[LOGO]
BankAmerica
March 27, 1998 Bank of America NT&SA
555 South Flower Street, 11th Floor
Via Facsimile Los Angeles, CA 90071
- -------------
Gina Meador
Mr. Michael P. White Vice President-Agency Specialist
Vice President & Assistant Treasurer USCG-Agency Management
Foundation Health Systems, Inc. Los Angeles #20529
3400 Data Drive (213) 228-5245
Rancho Cordova, CA 95670 Fax (213) 228-2299
RE: Foundation Health Systems, Inc.
First Amendment and Waiver to the $1.5 Billion
Revolving Credit Agreement Dated as of July 8, 1997
Dear Mr. White:
Please refer to the attached copy of the letter dated March 21, 1998 (the
"Letter Agreement") regarding the Proposed First Amendment and Waiver (the
"First Amendment") to the $1.5 Billion Revolving Credit Agreement Dated as of
July 8, 1997, from Bank of America NT&SA and Citicorp USA, Inc. to your and
the Banks party to the Credit Agreement ("Credit Agreement").
The First Amendment requires approval by Majority Banks. This letter will
confirm that Bank of America NT&SA, as Agent, has received copies of the
Letter Agreement executed by Majority Banks. As you know, the Letter
Agreement evidences the commitments of the signatories thereto to the terms
set forth therein, subject only to completion of documentation.
As soon as we receive your comments on the draft of the First Amendment that
was previously forwarded to you, we will finalize that document and
distribute it to the Banks.
Sincerely,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS AGENT
/s/ Gina Meador
Gina Meador
Vice President
Agency Specialist
attachment
cc: Greg Seibly (with attachment)
Brian Newhouse (w/o attachment)
[FORM OF CREDIT FACILITY LETTER AGREEMENT]
March 21, 1998
VIA TELECOPY
- ------------
Mr. Michael P. White
Vice President & Assistant Treasurer
Foundation Health Systems, Inc.
3400 Data Drive
Rancho Cordova, California 95670
The Financial Institutions Party to the
Hereinafter-Described Credit Agreement
Re: Credit Agreement dated as of July 8, 1997 among Foundation Health
Systems, Inc., Bank of America National Trust and Savings
Association and Citicorp USA, as Agents, and the Other Financial
Institutions Party Thereto (the "Credit Agreement").
Ladies and Gentlemen:
Based upon our discussion over the past several weeks, Bank of America
National Trust and Savings Association ("Bank of America") and Citicorp USA
("Citicorp") are pleased to present you with the following proposed changes
to the Credit Agreement. The proposed changes will be evidenced by a First
Amendment and Waiver to the Credit Agreement ("First Amendment"). Capitalized
terms used in this letter shall have the meanings assigned to such terms in
the Credit Agreement.
The key provisions of the First Amendment are as follows:
The definition of Specified Charges shall be amended to include only those
items set forth on Part I of Exhibit A hereto.
Subject to the following sentence, the definitions of Adjusted EBITDA, Net
Cash Flow and Fixed Charges shall be revised to exclude all effects of the
Company's workers compensation business (the amount of such exclusions from
Net Cash Flow and Fixed Charges for the quarters ending on or before December
31, 1997 are set forth on Part 2 of Exhibit A hereto). If the aggregate
losses, reserves and charges (without duplication) for the Company's workers
compensation business after December 31, 1997 exceed the $25,000,000 reserve
permitted under
Mr. Michael P. White
March 21, 1998
Page 2
the definition of Specified Charges, the amount of such excess shall be
included in the calculation of Adjusted EBITDA and Net Cash Flow.
For the purpose of calculating covenant compliance with Sections 7.12(a) and
7.12(b), from and after October 1, 1997, the definitions of Adjusted EBITDA,
Net Cash Flow and Fixed Charges (which shall incorporate the revised
definition of Specified Charges) shall be used.
Section 7.02 and 7.03 shall be revised to permit the sale of the Company's
discontinued workers compensation business. All net proceeds (less costs of
sale) from the sale of the Company's discontinued workers compensation
business shall be used to reduce outstanding debt under the Credit Agreement.
Section 7.05(c) shall be amended by deleting the phrase "the Closing Date"
and replacing it with "December 31, 1997."
Section 7.05(e) shall be amended by deleting the existing exclusions set
forth therein and by replacing them with an exclusion for additional
Indebtedness incurred by the Company after December 31, 1997 in an aggregate
amount not to exceed $1,000,000,000 so long as such Indebtedness (other than
Specified Indebtedness, as hereinafter defined) is not senior in right of
payment to the Obligations, contains no covenants, events of default or
other material provisions that are more restrictive than those contained in
the Credit Agreement, and has principal payment dates commencing after July
8, 2002. Except in the case of Specified Indebtedness, the first $250,000,000
of proceeds from the issuance of such additional Indebtedness and 50% of all
such proceeds in excess of $250,000,000 shall be used to repay outstandings
under the Credit Agreement and to permanently reduce the Commitments under
the Credit Agreement. For purposes hereof, the term "Specified Indebtedness"
shall mean up to $200,000,000 of Indebtedness of the Company (exclusive of
any Indebtedness for borrowed money or Commercial Paper Debt) incurred after
December 31, 1997.
