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EXHIBIT 10.15
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TRIPLE-S, INC.
US$50,000,000
6.30% Senior Unsecured Notes due September 2019
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NOTE PURCHASE AGREEMENT
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Dated September 30, 2004
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TRIPLE-S, INC.
6.30% Senior Unsecured Notes due September 2019
September 30, 2004
THE PURCHASERS NAMED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Triple-S
Management Corporation ("TSMC") and its wholly-owned subsidiary
Triple-S, Inc. (the "COMPANY"), each a corporation organized under
the laws of
the Commonwealth of Puerto Rico (the "COMMONWEALTH"), agree with
you as follows:
1.
AUTHORIZATION OF NOTES.
The
Company has authorized the issuance and sale of an aggregate
principal
amount of Fifty Million United States Dollars (US$50,000,000) of
its 6.30%
Senior Unsecured Notes due September 2019 (the "NOTES," such term
to include
each Note delivered pursuant to this Agreement and each Note
delivered in
substitution or exchange for any such Note pursuant to Section 14
of this
Agreement). The Notes shall be substantially in the form of Exhibit
1-A hereto
and shall have the terms as herein and therein provided. The Notes
will be
unconditionally guaranteed as to payment of principal, premium, if
any, and
interest by TSMC as guarantor (in such capacity, the "GUARANTOR")
pursuant to a
guarantee substantially in the form of Exhibit 1-B hereto (the
"GUARANTEE").
Certain capitalized terms used in this Agreement are defined in
Schedule B
hereto; references to a "SCHEDULE" or an "EXHIBIT" are, unless
otherwise
specified, to a Schedule or an Exhibit attached to this Agreement
and all
Schedules and Exhibits are deemed to be a part of this Agreement.
References
herein to this "AGREEMENT" mean this Agreement as from time to time
amended or
supplemented or as the terms hereof may be waived, in accordance
with Section 17
hereof.
2. SALE
AND PURCHASE OF NOTES.
Subject to
the terms and conditions of this Agreement, the Company agrees
to issue and sell to you and you agree to purchase from the
Company, at the
Closing provided for in Section 3, Notes in the aggregate principal
amount
specified opposite your name in Schedule A at the purchase price of
one hundred
percent (100%) of the principal amount thereof.
3.
CLOSING.
The
closing (the "CLOSING") of the sale and purchase of the Notes to
be
purchased by you shall occur at the offices of Fiddler Gonzalez
& Rodriguez,
P.S.C., 254 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918, at
10:00 a.m.,
local time, on September 30, 2004 or on such other Business Day
thereafter as
may be agreed upon by the Company and you. At the Closing, the
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Company will deliver to you the Notes to be purchased by you in
denominations of
at least Five Hundred Thousand United States Dollars (US$500,000)
as you may
request dated the date of the Closing (the "CLOSING DATE") and
registered in
your name (or in the name of your nominee), against delivery by you
to the
Company of immediately available funds in the amount of the
purchase price
therefor by wire transfer to the Account 35858201 of the Company
maintained at
Citibank New York, Account Name Triple-S, Inc, ABA 021000089.
4.
CONDITIONS TO CLOSING.
Your
obligation to purchase and pay for the Notes to be delivered to
you
at the Closing is subject to the fulfillment, prior to or at the
Closing, of the
following conditions:
4.1.
REPRESENTATIONS AND
WARRANTIES.
The representations and warranties of the Company and the
Guarantor
contained in Section 5 of this Agreement shall have been true and
correct as of
the date of this Agreement and be true and correct at the time of
the Closing as
if made on and as of such time.
4.2.
PERFORMANCE; NO
DEFAULT.
Each
of the Company and the Guarantor shall have performed and
complied in all material respects with all agreements and
conditions contained
in this Agreement required to be performed or complied with by it
prior to or at
the Closing and, after giving effect to the issuance and sale of
the Notes (and
the application of the proceeds thereof as contemplated by Section
5.12), no
Default or Event of Default shall have occurred and be continuing.
Neither the
Company nor the Guarantor shall have entered into any transaction
since June 30,
2004, that would have been prohibited by Sections 10 or 11 hereof
had such
Sections applied since such date.
4.3.
COMPLIANCE
CERTIFICATES.
(a) Officer's
Certificate. Each of the Company and the Guarantor
shall have delivered to you an Officer's Certificate, dated as
of the Closing Date, certifying on behalf of the Company or
the Guarantor, as applicable, that the conditions specified in
Sections
4.1, 4.2, 4.7 and 4.8 have been fulfilled.
(b) Secretary's
Certificates. Each of the Company and the
Guarantor shall have delivered to you a certificate in form
and substance reasonably satisfactory to you executed on
behalf of the Company or the Guarantor, as applicable, by its
Secretary or Assistant Secretary certifying as to the
resolutions attached thereto and other corporate proceedings
relating to the authorization, execution, delivery and
performance of this Agreement, the Notes and the Guarantee, as
applicable. Such certificates shall state that the resolutions
thereby certified have not been amended, modified, revoked or
rescinded. The Secretary's certificate also shall confirm the
incumbency and signature of the officers of the Company or the
Guarantor, as applicable, executing this Agreement, the Notes
and the
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Guarantee, as applicable, and any certificate or document to
be delivered to you pursuant hereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary.
4.4.
OPINIONS OF
COUNSEL.
You shall have received opinions from (a) Fiddler Gonzalez
&
Rodriguez, P.S.C. and (b) Hector R. Ramos, Senior Vice President,
Corporate
Affairs, of TSMC, as counsel for the Company and TSMC, each dated
as of the
Closing Date, and substantially in the respective forms set forth
as Exhibits
2-A and 2-B. You also shall have received an opinion from
Pietrantoni Mendez &
Alvarez LLP your special counsel, dated the Closing Date in form
and substance
satisfactory to you. This Section 4.4 shall constitute direction by
the Company
and TSMC to such counsel named in the foregoing clauses (a) and (b)
to deliver
the opinions specified to you at the Closing.
4.5.
PURCHASE PERMITTED BY
APPLICABLE LAW, ETC.
On the Closing Date, the consummation of the transactions
contemplated hereby shall (i) be permitted by the laws and
regulations of each
jurisdiction to which you are subject as an investment company
organized and
operating in Puerto Rico, (ii) not violate any applicable law or
regulation,
including without limitation, laws or regulations relating to the
healthcare and
insurance industries, (iii) not subject you to any tax, penalty or
liability
under or pursuant to any applicable law or regulation, which law or
regulation
was not in effect on the date hereof, and (iv) all necessary
consents, approvals
and authorizations of any Governmental Authority or any Person to
or of such
consummation shall have been obtained and shall be in full force
and effect.
