<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 31, 1999
ADVANCE PARADIGM, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-21447 75-2493381
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
545 E. John Carpenter Freeway, Suite 1570, Irving, Texas 75062
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (972) 830-6199
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 1999, the Company completed the acquisition of Foundation
Health Pharmaceutical Services, Inc. ("FHPS"), the parent company of Foundation
Health Systems, Inc.'s ("FHS's") pharmacy benefit management ("PBM") company,
Integrated Pharmaceutical Services, Inc ("IPS"). The Company paid FHS $70
million in exchange for all of the outstanding shares of FHPS and certain
assets of IPS, which was funded pursuant to a Credit Agreement among the
Company, NationsBank, N.A., NationsBanc Montgomery Securities LLC and the banks
named therein.
In addition, the Company entered into a 10 year service agreement to
provide integrated PBM services for the lives covered by FHS.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements of FHPS required pursuant to Rule 3-05(b)(2)
of Regulation S-X will be filed by amendment not later than June 14, 1999.
(b) Pro Forma Financial Information.
The pro forma financial information of FHPS required pursuant to Rule
11-01(a)(1) of Regulation S-X will be filed by amendment not later than June
14, 1999.
(c) Exhibits.
Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
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<S> <C>
2.1 Purchase Agreement among Foundation Health Systems, Inc., Foundation
Health Corporation, Foundation Health Pharmaceutical Services, Inc.,
Integrated Pharmaceutical Services, Inc. and Advance Paradigm, Inc.
dated as of February 26, 1999.
4.1 Warrant Agreement by and between Advance Paradigm, Inc. and
Foundation Health Systems, Inc., dated as of February 26, 1999.
10.1 Pharmacy Benefit Services Agreement by and between Advance Paradigm,
Inc., Foundation Health Systems, Inc. and Integrated Pharmaceutical
Services, Inc., effective as of April 1, 1999.
</TABLE>
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<TABLE>
<S> <C>
10.2 Credit Agreement among Advance Paradigm, Inc., the Banks named in the
Credit Agreement, NationsBanc Montgomery Securities LLC and
NationsBank, N.A., dated as of March 31, 1999.
10.3 Guaranty by each subsidiary of Advance Paradigm, Inc., in favor of
NationsBank, N.A., dated as of March 31, 1999.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCE PARADIGM, INC.
Date: April 12, 1999 By: /s/ David D. Halbert
--------------------------------------
Name: David D. Halbert
Title: Chairman of the Board, Chief
Executive Officer and President
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
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<S> <C>
2.1 Purchase Agreement among Foundation Health Systems, Inc., Foundation
Health Corporation, Foundation Health Pharmaceutical Services, Inc.,
Integrated Pharmaceutical Services, Inc. and Advance Paradigm, Inc.
dated as of February 26, 1999.
4.1 Warrant Agreement by and between Advance Paradigm, Inc. and
Foundation Health Systems, Inc., dated as of February 26, 1999.
10.1 Pharmacy Benefit Services Agreement by and between Advance Paradigm,
Inc., Foundation Health Systems, Inc. and Integrated Pharmaceutical
Services, Inc., effective as of April 1, 1999.
10.2 Credit Agreement among Advance Paradigm, Inc., the Banks named in the
Credit Agreement, NationsBanc Montgomery Securities LLC and
NationsBank, N.A., dated as of March 31, 1999.
10.3 Guaranty by each subsidiary of Advance Paradigm, Inc., in favor of
NationsBank, N.A., dated as of March 31, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
PURCHASE AGREEMENT
AMONG
FOUNDATION HEALTH SYSTEMS, INC.,
FOUNDATION HEALTH CORPORATION,
FOUNDATION HEALTH PHARMACEUTICAL SERVICES, INC.,
INTEGRATED PHARMACEUTICAL SERVICES, INC.
AND
ADVANCE PARADIGM, INC.
DATED: FEBRUARY 26, 1999
<PAGE> 2
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "AGREEMENT") is made as of the 26th day
of February 1999, by and among Advance Paradigm, Inc., a Delaware corporation
("BUYER"), Foundation Health Systems, Inc., a Delaware corporation (the
"COMPANY"), Foundation Health Corporation ("FHC"), a California corporation,
Foundation Health Pharmaceutical Services, Inc., a California corporation
("FHPS"), and Integrated Pharmaceutical Services, Inc., a California
corporation ("IPS", and together with FHC and FHPS, the "SUBSIDIARIES"). The
Company is the ultimate parent of the Subsidiaries.
RECITALS:
WHEREAS, the Company owns (directly or indirectly) all of the
outstanding capital stock of the Subsidiaries; and
WHEREAS, Buyer desires to purchase from the Company all of the
outstanding capital stock of FHPS, and the Company desires to sell to Buyer all
of the outstanding capital stock of FHPS, in accordance with the terms and
conditions of this Agreement; and
WHEREAS, Buyer desires to purchase from IPS certain assets of IPS, and
IPS desires to sell to Buyer certain assets of IPS, in accordance with the
terms and conditions of this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, Buyer, the Company and the Subsidiaries
(collectively, the "PARTIES") agree as follows:
ARTICLE 1
DEFINITIONS
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including, but not limited to, court costs and reasonable
attorneys' fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED BUSINESS" means the pharmacy benefit requirements of the
Company and its Affiliates, and employer groups, administrative services
organizations and other third party clients of the Company and its Affiliates.
"BUYER" has the meaning set forth in the preface to this Agreement.
<PAGE> 3
"BUYER PERMITS" shall have the meaning set forth in Section 3.6.
"CHANGE OF CONTROL" of a company shall occur when: (i) a third party
acquires fifty percent (50%) or more of the outstanding voting stock of such
company; (ii) the company sells all or substantially all of its assets to a
third party; or (iii) the company merges into or consolidates with another
party such that (a) the company is not the surviving company, (b) if the
surviving company, a majority of the Board of Directors of the company
comprising the board immediately prior to such transaction does not also
constitute a majority following such transaction, or (c) if the surviving
company, a majority of the outstanding shares of the company's stock is not
held by holders who held a majority of the shares of stock of the company
immediately prior to such transaction.
"CLAIM NOTICE" has the meaning set forth in Section 8.5.
"CLOSING" has the meaning set forth in Section 2.5.
"CLOSING DATE" has the meaning set forth in Section 2.5.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMPANY" has the meaning set forth in the preface to this Agreement.
"CONTRACT" means any agreement, contract, lease, note, mortgage,
indenture, loan agreement, franchise agreement, covenant, employment agreement,
license, instrument, purchase and sales order, commitment, undertaking or
obligation.
"CURRENT BALANCE SHEET" has the meaning set forth in Section 4.9.
"CURRENT FINANCIAL STATEMENTS" has the meaning set forth in Section
4.8.
"DEFAULT IN PHARMACY PAYMENT" has the meaning set forth in Section
5.12(d).
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, and local statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of
<PAGE> 4
the environment, including without limitation all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now in
effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.8.
"FHPS PERMITS" shall have the meaning set forth in Section 4.19.
"FHS SUCCESSOR" means any third party that acquires the Company or the
Affiliated Business in a Change of Control transaction.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.4.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8.4.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.21.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LIENS" means liens, claims, charges, options, pledges, security
interests or other encumbrances.
"MATERIAL ADVERSE CHANGE (OR EFFECT)" means a change (or effect) in
the condition (financial or otherwise), properties, assets (including
intangible assets), liabilities (including contingent liabilities), rights,
obligations, operations, or business, which change (or effect), individually or
in the aggregate, is materially adverse to the operations or business of FHPS,
the Purchased Assets or Buyer, each taken as a whole.
<PAGE> 5
"MATERIAL CONTRACT" means each Contract to which the respective Person
is a party, or by which it or its properties or assets are bound, and which is
material to any of its businesses, assets, properties or prospects.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NON-AFFILIATED BUSINESS" means the pharmacy benefit services offered
to third party health plan customers by the Company, FHPS, IPS or their
Affiliates prior to the Closing.
"PARTIES" has the meaning set forth in the preface to this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PRIOR FINANCIAL STATEMENTS" has the meaning set forth in Section 4.8.
"PURCHASED ASSETS" means all of the assets of IPS identified on
Exhibit A hereto.
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"PURCHASED MATERIAL CONTRACTS" has the meaning set forth in Section
4.22.
"SECTION 338 ELECTION" has the meaning set forth in Section 5.5.
"SECTION 338 FORMS" has the meaning set forth in Section 5.5.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERVICE AGREEMENT" has the meaning set forth in Section 5.11.
"SHARES" means all of the outstanding shares of the Common Stock, no
par value, of FHPS.
"STRADDLE PERIOD" means any taxable period which includes but does not
end on the Closing Date.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8.4.
<PAGE> 6
ARTICLE 2
PURCHASE AND SALE
2.1 BASIC TRANSACTION.
(a) On and subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from FHC, and FHC agrees to sell to Buyer,
all of the Shares and IPS agrees to sell to Buyer and Buyer agrees to purchase
all of the Purchased Assets, for the consideration specified in Section 2.2.
(b) Prior to the Closing, the Company shall, and shall cause
each of the Subsidiaries to, take any and all action necessary to contribute
the Purchased Assets from IPS to FHPS as mutually agreed upon by the parties,
so that the agreed upon Purchase Assets shall be assets of FHPS at the Closing.
(c) Prior to the Closing, all of the outstanding shares of
stock of IPS held by FHPS shall have been transferred to FHS or an Affiliate of
FHS.
2.2 PURCHASE PRICE. Buyer agrees to pay to the Company, at the
Closing, Seventy Million Dollars ($70,000,000.00) (the "PURCHASE PRICE") by
wire transfer of federal or other immediately available funds to an account
designated by Buyer. The allocation of the purchase price among the Purchased
Assets and the Shares shall be as set forth in Schedule 2.2.
2.3 ASSUMPTION OF LIABILITIES. On or subject to the terms and
conditions of this Agreement, at the Closing, Buyer shall assume and agree to
pay, perform and discharge all of the liabilities and obligations of FHPS
identified on Exhibit B hereto, and the liabilities of the Company and IPS set
forth in Schedule 2.3 hereto related to the Purchased Assets purchased at the
Closing. No other obligations of the Company or IPS shall be assumed by Buyer.
2.4 WARRANT FOR SHARES. Upon execution of this Agreement, Buyer shall
issue to FHS a warrant to purchase 200,000 shares of the common stock of Buyer,
subject to and in form and substance as set forth in the warrant agreement
attached hereto as Exhibit E.
2.5 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Epstein Becker &
Green, P.C., 2 Embarcadero, San Francisco, California, commencing at 9:00 a.m.,
local time, on the later of March 31, 1999 or the second business day following
the satisfaction or waiver of all conditions to the obligations of the Parties
to consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as Buyer and the Company may mutually determine (the "CLOSING
DATE").
2.6 DELIVERIES AT THE CLOSING. At the Closing, (a) the Company shall
deliver to Buyer the various certificates, instruments, and documents referred
to in Article 6, (b) Buyer shall deliver to the Company the various
certificates, instruments, and documents referred to in Article 7, (c) the
Company shall deliver to Buyer the various certificates and transfer documents
set forth on Exhibit C hereto, and (d) Buyer shall deliver to the Company the
consideration specified in Section 2.2.
<PAGE> 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to the
Company:
3.1 CORPORATE STATUS. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the requisite power and authority to own or lease its properties and to carry
on its business as presently conducted. There is no pending or threatened
proceeding for the dissolution, liquidation, insolvency or rehabilitation of
Buyer.
3.2 CORPORATE POWER AND AUTHORITY. Buyer has the corporate power and
authority to execute and deliver this Agreement and the Service Agreement, to
perform its obligations hereunder and under the Service Agreement and to
consummate the transactions contemplated hereby and by the Service Agreement.
Buyer has taken all corporate action necessary to authorize its execution and
delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by Buyer and constitutes its legal, valid and binding obligation
enforceable against Buyer in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
3.4 NO VIOLATION. The execution and delivery of this Agreement and the
Service Agreement by Buyer, the performance by Buyer of its obligations
hereunder and under the Service Agreement and the consummation by Buyer of the
transactions contemplated by this Agreement and the Service Agreement will not
(a) contravene any provision of the Certificate of Incorporation or Bylaws of
Buyer, (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment, ruling or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon, or enforceable against Buyer, the occurrence of any of which
would have a Material Adverse Effect on Buyer, (c) conflict with, result in any
breach of, or constitute a default (or an event which would, with the passage
of time or the giving of notice or both, constitute a default) under, or give
rise to a right to terminate, amend, modify, abandon or accelerate, any
Material Contract which is applicable to, binding upon or enforceable against
Buyer, the occurrence of which would have a Material Adverse Effect on Buyer,
(d) result in or require the creation or imposition of any Lien upon or with
respect to any of the property or assets of Buyer, (e) give to any individual
or entity a right or claim against the Buyer, which would have a Material
Adverse Effect on Buyer or (f) require the consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority, any
court or tribunal or any other Person, except (i) pursuant to the
Hart-Scott-Rodino Act, the Exchange Act and the Securities Act and applicable
inclusion requirements of Nasdaq, (ii) filings required under the securities or
blue sky laws of the various states, (iii) any filings required to be made by
the Subsidiaries, or (iv) any governmental permits or licenses required to
operate the businesses of the Subsidiaries.
<PAGE> 8
3.5 NO COMMISSIONS. Other than Morgan Stanley, no broker, finder,
investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage,
finder's or other fee or compensation based on any arrangement or agreement
made by or on behalf of Buyer and for which Buyer or the Company will have any
obligation or liability.
3.6 COMPLIANCE WITH LAW. Buyer has substantially complied with and is
substantially complying with all applicable laws, rules, regulations and
ordinances, and has the lawful authority and has obtained and now holds all
material state, federal, special or local governmental authorizations,
licenses, certificates (including Certificates of Need) and permits
(collectively "BUYER PERMITS") needed or required to conduct its businesses, as
such businesses are presently being conducted, the absence of which would have
a Material Adverse Effect on Buyer, and has made all material filings required
by applicable law and regulations.
3.7 OTHER APPROVALS. Schedule 3.7 sets forth a list of all consents,
approvals, qualifications, orders or authorizations of, or filings with, any
governmental authority, including any court or other governmental third party,
required in connection with Buyer's valid execution, delivery or performance of
this Agreement and the Service Agreement, or the consummation of any
transaction contemplated by this Agreement and the Service Agreement.
3.8 INVESTIGATION BY BUYER. In entering into this Agreement:
(a) Buyer acknowledges that, except for the specific
representations and warranties of the Company and the Subsidiaries contained in
Article 4 hereof, none of the Company, the Subsidiaries, any Affiliate of the
Company, or any of their respective directors, officers, employees, Affiliates,
controlling persons, agents, advisors or representatives, makes or shall be
deemed to have made any representation or warranty, either express or implied,
as to the accuracy or completeness of any financial projections, forecasts or
budgets provided or otherwise made available to Buyer or any of its directors,
officers, employees, Affiliates, controlling persons, agents, advisors or
representatives (including, without limitation, in any management
presentations, supplemental information or other materials or information with
respect to any of the above). With respect to any such projection or forecast
delivered by or on behalf of the Company or the Subsidiaries to Buyer, Buyer
acknowledges that: (i) there are uncertainties inherent in attempting to make
such projections and forecasts; (ii) it is familiar with such uncertainties;
(iii) it is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all such projections and forecasts so furnished to it;
(iv) it is not acting in reliance on any such projection or forecast so
furnished to it; and (v) it shall have no claim against any such person with
respect to any such projection or forecast; and
(b) Buyer agrees, to the fullest extent permitted by law,
that the Company and the Subsidiaries and their respective directors, officers,
employees, Affiliates, controlling persons, agents, advisors or representatives
shall not have any liability or responsibility whatsoever to Buyer or any of
its directors, officers, employees, Affiliates, controlling persons, agents,
advisors or representatives on any basis (including, without limitation, in
contract or tort, under Federal or state securities laws or otherwise) based
upon any financial projections provided or otherwise made available, or
statements made regarding such projections, (or
<PAGE> 9
omissions to so provide, make available or state), to Buyer or any of its
directors, officers, employees, Affiliates, controlling persons, agents,
advisors or representatives.
3.9 ACQUISITION FOR INVESTMENT. Buyer is acquiring the Shares solely
for its own account and not with a view to any distribution or other
disposition of such Shares, and the Shares will not be transferred except in a
transaction registered or exempt from registration under the Securities Act.
3.10 ABILITY TO PERFORM UNDER SERVICES AGREEMENT. Buyer represents and
warrants that it has or will have, the financial, personnel, and systems
capabilities to perform its obligations under the Service Agreement, in
accordance with the transition schedule set forth therein.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SUBSIDIARIES
The Company and the Subsidiaries, jointly and severally, make the
following representations and warranties to Buyer:
4.1 CORPORATE STATUS. Each of the Company and the Subsidiaries is a
corporation, duly organized and validly existing and, except where the failure
would not have a Material Adverse Effect on FHPS or the Purchased Assets, has
the requisite power and authority to own or lease its properties and to carry
on its business as presently conducted, except where any such failure would not
have a Material Adverse Effect on FHPS or the Purchased Assets. Each of the
Company and the Subsidiaries is duly qualified to do business as a foreign
corporation in each of the jurisdictions where the nature of its properties and
the conduct of its business require such qualification, except for such
jurisdictions where the failure to be so qualified would not have a Material
Adverse Effect on the Company or a Subsidiary. Each of the Company and the
Subsidiaries is in good standing in each of the jurisdictions in which it is so
qualified. There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of the Company or a Subsidiary.
4.2 POWER AND AUTHORITY. Each of the Company and the Subsidiaries has
the corporate power and authority to execute and deliver this Agreement and the
Service Agreement, to perform its obligations hereunder and under the Service
Agreement, and to consummate the transactions contemplated hereby and by the
Service Agreement. Each of the Company and the Subsidiaries has taken all
corporate action necessary to authorize the execution and delivery of this
Agreement and the Service Agreement, the performance of its obligations
hereunder and under the Service Agreement, and the consummation of the
transactions contemplated hereby and by the Service Agreement.
4.3 ENFORCEABILITY. Each of this Agreement and the Service Agreement
has been duly executed and delivered by the Company and each of the
Subsidiaries (hereinafter sometimes referred to individually as a "COMPANY
PARTY" and collectively as the "COMPANY PARTIES") and constitutes the legal,
valid and binding obligation of each of them, enforceable against each of them
in accordance with its terms, except as the same may be limited by
<PAGE> 10
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
4.4 CAPITALIZATION. Schedule 4.4 sets forth, as of the date hereof,
with respect to FHPS, (a) the number of authorized shares of each class of its
capital stock, (b) the number of issued and outstanding shares of each class of
its capital stock and (c) the number of shares of each class of its capital
stock which are held in treasury. FHC owns 100% of the capital stock of FHPS.
All of the issued and outstanding shares of capital stock of FHPS (a) have been
duly authorized and validly issued and are fully paid and non-assessable, (b)
were issued in compliance with all applicable state and federal securities laws
and (c) were not issued in violation of any preemptive rights or rights of
first refusal. Except as set forth on Schedule 4.4, no preemptive rights,
rights of first refusal or similar rights exist with respect to the shares of
capital stock of FHPS, and no such rights arise or become exercisable by virtue
of or in connection with the transactions contemplated hereby. Except as set
forth on Schedule 4.4, there are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require FHPS to issue or sell any shares of its capital stock (or securities
convertible into or exchangeable for shares of its capital stock). Except as
set forth on Schedule 4.4, there are no outstanding stock appreciation, phantom
stock, profit participation or other similar rights with respect to FHPS. There
are no proxies, voting rights or other agreements or understandings with
respect to the voting or transfer of the capital stock of FHPS. The shares of
capital stock of FHPS are free and clear of all Liens. FHPS is not obligated to
redeem or otherwise acquire any of its outstanding shares of capital stock.
4.5 NO LIENS ON ASSETS. The Purchased Assets are free and clear of all
Liens.
4.6 NO VIOLATION, CONSENTS. The execution and delivery of this
Agreement and the Service Agreement by the Company Parties, the performance by
each of the Company Parties of their obligations hereunder and under the
Service Agreement and the consummation by them of the transactions contemplated
by this Agreement and the Service Agreement will not (a) contravene any
provision of the certificates of incorporation, bylaws or other organizational
or governing document of the Company or a Subsidiary, (b) violate or conflict
with any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment, ruling or order of any Governmental Authority or of any arbitration
award which is either applicable to, binding upon or enforceable against the
Company or a Subsidiary, the occurrence of any of which would have a Material
Adverse Effect on FHPS or the Purchased Assets, (c) conflict with, result in
any breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under,
or give rise to a right of payment under or the right to terminate, amend,
modify, abandon or accelerate, any Material Contract which is applicable to,
binding upon or enforceable against FHPS, the occurrence of any of which would
have a Material Adverse Effect on FHPS or the Purchased Assets, subject to
Section 5.12 below, (d) result in or require the creation or imposition of any
Lien upon or with respect to any of the properties or assets of FHPS or the
Purchased Assets, (e) except as set forth on Schedule 4.6, give to any
individual or entity a right or claim against FHPS which would have a Material
Adverse Effect on FHPS or the Purchased Assets or (f) except as set forth on
Schedule 4.6, require the consent, approval, authorization or permit of, or
filing with or notification to, any
<PAGE> 11
Governmental Authority, any court or tribunal or any other Person, except (i)
pursuant to the Hart-Scott-Rodino Act and applicable reporting requirements of
the Exchange Act, the Securities Act or the New York Stock Exchange, Inc., (ii)
filings required under the securities or blue sky laws of the various states,
or (iii) except where the failure to obtain such consent or approval would not
have a Material Adverse Effect on FHPS or the Purchased Assets, or the ability
of the Company to consummate the transactions set forth in this Agreement.
4.7 RECORDS OF FHPS. The copies of the certificates of incorporation
and bylaws of FHPS and the agreements of FHPS and IPS which were provided to
Buyer are true, accurate, and complete and reflect all amendments made through
the date of this Agreement. The minute books and other records of corporate
actions for FHPS made available to Buyer for review were correct and complete
as of the date of such review, no further entries have been made through the
date of this Agreement, such minute books and records contain the true
signatures of the persons purporting to have signed them, and such minute books
and records contain an accurate record of all corporate actions of the
stockholders and directors (and any committees thereof) of FHPS taken by
written consent or at a meeting since formation. All corporate actions taken by
FHPS have been duly authorized or ratified. All accounts, books, ledgers and
official and other records of FHPS have been fully, properly and accurately
kept and are complete, and there are no material inaccuracies or discrepancies
contained therein. The stock ledgers of FHPS, as previously made available to
Buyer, contain accurate and complete records of all issuances, transfers and
cancellations of shares of the capital stock of FHPS. To the Company Parties'
knowledge, the books and all corporate (including minute books and stock record
books) and financial records of FHPS are substantially complete and correct in
all material respects and have been maintained in accordance with applicable
sound business practices, laws and other requirements.
4.8 FINANCIAL STATEMENTS. The Company has delivered to Buyer the
unaudited financial statements of FHPS, consisting of balance sheets at
December 31, 1995, 1996 and 1997 and the related statements of operations for
the respective periods then ended (collectively, the "FINANCIAL STATEMENTS").
The 1995, 1996 and 1997 financial statements of FHPS are referred to herein as
its "PRIOR FINANCIAL STATEMENTS." The financial statements for the twelve (12)
months ended December 31, 1998 are referred to herein as the "CURRENT FINANCIAL
STATEMENTS." The Financial Statements (i) were prepared from the books and
records of FHPS, (ii) were prepared in accordance with GAAP applied on a
consistent basis (except as may be expressly indicated therein or in any notes
thereto, or except for the absence of notes, statement of cash flows, and
statement of shareholders equity which may otherwise be required under GAAP)
and (iii) present fairly the financial position of FHPS as at the dates thereof
and the results of its operations for the periods then ended (subject to normal
year-end adjustments which would not in the aggregate have a Material Adverse
Effect on the FHPS and any other adjustments expressly described therein or in
the notes thereto). The balance sheets included in the Current Financial
Statements do not reflect any writeup or revaluation increasing the book value
of any assets, except as specifically disclosed in the notes thereto or as
otherwise disclosed in writing to Buyer. All financial projections, forecasts,
or budgets that the Company and the Subsidiaries have made available to Buyer
have been or will be prepared in good faith based upon assumptions that the
Company and the Subsidiaries believe to be reasonable.
