EXHIBIT 10.24
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT dated as of July 8, 1997 (the "GUARANTY
AGREEMENT"), is given by FOUNDATION HEALTH SYSTEMS, INC., a Delaware
corporation (the "GUARANTOR"), for the benefit of FIRST SECURITY BANK,
NATIONAL ASSOCIATION (formerly known as First Security Bank of Utah, N.A.), a
national banking association, not individually but solely as Owner Trustee
under the FH Trust 1995-1 (together with its successors and permitted
assigns, the "OWNER TRUSTEE"), as lessor under the Lease (hereinafter
defined).
W I T N E S S E T H:
WHEREAS, the Owner Trustee, Foundation Health Medical Services, Inc., a
California corporation ("FHMS") and a wholly-owned subsidiary of Foundation
Health Corporation, a Delaware corporation ("FHC"), FHC, the Lenders
(hereinafter defined), the Holders (hereinafter defined) and the Agent
(hereinafter defined) have entered into that certain Participation Agreement
dated as of May 25, 1995 (the "ORIGINAL PARTICIPATION AGREEMENT" and as
amended by (a) the Assignment, Consent and Second Amendment (as defined
below), (b) the Third Amendment to Operative Agreements dated as of the date
hereof, and (c) as the same may be further amended from time to time after
the date hereof, the "PARTICIPATION AGREEMENT") which describes and
references certain Operative Agreements (hereinafter defined) and provided
for a financing of certain real estate assets provided by the Lenders and the
Holders in favor of FHMS;
WHEREAS, the parties to the Original Participation Agreement have
entered into, among other agreements, that certain Assignment, Consent and
Second Amendment to Lease Agreement and Other Operative Agreements dated as
of October 4, 1996 (the "ASSIGNMENT, CONSENT AND SECOND AMENDMENT") whereby
FHMS assigned all of its right, title, interest and obligations in, to and
under the Operative Agreements to Foundation Health Facilities, Inc., a
California corporation ("FHF" or "LESSEE") and wholly owned Subsidiary of FHC;
WHEREAS, FHC, Health Systems International, Inc., ("HSI") and FH
Acquisition Corp., a wholly owned merger subsidiary of HSI, entered into an
Agreement and Plan of Merger dated October 1, 1996 pursuant to which FH
Acquisition Corp. merged with and into FHC and FHC became a wholly owned
Subsidiary of HSI. HSI subsequently changed its name to Foundation Health
Systems, Inc.;
WHEREAS, the Owner Trustee and the Guarantor have agreed that the
Guarantor shall enter into this Guaranty Agreement in replacement of the
existing Guaranty Agreement dated as of May 25, 1995 extended by FHC to and
for the benefit of the Owner Trustee;
WHEREAS, the Owner Trustee, as lessor, and FHF, as construction agent
and/or lessee, shall continue to be parties to (a) the Agency Agreement dated
as of May 25, 1995 (as amended from time to time, the "AGENCY AGREEMENT")
which provides for FHF to act as agent for the Owner Trustee in the
acquisition, development and construction of certain real estate assets and
(b) the Lease Agreement dated as of May 25, 1995 (as amended from time to
time, the "LEASE") which provides for the leasing by the Owner Trustee to FHF
of certain real estate assets;
WHEREAS, the financing arrangement evidenced by the documents described
above constitutes a substantial benefit to the Guarantor;
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS
1.01 DEFINED TERMS. As used herein, the following terms shall have the
meanings herein specified unless the context otherwise requires. Capitalized
terms used in this Guaranty Agreement and not defined in this Section 1.01
shall have the meanings given to such terms in APPENDIX A to the
Participation Agreement. Defined terms herein shall include in the singular
number the plural and in the plural the singular:
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of any
line or segment of business or division of a Person, (b) the acquisition of
in excess of 50% of the capital stock, partnership interests, membership
interests or equity (or securities convertible into or exchangeable for such
capital stock, partnership interests, membership interests or equity) of any
Person, or otherwise causing any Person to become a Subsidiary, or (c) a
merger or consolidation or any other combination with another Person (other
than a Person that is a Subsidiary) provided that (i) the Guarantor or the
Subsidiary is the surviving entity or (ii) after giving effect to such merger
or consolidation, such other Person has become a Subsidiary of the Guarantor.
"AFFILIATE" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person,
whether through the ownership of voting securities, membership interests, by
contract or otherwise; PROVIDED, that no Person shall be deemed to be an
Affiliate of the Guarantor or any of its Subsidiaries solely as a result of
management or consulting agreements between such Person and the Guarantor or
any of its Subsidiaries executed by the Guarantor or any of its Subsidiaries
in the ordinary course of business and pursuant to which the Guarantor or its
Subsidiaries provide such services.
"AGENCY AGREEMENT" shall have the meaning given to such term in the
recitals hereto.
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"AGENT" means NationsBank, as Agent for the Lenders under the Credit
Agreement, together with its successors and assigns.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, ET SEQ.).
"CAPITAL LEASE" means any lease of property which in accordance with
GAAP should be capitalized on the lessee's balance sheet or disclosed in a
footnote thereto as a capitalized lease.