4.6.
PRIVATE PLACEMENT
NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP
Service
Bureau (in cooperation with the Securities Valuation Office of the
National
Association of Insurance Commissioners) shall have been obtained
for the Notes.
4.7.
CHANGES IN CORPORATE
STRUCTURE.
Neither the Company nor the Guarantor (or any other of the
Subsidiaries of the Guarantor) shall have changed its jurisdiction
of
incorporation or been a party to any merger or consolidation.
Neither the
Company nor the Guarantor (or any such Subsidiary) shall have
succeeded to all
or any substantial part of the liabilities of any other entity,
following the
date of the most recent financial statements referred to in
Schedule 5.3. There
shall not have occurred any change or event, and you shall not have
become aware
of any previously undisclosed information regarding the Guarantor
or its
Subsidiaries, which in each case in your reasonable judgment, could
reasonably
be expected to have a Material Adverse Effect.
4.8.
NO MATERIAL
LITIGATION.
Except as disclosed to you pursuant to Section 5.6 hereof, no
actions, suits or proceedings, investigations or orders shall be
pending,
entered or, to the knowledge of the Company or the Guarantor,
threatened against
or affecting the Company or the Guarantor,
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which, in your reasonable judgment, if determined adversely to the
Guarantor or
the Company, could reasonably be expected to have a Material
Adverse Effect.
4.9.
PROCEEDINGS AND
DOCUMENTS; GOOD STANDING CERTIFICATES.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and
instruments
incident to such transactions, including, but not limited to, the
certificate of
incorporation and by-laws of the Company and the Guarantor, shall
be reasonably
satisfactory to you and your special counsel, and you and your
special counsel
shall have received all such counterpart originals or certified or
other copies
of such documents as you or they may reasonably request. You shall
have received
also, copies of certificates dated as of a recent date from the
Secretary of
State of Puerto Rico and the Commissioner of Insurance, as
applicable,
evidencing the good standing of the Guarantor, the Company and its
Significant
Subsidiaries in Puerto Rico.
5.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
GUARANTOR.
The
Company and the Guarantor jointly and severally represent and
warrant
to you as follows:
5.1.
ORGANIZATION; POWER
AND AUTHORITY.
Each of the Company, the Guarantor, and its Subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws
of the Commonwealth of Puerto Rico, and is duly qualified as a
foreign
corporation and is in good standing in each jurisdiction in which
such
qualification is required by law, other than those jurisdictions as
to which the
failure to be so qualified or in good standing would not,
individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect. The Company
has all requisite corporate power and authority to execute, deliver
and perform
its obligations under this Agreement and the Notes. The Guarantor
has all
requisite corporate power and authority to execute, deliver and
perform its
obligations under this Agreement and the Guarantee. Each of the
Company and the
Guarantor, and each of the other Subsidiaries of the Guarantor, has
the
corporate power and authority to own and operate its property, to
lease the
property it operates as lessee and to conduct the business in which
it is
currently engaged.
5.2.
AUTHORIZATION,
ETC.
(a) This Agreement and the Notes will be duly authorized on the
Closing Date by all necessary corporate action on the part of the
Company, and
this Agreement constitutes, and upon execution and delivery thereof
by the
Company, each Note, when issued, will constitute, a legal, valid
and binding
obligation of the Company (assuming with respect to this Agreement
and any Notes
issued to you, the due authorization, execution and delivery of
this Agreement
to you), enforceable against the Company in accordance with its
terms, except as
such enforceability may be limited by (i) applicable bankruptcy,
insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of
creditors' rights generally from time to time in effect and (ii)
the application
of equitable principles and the availability of equitable
remedies
(collectively, the "ENFORCEABILITY EXCEPTIONS").
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(b) This Agreement and the Guarantee will be duly authorized on
the
Closing Date by all necessary corporate action on the part of the
Guarantor, and
this Agreement constitutes, and upon execution and delivery thereof
by the
Guarantor, the Guarantee will constitute, a legal, valid and
binding obligation
of the Guarantor (assuming with respect to this Agreement and any
Notes issued
to you, the due authorization, execution and delivery of this
Agreement to
you),enforceable against the Guarantor in accordance with its
terms, except to
the extent that enforceability may be limited by the Enforceability
Exceptions.
5.3.
FINANCIAL
STATEMENTS.
(a) The Company
has delivered to you copies of the financial
statements of the Company listed on Schedule 5.3(a) and of the
Guarantor listed on Schedule 5.3(b) (such financial
statements, including in each case the related schedules and
notes, collectively the "FINANCIAL STATEMENTS").
(b)
The Financial
Statements of the Company listed on Schedule
5.3(a) fairly present in all material respects the financial
position of the Company as of the respective dates specified
in such Schedule and the consolidated results of its
operations and cash flows for the respective periods so
specified in accordance with U.S. GAAP consistently applied
throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
(c) The
Financial Statements of the Guarantor listed on Schedule
5.3(b) fairly present in all material respects the
consolidated financial position of the Guarantor and its
Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified in
accordance with U.S. GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to
normal year-end adjustments).
5.4.
COMPLIANCE WITH LAWS,
OTHER INSTRUMENTS, ETC.
(a) The
execution, delivery and performance by the Company of this
Agreement and the Notes and by the Guarantor of this Agreement
and the Guarantee, do not and will not (i) in all material
respects, contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in
respect of any property of the Company or the Guarantor, as
applicable, under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter
or by-laws, or any other Material agreement or instrument to
which the Company or the Guarantor, as applicable, is bound or
by which the Company or the Guarantor, as applicable, or their
respective properties may be bound or affected, (ii)
contravene, result in any breach of, or constitute a default
under an agreement with any Governmental Authority, (iii)
conflict with or result in a breach or violation of any of the
terms, conditions or
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provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the
Guarantor or the Company, or (iv) violate any provision of any
statute or other rule or regulation of any Governmental
Authority applicable to the Guarantor or the Company.
5.5.
GOVERNMENTAL
AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing
or
declaration with, any Governmental Authority is required for the
due execution,
delivery or performance by the Company of this Agreement and the
Notes or by the
Guarantor of this Agreement and the Guarantee.
5.6.
LITIGATION; OBSERVANCE
OF STATUTES AND ORDERS.