<PAGE> 12
4.9 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as set forth
on Schedule 4.9, since the date of the balance sheet dated as of December 31,
1998 included in the Current Financial Statements (the "CURRENT BALANCE
SHEET"), FHPS has not (a) issued, sold, pledged, disposed of, encumbered, or
authorized the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of its capital stock, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of such capital stock or any
other ownership interest of FHPS, (b) declared, set aside, made, or paid any
dividend or other distribution payable in cash, stock, property or otherwise of
or with respect to its capital stock or other securities, or reclassified,
combined, split, subdivided or redeemed, purchased or otherwise acquired,
directly or indirectly, any of its capital stock or other securities; (c)
except for raises in the ordinary course and consistent with past practice,
paid any bonus to or increased the rate of compensation of any of its officers
or salaried employees or amended any other terms of employment of such persons;
(d) sold, leased or transferred any of its properties or assets or acquired any
properties or assets other than in the ordinary course of business consistent
with past practice; (e) made or obligated itself to make capital expenditures
other than in the ordinary course of business consistent with past practice;
(f) made any payment in respect of its liabilities other than in the ordinary
course of business consistent with past practice; (g) incurred any obligations
or liabilities (including, without limitation, any indebtedness for borrowed
money, issuance of any debt securities, or the assumption, guarantee, or
endorsement of the obligations of any person) or entered into any transaction
or series of transactions involving in excess of $15,000 individually or
$50,000 in the aggregate out of the ordinary course of business, except for
this Agreement and the transactions contemplated hereby; (h) suffered any
theft, damage, destruction or casualty loss, whether or not covered by
insurance, in excess of $15,000 individually or $50,000 in the aggregate; (i)
suffered any extraordinary losses (whether or not covered by insurance); (j)
waived, canceled, compromised or released any rights having a value in excess
of $15,000 individually or $50,000 in the aggregate other than in the ordinary
course of business consistent with past practice; (k) made or adopted any
material change in its accounting practice or policies; (l) made any material
adjustment to its books and records other than in respect of the conduct of its
business activities in the ordinary course consistent with past practice; (m)
entered into any material transaction with any other Company Party or any
Affiliate of any of the Company Parties, except in the ordinary course of
business; (n) entered into any employment agreement not terminable at will; (o)
terminated, amended or modified any agreement involving an amount in excess of
$15,000 individually or $50,000 in the aggregate other than in the ordinary
course of business consistent with past practice; (p) imposed any material
security interest or other Lien on any of its assets other than in the ordinary
course of business consistent with past practice; (q) delayed paying any
account payable beyond forty-five (45) days following the date on which it is
due and payable except to the extent being contested in good faith; (r) made or
pledged any charitable contributions in excess of $1,000 individually or $5,000
in the aggregate; (s) acquired (including, without limitation, for cash or
shares of stock, by merger, consolidation, or acquisition of stock or assets)
any interest in any corporation, partnership or other business organization or
division thereof or any assets, or made any investment in another Person either
by purchase of stock or securities, contributions or property transfer of
capital other than as permitted or provided in this Agreement; (t) increased or
decreased prices charged to customers, except in the ordinary course of
business consistent with past practice, materially increased or decreased the
average monthly inventory, other than in the ordinary course of business
consistent with past practice, ordered any inventory which would be
inconsistent with the prior practices of
<PAGE> 13
such Company, or taken any actions which might reasonably result in any
material increase in the loss of customers; (u) entered into any other
transaction or been subject to any event which has or may reasonably be
expected to have a Material Adverse Effect on FHPS; or (v) agreed to do or
authorized any of the foregoing.
4.10 LIABILITIES OF FHPS. Except as set forth on Schedule 4.10(a),
FHPS has no liabilities or obligations, whether accrued, absolute, contingent
or otherwise, except (a) to the extent reflected on the Current Balance Sheet
and not heretofore paid or discharged; (b) liabilities incurred in the ordinary
course of business consistent with past practice since the date of the Current
Balance Sheet (none of which relates to breach of contract, breach of warranty,
tort, infringement or violation of law, or which arose out of any action, suit,
claim, governmental investigation or arbitration proceeding) and which, in the
aggregate would not have a Material Adverse Effect on FHPS; (c) liabilities
incurred prior to the date of the Current Balance Sheet which, in accordance
with GAAP consistently applied, were not required to be recorded thereon and
which, in the aggregate, would not have a Material Adverse Effect on FHPS; or
(d) inter-company liabilities that on a consolidated basis are not reflected on
the Current Balance Sheet. Schedule 4.10(b) lists all indebtedness in excess of
$10,000 owed by FHPS to a bank or any other Person, including without
limitation, indebtedness for borrowed money (including principal and accrued
but unpaid interest) and capitalized equipment leases of FHPS. Schedule 4.10(c)
lists each deposit account maintained by or for the benefit of FHPS with any
bank, broker or other depository institution, and the names of all persons
authorized to withdraw funds from each such account.
4.11 LITIGATION. Except as set forth on Schedule 4.11, there is no
action, suit or other legal or administrative proceeding or governmental
investigation pending, or, to the Company Parties' knowledge, threatened
against or anticipated or contemplated to be initiated by, FHPS, or FHPS'
properties or assets, or the Purchased Assets, or which question the validity
or enforceability of this Agreement or the transactions contemplated hereby,
and, to the Company Parties' knowledge, there is no reasonable basis for any of
the foregoing. The Company shall retain all actions, suits and other legal and
administrative proceedings and governmental investigations set forth on
Schedule 4.11. There are no outstanding orders, decrees or stipulations issued
by any Governmental Authority in any proceeding to which FHPS is or was a party
which have not been substantially complied with or which continue to impose any
material obligations on FHPS.
4.12 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.12:
(a) During the period commencing from the date in 1991 on which
FHPS became a wholly owned subsidiary of the Company to the date of this
Agreement, the business of FHPS has been and is operated in compliance with all
Federal, state and local environmental protection, health and safety or similar
laws, statutes, ordinances, restrictions, licenses, rules, regulations, permit
conditions and legal requirements, including without limitation the Federal
Clean Water Act ("CWA") 42 U.S.C. Section 7401 et seq., Safe Drinking Water Act,
("SDWA") 42 U.S.C. Section 300f et seq., Resource Conservation & Recovery Act
("RCRA") 42 U.S.C. Section 6901 et seq., Clean Air Act ("CAA") 42 U.S.C. Section
7401 et seq., Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") 42 U.S.C. Section 9601 et seq., Emergency Planning and Community
Right to Know Act ("EPCRA") 42 U.S.C. Section 11001 et seq., Toxic Substances
<PAGE> 14
Control Act ("TSCA") 15 U.S.C. Section 2601 et seq., and the Occupational Safety
and Health Act ("OSHA") 29 U.S.C. Section 655 et seq., each as amended and
currently in effect (collectively, "ENVIRONMENTAL LAWS"), except where the
failure to be so in compliance would not result in a Material Adverse Effect on
FHPS.
(b) During the period commencing from the date in 1991 on
which FHPS became a wholly owned subsidiary of the Company to the date of this
Agreement, FHPS has not received any written notice from any Governmental
Authority or other third party or, to the knowledge of the Company Parties, any
other communication alleging or concerning any violation by FHPS, or
responsibility for or liability of FHPS under any Environmental Law, which, if
decided unfavorably to FHPS would have a Material Adverse Effect on FHPS or the
Purchased Assets. There are no pending, or to the knowledge of the Company
Parties, threatened, claims, suits, actions, proceedings or investigations with
respect to the businesses or operations of FHPS alleging or concerning any
violation of or responsibility for or liability under any Environmental Law,
nor does any Company Party have any knowledge of any fact or condition that
could give rise to such a claim, suit, action, proceeding or investigation
which, if decided unfavorably to FHPS would have a Material Adverse Effect on
FHPS or the Purchased Assets.
4.13 REAL ESTATE. FHPS does not currently own any real property.
Schedule 4.13 sets forth a list of all leases, licenses or similar use or
occupancy agreements to which FHPS is a party, which are for the use or
occupancy of real estate owned by a third party ("LEASES") (true and complete
copies of which have previously been furnished to Buyer), in each case, setting
forth: (i) the lessor and lessee thereof and the commencement date, term and
renewal rights under each of the Leases; and (ii) the street address or legal
description of each property covered thereby (the "LEASED PREMISES"). The
Leases are in full force and effect and have not been amended except as
disclosed in Schedule 4.13, and there have been no notices of default by either
party to the Leases. With respect to each such Leased Premises: (i) FHPS'
interests in the Leased Premises are free and clear of any Liens, covenants and
easements or title defects created or suffered to be created by FHPS, except
for Liens for taxes which are not yet due or are otherwise being contested; and
(ii) none of the Company Parties has received notice of (A) any condemnation
proceeding with respect to any portion of the Leased Premises or any access
thereto and, to the knowledge of the Company Parties, no such proceeding is
contemplated by any Governmental Authority; or (B) any special assessment which
may affect any of the Leased Premises and, to the knowledge of the Company
Parties, no such special assessment is contemplated by any Governmental
Authority, any of which would have a Material Adverse Effect on FHPS.
4.14 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.14, FHPS
is in substantial compliance with all laws, regulations and orders applicable
to it, its business, operations, properties and assets, except where the
failure to comply would not have a Material Adverse Effect on FHPS or the
Purchased Assets. During the period commencing from when FHPS became a wholly
owned subsidiary of the Company in 1991 to the date of this Agreement, FHPS has
not been cited, fined or otherwise notified of any asserted past or present
failure to comply with any laws, regulations or orders, where there remains any
remedial action to be undertaken by FHPS as a result thereof, and no proceeding
with respect to any such violation is pending or to the Company Parties'
knowledge threatened. Except as set forth on Schedule 4.14,
<PAGE> 15
FHPS is not subject to any decree or injunction to which it is a party which
restricts the continued operation of its business or the expansion thereof to
other geographical areas, customers and suppliers or lines of business, which
decree or injunction has a Material Adverse Effect on FHPS.
4.15 LABOR AND EMPLOYMENT MATTERS. FHPS is not a party to or bound by
any collective bargaining agreement or any other agreement with a labor union.
There is not now any actual or threatened labor dispute, strike or work
stoppage which affects or which may affect the business of FHPS or which may
interfere with its continued operations. Except as set forth on Schedule 4.15,
none of the Company Parties is aware that any executive or key employee or
group of employees of FHPS or IPS has any plans to terminate his, her or their
employment with FHPS or IPS as a result of the transactions contemplated hereby
or otherwise.
4.16 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 4.16(a) contains a list
setting forth each employee benefit plan or arrangement of FHPS, including but
not limited to employee pension benefit plans, as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
Multiemployer Plans, if any, as defined in Section 3(37) of ERISA, employee
welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, whether or not described in Section 3(3) of ERISA, in
which employees, their spouses or dependents, of the Company participate
("EMPLOYEE BENEFIT PLANS") (true and accurate copies of which, together with
the most recent annual reports on Form 5500 and summary plan descriptions with
respect thereto, were furnished to Buyer).
(b) Compliance with Law. With respect to each Employee
Benefit Plan to the best knowledge of the Company Parties: (i) each has been
administered in all respects in compliance with its terms and with all
applicable laws, including, but not limited to, ERISA and the Code; (ii) no
actions, suits, claims or disputes, other than routine benefit claims, are
pending, or threatened; (iii) no audits, inquiries, reviews, proceedings,
claims, or demands are pending with any governmental or regulatory agency; (iv)
there are no facts which could give rise to any material liability in the event
of any such investigation, claim, action, suit, audit, review, or other
proceeding; (v) except as set forth on Schedule 4.16(b), all reports, returns
and similar documents required to be filed with any Governmental Authority or
distributed to any plan participant have been duly or timely filed or
distributed; and (vi) no "prohibited transaction" has occurred under Section
406 of ERISA or Section 4975 of the Code, except where the failure of any of
the matters in subparagraphs (i)-(vi) would not have a Material Adverse Effect
on FHPS.
(c) Title IV Plans. FHPS does not contribute to a
Multiemployer Plan as described in Section 4001(a)(3) of ERISA or a defined
benefit plan.
(d) Welfare Plans. (i) Except as otherwise provided by
applicable state or federal law, FHPS is not obligated under any employee
welfare benefit plan as described in Section 3(1) of ERISA ("WELFARE PLAN") to
provide medical or death benefits with respect to any employee or former
employee of FHPS or its predecessors after termination of employment;
<PAGE> 16
(ii) no violations of the notice and continuation coverage requirements of
Section 4980B of the Code or Sections 601 through 608 of ERISA have occurred
with respect to any Welfare Plan that is a group health plan within the meaning
of Section 5000(b)(1) of the Code which would have a Material Adverse Effect on
FHPS; and (iii) there are no reserves, assets, surplus or prepaid premiums
under any Welfare Plan which is an Employee Benefit Plan.
(e) PBGC Liability. FHPS (i) has never terminated or
withdrawn from an employee benefit plan under circumstances resulting (or
expected to result) in liability to the Pension Benefit Guaranty Corporation
("PBGC") (other than routine claims for benefits); (ii) has no assets subject
to (or expected to be subject to) a lien for unpaid contributions to any
employee benefit plan; (iii) has not failed to pay premiums to the PBGC when
due (iv) is not subject to (or expected to be subject) an excise tax under Code
Section 4971; (v) has not engaged in any transaction which would give rise to
liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has not
violated Code Section 4980B or Section 601 through 608 of ERISA, any of which
matters described in clauses (i)-(vi) would have a Material Adverse Effect on
FHPS.
(f) Other Liabilities. Except as set forth on Schedule
4.16(f), (i) FHPS is not obligated to pay separation, severance, termination or
similar benefits or to vest any person, in whole or in part, solely as a result
of any transaction contemplated by this Agreement or solely as a result of a
"change of control" (as such term is defined in Section 280G of the Code); and
(ii) none of the Employee Benefit Plans has any unfunded liabilities which are
not reflected on the Current Balance Sheet or the books and records of FHPS.
4.17 INSURANCE. FHPS and the Purchased Assets are covered by policies
of insurance for its properties, assets and businesses (the "INSURANCE
POLICIES"), which policies are in full force and effect, and which coverage
amounts are adequate for the business conducted by FHPS and the Purchased
Assets, and all premiums due thereon have been paid. Prior to the Closing Date,
each of the Insurance Policies will be in full force and effect. FHPS has
complied with the provisions of such Insurance Policies, except where the
failure to comply would not have a Material Adverse Effect on FHPS. There is no
pending claim under any of the Insurance Policies for an amount in excess of
$10,000 individually or $50,000 in the aggregate that relates to loss or damage
to the properties, assets or business of FHPS.
4.18 RECEIVABLES. All of the Receivables of FHPS, net of any allowance
for doubtful accounts reflected in the Current Balance Sheet, are valid and
legally binding, represent bona fide transactions and arose in the ordinary
course of business of FHPS. To the best of the Company Parties' knowledge, all
of the Receivables of FHPS reflected in each Current Balance Sheet are
collectible in accordance with the terms of such receivables, without set off
or counterclaims, subject to the allowance for doubtful accounts, if any, set
forth on such Current Balance Sheet. For purposes of this Agreement, the term
"RECEIVABLES" means all receivables of FHPS, including without limitation,
trade account receivables arising from the provision of services, sale of
inventory, notes receivable, and insurance proceeds receivable, whether or not
billed.
4.19 LICENSES AND PERMITS. There are no licenses and governmental or
official approvals, permits or authorizations required for the conduct of FHPS'
business and operations, the absence of which would have a Material Adverse
Effect on FHPS (collectively, the "FHPS
<PAGE> 17
PERMITS"). All FHPS Permits are valid and in full force and effect, FHPS is in
compliance with the respective requirements thereof, no proceeding is pending
or, to the Company Parties' knowledge, threatened to revoke or amend any of
them, and none of the FHPS Permits is or will be impaired or affected, which
impairment or affect would have a Material Adverse Effect on FHPS, by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for such of the preceding which,
individually or in the aggregate, would not have a Material Adverse Effect on
FHPS or on the ability of the parties to consummate the transactions
contemplated herein.
4.20 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. Except as set forth on Schedule 4.20, the
Purchased Assets, including Purchased Assets held by IPS, and assets and
properties currently owned and operated by FHPS constitute, in the aggregate,
all of the assets and properties used in the conduct of the business of FHPS
and IPS, with respect to the Purchased Assets, in the manner in which and to
the extent to which such business is currently being conducted. Neither FHPS,
nor, with respect to the Purchase Assets, IPS, has received any notice from any
current supplier of items essential to the conduct of its business that such
supplier intends to terminate or materially alter a business relationship with
FHPS or, with respect to the Purchased Assets, IPS, for any reason, involving
an amount in excess of $50,000, and to the Company Parties' knowledge, no such
supplier intends to terminate or materially alter any such business
relationship with FHPS, or IPS. Neither FHPS nor IPS has received any notice
from any customer that such customer intends to discontinue purchases of
products or services from FHPS, or, in connection with the Purchased Assets,
IPS, and to the Company Parties' knowledge no such customer intends to
discontinue or cancel purchases or orders, involving in each case amounts in
excess of $50,000. No Company Party has any direct or indirect interest in any
customer, supplier or competitor of FHPS or in any Person from whom FHPS leases
real or personal property, except to the extent that any such customer,
supplier or competitor is also an Affiliate of the Company, or except for any
passive investment interest held by any of the Company Parties.
4.21 INTELLECTUAL PROPERTY. Except as set forth in Schedule 4.21, FHPS
has full legal right, title and interest in and to all trademarks, service
marks, trade names, copyrights, know-how, patents, trade secrets, licenses
(including licenses for the use of computer software programs), and other
intellectual property used in the conduct of its business (the "INTELLECTUAL
PROPERTY"), the absence of which would have a Material Adverse Effect on FHPS
or the Purchased Assets. Schedule 4.21 sets forth a true and correct list of
all Intellectual Property of FHPS. To the Company Parties' knowledge, FHPS owns
or possesses adequate rights to use all Intellectual Property reasonably
necessary to the conduct of the business of FHPS as presently conducted, and
the unrestricted conduct and the unrestricted use and exploitation of the
Intellectual Property does not infringe or misappropriate any rights held or
asserted by any Person, except where the failure to possess such rights or the
infringement would not have a Material Adverse Effect on FHPS or the Purchased
Assets. To the Company Parties' knowledge, no Person is infringing on the
Intellectual Property, and no payments are required for the continued use of
the Intellectual Property, except for software licenses entered into in the
ordinary course of business. None of the Intellectual Property has ever been
declared invalid or unenforceable, or is the subject of any pending or, to the
Company Parties' knowledge, threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding, which declaration or unenforceability, or
which pending or threatened action would have a Material Adverse Effect on FHPS
if decided adversely to FHPS.
<PAGE> 18
4.22 MATERIAL CONTRACTS. Schedule 4.22 sets forth a list of each
Material Contract of each Subsidiary, including all material contracts with
customers for the provision of products or services by each Subsidiary, other
than any Material Contract relating to any excluded assets or liabilities (the
"PURCHASED MATERIAL CONTRACTS"). The copy of each Material Contract furnished
to Buyer is a true and complete copy of the document it purports to represent
and reflects all amendments thereto made through the date of this Agreement.
Neither Subsidiary has violated any of the terms or conditions of any Purchased
Material Contract which would permit termination or material modification of
any Purchased Material Contract. All of the material covenants to be performed
by each Subsidiary and, to the knowledge of the Company Parties, any other
party thereto, have been fully performed in all material respects, and neither
Subsidiary has received notice for breach or indemnification or notice of
default or termination under any Purchased Material Contract by or against FHPS
or IPS or to the knowledge of the Company Parties, any other party thereto. To
the knowledge of the Company Parties, no event has occurred which constitutes,
or after notice or the passage of time, or both, would constitute, a default by
either Subsidiary under any Purchased Material Contract, and to the knowledge
of the Company Parties no such event has occurred which constitutes or would
constitute a material default by any other party. Neither Subsidiary is subject
to any liability or payment resulting from re-negotiation of amounts paid under
any Purchased Material Contract. As used in this Section 4.22, Purchased
Material Contracts shall mean formal or informal, written or oral (a) loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements, equipment
financing obligations or guaranties, or other sources of contingent liability
in respect of any indebtedness or obligations to any other Person, or letters
of intent or commitment letters with respect to same, which exceed $10,000
individually or $50,000 in the aggregate; (b) contracts obligating FHPS or IPS
to provide products or services for a period of one year or more; (c) leases of
real property extending for a period of one year or more; (d) leases of
personal property which individually provide for total payments in excess of
$10,000, or in the aggregate $25,000 and which are not cancelable without
penalty on notice of sixty (60) days or less; (e) agreements providing for an
independent contractor's services, or letters of intent with respect to same,
where the payment due thereunder exceeds $10,000; (f) employment agreements,
management service agreements, consulting agreements, having a value in the
form of revenue or expense in excess of $10,000; (g) any contract relating to
pending capital expenditures by FHPS in excess of $10,000; (h) contracts
obligating FHPS to purchase supplies, equipment, media and related services of
any kind, in an amount exceeding $10,000 and not cancelable without penalty on
notice of thirty (30) days or less; (i) any non-competition agreements
restricting FHPS in any manner; and (j) confidentiality agreements,
non-competition agreements, employee handbooks, policy statements and any other
agreements relating to any employee of FHPS, which is not terminable as of the
Closing.
4.23 ACCURACY OF INFORMATION FURNISHED. Subject to Buyer's
representation and warranty under Section 3.10, no representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto contains
any untrue statement of a material fact or omits any material fact necessary to
<PAGE> 19
make the information contained therein not misleading. The Company Parties have
provided Buyer with true, accurate and complete copies of all documents listed
or described in the various Schedules attached hereto.
4.24 NO COMMISSIONS. Other than S G Cowen Securities Corporation,
neither the Company nor any Subsidiary has incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
4.25 ABSENCE OF SENSITIVE PAYMENTS. FHPS has not made or maintained
(a) any contributions, payments or gifts of its funds or property to any
governmental official, employee or agent where either the payment or the
purpose of such contribution, payment or gift was or is illegal under the laws
of the United States or any state thereof, or any other jurisdiction (foreign
or domestic); or (b) any contribution, or reimbursement of any political gift
or contribution made by any other Person, to candidates for public office,
whether federal, state, local or foreign, where such contributions by FHPS were
or would be a violation of applicable law.
4.26 TAX MATTERS. Within the times (including extensions) and in the
manner prescribed by law, FHPS (or the Company, on behalf of FHPS) has filed
all federal, state, local and foreign returns for Taxes ("RETURNS") required to
be filed in any jurisdiction (including, without limitation, informational
returns) and such Returns are complete, true and correct in all material
respects. All Returns complied in all material respects with the tax laws,
rules and regulations, as presently interpreted, applicable to such Returns.
FHPS (or the Company on behalf of FHPS) has not waived or extended any statute
of limitations relating to the assessment of any Taxes. No audit or examination
of any of the Returns of FHPS is currently in progress or, to the Company
Parties' knowledge, threatened or has occurred in the past. All Taxes required
to be paid pursuant to such Returns have been paid on or before their
respective due dates, including any extensions thereof.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Company shall, and shall cause the
Subsidiaries to, comply with all of the covenants of the Company Parties under
this Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation in connection with the transactions contemplated by
this Agreement and to use its respective reasonable best efforts to agree
jointly on a method to overcome any objections by any Governmental Authority to
any such transactions. In addition, the Company agrees to cooperate with Buyer,
with third party
<PAGE> 20
costs paid by Buyer, in connection with any audit of historical financial
information that may be required under the rules and regulations of the
Securities and Exchange Commission.
5.4 APPLICATIONS AND OTHER ACTIONS. Each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated herein, including, without limitation,
using its reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of any Governmental
Authority and parties to Material Contracts with the Company and the
Subsidiaries as are necessary for the consummation of the transactions
contemplated hereby. Each of the parties shall make on a prompt and timely
basis all governmental or regulatory notifications and filings required to be
made by it for the consummation of the transactions contemplated hereby.