"CHANGE OF CONTROL" means the acquisition by any Person other than Malik
M. Hasan, M.D., or by two or more Persons acting in concert, other than
Malik M. Hasan, M.D., of beneficial ownership (within the meaning of Rule
13d-3 of the SEC under the Exchange Act) of 20% or more of the outstanding
shares of voting stock of the Guarantor.
"CODE" means the Internal Revenue code of 1986, as amended, and
regulations promulgated thereunder.
"CONTINGENT OBLIGATION" means, as to any Person, any contingent
liability, as such term is defined in GAAP, other than Guaranty Obligations;
PROVIDED, HOWEVER, that notwithstanding the foregoing, "Contingent
Obligations" shall not include any direct or indirect liability of the
Guarantor to any Subsidiary of the Guarantor or of any Subsidiary of the
Guarantor owed to the Guarantor or another Subsidiary of the Guarantor. The
amount of any Contingent Obligations shall be calculated in accordance with
GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Guarantor within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Guarantor or any ERISA Affiliate from a Pension
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) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by the Guarantor or
any ERISA Affiliate from a Multiemployer plan or notification that a
Multiemployer Plan is in reorganization; (d) the filing of a notice of intent
to terminate, the treatment of a Plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the
PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which 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 Pension Plan or Multiemployer Plan; or (f) the
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imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Guarantor or any
ERISA Affiliate.
"EVENT OF DEFAULT" shall have the meaning given to such term in Section
2.05(a) hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
"EXISTING CREDIT AGREEMENT" shall mean the Original Credit Agreement, as
such may hereafter be amended, modified, supplemented, restated and/or
replaced form time to time.
"EXISTING CREDIT AGREEMENT EVENT OF DEFAULT" shall mean an "Event of
Default" as such term is defined in the Existing Credit Agreement.
"FHF" has the meaning given to such term in the recitals hereto.
"FHMS" has the meaning given to such term in the recitals hereto.
"FHF OBLIGATION" shall have the meaning given to such term in Section
2.01 hereof.
"GAAP" shall have the meaning given to such term in the Participation
Agreement.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GUARANTOR" shall have the meaning given to such term in the first
paragraph hereof.
"GUARANTY AGREEMENT" shall have the meaning given to such term in the
first paragraph hereof.
"GUARANTY DOCUMENTS" shall mean, collectively, the Guaranty Agreement
and the Participation Agreement.
"GUARANTY OBLIGATION" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without
recourse, with respect to any Indebtedness of another Person (the "primary
obligor"). The amount of any Guaranty Obligation shall be deemed equal to
the stated amount of the primary obligation in respect of which such Guaranty
Obligation is made.
"HMO" shall mean any Person which operates as a health maintenance
organization.
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"HMO EVENT" shall mean (a) the failure by the Guarantor or any of its
HMO Subsidiaries to comply in any material respect with any of the terms and
provisions of any applicable HMO Regulation pertaining to the fiscal
soundness, solvency or financial condition of the Guarantor or any of its HMO
Subsidiaries if such failure is reasonably likely to have a Material Adverse
Effect; or (b) the assertion in writing, after the date of this Guaranty
Agreement, by an HMO Regulator that it intends to take administrative action
against the Guarantor or any of its HMO Subsidiaries to revoke or modify any
Governmental Approval of, or to enforce the fiscal soundness, solvency or
financial provisions or requirements of such HMO Regulations against, the
Guarantor or any of its HMO Subsidiaries, if such action, modification or
enforcement is reasonably likely to have a Material Adverse Effect.
"HMO REGULATIONS" means all Requirements of Law applicable to any HMO
Subsidiary under federal or state law and any regulations, orders and
directives promulgated or issued pursuant to the foregoing.
"HMO REGULATOR" means any Person charged with the administration,
oversight or enforcement of an HMO Regulation, whether primarily,
secondarily, or jointly.
"HMO SUBSIDIARY" shall mean any current or future Subsidiary of the
Guarantor that is either an HMO or a regulated healthcare service contractor.
"HOLDERS" shall have the meaning given to such term in APPENDIX A to the
Participation Agreement.
"INCORPORATED COVENANTS" shall have the meaning given to such term in
Article IV hereof.
"INCORPORATED FINANCIAL COVENANTS" means the financial covenants
contained in Section 7.12 of the Original Credit Agreement, together with any
amendments, modifications, substitutions or replacements thereof which are
part of the Incorporated Covenants in accordance with the terms of Article IV
hereof.
"INCORPORATED REPRESENTATIONS AND WARRANTIES" shall have the meaning
given to such term in Article IV hereof.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms and deferred compensation arrangements with officers, directors and
employees); (c) all obligations (contingent or otherwise) with respect to
Surety Instruments; PROVIDED, HOWEVER, that from July 8, 1997 through the
fiscal quarter ending June 30, 1998, $15,000,000 of such obligations of the
Guarantor of FHC with respect to letters of credit issued for the account of
its Subsidiaries shall be excluded from this clause (c); (d) all obligations
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evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of such
property); (f) all obligations with respect to Capital Leases; (g) all net
obligations with respect to Swap Contracts other than Swap Contracts that are
Permitted Market Investments; (h) all indebtedness referred to in clauses (a)
through (g) 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 (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; and (i) all Guaranty Obligations in respect of
indebtedness or obligations of other Persons (exclusive of the Guarantor and
its Subsidiaries) of the kinds referred to in clauses (a) through (g) above.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before
any court or other Government Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshaling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"INVESTMENT GUIDELINES" means those investment guidelines adopted by the
Finance Committee of the Guarantor's board of directors on June 10, 1997, as
more particularly set forth on EXHIBIT K.