(a) Except as
disclosed in Schedule 5.6, there are no actions,
suits or proceedings pending or, to the knowledge of the
Company or the Guarantor, threatened against or affecting the
Company or the Guarantor or any property of the Company or the
Guarantor
in any court or before any arbitrator or
administrative agency of any kind or before or by any
Governmental Authority that, if determined adversely to the
Guarantor or the Company, individually or in the aggregate,
would reasonably be expected to have a Material Adverse
Effect, and no order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the
Company or the Guarantor, has been issued against the Company
or the Guarantor which has a Material Adverse Effect.
(b) Neither the
Company nor the Guarantor is in default under any
order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or in violation of any applicable law,
ordinance, rule, order or regulation of any Governmental
Authority, which default or violation, individually or in the
aggregate, has had, or would reasonably be expected to have a
Material Adverse Effect.
5.7.
TAXES.
Each of the Company and the Guarantor has filed or caused to be
filed all tax returns that are required to have been filed, and has
paid all
taxes shown to be due and payable on such returns and all other
taxes payable by
it, to the extent such taxes have become due and payable, except
for any taxes
(i) the amount of which would not individually or in the aggregate
reasonably be
expected to have a Material Adverse Effect or (ii) the amount,
applicability or
validity of which is currently being contested in good faith by
appropriate
proceedings and with respect to which the Company or the Guarantor,
as
applicable, has established adequate reserves in accordance with
U.S. GAAP. The
Company and the Guarantor know of no material assessments for which
adequate
reserves have not been established. Except as provided in Schedule
5.7, neither
the Company nor the Guarantor have knowledge of any tax deficiency
which, if
determined adversely to the Company or the Guarantor, might have a
Material
Adverse Effect.
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5.8.
TITLE TO PROPERTY;
LEASES.
Except as disclosed in Schedule 5.8, each of the Company and
the
Guarantor has good and marketable title to its Material properties
owned by them
and reflected in the Financial Statements, as to each such property
free and
clear of Liens, except for those defects in title and Liens that,
individually
or in the aggregate, do not materially affect the value of such
property and do
not materially interfere with the use made and proposed to be made
of such
property by the Guarantor and the Company. All leases of the
Company and the
Guarantor for real property or buildings Material in the operation
of their
corresponding business activities are valid and subsisting and are
in full force
and effect in all material respects.
5.9.
LICENSES, PERMITS,
ETC.
Except as disclosed in Schedule 5.9, the Company and the
Guarantor
own or posses adequate rights to use all material trademarks,
service marks,
trade names, trademark registrations, service mark registrations,
copyrights,
material patents, patent applications and licenses which are
necessary for the
conduct of their respective businesses and have no reason to
believe that the
conduct or their respective businesses will conflict with, and have
not received
any notice of any claim of conflict with, any such rights of
others, except for
such claims that, individually or in the aggregate, would not have
a Material
Adverse Effect.
5.10.
COMPLIANCE WITH ERISA.
(a) Each of the
Company and the Guarantor and their respective
ERISA Affiliates has operated and administered each Plan in
all material respects in compliance with its terms and with
all applicable laws except for such instances of noncompliance
as have not resulted in and would not reasonably be expected
to result in a Material Adverse Effect. None of the Company,
the Guarantor or any of their respective ERISA Affiliates has
incurred any liability pursuant to Title I or IV of ERISA or
applicable penalty or excise tax provisions of the Code and
the PRIRC relating to employee benefit plans (as defined in
section 3 of ERISA), and no event, transaction or condition
has occurred or exists that would reasonably be expected to
result in the incurrence of any such liability by the Company,
the Guarantor or any of their respective ERISA Affiliates, or
in the imposition of any Lien on any of the rights, properties
or assets of the Company, the Guarantor or any of their
respective ERISA Affiliates, in either case pursuant to Title
I or IV of ERISA or to such penalty or excise tax provisions
or to section 401(a)(29) or 412 of the Code or to any
comparable provisions of the PRIRC, other than in any of such
cases, such liabilities or Liens as would not reasonably be
expected to result, individually or in the aggregate, in a
Material Adverse Effect.
(b) None of the
Company, the Guarantor or any of their respective
ERISA Affiliates has incurred withdrawal liabilities (and are
not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in
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respect of Multiemployer Plans that individually or in the
aggregate would reasonably be expected to result in a Material
Adverse Effect.
(c) The
execution and delivery of this Agreement; the issuance and
sale of the Notes hereunder and the execution and delivery of
the Guarantee will not involve any transaction that is subject
to the prohibitions of section 406 of ERISA or in connection
with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code or comparable provisions of the
PRIRC. The representation by the Company and the Guarantor in
the first sentence of this Section 5.10(c) is made in reliance
upon and subject to (i) the accuracy of your representation in
Section 6.2 as to the sources of the funds to be used to pay
the purchase price of the Notes to be purchased by you and
(ii) the assumption, made solely for the purpose of making
such representation, that Department of Labor Interpretive
Bulletin 75-2 with respect to prohibited transactions remains
valid in the circumstances of the transactions contemplated
herein.
5.11.
PRIVATE OFFERING BY THE COMPANY.
None of the Company, the Guarantor or the Agent (the only
Person
authorized or employed by the Company as agent, broker, dealer or
finder in
connection with the offering or sale of the Notes) has offered any
of the Notes
or any similar securities for sale to, or solicited any offer to
buy any of the
same from, or otherwise approached or negotiated in respect thereof
with, any
Person other than you. As used in the preceding sentence, "SIMILAR
SECURITY"
means a security which would be integrated with the offering of the
Notes under
applicable securities laws. None of the Company, the Guarantor or
the Agent has
taken, or will take, any action that would subject the issuance or
sale of the
Notes to the registration requirements of Section 5 of the
Securities Act.
5.12. USE
OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds from the sale of the Notes
to
repay certain outstanding short term indebtedness of the Company
incurred in the
Company's trade or business in Puerto Rico and for working capital
and general
corporate purposes of the Company's trade or business in Puerto
Rico. No part of
the proceeds from the sale of the Notes hereunder will be used,
directly or
indirectly, for the purpose of buying or carrying any margin stock
within the
meaning of Regulation U of the Board of Governors of the Federal
Reserve System
(12 CFR 207), or for the purpose of buying or carrying or trading
in any
securities under such circumstances as to involve the Company in a
violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a
violation of Regulation T of said Board (12 CFR 220). As used in
this Section,
the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the
meanings assigned to them in said Regulation U.
5.13.
EXISTING INDEBTEDNESS FOR BORROWED MONEY.