Section 7.11 shall be amended to prohibit the prepayment or redemption prior
to stated maturity of any of the additional Indebtedness permitted by the
First Amendment (other than specified Indebtedness).
Section 7.12(a) shall be revised as follows:
Period Ended Maximum Total Leverage Ratio
------------ ----------------------------
12/31/1997 3.50 to 1.00
03/31/1998 4.00 to 1.00
06/30/1998 3.75 to 1.00
09/30/1998 3.50 to 1.00
12/31/1998 3.25 to 1.00
Mr. Michael P. White
March 21, 1998
Page 3
Thereafter 3.00 to 1.00
Section 7.12(b) shall be revised as follows:
Period Ended Maximum Fixed Charge Coverage Ratio
------------ -----------------------------------
12/31/1997 2.50 to 1.00
03/31/1998 2.25 to 1.00
06/30/1998 1.50 to 1.00
09/30/1998 1.50 to 1.00
12/31/1998 1.75 to 1.00
Thereafter 2.00 to 1.00
Section 7.12(c) shall be revised to insert the phrase "(without giving effect
to any losses)" after the date "June 30, 1997" in the third line thereof.
Subject to the following sentence, a fee of 7.5 bps will be payable to all
Banks that have executed the First Amendment by 2:00 p.m., Pacific time, on
April 6, 1998, and an additional 7.5 bps will be payable to all Banks that
have delivered written commitments to execute the First Amendment by 4:00
p.m., Pacific time, on March 27, 1998. Both such fees will be paid on April
6, 1998 if and only if the First Amendment shall have been executed by the
Majority Banks on or before such date.
In the First Amendment, the pricing grid will be revised as follows (note
that the Total Leverage Ratio portion of the existing grid will be
eliminated):
Senior
Applicable Unsecured Offshore
Level Debt Rating* Facility Fee Rate Margin Drawn Margin
- ----- ------------ ------------ ----------- ------------
1 A-/A3 10.0 bps 20.0 bps 30.0 bps
2 BBB+/Baa1 12.5 bps 22.5 bps 35.0 bps
3 BBB/Baa2 15.0 bps 25.0 bps 40.0 bps
4 BBB-/Baa3 17.5 bps 32.5 bps 50.0 bps
5 BB+/Ba1 20.0 bps 55.0 bps 75.0 bps
6 BB/Ba2 22.5 bps 77.5 bps 100.0 bps
7 BB-/Ba3 25.0 bps 125.0 bps 150.0 bps
8 Less than BB-/Ba3 30.0 bps 170.0 bps 200.0 bps
Mr. Michael P. White
March 21, 1998
Page 4
* The Company's Senior Unsecured Debt Rating shall be determined as
provided in the Credit Agreement. To the extent that the Company
does not maintain a Senior Unsecured Debt Rating, pricing shall be
set at Level 8.
If you agree with the foregoing, please sign and return to us the
enclosed copy of this letter no later than 4:00 p.m., Pacific time, on March
27, 1998.
By your execution hereof, this letter will constitute your binding
commitment with respect to the terms hereof. Your commitment will be subject
only to the completion documentation for the First Amendment.
Best regards,
[NAME OF BANK]
[SIGNATURE]
Agreed to and Accepted
this ___ day of March, 1998
FOUNDATION HEALTH SYSTEMS, INC.
By______________________________
Title:
Agreed to and Accepted
this ___ day of __________, 1998
________________________________
Name of Bank
By______________________________
Title:
EXHIBIT A
(in 000's)
Part 1
- --------------------------------------------------------------------------------
SPECIFIED CHARGES
Actual Actual Actual Actual 1/1/98
Quarter Quarter Quarter Quarter and
3/31/97 6/30/97 9/30/97 12/31/97 thereafter
------- ------- ------- -------- ----------
Remove Workers Comp.
Insurance EBITDA $(16,581) $(10,926) $(14,054) $ 88,577 $ -
Reserve for Loss on Sale
of W/C $ - $ - $ - $120,000 $ -
Additional Losses, Reserves
and Charges in Connection
with W/C $ - $ - $ - $ - $25,000
Acquisition and
Restructuring Charges and
Recovery-Net $ - $ - $ - $ (7,684) $ -
Acquisition and
Restructuring Charge $ - $348,400 $ - $ - $ -
Medical Group Sale
Restructuring Charge
Recovery $ - $ - $ - $(13,000) $ -
-------- -------- -------- -------- -------
Specified Charges $(16,581) $337,474 $(14,054) $187,893 $25,000
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
- --------------------------------------------------------------------------------
Part 2
- --------------------------------------------------------------------------------
ADJUSTMENT TO NET CASH FLOW AND FIXED CHARGES
RELATED TO WORKERS' COMPENSATION
Actual Actual Actual Actual
Quarter Quarter Quarter Quarter
3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- --------
Capital Expenditures $ 2,300 $ 3,500 $ 2,500 $ 1,845
Operating Lease Payments $(2,177) $(2,122) $(2,357) $(1,401)
------- ------- ------- -------
Adjustment to Net Cash
Flow (by Quarter) $ 123 $ 1,378 $ 143 $ 444
------- ------- ------- -------
------- ------- ------- -------
- --------------------------------------------------------------------------------