"LEASE" shall have the meaning given to such term in the recitals hereto.
"LENDER" or "LENDERS" means each Lender now or hereafter named under the
Credit Agreement.
"LIEN" shall have the meaning given to such term in APPENDIX A to the
Participation Agreement.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or
condition (financial or otherwise) of the Guarantor and its Subsidiaries
taken as a whole; (b) a material impairment of the ability of the Guarantor
to perform its obligations under this Guaranty Agreement and to avoid any
Event of Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Guarantor of the
Guaranty Agreement.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning of
Section 4001(a)(3) of ERISA, to which the Guarantor or any ERISA Affiliate
makes, is making, or is
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obligated to make contributions or, during the preceding three calendar
years, has made, or been obligated to make, contributions.
"NATIONSBANK" means NationsBank of Texas, N.A., a national banking
association, and its successors and assigns.
"NEW FACILITY" shall have the meaning given to such term in Article IV
hereof.
"OPERATIVE AGREEMENTS" shall have the meaning given to such term in
APPENDIX A to the Participation Agreement.
"ORIGINAL CREDIT AGREEMENT" means the Credit Agreement dated as of
July 8, 1997 among the Guarantor, the various banks and financial
institutions which are parties thereto, Bank of America National Trust and
Saving Association ("BA"), as administrative agent, BA and Citicorp USA,
Inc., as syndication agents, and Bancamerica Securities, Inc. and Citicorp
Securities, Inc., as arrangers, as amended from time to time.
"OWNER TRUSTEE" shall have the meaning given to such term in the first
paragraph hereof.
"PARTICIPATION AGREEMENT" shall have the meaning given to such term in
the recitals hereto.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Guarantor sponsors, maintains, or to
which it makes, is making, or is obligated to make contributions, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA)
has made contributions at any time during the immediately preceding five (5)
plan years.
"PERMITTED MARKET INVESTMENTS" shall mean any security that satisfies the
Guarantor's Investment Guidelines.
"PERSON" means any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise (whether or not
incorporated), or any government or political subdivision or any agency,
department or instrumentality thereof.
"PROSPECTIVE PREMIUM DEFAULT" shall mean the institution, with respect to
the Guarantor or any of its Subsidiaries, by an HMO Regulator pursuant to
applicable HMO Regulations, of a restriction on the fees or premiums that any
HMO Subsidiary of the Guarantor may charge that is likely to cause the
Guarantor to be in default of one or more of the financial covenants in
Section 7.12 of the Existing Credit Agreement during one or more of the four
fiscal quarters of the Guarantor following the effective date of such
restriction; PROVIDED that, in determining such
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likelihood, due consideration shall be given of actions the Guarantor
proposes to take, or to have any HMO Subsidiary take, in response to such
restriction to the extent such actions have been communicated to the Banks
within 30 days after the date the Guarantor first learns of such restrictions
and so long as no other Default (whether or not related to such restriction)
shall then have occurred and be continuing.
"REPORTABLE EVENT" means any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder, other than any such event for which
the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or binding determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon
the Person or any of its property or to which the Person or any of its
property is subject.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"SIGNIFICANT SUBSIDIARY" means each Subsidiary of the Guarantor that:
(a) accounted for at least 5% of consolidated revenues of the
Guarantor and its Subsidiaries or 5% of consolidated earnings of the
Guarantor and its Subsidiaries before interest and taxes, in each case
ending on the last day of the last fiscal quarter immediately preceding
the date as of which any such determination is made; or
(b) has assets which represent at least 5% of the consolidated assets
of the Guarantor and its Subsidiaries as of the last day of the last fiscal
quarter immediately preceding the date as of which any such determination
is made;
all of which, with respect to CLAUSES (a) and (b), shall be as reflected on
the financial statements of the Guarantor for the period, or as of the date,
in question.
"SUBSIDIARY" of a Person means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which
more than 50% of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Guarantor.
"SURETY INSTRUMENTS" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
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"SWAP CONTRACT" means any agreement (including any master agreement and
any agreement, whether or not in writing, relating to any single transaction)
that is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or any other similar agreement
(including any option to enter into any of the foregoing).
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
1.02 COMPUTATION OF TIME PERIODS. For purposes of computation of periods
of time hereunder the word "from" means "from and including" and the words
"to" and "until" each mean "to and including."
1.03 ACCOUNTING TERMS. Accounting terms used but not otherwise defined
herein shall have the meanings provided, and be construed in accordance with,
GAAP.