Except as described therein, Schedule 5.13 sets forth a complete
and
correct list of all outstanding Indebtedness for Borrowed Money in
the principal
amount of at least Five
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Million United States Dollars (US$5,000,000) of the Guarantor and
the Company as
of June 30, 2004, since which date there has been no material
change in the
amounts, interest rates, sinking funds, installment payments or
maturities of
such Indebtedness for Borrowed Money. Neither the Company nor the
Guarantor is
in default (and no waiver of any such default is currently in
effect) in the
payment of any principal or interest on, and no event of default
exists with
respect to, any such Indebtedness for Borrowed Money or any
indebtedness (other
than Indebtedness for Borrowed Money) by the Guarantor, the Company
or any
Significant Subsidiary in excess of One Million United States
Dollars
(US$1,000,000).
5.14.
FOREIGN ASSETS CONTROL REGULATIONS, ETC.
None of the sale of the Notes by the Company hereunder, its use
of
the proceeds thereof or the execution and delivery of the Guarantee
by the
Guarantor will violate the Trading with the Enemy Act, as amended,
or any of the
foreign assets control regulations of the United States Treasury
Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation
or executive
order relating thereto.
5.15.
STATUS UNDER CERTAIN STATUTES.
Neither the Company nor the Guarantor is subject to regulation
under
the Investment Company Act of 1940, as amended, the Public Utility
Holding
Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the
Federal Power Act, as amended.
5.16.
DISCLOSURE.
Neither this Agreement nor any agreement, document, certificate
or
statement furnished to you by the Company or the Guarantor in
connection with
the offer and sale of the Notes contains any untrue statement of
material fact
or, taken together with all other information furnished to you by
the Company or
the Guarantor, omits to state a material fact necessary in order to
make the
statements contained herein or therein not misleading. All pro
forma financial
statements made available to you have been prepared in good faith
based upon
reasonable assumptions.
5.17.
CHANGES IN CONDITION.
Since June 30, 2004, there has been no change in the capital
stock
or long-term debt of the Guarantor, nor any labor dispute or court
or
governmental action, order or decree, or, to the knowledge of the
Company or of
the Guarantor, no development or event, which has had, or could
reasonably be
expected to have, a Material Adverse Effect.
5.18.
SUBSIDIARIES.
The Company has no Subsidiaries as of the date hereof. The
Guarantor
has no Subsidiaries other than those set forth in Schedule 5.18.
All of the
issued shares of capital stock of the Guarantor have been duly and
validly
authorized and issued, and are fully paid and non-assessable. All
of the issued
shares of capital stock of the Company and each other Subsidiary of
the
Guarantor have been duly and validly authorized and issued, and are
fully paid
and non-
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assessable, and (except for directors' qualifying shares or as set
forth in
Schedule 5.18) are owned directly or indirectly by the Guarantor.
The capital
stock and securities owned by the Guarantor in each of its
Subsidiaries are
owned free and clear of any Lien or restriction on the transfer
thereon other
than restrictions imposed by such Subsidiaries' respective
certificates of
incorporations or bylaws to the transfer of their respective
capital stock or
securities, applicable securities or insurance laws and
restrictions and Liens
outstanding on the date hereof and listed in said Schedule
5.18.
5.19.
BUSINESS ACTIVITY.
The Company is principally engaged in the business of providing
health insurance, including, but not limited to, the sale of long
term care
insurance and other healthcare services.
5.20.
SOURCE OF INCOME.
All interest to be paid under the Notes will, for purposes of
the
Code, constitute income from sources within the Commonwealth. In
order to comply
with said Commonwealth source of income requirement under the
present provisions
of the Code, (i) interest on the Notes shall not be treated as paid
by a trade
or business conducted by the Company outside Puerto Rico, such
determination to
be made under Section 884(f)(1)(A) of the Code and the regulations
thereunder;
and (ii) for the three year period ending with the close of the
Company's
taxable year immediately preceding the payment of interest on the
Notes (or such
portion of such period as may be applicable), the Company either:
(a) derived
more than 20% of its gross income from sources within the
Commonwealth; or (b)
derived more than 20% of its gross income from the conduct of a
trade or
business in the Commonwealth, both tests determined under the
provisions of
Section 861(c)(1)(B) of the Code.
5.21.
EMPLOYEE MATTERS.
No labor disturbance by the employees of the Company or the
Guarantor exist or, to the knowledge of the Company or the
Guarantor, is
imminent, which may be expected to have a Material Adverse
Effect.
5.22.
BOOKS AND RECORDS.
The Company and the Guarantor (i) make and keep accurate books
and
records and (ii) maintain internal accounting controls which
provide reasonable
assurance that (A) transactions are executed in accordance with
management's
authorization, (B) transactions are recorded as necessary to permit
preparation
of their respective financial statements in conformity with U.S.
GAAP and to
maintain accountability for its assets, (C) access to its assets is
permitted
only in accordance with management's authorization and (D) the
reported
accountability for their respective assets is compared with
existing assets at
reasonable intervals.
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6.
REPRESENTATIONS OF THE PURCHASER.
You hereby
represent and warrant to the Company and the Guarantor as
follows:
6.1.
PURCHASE FOR
INVESTMENT; ACCREDITED INVESTOR.
(a) You are
purchasing the Notes for your own account and not with
a view to, or for sale in connection with, the distribution
thereof within the meaning of the Securities Act, provided
that you have the right to dispose of the Notes, or
any part thereof, if you deem it advisable to do so, either
pursuant to a registration of the Notes under the Securities
Act or pursuant to an applicable exemption from the
registration requirements of the Securities Act. You
understand that neither the Notes nor the Guarantee has been
registered under the Securities Act or the Puerto Rico Uniform
Securities Act ("PRUSA") and you understand and agree that the
Notes may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from
registration is available thereunder.
(b) You are an
"ACCREDITED INVESTOR" as defined in Rule 501(a)
under the Securities Act.
(c) It is
understood that, in making the representations set out
in Sections 5.4, 5.5 and 5.10 hereof, each of the Company and
the Guarantor is relying, to the extent applicable, upon your
representations set forth in this Section 6.1.
(d) (a) You have
consulted with your own legal, regulatory, tax,
business, investment, financial and accounting advisers in
connection herewith to the extent you have deemed necessary,
(b) you have had a reasonable opportunity to ask questions of
and receive answers from officers and representatives of the
Company and the Guarantor concerning their respective
financial condition and results of operations and any other
matter relevant to the purchase of the Notes, and any such
questions have been answered to your satisfaction, (c) you
have had the opportunity to review all publicly available
records and filings concerning the Guarantor and its
subsidiaries including the Company and you have carefully
reviewed such records and filings as you considered relevant
to making an investment decision, and (d) you have made your
own investment decisions based upon your own judgment, due
diligence and advice from such advisers as you have deemed
necessary and not upon any view expressed by the Company or
the Guarantor.
