the amount of the
Obligations guaranteed under this Section 12, notwithstanding that any present
or future law or court decision or ruling may have the effect of

 

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reducing the amount of any deficiency claim to which Agent or any Lender might
otherwise be entitled but for such bidding at any such sale.

 

12.6 Limitation. Notwithstanding any provision herein contained to the contrary,
each Borrower’s liability under this Section 12 (which liability is in any event
in addition to amounts for which such Borrower is primarily liable under Section
1) shall be limited to an amount not to exceed as of any date of determination
the greater of:

 

(a) the net amount of all Loans advanced to any other Borrower under this
Agreement and then re-loaned or otherwise transferred to, or for the benefit of,
such Borrower; and

 

(b) the amount that could be claimed by Agent and Lenders from such Borrower
under this Section 12 without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law after taking into account, among other things, such
Borrower’s right of contribution and indemnification from each other Borrower
under Section 12.7.

 

12.7 Contribution with Respect to Guaranty Obligations.

 

(a) To the extent that any Borrower shall make a payment under this Section 12
of all or any of the Obligations (other than Loans made to that Borrower for
which it is primarily liable) (a “Guarantor Payment”) that, taking into account
all other Guarantor Payments then previously or concurrently made by any other
Borrower, exceeds the amount that such Borrower would otherwise have paid if
each Borrower had paid the aggregate Obligations satisfied by such Guarantor
Payment in the same proportion that such Borrower’s “Allocable Amount” (as
defined below) (as determined immediately prior to such Guarantor Payment) bore
to the aggregate Allocable Amounts of each of the Borrowers as determined
immediately prior to the making of such Guarantor Payment, then, following
indefeasible payment in full in cash of the Obligations and termination of the
Commitments, such Borrower shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Borrower for the
amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment.

 

(b) As of any date of determination, the “Allocable Amount” of any Borrower
shall be equal to the maximum amount of the claim that could then be recovered
from such Borrower under this Section 12 without rendering such claim voidable
or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law.

 

(c) This Section 12.7 is intended only to define the relative rights of
Borrowers and nothing set forth in this Section 12.7 is intended to or shall
impair the obligations of Borrowers, jointly and severally, to pay any amounts
as and when the same shall become due and payable in accordance with the terms
of this Agreement, including Section 12.1. Nothing contained in this Section
12.7 shall limit the liability of any Borrower to pay the Loans made

 

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directly or indirectly to that Borrower and accrued interest, Fees and expenses
with respect thereto for which such Borrower shall be primarily liable.

 

(d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Borrower to which such
contribution and indemnification is owing.

 

(e) The rights of the indemnifying Borrowers against other Credit Parties under
this Section 12.7 shall be exercisable upon the full and indefeasible payment of
the Obligations and the termination of the Commitments.

 

12.8 Liability Cumulative. The liability of Borrowers under this Section 12 is
in addition to and shall be cumulative with all liabilities of each Borrower to
Agent and Lenders under this Agreement and the other Loan Documents to which
such Borrower is a party or in respect of any Obligations or obligation of the
other Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.

 

[Remainder of page intentionally left blank; signature pages follow]

 

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IN WITNESS WHEREOF, this Credit Agreement has been duly executed as of the date
first written above.

 

BORROWERS:

PEDIATRIC SERVICES OF AMERICA, INC.,

a Delaware corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Senior Vice President, CFO and Secretary PEDIATRIC SERVICES OF AMERICA, INC.,

a Georgia corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Senior Vice President, CFO and Secretary

AGENT AND LENDERS:

GENERAL ELECTRIC CAPITAL

CORPORATION, as Agent and Lender

By:   /s/    KEITH S. KENNEDY            

--------------------------------------------------------------------------------

Name:

  Keith S. Kennedy

Its Duly Authorized Signatory

 

--------------------------------------------------------------------------------

The following Persons are signatories to this Agreement in their capacity as
Credit Parties and not as Borrowers.

 

PSA CAPITAL CORPORATION,

a Delaware corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Secretary PEDIATRIC HOME NURSING SERVICES, INC.,

a New York corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Secretary PSA PROPERTIES CORPORATION,

a Delaware corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Secretary PSA LICENSING CORPORATION,

a Delaware corporation

By:   /s/    JAMES M. MCNEILL            

--------------------------------------------------------------------------------

Name:

  James M. McNeill

Title:

  Secretary

 

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ANNEX A (Recitals)

to

CREDIT AGREEMENT

 

DEFINITIONS

 

Capitalized terms used in the Loan Documents shall have (unless otherwise
provided elsewhere in the Loan Documents) the following respective meanings and
all references to Sections, Exhibits, Schedules or Annexes in the following
definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the
Agreement:

 

“Account Debtor” means any Person who may become obligated to any Credit Party
under, with respect to, or on account of, an Account.

 

“Accounting Changes” has the meaning ascribed thereto in Annex G.

 

“Accounts” means all “accounts,” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party, including (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments),
whether arising out of goods sold or services rendered by it or from any other
transaction (including any such obligations that may be characterized as an
account or contract right under the Code), (b) all of each Credit Party’s rights
in, to and under all purchase orders or receipts for goods or services, (c) all
of each Credit Party’s rights to any goods represented by any of the foregoing
(including unpaid sellers’ rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), (d)
all monies due or to become due to any Credit Party, under all purchase orders
and contracts for the sale of goods or the performance of services or both by
such Credit Party or in connection with any other transaction (whether or not
yet earned by performance on the part of such Credit Party), including the right
to receive the proceeds of said purchase orders and contracts, (e) all
healthcare insurance receivables, and (f) all collateral security and guaranties
of any kind, now or hereafter in existence, given by any Account Debtor or other
Person with respect to any of the foregoing.

 

“Accounts Receivable DSO” means, for any particular Fiscal Month and any
particular Person, the quotient obtained by dividing (a) the aggregate book
value (net of contractual allowances as determined by Agent) of such Person’s
billed accounts receivables as of the end of such Fiscal Month, by (b) an amount
equal to (i) the aggregate patient service revenues (net of contractual
allowances as determined by Agent) of such Person for a period of three
consecutive Fiscal Months ending on the last day of such Fiscal Month divided by
(ii) the total number of days in such period of three consecutive Fiscal Months,
all as determined on a consolidated basis in accordance with GAAP as applicable
to the terms and provisions herein.

 

“Acquisition Lenders” means those Lenders having Acquisition Loan Commitments.

 

“Acquisition Loan” means at any time, the aggregate amount of Acquisition Loan
Advances outstanding to Borrowers.

 

A - 1

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“Acquisition Loan Advance” has the meaning ascribed to it in Section 1.1(b)(i).

 

“Acquisition Loan Borrowing Availability” means as of any date of determination
the lesser of (i) the Maximum Acquisition Loan Amount less the amount of the
Acquisition Loan then outstanding and (ii) the Borrowing Base less the amount of
the Acquisition Loan and Revolving Loan then outstanding.

 

“Acquisition Loan Commitment” means (a) as to any Acquisition Loan Lender, the
aggregate commitment of such Acquisition Loan Lender to make Acquisition Loan
Advances as set forth on Annex J to the Agreement or in the most recent
Assignment Agreement executed by such Acquisition Loan Lender and (b) as to all
Acquisition Loan Lenders, the aggregate commitment of all Acquisition Loan
Lenders to make Acquisition Loan Advances, which aggregate commitment shall be
Ten Million Dollars ($10,000,000) on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.

 

“Acquisition Loan Lenders” means, as of any date of determination, Lenders
having a Acquisition Loan Commitment.

 

“Acquisition Loan Note” has the meaning ascribed to it in Section 1.1(b)(iv).

 

“Acquisition Pro Forma” has the meaning ascribed to it in Section 6.1(x)(A).

 

“Advance” means any Revolving Credit Advance or Acquisition Loan Advance.

 

“Affiliate” means, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or
other fiduciary, 5% or more of the Stock having ordinary voting power in the
election of directors of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, (c) each of such
Person’s officers, directors, joint venturers and partners and (d) in the case
of any Borrowers, the immediate family members, spouses and lineal descendants
of individuals who are Affiliates of any Borrower. For the purposes of this
definition, “control” of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that the term “Affiliate” shall specifically
exclude Agent and each Lender.

 

“Agent” means GE Capital in its capacity as Agent for Lenders or its successor
appointed pursuant to Section 9.7.

 

“Agreement” means the Credit Agreement by and among Borrowers, the other Credit
Parties party thereto, GE Capital, as Agent and Lender and the other Lenders
from time to time party thereto, as the same may be amended, supplemented,
restated or otherwise modified from time to time.

 

“Appendices” has the meaning ascribed to it in the recitals to the Agreement.

 

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“Applicable Acquisition Loan Index Margin” means the per annum interest rate
from time to time in effect and payable in addition to the Index Rate applicable
to the Acquisition Loan, as determined by reference to Section 1.5(a).

 

“Applicable Acquisition Loan LIBOR Margin” means the per annum interest rate
from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Acquisition Loan, as determined by reference to Section 1.5(a).

 

“Applicable Acquisition Unused Line Fee Margin” means the per annum fee, from
time to time in effect, payable in respect of Borrowers’ non-use of committed
funds pursuant to Section 1.9(b), which fee is determined by reference to
Section 1.5(a).

 

“Applicable L/C Margin” means the per annum fee, from time to time in effect,
payable with respect to outstanding Letter of Credit Obligations as determined
by reference to Section 1.5(a).

 

“Applicable Margins” means collectively the Applicable L/C Margin, the
Applicable Unused Line Fee Margin, the Applicable Revolver Index Margin, the
Applicable Acquisition Loan Index Margin, the Applicable Revolver LIBOR Margin
and the Applicable Acquisition Loan LIBOR Margin.

 

“Applicable Revolver Index Margin” means the per annum interest rate margin from
time to time in effect and payable in addition to the Index Rate applicable to
the Revolving Loan, as determined by reference to Section 1.5(a).

 

“Applicable Revolver LIBOR Margin” means the per annum interest rate from time
to time in effect and payable in addition to the LIBOR Rate applicable to the
Revolving Loan, as determined by reference to Section 1.5(a).

 

“Applicable Revolver Unused Line Fee Margin” means the per annum fee, from time
to time in effect, payable in respect of Borrowers’ non-use of committed funds
pursuant to Section 1.9(b), which fee is determined by reference to Section
1.5(a).

 

“Approved Insurance Plan” means a captive insurance plan established by
Borrowers after the Closing Date; provided that all of the terms and conditions
of such plan, including without limitation all of the tax, financial and legal
aspects thereof, are satisfactory to Agent and Requisite Lenders and such plan
has been approved in writing by Agent and Requisite Lenders prior to the
establishment thereof, which approval shall not be unreasonably withheld.

 

“Assignment Agreement” has the meaning ascribed to it in Section 9.1(a).

 

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11
U.S.C. §§ 101 et seq.

 

“Blocked Accounts” has the meaning ascribed to it in Annex C.

 

“Borrower” and “Borrowers” has the meaning ascribed thereto in the preamble to
the Agreement.

 

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“Borrower Pledge Agreement” means the Pledge Agreement of even date herewith
executed by Borrowers in favor of Agent, on behalf of itself and Lenders,
pledging all Stock of their respective Subsidiaries, if any, and all
Intercompany Notes owing to or held by them.

 

“Borrower Representative” means Holdings in its capacity as Borrower
Representative pursuant to the provisions of Section 1.1(d).

 

“Borrower Security Agreement” means the Borrower Security Agreement of even date
herewith entered into by and among Agent, on behalf of itself and Lenders, and
Borrowers.

 

“Borrowing Availability” means Revolving Loan Borrowing Availability and/or
Acquisition Loan Borrowing Availability, as the context requires.

 

“Borrowing Base” means, as of any date of determination by Agent, from time to
time, an amount equal to the sum of (a) up to 85% of the net book value of
Borrower Base Party’s Eligible Accounts (or, in the case of Eligible Unbilled
Accounts, up to 25% of the net book value of Borrowing Base Party’s Eligible
Unbilled Accounts) at such time, plus (b) if each of the conditions to inclusion
of any Qualified Accounts of a Borrower Base Party in the Borrowing Base as set
forth in Section 1.7 have been satisfied in full, up to the Qualified Accounts
Advance Rate for such Qualified Accounts multiplied by the net book value of
such Qualified Accounts at such time, less in the case of clauses (a) and (b) of
this definition, any Reserves established by Agent in such Agent’s reasonable
credit judgment at such time.

 

“Borrowing Base Party” shall mean (a) PSA Georgia, and (b) upon the prior
written consent of Agent and Requisite Lenders, which consent may be granted or
withheld in their sole discretion, any other domestic Subsidiary of any
Borrower, provided that all of the Collateral Documents, instruments and
agreements required by Section 5.10 hereof have been duly executed and delivered
by Borrower and such Subsidiary to Agent in the case of any Subsidiary acquired
or created after the Closing Date.

 

“Borrowing Base Certificate” means a certificate to be executed and delivered
from time to time by Borrower Representative in the form attached to the
Agreement as Exhibit 4.1(b).

 

“Business Day” means any day that is not a Saturday, a Sunday or a day on which
banks are required or permitted to be closed in the States of Georgia and/or New
York and in reference to LIBOR Loans shall mean any such day that is also a
LIBOR Business Day.

 

“Capital Expenditures” means, with respect to any Person, all expenditures (by
the expenditure of cash or the incurrence of Indebtedness) by such Person during
any measuring period for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.

 

“Capital Lease” means, with respect to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee that, in accordance
with GAAP,

 

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would be required to be classified and accounted for as a capital lease on a
balance sheet of such Person.

 

“Capital Lease Obligation” means, with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.

 

“Cash Collateral Account” has the meaning ascribed to it Annex B.

 

“Cash Equivalents” has the meaning ascribed to it in Annex B.

 

“Cash Management Systems” has the meaning ascribed to it in Section 1.8.

 

“CHAMPVA Account” means an Account payable pursuant to CHAMPVA.

 

“Change of Control” means any of the following: (a) any person or group of
persons (within the meaning of the Securities Exchange Act of 1934) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934) of 20% or more of the issued and outstanding shares of capital Stock of
Holdings having the right to vote for the election of directors of Holdings
under ordinary circumstances; (b) during any period of twelve consecutive
calendar months, individuals who at the beginning of such period constituted the
board of directors of Holdings (together with any new directors whose election
by the board of directors of Holdings or whose nomination for election by the
Stockholders of Holdings was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason other than death or disability to constitute a
majority of the directors then in office; (c) any Borrower ceases to own and
control all of the economic and voting rights associated with all of the
outstanding capital Stock of any of its Subsidiaries, including in the case of
Holdings, the failure by Holdings to own and control all of the economic and
voting rights associated with all of the outstanding capital Stock of PSA
Georgia.