ARTICLE II
BASIC GUARANTY PROVISIONS
2.01 THE GUARANTEE. The Guarantor hereby guarantees to the Owner
Trustee, (a) the payment by FHF when due (whether by acceleration or
otherwise) of all amounts owing under the Agency Agreement, the Lease and/or
under any of the other Operative Agreements to which FHF is a party,
including specifically without limitation all payments under the Agency
Agreement, of Basic Rent, of Supplemental Rent, and of other amounts now or
hereafter owing by FHF in connection with the Agency Agreement, the Lease
and/or the other Operative Agreements to which FHF is a party, as such
obligations may be modified, extended or renewed from time to time, and (b)
the performance by FHF of all obligations under the Agency Agreement, the
Lease, the Participation Agreement and/or the other Operative Agreements to
which FHF is a party (hereinafter such obligations under subsections (a) and
(b) may be referred to herein as the "FHF OBLIGATIONS").
2.02 OBLIGATIONS UNCONDITIONAL. The Guarantor agrees that the
obligations of the Guarantor under Section 2.01 hereof are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity
or enforceability of any of the Operative Agreements, or any other agreement
or instrument referred to therein, or any substitution, release or exchange
of any other guarantee of or security for any of the FHF Obligations, and, to
the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise
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constitute a legal or equitable discharge or defense of a surety, guarantor
or co-obligor, it being the intent of the Section 2.02 that the obligations
of the Guarantor hereunder shall be absolute and unconditional under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not
alter or impair the liability of the Guarantor hereunder which shall remain
absolute and unconditional as described above:
(a) at any time or from time to time, without notice to the
Guarantor, the time for any performance of or compliance with any of the
FHF Obligations shall be extended, or such performance or compliance shall
be waived;
(b) any of the acts mentioned in any of the provisions of any of
the Operative Agreements or any other agreement or instrument referred
therein shall be done or omitted;
(c) the maturity of any of the FHF Obligations shall be
accelerated, or any of the FHF Obligations shall be modified, supplemented
or amended in any respect, or any right under any of the Operative
Agreements or any other agreement or instrument referred to therein shall
be waived or any other guarantee of any of the FHF Obligations or any
security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent, the Lenders
or the Holders as security for any of the FHF Obligations (or as security
for the guarantee thereof by the Guarantor) shall fail to attach or be
perfected; or
(e) any of the FHF Obligations shall be determined to be void or
voidable or shall be subordinated to the claims of any Person.
2.03 REINSTATEMENT. The obligations of the Guarantor under this Section 2
shall be automatically reinstated if and to the extent that for any reason
any payment by or on behalf of any Person in respect of the FHF Obligations
is rescinded or must be otherwise restored by any holder of any of the FHF
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise.
2.04 WAIVERS BY THE GUARANTOR. (a) With respect to its obligations
hereunder, the Guarantor hereby expressly waives diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement
that the Owner Trustee exhaust any right, power or remedy or proceed against
any Person under any of the Operative Agreements or any other agreement or
instrument referred to therein, or against any other Person under any other
guarantee of, or security for, any of the FHF Obligations. Without limiting
the generality of the foregoing or of any other provision of this Guaranty
Agreement, and to the extent permitted by
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law, the Guarantor also hereby waives and agrees not to assert or take
advantage of (as a defense or otherwise):
(i) Any right to require the Owner Trustee to proceed against FHF
or any other Person or to proceed against or exhaust any security held by
the Owner Trustee at any time or to pursue any other remedy available to
the Owner Trustee under any other agreement before proceeding against the
Guarantor hereunder;
(ii) The defense of the statute of limitations in any action
hereunder;
(iii) Any defense that may arise by reason of the incapacity, lack
of authority, death or disability of any other Person or Persons or the
failure of the Owner Trustee to file or enforce a claim against the
estate (in administration, bankruptcy or any other proceeding) of any
other Person or Persons;
(iv) Any failure on the part of the Owner Trustee to ascertain the
extent or nature of the collateral subject to any of the Security
Documents or any insurance or other rights with respect thereto, or the
liability of any party liable with respect to the FHF Obligations;
(v) Any defense based upon an election of remedies by the Owner
Trustee;
(vi) Any right or claim to cause a marshaling of the assets of
the Guarantor;
(vii) Any principle or provision of law, statutory or otherwise,
which is or might be in conflict with the terms and provisions of this
Guaranty Agreement;
(viii) Any duty on the part of the Owner Trustee to disclose to the
Guarantor any facts that the Owner Trustee may now or hereafter know
about FHF or the Properties, regardless of whether the Owner Trustee has
reason to believe that any such facts materially increase the risk
beyond that which the Guarantor intends to assume or has reason to