5.5 PURCHASE PRICE ALLOCATION AND SECTION 338 ELECTIONS. If requested
by Buyer, Buyer, the Company and the Subsidiaries shall join in an election to
have the provisions of Section 338(h)(10) of the Code and similar provisions of
state law ("SECTION 338 ELECTION") apply to the acquisition of FHPS. Buyer
shall be responsible for, and control, the preparation and filing of such
election. Each of the Company and the Subsidiaries shall allocate the Purchase
Price in accordance with Section 2.2 and shall report, act and file in all
respects and for all purposes consistent with such Schedule 2.2, unless to do
so would cause undue hardship on the Company. Each of the Company and the
Subsidiaries shall execute and deliver to Buyer such documents or forms
(including Section 338 Forms, as defined below) as Buyer shall request or as
are required by applicable law for an effective 338(h)(10) Election. "SECTION
338 FORMS" shall mean all returns, documents, statements, and other forms that
are required to be submitted to any federal, state, county or other local
taxing authority in connection with a 338(h)(10) Election, including, without
limitation, any "statement of Section 338 election" and IRS Form 8023 (together
with any schedules or attachments thereto) that are required pursuant to
Treasury Regulations.
5.6 ACCESS TO INFORMATION. From the date hereof to the Closing Date,
the Company shall, and shall cause each of the Subsidiaries and their
respective directors, officers, employees, auditors, counsel and agents to,
afford Buyer and Buyer's officers, employees, auditors, counsel and agents
reasonable access, during regular business hours and upon reasonable advance
notice, to its properties, offices and other facilities, to its officers and
employees and to all books and records, and shall furnish such persons with all
financial, operating and other data and information as may be requested. No
information provided to or obtained by Buyer shall affect any representation or
warranty in this Agreement.
5.7 NOTIFICATION OF CERTAIN MATTERS. From the date hereof to the
Closing Date, each of the parties to this Agreement shall give prompt notice to
the other parties of the occurrence or non-occurrence of any event which would
likely cause any representation or warranty made by such party herein to be
untrue or inaccurate or any covenant, condition or agreement contained herein
not to be complied with or satisfied (provided, however, that, any such
disclosure shall not in any way be deemed to amend, modify or in any way affect
the representations, warranties and covenants made by any party in or pursuant
to this Agreement).
<PAGE> 21
5.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement, the subject matter or terms hereof or any
confidential information or other proprietary knowledge concerning the business
or affairs of the other party which it may have acquired from such party in the
course of pursuing the transactions contemplated by this Agreement, including
all notes, documents and materials prepared by or for the respective party
which reflect, interpret, evaluate, include or are derived from such
confidential information or proprietary knowledge of the other party, without
the prior consent of the other party hereto; provided, that any information
that is otherwise publicly available, without breach of this provision, or has
been obtained from a third party, or has been requested pursuant to the order
of a court of competent jurisdiction or governmental agency having the
authority to obtain such information, or pursuant to the rules of any
applicable stock exchange to which any of the parties is subject shall not be
deemed confidential information; provided, however, that the party from whom
disclosure is sought, regarding information concerning the other party shall
promptly notify such party and allow such party to obtain any order blocking or
otherwise controlling the disclosure of such information. Any press releases or
any other public announcements concerning this Agreement or the transactions
contemplated hereby shall be approved by both Buyer and the Company; provided,
however, that if any party reasonably believes that it has a legal obligation
to make a press release and the consent of the other party cannot be obtained,
then the release may be made without such approval. Prior to such time, the
parties shall not make any public disclosure regarding the Agreement or the
transactions contemplated hereby.
5.9 NO OTHER DISCUSSIONS. The Company Parties and their Affiliates
shall not directly or indirectly, through any officer, director, employee,
affiliate or agent or otherwise, take any action to solicit, initiate, seek,
entertain, encourage, support or respond to any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
third party regarding any acquisition of FHPS or the Purchased Assets, any
merger or consolidation with or involving FHPS or the Purchased Assets, or any
acquisition of any material portion of the Shares of FHPS or Purchased Assets,
including the grant of any license to any Intellectual Property of FHPS other
than licenses in the ordinary course of business related to the sale of FHPS'
products. The Company agrees that any such negotiations (other than
negotiations with Buyer) in progress as of the date hereof will be suspended
and that the Company will not accept or enter into any agreement, arrangement
or understanding regarding any such third party acquisition transaction prior
to the termination hereof. In the event a Company Party or any of their
respective officers, directors, employees, affiliates or agents receives any
proposal for, any third party acquisition transaction involving FHPS or the
Purchased Assets, or any request for nonpublic information in connection with
any such proposal, the Company will immediately notify Buyer, describing in
detail the identity of the Person making such proposal and the terms and
conditions of such proposal. Nothing contained in this Section shall be
construed as limiting the ability of the Company as to any matter described in
this section, with regard to any other assets of the Company other than the
Purchased Assets and the Shares.
<PAGE> 22
5.10 FHPS TAX MATTERS.
(a) Company Returns. The Company and/or FHPS shall duly
prepare, or cause to be prepared, and the Company shall file, or cause to be
filed, on a timely basis all Returns of FHPS for any period ending on or before
the Closing Date. The Company shall file amended Tax Returns with respect to
periods ending on or before the Closing Date only as agreed by Buyer and the
Company.
(b) Buyer Returns. Buyer shall duly prepare, or cause to be
prepared, and file, or cause to be filed, on a timely basis all Returns of FHPS
for any tax period which ends after the Closing Date, including but not limited
to any Straddle Periods. Any such Returns with respect to the Straddle Periods
shall, insofar as they relate to FHPS, be on a basis consistent with previous
Returns filed in respect of FHPS, unless Buyer and the Company conclude that
there is no reasonable basis for such position.
(c) Tax Cooperation. The Company and Buyer shall provide the
other party with such forms, information and records and make such of its
officers, directors, employees and agents available as may be reasonably
requested by such other party in connection with the preparation of any Return
or any audit or other proceeding, including any ruling request, that relates to
FHPS.
(d) Company Indemnification. The Company shall be liable for
and shall indemnify and hold Buyer harmless against all Taxes of FHPS or
attributable to the Purchased Assets payable for any taxable year or taxable
period ending on or before the Closing Date. To appropriately apportion any
income taxes relating to any taxable year, beginning before and ending after
the Closing Date, the parties shall apportion such income taxes to the taxable
period ending on or before the Closing Date by a closing of the books
consistent with their past practice for reporting items, except that (i)
exemptions, allowances or deductions that are calculated on a time basis, such
as the deduction for depreciation shall be apportioned on a time basis, and
(ii) all Taxes relating to actions outside the ordinary course of business,
occurring after the Closing, on the Closing Date shall be apportioned to the
period ending after the Closing Date. To appropriately apportion any non-income
taxes relating to any taxable year beginning before and ending after the
Closing Date, the parties shall apportion such non-income taxes to the taxable
period ending on or before the Closing Date, as follows: (x) ad valorem taxes
(including without limitations real and personal property taxes), shall be
accrued on a daily basis over the period for which such taxes are levied, or,
if it cannot be determined over the period such taxes are being levied, over
the fiscal period of the relevant taxing authority in each case irrespective of
the lien or assessment date of such taxes, (y) all taxes relating to actions
outside the ordinary course of business occurring after the Closing on the
Closing Date shall be apportioned to the period ending after the Closing Date,
and (z) franchise and other privilege taxes not measured by income shall be
accrued on a daily basis over the period to the which the privilege relates.
(e) Buyer and FHPS Indemnification. Buyer and FHPS shall be
liable for, and shall indemnify and hold the Company and any of its Affiliates
harmless against any and all Taxes imposed on FHPS relating or apportioned to
any taxable year or portion thereof ending after the Closing Date, including
without limitation all Taxes relating to actions outside the ordinary course of
business occurring after the Closing, on the Closing Date.
<PAGE> 23
(f) Refunds or Credits. Buyer and FHPS shall promptly pay to
the Company any refunds or credits (including interest paid to Buyer thereon)
relating to Taxes for which the Company may be liable under Section 5.10
hereof. For purposes of this Section 5.10(f), the terms "refund" and "credit"
shall include a reduction in Taxes and the use of an overpayment of Taxes as an
audit or other tax offset. Receipt of a refund shall occur upon the filing of a
Tax Return or an adjustment therein, using such reduction, overpayment or
offset, or upon the receipt of cash. Upon the reasonable request and cost of
the Company, Buyer shall prepare and file or cause to be prepared and filed,
all claims for refunds relating to such Taxes; provided, however, that Buyer
shall not be required to file such claims for refund to the extent such claim
for refund would have a Material Adverse Effect on Buyer or FHPS in the future,
or to the extent such claims for refund relate to a carryback of an item. Buyer
shall be entitled to all other refunds and credits of Taxes; provided, however,
Buyer will not allow the amendment of any Tax Return relating to any Taxes for
a period (or portion thereof) ending on or prior to the Closing Date or the
carryback of an item to a period ending on or prior to Closing without the
Company's consent.
(g) Consent. Whenever any taxing authority asserts a claim,
makes an assessment or otherwise disputes the amount of taxes for which the
Company is or may be liable under this Agreement, Buyer shall, if informed of
such assertion, promptly inform the Company within fifteen business days, and
the Company shall have the right to control the resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute to
the extent such proceedings or determinations affect the amount of taxes for
which the Company may be liable under this Agreement. Whenever any taxing
authority asserts a claim, makes an assessment, or otherwise disputes the
amount of taxes for which the Buyer is liable under this Agreement, the Buyer
shall have the right to control any resulting proceedings and to determine
whether and when to settle any such claim, assessment or dispute, except to the
extent such proceeding affect the amount of taxes for which the Company may be
liable under this Agreement.
(h) Survival. The obligations of the parties set forth in
this Section 5.10 shall be unconditional and absolute and shall remain in
effect until thirty days after the expiration of the applicable statute of
limitations.
5.11 SERVICE AGREEMENT. Buyer, the Company and IPS shall enter into a
service agreement (the "SERVICE AGREEMENT") in the form of Exhibit D hereto
under which Buyer or any of its subsidiaries or Affiliates shall be the
provider of certain mail order, network claims processing and other pharmacy
benefit management services set forth in the Service Agreement.
5.12 TRANSITION OF SERVICES.
(a) Implementation Schedule. On or before the Closing, the
parties will complete a schedule and attach it to this Agreement as Schedule
5.12, which schedule will include the name, address, contact person and number
of lives eligible for pharmacy benefits for each plan covered by the Affiliated
Business and the Non-affiliated Business and the targeted date that such
business will be transitioned to Buyer's pharmacy claims processing system (the
"IMPLEMENTATION SCHEDULE"). The parties shall use their respective reasonable
best efforts to ensure that all of such business is transitioned to and
implemented by Buyer.
<PAGE> 24
(b) Transition of the Company Affiliated Business. Upon
Closing, Buyer shall provide claims processing services, retail pharmacy
network management services, rebate contracting and formulary management
services, mail service pharmacy and other pharmacy benefit management services
for the Company Affiliated Business in accordance with the terms and provisions
set forth in the Service Agreement, including subject to the transition
schedule set forth therein.
(c) Transition of the Non-affiliated Business.
(i) The Company agrees that, following the Closing
and until such time as the claims processing services are implemented
by Buyer for each plan, the Company shall continue to perform the same
scope of claims processing services that it provided for each such
plan prior to the Closing. The Company shall use its reasonable best
efforts to ensure that during this transition period such services are
performed in such a manner that is consistent with the ordinary course
of business immediately prior to Closing in order to preserve and keep
intact the business relationships with such plans.
(ii) The Company and IPS agree that following the
Closing and until such time as the FHS Affiliated Business has been
transitioned to the jointly negotiated drug manufacturer agreements
(as contemplated by the Service Agreement), upon the request of Buyer,
the Company and IPS shall cause the Non-affiliated Business to be
eligible for rebates under any or all of the existing IPS rebate
agreements should Buyer determine in its sole discretion that it
desires to continue to use such agreements for the Non-affiliated
Business. The Company and IPS agree that such rebates will be serviced
in accordance with Buyer's instructions. IPS agrees that all rebates
collected by IPS based on the utilization of the Non-affiliated
Business prior to Closing shall be paid by IPS following Closing
pursuant to the terms and conditions of the respective agreements for
the Non-affiliated Business, and that Advance Paradigm's obligation to
pay such rebates on such business shall begin with the rebates
collected for the quarter ending June 30, 1999.
(iii) Upon Closing, subject to the respective
agreements between Buyer and each plan covered by the Non-affiliated
Business, mail pharmacy services shall be provided for the
Non-Affiliated Business as determined by Buyer in its sole discretion.
(d) Pharmacy Network Agreements. Pursuant to the transactions
contemplated by this Agreement, IPS will assign to FHPS prior to Closing or
directly to Buyer as of the Closing, and Buyer will acquire, all of the retail
pharmacy network contracts held by IPS, including, but not limited to those set
forth on Schedule 4.22, and Buyer will assume all of the rights and obligations
thereunder upon Closing, or as soon thereafter as is practical; provided,
however, that the parties may agree to substitute new agreements between Buyer
and any such pharmacies in lieu of assignment of any such agreements. In
addition, the parties will use their reasonable best efforts to obtain
assignments of all other retail pharmacy network agreements, subject to any
limitations imposed under applicable law or regulation affecting any of the
Company's Affiliates. Subject to the respective agreements between Buyer and
each plan covered by the Non-affiliated Business, the pharmacy eligible
participants covered by such plans will continue to receive their prescription
services from such retail pharmacies. The parties will
<PAGE> 25
use their reasonable best efforts to obtain a release of IPS and/or FHS from
any liability arising from any such pharmacy network agreements from and after
the Closing. In the event Buyer has failed or is otherwise unable to pay any
such pharmacies in accordance with such agreements (a "DEFAULT IN PHARMACY
PAYMENT"), upon written notice to Buyer and confirmation from Buyer's chief
financial officer that such amounts have not been paid to the pharmacies or to
the pharmacies' Affiliates or designees, FHS, or an FHS Affiliated Plan may
make payment in order to remedy any such Default in Pharmacy Payment, and FHS
shall have the right to offset any amounts that would have been due to Buyer
for such claims under the Service Agreement for such claims.
5.13 CONDUCT OF COMPANY PENDING TRANSITION. From and after the date
hereof and prior to the complete transition of the Affiliated Business and the
Non-affiliated Business, unless Buyer shall otherwise agree in writing, and
except as otherwise expressly contemplated by this Agreement, each of the
Company and the Subsidiaries consents and agrees that the businesses of FHPS
and the business relating to the Purchased Assets shall be conducted only in,
and each of the Company and the Subsidiaries shall not take any action
affecting FHPS or the Purchased Assets except in, the ordinary course of
business and consistent with past practices, and each of the Company and the
Subsidiaries shall use its best efforts to maintain and preserve the business
organization, assets, employees and advantageous business relationships of FHPS
and the Purchased Assets.
5.14 RESTRICTIVE COVENANTS.
(a) In order to assure that Buyer will realize the benefits
of the transactions contemplated hereby, subject to the Company's right to
terminate the Service Agreement after five (5) years, during the term of the
Service Agreement, but in any event not less than the five-year period
following the Closing Date, the Company and its Affiliates shall not engage in
pharmacy claims processing, retail pharmacy network management, mail service
pharmacy, rebate management or (subject to Section 3 of the Service Agreement)
the negotiation and performance of drug manufacturer agreements.
Notwithstanding the foregoing, (i) if the parties' obligations regarding
formulary management and drug manufacturer agreements are terminated in
accordance with Section 11(c)(i) of the Service Agreement, then, so long as the
Company complies with Section 11(c)(i) of the Service Agreement, the Company
may thereafter provide such services for the FHS Affiliated Members; and (ii)
if the Company releases Buyer from its obligations to perform the retail
pharmacy network management services in accordance with Section 11(c)(ii) of
the Service Agreement, then, so long as the Company is in compliance with
Section 11(c)(ii) of the Service Agreement, the Company may thereafter provide
such services for the FHS Affiliated Members; both (i) and (ii) including
participation (which may include minority ownership interests representing not
more than twenty percent (20%) of the equity or voting control) in cooperative
groups or alliances, provided the Company shall not market such services to
third parties. This section shall not be deemed to be a limitation on providing
clinical services (including pharmacy formulary and rebate management services
in accordance with Section 3 of the Service Agreement) to the FHS Affiliated
Members and the Company's contracting medical groups, or the disease management
services offered by the Company, or otherwise limit the Company or any
Affiliate from undertaking activities relating to the processing and payment of
medical claims generally as a payor of such claims.
<PAGE> 26
(b) Section 5.14(a) shall not be deemed to be a limitation on
providing clinical services (including pharmacy formulary and rebate management
services in accordance with Section 3 of the Services Agreement) to the
Affiliated Business and the Company's contracting medical groups, or the
disease management services offered by the Company, or otherwise limit the
Company or any Affiliate from undertaking activities relating to the processing
and payment of medical claims generally as a payor of such claims.
(c) Nothing contained in this Section 5.14 shall limit any
FHS Successor from owning and operating any business (or line of business), for
the benefit of the enrollees of the FHS Successor or other third parties with
whom the FHS Successor contracts, which would otherwise be construed as
violating the provisions of this Section 5.14; provided that the FHS Successor
shall be bound to this Section 5.14 with respect to the business of the Company
and the Affiliated Business, including business that would have been
attributable to the Company but for the Change of Control of the Company; and
provided further that except as expressly otherwise stated herein, all terms,
conditions and obligations of this Agreement shall become the obligations of
any FHS Successor. The Buyer and the FHS Successor shall use their respective
best efforts to agree on the allocation of enrollees between FHS and the FHS
Successor that are subject to this provision. To the extent that the Company
acquires any managed care company that has an ownership in or otherwise
provides services that would conflict with this provision, this provision shall
not apply to the enrollees of such managed care organization as of the
effective date of such acquisition; provided that the provisions of this
Section 5.14 shall continue to apply to any and all current and additional
Affiliated Business. In addition, prior to consummating any acquisition of a
managed care company that has an ownership interest on or otherwise provide
services that would conflict with this Section 5.14, the Company shall notify
Buyer of such acquisition, and Buyer shall engage in good faith negotiations
regarding cooperative efforts with such entity, including Buyer's opportunity
to acquire such business.
(d) Notwithstanding anything contained herein to the
contrary, in the event of a breach or threatened breach of the covenants
contained in Section 5.14(a) hereof, Buyer may, in addition to any other
available remedies, be entitled to an injunction enjoining the Company and its
Affiliates or any person or persons acting for or with the Company in any
capacity whatsoever from violating any of the terms herein, in accordance with
applicable law regarding the award of an equitable remedy.
5.15 RETENTION OF LITIGATION BY THE COMPANY. The Parties agree that
the Company shall retain all actions, suits and other legal and administrative
proceedings and governmental investigations pending or threatened against FHPS,
or FHPS' properties or assets, or the Purchased Assets. The Parties agree that
the Buyer has not agreed to assume, and shall not be required to assume, any
such pending or threatened action, suit or other legal or administrative
proceeding or governmental investigation, and the Company agrees that it will
take all actions and do all things necessary to ensure that Buyer is not liable
for any of the foregoing.
5.16 FHPS FUNDS. The Company shall cause FHPS to have not less than
Five Million Dollars ($5,000,000.00) in cash immediately prior to and at the
Closing.
<PAGE> 27
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
The obligations of Buyer to effect the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions, any or all of which may be waived in whole or in part
by Buyer:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Company Parties
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date with the same force and effect as though made at
and as of that time except (a) for changes specifically permitted by this
Agreement and (b) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. Each of the Company Parties shall have performed or complied with in all
material respects all of their obligations required by this Agreement to be
performed or complied with at or prior to the Closing Date. Each of the Company
Parties shall have delivered to Buyer a certificate, dated as of the Closing,
duly signed by the Chief Executive Officer and principal accounting officer,
certifying that such representations and warranties are true and correct in all
material respects and that all such obligations have been performed and
complied with in all material respects.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between
September 30, 1998 and the Closing Date, (a) there shall have been no Material
Adverse Change to FHPS or the Purchased Assets, (b) there shall have been no
adverse federal, state or local legislative or regulatory change affecting in
any material respect the services, products, business or prospects of FHPS or
the Purchased Assets, and (c) none of the Purchased Assets or the assets of
FHPS shall have been damaged by fire, flood, casualty, act of God or the public
enemy or other cause (regardless of insurance coverage for such damage), which
damages may have a Material Adverse Effect on the Purchased Assets or FHPS, or
have become the subject of a condemnation proceeding, and the Company Parties
shall have delivered to Buyer a certificate, dated as of the Closing Date, to
that effect.
6.3 CORPORATE CERTIFICATES. The Company shall have delivered to Buyer
(i) copies of the organizational documents of FHPS as in effect immediately
prior to the Closing Date, (ii) copies of resolutions adopted by the Board of
Directors and stockholders of the Company and the Subsidiaries authorizing the
transactions contemplated by this Agreement, and (iii) a certificate of good
standing of each of the Company and the Subsidiaries issued by the Secretary of
State of its respective state of incorporation and each other state in which
each is qualified to do business as of a recent date, certified in each case as
of the Closing Date by the Secretary of the respective Company Party as being
true, correct and complete.
6.4 OPINION OF COUNSEL. Buyer shall have received an opinion dated as
of the Closing Date from counsel for the Company Parties in form and substance
reasonably acceptable to Buyer.
6.5 CERTIFICATES AND TRANSACTION DOCUMENTS. Buyer shall have received
from the Company all of the certificates and transfer documents set forth on
Exhibit C.
<PAGE> 28
6.6 CONSENTS AND APPROVALS. The Company Parties shall have received
and furnished to Buyer all consents to the transaction contemplated hereby and
waivers of rights to terminate or modify any material rights or obligations of
the Company Parties from any Person from whom such consent or waiver is
required under any Material Contract on or prior to the Closing and effective
through and including the Closing Date, or who as a result of the transactions
contemplated hereby, would have such rights to terminate or modify such
Contracts or instruments, either by the terms thereof or as a matter of law.
The requirements of the Hart-Scott-Rodino Act, if applicable, shall have been
satisfied.
6.7 NO ADVERSE LITIGATION. There shall not be pending or threatened
any action or proceeding by or before any court or other governmental body
which shall seek to restrain, prohibit, invalidate or collect damages arising
out of the transactions contemplated hereby, and which, in the reasonable
judgment of Buyer, makes it inadvisable to proceed with the transactions
contemplated hereby.
6.8 LIABILITIES. Prior to the Closing, the Company shall have obtained
full satisfactions or releases of all obligations and liabilities due to or on
behalf of any Affiliate of a Subsidiary.
6.9 LIENS. The shares of capital stock of each Subsidiary held by the
Company shall be free and clear of any Liens. The Purchased Assets shall be
free and clear of any Liens.
6.10 SERVICE AGREEMENT. The Service Agreement shall be executed and
become effective immediately following the Closing.
6.11 IMPLEMENTATION SCHEDULE. Buyer and the Company shall have agreed
upon the Implementation Schedule set forth on Schedule 5.12.
6.12 FINANCIAL STATEMENTS. The Company shall have delivered, or shall
have caused to be delivered, to Buyer the Prior Financial Statements and the
Current Financial Statements. The Company shall have agreed to deliver the
balance sheet of FHPS at March 31, 1999 within thirty (30) days of the Closing.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY PARTIES
The obligations of the Company Parties to effect the transactions
contemplated hereby shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions, any or all of which may be waived in
whole or in part by the Company Parties:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same force and effect as though made at and as of that
time except (a) for changes specifically permitted by or disclosed pursuant to
this Agreement and (b) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. Buyer
<PAGE> 29
shall have performed and complied with in all material respects all of its
obligations required by this Agreement to be performed or complied with at or
prior to the Closing Date. Buyer shall have delivered to the Company a
certificate, dated as of the Closing Date, and signed by an executive officer,
certifying that such representations and warranties are true and correct in all
material respects and that all such obligations have been performed and complied
with in all material respects.