 

“Charges” means all federal, state, county, city, municipal, local, foreign or
other governmental taxes (including taxes owed to the PBGC at the time due and
payable), levies, assessments, charges, liens, claims or encumbrances upon or
relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll,
income or gross receipts of any Credit Party, (d) any Credit Party’s ownership
or use of any properties or other assets, or (e) any other aspect of any Credit
Party’s business.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in the Code,
including electronic chattel paper, now owned or hereafter acquired by any
Credit Party, wherever located.

 

“Closing Date” means January 27, 2004.

 

“Closing Checklist” means the schedule, including all appendices, exhibits or
schedules thereto, listing certain documents and information to be delivered in
connection with

 

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the Agreement, the other Loan Documents and the transactions contemplated
thereunder, substantially in the form attached hereto as Annex D.

 

“CMS” means the Centers for Medicare and Medicaid Services, formerly known as
the Health Care Financing Administration or HCFA.

 

“Code” means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of Georgia; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Agent’s or any Lender’s
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and
in effect in a jurisdiction other than the State of Georgia, the term “Code”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.

 

“Collateral” means the property covered by the Security Agreement and the other
Collateral Documents and any other property, real or personal, tangible or
intangible, now existing or hereafter acquired, that may at any time be or
become subject to a security interest or Lien in favor of Agent, on behalf of
itself and Lenders, to secure the Obligations.

 

“Collateral Documents” means the Security Agreements, the Pledge Agreements, the
Guaranties, the Patent Security Agreements, the Trademark Security Agreements,
the Copyright Security Agreements, the Mortgages, and all similar agreements
entered into guaranteeing payment of, or granting a Lien upon property as
security for payment of, the Obligations.

 

“Collateral Reports” means the reports with respect to the Collateral referred
to in Annex F.

 

“Collection Account” means that certain account of Agent, account number
50-271-079 in the name of Agent at Bankers Trust Company in New York, New York
ABA No. 021 001 033, Account Name: GECC/HH Cash Flow Collections; Reference:
Pediatric Services of America, Inc., or such other account as may be specified
in writing by Agent as the “Collection Account.”

 

“Commitment Termination Date” means the earliest of (a) October 14, 2007, (b)
the date of termination of Lenders’ obligations to make Advances and to incur
Letter of Credit Obligations or permit existing Loans to remain outstanding
pursuant to Section 8.2(b), and (c) the date of indefeasible prepayment in full
by Borrowers of the Loans and the cancellation and return (or stand-by
guarantee) of all Letters of Credit or the cash collateralization of all Letter
of Credit Obligations pursuant to Annex B, and the permanent reduction of the
Commitments to zero dollars ($0).

 

“Commitments” means (a) as to any Lender, the aggregate of such Lender’s
Revolving Loan Commitment and Acquisition Loan Commitment as set forth on Annex
J to the Agreement or in the most recent Assignment Agreement executed by such
Lender and (b) as to all Lenders, the aggregate of all Lenders’ Revolving Loan
Commitments and Acquisition Loan Commitments, which aggregate commitment shall
be Twenty Million Dollars ($20,000,000) on

 

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the Closing Date, as to each of clauses (a) and (b), as such Commitments may be
reduced, amortized or adjusted from time to time in accordance with the
Agreement.

 

“Compliance Certificate” has the meaning ascribed to it in Annex E.

 

“Concentration Account” has the meaning ascribed to it in Annex C.

 

“Contracts” means all “contracts,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, in any event, including all
contracts, undertakings, or agreements (other than rights evidenced by Chattel
Paper, Documents or Instruments) in or under which any Credit Party may now or
hereafter have any right, title or interest, including any agreement relating to
the terms of payment or the terms of performance of any Account.

 

“Control Letter” means a letter agreement between Agent and (i) the issuer of
uncertificated securities with respect to uncertificated securities in the name
of any Credit Party, (ii) a securities intermediary with respect to securities,
whether certificated or uncertificated, securities entitlements and other
financial assets held in a securities account in the name of any Credit Party,
(iii) a futures commission merchant or clearing house, as applicable, with
respect to commodity accounts and commodity contracts held by any Credit Party,
whereby, among other things, the issuer, securities intermediary or futures
commission merchant disclaims any security interest in the applicable financial
assets, acknowledges the Lien of Agent, on behalf of itself and Lenders, on such
financial assets, and agrees to follow the instructions or entitlement orders of
Agent without further consent by the affected Credit Party.

 

“Copyright License” means any and all rights now owned or hereafter acquired by
any Credit Party under any written agreement granting any right to use any
Copyright or Copyright registration.

 

“Copyright Security Agreements” means the Copyright Security Agreements made in
favor of Agent, on behalf of itself and Lenders, by each applicable Credit
Party.

 

“Copyrights” means all of the following now owned or hereafter adopted or
acquired by any Credit Party: (a) all copyrights and General Intangibles of like
nature (whether registered or unregistered), all registrations and recordings
thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (b) all
reissues, extensions or renewals thereof.

 

“Credit and Collection Policies” shall mean the credit, collection, customer
relations and service policies of the Borrowing Base Parties in effect on the
Closing Date a copy of which has been furnished to Agent, as the same may from
time to time be amended, restated, supplemented or otherwise modified with the
written consent of the Agent.

 

“Credit Parties” means Borrowers, each Subsidiary Guarantor, and each of their
respective Subsidiaries (other than the Insurance Subsidiary).

 

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“Default” means any event that, with the passage of time or notice or both,
would, unless cured or waived, become an Event of Default.

 

“Default Rate” has the meaning ascribed to it in Section 1.5(d).

 

“Disbursement Accounts” has the meaning ascribed to it in Annex C.

 

“Disclosure Schedules” means the Schedules prepared by Borrowers and denominated
as Disclosure Schedules (3.1) through (6.7) in the Index to the Agreement.

 

“Documents” means any “documents,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located.

 

“Dollars” or “$” means lawful currency of the United States of America.

 

“EBITDA” means, with respect to any Person for any fiscal period, without
duplication, an amount equal to (a) consolidated net income of such Person for
such period, determined in accordance with GAAP, minus (b) the sum of (i) income
tax credits, (ii) interest income, (iii) gain from extraordinary items for such
period, (iv) any aggregate net gain (but not any aggregate net loss) during such
period arising from the sale, exchange or other disposition of capital assets by
such Person (including any fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets and all
securities), and (v) any other non-cash gains that have been added in
determining consolidated net income, in each case to the extent included in the
calculation of consolidated net income of such Person for such period in
accordance with GAAP, but without duplication, plus (c) the sum of (i) any
provision for income taxes, (ii) Interest Expense, (iii) depreciation and
amortization for such period, (v) amortized debt discount for such period, (vi)
the amount of any deduction to consolidated net income as the result of any
grant to any members of the management of such Person of any Stock, in each case
to the extent deducted in the calculation of consolidated net income of such
Person for such period in accordance with GAAP, but without duplication, (vii)
all expenses related to the Senior Subordinated Note Redemption Transaction and
(viii) cash payments made to executive officers of the Borrowers in connection
with the termination of their employment, provided that (A) such payment is
required to be made to such officer in accordance with the terms of a valid,
written employment agreement between such Person and such executive officer and
(B) the aggregate amount of all such payments added to consolidated net income
pursuant to this clause (viii) in any fiscal period shall be limited to
$2,000,000 for purposes of calculating “EBITDA”.

 

For purposes of this definition, the following items shall be excluded in
determining consolidated net income of a Person: (1) the income (or deficit) of
any other Person accrued prior to the date it became a Subsidiary of, or was
merged or consolidated into, such Person or any of such Person’s Subsidiaries,
except as expressly permitted in the immediately succeeding paragraph of this
definition; (2) the income (or deficit) of any other Person (other than a
Subsidiary) in which such Person has an ownership interest, except to the extent
any such income has actually been received by such Person in the form of cash
dividends or distributions; (3) the undistributed earnings of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted

 

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by the terms of any contractual obligation or requirement of law applicable to
such Subsidiary; (4) any write-up of any asset; (5) any net gain from the
collection of the proceeds of life insurance policies; (6) any net gain arising
from the acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness, of such Person, (7) in the case of a successor to such Person
by consolidation or merger or as a transferee of its assets, any earnings of
such successor prior to such consolidation, merger or transfer of assets, and
(8) any deferred credit representing the excess of equity in any Subsidiary of
such Person at the date of acquisition of such Subsidiary over the cost to such
Person of the investment in such Subsidiary.

 

For the purposes of calculating EBITDA, the Pro Forma Target EBITDA of any
Approved Target shall be included in the EBITDA of Holdings and its Subsidiaries
during any Reference Period ending on or after the date such Approved Target was
acquired, provided that the following conditions have been met:

 

(i) Borrowers have provided to Agent supporting documentation for all
adjustments, including a reconciliation of Pro Forma Target EBITDA to Cash
EBITDA for the Approved Target for the two year period (or such shorter period
in Agent’s reasonable credit judgment) immediately preceding the date of such
acquisition, which supporting documentation shall be in form and substance
reasonably satisfactory to Agent;

 

(ii) if the Pro Forma Target EBITDA of the Approved Target is greater than
Unadjusted EBITDA of the Approved Target, then the Agent shall have the right,
prior to the inclusion of any such Pro Forma Target EBITDA in the EBITDA of
Holdings and its Subsidiaries, to audit (at Borrowers’ expense) the Pro Forma
Target EBITDA and the results of any such audit must be satisfactory to Agent in
its reasonable credit judgment; and

 

(iii) in the case of any Material Acquisition, Borrowers agree to engage (at
Borrowers’ expense) a “big four” independent certified public accounting firm or
another transaction service advisor approved by Agent (with such approval not to
be unreasonably withheld), to verify, using agreed upon due diligence
procedures, the Approved Target’s historical operating results for a minimum of
two years prior to the acquisition date (or such shorter period in Agent’s
reasonable credit judgment), including, without limitation, such Approved
Target’s EBITDA for such period.

 

The audit rights of Agent (at Borrowers’ expense) provided for in this
definition are in addition to, and not in limitation of, any other rights that
Agent has in the Agreement to conduct audits at Borrowers’ expense.

 

As used in this definition, the following terms have the following meanings:

 

“Approved Target” means any Target acquired in connection with a Permitted
Acquisition, where the purchase price for such acquisition is funded solely from
the proceeds of an Acquisition Loan.

 

“Cash EBITDA” means, with respect to any Approved Target during any period, the
cash flow from operations of such Approved Target during such period, plus the
sum of (i) cash Interest Expense paid by such Approved Target

 

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during such period, and (ii) income taxes of such Approved Target paid in cash
during such period, in each case determined in accordance with GAAP.

 

“Material Acquisition” means the acquisition of any Target that involves the
payment of consideration by any Borrower and/or any of its Subsidiaries in
excess of $4,000,000.

 

“Pro Forma Target EBITDA” means, with respect to any Approved Target during any
period, the EBITDA of such Approved Target for such period, provided that such
EBITDA has been agreed to and certified by Holdings Board of Directors prior to
the inclusion of such EBITDA in the consolidated EBITDA of Holdings and its
Subsidiaries.

 

“Reference Period” means any period of twelve consecutive months.

 

“Unadjusted EBITDA” means, with respect to any Approved Target for any period,
without duplication, an amount equal to consolidated net income of such Person
for such period, determined in accordance with GAAP, plus the sum of (i) any
provision for income taxes during such period, (ii) Interest Expense for such
period, (iii) the amount of depreciation and amortization for such period, in
each case to the extent deducted in the calculation of consolidated net income
of such Person for such period in accordance with GAAP.

 

“Eligible Accounts” has the meaning ascribed to it in Section 1.6 of the
Agreement.

 

“Eligible Unbilled Account” means an Account with respect to which an invoice
with respect to such Account, reasonably acceptable to Agent in form and
substance, has not been sent to the applicable Account Debtor, provided that
such Account shall cease to constitute an Eligible Unbilled Account if an
invoice with respect to such Account, reasonably acceptable to Agent in form and
substance, has not been sent to the applicable Account Debtor within 30 days
following the original service date for such Account.

 

“Environmental Laws” means all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards and regulations, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§
9601 et seq.) (“CERCLA”); the Hazardous Materials Transportation Authorization
Act of 1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42
U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et
seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. §§ 651 et seq.); and the Safe Drinking Water Act (42
U.S.C.

 

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§§ 300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.

 

“Environmental Liabilities” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.

 

“Environmental Permits” means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.

 

“Equipment” means all “equipment,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located and, in any
event, including all such Credit Party’s machinery and equipment, including
processing equipment, conveyors, machine tools, data processing and computer
equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any regulations promulgated thereunder.

 

“ERISA Affiliate” means, with respect to any Credit Party, any trade or business
(whether or not incorporated) that, together with such Credit Party, are treated
as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of
the IRC.

 

“ERISA Event” means, with respect to any Credit Party or any ERISA Affiliate,
(a) any event described in Section 4043(c) of ERISA with respect to a Title IV
Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e)

 

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the institution of proceedings to terminate a Title IV Plan or Multiemployer
Plan by the PBGC; (f) the failure by any Credit Party or ERISA Affiliate to make
when due required contributions to a Multiemployer Plan or Title IV Plan unless
such failure is cured within 30 days; (g) any other event or condition that
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Title
IV Plan or Multiemployer Plan or for the imposition of liability under Section
4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under
Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer
Plan under Section 4241 or 4245 of ERISA; or (i) the loss of a Qualified Plan’s
qualification or tax exempt status; or (j) the termination of a Plan described
in Section 4064 of ERISA.

 

“ESOP” means a Plan that is intended to satisfy the requirements of Section
4975(e)(7) of the IRC.

 

“Event of Default” has the meaning ascribed to it in Section 8.1.

 

“Excess Availability” means, at any time of determination, an amount equal to
the sum of at such time Revolving Loan Borrowing Availability plus Unrestricted
Cash Balances.

 

“Excluded Real Property” means that certain Real Estate owned by Borrowers and
located at 6861 West Park Avenue, Houma, Louisiana 70364-2264.

 

“Fair Labor Standards Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et
seq.

 

“Fair Salable Balance Sheet” means a balance sheet of Borrowers prepared in
accordance with Section 3.4(d).

 

“Federal Funds Rate” means, for any day, a floating rate equal to the weighted
average of the rates on overnight federal funds transactions among members of
the Federal Reserve System, as determined by Agent in its sole discretion, which
determination shall be final, binding and conclusive (absent manifest error).

 

“Federal Reserve Board” means the Board of Governors of the Federal Reserve
System.

 

“Fees” means any and all fees payable to Agent or any Lender pursuant to the
Agreement or any of the other Loan Documents.

 

“Financial Covenants” means the financial covenants set forth in Annex G.

 

“Financial Statements” means the consolidated and consolidating income
statements, statements of cash flows and balance sheets of Borrowers delivered
in accordance with Section 3.4 and Annex E.