believe that such facts are unknown to the Guarantor or has a reasonable
opportunity to communicate such facts to the Guarantor, it being
understood and agreed that the Guarantor is fully responsible for being
and keeping informed of the financial condition of FHF, of the condition
of the Properties, and of any and all circumstances bearing on the risk
that liability may be incurred by the Guarantor hereunder;
(ix) Any lack of notice of disposition or of manner of
disposition of any collateral subject to any of the Security Documents;
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(x) Failure to properly record any document or any other lack of
due diligence by the Owner Trustee in creating or perfecting a security
interest in or collection, protection or realization upon any Property
or in obtaining reimbursement or performance from any Person or entity
now or hereafter liable for the FHF Obligations;
(xi) The inaccuracy of any representation or other provision
contained in any Operative Agreement (other than a representation by the
Owner Trustee);
(xii) Any sale or assignment of the FHF Obligations or the
Operative Agreements, in whole or in part;
(xiii) Any sale or assignment by FHF of any Property, or any
portion thereof or interest therein, whether or not consented to by the
Owner Trustee and any release by the Owner Trustee of any Property;
(xiv) Any invalidity, irregularity or unenforceability, in whole
or in part, of any one or more of the Operative Agreements;
(xv) Any lack of commercial reasonableness in dealing with any
Property;
(xvi) Any deficiencies in any Property or any deficiency in the
ability of the Owner Trustee to collect or to obtain performance from
any Persons or entities now or hereafter liable for the payment and
performance of any of the FHF Obligations;
(xvii) An assertion or claim that the automatic stay provided by 11
U.S.C. Section 362 (arising upon the voluntary or involuntary bankruptcy
proceeding of FHF) or any other stay provided under any other debtor
relief law (whether statutory, common law, case law or otherwise) of any
jurisdiction whatsoever, now or hereafter in effect, which may be or
become applicable, shall operate or be interpreted to stay, interdict,
condition, reduce or inhibit the ability of the Owner Trustee, to
enforce any of its rights, whether now or hereafter acquired, which the
Owner Trustee may have against the Guarantor or the Property;
(xviii) Any modification of the Operative Agreements or any
obligation of FHF relating to the FHF Obligations by operation of law or
by action of any court, whether pursuant to the Bankruptcy Reform Act of
1978, as amended, or any other debtor relief law (whether statutory,
common law, case law or otherwise) of any jurisdiction whatsoever, now or
hereafter in effect, or otherwise;
(xix) Any change in the composition of FHF;
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(xx) The release of FHF or of any other Person or entity from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any agreements, documents or instruments; and
(xxi) Without limiting the generality of the foregoing, any rights
and benefits which might otherwise be available to any guarantor under
California Civil Code Sections 2809, 2810, 2815, 2819, 2822, 2839, 2845
through 2847, 2848, 2849, 2850, 2899 and 3433, and California Code of Civil
Procedure Sections 580a, 580b, 580d and 726, and any successor sections to
such sections of the Civil Code and Code of Civil Procedures.
The Guarantor expressly acknowledges and agrees to the foregoing waivers
in subclause (xxi) and the Guarantor further understands (with respect to
California law) that: (A) Section 580d of the California Code of Civil
Procedure generally prohibits a deficiency judgment against a borrower after
a non-judicial foreclosure; (B) Guarantor's subrogation rights may be
destroyed by a non-judicial foreclosure under the Mortgage Instrument
(because the Guarantor may not be able to pursue FHF for a deficiency
judgment by reason of the application of Section 580d of the California Code
of Civil Procedure); (C) under UNION BANK V. GRADSKY, 265 Cal. App. 2nd 40
(1968), a lender may be estopped from pursuing a guarantor for a deficiency
judgment after a non-judicial foreclosure (on the theory that a guarantor
should be exonerated if a lender elects a remedy that eliminates the
guarantor's subrogation rights) absent an explicit waiver, and (D) GRADSKY,
SUPRA PROVIDES THAT THE GUARANTOR MAY WAIVE THAT DEFENSE, THUS ALLOWING A
LENDER TO PURSUE THE GUARANTOR ON ITS GUARANTEE EVEN THOUGH THE GUARANTOR
WILL NOT BE ABLE TO PURSUE FHF BECAUSE THE GUARANTOR'S SUBROGATION RIGHTS
WILL HAVE BEEN DESTROYED. Without limitation on the generality of the other
waivers contained in this Guaranty Agreement, the Guarantor hereby waives all
rights and defenses arising out of an election of remedies by the creditor,
even though that election of remedies, such as a nonjudicial foreclosure with
respect to security for a guaranteed obligation, has destroyed the
Guarantor's rights of subrogation and reimbursement against the principal by
the operation of Section 580d of the Code of Civil Procedure of California or
otherwise.
(b) Without limitation to the provisions of the preceding subparagraph
(a) or any other term or provision of this Guaranty Agreement, the Guarantor
specifically acknowledges and agrees and consents to (i) the conveyance by
the Owner Trustee from time to time of all or any part of the Property in
accordance with the terms of the Operative Agreements, as determined by Owner
Trustee in its sole discretion, without notice to or consent of the
Guarantor, and (ii) the non-recourse provisions of Sections 14.10 of the
Participation Agreement.