6.2.
SOURCE OF FUNDS.
At least one of the following statements is an accurate
representation as to each source of funds (a "SOURCE") to be used
by you to pay
the purchase price of the Notes to be purchased by you
hereunder:
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<PAGE>
(a) all or part
of the Source constitutes assets of a bank
collective
investment fund, as contemplated by PTE 91-38,
maintained by you, and you have disclosed to the Company the
names of such employee benefit plans whose assets in such bank
collective investment fund exceed ten percent (10%) of the
total assets or are expected to exceed ten percent (10%) of
the total assets of such fund as of the date of such purchase
(for the purpose of this clause (a), all employee benefit
plans maintained by the same employer or employee organization
are deemed to be a single plan); or
(b) all or part
of the Source constitutes assets of one or more
employee benefit plans, each of which has been identified to
the Company in writing; or
(c) you are
acquiring the Notes for the account of one or more
pension funds, trust funds or agency accounts, each of which
is a "GOVERNMENTAL PLAN" (as defined in section 3(32) of
ERISA) and the investment does not give rise to any violation
of any federal, state or local law which is substantially
similar to Title I of ERISA, section 4975 of the Code or
comparable provisions of the PRIRC; or
(d) the Source
is an "INVESTMENT FUND" managed by a "QUALIFIED
PROFESSIONAL ASSET MANAGER" or "QPAM" (as defined in Part V of
PTE 84-14, issued March 13, 1984), provided that (i) no other
party to the transaction described in this Agreement and no
"AFFILIATE" of such party (as defined in Part V(c) of PTE
84-14) has at this time, and during the immediately preceding
one year none has exercised, the authority to appoint or
terminate said QPAM as manager of the assets of any plan
identified in writing pursuant to this clause (f) or to
negotiate the terms of said QPAM's management agreement on
behalf of any such identified plans, (ii) the conditions set
forth in paragraphs (c), (d), (e), (f) and (g) of Part I of
PTE 84-14 are satisfied; and (iii) you have disclosed to the
Company the name of the QPAM and of all employee benefit plans
whose assets are included in such investment fund;
(e)
the Source is a
"PLAN" managed by an "IN-HOUSE ASSET MANAGER"
or "INHAM" (as defined in Part IV of PTE 96-23, issued April
10, 1996), provided that the conditions set forth in
paragraphs (a), (c), (d), (e), (f), (g) and (h) of Part I of
PTE 96-23 are satisfied; or
(f) none of such
funds consists of assets of any "EMPLOYEE BENEFIT
PLAN" as defined in ERISA or any "PLAN" as defined in section
4975 of the Code or comparable provisions of the PRIRC, other
than an employee benefit plan or plan exempt from the coverage
of ERISA and section 4975 of the Code.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN",
"GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the
respective
meanings assigned to such terms
13
<PAGE>
in section 3 of ERISA. If you breach any representation made by you
under this
Section 6.2, your purchase of the Notes shall be void ab
initio.
6.3.
ANTI-MONEY
LAUNDERING
(a) to the best
of your knowledge, the funds that you are using to
purchase the Notes were not directly or indirectly derived
from activities that may contravene federal, state and
international laws and regulations, including Anti-Money
Laundering Laws; and
(b) to the best
of your knowledge, neither:
(i) you, nor
(ii) any person
controlling, controlled by, or under common
control with, you,
(1) is a country, territory, individual or entity named on an
Office
of Foreign Assets Control ("OFAC") list, or is an individual or
entity that resides or has a place of business in a country or
territory named on such lists, (2) is a "senior foreign
political
figure," or any "immediate family member" or "close associate"
(as
such terms are defined in the Patriot Act) of a senior foreign
political figure or (3) is a "foreign shell bank" (as defined in
the
Patriot Act) or transacts business with a foreign shell bank.
You understand that the Company may not accept any payments for
the
Notes from you if you cannot make the representations set forth
above.
6.4.
TRANSFEREE.
Any transferee of a Note shall, by its acceptance of such Note,
be
deemed to have made the same representations regarding the purchase
of the Notes
as the original holder thereof made pursuant to Sections 6.1, 6.2
and 6.3 above.
7.
INFORMATION AS TO THE COMPANY AND THE GUARANTOR.
7.1.
FINANCIAL AND BUSINESS
INFORMATION.
The Company shall deliver to you and to any subsequent holder
of
Notes that is an Institutional Investor:
(a) Quarterly
Statements--within sixty (60) days after the end
of each quarterly fiscal period in each fiscal year of the
Company:
(i) an unaudited
balance sheet of the Company as at the end
of such quarter; and
14
<PAGE>
(ii) statements of
income and cash flows of the Company for
such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with
such quarter,
setting forth in each case in comparative form the figures for
the
corresponding periods in the previous fiscal year, all in
reasonable
detail, and certified by a Senior Financial Officer of the
Company
as fairly presenting, in accordance with U.S. GAAP, the
financial
position of the Company and its results of operations and cash
flows, subject to changes resulting from year-end adjustments;
(b) Annual
Statements of the Guarantor--within one hundred
twenty (120) days after the end of each fiscal year of the
Guarantor:
(i) a
consolidated balance sheet of the Guarantor, as at the
end of such year; and
(ii) consolidated
statements of income and cash flows of the
Guarantor for such year,
setting forth in each case in comparative form the figures for
the
previous fiscal year, all in reasonable detail, prepared in
accordance with U.S. GAAP, and accompanied by an opinion thereon
of
independent certified public accountants of recognized national
standing and reputation, which opinion shall state that such
financial statements present fairly the financial position of
the
Guarantor and its results of operations and cash flows in
conformity
with U.S. GAAP and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards
consistently
applied;
(c) SEC and
Other Reports of the Guarantor -- for so long as the
Guarantor is subject to reporting obligations under the
Securities Exchange Act of 1934 (as amended from time to time)
with respect to any of its securities, promptly, and in any
event within ten (10) days upon their becoming available, one
copy of (i) each financial statement, report, notice or proxy
statement sent by the Guarantor to public securities holders
generally, and (ii)
each regular or periodic report, each
registration statement that shall have become effective (with
exhibits except as otherwise expressly requested by such
holder), and each final prospectus and all amendments thereto
filed by the Guarantor with the Securities and Exchange
Commission ("SEC"); provided, however, that no such delivery
shall be required as to any of such reports which have been
required to be filed and are available in electronic format
from the SEC's EDGAR database. In the event that the Guarantor
is at any time no longer subject to the reporting requirements
of the Securities and Exchange Act of 1934, the Guarantor
shall provide to you and each subsequent note holder that is
an Institutional Investor, at your request, (i) a quarterly
presentation which shall include a discussion by the
Guarantor's management of the most
15
<PAGE>
recent financial and operational results of the Guarantor and
its Significant Subsidiaries on a consolidated basis and a
discussion of the Guarantor's most recent business plans and
projections, and (ii) on a yearly basis, a written report
reflecting a discussion by the Guarantor's management of the
financial and operational results of the Guarantor and its
Significant Subsidiaries on a consolidated basis as of the
year ended. In addition, on a quarterly basis, the Guarantor's
designated legal counsel, at your request, will provide you
and your designated legal counsel, access to material and
recent information so as to provide an update to the status of
the
actions, suits or proceedings specified in Schedule 5.6.