 

“Fiscal Month” means any of the monthly accounting periods of Borrowers.

 

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“Fiscal Quarter” means any of the quarterly accounting periods of Borrowers,
ending on December 31, March 31, June 30 and September 30 of each year.

 

“Fiscal Year” means any of the annual accounting periods of Borrowers ending on
September 30 of each year.

 

“Fixed Charges” means, with respect to any Person for any fiscal period, (a) the
aggregate of all cash Interest Expense paid during such period, plus (b)
scheduled payments of principal with respect to Indebtedness during such period,
plus (c) Capital Expenditures during such period.

 

“Fixed Charge Coverage Ratio” means, with respect to any Person for any fiscal
period, the ratio of (a) the EBITDA for Holdings and its Subsidiaries for such
period minus (i) the Capital Expenditures of Holdings and its Subsidiaries
(other than payments on Capital Leases) paid during such period, all as
determined on a consolidated basis in accordance with GAAP, minus (ii) cash
taxes of Holdings and its Subsidiaries paid during such period, to (b) Fixed
Charges. In computing Fixed Charges for any fiscal period, interest and
principal payments that are due within one week after the end of that fiscal
period, without duplication, shall be deemed to have been paid on the last day
of that fiscal period.

 

“Fixtures” means all “fixtures” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party.

 

“Funded Debt” means, with respect to any Person, without duplication, all
Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness and that by its terms matures more than one
year from, or is directly or indirectly renewable or extendible at such Person’s
option under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year from the date of
creation thereof, and specifically including Capital Lease Obligations, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Borrowers, the Obligations and, without duplication, Guaranteed Indebtedness
consisting of guaranties of Funded Debt of other Persons.

 

“GAAP” means generally accepted accounting principles in the United States of
America, consistently applied, as such term is further defined in Annex G to the
Agreement.

 

“GE Capital” means General Electric Capital Corporation, a Delaware corporation.

 

“GE Capital Commitment Letter” has the meaning ascribed to such term in Section
1.9(a).

 

“General Intangibles” means “general intangibles,” as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, including all
right, title and interest that such Credit Party may now or hereafter have in or
under any Contract, all payment intangibles, customer lists, Licenses,
Copyrights, Trademarks, Patents, and all applications therefor and reissues,
extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
copyrights, trade

 

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secrets, proprietary or confidential information, inventions (whether or not
patented or patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, data, skill, expertise, experience, processes,
models, drawings, materials and records, goodwill (including the goodwill
associated with any Trademark or Trademark License), all rights and claims in or
under insurance policies (including insurance for fire, damage, loss and
casualty, whether covering personal property, real property, tangible rights or
intangible rights, all liability, life, key man and business interruption
insurance, and all unearned premiums), uncertificated securities, choses in
action, deposit, checking and other bank accounts, rights to receive tax refunds
and other payments, rights to receive dividends, distributions, cash,
Instruments and other property in respect of or in exchange for pledged Stock
and Investment Property, rights of indemnification, all books and records,
correspondence, credit files, invoices and other papers, including without
limitation all tapes, cards, computer runs and other papers and documents in the
possession or under the control of such Credit Party or any computer bureau or
service company from time to time acting for such Credit Party.

 

“Goods” means any “goods” as defined in the Code, now owned or hereafter
acquired by any Credit Party, including embedded software.

 

“Government Accounts” shall mean collectively, any and all Accounts which are
(a) Medicare Accounts, (b) Medicaid Accounts, (c) TRICARE Accounts, (d) CHAMPVA
Accounts, or (e) any other Accounts payable by a governmental authority approved
by the Agent.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

 

“Governmental Third Party Payor” shall mean any governmental entity, insurance
company, health maintenance organization, professional provider organization or
similar entity that is obligated to make payments under Medicare or Medicaid.

 

“Guaranteed Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease,
dividend, or other obligation (“primary obligation”) of any other Person (the
“primary obligor”) in any manner, including any obligation or arrangement of
such Person to (a) purchase or repurchase any such primary obligation, (b)
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) 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, (d) protect the beneficiary of such arrangement from loss (other
than product warranties given in the ordinary course of business) or (e)
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable amount
of the primary obligation in respect of which such Guaranteed Indebtedness is
incurred and (y) the maximum amount for which such Person may be liable pursuant
to the terms of the instrument embodying such Guaranteed

 

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Indebtedness, or, if not stated or determinable, the maximum reasonably
anticipated liability (assuming full performance) in respect thereof.

 

“Guaranties” means, collectively, each Subsidiary Guaranty and any other
guaranty executed by any Guarantor in favor of Agent and Lenders in respect of
the Obligations.

 

“Guarantors” means each Subsidiary Guarantor and each other Person, if any, that
executes a guaranty or other similar agreement in favor of Agent, for itself and
the ratable benefit of Lenders, in connection with the transactions contemplated
by the Agreement and the other Loan Documents.

 

“Hazardous Material” means any substance, material or waste that is regulated
by, or forms the basis of liability now or hereafter under, any Environmental
Laws, including any material or substance that is (a) defined as a “solid
waste,” “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “pollutant,”
“contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, asbestos-containing materials,
lead based paint, polychlorinated biphenyls (PCB’s), or any radioactive
substance.

 

“Healthcare Laws” means, collectively, any and all federal, state or local laws,
rules, regulations and administrative manuals, orders, guidelines and
requirements issued under or in connection with Medicare, Medicaid CHAMPVA,
TRICARE or any government payment program or any law governing the licensure of
or regulating healthcare providers, professionals, facilities or payors or
otherwise governing or regulating the provision of, or payment for, Medical
Services, or the sale of medical supplies. Without limiting the generality of
the foregoing, Healthcare Laws include, without limitation, Section 1128B(b) of
the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal
Penalties Involving Medicare or State Health Care Programs), commonly referred
to as the “Federal Anti-Kickback Statute,” and the Social Security Act, as
amended, and Section 1877, 42 U.S.C Section 1395nn (Prohibition Against Certain
Referrals), commonly referred to as “Stark Statute”.

 

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996,
as amended from time to time, and any rules or regulations promulgated from time
to time thereunder.

 

“HIPAA Business Associate Agreement” means, collectively, one or more Business
Associate Agreements in form and substance satisfactory to Agent, between Agent
and one or more Credit Parties, as amended, restated, supplemented or otherwise
modified from time to time.

 

“Holdings” has the meaning ascribed thereto in the preamble to the Agreement.

 

“Indebtedness” means, with respect to any Person, without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred 6 months or more, but excluding
obligations to trade creditors incurred in the ordinary course of business that
are unsecured and not overdue by more than 6 months unless being contested in
good faith, (b) all reimbursement and other obligations with

 

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respect to letters of credit, bankers’ acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, (i) all
“earnouts” and similar payment obligations of such Person to the extent
reflected as a liability on the balance sheet of such Person, and (j) the
Obligations. The term “Indebtedness” shall not include any current or
non-current liabilities representing claim reserves under any insurance program
of any Credit Party.

 

“Indemnified Liabilities” has the meaning ascribed to it in Section 1.13.

 

“Indemnified Person” has the meaning ascribed to it in Section 1.13.

 

“Indenture Trustee” means SunTrust Bank, Atlanta, as trustee under the Senior
Subordinated Indenture, together with its successors and assigns in such
capacity.

 

“Index Rate” means, for any day, a floating rate equal to the higher of (i) the
rate publicly quoted from time to time by The Wall Street Journal as the “base
rate on corporate loans posted by at least 75% of the nation’s 30 largest banks”
(or, if The Wall Street Journal ceases quoting a base rate of the type
described, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
“Selected Interest Rates” as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus 50 basis points per annum. Each change in any
interest rate provided for in the Agreement based upon the Index Rate shall take
effect at the time of such change in the Index Rate.

 

“Index Rate Loan” means a Loan or portion thereof bearing interest by reference
to the Index Rate.

 

“Instruments” means all “instruments,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all notes and other, without limitation, evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

 

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“Insurance Subsidiary” means a Subsidiary of a Borrower formed for the purpose
of acting as a captive insurance company pursuant to the terms of an Approved
Insurance Plan.

 

“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 a Credit Party to compensate such Credit Party for providing
goods or services to a Patient.

 

“Intellectual Property” means any and all Licenses, Patents, Copyrights,
Trademarks, and the goodwill associated with such Trademarks.

 

“Intercompany Notes” has the meaning ascribed to it in Section 6.3.

 

“Interest Expense” means, with respect to any Person for any fiscal period,
interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including
interest expense with respect to any Funded Debt of such Person and interest
expense for the relevant period that has been capitalized on the balance sheet
of such Person.

 

“Interest Payment Date” means (a) as to any Index Rate Loan, the first Business
Day of each month to occur while such Loan is outstanding, and (b) as to any
LIBOR Loan, the last day of the applicable LIBOR Period provided that, in
addition to the foregoing, each of (x) the date upon which all of the
Commitments have been terminated and the Loans have been paid in full and (y)
the Commitment Termination Date shall be deemed to be an “Interest Payment Date”
with respect to any interest that has then accrued under the Agreement.

 

“Inventory” means any “inventory”, as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located, and in any
event including inventory, merchandise, goods and other personal property that
are held by or on behalf of any Credit Party for sale or lease or are furnished
or are to be furnished under a contract of service, or that constitute raw
materials, work in process, finished goods, returned goods, supplies or
materials of any kind, nature or description used or consumed or to be used or
consumed in such Credit Party’s business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including other supplies
and embedded software.

 

“Investment Property” means all “investment property” as such term is defined in
the Code now owned or hereafter acquired by any Credit Party, wherever located,
including (i) all securities, whether certificated or uncertificated, including
stocks, bonds, interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of any Credit Party, including the rights of such Credit Party to
any securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or other
money owing by any securities intermediary with respect to that account; (iii)
all securities accounts of any Credit Party; (iv) all commodity contracts of any
Credit Party; and (v) all commodity accounts held by any Credit Party.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder.

 

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“IRS” means the Internal Revenue Service.

 

“Landlord Agreement” means an agreement substantially in the form of Exhibit 5.9
attached to the Agreement.

 

“L/C Issuer” has the meaning ascribed to it in Annex B.

 

“L/C Sublimit” has the meaning ascribed to in it Annex B.

 

“Lease Expenses” means, with respect to any Person for any fiscal period, the
aggregate rental obligations of such Person determined in accordance with GAAP
which are payable in respect of such period under leases of real or personal
property (net of income from subleases thereof, but including taxes, insurance,
maintenance and similar expenses that the lessee is obligated to pay under the
terms of such leases), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such Person or in
the notes thereto, excluding, however, any such obligations under Capital
Leases.

 

“Lenders” means GE Capital, the other Lenders named on the signature pages of
the Agreement, and, if any such Lender shall decide to assign all or any portion
of the Obligations, such term shall include any assignee of such Lender.

 

“Letter of Credit Fee” has the meaning ascribed to it in Annex B.

 

“Letter of Credit Obligations” means all outstanding obligations incurred by
Agent and Lenders at the request of Borrower Representative, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of Letters of Credit by Agent or another L/C Issuer or the purchase of
a participation as set forth in Annex B with respect to any Letter of Credit.
The amount of such Letter of Credit Obligations shall equal the maximum amount
that may be payable by Agent or Lenders thereupon or pursuant thereto.

 

“Letters of Credit” means documentary or standby letters of credit issued for
the account of Borrowers by any L/C Issuer, and bankers’ acceptances issued by
Borrowers, for which Agent and Lenders have incurred Letter of Credit
Obligations.

 

“Leverage Ratio” means, with respect to Holdings and its Subsidiaries, on a
consolidated basis for any fiscal period, the ratio of (a) Funded Debt for
Holdings and its Subsidiaries as of the last day of such period, to (b) the sum
of EBITDA for Holdings and its Subsidiaries for the twelve months ending on that
date of determination.

 

“LIBOR Business Day” means a Business Day on which banks in the City of London
are generally open for interbank or foreign exchange transactions.

 

“LIBOR Loan” means a Loan or any portion thereof bearing interest by reference
to the LIBOR Rate.

 

“LIBOR Period” means, with respect to any LIBOR Loan, each period commencing on
a LIBOR Business Day selected by Borrower Representative pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower

 

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Representative’s irrevocable notice to Agent as set forth in Section 1.5(e);
provided, that the foregoing provision relating to LIBOR Periods is subject to
the following:

 

(a) if any LIBOR Period would otherwise end on a day that is not a LIBOR
Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR
Business Day unless the result of such extension would be to carry such LIBOR
Period into another calendar month in which event such LIBOR Period shall end on
the immediately preceding LIBOR Business Day;

 

(b) any LIBOR Period that would otherwise extend beyond the Commitment
Termination Date shall end 2 LIBOR Business Days prior to such date;

 

(c) any LIBOR Period that begins on the last LIBOR 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 LIBOR Period) shall end on the last LIBOR
Business Day of a calendar month;

 

(d) Borrower Representative shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and

 

(e) Borrower Representative shall select LIBOR Periods so that there shall be no
more than 5 separate LIBOR Loans in existence at any one time.

 

“LIBOR Rate” means for each LIBOR Period, a rate of interest determined by Agent
equal to:

 

(a) the offered rate for deposits in United States Dollars for the applicable
LIBOR Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time),
on the second full LIBOR Business Day next preceding the first day of such LIBOR
Period (unless such date is not a Business Day, in which event the next
succeeding Business Day will be used); divided by

 

(b) a number equal to 1.0 minus the aggregate (but without duplication) of the
rates (expressed as a decimal fraction) of reserve requirements in effect on the
day that is 2 LIBOR Business Days prior to the beginning of such LIBOR Period
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Federal Reserve Board or other Governmental Authority having
jurisdiction with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Federal Reserve Board that are required to be maintained by
a member bank of the Federal Reserve System.

 

If such interest rates shall cease to be available from Telerate News Service,
the LIBOR Rate shall be determined from such financial reporting service or
other information as shall be mutually acceptable to Agent and Borrower
Representative.

 

“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Credit Party.

 

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“Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, lien, charge, claim, security interest, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Code or comparable
law of any jurisdiction).

 

“Litigation” has the meaning ascribed to it in Section 3.13.

 

“Loan Account” has the meaning ascribed to it in Section 1.12.