2.05 EVENTS OF DEFAULT: REMEDIES.
(a) EVENTS OF DEFAULT. If any of the following events (each an
"EVENT OF DEFAULT" and collectively "EVENTS OF DEFAULT") shall occur and be
continuing:
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(i) REPRESENTATIONS, WARRANTIES AND COVENANTS. The Guarantor
shall (A) fail to perform or observe any term, covenant or agreement of any
of the Incorporated Financial Covenants and such default shall continue for a
period of 20 days after the earlier of (I) the date upon which a Responsible
Officer knew or reasonably should have known of such failure or (II) the date
upon which written notice thereof is given to the Guarantor by the Agent, any
Lender or any Holder, or (B) fail to perform or observe any term, covenant or
agreement referenced in Article IV (other than the Incorporated Financial
Covenants referred to in subclause (A)) or the Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in this
Guaranty Agreement or in any other Operative Agreement on its part to be
performed or observed if such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to the Guarantor by the
Agent, any Lender or any Holder; or
(ii) CROSS-DEFAULT. The Guarantor or any of its Subsidiaries
(A) fails to make any payment in respect of any Indebtedness or Contingent
Obligation under a single agreement or transaction having a principal amount
outstanding of more than $20,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
continues after any applicable grace or notice period, if any; or (B) fails
to make any payment in respect of any Indebtedness or Contingent Obligation
having an aggregate principal amount outstanding of more than $50,000,000
when due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) and such failure continues after any applicable grace
or notice period, if any; or (C) fails to perform or observe any other
condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any Indebtedness or Contingent
Obligation under a single agreement or transaction having a principal amount
outstanding of more than $20,000,000, and such failure continues after the
applicable grace or notice period (which grace period, if shorter than 30 days,
shall be deemed extended to 30 days for purposes of this clause if (I) such
Indebtedness or Contingent Obligation was assumed in connection with an
Acquisition and is in an aggregate principal amount of not in excess of
$50,000,000 and (II) not more than 90 days have elapsed since the
consummation of such Acquisition), if any, specified in the relevant document
on the date of such failure if the effect of such failure, event or condition
is to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause
such Indebtedness to be declared to be due and
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payable prior to its stated maturity, or such Contingent Obligation to become
payable or cash collateral in respect thereof to be demanded; or (D) fails to
perform or observe any other condition or covenant, or any other event shall
occur or condition exist, under one or more agreements or instruments
relating to any Indebtedness or Contingent Obligation having an aggregate
principal amount outstanding of more than $50,000,000, and such failure
continues after the applicable grace or notice period (which grace period, if
shorter than 30 days, shall be deemed extended to 30 days for purposes of
this clause if (I) such Indebtedness or Contingent Obligation was assumed in
connection with an Acquisition and is in an aggregate principal amount of not
in excess of $50,000,000 and (II) not more than 90 days have elapsed since
the consummation of such Acquisition), if any, specified in the relevant
document on the date of such failure if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such
Indebtedness of beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness to be declared to be due and
payable prior to its stated maturity, or such Contingent Obligation to become
payable or cash collateral in respect thereof to be demanded; or
(iii) INSOLVENCY: VOLUNTARY PROCEEDINGS. The Guarantor or any
Significant Subsidiary (A) ceases or fails to be solvent, or generally fails
to pay, or admits in writing its inability to pay, its debts as they become
due, subject to applicable grace periods, if any, whether at stated maturity
or otherwise; (B) except as otherwise expressly provided in the Original
Credit Agreement, voluntarily ceases to conduct its business in the ordinary
course; (C) commences any Insolvency Proceeding with respect to itself; or
(D) takes any action to effectuate or authorize any of the foregoing; or
(iv) INVOLUNTARY PROCEEDINGS. (A) Any involuntary Insolvency
Proceeding is commenced or filed against the Guarantor or any Significant
Subsidiary, or any writ, judgment, warrant of attachment, execution or
similar process, is issued or levied against a substantial part of the
Guarantor's or any Significant Subsidiary's properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated, or fully bonded within 60 days after commencement, filing or levy;
(B) the Guarantor or any Significant Subsidiary admits the material
allegations of a petition against it in any Insolvency Proceeding, or an
order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (C) the Guarantor or any Significant Subsidiary
acquiesces
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in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar
Person for itself or a substantial portion of its property or business; or
(v) ERISA. (A) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Guarantor under Title IV of ERISA, to
the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $20,000,000; (B) the aggregate amount of Unfunded Pension Liability
among all Pension Plans at any time exceeds $20,000,000; or (C) the Guarantor
or any ERISA Affiliate shall fail to pay when due, after the expiration of
any applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan
in an aggregate amount in excess of $20,000,000; or
(vi) MONETARY JUDGMENTS. One or more final judgments, final
orders, decrees or arbitration awards is entered against the Guarantor or any
Subsidiary involving in the aggregate a liability (to the extent not
covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $20,000,000 or more (or, in the case of the
litigation described on SCHEDULE 8.01(i) hereto, $25,000,000 or more) and
the same shall remain unsatisfied, unvacated and unstayed pending appeal for
a period of 60 days after the entry thereof or the Guarantor shall not settle
such judgment or award for less than $20,000,000 within 60 days after the
entry thereof; or
(vii) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree is entered against the Guarantor or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there
shall be any period of 60 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(viii) CHANGE OF CONTROL. There occurs any Change of Control; or
(ix) LOSS OF LICENSES. Any HMO Regulator or any other
Governmental Authority revokes or fails to renew any material license, permit
or franchise of the Guarantor or any Subsidiary, or the Guarantor or any
Subsidiary for any reason loses any material license, permit or franchise, or
the Guarantor or any Subsidiary suffers the imposition of any
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restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with
respect to any material license, permit or franchise; or
(x) HMO EVENT. An HMO Event shall have occurred and remain
unremedied for the lesser of 90 days after the occurrence of such
event or five days after the duration of any cure period imposed
for the cure of such HMO Event by the HMO Regulator administering
the pertinent HMO Regulations; or
(xi) PROSPECTIVE PREMIUM DEFAULT. A Prospective Premium
Default shall have occurred; or
(xii) MATERIAL ADVERSE EFFECT. An event occurs which
constitutes a Material Adverse Effect; or
(xiii) EXISTING CREDIT AGREEMENT EVENT OF DEFAULT. Any
Existing Credit Agreement Event of Default; or
(xiv) LEASE EVENT OF DEFAULT. Any Lease Event of Default.