(d) Notice of
Default or Event of Default -- promptly, and in any
event within ten (10) days, after a Responsible Officer
becoming aware of the existence of any condition or event
which constitutes a Default or Event of Default, a written
notice specifying the nature and period of existence thereof
and what action the Company or the Guarantor, as applicable,
is taking or proposes to take with respect thereto;
(e) Notices from
Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice
to the Company or the Guarantor, as applicable, from any
federal, state or Commonwealth Governmental Authority relating
to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a Material Adverse
Effect; and
(f) Requested
Information -- such other data and information
directly relating to the ability of the Company to perform its
obligations hereunder and under the Notes or of the Guarantor
to perform its obligations hereunder or under the Guarantee as
from time to time may be reasonably requested by any holder of
Notes.
7.2.
OFFICER'S
CERTIFICATE.
Each set of financial statements delivered to you or to any
other
holder of Notes pursuant to Section 7.1(a) as of 7.1(b) hereof
shall be
accompanied by a certificate of a Senior Financial Officer of the
Company or the
Guarantor, as applicable, setting forth on behalf of the Company or
the
Guarantor, as applicable, a statement that the Company or the
Guarantor, as
applicable, has no knowledge of any Default or Event of Default, or
if the
Company or the Guarantor, as applicable, has such knowledge,
specifying such
Default or Event of Default, the nature thereof and the action
taken or proposed
to be taken by the Company or the Guarantor, as applicable, with
respect
thereto.
7.3.
INSPECTION.
Each of the Company and the Guarantor shall permit each holder
of
Notes that is an Institutional Investor, or a group of Affiliated
Institutional
Investors that are original purchasers and holders of Notes, and
holds Notes
with an aggregate principal amount of at least
16
<PAGE>
Ten Million United States Dollars (US$10,000,000) or Five Million
United States
Dollars (US$5,000,000) in the case of such group, together with
its
representatives, at the expense of the Company or the Guarantor, as
applicable,
if done in connection with a Default or an Event of Default, to
visit and
inspect any of the offices or properties of the Company or the
Guarantor, as
applicable, to examine its books and records, and to discuss its
affairs,
finances and accounts with its officers, employees and independent
public
accountants (and by this provision, each of the Company and the
Guarantor
authorizes said accountants to discuss the finances and affairs of
the Company
or the Guarantor, as applicable, but any such discussions shall be
arranged by
the Company or the Guarantor, as applicable, and the Company or the
Guarantor,
as applicable, shall have the opportunity to participate therein)
all at such
reasonable times and as may be reasonably requested in relation to
the
performance by the Company of its obligations under the Notes or by
the
Guarantor of its obligations under the Guarantee or by the Company
or the
Guarantor under this Agreement; provided, however, that neither the
Company nor
the Guarantor shall be required to disclose to any such holder of
Notes (or to
any of its representatives) information to the extent that the
Company or the
Guarantor, as applicable, is advised by internal or external legal
counsel that
it is prohibited from disclosing such information at such time to
its creditors
generally under applicable laws, rules, regulations or orders (or
other binding
restrictions imposed by Governmental Authorities or agreements
entered into in
good faith with third parties that are not Affiliates of the
Company or the
Guarantor, as applicable).
8. PAYMENT
OF INTEREST
The Company shall pay interest (computed on the basis of a
360-day
year of twelve 30-day months) (a) on the unpaid balance of the
Notes at the rate
of six and three tenths percent (6.30%) per annum from the date of
the Notes,
payable semiannually, on the fifteenth (15th) day of March and the
fifteenth
(15th) day of September in each year, commencing on March 15, 2005,
until the
principal hereof shall have become due and payable, provided,
however, that in
the event that the rating of the Notes by Standard & Poor's
falls below "BBB-",
or the rating of the Notes by A.M. Best Company, Inc. falls below
"bbb-" (each a
"RATINGS EVENT"), then the interest on the unpaid balance thereof
shall become
payable at the rate of seven percent (7.00%) per annum from the
date of such
event and (b) to the extent permitted by law, on any overdue
payment (including
any overdue prepayment) of principal and any overdue payment of
interest,
payable semiannually as aforesaid (or, at the option of the
registered holder
hereof, on demand), at a rate per annum from time to time equal to
the Default
Rate. Within 90 days following the occurrence of a Ratings Event,
the Company
shall have the right to redeem the Notes without premium, at its
option, in
whole but not in part, at any time, in accordance with the
provisions of Section
9 hereof.
9.
REDEMPTION OF THE NOTES PRIOR TO MATURITY.
9.1.
OPTIONAL
REDEMPTION.
The Company may, at its option, upon notice as provided below,
redeem and prepay prior to maturity, all or any part of the Notes
on September
15 or March 15 of each year; provided, however, that, except as
provided in the
third paragraph of this Section 9.1, the
17
<PAGE>
Company may not redeem all or any part of the Notes pursuant to
this Section 9.1
prior to September 15, 2007. On and after September 15, 2007, the
Notes shall be
redeemable at a price equal to the percentage of the principal
amount of the
Notes to be redeemed specified for the periods listed below,
together with
accrued and unpaid interest, if any, to the date of redemption
specified by the
Company (the "REDEMPTION DATE").