 

“Loan Documents” means the Agreement, the Notes, the Collateral Documents, the
master standby agreement relating to the issuance of standby Letters of Credit,
the master documentary agreement relating to the issuance of documentary Letters
of Credit, the Guaranties, the HIPAA Business Associate Agreements, the GE
Capital Commitment Letter (solely as it relates to obligations of any Borrower
to pay Fees to Agent and Lenders) and all other agreements, instruments,
documents and certificates identified in the Closing Checklist executed and
delivered to, or in favor of, Agent or any Lenders and including all other
pledges, powers of attorney, consents, assignments, contracts, notices, and all
other written matter whether heretofore, now or hereafter executed by or on
behalf of any Credit Party, or any employee of any Credit Party, and delivered
to Agent or any Lender in connection with the Agreement or the transactions
contemplated thereby. Any reference in the Agreement or any other Loan Document
to a Loan Document shall include all appendices, exhibits or schedules thereto,
and all amendments, restatements, supplements or other modifications thereto,
and shall refer to the Agreement or such Loan Document as the same may be in
effect at any and all times such reference becomes operative.

 

“Loans” means the Revolving Loan and the Acquisition Loan.

 

“Lock Boxes” has the meaning ascribed to it in Annex C.

 

“Margin Stock” has the meaning ascribed to it in Section 3.10.

 

“Master Documentary Agreement” means the Master Agreement for Documentary
Letters of Credit dated as of the Closing Date between Borrowers, as Applicant,
and GE Capital, as Issuer.

 

“Master Standby Agreement” means the Master Agreement for Standby Letters of
Credit dated as of the Closing Date between Borrowers, as Applicant, and GE
Capital, as Issuer.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, prospects or financial or other condition of the Credit
Parties, taken as a whole, (b) any Borrower’s ability to pay any of the Loans or
any of the other Obligations in accordance with the terms of the Agreement, or
the ability of any Borrower or any other Credit Party to perform its obligations
under the Loan Documents to which it is a party, as applicable, (c) the
Collateral or Agent’s Liens, on behalf of itself and Lenders, on the Collateral
or the priority of such Liens, or (d) Agent’s or any Lender’s rights and
remedies under the Agreement

 

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and the other Loan Documents. Without limiting the generality of the foregoing,
any event or occurrence adverse to one or more Credit Parties which results or
could reasonably be expected to result in costs and/or liabilities or loss of
revenues, individually, or in the aggregate, to any Credit Party in any 30-day
period in excess of the 10% of the lesser of (i) the Maximum Revolver Amount
plus the Maximum Acquisition Loan Amount, or (ii) the Borrowing Base at any date
of determination shall constitute a Material Adverse Effect.

 

“Maximum Acquisition Loan Amount” means, as of any date of determination, an
amount equal to the Acquisition Loan Commitment of all Lenders as of that date.

 

“Maximum Revolver Amount” means, as of any date of determination, an amount
equal to the Revolving Loan Commitment of all Lenders as of that date.

 

“Medicaid” means, collectively, the healthcare assistance program established by
Title XIX of the Social Security Act (42 U.S.C. §§1396 et seq.) and any statutes
succeeding thereto, and all laws, rules, regulations, manuals, orders,
guidelines or requirements (whether or not having the force of law) pertaining
to such program, in each case as the same may be amended, supplemented or
otherwise modified from time to time.

 

“Medicaid Account” means an Account payable pursuant to a Medicaid Provider
Agreement.

 

“Medicaid Certification” means certification of a facility by CMS or a state
agency or entity under contract with CMS that such healthcare facility fully
complies with all the conditions of Medicaid.

 

“Medicaid Provider Agreement” means an agreement entered into between a state
agency or other entity administering Medicaid in such state and a health care
facility or physician under which the health care facility or physician agrees
to provide services or merchandise for Medicaid patients.

 

“Medicare” means, collectively, the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act (42 U.S.C. §§1395
et seq.) and any statutes succeeding thereto, and all laws, rules, regulations,
manuals, orders or guidelines (whether or not having the force of law)
pertaining to such program, in each case as the same may be amended,
supplemented or otherwise modified from time to time.

 

“Medicare Account” means an Account payable pursuant to a Medicare Provider
Agreement.

 

“Medicare Certification” means certification of a facility by CMS or a state
agency or entity under contract with CMS that such healthcare facility fully
complies with all conditions for such facility’s participation in Medicare.

 

“Medicare Provider Agreement” means an agreement entered into between a state
agency or other entity administering Medicare in such state and a health care
facility or physician under which the health care facility or physician agrees
to provide services or merchandise for Medicare patients.

 

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“Mortgaged Properties” has the meaning assigned to it in Annex D.

 

“Mortgages” means each of the mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, collateral assignments of leases or other real estate
security documents delivered by any Credit Party to Agent on behalf of itself
and Lenders with respect to the Mortgaged Properties, all in form and substance
reasonably satisfactory to Agent.

 

“Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is making,
is obligated to make or has made or been obligated to make, contributions on
behalf of participants who are or were employed by any of them.

 

“Net Worth” means, with respect to any Person as of any date of determination,
the book value of the assets of such Person, minus the sum of (a) reserves
applicable thereto, and (b) all of such Person’s liabilities on a consolidated
basis (including accrued and deferred income taxes), all as determined in
accordance with GAAP.

 

“Non-Funding Lender” has the meaning ascribed to it in Section 9.9(a)(ii).

 

“Notes” means, collectively, the Revolving Notes and the Acquisition Notes.

 

“Notice of Acquisition Loan Advance” has the meaning ascribed to it in Section
1.1(b)(ii).

 

“Notice of Conversion/Continuation” has the meaning ascribed to it in Section
1.5(e).

 

“Notice of Revolving Credit Advance” has the meaning ascribed to it in Section
1.1(a).

 

“Obligations” means all loans, advances, debts, liabilities and obligations, for
the performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such amounts
are liquidated or determinable) owing by any Credit Party to Agent or any
Lender, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under the Agreement or any of the other Loan
Documents. This term includes all principal, interest (including all interest
that accrues after the commencement of any case or proceeding by or against any
Credit Party in bankruptcy, whether or not allowed in such case or proceeding),
Fees, Charges, expenses, attorneys’ fees and any other sum chargeable to any
Credit Party under the Agreement or any of the other Loan Documents.

 

“Patent License” means rights under any written agreement now owned or hereafter
acquired by any Credit Party granting any right with respect to any invention on
which a Patent is in existence.

 

“Patent Security Agreements” means the Patent Security Agreements made in favor
of Agent, on behalf of itself and Lenders, by each applicable Credit Party.

 

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“Patents” means all of the following in which any Credit Party now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.

 

“Patient” means any Person receiving medical services from any Credit Party and
all Persons legally liable to pay such Credit Party for such medical services
other than Insurers or Governmental Authorities.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means a Plan described in Section 3(2) of ERISA.

 

“Permitted Acquisition” has the meaning ascribed to it in Section 6.1.

 

“Permitted Encumbrances” means the following encumbrances: (a) Liens for taxes
or assessments or other governmental Charges not yet due and payable or which
are being contested in accordance with Section 5.2(b); (b) pledges or deposits
of money securing statutory obligations under workmen’s compensation,
unemployment insurance, social security or public liability laws or similar
legislation (excluding Liens under ERISA); (c) pledges or deposits of money
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers’, mechanics’
or similar liens arising in the ordinary course of business, so long as such
Liens attach only to Equipment, Fixtures and/or Real Estate; (e) carriers’,
warehousemen’s, suppliers’ or other similar possessory liens arising in the
ordinary course of business and securing liabilities in an outstanding aggregate
amount not in excess of $100,000 at any time, so long as such Liens attach only
to Inventory; (f) deposits securing, or in lieu of, surety, appeal or customs
bonds in proceedings to which any Credit Party is a party; (g) any attachment or
judgment lien not constituting an Event of Default under Section 8.1(j); (h)
zoning restrictions, easements, licenses, or other restrictions on the use of
any Real Estate or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value, or
marketability of such Real Estate; (i) presently existing or hereafter created
Liens in favor of Agent, on behalf of Lenders; and (j) Liens expressly permitted
under clauses (b) and (c) of Section 6.7 of the Agreement.

 

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).

 

“Plan” means, at any time, an “employee benefit plan,” as defined in Section
3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains, contributes
to or has an obligation to contribute to on behalf of participants who are or
were employed by any Credit Party.

 

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“Pledge Agreements” means the Borrower Pledge Agreement and the Subsidiary
Pledge Agreement, and any other pledge agreement entered into after the Closing
Date by any Credit Party (as required by the Agreement or any other Loan
Document).

 

“Proceeds” means “proceeds,” as such term is defined in the Code, including (a)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to any Credit Party from time to time with respect to any of the Collateral, (b)
any and all payments (in any form whatsoever) made or due and payable to any
Credit Party from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of governmental
authority), (c) any claim of any Credit Party against third parties (i) for
past, present or future infringement of any Patent or Patent License, or (ii)
for past, present or future infringement or dilution of any Copyright, Copyright
License, Trademark or Trademark License, or for injury to the goodwill
associated with any Trademark or Trademark License, (d) any recoveries by any
Credit Party against third parties with respect to any litigation or dispute
concerning any of the Collateral, (e) dividends, interest, distributions and
Instruments with respect to Investment Property and pledged Stock, and (f) any
and all other amounts from time to time paid or payable under or in connection
with any of the Collateral, upon disposition or otherwise.

 

“Projections” means Borrowers’ forecasted consolidated and consolidating: (a)
balance sheets; (b) profit and loss statements; (c) cash flow statements; and
(d) capitalization statements, all prepared on a Subsidiary by Subsidiary or
division-by-division basis, if applicable, and otherwise consistent with the
historical Financial Statements of Borrowers, together with appropriate
supporting details and a statement of underlying assumptions.

 

“Pro Rata Share” means with respect to all matters relating to any Lender (a)
with respect to the Revolving Loan, the percentage obtained by dividing (i) the
Revolving Loan Commitment of that Lender by (ii) the aggregate Revolving Loan
Commitments of all Lenders, (b) with respect to the Acquisition Loan, the
percentage obtained by dividing (i) the Acquisition Loan Commitment of that
Lender by (ii) the aggregate Acquisition Loan Commitments of all Lenders, as any
such percentages may be adjusted by assignments permitted pursuant to Section
9.1, (c) with respect to all Loans, the percentage obtained by dividing (i) the
aggregate Commitments of that Lender by (ii) the aggregate Commitments of all
Lenders, and (d) with respect to all Loans on and after the Commitment
Termination Date, the percentage obtained by dividing (i) the aggregate
outstanding principal balance of the Loans held by that Lender, by (ii) the
outstanding principal balance of the Loans held by all Lenders.

 

“PSA Capital” means PSA Capital Corporation, a Delaware corporation.

 

“PSA Georgia” has the meaning ascribed thereto in the preamble to the Agreement.

 

“PSA Licensing” means PSA Licensing Corporation, a Delaware Corporation.

 

“PSA Properties” means PSA Properties Corporation, a Delaware Corporation.

 

“Qualified Accounts Advance Rate” has the meaning ascribed to it in Section 1.7.

 

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“Qualified Account” means any Account of any Borrowing Base Party that (a) would
otherwise constitute an Eligible Account under Section 1.6, but for the fact
that such Account does not satisfy the eligibility criterion set forth in clause
(m)(i) of Section 1.6 due to the failure of such Account to be paid within 120
days following the original service date with respect to such Account, and (b)
such failure to be paid is solely as a result of the failure of a Third Party
Payor (and not the failure of any Credit Party) to be in compliance with the
requirements of HIPAA; provided, however, that no Account shall constitute a
“Qualified Account” if such Account is not paid within one hundred eighty (180)
days following the original service date with respect to such Account.

 

“Qualified Assignee” means (a) any Lender, any Affiliate of any Lender and, with
respect to any Lender that is an investment fund that invests in commercial
loans, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor, and (b) any commercial bank, savings and
loan association or savings bank or any other entity which is an “accredited
investor” (as defined in Regulation D under the Securities Act) which extends
credit or buys loans as one of its businesses, including insurance companies,
mutual funds, lease financing companies and commercial finance companies, in
each case, which has a rating of BBB or higher from S&P and a rating of Baa2 or
higher from Moody’s at the date that it becomes a Lender and which, through its
applicable lending office, is capable of lending to Borrowers without the
imposition of any withholding or similar taxes; provided that no Person
determined by Agent to be acting in the capacity of a vulture fund or distressed
debt purchaser shall be a Qualified Assignee and no Person or Affiliate of such
Person (other than a Person that is already a Lender) holding Subordinated Debt
or Stock issued by any Credit Party shall be a Qualified Assignee.

 

“Qualified Plan” means a Pension Plan that is intended to be tax-qualified under
Section 401(a) of the IRC.

 

“Ratable Share” has the meaning ascribed to it in Section 1.1(b).

 

“Real Estate” has the meaning ascribed to it in Section 3.6.

 

“Related Transactions” means the initial borrowing under the Revolving Loan on
the Closing Date, the consummation of the Senior Subordinated Note Redemption
Transaction, the payment of all fees, costs and expenses associated with all of
the foregoing and the execution and delivery of all of the Related Transactions
Documents.

 

“Related Transactions Documents” means the Loan Documents and all other
agreements or instruments executed in connection with the Related Transactions.

 

“Release” means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material in
the indoor or outdoor environment, including the movement of Hazardous Material
through or in the air, soil, surface water, ground water or property.

 

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“Requisite Lenders” means Lenders having (a) more than 66 2/3% of the
Commitments of all Lenders, or (b) if the Commitments have been terminated, more
than 66 2/3% of the aggregate outstanding amount of the Loans.

 

“Reserves” means, with respect to the Borrowing Base of Borrowing Base Party (a)
reserves established pursuant to Section 5.4(c) and (b) such other reserves
against Eligible Accounts, Revolving Loan Borrowing Availability or Acquisition
Loan Borrowing Availability of Borrowers that Agent may, in its reasonable
credit judgment, establish from time to time. Without limiting the generality of
the foregoing, Reserves established to ensure the payment of accrued Interest
Expenses or Indebtedness shall be deemed to be a reasonable exercise of Agent’s
credit judgment.

 

“Restricted Payment” means, with respect to any Credit Party (a) the declaration
or payment of any dividend or the incurrence of any liability to make any other
payment or distribution of cash or other property or assets in respect of Stock;
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of such Credit Party’s Stock or any other payment or
distribution made in respect thereof, either directly or indirectly; (c) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to, any Subordinated Debt; (d) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Credit Party now or hereafter
outstanding; (e) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Credit Party’s Stock or of a claim for reimbursement,
indemnification or contribution arising out of or related to any such claim for
damages or rescission; (f) any payment, loan, contribution, or other transfer of
funds or other property to any Stockholder of such Credit Party other than
payment of compensation in the ordinary course of business to Stockholders who
are employees of such Credit Party; and (g) any payment of management fees (or
other fees of a similar nature) by such Credit Party to any Stockholder of such
Credit Party or its Affiliates.

 

“Retiree Welfare Plan” means, at any time, a Welfare Plan that provides for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant’s termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.

 

“Revolving Credit Advance” has the meaning ascribed to it in Section 1.1(a)(i).

 

“Revolving Lenders” means, as of any date of determination, Lenders having a
Revolving Loan Commitment.