(b) REMEDIES. Upon the occurrence of an Event of Default, then, and
in any such event, the Owner Trustee may by notice to the Guarantor
declare its obligations under the Operative Agreements to be
terminated, whereupon the same shall forthwith terminate, and the Owner
Trustee shall have the right to exercise its remedies in accordance with
Article XVII of the Lease and the Owner Trustee may, without the
necessity of further action, call upon the Guarantor for prompt payment
and/or performance.
The Guarantor agrees that, as between the Guarantor, on the one
hand, and the Owner Trustee, on the other hand, the FHF Obligations may
be declared to be forthwith due and payable as provided in the Lease
(and shall be deemed to have become automatically due and payable in the
circumstances provided in the Lease) for purposes of Section 2.01
hereof, notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such FHF Obligations from becoming
automatically due and payable) as against any other Person and that, in
the event of such declaration (or such FHF Obligations being deemed to
have become automatically due and payable), such FHF Obligations
(whether or not due and payable by any other Person) shall forthwith
become due and payable by the Guarantor for purposes of said
Section 2.01.
2.06 NO SUBROGATION; NO RECOURSE AGAINST OWNER TRUSTEE. Notwithstanding
the satisfaction by the Guarantor of any liability of the Guarantor
hereunder, the Guarantor shall not
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have any right of subrogation, contribution, reimbursement or indemnity
whatsoever or any right of recourse to or with respect to the assets or
property of FHF or to any Property. In connection with the foregoing, the
Guarantor expressly waives any and all rights of subrogation to the Owner
Trustee against FHF, and the Guarantor hereby waives any rights to enforce
any remedy which the Owner Trustee may have against FHF and any right to
participate in any Property. Further, the Guarantor shall have no right of
recourse against the Owner Trustee by reason of any action that the Owner
Trustee may take or omit to take under, and in accordance with, the
provisions of this Guaranty Agreement or under the provisions of any of the
Operative Agreements.
2.07 CONTINUING GUARANTEE. The guarantee in this Section 2 is a
continuing guarantee, and shall apply to all FHF Obligations whenever arising.
ARTICLE III
[INTENTIONALLY OMITTED]
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
Reference is made to the representations and warranties contained in
Article V of the Existing Credit Agreement (hereinafter referred to as the
"INCORPORATED REPRESENTATIONS AND WARRANTIES") and the covenants contained in
Article VI and Article VII of the Existing Credit Agreement (hereinafter
referred to as the "INCORPORATED COVENANTS"). The Guarantor agrees with the
Owner Trustee that the Incorporated Representations and Warranties and the
Incorporated Covenants (and all other relevant provisions of the Existing
Credit Agreement related thereto) are hereby incorporated by reference into
this Guaranty Agreement to the same extent and with the same effect as if set
forth fully herein, including without limitation any and all waivers,
amendments, modifications or replacements of the Existing Credit Agreement or
any term or provision of the Incorporated Representations and Warranties and
the Incorporated Covenants occurring subsequent to the date of this Guaranty
Agreement and the Guarantor further agrees that the Incorporated
Representations and Warranties shall be deemed to be restated and made as of
the date hereof and as of the date of each Requisition. In the event a waiver
is grated under the Existing Credit Agreement or an amendment or modification
is executed with respect to the Existing Credit Agreement, and such waiver,
amendment and/or modification affects the Incorporated Representations and
Warranties or the Incorporated Covenants, then such waiver, amendment or
modification shall automatically be effective with respect to the
Incorporated Representations and Warranties and the Incorporated Covenants as
incorporated by reference into this Guaranty Agreement without further
action. If any Lender is not a lender under the Existing Credit Agreement,
Guarantor shall deliver to such Lender a copy of the waiver, amendment or
modification affecting the Incorporated Representations or Warranties or the
Incorporated
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Covenants. In the event of any replacement of the Existing Credit Agreement
with a similar credit facility (the "NEW FACILITY") then, if each of
the Lenders are lenders under the New Facility, the representations,
warranties and covenants contained in the New Facility which correspond to
the representations, warranties and covenants contained in Article V, Article
VI and Article VII of the Existing Credit Agreement shall automatically become
Incorporated Representations and Warranties and the Incorporated Covenants
hereunder without further action. If one or more of the Lenders is not
a lender under the New Facility, (i) the Guarantor shall deliver, or cause to
be delivered, a copy of the executed New Facility to each of the Lenders on
or prior to the effective date thereof and the Majority Lenders shall elect
whether (i) the representations, warranties and covenants contained in the New
Facility which correspond to the representations, warranties and covenants
contained in Article IV and Article V of the Existing Credit Agreement shall
become the Incorporated Representations and Warranties and the Incorporated
Covenants hereunder or (ii) the representations, warranties and covenants
contained in Article V, Article VI and Article VII of the Existing Credit
Agreement immediately prior to such termination (as such may have been
amended, modified, supplemented, restated and/or replaced from time to time
prior to the termination of the Existing Credit Agreement) shall continue to
be the Incorporated Representations and Warranties and the Incorporated
Covenants hereunder. If the Existing Credit Agreement is terminated and not
replaced, then the representations, warranties and covenants contained in
Article V, Article VI and Article VII of the Existing Credit Agreement
immediately prior to such termination (as such may have been amended,
modified, supplemented, restated and/or replaced from time to time prior to
such termination) shall continue to be the Incorporated Representations and
Warranties and the Incorporated Covenants hereunder.