7.2 NO ADVERSE LITIGATION OR LEGISLATION. There shall not be pending
or threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the transactions contemplated hereby, and which, in the
reasonable judgment of the Company Parties, makes it inadvisable to proceed
with the transactions contemplated hereby.
7.3 NO MATERIAL ADVERSE CHANGE. Between September 30, 1998 and the
Closing Date, there shall have been no Material Adverse Change to Buyer.
7.4 OPINION OF BUYER COUNSEL. The Company shall have received an
opinion dated as of the Closing Date from counsel to Buyer in form and
substance reasonably acceptable to the Company.
7.5 HART - SCOTT - RODINO ACT. The requirements of the
Hart-Scott-Rodino Act, if applicable, shall have been satisfied.
ARTICLE 8
REMEDIES FOR BREACHES OF THIS AGREEMENT
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing (except if the Party suffering Adverse Consequences knew or
had reason to know of any misrepresentation or breach of warranty or covenant
at the time of Closing) and continue in full force and effect thereafter until
the earlier of: (i) the completion of the Buyer's consolidated audit for the
fiscal year ending March 31, 2000, or (ii) ninety (90) days following the end
of the fiscal year ending March 31, 2000.
8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. In the event any
Company Party breaches (or in the event any third party alleges facts that, if
true, would mean any Company Party has breached) any representations,
warranties, and covenants of the Company Parties contained herein, then the
Company agrees to indemnify Buyer from and against any Adverse Consequences
Buyer may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences suffered after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach), subject to the limitations set
forth below.
8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY. In the
event Buyer breaches (or in the event any third party alleges facts that, if
true, would mean Buyer has breached) any representations, warranties, and
covenants of Buyer contained herein, then Buyer agrees to indemnify the Company
from and against any Adverse Consequences the Company may suffer through and
after the date of the claim for indemnification (including any Adverse
<PAGE> 30
Consequences suffered after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of or caused by the
breach (or the alleged breach), subject to the limitations set forth below.
8.4 PROCEDURE FOR MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the
"INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this Article 8, then the Indemnified Party shall
promptly issue a Claim Notice to the Indemnifying Party with respect thereto.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen
(15) days following the receipt of the Claim Notice that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim, (ii)
upon request of the Indemnified Party, the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder,
and (iii) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(c) The Indemnified Party: (i) may retain separate co-counsel
at its sole cost and expense and participate in the defense of the Third Party
Claim and (ii) will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably); and the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 8.4(b) is
or becomes unsatisfied, (i) the Indemnified Party may defend against the Third
Party Claim in any manner it reasonably may deem appropriate, (ii) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (iii) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Article 8.
8.5 NOTICE OF CLAIM. A Party suffering Adverse Consequences that gives
or could give rise to a claim for indemnification under this Article 8 shall
promptly notify each other Party thereof in writing (a "CLAIM NOTICE") in
accordance with Section 10.1. The Claim Notice shall contain a brief
description of the nature of the Adverse Consequences suffered and, if
practicable, an aggregate dollar value estimate of the Adverse Consequence
suffered. No delay in
<PAGE> 31
the issuance of a Claim Notice shall relieve any Party from any obligation
under this Article 8, unless and solely to the extent such Party is thereby
prejudiced.
8.6 LIMITATION ON AND EXPIRATION OF INDEMNIFICATION. Notwithstanding
anything in this Article 8 to the contrary, the Company's rights to
indemnification from Buyer, and Buyer's rights to indemnification from the
Company, shall be limited as follows:
(a) all rights of the parties hereto to indemnification
hereunder for breaches of representations and warranties shall expire following
the completion of the Buyer's consolidated audit for the fiscal year ending
March 31, 2000; provided, however, if, prior to such expiration, a state of
facts shall have become known which threatens to give rise to a liability
against which any party hereto would be entitled to indemnification hereunder
and the indemnified party shall have given notice of such facts to the
indemnifying party, then the rights of the indemnified party to indemnification
with respect to such liability shall continue until such liability shall have
been finally determined and disposed of; and provided, further, that any
obligation for indemnification by the Company arising out of Taxes shall
continue for the period of the applicable statute of limitations for such
Taxes.
(b) No party shall be entitled to indemnification pursuant to
Section 8.1 or 8.2 unless and until the aggregate amount of damages resulting
from any and all indemnification sustained by such party exceeds $500,000.
Further, the aggregate amount to which an Indemnified Party shall be entitled
to recover for all obligations of indemnification under this Section 8 shall
not exceed the amount of $20 million.
(c) whenever the word "material" or phrase "Material Adverse
Effect" is used in this Agreement, it shall be construed as referring to
damages with respect to any individual claim which exceeds $75,000.
8.7 ADJUSTMENT FOR INSURANCE. The amount which an Indemnifying Party
is required to pay to, for or on behalf of the Indemnified Party pursuant to
this Article 8 shall be adjusted (including, without limitation, retroactively)
by any insurance proceeds actually recovered by or on behalf of such
Indemnified Party in reduction of the related indemnifiable loss (the
"INDEMNIFIABLE LOSS"). Amounts required to be paid, as so reduced, are
hereinafter sometimes called an "INDEMNITY PAYMENT". If an Indemnified Party
has received or has had paid on its behalf an Indemnity Payment for an
Indemnifiable Loss and subsequently receives insurance proceeds for such
Indemnifiable Loss, then the Indemnified Party shall (x) promptly notify the
Indemnifying Party of the amount and nature of such proceeds, and (y) pay to
the Indemnifying Party the amount of such insurance proceeds or, if lesser, the
amount of the Indemnity Payment.
8.8 MITIGATION OF LOSS. Each Indemnified Party is obligated to use all
reasonable efforts to mitigate to the fullest extent practicable the amount of
any Indemnifiable Loss for which it is entitled to seek indemnification
hereunder, and the Indemnifying Party shall not be required to make any payment
to an Indemnitee in respect of such Indemnifiable Loss to the extent such
Indemnified Party failed to comply with the foregoing obligation.
8.9 SUBROGATION. Upon making any Indemnity Payment, the Indemnifying
Party will, to the extent of such payment, be subrogated to all rights of the
Indemnified Party against
<PAGE> 32
any third party in respect of the Indemnifiable Loss to which the payment
relates; provided, however, that until the Indemnified Party recovers full
payment of its Indemnifiable Loss, any and all claims of the Indemnifying Party
against any such third party on account of such payment are hereby made
expressly subordinated and subjected in right of payment of the Indemnified
Party's rights against such third party. Without limiting the generality of any
other provision hereof, each such Indemnified Party and Indemnifying Party will
duly execute, upon request, all instruments reasonably necessary to evidence
and perfect the above-described subrogation and subordination rights.
8.10 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may
have with respect to the transactions contemplated by this Agreement; provided,
however, that the limitations contained in Section 8.6 shall apply to such
remedies, except with respect to any equitable remedy, or any rights of any of
the parties arising under the Service Agreement.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
(b) by Buyer upon delivery of written notice to the Company
in accordance with Section 10.1 of this Agreement in the event of a material
breach by a Company Party of any provision of this Agreement; or
(c) by the Company upon delivery of written notice to Buyer
in accordance with Section 10.1 of this Agreement in the event of a material
breach by Buyer of any provision of this Agreement; or
(d) by Buyer or the Company upon delivery of written notice
to the other in accordance with Section 10.1 of this Agreement, if the Closing
shall not have occurred by March 31, 1999, unless the failure of the Closing to
occur is the result of a breach by the terminating party that caused the
Closing to be delayed.
9.2 EFFECT OF TERMINATION. Except for the provisions of Article 8 and
Section 10.3 hereof, which shall survive any termination of this Agreement, in
the event of termination of this Agreement pursuant to Section 9.1, this
Agreement shall forthwith become void and of no further force and effect, and
the parties shall be released from any and all obligations hereunder; provided,
however, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
<PAGE> 33
ARTICLE 10
GENERAL PROVISIONS
10.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission, if such transmission
is confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which such
party shall designate by like notice to the other party):
(a) if to Buyer to:
Advance Paradigm, Inc.
545 E. John Carpenter Freeway, Suite 1570
Irving, Texas 75062
Attn: David D. Halbert
Chief Executive Officer, President and Chairman
Telecopy: (972) 830-6196
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: J. Kenneth Menges, Jr., P.C.
Telecopy: (214) 969-4343
(b) if to the Company Parties to:
Foundation Health Systems, Inc.
21650 Oxnard Street
Woodland Hills, California 91367
Attention: Gary Velasquez
President - Specialty Services
Telecopy: 1-818-676-6616
with a copy to:
Foundation Health Systems, Inc.
21650 Oxnard Street
Woodland Hills, California 91367
Attention: B. Curtis Westen, Esquire
Senior Vice President, General Counsel
and Secretary
Telecopy: 1-818-676-7503
and
<PAGE> 34
Epstein Becker & Green, P.C.
1227 25th Street, N.W.
Washington, D.C. 20037
Attention: Robert D. Reif, Esquire
Telecopy: 202-296-2882
10.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto, and other documents delivered at the Closing
pursuant hereto), contains the entire understanding of the parties in respect
of its subject matter and supersedes all prior agreements and understanding
(oral or written) between or among the parties with respect to such subject
matter. The Exhibits and Schedules constitute a part of this Agreement as
though set forth in full herein.
10.3 EXPENSES; SALES TAX. Except as otherwise provided herein, each
party shall bear its own transaction fees. The Company shall bear, be
responsible for and pay any state sales tax arising as a result of sale of the
Shares.
10.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled, or discharged, except by written instrument executed by
all parties. No failure to exercise and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of such or any other right, power or privilege. No waiver
of any breach of any provision shall be deemed to be a waiver of any preceding
or succeeding breach of the same or any other provision, nor shall any waiver
be implied from any course of dealing between the parties. No extension of time
for performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts.
10.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and permitted assigns. Nothing expressed or implied
herein shall be construed to give any other Person any legal or equitable
rights hereunder. Except as expressly provided herein, the rights and
obligations of this Agreement may not be assigned by the Company Parties
without the prior written consent of Buyer. Buyer may assign all or any portion
of its rights hereunder to one or more of its wholly owned subsidiaries.
10.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
10.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
<PAGE> 35
10.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Delaware without giving effect to the principles of conflicts of laws.
10.9 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the United States
District Court for the District of Delaware and each of the parties consents to
the jurisdiction of such court (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may
be served on any party anywhere in the world. To the extent not prohibited by
applicable law, each of the parties hereby waives any right to trial by jury in
any action or proceeding based on or arising out of this Agreement.
10.10 ARM'S LENGTH NEGOTIATIONS. Each party hereto expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed himself or itself of the terms,
contents, conditions, and effects of this Agreement; (b) said party has relied
solely and completely upon his or its own judgment in executing this Agreement;
(c) said party has had the opportunity to seek and has obtained the advice of
counsel before executing this Agreement; (d) said party has acted voluntarily
and of his or its own free will in executing this Agreement; (e) said party is
not acting under duress, whether economic or physical, in executing this
Agreement; and (f) this Agreement is the result of arm's length negotiations
conducted by and among the parties and their respective counsel.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 36
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ADVANCE PARADIGM, INC.
By:
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Name:
--------------------------------------------
Title:
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FOUNDATION HEALTH SYSTEMS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
FOUNDATION HEALTH PHARMACEUTICAL SYSTEMS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
INTEGRATED PHARMACEUTICAL SYSTEMS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
FOUNDATION HEALTH CORPORATION
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE> 1
EXHIBIT 4.1
ADVANCE PARADIGM, INC.
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement") dated as of February 26, 1999
is entered into by and between Advance Paradigm, Inc., a Delaware corporation
(the "Company") and Foundation Health Systems, Inc.("FHS").
TERMS OF AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and FHS hereby agree as follows:
Section 1. SERVICES AGREEMENT. Reference is made to that certain
Services Agreement dated as of the date hereof entered into by and among the
Company, Integrated Pharmaceutical Services and FHS (the "Services Agreement").
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Services Agreement.
Section 2. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK. The Company
hereby grants to FHS the right, and FHS shall be entitled, subject to the terms
and conditions hereinafter set forth, to purchase from the Company 200,000
shares of its common stock, par value $0.01 per share (the "Common Stock")(which
number is referred to herein as the "Total Exercise Number") at a per share
exercise price equal to $35.50 (the "Exercise Price"). The right to purchase
such shares shall be evidenced by five (5) warrant certificates each in the form
of Exhibit A hereto (collectively, the "Warrant Certificates" and each a
"Warrant Certificate"). Subject to Section 3 hereof, each Warrant Certificate
shall be delivered to the FHS following the Vesting Date (as defined below)
thereof. The Total Exercise Number and Exercise Price of such shares are subject
to adjustment as provided in Section 4 hereof.
Section 3. EXERCISE OF WARRANT CERTIFICATES. The purchase rights
granted hereunder will be exercisable as to twenty percent (20%) of the Total
Exercise Number as of the first anniversary of the effective date of the
Services Agreement, and the right to exercise with respect to an additional
twenty percent (20%) of the Total Exercise Number will accrue on each of the
next four anniversaries of the effective date of the Services Agreement (each a
"Vesting Date") and will be cumulative; provided, however, that if on any
vesting date the number of lives for which the Company is providing integrated
pharmacy benefit management services under the Services Agreement is less than
four (4) million, then the scheduled vesting for such date will be forfeited.
The Warrant Certificates may be exercised only so long as the Company is the
exclusive vendor of integrated pharmacy benefit management services for FHS,
consistent with and subject to the terms and conditions of the Services
Agreement. Except as otherwise provided for herein, the term of the Warrant
Certificates and the right to purchase Common
<PAGE> 2
Stock as described therein shall commence on the Vesting Date of such Warrant
Certificate and will end on the earlier of February 26, 2005 or three months
following the termination date of the Services Agreement (the "Exercise
Period"). Shares of Common Stock purchased upon exercise of each Warrant
Certificate shall at the time of purchase be paid for in full. To the extent
that the right to purchase shares has accrued hereunder, the Warrant
Certificates may be exercised by written notice to the Company in the form
attached to the Warrant Certificates, which specifies an exercise date (the
"Date of Exercise"), accompanied by full payment for the shares by wire transfer
or certified or official bank check or the equivalent thereof acceptable to
Company. Upon the initial exercise of a Warrant Certificate, FHS and the Company
shall execute and enter into the Stockholders Agreement attached hereto as
Exhibit B (the "Stockholders Agreement").
At the time of delivery, the Company shall, without stock transfer tax
to the holder of the Warrant Certificate ("Holder"), deliver to the Holder (or
to such other person as the Holder directs) at the principal office of the
Company, or such other place as shall be mutually agreed upon, a certificate or
certificates for such shares, provided, however, that the time of delivery may
be postponed by the Company for such period as may be required for it with
reasonable diligence to comply with any requirements of law. The Company at the
time of exercise will require in addition that the registered owner of the
shares deliver an executed copy of the Stockholder Agreement, an investment
representation in form acceptable to the Company, and the Company will place a
legend on the certificate for such Common Stock restricting the transfer of
same. At no time shall the Company have any obligation or duty to register under
the Securities Act of 1933 (the "1933 Act") the Common Stock issuable upon
exercise of a Warrant Certificate.
Section 4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES. The
Exercise Price and number of shares of Common Stock purchasable pursuant to the
exercise of the Warrant Certificates shall be subject to adjustment from time to
time as follows:
(a) Adjustment for Combinations or Consolidations of Common Stock. In
the event the Company, at any time or from time to time after the date hereof,
effects a subdivision or capital reorganization of its outstanding Common Stock
for a greater or lesser number of shares, then and in each such event the Total
Exercise Number and the Exercise Price shall be adjusted proportionately such
that FHS is entitled to purchase the same percentage of all shares of the
Company's outstanding capital stock then issued and issuable for the same
aggregate consideration as such Holder was entitled to purchase immediately
prior to such event.
(b) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time or from time to time after the date hereof shall pay a
dividend payable in Common Stock of the Company, or otherwise make a
distribution of Common Stock to its stockholders, then the Exercise Price shall
be adjusted, from and after the record date of such dividend or the date of such
distribution, to that price determined by multiplying the Exercise Price by a
fraction,
(i) the numerator of which shall be the total number of shares
of capital stock issued and outstanding or deemed to be issued
and outstanding immediately prior to the time of such issuance
or the close of business on such record date; and
2
<PAGE> 3
(ii) the denominator of which shall be the number of shares of
capital stock issued and outstanding or deemed to be issued
and outstanding immediately prior to the time of such issuance
or the close of business on such record date plus the number
of shares of capital stock to be issued;
provided, however, that if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Exercise Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Exercise Price
shall be adjusted pursuant to this Section 4(b) as of the time of actual payment
of such dividend or distribution. FHS shall thereafter be entitled to purchase,
at the Exercise Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(c) Number of Shares. Upon any adjustment of the Exercise Price
pursuant to Section 4(b) hereof, FHS shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
shares, calculated to the nearest full share, obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the new Exercise Price resulting from such
adjustment.
Section 5. RESERVATION AND AUTHORIZATION OF COMMON STOCK. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purposes of
effecting the exercise of all outstanding Warrant Certificates, the full number
of shares of Common Stock issuable upon the exercise of all outstanding Warrant
Certificates. For the purpose of this Section 5, the full number of shares of
Common Stock issuable upon the exercise of all outstanding Warrant Certificates
shall be computed as if at the time of computation of such number of shares of
Common Stock all outstanding Warrant Certificates were held by a single holder.
The Company shall from time to time, in accordance with applicable law, increase
the authorized amount of its Common Stock if at any time the authorized amount
of its Common Stock remaining unissued shall not be sufficient to permit the
exercise of all Warrant Certificates at the time outstanding.
Section 6. TRANSFERABILITY.
(a) The Warrant Certificates are not transferable by FHS except to the
Company, affiliates of FHS or an FHS Successor (as defined in the Services
Agreement). Any permitted transfer of a Warrant Certificate shall be recorded on
the books of the Company upon receipt by the Company of a notice of transfer in
the form attached hereto as Exhibit B, at its principal offices and the payment
to the Company of all transfer taxes and other governmental charges imposed on
such transfer. The shares of Common Stock purchased by FHS are not transferable
except as provided in the Stockholders Agreement.
3
<PAGE> 4
(b) Unless and until otherwise permitted by this Section and the
Stockholders Agreement, each certificate representing Common Stock initially
issued upon the exercise of each Warrant Certificate (a "Stock Certificate"),
and each certificate for Common Stock issued to any subsequent transferee of any
such certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE
REOFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS AGREEMENT
BETWEEN THE COMPANY AND FOUNDATION HEALTH SYSTEMS, INC., DATED
AS OF ______________, A COPY OF WHICH MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
Prior to any permitted transfer of a Warrant Certificate or
any Stock Certificate, the holder thereof shall furnish, at the expense of such
holder, to the Company an opinion of counsel, reasonably satisfactory in form
and substance to the Company, to the effect that such transfer is exempt from
registration under the Securities Act. Upon any exercise of any Warrant
Certificate for shares of Common Stock to be registered in the name of a person
other than FHS, FHS shall furnish, at the expense of FHS, to the Company an
opinion of the General Counsel of FHS, reasonably satisfactory in form and
substance to the Company, to the effect that the issuance of the shares of
Common Stock to such other person upon exercise of the Warrant is exempt from
registration under the Securities Act.
Section 7. FRACTIONAL SHARES. The Company shall not be required to
issue a fractional share of stock upon any exercise of a Warrant Certificate. As
to any final fraction of a share that FHS would otherwise be entitled to
purchase upon exercise of a Warrant Certificate, the Company shall, if it does
not issue a fractional share, pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Exercise Price per share
of Common Stock.
Section 8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. In the
event of loss, theft or destruction of a Warrant Certificate, the Company will
make and deliver a new Warrant Certificate of like tenor, in lieu of such
Warrant Certificate, upon receipt by the Company of evidence reasonably
satisfactory to it of such loss, theft, or destruction and indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expense incidental thereto. In the case of mutilation of a Warrant
Certificate and upon surrender and cancellation of such Warrant Certificate, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of such Warrant Certificate.
4
<PAGE> 5
Section 9. RIGHTS PRIOR TO EXERCISE OF WARRANT CERTIFICATES. Prior to
the exercise of a Warrant Certificate, FHS shall not be entitled to any rights
of a stockholder of the Company with respect to the Common Stock for which such
Warrant Certificate may then be exercisable, including without limitation the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights and shall not be entitled to receive any notice of any
proceedings of the Company except as provided herein.
Section 10. AUTHORIZATION AND ISSUANCE. The Company represents and
warrants to FHS that it has the corporate power and authority to issue the
Warrant Certificates; this Warrant Agreement has been duly authorized, executed
and delivered and the Warrant Certificates, when delivered, will be duly and
validly issued, fully paid and nonassessable; the issuance of the Warrant
Certificates, and the shares of Common Stock issuable upon their exercise, are
not prohibited or restricted by the Certificate of Incorporation or Bylaws of
the Company or any material agreement to which the Company is a party; except
for those agreements for which the Company has received the requisite consents
or waivers; and the shares of Common Stock issuable upon exercise of the Warrant
Certificates, when issued upon exercise of the Warrant Certificates pursuant to
the terms hereof, will be duly and validly issued, fully paid and nonassessable.
Section 11. REPRESENTATIONS AND COVENANTS OF FHS. This Warrant
Agreement has been entered into by the Company in reliance upon the following
representations and covenants of FHS:
(a) Investment Purpose. The right to acquire the Common Stock issuable
upon exercise of FHS's rights contained herein will be acquired for investment
and not with a view to the sale or distribution of any part thereof, and FHS has
no present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.
(b) Private Issue. FHS understands (i) that the Common Stock issuable
upon exercise of the Warrant Certificates is not registered under the 1933 Act
or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 11.
(c) Financial Risk. FHS has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment, and has the ability to bear the economic risks of its investment.
(d) Risk of No Registration. FHS understands that if the Company does
not register with the Securities and Exchange Commission pursuant to Section 11
of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering
the securities under the 1933 Act is not in effect when it desires to sell the
Common Stock issuable upon exercise of the right to purchase, it may be required
to hold such securities for an indefinite period. FHS also understands that any
sale of its rights to purchase Common Stock which might be made by it in
reliance upon Rule 144 under the 1933 Act may be made only in accordance with
the terms and conditions of that Rule.
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(e) Stockholders Agreement. Prior to the exercise of any Warrant
Certificate, FHS agrees to, and to cause any permitted transferee to, enter
into, execute and perform the Stockholders Agreement.
Section 12. GENERAL.
(a) Expenses. Each party shall bear and pay all costs and expenses
incurred by them respecting the transactions contemplated herein and all
investigations and proceedings in connection therewith, including, without
limitation, fees, commissions or expenses of their respective counsel,
accountants and financial advisors.
(b) Notice. Any notice required to be given pursuant to the terms and
provisions of this Agreement shall be in writing and shall be sent by certified
mail, return receipt requested, or by overnight delivery service, or facsimile
transmission confirmed by telephone and followed by overnight delivery to the
parties at the addresses below or such other address as shall be specified by
the parties by like notice
to the Company at:
Advance Paradigm, Inc.
Attn: Vice President - Legal Affairs
545 E. John Carpenter Freeway, Suite 1900
Irving, Texas 75062
Fax No.: 214/830-6196
and to FHS at:
Foundation Health Systems, Inc.
Attn: President, Specialty Services
21650 Oxnard Street
Woodland Hills, California 91367
Fax No.: (818) 676-6616
Notice so given shall, in the case of notice so given by mail,
be deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by express delivery service, on the date of actual
delivery and, in the case of notice so given by facsimile transmission or
personal delivery, on the date of actual transmission or personal delivery, as
the case may be.
(c) Binding Nature and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and assigns.
Neither party may assign this Agreement without the prior written consent of the
other; provided, however, that either party
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<PAGE> 7
may transfer or assign its rights and obligations under this Agreement, to any
affiliate, and provided further that no such assignment shall have the effect of
releasing such party from any of its obligations under this Agreement.
(d) Headings and Interpretation. The headings of the various sections
of this Agreement are inserted for convenience only and do not, expressly or by
implication, limit, define or extend the specific terms of the section so
designated.