<TABLE>
<CAPTION>
Redemption
Periods
Percentage of Principal Amount
-----------------------------------
------------------------------
<S>
<C>
September 15, 2007 - March 14, 2008
102.00%
March 15, 2008 - September 14, 2008
101.50%
September 15, 2008 - March 14, 2009
101.00%
March 15, 2009 - September 14, 2009
100.50%
September 15, 2009 and thereafter
100.00%
</TABLE>
The Company will
give each holder of Notes written notice of any
redemption under this Section 9.1 not less than sixty (60) days and
not more
than ninety (90) days prior to any Redemption Date. Each such
notice shall
specify the Redemption Date, the aggregate principal amount of the
Notes to be
redeemed on such Redemption Date, which shall not be in an amount
less than Five
Million United States Dollars (US$5,000,000) and increments of
US$500,000, the
principal amount of each Note held by such holder to be redeemed
(determined in
accordance with Section 9.2), and the interest to be paid on such
Redemption
Date with respect to such principal amount being redeemed.
The Company shall also have the right to redeem the Notes, at
its
option, in whole but not in part, at any time, within 90 days
following the
occurrence of a Ratings Event or a, at any time, after the
occurrence of a
Taxable Event as provided in Section 10.6(b) hereof, subject to the
notice
provisions set forth in the preceding paragraph. In the case of
redemption
pursuant to a Ratings Event, the Company may redeem without payment
of a
premium. In the case of a redemption pursuant to a Taxable Event,
the Company
may redeem, at any time, subject to the payment of a premium
pursuant to the
first paragraph of this Section 9.1; provided however that if the
Notes are
redeemed before September 15, 2007, said redemption pursuant to a
Taxable Event
is subject to the payment of a premium equal to 102% of the
principal amount of
the Notes so redeemed.
9.2.
ALLOCATION OF PARTIAL
REDEMPTIONS.
In the case of each partial redemption of the Notes, the
principal
amount of the Notes to be redeemed shall be allocated among all of
the Notes at
the time outstanding in proportion, as nearly as practicable, to
the respective
unpaid principal amounts thereof not theretofore called for
redemption.
18
<PAGE>
9.3.
MATURITY; SURRENDER,
ETC.
In the case of each redemption of Notes pursuant to this Section
9,
the principal amount of each Note to be redeemed shall mature and
become due and
payable on the respective Redemption Date, together with interest
on such
principal amount accrued to such date. From and after such date,
unless the
Company shall fail to pay such principal amount when so due and
payable,
together with the interest thereon, interest on such principal
amount shall
cease to accrue. Any Note paid or redeemed in full shall be
surrendered to the
Company and cancelled and shall not be reissued, and no Note shall
be issued in
lieu of any prepaid principal amount of any Note.
9.4.
PURCHASE OF NOTES.
Neither the Company nor the Guarantor will, and neither the
Company
nor the Guarantor will permit any of their respective Affiliates
to, purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of
the
outstanding Notes except upon the payment or redemption of the
Notes in
accordance with the terms of this Agreement and the Notes. The
Company will
promptly cancel all Notes acquired by it or any of its Affiliates
(including the
Guarantor) pursuant to any payment, redemption or purchase of Notes
pursuant to
any provision of this Agreement and no Notes may be issued in
substitution or
exchange for any such Notes.
10. COMPANY AND
GUARANTOR BUSINESS COVENANTS.
The Company and the Guarantor jointly and severally covenant that
so
long as the Notes are outstanding:
10.1.
COMPLIANCE WITH LAWS; MAINTENANCE OF LICENSES, ETC.
Each of the Company
and the Guarantor will comply (and the Guarantor
will further cause each of its other Subsidiaries to comply) with
all laws,
ordinances and governmental rules and regulations to which it is
subject,
including, without limitation, laws, ordinances and governmental
rules and
regulations relating to the healthcare and insurance industries,
the
Environmental Laws and Anti-Money Laundering Laws, and will obtain
and maintain
in effect (and the Guarantor will further cause each of its other
Subsidiaries
to obtain and maintain in effect) all licenses, certificates,
permits,
franchises, qualifications and other governmental authorizations
(including,
without limitation, those qualifications with respect to solvency
and
capitalization) necessary to the ownership of its properties or to
the conduct
of its businesses, in each case to the extent necessary to ensure
that
non-compliance with such laws, ordinances or governmental rules or
regulations
or failures to obtain or maintain in effect such licenses,
certificates,
permits, franchises, qualifications and other governmental
authorizations would
not reasonably be expected, individually or in the aggregate, to
have a Material
Adverse Effect.
10.2.
INSURANCE.
Except where the failure to comply would not reasonably be
expected
to a Material Adverse Effect, each of the Company and the Guarantor
will
maintain, and the Guarantor shall cause each of its other
Subsidiaries to
maintain, with financially sound and
19
<PAGE>
reputable insurers, insurance with respect to its respective
properties and
businesses against such casualties, risks and contingencies, of
such types, on
such terms and in such amounts (including deductibles, co-insurance
and
self-insurance, if adequate reserves are maintained with respect
thereto) as is
customary in the case of entities of established reputations
engaged in the same
or a similar business and similarly situated.
10.3.
PAYMENT OF TAXES.
Each of the Company and the Guarantor will file all tax returns
required to be filed and will pay and discharge or cause to be paid
or
discharged all taxes shown to be due and payable on such returns
and all other
taxes, assessments and governmental charges payable by it, to the
extent such
taxes, assessments and charges have become due and payable,
provided that
neither the Company nor the Guarantor need not pay any such tax,
assessment or
charge if (i) the amount, applicability or validity thereof is
contested by the
Company or the Guarantor, as applicable, on a timely basis in good
faith and in
appropriate proceedings, and each of the Company and the Guarantor
has
established adequate reserves therefor in accordance with U.S. GAAP
on the books
of the Company or the Guarantor, as applicable, or (ii) the
expected nonpayment
of all such taxes and assessments in the aggregate would not
reasonably be
expected to have a Material Adverse Effect.
10.4. USE
OF PROCEEDS.
The Company will apply the proceeds from the sale of the Notes
to
repay certain outstanding short term indebtedness of the Company
incurred in the
Company's trade or business in Puerto Rico and for working capital
and general
corporate purposes of the Company's trade or business in Puerto
Rico within a
period no longer than twenty four (24) months from the date of the
issuance of
the Notes and will notify the Puerto Rico Treasury Department
("Treasury") of
such use as required by Section 1013A of the PRIRC.
In the event that a favorable ruling from Treasury is obtained,
by
purchasing the Notes, the holders of the Notes, other than the
Purchasers, will
be deemed to have made an election under Section 1013A of the PRIRC
and the 10%
preferential withholding tax will be made on the interest on the
Notes unless
the holder elects out of such withholding by providing a written
statement to
that effect to the Company, through certified mail, in the form set
forth in
Exhibit 3.