 

“Revolving Loan” means, at any time, the sum of (i) the aggregate amount of the
Revolving Credit Advances outstanding to Borrowers plus (ii) the aggregate
Letter of Credit Obligations incurred on behalf of Borrowers. Unless the context
otherwise requires, references to the outstanding principal balance of the
Revolving Loan shall include the outstanding balance of Letter of Credit
Obligations.

 

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“Revolving Loan Borrowing Availability” means as of any date of determination
the lesser of (i) the Maximum Revolver Amount less the amount of the Revolving
Loan then outstanding and (ii) the Borrowing Base less the Revolving Loan and
Acquisition Loan then outstanding.

 

“Revolving Loan Commitment” means (a) as to any Revolving Lender, the aggregate
commitment of such Revolving Lender to make Revolving Credit Advances or incur
Letter of Credit Obligations as set forth on Annex J to the Agreement or in the
most recent Assignment Agreement executed by such Revolving Lender and (b) as to
all Revolving Lenders, the aggregate commitment of all Revolving Lenders to make
Revolving Credit Advances or incur Letter of Credit Obligations, which aggregate
commitment shall be Ten Million Dollars ($10,000,000) on the Closing Date, as
such amount may be adjusted, if at all, from time to time in accordance with the
Agreement.

 

“Revolving Note” has the meaning ascribed to it in Section 1.1(a)(ii).

 

“Security Agreements” means, collectively, (a) the Borrower Security Agreement,
and (b) the Subsidiary Security Agreement.

 

“Seller Subordinated Debt” has the meaning ascribed to it in Section 6.1(iv).

 

“Senior Funded Debt” means the Obligations and any other Funded Debt that does
not constitute Subordinated Debt.

 

“Senior Leverage Ratio” means, with respect to the Holdings and its
Subsidiaries, on a consolidated basis for any fiscal period, the ratio obtained
by dividing (a) Senior Funded Debt for Holdings and its Subsidiaries as of the
last day of such period, by (b) EBITDA for Holdings and its Subsidiaries for the
twelve months ending on that date of determination.

 

“Senior Subordinated Note Indenture” means that certain Indenture dated as of
April 16, 1998 between Holdings, certain Subsidiaries of Holdings identified as
“Guaranteeing Subsidiaries” thereunder and the Indenture Trustee, as amended,
supplemented or modified from time to time, pursuant to which Holdings issued
the Senior Subordinated Notes in an aggregate original principal amount of up to
$100,000,000.

 

“Senior Subordinated Note Redemption Transaction” means, at any time, the
redemption and payment in full of all or a portion of the issued and outstanding
Senior Subordinated Notes at such time, the related termination of the Senior
Subordinated Note Indenture upon the payment in full of all outstanding Senior
Subordinated Notes, and the release of Holdings and each of the “Guaranteeing
Subsidiaries” (under and as defined in the Senior Subordinated Indenture) from
all of their obligations under or in respect of the Senior Subordinated Notes or
the Senior Subordinated Note Indenture (other than any contingent indemnity
obligations not yet due that pursuant to the express terms of the Senior
Subordinated Note Indenture survive termination thereof) in connection with the
payment in full of all outstanding Senior Subordinated Notes.

 

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“Senior Subordinated Notes” means the Holding’s 10% Senior Subordinated Notes
due April 15, 2008, Series A, issued and outstanding pursuant to the Senior
Subordinated Note Indenture.

 

“Solvent” means, with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability.

 

“Stock” means all shares, options, warrants, general or limited partnership
interests, membership interests or other equivalents (regardless of how
designated) of or in a corporation, partnership, limited liability company or
equivalent entity whether voting or nonvoting, including common stock, preferred
stock or any other “equity security” (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934).

 

“Stockholder” means, with respect to any Person, each holder of Stock of such
Person.

 

“Subordinated Debt” means (a) the Indebtedness of Holdings and the other Credit
Parties under the Senior Subordinated Notes and the Senior Subordinated Note
Indenture and any guarantee executed by any Credit Party in connection
therewith, (b) Seller Subordinated Debt, and (c) any other Indebtedness of any
Credit Party subordinated to the Obligations in a manner and form satisfactory
to Agent and Lenders in their sole discretion, as to right and time of payment
and as to any other rights and remedies thereunder.

 

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors of such corporation (irrespective
of whether, at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with
respect to which any such Person has the right to vote or designate the vote of
50% or more of such Stock whether by proxy, agreement, operation of law or
otherwise, and (b) any partnership or limited liability company in which such
Person and/or one or more Subsidiaries of such Person shall have an interest
(whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner. Unless the context otherwise
requires, each reference to a Subsidiary shall be a reference to a Subsidiary of
the Borrowers.

 

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“Subsidiary Guarantors” means, collectively, (a) each of (i) PSA Capital, (ii)
PSA Licensing, (iii) PSA Properties and (iv) Pediatric Home Nursing Services,
Inc., a New York corporation, and (b) each other Person that from time to time
becomes a Subsidiary of any of the Borrowers (other than the Insurance
Subsidiary).

 

“Subsidiary Guaranty” means the Subsidiary Guaranty of even date herewith
executed by each Subsidiary Guarantor in favor of Agent, on behalf of itself and
Lenders, together with any other Subsidiary Guaranty from time to time executed
by any Subsidiary Guarantor in favor of Agent, on behalf of itself and Lenders.

 

“Subsidiary Pledge Agreement” means the Pledge Agreement of even date herewith
executed by each Subsidiary Guarantor in favor of Agent, on behalf of itself and
Lenders, pledging all Stock of their respective Subsidiaries, if any, and all
Intercompany Notes owing to or held by them.

 

“Subsidiary Security Agreement” means the Subsidiary Security Agreement of even
date herewith entered into by and among Agent, on behalf of itself and Lenders,
and each Subsidiary Guarantor, together with any other Subsidiary Security
Agreement from time to time executed by any Subsidiary Guarantor in favor of
Agent, on behalf of itself and Lenders.

 

“Supermajority Revolving Lenders” means Lenders having (a) 80% or more of the
Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan
Commitments have been terminated, 80% or more of the aggregate outstanding
amount of the Revolving Loan and Letter of Credit Obligations.

 

“Supporting Obligations” has the meaning ascribed thereto in the Code.

 

“Target” has the meaning ascribed to it in Section_6.1.

 

“Taxes” means taxes, levies, imposts, deductions, Charges or withholdings, and
all liabilities with respect thereto, excluding taxes imposed on or measured by
the net income of Agent or a Lender by the jurisdictions under the laws of which
Agent and Lenders are organized or conduct business or any political subdivision
thereof.

 

“Termination Date” means the date on which (a) the Loans have been indefeasibly
repaid in full, (b) all other Obligations under the Agreement and the other Loan
Documents have been completely discharged, (c) all Letter of Credit Obligations
have been cash collateralized, cancelled or backed by standby letters of credit
in accordance with Annex B, and (d) Borrowers shall not have any further right
to borrow any monies under the Agreement.

 

“Third Party Payor” means any governmental entity, insurance company, health
maintenance organization, professional provider organization, hospital, skilled
nursing facility, hospice or any other health care provider or similar entity
that is obligated to make payments on any Accounts, including Governmental Third
Party Payors, but excluding any Patients.

 

“Title IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA, and that any Credit Party or ERISA Affiliate
maintains,

 

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contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.

 

“Trademark Security Agreements” means the Trademark Security Agreements made in
favor of Agent, on behalf of Lenders, by each applicable Credit Party.

 

“Trademark License” means rights under any written agreement now owned or
hereafter acquired by any Credit Party granting any right to use any Trademark.

 

“Trademarks” means all of the following now owned or hereafter adopted or
acquired by any Credit Party: (a) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature (whether registered or
unregistered), all registrations and recordings thereof, and all applications in
connection therewith, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state or territory thereof, or any other country or
any political subdivision thereof; (b) all reissues, extensions or renewals
thereof; and (c) all goodwill associated with or symbolized by any of the
foregoing.

 

“Transaction” has the meaning ascribed to it in Section 11.8.

 

“TRICARE” means, collectively, a program of medical benefits covering former and
active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, which program was formerly known as the
Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), and all
laws, rules, regulations, manuals, orders and administrative, reimbursement and
other guidelines of all Governmental Authorities promulgated in connection with
such program (whether or not having the force of law), in each case as the same
may be amended, supplemented or otherwise modified from time to time.

 

“TRICARE Account” means an Account payable pursuant to TRICARE.

 

“Unfunded Pension Liability” means, at any time, the aggregate amount, if any,
of the sum of (a) the amount by which the present value of all accrued benefits
under each Title IV Plan exceeds the fair market value of all assets of such
Title IV Plan allocable to such benefits in accordance with Title IV of ERISA,
all determined as of the most recent valuation date for each such Title IV Plan
using the actuarial assumptions for funding purposes in effect under such Title
IV Plan, and (b) for a period of 5 years following a transaction which might
reasonably be expected to be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by any Credit Party or any ERISA
Affiliate as a result of such transaction.

 

“Unrestricted Cash Balances” shall mean, at any time of determination, the
aggregate amount of all cash deposits of the Credit Parties maintained in any
demand deposit account located in the United States, to the extent and only to
the extent such cash deposits are subject to Agent’s first-priority perfected
security interest and are free of any Lien or other encumbrance (other than (i)
customary Liens arising in the ordinary course of business which the depository
institution may have with respect to any right of offset against funds in such
account,

 

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(ii) customary holds for uncollected deposits, and (iii) Liens granted to the
Agent and securing the Obligations).

 

“Welfare Plan” means a Plan described in Section 3(i) of ERISA.

 

Rules of construction with respect to accounting terms used in the Agreement or
the other Loan Documents shall be as set forth in Annex G. All other undefined
terms contained in any of the Loan Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code as in effect in the State
of Georgia to the extent the same are used or defined therein. Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained in
the Agreement. The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.

 

Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter genders. The words “including”, “includes” and “include”
shall be deemed to be followed by the words “without limitation”; the word “or”
is not exclusive; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations. Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of any Credit Party, such words are intended
to signify that such Credit Party has actual knowledge or awareness of a
particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.

 

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ANNEX B (Section 1.2)

to

CREDIT AGREEMENT

 

LETTERS OF CREDIT

 

(a) Issuance. Subject to the terms and conditions of the Agreement, Agent and
Revolving Lenders agree to incur, from time to time prior to the Commitment
Termination Date, upon the request of Borrower Representative on behalf of the
applicable Borrower and for such Borrower’s account, Letter of Credit
Obligations by causing Letters of Credit to be issued by GE Capital or a
Subsidiary thereof or a bank or other legally authorized Person selected by or
acceptable to Agent in its sole discretion (each, an “L/C Issuer”) for
Borrowers’ account and guaranteed by Agent; provided, that if the L/C Issuer is
a Revolving Lender, then such Letters of Credit shall not be guaranteed by Agent
but rather each Revolving Lender shall, subject to the terms and conditions
hereinafter set forth, purchase (or be deemed to have purchased) risk
participations in all such Letters of Credit issued with the written consent of
Agent, as more fully described in paragraph (b)(ii) below. The aggregate amount
of all such Letter of Credit Obligations shall not at any time exceed the least
of (i) $1,000,000 (the “L/C Sublimit”), and (ii) the Maximum Revolver Amount
less the aggregate outstanding principal balance of the Revolving Credit
Advances, and (iii) the Borrowing Base less the aggregate outstanding principal
balance of the Revolving Credit Advances. No such Letter of Credit shall have an
expiry date that is more than one year following the date of issuance thereof,
unless otherwise determined by Agent in its sole discretion, and neither Agent
nor Revolving Lenders shall be under any obligation to incur Letter of Credit
Obligations in respect of, or purchase risk participations in, any Letter of
Credit having an expiry date that is later than the Commitment Termination Date.

 

(b)(i) Advances Automatic; Participations. In the event that Agent or any
Revolving Lender shall make any payment on or pursuant to any Letter of Credit
Obligation, such payment shall then be deemed automatically to constitute a
Revolving Credit Advance to the applicable Borrower under Section 1.1(a) of the
Agreement regardless of whether a Default or Event of Default has occurred and
is continuing and notwithstanding any Borrower’s failure to satisfy the
conditions precedent set forth in Section 2, and each Revolving Lender shall be
obligated to pay its Pro Rata Share thereof in accordance with the Agreement.
The failure of any Revolving Lender to make available to Agent for Agent’s own
account its Pro Rata Share of any such Revolving Credit Advance or payment by
Agent under or in respect of a Letter of Credit shall not relieve any other
Revolving Lender of its obligation hereunder to make available to Agent its Pro
Rata Share thereof, but no Revolving Lender shall be responsible for the failure
of any other Revolving Lender to make available such other Revolving Lender’s
Pro Rata Share of any such payment.

 

(ii) If it shall be illegal or unlawful for any Borrower to incur Revolving
Credit Advances as contemplated by paragraph (b)(i) above because of an Event of
Default described in Sections 8.1(h) or (i) or otherwise or if it shall be
illegal or unlawful for any Revolving Lender to be deemed to have assumed a
ratable share of the reimbursement obligations owed to an L/C Issuer, or if the
L/C Issuer is a Revolving Lender, then (i) immediately and without further
action whatsoever, each Revolving Lender shall be deemed to

 

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have irrevocably and unconditionally purchased from Agent (or such L/C Issuer,
as the case may be) an undivided interest and participation equal to such
Revolving Lender’s Pro Rata Share (based on the Revolving Loan Commitments) of
the Letter of Credit Obligations in respect of all Letters of Credit then
outstanding and (ii) thereafter, immediately upon issuance of any Letter of
Credit, each Revolving Lender shall be deemed to have irrevocably and
unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an
undivided interest and participation in such Revolving Lender’s Pro Rata Share
(based on the Revolving Loan Commitments) of the Letter of Credit Obligations
with respect to such Letter of Credit on the date of such issuance. Each
Revolving Lender shall fund its participation in all payments or disbursements
made under the Letters of Credit in the same manner as provided in the Agreement
with respect to Revolving Credit Advances.

 

(c) Cash Collateral. (i) If Borrowers are required to provide cash collateral
for any Letter of Credit Obligations pursuant to the Agreement prior to the
Commitment Termination Date, each Borrower will pay to Agent for the ratable
benefit of itself and Revolving Lenders cash or cash equivalents acceptable to
Agent (“Cash Equivalents”) in an amount equal to 105% of the maximum amount then
available to be drawn under each applicable Letter of Credit outstanding for the
benefit of such Borrower. Such funds or Cash Equivalents shall be held by Agent
in a cash collateral account (the “Cash Collateral Account”) maintained at a
bank or financial institution acceptable to Agent. The Cash Collateral Account
shall be in the name of applicable Borrower and shall be pledged to, and subject
to the control of, Agent, for the benefit of Agent and Lenders, in a manner
satisfactory to Agent. Each Borrower hereby pledges and grants to Agent, on
behalf of itself and Lenders, a security interest in all such funds and Cash
Equivalents held in the Cash Collateral Account from time to time and all
proceeds thereof, as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The Agreement, including this Annex B, shall constitute a security agreement
under applicable law.