(e) Governing Law. The validity, enforceability, and interpretation of
this Agreement shall be determined and governed by the internal laws of the
State of Texas (and not the law of conflicts).
(f) Entire Agreement. This Agreement contains all the terms and
conditions agreed upon by the parties, and supersedes all prior understandings,
writings, proposals, representations, or communications, oral or written, of the
parties hereto.
(g) Authority. Company and FHS warrant that each has full power and
authority to enter into and perform this Agreement, and the person signing this
Agreement on behalf of each party certifies that such person has been properly
authorized and empowered to enter into this Agreement on behalf of such party.
(h) Non-Waiver. The failure of either party to insist, in any one or
more instances, upon performance of any of the terms, covenants or conditions of
this Agreement shall not be construed as a waiver or a relinquishment of any
right or claim granted or arising hereunder or of the future performance of any
such term, covenant, or condition, and such failure shall in no way affect the
validity of this Agreement or the rights and obligations of the parties
hereunder.
(i) Survival. Should any part, term or condition of this Agreement be
declared illegal or unenforceable or in conflict with any other laws, the
remaining provisions shall be valid and not affected thereby.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
(k) Further Assurances. From time to time upon request and without
further consideration, the parties hereto shall, and shall cause their
subsidiaries and affiliates, to execute, deliver or acknowledge such documents
and do such further acts as the other party hereto may reasonably require to
effectuate its obligations contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their proper and duly authorized officers on the date
first above written. By executing the Agreement, the undersigned individuals
hereby warrant and represent that they have read this Agreement in its entirety
and agree to all its terms.
ADVANCE PARADIGM, INC.
By:
--------------------------------------
David D. Halbert
Chairman of the Board and Chief Executive Officer
FOUNDATION HEALTH SYSTEMS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
8
<PAGE> 1
EXHIBIT 10.1
PHARMACY BENEFIT SERVICES AGREEMENT
This Pharmacy Benefit Services Agreement effective as of April 1, 1999,
is entered into by and between Advance Paradigm, Inc., a Delaware corporation
("Advance Paradigm"), Foundation Health Systems, Inc. ("FHS") and Integrated
Pharmaceutical Services ("IPS"), a subsidiary of FHS.
PRELIMINARY STATEMENTS
A. Pursuant to the terms and conditions of this Agreement, FHS and IPS will
retain Advance Paradigm to provide, and Advance Paradigm will provide for, or
cause to be provided, certain pharmacy benefit management services to the FHS
Affiliated Plans, including (i) Advance Paradigm and IPS will jointly negotiate
with drug manufacturers for all market share and volume-based incentive
arrangements relating to drug utilization for each party's members, (ii) claims
processing, retail network management and payment of claims to participating
pharmacies for prescription drugs furnished to Eligible Members, and (iii) mail
service pharmacy (collectively, the "PBM Services").
B. Advance Paradigm and FHS, Foundation Health Pharmaceutical Services, Inc.
("FHPS") and IPS have entered in to that certain Purchase Agreement dated
February 26, 1999 pursuant to which Advance Paradigm has agreed to purchase, and
FHS has agreed to sell to Advance Paradigm, certain of FHS pharmacy benefit
management operations (the "Purchase Agreement"). Upon consummation of the
transactions contemplated by the Purchase Agreement, in addition to the PBM
Services provided by Advance Paradigm to IPS and the FHS Affiliated Plans
pursuant to this Agreement, Advance Paradigm will acquire FHPS and will provide
certain PBM Services to all Health Plans that utilize IPS, FHPS or the FHS
Affiliated Plans for their Pharmacy Benefit (the "Non-Affiliated Business").
C. FHS is entering into this Agreement on behalf of its operating entities and
not on its own behalf. Nothing contained herein is intended to imply that FHS is
engaging in any regulated business activity for which a license would be
required.
TERMS OF AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions. Unless the context otherwise requires, the terms defined
in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, including singular and plural forms of any
terms herein defined.
"Advance Paradigm" shall mean Advance Paradigm, Inc., a Delaware
corporation, together with its wholly-owned subsidiaries including,
without limitation, FHPS following consummation of the Purchase
Agreement.
"Agreement" shall mean this Pharmacy Benefit Services Agreement.
<PAGE> 2
"AWP" shall mean the average wholesale price of the drug dispensed, as
set forth in the current price list in recognized sources such as
Medi-Span Prescription Pricing Guide, including its supplements, or
other nationally recognized pricing sources determined by mutual
agreement of the parties. The applicable AWP for prescriptions
dispensed by retail pharmacies is based on the package size submitted.
The applicable AWP for prescriptions dispensed by the mail service
pharmacy shall be based on the package size that results in charges
that are no greater than the current mail order pharmacy arrangement in
effect as of the Effective Date, except as a result of a material
change in the pricing structure in the industry.
"Change of Control" of a company shall occur when: (i) a third party
acquires fifty percent (50%) or more of the outstanding voting stock of
such company; (ii) the company sells all or substantially all of its
assets to a third party; (iii) the company merges into or consolidates
with another party such that (a) the company is not the surviving
company, (b) if the surviving company, a majority of the Board of
Directors of the company comprising the board immediately prior to such
transaction does not also constitute a majority following such
transaction or (c) if the surviving company, a majority of the
outstanding shares of the company's stock is not held by holders who
held a majority of the shares of stock of the company immediately prior
to such transaction.
"Client" shall mean IPS and FHS, together with their subsidiaries. Each
reference to Client herein shall be deemed to include each of IPS and
FHS jointly and severally.
"Closing" shall mean the date and time that the transactions
contemplated by the Purchase Agreement are consummated.
"Drug Manufacturer Agreement (or Agreements)" shall have the meaning
set forth in Section 3(a).
"Drug Pricing/DUR Database" means the drug pricing and DUR data
provided to Advance Paradigm by a nationally recognized, third party
source.
"DUR" shall mean drug utilization review.
"Effective Date" shall mean the day that PBM Services begin for each
FHS Affiliated Plan covered by this Agreement.
"Eligibility Tape" shall have the meaning assigned to such term in
Section 2(b) hereof.
"Eligible Member" shall mean each individual who is included on the
Eligibility Tape and the updates thereto as being entitled to Pharmacy
Benefits.
"FHPS" shall mean Foundation Health Pharmaceutical Services, Inc., a
wholly-owned subsidiary of Advance Paradigm, Inc.
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"FHS Affiliated Plans" shall mean IPS and each direct and indirect
subsidiary or affiliate of FHS or IPS which presently or hereafter
provides or administers a Pharmacy Benefit for its enrollees, except
for the affiliates of FHS set forth on Schedule 1, to the extent that
after the Effective Date of this Agreement any such affiliate is
thereafter sold to a third party.
"FHS Successor" shall mean any third party that acquires FHS in a
Change of Control transaction.
"Generic Drug" means the chemical and generic name as determined by the
United States Adopted Names Council (USANC) and accepted by the Federal
Food and Drug Administration (FDA), of those drug products having the
same active ingredients as a drug product prescribed by its trade or
brand name.
"HCFA" shall mean the Health Care Financing Administration.
"Health Plan" shall mean a licensed health care plan, health
maintenance organization, and insurance carrier.
"Information Systems" shall mean all computer hardware, software, and
firmware products and other information technology at any level
(including but not limited to microcode, firmware, application
programs, files and databases, systems, services, products and
equipment other than computer hardware) that use or rely on date and
time data.
"IPS MAC" shall mean the current maximum allowable cost as defined by
IPS, as modified from time to time.
"Mission Critical Information Systems" shall mean all Information
Systems which are owned, operated and controlled by each party
(including the FHS Affiliated Plans) and which are used to communicate
or exchange data with the other party (including the FHS Affiliated
Plans) or operate in conjunction with systems of the other party
(including the FHS Affiliated Plans), or in the case of Advance
Paradigm, which are operated in conjunction with or necessary for the
performance of its functions hereunder and which materially affect the
accurate and timely performance of mission-critical functions necessary
to provide pharmaceutical benefit services in accordance with this
Agreement; provided, however, that with respect to FHS, IPS and the FHS
Affiliated Plans, such term shall refer solely to systems necessary for
the exchange of information with Advance Paradigm.
"Paid Claims" shall mean the net amounts of claims adjudicated and paid
to pharmacies and does not include denied, duplicate or reversed
claims.
"Participating Pharmacy" shall mean each retail pharmacy participating
in the Advance Paradigm Pharmacy Network.
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"PBM Services" shall mean pharmacy benefit management services as
defined in the Preliminary Statements.
"Pharmacy Benefits" shall mean all of the Client's prescription drug
benefit plans for which Advance Paradigm will provide PBM Services
under this Agreement.
"Prescription" shall mean a valid and legal order to dispense to an
Eligible Member for his or her own use a drug legally eligible for
dispensing under the laws and regulations of the United States,
including the Food and Drug Administration and the state laws in which
the dispensing facility is located.
"Quarter" shall mean each three month period of a calendar year
commencing on each January 1, April 1, July 1 and October 1.
"Rebates" shall mean the payments received from drug manufacturers as
retrospective volume based adjustments under the new Drug Manufacturer
Agreements; "value investments" and/or drug manufacturer administrative
fees, which are lawful payments relating to programs arising under any
such Drug Manufacturer Agreement or are otherwise from a drug
manufacturer, including, but not limited to payments for pharmaceutical
compliance programs, physician education programs and enrollee
education programs, shall not be considered to be "Rebates", unless
otherwise agreed to by the parties.
"Rebate Management" shall mean rebate contracting as described in
Section 3(a).
"Rebate Processing" shall mean the calculation of the amounts due from
drug manufacturers and the billing and collection of such amounts from
drug manufacturers.
"Transition Period" shall mean the period of time following execution
of the Agreement through and including the final Effective Date.
"Walgreen's MAC" shall mean the current maximum allowable cost
published by HCFA, from time to time, plus 31%. This rate shall only
apply towards mail order pharmacy claims.
"Year 2000 Compliant" shall mean:
(i) Mission Critical Information Systems are capable of accurately
processing date and time data (including, but not limited to,
calculating, sorting, indexing, comparing and sequencing)
from, into, and between the nineteenth, twentieth, and
twenty-first centuries, and the years 1999 and 2000 and leap
year calculations, without material error or interruption in
performance, individually and in combination with other
Information Systems properly exchanging date and time data.
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(ii) Mission Critical Information Systems are capable of
transitioning into and operating prior, during and after the
year 2000 without material interruption or adverse effect on
either party's operations or performance including, without
limitation, no material loss of any functionality of services
with respect to the introduction, processing or output of
records containing dates falling on or after January 1, 2000
and no material interruption of operations or other material
adverse effect on the parties' (including the FHS Affiliated
Plans) respective performance under this Agreement.
2. Transition and Eligibility.
(a) Transition Schedule.
(i) On or before the Closing, the parties will complete a
transition schedule and attach it to this Agreement
as Exhibit A (the "TRANSITION SCHEDULE"). The
Transition Schedule will reflect the name, address
and date that each PBM Service is expected to
commence for each FHS Affiliated Plan and the
Non-Affiliated Business and such other transition
items as the parties mutually agree. During the
Transition Period, Advance Paradigm, FHPS and Client
shall each use its reasonable best efforts to make
available and dedicate all required systems, benefit
design administration, retail network administration,
clinical, rebate and other staff to ensure an orderly
transition of the Client's Pharmacy Benefit
requirements to Advance Paradigm. The parties shall
use, and FHS shall cause the FHS Affiliated Plans to
use, their respective reasonable best efforts to
ensure that such Pharmacy Benefit Requirements have
been transitioned to Advance Paradigm, and Advance
Paradigm is providing the PBM Services as
contemplated by this Agreement for Client, as set
forth in Exhibit B attached hereto and incorporated
herein by reference. Once transitioned to Advance
Paradigm, Advance Paradigm shall be required to
furnish all of the services set forth on Exhibit B.
Such services shall be provided in a manner
consistent with past practices of FHS, regulatory
requirements and other specific client based
requirements applicable to FHS and/or FHS Affiliated
Plans.
(ii) Advance Paradigm will have completed all necessary
programming to support enforcement of all on-line
edits (those enforced by the claims adjudicators at
the time of transition) on the Effective Date of each
plan transition. The cost of any programming required
shall be the financial responsibility of Advance
Paradigm.
(iii) For the TRICARE business, Advance Paradigm shall be
financially responsible for any reasonable costs of
programming required to the systems of the regional
claims subcontractors (Blue Cross and Blue Shield of
South Carolina and Wisconsin Physician Services) to
accommodate this transition. By the Effective Date of
the transition of the TRICARE
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business, Advance Paradigm will have completed the
necessary system programming to accommodate the
unique paid claims transmission formats for each of
the regional claims subcontractors and the remote
eligibility query.
(iv) During the Transition Period, IPS shall manage and
support the Procare system in a manner consistent
with past practices of FHS, regulatory requirements
and other specific client based requirements
applicable to the claims processed on the Procare
system. On or before the Closing, the parties shall
agree upon and enter into a management agreement
pursuant to which these services will be rendered
during the Transition Period.
(b) Eligibility Tape and Updates. At least ten (10) calendar days
prior to the Effective Date of each Plan, FHS shall cause each
of the FHS Affiliated Plans to provide Advance Paradigm with a
complete and final eligibility file which shall identify all
Eligible Members and set forth all pertinent eligibility data
specified by Advance Paradigm ("Eligibility Tape"). Such
eligibility data for each FHS Affiliated Plan shall be in the
format currently used by such FHS Affiliated Plan. FHS shall
cause each of the FHS Affiliated Plans to provide updates to
the Eligibility Tape to Advance Paradigm in a format
consistent with such FHS Affiliated Plan's requirements as
frequently as mutually agreed to by the parties hereto.
Subject to receipt of confirmation from each FHS Affiliated
Plan as to the accuracy of each update to the Eligibility
Tape, prior to the end of the business day following Advance
Paradigm's receipt of such update, Advance Paradigm shall
accept claims for covered Prescriptions that are dispensed to
Eligible Members after the effective date of their eligibility
and shall deny claims for covered Prescriptions that are
dispensed to terminated members after the effective date of
their termination. Advance Paradigm and the Participating
Pharmacies shall be entitled to rely on the accuracy and
completeness of the Eligibility Tape and updates thereto
provided by each FHS Affiliated Plan. Advance Paradigm will
accommodate the remote eligibility requirements of the TRICARE
business through an on-line, real-time query through the
regional claims subcontractors. The Advance Paradigm system
will be programmed to accept and interpret the eligibility
response and other real-time, on-line information that is
returned from the regional claims subcontractors to determine
appropriate copays, coordination of benefits and beneficiary
jurisdiction.
(c) Distribution of Materials. FHS shall cause each FHS Affiliated
Plan to provide the Eligible Members with copies of claims
forms and informational material regarding the utilization of
the pharmacy network and the mail service pharmacy. FHS shall
cause each FHS Affiliated Plan to provide each Eligible Member
with an identification card, for purposes of (among other
things) accessing the Participating Pharmacies.
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3. Formulary/Rebate Management Services. Advance Paradigm shall provide
formulary and rebate management services in accordance with this
Section 3. Nothing herein shall be construed as a limitation on Advance
Paradigm's right to provide comprehensive PBM Services to its other
clients including, without limitation, formulary management and drug
manufacturer contracting services.
(a) Rebate Contracting. In order to maximize savings on drug
spending for both the FHS Affiliated Plans and Advance
Paradigm's other pharmacy benefit management business, the
parties, acting on behalf of all entities for which they
provide formulary/rebate services, intend to negotiate
together for new Drug Manufacturer Agreements that cover all
of such business. The parties acknowledge that each is a party
to agreements with certain drug manufacturers for discounts
relating to drug utilization. Pursuant to the procedures
mutually agreed to by the parties, Advance Paradigm and Client
shall jointly negotiate with targeted manufacturers, in
accordance with the Work Plan set forth in Exhibit C in order
to improve the terms of their respective drug manufacturer
arrangements and enter into new contracts upon such terms as
mutually agreed (the "Drug Manufacturer Agreements"). The
parties shall work together to establish and thereafter
modify, as appropriate a work plan to be agreed upon prior to
the Closing and to be attached hereto as Exhibit C, regarding
negotiations with drug manufacturers to ensure that the
parties' overall intent of maximizing the relationship created
by this Service Agreement is met (the "REBATE STRATEGY WORK
PLAN"). Such work plan shall identify the responsibility of
the parties with respect to all such negotiations, the parties
to the agreement, the administration of such agreements, FHS
Affiliated Members' formulary requirements, the selection of
appropriate drug manufacturers to support formulary
requirements, the scope of drug manufacturer payments, and
other matters related thereto. The parties shall use their
reasonable best efforts to comply with the Rebate Strategy
Work Plan and schedule, in order to timely implement the joint
negotiation strategy contemplated hereby.
(b) IPS Manufacturer Agreement. FHS and IPS agree that until such
time as new Drug Manufacturer Agreements are jointly entered
into for all drugs covered by the Formulary, upon the request
of Advance Paradigm, FHS shall use its best efforts to cause
the Non-affiliated Business to be eligible for rebates under
the existing IPS rebate agreements. FHS agrees to service such
rebates in accordance with Advance Paradigm's instructions.
IPS agrees that all Rebates collected by IPS based on the
utilization of the Non-affiliated Business prior to Closing
shall be paid by IPS following Closing pursuant to the terms
and conditions of the respective agreements for the
Non-affiliated Business, and that Advance Paradigm's
obligation to pay such rebates on such business shall begin
with the rebates collected for the Quarter ending June 30,
1999.
(c) Formulary Development and Strategy. Pursuant to the terms of
the Drug Manufacturer Agreements, Advance Paradigm shall
maintain the formulary contemplated by the Work Plan referred
to in Section 3(a), for each FHS Affiliated Plan subject to
approval by such FHS Affiliated Plan, for the benefit of the
FHS Affiliated Plans (the "Formulary"), and recommend
clinically
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appropriate, cost effective strategies designed to promote
Formulary compliance. Advance Paradigm shall be entitled, from
time to time, to review the Formularies and make
recommendations to the JNC, referred to in Exhibit C, as
Advance Paradigm deems appropriate, subject to approval by FHS
and the appropriate FHS Affiliated Plan. Advance Paradigm
recognizes and agrees that FHS has a national pharmacy and
therapeutics committee, and that the establishment of, and
changes to the formulary, steerage, intervention and other
clinical decision-making will be based on this committee's
independent approval. Advance Paradigm agrees to cooperate
with Client in the implementation of Formulary steerage
controls at the point-of-sale, including without limitation,
hard edit NDC blocks, differential patient copays, soft edits
(e.g. on-line formulary messages) and pharmacist intervention
for Formulary compliance and therapeutic interchange programs,
all as approved by Client.
(d) Formulary Distribution. Advance Paradigm will provide
camera-ready art work, design and copy for the Formulary to
Client which will then publish the number of copies of such
Formulary as required for each FHS Affiliated Plan. Promptly
following the receipt of the camera-ready copy, Client hereby
agrees to distribute the copies of the Formulary to all
physicians included in the FHS Affiliated Plan's respective
preferred physician networks. Client shall be responsible for
the payment of all printing, publication and distribution
expenses associated with the Formulary, including all
printings and reprints of the Formulary as may be required by
Client and bulk mailing materials for physician education,
such as newsletters and drug monographs.
(e) Submission of Claims Data. Within fifteen (15) days following
the last day of each Quarter, for Non-affiliate Business which
has not been transitioned to Advance Paradigm and for which
FHS (or its affiliate) serves as the claims processor, Client
shall use its best efforts to provide Advance Paradigm, in a
format mutually agreeable to the parties, with documentation
of the drug utilization for the immediately preceding Quarter.
Client acknowledges that prescription claims submitted to
Advance Paradigm more than fifteen (15) days following the
last day of the Quarter during which claims arose shall not be
automatically eligible for Rebates in such quarter. If
possible, without delaying the payment of rebates to other
Health Plans, such claim shall be submitted for Rebates in the
following quarter. Client acknowledges that Advance Paradigm's
timely receipt of accurate claims data is essential for rebate
billing for all of Advance Paradigm's business, and that
Advance Paradigm has financial guarantees and penalties
associated with the timely submission of claims utilization
data.
(f) Rebate Payment. All Rebates on the FHS Affiliated Plans
Members' drug utilization shall be paid directly to IPS.
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(g) Warranty by Client. Client represents and warrants to Advance
Paradigm that any Prescription claims which it submits to
Advance Paradigm for Rebate adjudication shall be
Prescriptions that were dispensed to Eligible Members for
their "own use" under a Pharmacy Benefit for which the FHS
Affiliated Plan bears the risk of payment. Client further
represents and warrants that it shall promptly distribute
copies of the Formulary in accordance with Section 3(d)
hereof. In the event the foregoing warranty is not true with
respect to any Eligible Member, the Rebates received as a
result of such Member's drug utilization will be deemed to be
"improper rebates" under Section 3(h) hereof.
(h) Eligible Data. Drug utilization which has been submitted by
any entity other than Advance Paradigm to drug manufacturers
for discounts, Rebates or other price reduction, specifically
including Medicaid, Medicare or other state or federal health
care program which receives Rebates directly from drug
manufacturers, shall not be eligible for Rebates from Advance
Paradigm. Client shall clearly identify to Advance Paradigm
those Eligible Members whose drug utilization has been
otherwise submitted to drug manufacturers or whose claims have
been or will be filed for reimbursement with Medicaid,
Medicare or any other state or federal health care program. If
Client fails to identify such members or claims and any drug
manufacturer's audit of its Rebate program reveals improperly
calculated Rebates involving such members and claims, then
Client shall be solely responsible for the reimbursement of
any Rebates to the respective drug manufacturers and will
indemnify Advance Paradigm against any damages suffered as a
result of Client's failure to make such reimbursement.
Notwithstanding the foregoing, this provision shall not be
construed to prohibit Client from participating in Medicare
risk contracting.
4. Advance Paradigm Retail Pharmacy Network Services and Claims
Adjudication. Advance Paradigm shall adjudicate claims for
Prescriptions furnished by pharmacies under the Plan in
accordance with the following terms and conditions:
(a) Network Contract Negotiations. During the Transition Period
and thereafter, Advance Paradigm will renegotiate network
pharmacy contract rates for those pharmacies located in the
respective service areas of a Health Plan, for such Health
Plan (the "Primary Network"). Such contracts shall meet
applicable statutory and regulatory requirements and mutually
agreed access and service levels. As of the Closing Date,
however, IPS will assign all of its rights and obligations
under, and Advance Paradigm will assume responsibility for
performance of, the IPS' network pharmacy contracts; and, to
the extent such assignment does not include a novation of
Advance Paradigm for IPS, Advance Paradigm shall indemnify and
hold IPS and FHS harmless for any liability arising under such
agreements, in accordance with Section 13, below. In the event
that Advance Paradigm has failed or is otherwise unable to pay
any such pharmacies in accordance with such agreements (a
"DEFAULT IN PHARMACY PAYMENT"). Upon written notice to Advance
Paradigm and unless Advance Paradigm notifies FHS within five
(5) business days that such amounts have not been paid to the
pharmacies or to the pharmacies' affiliates or designees, FHS,
or an FHS Affiliated Plan may make payment in order to remedy
any such Default in
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Pharmacy Payment and FHS shall have the right to offset any
amounts that would have been due to Advance Paradigm for such
claims under this Service Agreement. Except as provided
herein, Client agrees that during the term of this Agreement,
unless this Section 4 is earlier terminated pursuant to
Section 11(c)(ii) hereof, Client shall not, and shall cause
the FHS Affiliated Plans not to negotiate, contract or
otherwise agree with any retail pharmacy for purposes of
establishing a pharmacy network, except to the extent required
by applicable law or regulation. Client shall reimburse
Advance Paradigm for network pharmacy claims at the rates set
forth in Exhibit D. Notwithstanding the foregoing, under no
circumstances will the Pharmacy Network rates exceed the rates
in Exhibit D, except as a result of any material change in the
pricing structure in the industry.