10.5.
CORPORATE EXISTENCE, ETC.
Subject to the provisions of Section 11.2 hereof, each of the
Company and the Guarantor will (and the Guarantor shall cause each
of its other
Subsidiaries to) at all times preserve and keep in full force and
effect and in
good standing its corporate existence and all rights, privileges
and franchises;
provided, however, that the Company and the Guarantor shall not be
required to
preserve any such right or franchise if the Company and the
Guarantor shall
determine that the preservation thereof is no longer desirable in
the conduct of
the business of the Guarantor or the applicable Subsidiary,
including the
Company, and that the loss thereof is not disadvantageous in any
material
respect to the holders.
20
<PAGE>
10.6.
SOURCE OF INCOME FOR TAX PURPOSES.
(a) The Company shall do or cause to be done all things necessary
or
proper within its control to ensure that, for purposes of the Code,
interest
paid on the Notes will constitute income from sources within the
Commonwealth.
If the Company violates the covenant set forth in this Section, the
Company
shall pay additional interest to each holder that submits a claim
in writing to
the Company to the effect that it has or will be required to pay
United States
income taxes in respect of interest paid or accrued on the Notes
held by such
holder. The amount of such additional interest will be equal, with
respect to
any period, to the sum of (i) any income taxes such holder was or
will be
required to pay with respect to interest paid or accrued on the
Notes held by
such holder during such period, and with respect to payments of
additional
interest under this Section, after giving effect to any credit
relating to such
interest that such holder is entitled to take, and (ii) any
penalties and
interest that have been or will be assessed against such holder
with respect to
the late payment of such taxes. The Company shall pay to any
Institutional
Investor that is a Commonwealth registered investment company, any
penalties or
fines imposed by a Governmental Authority as a result of the
Company's failure
to comply with this covenant.
(b) In the event of a Taxable Event, the Company may, at its
option,
and upon notice, redeem prior to maturity, all of the Notes with
premium, and
accrued and unpaid interest, if any, to the date of redemption
specified by the
Company pursuant to the provisions of Section 9.1 hereof.
10.7.
MAINTENANCE OF PROPERTIES.
Each of the Company and the Guarantor shall (and the Guarantor
shall
cause each of its other Significant Subsidiaries to) keep its
material
properties in good working order and condition and will comply at
all times with
the terms of all material leases and other material agreements to
which it is a
party so as to prevent any material loss or forfeiture thereof or
thereunder
unless compliance with such leases or agreements is being contested
in good
faith by appropriate proceedings and if the Company or the
Guarantor, as
applicable, shall have established adequate reserves therefor in
accordance with
U.S. GAAP on the books of the Company or the Guarantor (or such
other
Significant Subsidiary), as applicable.
10.8.
BUSINESS ACTIVITY.
The Company will continue to be principally engaged in the
business
of providing health insurance including, but not limited to, the
sale of life
insurance in connection with the sale of health insurance, the sale
of long term
care insurance and other healthcare services.
11. NEGATIVE
COVENANTS.
The Company and the Guarantor jointly and severally covenant that
so
long as any of the Notes is outstanding, shall not:
21
<PAGE>
11.1.
TRANSACTIONS WITH AFFILIATES.
Without the prior written consent of the Majority Holders,
either
the Company or the Guarantor enter into directly or indirectly any
transaction
or group of related transactions which, in the opinion of
management of the
Company or the Guarantor, as applicable, is Material to the Company
or the
Guarantor, as applicable (including without limitation the
purchase, lease, sale
or exchange of properties of any kind or the rendering of any
service) with any
of their respective Affiliates, unless management to the Company or
the
Guarantor, as applicable, has determined in good faith that such
transaction or
group of related transactions is or are fair and reasonable and as
favorable to
the Company or the Guarantor, as applicable, as terms that would be
obtainable
at the time for a comparable transaction or group of related
transactions in
arm's-length dealings with an unrelated third Person. The
restrictions of this
Section shall not apply to transactions between the Guarantor and
its
wholly-owned Subsidiaries or between wholly-owned Subsidiaries.
11.2.
CONSOLIDATION, MERGER AND SALE OF ASSETS.
Either the Company or the Guarantor consolidate with or merge
into,
or convey, transfer or lease its properties and assets
substantially as an
entity to, any Person, unless:
(a)
the Company or
the Guarantor, as applicable, is the surviving
or continuing entity, or the entity formed by such
consolidation or into which the Company or the Guarantor, as
applicable, is merged or to which the Company or the
Guarantor, as applicable, has conveyed, transferred or leased
its properties and assets substantially as an entirety is an
entity organized and validly existing under the laws of the
United States of America, any province or state thereof or the
District of Columbia or the Commonwealth of Puerto Rico, and
such entity expressly assumes the Company's obligations under
the Notes and this Agreement or the Guarantor's obligations
under the Guarantee and this Agreement, as the case may be;
(b) immediately
after giving effect to the transaction, no Default
or Event of Default shall have occurred and be continuing; and
(c) the Company
or the Guarantor, as applicable, shall have
delivered to each holder an Officer's Certificate and an
opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental agreement, comply
with this Agreement.
11.3.
LIMITATION UPON CREATION OF LIENS ON VOTING STOCK OF PRINCIPAL
INSURANCE OR HMO SUBSIDIARY.
Without the prior written consent of the Majority Holders, the
Guarantor will not, and it will not permit any Subsidiary at any
time directly
or indirectly to, incur, issue, assume or guarantee any
Indebtedness for
Borrowed Money secured by a Lien in any shares of voting stock of
any Principal
Insurance or HMO Subsidiary without making effective provision
whereby the Notes
(and, if the Guarantor so elects, any other indebtedness of the
Guarantor
ranking on a
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parity with the Notes) shall be secured equally and ratably with
such secured
indebtedness; provided, however, that the foregoing covenant shall
not be
applicable to Liens for taxes or assessments or governmental
charges not then
due and delinquent or the validity of which is being contested in
good faith or
which are less than Five Million United States Dollars
(US$5,000,000) in amount,
Liens created or resulting from any litigation or legal proceeding
which is
currently being contested in good faith by appropriate proceedings
or which
involve claims of less than Five Million United States Dollars
(US$5,000,000),
or deposits to secure (or in lieu of) surety, stay, appeal or
custom bonds.
If the Guarantor shall hereafter be required to secure the
Notes
equally and ratably with any other indebtedness of the Guarantor
pursuant to
this Section, (i) the Guarantor and the Company shall promptly
deliver to the
holders an Officer's Certificate