 

(ii) If any Letter of Credit Obligations, whether or not then due and payable,
shall for any reason be outstanding on the Commitment Termination Date,
Borrowers shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof,
if any, to be canceled and returned, or (C) deliver a stand-by letter (or
letters) of credit in guarantee of such Letter of Credit Obligations, which
stand-by letter (or letters) of credit shall be of like tenor and duration (plus
30 additional days) as, and in an amount equal to 105% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are satisfactory to Agent
in its sole discretion.

 

(iii) From time to time after funds are deposited in the Cash Collateral Account
by any Borrower, whether before or after the Commitment Termination Date, Agent
may apply such funds or Cash Equivalents then held in the Cash Collateral
Account to the payment of any amounts, and in such order as Agent may elect, as
shall be or shall become due and payable by such Borrower to Agent and Lenders
with respect to such Letter of Credit Obligations of such Borrower and, upon the
satisfaction in full of all Letter of Credit Obligations of such Borrower, to
any other Obligations of any Borrower then due and payable.

 

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(iv) Neither Borrowers nor any Person claiming on behalf of or through Borrowers
shall have any right to withdraw any of the funds or Cash Equivalents held in
the Cash Collateral Account, except that upon the termination of all Letter of
Credit Obligations and the payment of all amounts payable by Borrowers to Agent
and Lenders in respect thereof, any funds remaining in the Cash Collateral
Account shall be applied to other Obligations then due and owing and upon
payment in full of such Obligations, any remaining amount shall be paid to
Borrowers or as otherwise required by law. Interest earned on deposits in the
Cash Collateral Account shall be for the account of Agent.

 

(d) Fees and Expenses. Borrowers agree to pay to Agent for the benefit of
Revolving Lenders, as compensation to such Lenders for Letter of Credit
Obligations incurred hereunder, (i) all costs and expenses incurred by Agent or
any Lender on account of such Letter of Credit Obligations, and (ii) for each
month during which any Letter of Credit Obligation shall remain outstanding, a
fee (the “Letter of Credit Fee”) in an amount equal to the Applicable L/C Margin
from time to time in effect multiplied by the maximum amount available from time
to time to be drawn under the applicable Letter of Credit. Such fee shall be
paid to Agent for the benefit of the Revolving Lenders in arrears, on the first
day of each month and on the Commitment Termination Date. In addition, Borrowers
shall pay to any L/C Issuer, on demand, such reasonable fees (including all per
annum fees), charges and expenses of such L/C Issuer incurred in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.

 

(e) Request for Incurrence of Letter of Credit Obligations. Borrower
Representative shall give Agent at least 2 Business Days’ prior written notice
requesting the incurrence of any Letter of Credit Obligation. The notice shall
be accompanied by the form of the Letter of Credit (which shall be acceptable to
the L/C Issuer) and a completed application for standby letter of credit or
application and agreement for documentary letter of credit, in each case, in
form and substance satisfactory to Agent. Notwithstanding anything contained
herein to the contrary, Letter of Credit applications by Borrower Representative
and approvals by Agent and the L/C Issuer may be made and transmitted pursuant
to electronic codes and security measures mutually agreed upon and established
by and among Borrowers, Agent and the L/C Issuer.

 

(f) Obligation Absolute. The obligation of Borrowers to reimburse Agent and
Revolving Lenders for payments made with respect to any Letter of Credit
Obligation shall be absolute, unconditional and irrevocable, without necessity
of presentment, demand, protest or other formalities, and the obligations of
each Revolving Lender to make payments to Agent with respect to Letters of
Credit shall be unconditional and irrevocable. Such obligations of Borrowers and
Revolving Lenders shall be paid strictly in accordance with the terms hereof
under all circumstances including the following:

 

(i) any lack of validity or enforceability of any Letter of Credit or the
Agreement or the other Loan Documents or any other agreement;

 

(ii) the existence of any claim, setoff, defense or other right that any
Borrower or any of their Affiliates or any Lender may at any time have against a
beneficiary or any

 

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transferee of any Letter of Credit (or any Persons or entities for whom any such
transferee may be acting), Agent, any Lender, or any other Person, whether in
connection with the Agreement, the Letter of Credit, the transactions
contemplated herein or therein or any unrelated transaction (including any
underlying transaction between any Borrower or any of their Affiliates 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;

 

(iv) payment by Agent (except as otherwise expressly provided in paragraph
(g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or guaranty
thereof against presentation of a demand, draft or certificate or other document
that does not comply with the terms of such Letter of Credit or such guaranty;

 

(v) any other circumstance or event whatsoever, that is similar to any of the
foregoing; or

 

(vi) the fact that a Default or an Event of Default has occurred and is
continuing.

 

(g) Indemnification; Nature of Lenders’ Duties. (i) In addition to amounts
payable as elsewhere provided in the Agreement, Borrowers hereby agrees to pay
and to protect, indemnify, and save harmless Agent and each Lender from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys’ fees and allocated costs
of internal counsel) that Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of Credit or
guaranty thereof, or (B) the failure of Agent or any Lender seeking
indemnification or of any L/C Issuer to honor a demand for payment under any
Letter of Credit or guaranty thereof 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, in each case other than to the extent as a result of the
gross negligence or willful misconduct of Agent or such Lender (as finally
determined by a court of competent jurisdiction).

 

(ii) As between Agent and any Lender and Borrowers, Borrowers assume all risks
of the acts and omissions of, or misuse of any Letter of Credit by beneficiaries
of any Letter of Credit. In furtherance and not in limitation of the foregoing,
to the fullest extent permitted by law neither Agent nor any Lender shall be
responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document issued by any party in connection with the
application for and issuance of any Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (B) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, that may prove
to be invalid or ineffective for any reason; (C) failure of the beneficiary of
any Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided, that in the case of any payment
by Agent under any Letter of Credit or guaranty thereof, Agent shall be liable
to the extent such payment was made as a result of its gross

 

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negligence or willful misconduct (as finally determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of
Credit or guaranty thereof complies on its face with any applicable requirements
for a demand for payment under such Letter of Credit or guaranty thereof; (D)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they may
be in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order to make
a payment under any Letter of Credit or guaranty thereof or of the proceeds
thereof; (G) the credit of the proceeds of any drawing under any Letter of
Credit or guaranty thereof; and (H) any consequences arising from causes beyond
the control of Agent or any Lender. None of the above shall affect, impair, or
prevent the vesting of any of Agent’s or any Lender’s rights or powers hereunder
or under the Agreement.

 

(iii) Nothing contained herein shall be deemed to limit or to expand any
waivers, covenants or indemnities made by Borrowers in favor of any L/C Issuer
in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between Borrowers and such L/C Issuer,
including an application and agreement for documentary letter of credit or a
master documentary agreement and a master standby agreement entered into with
Agent.

 

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ANNEX C (Section 1.8)

to

CREDIT AGREEMENT

 

CASH MANAGEMENT SYSTEM

 

Each Credit Party shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:

 

(a) On or before the Closing Date and until the Termination Date, each Borrower
shall (i) establish and maintain a blocked account with respect to the existing
master deposit account maintained by PSA Georgia with Wachovia Bank, N.A.
(“Wachovia Bank”), account number 2080000266545 (the “Existing Master Account”),
which deposit account shall be a zero balance account, such that such deposit
account shall have a zero balance at the end of each Business Day and all
available funds on deposit in such deposit account shall, on or prior to the
close of business on each Business Day, automatically be swept by Wachovia Bank
to the Concentration Account (defined below), (ii) request in writing and
otherwise take such reasonable steps to ensure that all Account Debtors forward
payment directly to such Existing Master Account, and (iii) deposit and cause
its Subsidiaries to deposit or cause to be deposited promptly, and in any event
no later than the first Business Day after the date of receipt thereof, any and
all cash, checks, drafts or other similar items of payment relating to or
constituting payments made in respect of any and all Collateral into the
Existing Master Account in such Borrowers’ name or any such Subsidiary’s name
and at Wachovia Bank. On or before the Closing Date, PSA Georgia shall have
established a concentration account in its name (“Concentration Account”) at
Wachovia Bank (in its capacity as depository bank with respect to the
Concentration Account, the “Concentration Account Bank”).

 

(b) Each Borrower may maintain, in its name, an account (each a “Disbursement
Account” and collectively, the “Disbursement Accounts”) at a bank acceptable to
Agent into which Agent shall, from time to time, deposit proceeds of Revolving
Credit Advances made to such Borrower pursuant to Section 1.1 for use by such
Borrower in accordance with the provisions of Section 1.4. On the Closing Date,
the Borrowers hereby designate the Concentration Account as the Disbursement
Account.

 

(c) On or before the Closing Date (or such later date as Agent shall consent to
in writing), (i) Wachovia Bank shall have entered into a tri-party government
receivables account agreement (the “Government Receivables Account Agreement”)
with Agent, for the benefit of itself and Lenders, and the applicable Borrower,
in form and substance reasonably acceptable to Agent, with respect to the
Existing Master Account, which agreement shall become operative on or prior to
the Closing Date, (ii) Wachovia Bank shall have entered into a tri-party blocked
account agreements with Agent, for the benefit of itself and Lenders, and the
applicable Borrower, in form and substance reasonably acceptable to Agent, with
respect to the

 

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Disbursement Accounts, the Concentration Account and that certain deposit
account at Wachovia Bank (account number 2079930000824) (the “Operating
Account”), each of which shall become operative on or prior to the Closing Date.

 

(d) From and after the receipt of a notice (an “Activation Notice”) from Agent
(which Activation Notice may be given by Agent at any time at which (1) a
Default or Event of Default has occurred and is continuing, (2) Agent reasonably
believes based upon information available to it that a Default or an Event of
Default is likely to occur; (3) Agent reasonably believes that an event or
circumstance that is likely to have a Material Adverse Effect has occurred, or
(4) Agent reasonably has grounds to question the integrity of any Borrowers’
Cash Management Systems or any Borrowers’ compliance with the provisions of this
Annex C or any other provisions of the Loan Documents to the extent related to
such Cash Management Systems (any of the foregoing being referred to herein as
an “Activation Event”)), with respect to the Concentration Account Bank, such
bank agrees from and after the receipt of an Activation Notice from Agent upon
the occurrence of an Activation Event, to immediately forward all amounts
received in the applicable Concentration Account to the Collection Account
through daily sweeps from such Concentration Account into the Collection
Account. From and after the date Agent has delivered an Activation Notice, no
Borrower shall, or shall cause or permit any Subsidiary thereof to, accumulate
or maintain cash in Disbursement Accounts, the Operating Account or payroll
accounts as of any date of determination in excess of checks outstanding against
such accounts as of that date and amounts necessary to meet minimum balance
requirements.

 

(e) So long as no Default or Event of Default has occurred and is continuing,
Borrowers may amend Disclosure Schedule (3.19) to add or replace any deposit
account or depository bank or to replace any Concentration Account or any
Disbursement Account; provided, that (i) Agent shall have consented in writing
in advance to the opening of such account with the relevant bank and (ii) prior
to the time of the opening of such account, the applicable Borrower or its
respective Subsidiaries, as applicable, and such bank shall have executed and
delivered to Agent a tri-party blocked account agreement, in form and substance
reasonably satisfactory to Agent. Borrowers shall close any of their accounts
(and establish replacement accounts in accordance with the foregoing sentence)
promptly and in any event within 30 days following notice from Agent that the
creditworthiness of any bank holding an account is no longer acceptable in
Agent’s reasonable judgment, or as promptly as practicable and in any event
within 60 days following notice from Agent that the operating performance, funds
transfer or availability procedures or performance with respect to accounts of
the bank holding such accounts or Agent’s liability under any tri-party blocked
account agreement with such bank is no longer acceptable in Agent’s reasonable
judgment.

 

(f) The deposit accounts which are subject to blocked account agreements,
Disbursement Accounts and the Concentration Account shall be cash collateral
accounts, with all cash, checks and other similar items of payment in such
accounts securing payment of the Loans

 

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and all other Obligations, and in which each Borrower and each Subsidiary
thereof shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.

 

(g) All amounts deposited in the Collection Account shall be deemed received by
Agent in accordance with Section 1.10 and shall be applied (and allocated) by
Agent in accordance with Section 1.11. In no event shall any amount be so
applied unless and until such amount shall have been credited in immediately
available funds to the Collection Account.

 

(h) Each Borrower shall and shall cause its Affiliates, officers, employees,
agents, directors or other Persons acting for or in concert with such Borrower
(each a “Related Person”) to (i) hold in trust for Agent, for the benefit of
itself and Lenders, all checks, cash and other items of payment received by such
Borrower or any such Related Person, and (ii) within 1 Business Day after
receipt by such Borrower or any such Related Person of any checks, cash or other
items of payment, deposit the same into the Existing Master Account. Each
Borrower and each Related Person thereof acknowledges and agrees that all cash,
checks or other items of payment constituting proceeds of Collateral are part of
the Collateral. All proceeds of the sale or other disposition of any Collateral,
shall be deposited directly into the Concentration Account.

 

(i) Notwithstanding the foregoing restrictions in this Annex C or in the
Agreement, so long as no Default or Event of Default has occurred and is
continuing, Credit Parties may on and after the Closing Date establish and
maintain a single third-party escrow or trust deposit account with Wachovia Bank
or another financial institution satisfactory to Agent in its reasonable
discretion (such account referred to herein as the “Pledged Account”) solely for
the purpose of pre-funding estimated loss reserves under the Credit Parties’
existing workers compensation insurance policies (as such policies may be
renewed from time to time), provided that each of the following covenants and
conditions are and at all times hereafter continue to be met:

 

(i) Promptly (and in any event within five Business Days) after establishing the
Pledged Account Borrowers shall provide to Agent a written statement identifying
the name of the Pledged Account, the amount of funds on deposit therein, the
account number and the name and address of the depository bank where such
Pledged Account is maintained;

 

(ii) As of December 31, 2003, the balance on deposit in the Pledged Account was
$2,732,189.11. The amount from time to time on deposit in the Pledged Account
shall not at any time exceed the maximum amount required under the Credit
Parties’ existing workers compensation insurance policies (as such policies may
be renewed from time to time) to be posted as cash collateral in order to fund a
twelve month estimated loss reserve in respect of each policy year of workers
compensation insurance claims by employees of the Credit Parties as supported by
documentation delivered by Borrowers to Agent and reasonably satisfactory to
Agent;

 

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(iii) the Borrowers shall not use the proceeds of any Loans to fund the Pledged
Account;

 

(iv) the Borrowers shall furnish to Agent promptly (and in any event within
thirty days after the end of each month) copies of all account statements in
respect of such Pledged Account for the immediately preceding month; and

 

(v) Borrowers shall upon request of Agent promptly furnish to Agent copies of
Borrower’s workers compensation insurance policies and such other documents or
information that Agent may reasonably request in order to verify that the amount
on deposit in the Pledged Account does not exceed the amount required to be
posted as cash collateral pursuant to Borrowers’ existing workers compensation
insurance polices and does not exceed the limits set forth in clause (ii) above
of this section.