Notwithstanding the foregoing, Advance Paradigm understands
and agrees that pursuant to California law, Health Net, an FHS
Affiliated Plan, must have direct agreements with its Primary
Network. Health Net agrees that it shall amend all of Health
Net's pharmacy agreements with the Primary Network in
California to include Advance Paradigm as a party to such
agreements. Health Net and Advance Paradigm shall cooperate in
order to obtain regulatory approval of such amendment. Advance
Paradigm further understands and agrees that if these
amendments do not comply with California regulatory
requirements, this Section 4(a) shall not apply to Health Net.
Advance Paradigm further understands and agrees that in the
event any applicable state law requires that an FHS Affiliated
Plan have direct agreements with its Pharmacy Network, Advance
Paradigm will amend all Pharmacy Network agreements to include
such FHS Affiliated Plan as a party. Advance Paradigm shall,
and FHS shall cause any such FHS Affiliated Plans to,
cooperate in order to obtain regulatory approval of such
amendments. If these amendments do not comply with applicable
state law, this Section 4(a) shall not apply to such FHS
Affiliated Plan.
(b) Advance Paradigm National Network. In addition to the Primary
Network, the Eligible Members shall have the option, but not
the obligation, to access to the nationwide Advance Paradigm
Network to obtain Prescriptions outside of the service areas.
Advance Paradigm shall process claims submitted by the Advance
Paradigm Network in accordance with Advance Paradigm's
agreements with such pharmacies, and Client shall reimburse
Advance Paradigm for such claims at the rates set forth in
Exhibit D. Notwithstanding the foregoing, under no
circumstances will the Pharmacy Network rate exceed the rates
in Exhibit D, except as a result of any material change in the
pricing structure in the industry.
(c) Release of Information. Advance Paradigm shall furnish to each
Network Pharmacy such information regarding the Eligible
Members as is necessary for the operation of the Advance
Rx(TM) claims adjudication system. Client hereby authorizes
Advance Paradigm to release any necessary information to the
Network Pharmacies regarding the applicable Plan and Eligible
Members.
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(d) Claims Adjudication. Through its Advance Rx(TM)on-line claims
adjudication system, Advance Paradigm shall (A) process
electronic or manual claims submitted by pharmacies; (B)
process Advance Paradigm claim forms submitted by Eligible
Members; (C) determine whether the claim qualifies for
reimbursement in accordance with the terms of the applicable
Plan and the Eligibility Tape; (D) calculate the payment of
such claims pursuant to the applicable Plan (each such claim
an "Approved Claim"), and (E) calculate the payment of such
claims pursuant to the IPS MAC. Advance Paradigm shall
transmit to the submitting Participating Pharmacy the
calculated reimbursement for the submitted claims. Advance
Paradigm shall provide IPS and FHS with on-line and real-time
access to all claims adjudication data in the format described
below in paragraphs 4(h), (i), (j). (k), and (l).
(e) Concurrent Drug Utilization Review. Through its Advance
Rx(TM)system, Advance Paradigm shall provide on-line
concurrent DUR messaging to the Participating Pharmacies and
will take appropriate action based on Plan specifications.
Concurrent DUR may include the following edits: (A) duplicate
therapy; (B) early refills and frequency limitations; (C)
duplicate drug; (D) potential drug interaction(s), in which
case the provider is notified on-line and the level of
severity would be indicated; and (E) minimum/maximum dose
range (which includes on-line alert of pharmacist). All such
edits shall be developed and implemented only at the explicit
direction of IPS.
(f) Management Information Reports. Advance Paradigm shall provide
each of the FHS Affiliated Plans with up to ten (10) reports,
both electronically and in hard copy, selected from Advance
Paradigm's standard reporting package (as updated from time to
time). Each monthly report shall be provided to the
appropriate FHS Affiliated Plan and IPS within ten (10)
business days of the end of each month. Any reports requested
by Client other than Advance Paradigm's standard reports shall
be considered "Special Reports". Should Client request
additional reports or Special Reports, Client shall pay
Advance Paradigm for such reports in accordance with Section
7(d) set forth below.
(g) Online Access to Data. Advance Paradigm shall provide IPS
and/or its designees, which may include some or all of the FHS
Affiliated Plans, on-line access to its claims adjudication
system for information and data relating to the FHS Affiliated
Plans. The claims adjudication system features and functions
for help-desk, plan design lookup, prior-authorization
over-rides and other features that are available to other
Advance Paradigm clients. Access shall be restricted to IPS
users that have been approved by IPS management and limited to
only those functions which IPS management has deemed
appropriate for each user or user class. Access security shall
be maintained by Advance Paradigm pursuant to the written
procedure as mutually agreed upon by IPS and Advance Paradigm.
Access requests shall be processed within two (2) business
days of written request from IPS.
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(h) System Documentation. Advance Paradigm shall provide detailed
system documentation for the claims processing system with
which the claims for FHS Affiliated Plans will be processed.
Such documentation shall include, but not be limited to, a
complete data dictionary (including, but not limited to valid
value tables) for all data elements and files delivered to
IPS. Advance Paradigm shall also provide IPS with complete
systems documentation, including technical documentation and
complete processing descriptions for all new system
enhancements provided to IPS outside of the existing services
specified in this Agreement.
Advance Paradigm shall be responsible for maintaining Client's
systems documentation. Updates to the data dictionary and
other reasonably requested documentation shall by provided to
IPS within ten (10) business days prior to the implementation
of system changes for which the updates have been prepared.
Advance Paradigm shall provide, in writing, responses to
reasonable written questions from designated IPS personnel
regarding clarification of documentation issues within two (2)
business days.
(i) Downloads of IPS Client Data. Advance Paradigm shall provide
the following data files and tables to IPS for all FHS
Affiliated Plans via dedicated lease line and within the
timeframe indicated. IPS shall be responsible for the costs of
such lease line and any applicable licensing fees. Data
elements to be supplied are specified by logical data file in
Exhibit E. In addition, Advance Paradigm shall provide a data
dictionary of the data elements requested within each of the
following files or tables, or provide sufficient mapping of
these data elements to the data dictionary provided for the
claims processing system:
o Claims Transactions - Daily
o Eligibility Data (date-sensitive historical file) -
Monthly within five (5) calendar days after the end of
month
o Member Demographic Data (current file) - Monthly within
five (5) calendar days after the end of month
o Physician Demographic Data (current file) - Monthly
within five (5) calendar days after the end of month
o Formulary Tables (current file) - Monthly within five (5)
calendar days after the end of month
o Pharmacy Master File (current file) - Monthly within five
(5) calendar days after the end of month
o Benefit Design table (current file) - Monthly within five
(5) calendar days after the end of month
o NDDF or equivalent file - As released (10 calendar days
after receipt)
o Established Paid Claims Transmission formats for TRICARE
- twice weekly via NDM transfer to the regional claims
subcontractors
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In addition, Advance Paradigm shall exercise a good faith
effort to develop a process to provide real-time data
replication of claims and other transaction data upon request
by IPS for specific data elements. Thereafter, Advance
Paradigm shall maintain the ability to provide IPS with
real-time replication of claims and other transaction data
upon request by IPS for specific data elements.
Advance Paradigm shall provide other files and tables on
request and IPS will pay One Hundred Twenty-five Dollars
($125) per hour required to provide the additional data
required.
IPS shall apply certain data quality test and edits to the
data files received from Advance Paradigm. These tests are
listed in Exhibit F. Should data records fail these tests,
Advance Paradigm shall provide replacement records within two
(2) business days upon written notification from IPS of which
records failed and the specific reasons for the failure. For
purposes of the Performance Guarantees attached hereto as
Exhibit G, data files that are materially inaccurate or
materially incomplete, as determined by reference to Exhibit
E, will be deemed to have not been received during the period
beginning on the business day of IPS' written notification to
Advance Paradigm of such inaccuracy or incompletion and ending
upon Advance Paradigm's delivery of the revised data file.
(j) Technical Support. Advance Paradigm shall provide IPS with
technical support for the claims adjudication system. This
support shall include providing responses to reasonable,
written technical and data-related questions, in writing
within five (5) business days (depending on the complexity of
the request). Advance Paradigm shall also provide the
programming support necessary to timely implement changes
needed to accurately process claims and other transactions on
the current claims adjudication system, and Client agrees to
pay for such support in accordance with Section 7(d) hereof.
(k) Reporting. Advance Paradigm shall provide IPS with certain
standard and ad hoc reports as listed below:
Standard reports shall include, but not be limited to, certain
system-generated reports selected by IPS from within the
following categories:
o Financial reports - Per check cycle
o Membership reports
o Cost and Utilization
o Pricing
o Benefit matrix reporting
Advance Paradigm shall endeavor to provide ad hoc reports to
IPS within five (5) to ten (10) business days (depending on
the complexity of the report) of written request from IPS
which describes the report requested. IPS shall pay Advance
Paradigm for such reports in accordance with Section 7(d) set
forth below.
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(l) Advance Insight(TM). Upon the request of Client, the parties
will enter into a license agreement pursuant to which Advance
Paradigm will grant each FHS Affiliated Plan a license for use
of Advance Insight, a desktop division support software
program created and designed by Advance Paradigm. Client will,
and will cause the FHS Affiliated Plans to, agree that each
such entity will not copy or duplicate the Advance
Insight(TM)software. Client agrees, and will cause each FHS
Affiliated Plan to agree to surrender to Advance Paradigm the
software upon termination of this Agreement. Advance Paradigm
agrees not to charge Client or the FHS Affiliated Plans for
the Advance Insight(TM)software, provided that Client or the
FHS Affiliated Plans shall be responsible for the costs of the
hardware and software necessary to run Advance Insight(TM).
(m) Year 2000 Readiness. Each party, including FHS on behalf of
each FHS Affiliated Plan, represents and warrants that on or
before July 1, 1999, such party will be Year 2000 Compliant;
provided, however, that with respect to FHS, IPS and the FHS
Affiliated Plans, such representation and warranty shall be
limited to Y2K Compliant with regard to data and information
supplied to Advance Paradigm and not to their respective
businesses, generally. Each party, including FHS on behalf of
each FHS Affiliated Plan, further represents and warrants that
as of July 1, 1999 it has taken and will take all reasonable
steps to obtain assurances from third parties that any
Information Systems provided, supplied, delivered, furnished
or maintained by third parties and upon which such party
relies in performing this Agreement are or will be Year 2000
Compliant; provided, however, that with respect to FHS, IPS
and the FHS Affiliated Plans, such representation and warranty
shall be limited to Y2K Compliant with regard to data and
information supplied to Advance Paradigm and not to their
respective businesses, generally. Without limiting the
generality of the foregoing, each party, including FHS on
behalf of each FHS Affiliated Plans, shall ensure that all
necessary actions and system changes to its Mission-Critical
Information Systems have been made and tested so that such
party is Year 2000 Compliant on or before July 1, 1999
provided, however, that with respect to FHS, IPS and the FHS
Affiliated Plans, such representation and warranty shall be
limited to Y2K Compliant with regard to data and information
supplied to Advance Paradigm and not to their respective
businesses, generally.
This Certification constitutes a Year 2000 Readiness
Disclosure in accordance with federal law.
5. Mail Service. Subject to this Section 5, during the term of this
Agreement, Advance Paradigm or its designee shall exclusively provide
mail service pharmacy for Client:
(a) Performance of Services. Pursuant to the arrangement between
FHPS and Walgreens (the "Walgreens Arrangement") or such other
arrangement as may be approved by FHS from time to time,
Advance Paradigm shall provide mail service pharmacy to
Client. Advance Paradigm shall use commercially reasonable
efforts
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to continue to use Walgreens as the vendor of mail service
pharmacy for the FHS Affiliated Plans under substantially
similar terms to the Walgreens Arrangement. In the event
Walgreens ceases to use Advance Paradigm as its exclusive
vendor for formulary/rebate services, then (i) subject to FHS'
approval which will not be unreasonably withheld so long as
Advance Paradigm has demonstrated that it will provide
substantially similar types of services at substantially the
same, but no greater cost, Advance Paradigm may perform the
mail services for the FHS Affiliated Plans or (ii) Advance
Paradigm may place the business with a third party vendor
acceptable to FHS, which acceptance will not be unreasonably
withheld. In the event either Advance Paradigm or a third
party vendor replaces Walgreens, Client and Advance Paradigm
shall use best efforts to facilitate the transition from
Walgreens to Advance Paradigm or such third party.
(b) Right of First Refusal. FHS shall, during the term of this
Agreement, have the right to solicit from and/or consider
proposals received from third parties to provide substantially
similar mail order pharmacy services as are provided under
this Agreement. Such right to solicit and/or consider shall be
limited to three (3) times during the term of this Agreement,
and no more frequently than once in any twelve (12) calendar
month period. Upon receipt of any such bona fide third party
offer (the "OFFER"), FHS shall promptly notify Advance
Paradigm of the terms and conditions of such Offer. Within ten
(10) days of Advance Paradigm's receipt of the Offer, the
parties shall meet to review the Offer. Following such
meeting, Advance Paradigm shall have the right, but not the
obligation to: (I) match the Offer directly; (II) enter into
the proposed agreement with the third party in accordance with
the Offer, for the purposes of providing such mail order
pharmacy services in accordance with this Agreement; or (III)
enter into an agreement with another party, reasonably
acceptable to FHS, on the same terms and conditions as
contained in the Offer. In the event that Advance Paradigm
does not elect to exercise any of the options described
herein, FHS shall be free to accept the Offer, and the
obligations regarding mail order pharmacy services hereunder
(including any limitations under Section 12) shall terminate.
Except as expressly permitted by this Section 5, Client shall
not, and FHS shall cause the FHS Affiliated Plans not to,
enter into a contract for mail service pharmacy.
6. Performance Guarantees. Advance Paradigm agrees that the PBM Services
performed pursuant to this Agreement shall be in accordance with the
Performance Guarantees set forth in Exhibit G attached hereto.
7. Fees and Rates.
(a) Fees for Services. Beginning on the Closing, unless otherwise
specified in Exhibit D, FHS agrees to pay Advance Paradigm fees
in the amounts set forth in Exhibit D attached hereto. In order
to permit Advance Paradigm to calculate fees owed, within five
(5) business days of each billing cycle, FHS shall deliver to
Advance Paradigm a claims detail tape that reflects all pharmacy
claims processed on IPS' "Procare" system as well as pharmacy
claims processed for the FHS Affiliated Plans by third party
vendors.
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(b) Rates for Prescription Claims. During the term of this
Agreement, FHS agrees to pay for Prescriptions dispensed to
Eligible Members by the mail service pharmacy or the
Participating Pharmacies, as the case may be, at the rates set
forth in Exhibit D attached hereto.
(c) Savings Goals. The parties will cooperate in negotiations and
contracting with retail pharmacies and drug manufacturers in
order to maximize savings in Client's pharmacy spend. Rebate
savings and retail network savings shall be measured pursuant to
a methodology mutually agreed to by the parties prior to
Closing.
(i) Retail Network Savings. Retail Network Savings will
be measured on a Quarter by Quarter basis by
comparing (A) the network discount rate, plus
dispensing fee, received for the Prescriptions for
the current quarter, to (B) the Baseline network
discount rate plus dispensing fee for retail
Prescriptions for the Baseline Period. In the event
the retail network savings exceeds $0.12 per paid
claim in any Quarter, Advance Paradigm shall be
entitled to 20% of such excess. The Baseline Period
for retail network savings shall be the calendar
quarter ending June 30, 1999.
(ii) Rebate Savings. Savings from Rebate contracting will
be measured on a Quarter by Quarter basis by
comparing (A) the aggregate rebates earned divided by
the total number of paid pharmacy claims for each
quarter to (B) the aggregate rebates earned divided
by the total number of paid pharmacy claims for the
Baseline Period, subject to any modification thereof
as agreed to by the parties prior to Closing. In the
event the rebate savings exceeds $0.15 per paid claim
in any Quarter, then Advance Paradigm shall be
entitled to 20% of such excess. Advance Paradigm
shall not be entitled to any portion of Rebate
savings unless a lower net pharmaceutical cost is
achieved by Client, subject to a mutually agreed upon
adjustment for changes in utilization and new
therapeutic entities, covered by FHS and/or the FHS
Affiliated Plans.
(d) Special Services or Materials. Upon Client's request, Advance
Paradigm will provide Client with identification cards or
non-standard services, forms, materials or documents, at a
rate mutually agreed upon in writing. In the event Client
requests a service, including Special Reports, that require
computer programming, Advance Paradigm shall provide Client an
estimate of the costs for such computer programming. Advance
Paradigm shall not proceed with such programming until Client
has agreed to the estimated costs. Client shall pay for all
reasonable associated costs including but not limited to
Advance Paradigm's internal programming time at a rate of $125
per hour or, if Advance Paradigm must engage an outside vendor
for programming, at the rate actually incurred by
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Advance Paradigm for such service. Except as otherwise
specifically provided herein, Client shall be responsible for
the reasonable costs and expenses incurred in the production
of forms, materials and documents and the distribution thereof
to Client or Eligible Members and for special handling of
certain mail service prescriptions.
(e) Best Price. Advance Paradigm agrees that, to the extent it
participates in any bidding process with the same purchaser of
services with which FHS and/or the FHS Affiliated Plans are
bidding, at a compensation rate that is more favorable to such
third party than the rates charged hereunder, Advance Paradigm
shall offer such compensation arrangement to FHS. FHS shall
notify Advance Paradigm of any bids submitted under which, if
awarded, Advance Paradigm would be providing services.
8. Payment.
(a) Statement of Account. Advance Paradigm shall submit to Client
on a semi-monthly basis a statement of account (the "Statement
of Account") that reflects the amount due for the
Prescriptions dispensed and the fees due for the applicable
period.
(b) Payment of Statement of Account. Client agrees to pay the
amount due reflected on the Statement of Account within two
(2) business days of receipt of the Statement of Account by
wire or electronic funds transfer to an account designated by
Advance Paradigm.
(c) Cessation of Services. Should Client, for any reason, fail to
pay timely any Statement of Account in accordance with Section
8(b) hereof, or become insolvent or generally unable to pay
its creditors when due, Advance Paradigm shall be entitled to
cease adjudication of claims and/or the dispensing of
Prescriptions under this Agreement while maintaining all of
Advance Paradigm's rights hereunder.
(d) Additional Services. Advance Paradigm shall invoice Client for
any additional services performed under this Agreement. Client
shall pay such invoice within thirty (30) days of receipt.
(e) Interest on Late Payments. Unless Client has disputed an
invoice, Client shall pay a finance charge on any unpaid
balance which becomes past due until paid in full. Amounts due
for Prescriptions dispensed are past due if not paid by the
fifteenth (15th) day following receipt of a Statement of
Account. Amounts due for fees and other charges hereunder are
past due if not paid by the thirtieth (30th) day following
receipt of an invoice or Statement of Account. The finance
charge for past due amounts shall be in an amount equal to one
and one-half percent (1.5%) per month, unless such rate
exceeds the maximum rate allowable by applicable law, in which
case such amounts shall bear interest at the maximum legally
allowable rate.
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(f) Payments By Advance Paradigm. Any payments due to Client from
Advance Paradigm under Exhibit G or otherwise shall be payable
to Client within fifteen days of the date of notice from the
Client that such amounts are due. Unless Advance Paradigm has
a disputed invoice, amounts due for such charges hereunder are
past due if not paid by the thirtieth (30th) day following
receipt of the notice from Client, subject to any resolution
of a dispute relating thereto. The finance charge for past due
amounts shall be in an amount equal to one and one-half
percent (1.5%) per month, unless such rate exceeds the maximum
rate allowable by applicable law, in which case such amounts
shall bear interest at the maximum legally allowable rate.
(g) Right of Offset. In the event of any uncured payment default,
either party shall be entitled, and the parties hereby
authorize each other, to offset the amount of such payment
defaults against any amounts otherwise payable to such party;
provided, however, that in the event of any dispute over the
underlying claim giving rise to such setoff, such dispute
shall have been resolved in accordance with the dispute
resolution procedure set forth in this Agreement.
9. Records.
(a) Advance Paradigm shall maintain, in original form, on
microfilm or computer tape, documentation of all claims
processed in accordance with applicable law and for a minimum
period of seven (7) years. Subject to Section 14 hereof, all
such records, while maintained by Advance Paradigm, shall be
accessible to Client, and to any governmental or regulatory
agency with jurisdiction over Client, for examination and
audit during the term of this Agreement. In addition, Advance
Paradigm shall maintain, in original form, on microfilm or
computer tape, a copy of this Agreement in accordance with
applicable law.
(b) During and after the term of this Agreement, Advance Paradigm
shall be entitled to use on a non-exclusive basis the drug and
related data collected by Advance Paradigm for research, cost
analyses, cost comparison or other business purposes of
Advance Paradigm, all without charge to Advance Paradigm.
Advance Paradigm shall comply with all applicable federal and
state laws, including but not limited to, confidentiality laws
regarding medical records, in the use of such data.
10. Term and Renewal. Unless otherwise terminated in accordance with
Section 11 herein, or otherwise extended, this Agreement shall commence
on April 1, 1999 and end on the tenth anniversary of the CLOSING. This
Agreement shall renew for a twelve-month period following the tenth
anniversary of the Closing, and on each anniversary of the Closing
thereafter (each a "renewal date"), upon the affirmative agreement of
the parties.
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11. Termination and Default.
(a) Termination. In addition to Advance Paradigm's right under
Section 8(c) hereof, this Agreement may be terminated as
follows:
(i) Upon the mutual written consent of the parties
hereto.
(ii) Advance Paradigm may terminate this Agreement at any
time in the event of a material default by Client.
Such termination shall be effective sixty (60) days
after receipt by Client of written notice specifying
the default, unless the default is cured before the
end of the sixty-day period.
(iii) Client may deliver three (3) months' written notice
to Advance Paradigm that identifies any material and
persistent failure to process claims for the FHS
Affiliated Plans (the "Performance Notice"). As soon
as reasonably possible following receipt of such
notice, the parties will meet to discuss in good
faith the identified issues and develop a plan for
resolution. During the three (3) month period, both
parties shall provide good faith cooperation in
resolving the identified issues. If, within two (2)
months of delivery of the Performance Notice, Client
determines in its good faith business judgment that
the issues have not been resolved, Client shall
deliver written notice of its intent to terminate
this Agreement with respect to claims processing
services, as of the end of the three (3)-month period
if the issues are not resolved during the final
month. In such termination notice, the party shall
specify in writing any additional remedial actions it
believes need to be taken to remedy the continuing
breach. Advance Paradigm shall have opportunity to
cure, to Client's reasonable satisfaction, the
identified issues during this three (3)-month period,
and such cure shall cancel the termination notice
previously delivered. Termination pursuant to this
clause (iii) shall only apply to the claims
processing services, and Client shall be released
from the applicable "Exclusivity" obligations set
forth in Section 12 hereof applicable to claims
processing services.
(iv) Upon written notice delivered to Advance Paradigm at
least 180 days prior to the fifth anniversary of this
Agreement, FHS may terminate this Agreement effective
on the fifth anniversary hereof provided FHS pays to
Advance Paradigm in cash an amount equal to the
Network Access Fees and Formulary/Rebate
Administrative Fees that would have been due to
Advance Paradigm had this Agreement remained in
effect for twelve (12) additional months, calculated
by annualizing such fees based upon the month in
which such termination occurs, but in no event less
than $8,886,000. At the sixth anniversary of this
Agreement or any time thereafter, upon written notice
delivered to Advance Paradigm at least 180 days prior
to the effective date of termination, FHS may
terminate this Agreement at any time upon payment in
cash to Advance Paradigm of $2 million. The payments
contemplated by this Section 11(a)(iv) are defined as
the "Early Termination Payments."
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(v) Following a Change of Control of Advance Paradigm,
upon 180 days written notice, FHS may terminate this
Agreement effective on or after the fifth
anniversary, and no Early Termination Payment will be
due; provided that this provision shall not apply if
there is a Change of Control of FHS at any time prior
to the effective date of such early termination. In
addition, if Advance Paradigm is acquired by any
company a substantial portion of whose business
directly competes with FHS' for health insurance
services, FHS may terminate this Agreement with
respect to claims processing and/or mail service
(including termination of any payment obligation for
such services) and network management services,
provided that all other terms of this Agreement will
remain in full force and effect (including Network
Access Fees and Formulary/Rebate Administrative
Fees). In the event of a Change of Control of FHS,
the FHS Successor shall not be required to utilize
Advance Paradigm as its vendor for pharmacy benefit
services, other than for the business attributable to
FHS and the FHS Affiliated Plans at the time of the
acquisition or business that would have been
attributable to FHS and the FHS Affiliated Plans as
if the acquisition had not occurred; provided, that
the terms, conditions and payment obligations of
Client under this Agreement shall become the
obligations of such FHS Successor.