ARTICLE V
MISCELLANEOUS
5.01 NOTICES. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and delivered personally
or by a nationally recognized overnight courier service or mailed (by
ministered or certified mail, return receipt requested, postage prepaid),
addressed to the respective parties, as follows:
if to the Guarantor:
Foundation Health Systems, Inc.
3400 Data Drive
Rancho Cordova, California 95670
Attn: Chief Financial Officer
Telephone: (916) 631-5000
Telecopy: (916) 631-5335
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if to the Owner Trustee:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attn: Val T. Orton
Telephone: (801) 246-5300
Telecopy: (801) 246-5053
or such additional parties and/or other address as such party may hereafter
designate, and shall be effective upon receipt or refusal thereof.
5.02 BENEFIT OF AGREEMENT. This Guaranty Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors of
the parties hereto and the assignees of the Owner Trustee (which assignees
include the Agent and the Lenders pursuant to the terms of the Security
Agreement). The Guarantor shall not assign and transfer any of its rights or
obligations hereunder without the prior written consent of the Owner Trustee.
5.03 NO WAIVER, REMEDIES CUMULATIVE. No failure or delay on the part of
the Owner Trustee in exercising any right, power or privilege hereunder or
under any other Guarantor Document and no course of dealing between the
Guarantor and the Owner Trustee shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Guarantor Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies which the Owner Trustee would otherwise
have. No notice to or demand on the Guarantor in any case shall entitle the
Guarantor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Owner Trustee to
any other or further action in any circumstances without notice or demand.
5.04 PAYMENT OF EXPENSES, ETC. The Guarantor agrees to:
(a) pay all reasonable out-of-pocket costs and expenses of the
Owner Trustee, the Agent, the Lenders and the Holders in connection with
any amendment, waiver or consent relating to this Guaranty Agreement or
any of the Guarantor Documents which was requested by either the
Guarantor or the Lessee, and, in addition, pay all such costs and
expenses related to any such amendments, waivers or consents resulting
from or related to any work-out, renegotiation or restructure relating
to the performance by the Guarantor under this Guaranty Agreement and all
such costs and expenses of the Owner Trustee, the Agent, the Lenders and
the Holders in connection with enforcement of the Guarantor Documents
(including, without limitation, the reasonable fees and
- 20 -
disbursements of counsel for the Owner Trustee, the Agent, the Lenders
and the Holders); and
(b) pay and hold harmless the Owner Trustee, the Agent, the Lenders
and the Holders from and against any and all present and future stamp and
other similar taxes with respect to the foregoing matters and hold
harmless the Owner Trustee, the Agent, the Lenders and the Holders from
and against any and all liabilities with respect to or resulting from any
delay or omission to pay such taxes.
5.05 AMENDMENTS, WAIVERS AND CONSENTS. Neither Guarantor Document nor any
of the terms thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is
approved or consented to in writing by the Owner Trustee. Any such amendment,
change, waiver, discharge or termination shall be effective only in the
specific instance and for the specific purpose for which given.
5.06 COUNTERPARTS. This Guaranty Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Guaranty Agreement to produce
or account for more than one such counterpart.
5.07 HEADINGS. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Guaranty Agreement.
5.08 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
5.09 SEVERABILITY. If any provision of any of the Guarantor Documents is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid
or unenforceable provisions.
5.10 ENTIRETY. This Guaranty Agreement together with the other Guarantor
Documents represent the entire agreement of the parties hereto and thereto,
and supersedes all prior agreements and understandings, oral or written, if
any, including any commitment letters or correspondence relating to the
Guarantor Documents or the transactions contemplated herein and therein.
- 21 -
IN WITNESS WHEREOF, the Guarantor has caused a counterpart of this
Guaranty Agreement to be duly executed under seal and delivered as of the
date first above written.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ B. Curtis Westen
----------------------------------
Name: B. Curtis Westen
--------------------------------
Title: Senior Vice President, General
-------------------------------
Counsel and Secretary
Acknowledged and Accepted:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually but solely as Owner Trustee
under the FH Trust 1995-1
By: /s/ Val T. Orton
----------------------------------
Name: Val T. Orton
--------------------------------
Title: Vice President
-------------------------------