 

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ANNEX D (Section 2.1(a))

to

CREDIT AGREEMENT

 

CLOSING CHECKLIST

 

In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date (each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in Annex A to the Agreement):

 

A. Appendices. All Appendices to the Agreement, in form and substance
satisfactory to Agent.

 

B. Revolving Notes and Acquisition Loan Notes. Duly executed originals of the
Revolving Notes and Acquisition Notes for each applicable Lender, dated the
Closing Date.

 

C. Security Agreements. Duly executed originals of each of the Security
Agreements, dated the Closing Date, and all instruments, documents and
agreements executed pursuant thereto.

 

D. Insurance. Satisfactory evidence that the insurance policies required by
Section 5.4 are in full force and effect, together with appropriate evidence
showing loss payable and/or additional insured clauses or endorsements, as
requested by Agent, in favor of Agent, on behalf of Lenders.

 

E. Security Interests and Code Filings. (a) Evidence satisfactory to Agent that
Agent (for the benefit of itself and Lenders) has a valid and perfected first
priority security interest in the Collateral, including (i) such documents duly
executed by each Credit Party (including financing statements under the Code and
other applicable documents under the laws of any jurisdiction with respect to
the perfection of Liens) as Agent may request in order to perfect its security
interests in the Collateral and (ii) copies of recent tax, lien, judgment and
litigation searches in each relevant jurisdiction with respect to each Credit
Party, and such search shall reveal no Liens on any assets of any Credit Party,
except for Permitted Encumbrances or Liens to be discharged on or prior to the
Closing Date pursuant to documentation satisfactory to Agent.

 

(b) Evidence satisfactory to Agent, including copies, of all UCC-1 and other
financing statements filed in favor of any Credit Party with respect to each
location, if any, at which Inventory may be consigned.

 

(c) Control Letters from (i) all issuers of uncertificated securities and
financial assets held by Borrowers, (ii) all securities intermediaries with
respect to all securities accounts and securities entitlements of Borrowers, and
(iii) all futures commission agents and clearing houses with respect to all
commodities contracts and commodities accounts held by Borrowers.

 

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F. Intellectual Property Security Agreements. Duly executed originals of
Trademark Security Agreements, Copyright Security Agreements and Patent Security
Agreements, each dated the Closing Date and signed by each Credit Party which
owns Trademarks, Copyrights and/or Patents, as applicable, all in form and
substance reasonably satisfactory to Agent, together with all instruments,
documents and agreements executed pursuant thereto.

 

G. Subsidiary Guaranty. Subsidiary Guaranty executed by each Subsidiary
Guarantor in favor of Agent, for the benefit of Lenders.

 

H. Initial Borrowing Base Certificate. Duly executed originals of an initial
Borrowing Base Certificate from Borrowers, dated the Closing Date, reflecting
information concerning Eligible Accounts of Borrowing Base Parties as of a date
not more than 7 days prior to the Closing Date.

 

I. Initial Notice of Revolving Credit Advance. Duly executed originals of a
Notice of Revolving Credit Advance, dated the Closing Date, with respect to the
initial Revolving Credit Advance to be requested by Borrower Representative on
behalf of Borrowers on the Closing Date.

 

J. Cash Management System; Blocked Account Agreements. Evidence satisfactory to
Agent that, as of the Closing Date, Cash Management Systems complying with Annex
C to the Agreement have been established and are currently being maintained in
the manner set forth in such Annex C, together with copies of duly executed
tri-party blocked account and lock box agreements, reasonably satisfactory to
Agent, with the banks as required by Annex C.

 

K. Charter and Good Standing. For each Credit Party, such Person’s (a) charter
and all amendments thereto, (b) good standing certificates (including
verification of tax status) in its state of incorporation and (c) good standing
certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized Governmental Authority.

 

L. Bylaws and Resolutions. For each Credit Party, (a) such Person’s bylaws,
together with all amendments thereto and (b) resolutions of such Person’s Board
of Directors, approving and authorizing the execution, delivery and performance
of the Loan Documents to which such Person is a party and the transactions to be
consummated in connection therewith, each certified as of the Closing Date by
such Person’s corporate secretary or an assistant secretary as being in full
force and effect without any modification or amendment.

 

M. Incumbency Certificates. For each Credit Party, signature and incumbency
certificates of the officers of each such Person executing any of the Loan
Documents, certified as of the Closing Date by such Person’s corporate secretary
or an assistant secretary as being true, accurate, correct and complete.

 

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N. Opinions of Counsel. Duly executed originals of opinions of McKenna, Long &
Aldridge LLP, counsel for the Credit Parties, together with any local counsel
opinions reasonably requested by Agent, each in form and substance reasonably
satisfactory to Agent and its counsel, dated the Closing Date, and each
accompanied by a letter or certificate addressed to such counsel from the Credit
Parties, authorizing and directing such counsel to address its opinion to Agent,
on behalf of Lenders, and to include in such opinion an express statement to the
effect that Agent and Lenders are authorized to rely on such opinion.

 

O. Pledge Agreements. Duly executed originals of each of the Pledge Agreements
accompanied by (as applicable) (a) share certificates representing all of the
outstanding Stock being pledged pursuant to such Pledge Agreement and stock
powers for such share certificates executed in blank and (b) the original
Intercompany Notes and other instruments evidencing Indebtedness being pledged
pursuant to such Pledge Agreement, duly endorsed in blank.

 

P. Letter to Accountants. A letter from the Credit Parties to their independent
auditors authorizing the independent certified public accountants of the Credit
Parties to communicate with Agent and Lenders in accordance with Section 4.2.

 

Q. Solvency Certificate. Certificate of the Chief Financial Officer of
Borrowers, in form and substance satisfactory to Agent, demonstrating Solvency
of each Borrower and each of the other Credit Parties after giving effect to the
initial Advances made on the Closing Date, the Senior Subordinated Note
Redemption and the other Related Transactions contemplated hereby.

 

R. Officer’s Certificate. Agent shall have received duly executed originals of a
certificate of the Chief Financial Officer of Holdings, dated the Closing Date,
certifying that (a) since September 30, 2003 (i) there has been no material
adverse change in the business, financial or other condition of any of the
Credit Parties, the Collateral or material adverse change in the prospects or
projections of any of the Credit Parties; (ii) there has been no material
adverse change in the industry in which any Borrower or any other Credit Party
operates; (iii) no Litigation has been commenced which, if successful, would
have a Material Adverse Effect or could challenge the validity of any of the
transactions contemplated by the Agreement and the other Loan Documents; (iv)
there have been no Restricted Payments made by any Credit Party; and (v) there
has been no material increase in liabilities, liquidated or contingent, and no
material decrease in assets of any Credit Party, and (b) the incurrence of the
Obligations by Borrowers from time to time under and in connection with this
Agreement and the other Loan Documents, and the incurrence of the Obligations by
the Guarantors from time to time under and in connection with this Agreement and
the other Loan Documents, is permitted to be incurred under Section 4.09 of the
Senior Subordinated Note Indenture and attaching detail demonstrating compliance
with the relevant indenture convenant.

 

S. Waivers. Agent, on behalf of Lenders, shall have received Landlord
Agreements, bailee letters and mortgagee agreements in form and substance
reasonably satisfactory to Agent, in each case as required pursuant to Section
5.9.

 

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T. Subordination and Intercreditor Agreements. Agent and Lenders shall have
received any and all subordination and/or intercreditor agreements, all in form
and substance reasonably satisfactory to Agent, as Agent shall have deemed
necessary or appropriate with respect to any Indebtedness of any Credit Party.

 

U. Audited Financials; Financial Condition. Agent shall have received the
Financial Statements, Projections and other materials set forth in Section 3.4,
certified by Borrower Representative’s Chief Financial Officer, in each case in
form and substance satisfactory to Agent, and Agent shall be satisfied, in its
sole discretion, with all of the foregoing. Agent shall have further received a
certificate of the Chief Executive Officer and/or the Chief Financial Officer of
each Borrower, based on such financial statements and Projections, to the effect
that (a) such Borrower will be Solvent upon the consummation of the transactions
contemplated herein; (b) the Pro Forma fairly presents in all material respects
the financial condition of such Borrower as of the date thereof after giving
effect to the transactions contemplated by the Loan Documents; (c) the
Projections are based upon estimates and assumptions stated therein, all of
which such Borrower believes to be reasonable and fair in light of current
conditions and current facts known to such Borrower and, as of the Closing Date,
reflect such Borrowers’ good faith and reasonable estimates of its future
financial performance and of the other information projected therein for the
period set forth therein; and (d) the Fair Salable Balance Sheet was prepared on
the same basis as the as the unaudited balance sheets described in Section
3.4(a)(ii), except that such Borrower’s assets are set forth therein at their
fair salable values on a going concern basis and the liabilities set forth
therein include all contingent liabilities of such Borrower stated at the
reasonably estimated fair values thereof.

 

V. Master Standby Agreement. A Master Agreement for Standby Letters of Credit
between Borrowers and GE Capital.

 

W. Master Documentary Agreement. A Master Agreement for Documentary Letters of
Credit between Borrowers and GE Capital.

 

X. HIPAA Business Associate Agreement. Duly executed originals of each of the
HIPAA Business Associate Agreements, dated the Closing Date, between the
applicable Credit Party and Agent.

 

Y. Notice to Indenture Trustee. Agent shall have received evidence satisfactory
to it that Holdings shall have delivered to the Indenture Trustee a written
notice from Holdings satisfying the requirements for delivery of notices to the
Indenture Trustee under such indenture and stating that (i) the Obligations
constitute Designated Senior Debt under and as defined in the Senior
Subordinated Note Indenture, and (ii) GE Capital, as Agent, is the current
“Representative” of the “Senior Debt” as such terms are defined in the Senior
Subordinated Note Indenture and that any notices by Indenture Trustee to such
representative shall be sent to GE Capital, as Agent, until such time as GE
Capital, as such representative of the senior debt, notifies the Indenture
Trustee to the contrary and setting forth the address to which notices and other
communications may be sent to GE Capital as such representative.

 

Z. Other Documents. Such other certificates, documents and agreements respecting
any Credit Party as Agent may, in its reasonable discretion, request.

 

D - 4

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ANNEX E (Section 4.1(a))

to

CREDIT AGREEMENT

 

FINANCIAL STATEMENTS AND PROJECTIONS — REPORTING

 

Borrowers shall deliver or cause to be delivered to Agent or to Agent and
Lenders, as indicated, the following, each in form and scope satisfactory to
Lender:

 

(a) Monthly Financials. To Agent and Lenders, within 30 days after the end of
each of the first two Fiscal Months of each Fiscal Quarter, financial
information regarding Holdings and its Subsidiaries, consisting of internally
prepared, unaudited balance sheets as of the close of such Fiscal Month and
unaudited statements of income for such Fiscal Month, all prepared in accordance
with GAAP (subject to the absence of footnotes and normal quarterly and year-end
adjustments), provided that such monthly financial statements shall not be
required to be delivered for any Fiscal Month in which no Loans or Letters of
Credit are outstanding during such Fiscal Month and at the required delivery
date for such monthly financial statements.

 

(b) Quarterly Financials. To Agent and Lenders, within 45 days after the end of
each Fiscal Quarter, financial information regarding Holdings and its
Subsidiaries, certified by the Chief Financial Officer, or, in his absence, the
Chief Accounting Officer, of Holdings, consisting of consolidated and
consolidating (i) unaudited balance sheets as of the close of such Fiscal
Quarter and the related statements of income and cash flows for that portion of
the Fiscal Year ending as of the close of such Fiscal Quarter; (ii) unaudited
statements of income and cash flows for such Fiscal Quarter, setting forth in
comparative form the figures for the corresponding period in the prior year and
the figures contained in the Projections for such Fiscal Year, all prepared in
accordance with GAAP (subject to normal year-end adjustments); and (iii) a
summary of the outstanding balance of all Intercompany Notes as of the last day
of that Fiscal Quarter. Such financial information shall be accompanied by (A) a
statement in reasonable detail (each, a “Compliance Certificate”) showing the
calculations used in determining compliance with each Financial Covenant that is
tested on a monthly basis, and (B) the certification of the Chief Financial
Officer, or, in his absence, the Chief Accounting Officer, of Holdings that (i)
such financial information presents fairly in all material respects in
accordance with GAAP (subject to normal year-end adjustments) the financial
position and results of operations of Holdings and its Subsidiaries, on a
consolidated and consolidating basis, in each case as at the end of such Fiscal
Quarter and for that portion of the Fiscal Year then ended and (ii) any other
information presented is true, correct and complete in all material respects and
that there was no Default or Event of Default in existence as of such time or,
if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default.

 

(c) Operating Plan. To Agent and Lenders, as soon as available, but not later
than 30 days after the end of each Fiscal Year, an annual operating plan for
Holdings and its

 

E - 1

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Subsidiaries, approved by the Board of Directors of Holdings, for the following
Fiscal Year, which (i) includes a statement of all of the material assumptions
on which such plan is based, (ii) includes monthly balance sheets and a monthly
budget for the following year and (iii) integrates sales, gross profits,
operating expenses, operating profit, cash flow projections, Acquisition Loan
Borrowing Availability and Revolving Loan Borrowing Availability projections,
all prepared on the same basis and in similar detail as that on which operating
results are reported (and in the case of cash flow projections, representing
management’s good faith estimates of future financial performance based on
historical performance), and including plans for personnel, Capital Expenditures
and facilities.