In the event this Agreement terminates pursuant to
this Section 11(a)(v), Advance Paradigm, or its
successor, shall provide the FHS Affiliated Plans
with reasonable assistance to transition all Eligible
Members.
(vi) In the event any governmental or regulatory agency or
body having jurisdiction over an FHS Affiliated Plan
notifies such Plan that Advance Paradigm shall not be
permitted to provide all or part of the PBM Services
set forth under this Agreement to such Plan, this
Agreement shall terminate as to such services for
such Plan unless Advance Paradigm is able to satisfy
the concerns of and obtain approval from such
governmental or regulatory body. Such Plan agrees to
provide reasonable assistance to Advance Paradigm in
responding to any such notification. Under such
circumstances, the minimum payment for claims
processing services set forth in Exhibit D shall be
equitably adjusted to account for any material change
in claims processing volume as a consequence thereof.
(vii) This Agreement shall terminate immediately in the
event Advance Paradigm becomes insolvent or is
generally unable to perform because of its financial
condition.
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(b) Effect of Termination.
(i) Except as specifically set forth in Section
11(a)(iv), termination of this Agreement or Change of
Control of FHS shall not restrict or limit the
obligation of FHS (or any successor), to continue to
make, if applicable, through the tenth anniversary of
the Closing, the Formulary/Rebate Payments and the
Network Access Payments, except as otherwise provided
herein.
(ii) In the event either Advance Paradigm or Client
terminate this Agreement in accordance with the terms
of Section 11(a), all unfulfilled payment obligations
for any of the services provided herein shall be paid
within thirty (30) days of the effective date of such
termination.
(c) Termination of Specific Services.
(i) Termination of Section 3. Upon 180 days written
notice, either party may terminate Section 3 of this
Agreement. Upon the effective date of such
termination, the parties shall be released from their
respective obligations under Section 3, and Client
shall be released from the "Exclusivity" obligations
applicable to formulary/rebate services set forth in
Section 12 hereof. Upon termination of Section 3 by
FHS, FHS (or any FHS Successor) shall be required to
pay Advance Paradigm, on the date of termination and
on each anniversary thereof through the term of this
Agreement unless earlier terminated pursuant to
Section 11(a)(iv), an amount equal to the
Formulary/Rebate Administrative Fees that would have
been due to Advance Paradigm had this Agreement
remained in effect for twelve (12) additional months,
calculated by annualizing such fees based upon the
month in which such termination occurs (the "Rebate
Termination Payments"). At FHS' election, it may pay
such amount in a lump sum. Upon payment by FHS to
Advance Paradigm of the Early Termination Payment
under Section 11(a)(iv) of this Agreement, FHS shall
no longer be required to make additional Rebate
Termination Payments. In the event either party
terminates this provision, the parties will cooperate
and make best efforts to ensure that the Drug
Manufacturer Agreements remain in full force and
effect for both parties following the effective date
of termination.
(ii) Termination of Section 4(a)-(c). Client may deliver
three (3) months' written notice to Advance Paradigm
that identifies any material and persistent failure
to manage the Primary Network or otherwise meet the
obligations set forth in Section 4(a)-(c) (the
"Network Termination Notice"). For purposes of this
Section 11(c)(ii), the failure to provide FHS and the
FHS Affiliated Plans the best available rates, as
reasonably determined by FHS, shall constitute a
material and persistent failure to meet the
obligations of Section 4(a)-(c). As soon as
reasonably possible
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following receipt of such notice, the parties will
meet to discuss in good faith the identified issues
and develop a plan for resolution. During the three
(3) month period, both parties shall provide good
faith cooperation in resolving the identified issues.
If, within two (2) months of delivery of the Network
Termination Notice, Client determines in its good
faith business judgment that the issues have not been
resolved, Client shall deliver written notice of its
intent to terminate this Agreement with respect to
network management services, as of the end of the
three (3)-month period if the issues are not resolved
during the final month. In such termination notice,
FHS shall specify in writing any additional remedial
actions it believes need to be taken to remedy the
continuing breach and Advance Paradigm will have
opportunity to cure to the reasonable satisfaction of
FHS the identified issues during this three (3)-month
period, and such cure shall cancel the termination
notice previously delivered. Termination pursuant to
this Section 11(c)(ii) shall only apply to the
services specified in the notice. In the event of a
material change in the pricing in the industry, the
parties shall meet and confer regarding such changes;
and, if the parties are unable to agree on any change
in such rate, as contemplated in Section 4(a), FHS
shall have the right to terminate Sections 4(a)-(c)
upon 180 prior written notice.
Upon the effective date of such termination, the
parties will be released from their respective
obligations under Section 4(a) - (c) hereof, and
Client shall be released from the applicable
"Exclusivity" obligations set forth in Section 12
hereof applicable to retail pharmacy network
management. Upon termination of Sections 4(a)-(c),
Client shall be required to continue to pay Advance
Paradigm, on the date of termination and each
anniversary thereof through the term of this
Agreement unless earlier terminated pursuant to
Section 11(a)(iv), an amount equal to the Network
Access Fees that would have been due to Advance
Paradigm had this Agreement remained in effect for
twelve (12) additional months, calculated by
annualizing such fees based upon the month in which
such termination occurs ("Network Termination
Payments"). At FHS' election, it may pay such amount
in a lump sum. Upon payment by FHS to Advance
Paradigm of the Early Termination Payments set forth
in Section 11(a)(iv) of this Agreement, FHS shall no
longer be required to make any additional Network
Termination Payments.
12. Restrictive Covenants and Exclusivity.
(a) Non-compete. In order to assure that Advance Paradigm
will realize the benefits of the transactions
contemplated hereby, subject to FHS's right to
terminate this Agreement after five (5) years, during
the term of this Agreement, but in any event not less
than the five-year period following the Closing Date,
FHS and its affiliates shall not engage in pharmacy
claims processing, retail pharmacy network
management, mail service pharmacy, rebate management
or (subject to
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Section 3 of this Agreement) the negotiation and
performance of drug manufacturer agreements.
Notwithstanding the foregoing, (i) if the parties'
obligations regarding formulary management and drug
manufacturer agreements are terminated in accordance
with Section 11(c)(i) of this Agreement, then, so
long as FHS complies with Section 11(c)(i)) of this
Agreement, FHS may thereafter provide such services
for the FHS Affiliated Plans; and (ii) if FHS
releases Advance Paradigm from its obligations to
perform the retail pharmacy network management
services in accordance with Section 11(c)(ii) of this
Agreement, then, so long as FHS is in compliance with
Section 11(c)(ii) of this Agreement, FHS may
thereafter provide such services for the FHS
Affiliated Plans; both (i) and (ii) including
participation (which may include minority ownership
interests representing not more than twenty percent
(20%) of the equity or voting control) in cooperative
groups or alliances, provided FHS shall not market
such services to third parties. This section shall
not be deemed to be a limitation on providing
clinical services (including pharmacy formulary and
rebate management services in accordance with Section
3 of this Agreement) to the FHS Affiliated Plans and
FHS's contracting medical groups, or the disease
management services offered by FHS, or otherwise
limit FHS or any Affiliate from undertaking
activities relating to the processing and payment of
medical claims generally as a payor of such claims.
(b) Exclusivity. Client hereby grants Advance Paradigm during the
term of this Agreement, and any renewals hereof, the exclusive
right to provide PBM Services to Client, including without
limitation formulary/rebate services, mail service subject to
Section 5(a), claims adjudication and retail pharmacy network
management. Client further agrees that, except as set forth in
Section 3 hereof, during the term of this Agreement, it will
not negotiate, contract, or agree with any drug manufacturer
for the purpose of obtaining drug Rebates. The foregoing
notwithstanding, if either party terminates Section 3 pursuant
to Section 11(c)(i) or Section 4 (a)-(c) pursuant to Section
11(c)(ii), FHS may thereafter provide or otherwise obtain from
a third party such terminated services to the FHS Affiliated
Plans, which may include FHS' participation in cooperative
groups or alliances (including minority ownership
participation representing not more than twenty percent (20%)
of the equity or voting control), provided FHS is not
marketing such services to third parties. The parties
acknowledge and agree that the intended purpose of this
provision is to provide for the exclusive services of Advance
Paradigm for the Pharmacy Benefits of FHS and the FHS
Affiliated Plans, including enrollees, employer groups, and
other payors, enrolled with Client in the ordinary course of
business.
(i) This Section 15(b) shall not preclude FHS from
participating in formulary/rebate services, in
accordance with Section 3 and Exhibit C.
(ii) The parties agree that certain clients, potential
clients or product lines of FHS or its FHS Affiliated
Plans, such as under the CHAMPUS program, may have
separate operational requirements relating to
pharmacy benefits.
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<PAGE> 24
FHS and the FHS Affiliated Plans shall be free to
enter into agreements with such clients in
conformance with such client's request; provided,
however, that prior to entering into any agreement
that includes any or all of the services that are
substantially the same as any of the PBM Services
provided hereunder, FHS shall first provide Advance
Paradigm with the opportunity to participate in such
program on terms and conditions no less favorable
than FHS could obtain from any third party provider
of such services.
(iii) The provisions of this Section 12 shall not apply to
the provision of pharmacy services through the
Internet; provided that Advance Paradigm shall have
the exclusive right to fulfill the mail order
pharmacy service requirements of FHS' web site. The
parties shall work together to develop pharmacy
related Internet applications for FHS.
(c) Limitations on Restrictive Covenants. Section 12 shall not be
deemed to be a limitation on (i) providing clinical services
(including pharmacy formulary and rebate management services
in accordance with Section 3 of this Agreement) to the FHS
Affiliated Plans or FHS' contracting medical groups, or (ii)
the disease management services offered by FHS, or (iii)
otherwise limit FHS or any Affiliate from undertaking
activities relating to the processing and payment of medical
claims generally as a payor of such claims. Further, nothing
contained in this Section 12 shall limit any FHS Successor
from owning and operating any business (or line of business),
for the benefit of the enrollees of the FHS Successor or third
parties with whom the FHS Successor contracts, which would
otherwise be construed as violating the provisions of this
Section 12; provided that the FHS Successor shall be bound to
this Section 12 with respect to the business of FHS and the
FHS Affiliated Plans; and provided further that, except as
expressly otherwise stated herein, all terms, conditions and
obligations of this Agreement shall become the obligations of
any FHS Successor. Advance Paradigm and the FHS Successor
shall use their respective best efforts to agree on the
allocation of enrollees between FHS and the FHS Successor that
are subject to this provision. To the extent that FHS acquires
any managed care company that has an ownership in or otherwise
provides services that would conflict with this provision, the
provision shall not apply to the enrollees of such managed
care organization as of the effective date of such
acquisition; provided that the provisions of this Section 12
shall continue to apply to any and all current and additional
Pharmacy Benefit business of the FHS Affiliated Plans.
Further, in the event that such acquired managed care company
has, in place, any agreements with third parties that would
conflict with or otherwise violate the terms of this
Agreement, such other agreements shall continue in force until
the first opportunity on which such agreements may be
terminated by their terms without any financial penalty to be
incurred by such acquired organization or FHS. In addition,
prior to consummating any acquisition of a managed care
company that has an ownership interest in or otherwise provide
services that shall conflict with this Section 12, FHS will
notify Advance Paradigm of such acquisition, and FHS and
Advance Paradigm shall engage in good faith negotiations
regarding cooperative efforts with such entity, including
Advance Paradigm's opportunity to acquire such business.
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<PAGE> 25
(d) Notwithstanding anything contained herein to the contrary, in
the event of a breach or threatened breach of the covenants
contained in this Section 12, Advance Paradigm may, in
addition to any other available remedies, be entitled to an
injunction enjoining FHS and its Affiliates or any person or
persons acting for or with FHS in any capacity whatsoever from
violating any of the terms herein, in accordance with
applicable law regarding the award of an equitable remedy.
13. Indemnification. Each party and its officers, directors, employees,
agents, successors and assigns (each an "Indemnitee") shall be
indemnified and held harmless by the other party (the "Indemnifying
Party") against any and all claims, loss, damage, costs and expenses
("Loss"), including, without limitation, attorneys' fees and expenses,
actually incurred by any Indemnitee arising out of or resulting from
the actions or omissions of the Indemnifying Party.
14. Audit.
(a) Audits of Eligible Members and Business Records. Client shall
have the right to inspect and audit, or cause to be inspected
and audited, the books and records of Advance Paradigm which
directly relate to billings made to Client for claims
reimbursement. Advance Paradigm shall have the right to
inspect and audit, or cause to be inspected and audited, the
books and records of Client directly relating to the validity
of the drug utilization data. Client and Advance Paradigm
shall fully cooperate with representatives of each other and
with independent accountants hired by either party to conduct
any such inspection or audit. Such audits shall be at the
auditing party's sole expense and shall only be made during
normal business hours, following fifteen (15) days written
notice, and without undue interference to the audited party's
business activity. If, after completion of the audit under
this Section 14(a), the audit reveals a discrepancy in the
results of the audit and the previous calculations of the
audited party, then the auditing party shall deliver written
notice which sets forth in reasonable detail the basis of such
discrepancy. The parties shall use reasonable efforts to
resolve the discrepancy within 30 days following delivery of
such notice, and such resolution shall be final, binding and
conclusive upon the parties hereto. If Advance Paradigm and
Client are unable to reach a resolution within such 30-day
period, the parties shall resolve such dispute in accordance
with Section 18 hereof.
(b) Payment of Discrepancies. Upon a final and conclusive
determination of a discrepancy revealed by an audit procedure
under this Section 14, the party which owes money shall pay
such sums to the other party within fifteen (15) days of the
delivery of the conclusive audit findings.
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<PAGE> 26
15. Limitation of Liability.
ADVANCE PARADIGM RELIES ON MEDI-SPAN OR INDUSTRY COMPARABLE DATABASES
IN PROVIDING CLIENT AND ELIGIBLE MEMBERS WITH DRUG UTILIZATION REVIEW
SERVICES. ADVANCE PARADIGM HAS UTILIZED DUE DILIGENCE IN COLLECTING AND
REPORTING THE INFORMATION CONTAINED IN THE DATABASES AND HAS OBTAINED
SUCH INFORMATION FROM SOURCES BELIEVED TO BE RELIABLE. ADVANCE
PARADIGM, HOWEVER, DOES NOT WARRANT THE ACCURACY OF REPORTS, ALERTS,
CODES, PRICES OR OTHER DATA CONTAINED IN THE DATABASES. THE CLINICAL
INFORMATION CONTAINED IN THE DATABASES AND THE FORMULARY IS INTENDED AS
A SUPPLEMENT TO, AND NOT A SUBSTITUTE FOR, THE KNOWLEDGE, EXPERTISE,
SKILL, AND JUDGMENT OF PHYSICIANS, PHARMACISTS, OR OTHER HEALTH-CARE
PROFESSIONALS INVOLVED IN ELIGIBLE MEMBERS' CARE. THE ABSENCE OF A
WARNING FOR A GIVEN DRUG OR DRUG COMBINATION SHALL NOT BE CONSTRUED TO
INDICATE THAT THE DRUG OR DRUG COMBINATION IS SAFE, APPROPRIATE OR
EFFECTIVE IN ANY ELIGIBLE MEMBER.
16. Confidentiality.
(a) Confidential and Proprietary Information. Client and Advance
Paradigm each recognize and acknowledge that, by receipt and
possession of certain information relating to the business
operations of the other, each will discover certain of the
other's confidential and proprietary information, skills,
know-how, technical expertise, and methods. This confidential
and proprietary information includes, but is not limited to:
(a) the terms of this Agreement, (b) the terms of each
parties' agreements with drug manufacturers, (c) the Drug
Manufacturer Agreements, and (d) trade secrets relating to the
operations of the PBM Services. Each party acknowledges and
agrees that such information is confidential, valuable and
proprietary to the business of the other party, and that each
party's success and ability to compete depends on keeping such
information confidential. Each party hereto covenants and
agrees not to, directly or indirectly, and agrees to cause its
officers, directors, employees, agents and affiliates not to,
use, publish, disseminate or otherwise disclose, any of the
other party's confidential or proprietary information now or
later possessed by each, without prior written consent of the
other party. Advance Paradigm and Client acknowledge that any
violation or breach of confidentiality would cause irreparable
harm and that such harm cannot be adequately compensated in
money damages. Advance Paradigm and Client agree that any such
violation or breach may be enjoined by any court of competent
jurisdiction, without waiver of any other right to claim
damages incurred by either Advance Paradigm or Client in
connection with such a violation.
(b) Confidentiality of Eligible Members. The parties shall
maintain the confidentiality of any patient identifiable
information in accordance with applicable laws and
regulations. Client shall insure that the release of patient
identifiable information to
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<PAGE> 27
Advance Paradigm and Client is duly authorized. Upon receipt
of a validly issued subpoena, court or administrative order or
a request for information that is signed by an Eligible
Member, Advance Paradigm shall be entitled to release such
information in accordance with the subpoena, order or request.
Advance Paradigm shall be entitled to assume the genuineness
of all signatures, the authenticity of all such requests,
orders or subpoenas, the conformity of copies of such
requests, orders or subpoenas to the original and that the
persons executing such requests, orders and subpoenas have
full power and authority to deliver same.
17. Regulatory and Other Approvals.
(a) Regulatory Approvals. Advance Paradigm understands and agrees
that this Agreement shall be effective for each FHS Affiliated
Plan in accordance with applicable state law. In the event any
governmental or regulatory agency with jurisdiction over a FHS
Affiliated Plan denies approval for this Agreement and such
approval is required under applicable state law, this
Agreement shall not be effective with respect to the services
identified by the regulatory body, and shall not apply to such
FHS Affiliated Plan unless Advance Paradigm is able to satisfy
the concerns of and obtain approval of such governmental or
regulatory body within the applicable time. FHS agrees to
cause such FHS Affiliated Plan to provide reasonable
assistance to Advance Paradigm in responding to any such
notification. In the event that Advance Paradigm is unable or
unwilling to satisfy such concerns, the provisions of Section
12 shall be deemed inapplicable to such FHS Affiliate Plan or
FHS or IPS, to the extent that any of them provide or arrange
for the provision of such services to such FHS Affiliate Plan.
(b) Existence of Pre-existing Agreements/Approvals. Advance
Paradigm further understands that FHS, IPS or an FHS
Affiliated Plan has existing agreements, set forth in Schedule
17, to obtain services substantially similar to the PBM
Services (or any of them) provided hereunder. To the extent
such agreement may not be terminated without breach by the FHS
party, such agreement may continue in force without being
construed as a violation of any provision of this Agreement
until such time as the agreement may be terminated or
otherwise expires without financial penalty to the FHS party.
18. Binding Arbitration. Advance Paradigm and FHS agree to meet and confer
in good faith to resolve any problems or disputes that may arise under
this Agreement. Such good faith meeting and conference shall be a
condition precedent to the filing of any arbitration demand by either
party. In addition, should the parties, prior to submitting a dispute
to arbitration, desire to utilize other impartial dispute settlement
techniques such as mediation or fact-finding, a joint request for such
services may be made to the American Arbitration Association ("AAA") or
Judicial Arbitration and Mediation Services ("JAMS"), or the parties
may initiate such other procedures as they may mutually agree upon at
such time.
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<PAGE> 28
(a) The parties further agree that any controversy or claim
arising out of or relating to this Agreement, or the breach
thereof, whether involving a claim in tort, contract, or
otherwise, shall be settled by final and binding arbitration,
upon the motion of either party, to arbitration under the
appropriate rules of the AAA or JAMS, as agreed by the
parties. The arbitration shall be conducted by a single,
neutral arbitrator who is licensed to practice law. The
written demand shall contain a detailed statement of the
matter and facts and include copies of all related documents
supporting the demand.
(b) All such arbitration proceedings shall be administered by the
AAA or JAMS, as agreed by the parties; however, the arbitrator
shall be bound by applicable state and federal law, and shall
issue a written opinion setting forth findings of fact and
conclusions of law. The parties agree that the decision of the
arbitrator shall be final and binding as to each of them.
Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator shall
have no authority to make material errors of law or to award
punitive damages or to add to, modify, or refuse to enforce
any agreements between the parties. The arbitrator shall make
findings of fact and conclusions of law and shall have no
authority to make any award which could have been made by a
court of law. The party against whom the award is rendered
shall pay any monetary award and/or comply with any other
order of the arbitrator within sixty (60) days of the entry of
judgment on the award.
(c) In all cases submitted to arbitration, the parties agree to
share equally the administrative fee as well as the
arbitrator's fee, if any, unless otherwise assessed by the
arbitrator. The administrative fees shall be advanced by the
initiating party subject to final apportionment by the
arbitrator in this award.
19. General.
(a) Notice. Any notice required to be given pursuant to the terms
and provisions of this Agreement shall be in writing and shall
be sent by certified mail, return receipt requested, or by
overnight delivery service or by facsimile transmission
confirmed by telephone conversation (recorded message is not
sufficient), at the addresses and facsimile numbers below or
such other address or number as shall be specified by the
parties by like notice.
to Advance Paradigm at:
Advance Paradigm, Inc.
Attn: David D. Halbert
545 E. John Carpenter Freeway, Suite 1570
Irving, Texas 75062
Telephone: (972) 830-6199; Fax No.: (972) 830-6169
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<PAGE> 29
and to Client at:
Foundation Health Systems
Attn: President, Specialty Services
21650 Oxnard Street
Woodland Hills, California 91367
Telephone: (818) 676-6726; Fax No.: (818) 676-6616
and with a copy to:
Foundation Health Systems
Attn: Senior Vice President, and General Counsel
21650 Oxnard Street
Woodland Hills, California 91367
Telephone: (818) 676-7601; Fax No.: (818) 676-7503
(b) Binding Nature and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, together
with any other health benefit plan acquired by FHS or its
affiliates during the term hereof, and the FHS Successors,
except with respect to FHS successors as specifically set
forth herein.
(c) Assignment. Neither party may assign this Agreement without
the prior written consent of the other; provided, however,
that Advance Paradigm may transfer or assign its rights and
obligations under this Agreement, to any affiliate and Client
may transfer its rights and obligations hereunder to an FHS
Successor, and provided further that no such assignment shall
have the effect of releasing such party from any of its
obligations under this Agreement.
(d) Entire Agreement. This Agreement contains all the terms and
conditions agreed upon by the parties with regard to the
subject matter herein, and supersedes all prior
understandings, writings, proposals, representations, or
communications, oral or written, of the parties hereto. This
Agreement may not be modified, amended or changed except by a
written agreement signed by the parties.
(e) Authority. Advance Paradigm and Client warrant that each has
full power and authority to enter into and perform this
Agreement, and the person signing this Agreement on behalf of
each party certifies that such person has been properly
authorized and empowered to enter into this Agreement on
behalf of such party.
(f) Non-Solicitation of Employees. During the term of this
Agreement, and for a period of one (1) year thereafter,
neither party shall, without the prior written consent of the
other party, knowingly solicit for employment any employees of
the other party.
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<PAGE> 30
(g) Non-Waiver. The failure of either party to insist, in any one
or more instances, upon performance of any of the terms,
covenants or conditions of this Agreement shall not be
construed as a waiver or a relinquishment of any right or
claim granted or arising hereunder or of the future
performance of any such term, covenant, or condition, and such
failure shall in no way affect the validity of this Agreement
or the rights and obligations of the parties hereunder.
(h) Relationship of Parties. This Agreement shall not constitute
or otherwise imply a joint venture, pooling arrangement,
partnership or formal business organization of any kind. Both
parties shall be considered independent contractors and
neither party shall be considered an agent of the other. Under
no circumstances shall employees of one party be deemed the
employees of the other party.