 

(d) Annual Audited Financials. To Agent and Lenders, within 90 days after the
end of each Fiscal Year, audited Financial Statements for Holdings and its
Subsidiaries on a consolidated and (unaudited) consolidating basis, consisting
of balance sheets and statements of income and retained earnings and cash flows,
setting forth in comparative form in each case the figures for the previous
Fiscal Year, which Financial Statements shall be prepared in accordance with
GAAP and certified without qualification, by an independent certified public
accounting firm of national standing or otherwise acceptable to Agent. Such
Financial Statements shall be accompanied by (i) a statement prepared in
reasonable detail showing the calculations used in determining compliance with
each of the Financial Covenants, (ii) a report from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention to cause them to believe that a Default or Event of Default has
occurred (or specifying those Defaults and Events of Default that they became
aware of), it being understood that such audit examination extended only to
accounting matters and that no special investigation was made with respect to
the existence of Defaults or Events of Default, (iii) a letter addressed to
Agent, on behalf of itself and Lenders, in form and substance reasonably
satisfactory to Agent and subject to standard qualifications required by
nationally recognized accounting firms, signed by such accounting firm
acknowledging that Agent and Lenders are entitled to rely upon such accounting
firm’s certification of such audited Financial Statements, (iv) the annual
letters to such accountants in connection with their audit examination detailing
contingent liabilities and material litigation matters, and (v) the
certification of the Chief Executive Officer or Chief Financial Officer, or, in
his absence, the Chief Accounting Officer, of Holdings that all such Financial
Statements present fairly in all material respects in accordance with GAAP the
financial position, results of operations and statements of cash flows of
Holdings and its Subsidiaries on a consolidated and consolidating basis, as at
the end of such Fiscal Year and for the period then ended, and that there was no
Default or Event of Default in existence as of such time or, if a Default or
Event of Default has occurred and is continuing, describing the nature thereof
and all efforts undertaken to cure such Default or Event of Default.

 

(e) Management Letters. To Agent and Lenders, within 5 Business Days after
receipt thereof by any Credit Party, copies of all management letters, exception
reports or similar letters or reports received by such Credit Party from its
independent certified public accountants.

 

E - 2

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(f) Default Notices. To Agent and Lenders, as soon as practicable, and in any
event within 5 Business Days after an executive officer of any Borrower has
actual knowledge of the existence of any Default, Event of Default or other
event that has had a Material Adverse Effect, telephonic or telecopied notice
specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day.

 

(g) SEC Filings and Press Releases. To Agent and Lenders, promptly upon their
becoming available, notice of the filing or publication of: (i) all Financial
Statements, reports, notices and proxy statements made publicly available by any
Credit Party to its security holders; (ii) all regular and periodic reports and
all registration statements and prospectuses, if any, filed by any Credit Party
with any securities exchange or with the Securities and Exchange Commission or
any governmental or private regulatory authority; and (iii) all press releases
and other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person. Upon
request of Agent, Borrowers will promptly provide copies of any of the foregoing
items described in clauses (i) through (iii).

 

(h) Subordinated Debt and Equity Notices. To Agent, as soon as practicable,
copies of all material written notices given or received by any Credit Party
with respect to any Subordinated Debt or Stock of such Person, and, within 2
Business Days after any Credit Party obtains knowledge of any matured or
unmatured event of default with respect to any Subordinated Debt, notice of such
event of default.

 

(i) Supplemental Schedules. To Agent, supplemental disclosures, if any, required
by Section 5.6.

 

(j) Litigation. To Agent in writing, promptly upon learning thereof, notice of
any Litigation commenced or threatened against any Credit Party that (i) seeks
damages in excess of $250,000, (ii) seeks injunctive relief, (iii) is asserted
or instituted against any Plan, its fiduciaries or its assets or against any
Credit Party or ERISA Affiliate in connection with any Plan, (iv) alleges
criminal misconduct by any Credit Party, (v) alleges the violation of any law
regarding, or seeks remedies in connection with, any Environmental Liabilities;
or (vi) involves any product recall.

 

(k) Insurance Notices. To Agent, disclosure of losses or casualties required by
Section 5.4.

 

(l) Lease Default Notices. To Agent, within 2 Business Days after receipt
thereof, copies of (i) any and all default notices received under or with
respect to any leased location or public warehouse where Collateral is located,
and (ii) such other notices or documents as Agent may reasonably request.

 

E - 3

--------------------------------------------------------------------------------

(m) Other Documents. To Agent and Lenders, such other financial and other
information respecting any Credit Party’s business or financial condition as
Agent or any Lender shall, from time to time, reasonably request.

 

E - 4

--------------------------------------------------------------------------------

ANNEX F (Section 4.1(b))

to

CREDIT AGREEMENT

 

COLLATERAL REPORTS

 

Borrowers shall deliver or cause to be delivered the following:

 

(a) To Agent, upon its request, and in any event no less frequently than noon
New York time 15 days after the end of each Fiscal Month (or at more frequent
intervals as may be requested by Agent from time to time) (together with a copy
of all or any part of the following reports requested by any Lender in writing
after the Closing Date), each of the following reports, each of which shall be
prepared by Holdings as of the last day of the immediately preceding Fiscal
Month or the date 2 days prior to the date of any such request:

 

(i) a Borrowing Base Certificate with respect to each Borrowing Base Party,
accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion, provided, that such Borrowing Base
Certificate shall not be required to be delivered for any Fiscal Month in which
no Loans or Letters of Credit are outstanding during such Fiscal Month and at
the required delivery date for such Borrowing Base Certificate;

 

(ii) with respect to each Borrowing Base Party, a monthly trial balance showing
Accounts outstanding aged from the original service date as follows: 1 to 30
days, 31 to 60 days, 61 to 90 days, 91 days to 120 days and 121 days or more
(and, if at any time Qualified Accounts are included in the Borrowing Base, 121
to 180 days and 181 days or more), accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion.

 

(b) To Agent, on a monthly basis or at such more frequent intervals as Agent may
reasonably request from time to time (together with a copy of all or any part of
such delivery requested by any Lender in writing after the Closing Date),
collateral reports with respect to each Borrowing Base Party, including all
additions and reductions (cash and non-cash) with respect to Accounts of each
Borrowing Base Party, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion each
of which shall be prepared by Holdings as of the last day of the immediately
preceding week or the date 2 days prior to the date of any request;

 

F - 1

--------------------------------------------------------------------------------

(c) To Agent, at the time of delivery of each of the monthly Financial
Statements delivered pursuant to Annex E:

 

(i) a reconciliation of the most recent Borrowing Base accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

 

(ii) an aging of accounts payable and a reconciliation of that accounts payable
aging to Borrowing Base Party’s general ledger and monthly Financial Statements
delivered pursuant to Annex E, in each case accompanied by such supporting
detail and documentation as shall be requested by Agent in its reasonable
discretion;

 

(iii) a reconciliation of the outstanding Loans as set forth in the monthly Loan
Account statement provided by Agent to Borrowers’ general ledger and monthly
Financial Statements delivered pursuant to Annex E, in each case accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

 

(d) To Agent, at the time of delivery of each of the annual Financial Statements
delivered pursuant to Annex E, (i) a listing of government contracts of
Borrowers subject to the Federal Assignment of Claims Act of 1940; and (ii) a
list of any applications for the registration of any Patent, Trademark or
Copyright filed by any Credit Party with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency in
the prior Fiscal Quarter;

 

(e) Each Borrower, at its own expense, shall deliver to Agent such appraisals of
its assets as Agent may request at any time after the occurrence and during the
continuance of a Default or an Event of Default, such appraisals to be conducted
by an appraiser, and in form and substance reasonably satisfactory to Agent; and

 

(f) Such other reports, statements and reconciliations with respect to the
Borrowing Base or Collateral or Obligations of any or all Credit Parties as
Agent shall from time to time request in its reasonable discretion.

 

F - 2

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ANNEX G (Section 6.10)

to

CREDIT AGREEMENT

 

FINANCIAL COVENANTS

 

Credit Parties shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:

 

(a) Maximum Capital Expenditures. Holdings and its Subsidiaries on a
consolidated basis shall not make any Capital Expenditures in any Fiscal Quarter
if the amount of such Capital Expenditures during the immediately preceding four
Fiscal Quarters, including the Fiscal Quarter then ending, would exceed the
maximum amounts set forth below for such period:

 

Fiscal Quarter ended

--------------------------------------------------------------------------------

  

Maximum Capital

Expenditures

--------------------------------------------------------------------------------

March 31, 2004

   $ 4,500,000

June 30, 2004

   $ 4,500,000

September 30, 2004

   $ 5,000,000

December 31, 2004

   $ 5,000,000

March 31, 2004 and each Fiscal Quarter ended thereafter

   $ 5,500,000

 

(b) Minimum Fixed Charge Coverage Ratio. Holdings and its Subsidiaries shall
have on a consolidated basis at the end of each Fiscal Quarter ending on and
after March 31, 2004, a Fixed Charge Coverage Ratio for the 12-month period then
ended of not less than the following 1.30 to 1.00.

 

(c) Maximum Total Leverage Ratio. Holdings and its Subsidiaries on a
consolidated basis shall have, at the end of each Fiscal Quarter set forth
below, a Leverage Ratio as of the last day of such Fiscal Quarter and for the
12-month period then ended of not more than the following:

 

Period

--------------------------------------------------------------------------------

   Leverage Ratio

--------------------------------------------------------------------------------

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2004 and
continuing through and including Fiscal Quarter ending December 31, 2004

   2.80 to 1.00

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2005 and
continuing through and including Fiscal Quarter ending December 31, 2005

   2.70 to 1.00

 

G - 1

--------------------------------------------------------------------------------

Period

--------------------------------------------------------------------------------

   Leverage Ratio

--------------------------------------------------------------------------------

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2006 and
continuing through and including Fiscal Quarter ending December 31, 2006

   2.60 to 1.00

Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2007 and each
Fiscal Quarter ending thereafter

   2.50 to 1.00

 

(d) Maximum Senior Leverage Ratio. Holdings and its Subsidiaries on a
consolidated basis shall have, at the end of each Fiscal Quarter set forth
below, a Senior Leverage Ratio as of the last day of such Fiscal Quarter and for
the 12-month period then ended not more than the following:

 

Period

--------------------------------------------------------------------------------

   Senior Leverage Ratio

--------------------------------------------------------------------------------

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2004 and
continuing through and including Fiscal Quarter ending December 31, 2004

   2.00 to 1.00

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2005 and
continuing through and including Fiscal Quarter ending December 31, 2005

   1.90 to 1.00

Each Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2006 and
continuing through and including Fiscal Quarter ending December 31, 2006

   1.80 to 1.00

Fiscal Quarter beginning with Fiscal Quarter ending March 31, 2007 and each
Fiscal Quarter ending thereafter

   1.70 to 1.00

 

(e) Minimum Net Worth. Holdings and its Subsidiaries on a consolidated basis
shall maintain at all times Net Worth of not less than (i) $52,000,000 plus (ii)
for each full Fiscal Quarter ending after the Closing Date and on or prior to
the date of determination for which consolidated net income of Holdings and its
Subsidiaries is a positive number, an amount equal to 75% of such positive
number plus (iii) an amount equal to one hundred percent (100%) of the amount of
any equity raised by or capital contributed to the Holdings or any of its
Subsidiaries after the Closing Date (in the case of equity raised or capital
contributed, net of the bona fide, reasonable expenses, if any, relating to the
raising of such equity or such capital contribution and paid to Persons who are
not Affiliates of the Borrower), plus (iv) an amount equal to any increase in
Net Worth of Holdings and its Subsidiaries on a consolidated basis as a result
of any acquisitions or extraordinary transaction occurring on or after the
Closing Date.

 

G - 2

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(f) Maximum Accounts Receivable DSO. Holdings and its Subsidiaries on a
consolidated basis shall maintain an Accounts Receivable DSO of not more than 70
days for each Fiscal Quarter ending on and after December 31, 2004.

 

Unless otherwise specifically provided herein, any accounting term used in the
Agreement shall have the meaning customarily given such term in accordance with
GAAP, and all financial computations hereunder shall be computed in accordance
with GAAP consistently applied. That certain items or computations are
explicitly modified by the phrase “in accordance with GAAP” shall in no way be
construed to limit the foregoing. If any “Accounting Changes” (as defined below)
occur and such changes result in a change in the calculation of the financial
covenants, standards or terms used in the Agreement or any other Loan Document,
then Borrowers, Agent and Lenders agree to enter into negotiations in order to
amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrowers’ and their Subsidiaries’ financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
“Accounting Changes” means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrowers’ certified public
accountants; (iii) purchase accounting adjustments under FAS 141 or 142 and EITF
88-16, and the application of the accounting principles set forth in FASB 109,
including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrowers and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrowers and Requisite
Lenders cannot agree upon the required amendments within 30 days following the
date of implementation of any Accounting Change, then all Financial Statements
delivered and all calculations of financial covenants and other standards and
terms in accordance with the Agreement and the other Loan Documents shall be
prepared, delivered and made without regard to the underlying Accounting Change.
For purposes of Section 8.1, a breach of a Financial Covenant contained in this
Annex G shall be deemed to have occurred as of any date of determination by
Agent or as of the last day of any specified measurement period, regardless of
when the Financial Statements reflecting such breach are delivered to Agent.

 

G- 3

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ANNEX H (Section 1.1(d))

to

CREDIT AGREEMENT

 

LENDERS’ WIRE TRANSFER INFORMATION

 

Name:    General Electric Capital Corporation Bank:   

Deutsche Bank/Banker’s Trust

New York, New York

ABA #:    021-001-033 Account #:    50-271-079 Account Name:    GECC HH Cash
Flow Collections Reference:    Pediatric Services of America, Inc.

 

H - 1

--------------------------------------------------------------------------------

ANNEX I (Section 11.10)

to

CREDIT AGREEMENT

 

NOTICE ADDRESSES

 

(A) If to Agent or GE Capital, at

     General Electric Capital Corporation

     2 Bethesda Metro Center, Suite 600

     Bethesda, MD 20814

     Attention: Garry Tyran, Account Manager

     Telecopier No.: (866) 863-7453

     Telephone No.: (301) 664-9824

 

     with copies to:

 

     Kilpatrick Stockton LLP

     1100 Peachtree Street, Suite 2800

     Atlanta, GA 30309-4530

     Attention: Colvin T. Leonard, Esq.

     Telecopier No.: 404-815-6555

     Telephone No.: 404-815-6500

 

     General Electric Capital Corporation

     2 Bethesda Metro Center, Suite 600

     Bethesda, MD 20814

     Attention: Christian V. Barnette, Corporate Counsel

     Telecopier No.: (301) 664-9866

     Telephone No.: (301) 664-9849

 

(B) If to any Borrower, to Borrower Representative, at

 

     Pediatric Services of America, Inc.

     310 Technology Parkway

     Norcross, GA 30092

     Attention: Chief Financial Officer

     Telecopier No.: (770) 263-9340

     Telephone No.: (770) 209-7700

 

     With copies to:

 

     McKenna, Long & Aldridge LLP

     303 Peachtree Street, Suite 5300

     Atlanta, GA 30308

     Attention: Thomas Wardell, Esq.

     Telecopier No.: (404) 527-4198

     Telephone No.: (404) 527-4990

 

I - 1

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ANNEX J (from Annex A - Commitments definition)

to

CREDIT AGREEMENT

 

Lender(s):

      

General Electric Capital Corporation

      

Revolving Loan Commitment:

   $ 10,000,000.00

Acquisition Loan Commitment:

   $ 10,000,000.00

 

J - 1