(i) Force Majeure. Neither party shall be liable for any failure
or delay in performing all or part of its obligations under
the terms of this Agreement resulting from unavailability of
pharmaceuticals, legislative action, war, acts of any person
engaged in a subversive activity, sabotage, riot, strikes,
slow-downs, lock-outs, or labor stoppage, freight embargoes,
fires, explosions, flood, earthquake or other acts of God,
failure of electrical power or telecommunications services
(other than as a result of a Y2K failure of Advance Paradigm)
or by reason of the judgment, filing or order of any court or
agency of competent jurisdiction occurring subsequent to the
signing of this Agreement, or any other circumstances beyond
its control; provided, however, that any such action is not as
a result of the negligence of the party seeking to be excused
from performance.
(j) Authority of Advance Paradigm. Client acknowledges that it has
the sole authority to control and administer the Plan. Client
further acknowledges that Advance Paradigm is engaged to
perform the services under this Agreement as an independent
contractor and not as a fiduciary of the Plan or as an
employee or agent of Client, or any Plan contract
administrator. Nothing in this Agreement shall be construed or
deemed to confer upon Advance Paradigm any responsibility for
or control over the terms or validity of the Plan. Advance
Paradigm shall have no final discretionary authority over or
responsibility for the Plan's administration. Further, because
Advance Paradigm is not an insurer, plan sponsor, third party
administrator, plan contract administrator, or a provider of
health services to Eligible Members, Advance Paradigm shall
have no responsibility for (i) any funding of Plan benefits;
(ii) any insurance coverage relating to Client or any Plan
contract administrator, the Plan or Eligible Members; or (iii)
the nature or quality of professional health services rendered
to Eligible Members.
(k) Survival. Should any part, term or condition of this Agreement
be declared illegal or unenforceable or in conflict with any
other laws, the remaining provisions shall be valid and not
affected thereby.
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(l) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and
all of which taken together shall constitute one and the same
instrument.
(m) Headings and Interpretation. The headings of the various
sections of this Agreement are inserted for convenience only
and do not, expressly or by implication, limit, define or
extend the specific terms of the section so designated.
(n) Departments of Insurance. The parties acknowledge that each
party is subject to the statutes and regulations in the states
in which this Agreement will be performed. The parties
acknowledge that, and shall comply with, the laws and
regulations of several states permitting Departments of
Insurance, Departments of Health, and Departments of
Corporations to have access to Advance Paradigm's books and
records relating to this Agreement for purpose of examination,
audit and inspection, subject to confidentiality obligations.
(o) Further Assurances. From time to time upon request and without
further consideration, the parties hereto shall, and shall
cause their subsidiaries, to execute, deliver or acknowledge
such documents and do such further acts as the other party
hereto may reasonably require to effectuate its obligations
contemplated by this Agreement.
(p) Fraud and Abuse. To the knowledge of Advance Paradigm, Advance
Paradigm and its respective executive officers and directors
have not (a) engaged in any activities which are prohibited
under 42 U.S.C. Section 1320a-7 (exclusionary authority) or
Section 1320a-7a (civil monetary penalties), or the
regulations promulgated pursuant to such statutes, or under
corresponding provisions of any applicable state law or
regulation, or (b) knowingly and willfully engaged in any
activities which are prohibited under 42 U.S.C. Section
1320a-7b (false claims and anti-kickback), or the regulations
promulgated pursuant to such statute, or under corresponding
provisions of any applicable state law or regulation, or (c)
engaged in any activities which are prohibited under any state
law or regulation corresponding to (a) or (b) above. To the
knowledge of Advance Paradigm, persons who provide
professional services under agreements with any of Advance
Paradigm or its Affiliates have not been excluded from the
Medicare program or any state health care program under 42
U.S.C. Section 1320-7 and Advance Paradigm is not aware of any
pending or threatened exclusion action against such
professional persons.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their proper and duly authorized officers on the date
first above written. By executing the Agreement, the undersigned individuals
hereby warrant and represent that they have read this Agreement in its entirety
and agree to all its terms.
ADVANCE PARADIGM, INC. INTEGRATED PHARMACEUTICAL SERVICES
By: By:
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- ----------------------------
FOUNDATION HEALTH SYSTEMS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Page 32
<PAGE> 1
EXHIBIT 10.2
================================================================================
$75,000,000.00
CREDIT AGREEMENT
Dated as of March 31, 1999
Among
ADVANCE PARADIGM, INC.
as Borrower,
THE BANKS NAMED IN THIS CREDIT AGREEMENT
as Banks,
NATIONSBANC MONTGOMERY SECURITIES LLC
as Arranger,
and
NATIONSBANK, N.A.
as Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms.......................................1
Section 1.02. Computation of Time Periods................................20
Section 1.03. Accounting Terms; Changes in GAAP..........................20
Section 1.04. Types of Advances..........................................20
Section 1.05. Miscellaneous..............................................20
ARTICLE II
THE ADVANCES AND THE LETTERS OF CREDIT
Section 2.01. The Advances and the Swing Loans...........................21
Section 2.02. Method of Borrowing........................................22
Section 2.03. Fees.......................................................26
Section 2.04. Reduction of the Commitments...............................27
Section 2.05. Repayment..................................................27
Section 2.06. Interest...................................................27
Section 2.07. Prepayments................................................28
Section 2.08. Breakage Costs.............................................30
Section 2.09. Increased Costs and Reduced Return.........................30
Section 2.10. Payments and Computations..................................33
Section 2.11. Taxes......................................................34
Section 2.12. Sharing of Payments, Etc...................................36
Section 2.13. Letters of Credit..........................................37
ARTICLE III
CONDITIONS OF LENDING
Section 3.01. Conditions Precedent to Initial Borrowing..................40
Section 3.02. Conditions Precedent to all Borrowings.....................42
Section 3.03. Determinations Under Sections 3.01 and 3.02................43
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Corporate Existence; Subsidiaries..........................43
Section 4.02. Corporate Power............................................44
Section 4.03. Authorization and Approvals................................44
Section 4.04. Enforceable Obligations....................................44
Section 4.05. Financial Statements.......................................45
Section 4.06. Ownership and Liens........................................45
Section 4.07. True and Complete Disclosure...............................45
-i-
<PAGE> 3
Section 4.08. Litigation.................................................45
Section 4.09. Use of Proceeds............................................46
Section 4.10. Investment Company Act.....................................46
Section 4.11. Public Utility Holding Company Act.........................46
Section 4.12. Taxes......................................................46
Section 4.14. Insurance..................................................47
Section 4.15. No Burdensome Restrictions; No Defaults....................47
Section 4.16. Environmental Condition....................................47
Section 4.17. Permits, Licenses, etc.....................................48
Section 4.18. Security Interests.........................................48
Section 4.19. Compliance with Laws, Material Agreements. ................48
Section 4.20. Year 2000..................................................49
Section 4.21. Regulatory Matters.........................................49
Section 4.22. Net Worth..................................................50
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.01. Compliance with Laws, Material Agreements, Etc.............50
Section 5.02. Maintenance of Insurance...................................51
Section 5.03. Preservation of Corporate Existence, Etc...................51
Section 5.04. Payment of Taxes, Etc......................................51
Section 5.05. Visitation Rights; Environmental Inspections...............52
Section 5.06. Reporting Requirements.....................................52
Section 5.07. Maintenance of Property....................................55
Section 5.08. New Subsidiaries...........................................55
Section 5.09. Security...................................................55
Section 5.09. Books and Records..........................................55
ARTICLE VI
NEGATIVE COVENANTS
Section 6.01. Debt.......................................................56
Section 6.02. Liens, Etc.................................................56
Section 6.03. Restricted Payments........................................56
Section 6.04. Agreements Restricting Liens and Distributions.............56
Section 6.05. Merger or Consolidation; Asset Sales.......................56
Section 6.06. Permitted Investments......................................57
Section 6.07. Affiliate Transactions.....................................57
Section 6.08. Compliance with ERISA......................................57
Section 6.09. Maintenance of Ownership of Subsidiaries...................57
Section 6.10. Fixed Coverage Ratio.......................................58
Section 6.11. Leverage Ratio.............................................58
Section 6.12. Minimum Net Worth..........................................58
Section 6.13. Capital Expenditures.......................................58
-ii-
<PAGE> 4
ARTICLE VII
DEFAULT AND REMEDIES
Section 7.01. Events of Default..........................................58
Section 7.02. Optional Acceleration of Maturity..........................61
Section 7.03. Automatic Acceleration of Maturity.........................61
Section 7.04. Cash Collateral Account....................................62
Section 7.05. Non-exclusivity of Remedies................................62
Section 7.06. Right of Set-off...........................................63
Section 7.07. Application of Payments....................................63
ARTICLE VIII
THE AGENT AND THE ISSUING BANK
Section 8.01. Appointment, Powers, and Immunities........................63
Section 8.02. Reliance by Agent..........................................64
Section 8.03. Defaults...................................................64
Section 8.04. Rights as Bank.............................................64
Section 8.05. Indemnification............................................65
Section 8.06. Non-Reliance on Agent and Other Banks......................65
Section 8.07. Resignation of Agent and Issuing Bank......................66
ARTICLE IX
MISCELLANEOUS
Section 9.01. Amendments, Etc............................................66
Section 9.02. Notices, Etc...............................................67
Section 9.03. No Waiver; Remedies........................................67
Section 9.04. Costs and Expenses.........................................67
Section 9.05. Binding Effect.............................................68
Section 9.06. Bank Assignments and Participations........................68
Section 9.07. INDEMNIFICATION............................................70
Section 9.08. Confidentiality............................................71
Section 9.09. Execution in Counterparts..................................71
Section 9.10. Survival of Representations, etc...........................71
Section 9.11. Severability...............................................71
Section 9.12. Business Loans.............................................71
Section 9.13. Usury Not Intended.........................................72
Section 9.14. Governing Law..............................................72
Section 9.15. Waiver of Jury.............................................72
-iii-
<PAGE> 5
EXHIBITS:
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Guaranty
Exhibit C - Form of Note
Exhibit D - Form of Notice of Borrowing
Exhibit E - Form of Notice of Conversion or Continuation
Exhibit F - Form of Notice of Swing Loan Request or Prepayment
Exhibit G - Form of NationsBank Letter of Credit Application
Exhibit H - Form of Compliance Certificate
Exhibit I - Form of Acquisition Consent Request
Exhibit J - Form of Pledge Agreement
Exhibit K - Form of Swing Note
SCHEDULES:
Schedule 1.01(a) - Notice Information
Schedule 1.01(b) - Permitted Debt
Schedule 1.01(c) - Permitted Investments
Schedule 1.01(d) - Permitted Liens
Schedule 4.01 - Subsidiaries
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<PAGE> 6
CREDIT AGREEMENT
This Credit Agreement dated as of March 31, 1999 is among Advance
Paradigm, Inc., a Delaware corporation ("Borrower"), the Banks (as defined
below), and NationsBank, N.A., as Agent for the Banks.
The Borrower, the Banks, and the Agent agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
term "Borrower" shall have the meaning set forth above and the following terms
shall have the following meanings (unless otherwise indicated, such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"Acceptable Security Interest" means a security interest which (a)
exists in favor of the Agent for its benefit and the ratable benefit of the
Banks, (b) is superior to all other security interests (other than the Liens
permitted under clauses (b), (c), (d), (e), (f), (g), (k), (l), and (m) of the
definition of "Permitted Liens"), (c) secures the Credit Obligations, and (d) is
perfected and enforceable against the Credit Party which created such security
interest.
"Acquired Business" means the stock and assets to be acquired under the
terms of the Purchase Agreement.
"Adjusted Eurodollar Rate" means, for any Eurodollar Rate Advance for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient
obtained by dividing (a) the Eurodollar Rate for such Eurodollar Rate Advance
for such Interest Period by (b) 1 minus the Eurodollar Rate Reserve Percentage
for such Eurodollar Rate Advance for such Interest Period.
"Advance" means any advance by a Bank to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of a Control Percentage, by contract or otherwise.
<PAGE> 7
"Agent" means NationsBank, N.A. in its capacity as an agent pursuant to
Article VIII and any successor agent pursuant to Section 8.07.
"Agreement" means this Credit Agreement dated as of March 31, 1999
among the Borrower, the Banks, and the Agent, as it may be amended, modified, or
supplemented from time to time.
"Applicable Lending Office" means, for each Bank and for each Type of
Advance, the "Lending Office" of such Bank (or of an affiliate of such Bank)
designated for such Type of Advance on Schedule 1.01(a) or such other office of
such Bank (or an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Borrower by written notice in accordance with the
terms of this Agreement as the office by which its Advances of such Type are to
be made and maintained.
"Applicable Margin" means, at any time with respect to any Advance or
the commitment fee, the following percentages determined as a function of the
Leverage Ratio as determined below:
<TABLE>
<CAPTION>
==================================================================================================================
LEVEL I LEVEL II LEVEL III LEVEL IV
Ratio greater Ratio less than Ratio less than Ratio less than 1.50
than or equal to 2.50, but greater 2.00, but greater
2.50 than or equal to than or equal to 1.50
2.00
==================================================================================================================
<S> <C> <C> <C> <C>
Eurodollar Rate Advance 2.50% 2.125% 1.75% 1.375%
- ------------------------------------------------------------------------------------------------------------------
Base Rate Advance 1.50% 1.125% 0.75% 0.375%
- ------------------------------------------------------------------------------------------------------------------
Commitment Fee 0.50% 0.45% 0.40% 0.35%
==================================================================================================================
</TABLE>
For purposes of determining the foregoing, the Leverage Ratio (a) shall be
deemed to be Level III from the Effective Date until the delivery of the
financial statements pursuant to Section 5.06(b) for the fiscal quarter ending
on June 30, 1999 and (b) shall thereafter be determined from the financial
statements of the Borrower and its Subsidiaries most recently delivered pursuant
to Sections 5.06(b) and (c). Any change in the Applicable Margin on or after
delivery of the financial statements for the fiscal quarter ending after June
30, 1999 shall be effective upon the date of delivery of the financial
statements pursuant to Sections 5.06(b) and (c). If the Borrower fails to
deliver such financial statements within the times specified in Sections 5.06(b)
or (c), the Leverage Ratio shall be deemed to be Level I until the Borrower
delivers such financial statements to the Agent and the Banks.
"Arranger" means NationsBanc Montgomery Securities LLC.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of the attached Exhibit A.
"Banks" means the lenders listed on the signature pages of this
Agreement and each Eligible Assignee that shall become a party to this Agreement
pursuant to Section 9.06.
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<PAGE> 8
"Base Rate" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus .5% and (b) the Prime Rate for
such day. Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such change in
the Prime Rate or Federal Funds Rate.
"Base Rate Advance" means an Advance which bears interest as provided
in Section 2.06(a).
"Borrowing" means a borrowing consisting of simultaneous Advances of
the same Type made by each Bank pursuant to Section 2.01(a) or Converted by each
Bank to Advances of a different Type pursuant to Section 2.02(b).
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City and Charlotte, North Carolina and, if
the applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on by banks in the London interbank market.
"Capital Expenditures" means, for any period, the aggregate of all
expenditures and costs (whether paid in cash or accrued as liabilities during
that period and including that portion of Capital Leases incurred during such
period which are capitalized on the balance sheet of the Borrower) of the
Borrower during such period that, in conformity with GAAP, are required to be
included in or reflected by the property, plant or equipment or similar fixed
asset accounts reflected in the consolidated balance sheet of the Borrower.
"Capital Leases" means, as applied to any Person, any lease of any
Property by such Person as lessee which would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on the balance
sheet of such Person.
"Cash Collateral Account" means a special interest bearing cash
collateral account containing cash deposited pursuant to Section 7.02(b) or
7.03(b) to be maintained at the Agent's office in accordance with Section 7.04.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 12 U.S.C. ss. 9601 et seq., as amended, state and
local analogs, and all rules and regulations and requirements thereunder in each
case as now or hereafter in effect.
"Change in Control" means (a) the direct or indirect acquisition after
the Effective Date by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act), or related persons constituting a group
(as such term is used in Rule 13d-5 under the Exchange Act) other than a
Permitted Holder (as defined below), of (i) beneficial ownership of issued and
outstanding shares of voting stock of the Borrower, the result of which
acquisition is that such person or such group possesses in excess of 30% of the
combined voting power of all then-issued and outstanding voting stock of the
Borrower, or (ii) the power to elect, appoint, or cause the election or
appointment of at least a majority of the members of the board of directors of
the Borrower or (b)
-3-
<PAGE> 9
during any period of 12 consecutive months, beginning with and after the
Effective Date, individuals who at the beginning of such 12-month period were
directors of the Borrower (together with new directors elected by, or nominated
for election by, such directors or directors elected under this parenthetical
clause) shall cease for any reason to constitute a majority of the board of
directors of the Borrower at any time during such period. A "Permitted Holder"
is (a) David D. or Jon S. Halbert, (b) any trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding 80% or more controlling interest of which consist of either
or both of the individuals listed in the foregoing clause (a), and (c) any
Person related by lineal or collateral consanguinity to either such individual
or to the spouse of either such individual (adopted persons shall be considered
the natural born child of their adoptive parents; lineal consanguinity is that
relationship that exists between persons of whom one is descended or ascended in
a direct line from the other, as between son, father, and grandfather and
collateral consanguinity is that relationship that exists between persons who
have the same ancestors, but who do not descend or ascend from the other, as
between uncle and nephew, siblings, or cousin and cousin), in each case to whom
such individual has transferred capital stock of the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Collateral" means the "Collateral" as defined in the Pledge
Agreements.
"Commitment" has the meaning set forth in Section 2.01(a).
"Control Percentage" means, with respect to any Person, the percentage
of the outstanding capital stock or other ownership interests of such Person
having ordinary voting power which gives the direct or indirect holder of such
stock or interests the power to elect a majority of the Board of Directors or
similar governing body of such Person.
"Controlled Group" means all members of a controlled group of
corporations and all trades (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.02(b) of Advances of one Type as Advances of
the same Type from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.02(b) of one Type of Advance into another Type of Advance.
"Credit Documents" means this Agreement, the Notes, the Swing Note, the
Guaranties, the Notices of Borrowing, the Notices of Conversion, the Letters of
Credit, the Letter of Credit Applications, any Derivatives with a Bank, the
Security Documents, and each other agreement, instrument, or document executed
by the Borrower or any of its Subsidiaries at any time in connection with this
Agreement.
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<PAGE> 10
"Credit Obligations" means all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by the
Credit Parties to the Banks and the Agent under this Agreement and the other
Credit Documents and any increases, extensions, and rearrangements of those
obligations under any amendments, supplements, and other modifications of the
documents and agreements creating those obligations.
"Credit Parties" means the Borrower and each of its Subsidiaries.
"Debt," for any Person, means without duplication:
(a) obligations of such Person for borrowed money;
(b) obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(c) obligations of such Person to pay the deferred purchase price of
property or services other than obligations in the form of accounts payable
incurred in the ordinary course of business to trade creditors for goods or
services and current operating liabilities (other than for borrowed money) which
in both cases are either (i) not more than 90 days past due or (ii) contested in
good faith and by appropriate proceedings;
(d) obligations of such Person as lessee under Capital Leases;
(e) obligations of such Person under forward sales arrangements, calls,
options, swaps, collars, caps, or other similar transactions, including any
obligations to purchase or sell any commodity or security at a future date for a
specific price, entered into to protect such Person from fluctuations in prices
or rates, including interest rates, foreign exchange rates, commodity prices,
and securities prices;
(f) obligations of such Person in respect of letters of credit and
agreements relating to the issuance of letters of credit;
(g) obligations of such Person under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) of such Person to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness of others of the kinds referred to in clauses (a) through (f)
above;
(h) indebtedness or obligations of others of the kinds referred to in
clauses (a) through (g) secured by any Lien on or in respect of any Property of
such Person to the extent of the fair market value of such Property; and
(i) all liabilities of such Person in respect of unfunded vested
benefits under any Plan.
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<PAGE> 11
"Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time or both would, unless cured or waived, become
an Event of Default.
"Derivative" means (a) any foreign exchange transaction between the
Borrower or any of its Subsidiaries and a Bank and (b) any interest hedge, rate
swap, or cap, or similar arrangement between the Borrower or any of its
Subsidiaries and a Bank providing for the exchange of interest obligations or
the cap of the interest rate on the Advances.
"Dollar Equivalent" means the equivalent in another currency of an
amount in Dollars to be determined by reference to the rate of exchange quoted
by NationsBank, N.A., at 10:00 a.m. (Charlotte, North Carolina time) on the date
of determination, for the spot purchase in the foreign exchange market of such
amount of Dollars with such other currency.
"Dollars" and "$" means lawful money of the United States of America.
"EBITDA" means, for any period, (a) Net Income for such period plus (b)
to the extent deducted in determining Net Income, Interest Expense, taxes, and
depreciation and amortization.
"Effective Date" means the date on which the initial Advance is made
under this Agreement.
"Eligible Assignee" means (a) a Bank, (b) an Affiliate of a Bank, and
(c) any other Person approved by the Agent and, unless an Event of Default has
occurred and is continuing at the time any assignment is effected in accordance
with Section 9.06, the Borrower, such approval not to be unreasonably withheld
or delayed by the Agent or the Borrower and such approval to be deemed given by
the Borrower if no objection is received by the assigning Bank and the Agent
from the Borrower within three Business Days after notice of such proposed
assignment has been provided by the assigning Bank to the Borrower; provided,
however, that neither the Borrower nor an Affiliate of the Borrower shall
qualify as an Eligible Assignee nor a financial institution which on the date
its assignment becomes effective would be entitled to compensation under Section
2.11.
"Environment" or "Environmental" shall have the meanings set forth in
42 U.S.C. Section 9601(8).
"Environmental Claim" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation which seeks to impose liability under any
Environmental Law.
"Environmental Law" means all Legal Requirements arising from, relating
to, or in connection with the Environment, health, or safety, including without
limitation CERCLA and Legal Requirements relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, remediation,
reclamation or restoration of the air, surface water, groundwater, land surface
or subsurface strata, or other natural resources; (b) manufacture, handling,
generation, treatment, processing, recycling, reclamation, cleanup, storage,
disposal or transportation of hazardous or toxic materials, substances or
wastes; (c) exposure to pollutants, contaminants, or hazardous or toxic
substances, materials or wastes; or (d) the safety or health of employees.
-6-
<PAGE> 12
"Environmental Permit" means any permit, license, order, approval or
other authorization under Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Rate" means, for any Eurodollar Rate Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page)
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any reason
such rate is not available, the term "Eurodollar Rate" means, for any Eurodollar
Rate Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates (rounded upwards,
if necessary, to the nearest 1/100 of 1%).
"Eurodollar Rate Advance" means an Advance which bears interest at
rates based upon the Adjusted Eurodollar Rate as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" means, at any time, the maximum
rate at which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) by member banks of the Federal Reserve System
against in the case of Eurodollar Rate Advances, "Eurocurrency liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the Eurodollar Rate Reserve Percentage shall reflect any other
reserves required to be maintained by such member banks with respect to (a) any
category of liabilities which includes deposits by reference to which the
Adjusted Eurodollar Rate is to be determined or (b) any category of extensions
of credit or other assets which include Eurodollar Rate Advances. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective date
of any change in the Eurodollar Rate Reserve Percentage.
"Events of Default" has the meaning set forth in Section 7.01.
"Expiration Date" means, with respect to any Letter of Credit, the date
on which such Letter of Credit will expire or terminate in accordance with its
terms.
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<PAGE> 13
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to the Agent (in its
individual capacity) on such day on such transactions as determined by the
Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.
"Financial Statements" means the balance sheet and related statements
of operations, cash flow, and stockholders' equity dated March 31, 1998 referred
to in Section 4.05(a), copies of which have been delivered to the Agent and the
Banks.
"Fixed Charges" means, for any period, the sum of Interest Expense and
Lease Expense for such period.
"Fund," "Trust Fund," or "Superfund" means the Hazardous Substance
Response Trust Fund, established pursuant to 42 U.S.C. Section 9631 (1988) and
the Post-closure Liability Trust Fund, established pursuant to 42 U.S.C. Section
9641 (1988), which statutory provisions have been amended or repealed by the
Superfund Amendments and Reauthorization Act of 1986, and the "Fund," "Trust
Fund," or "Superfund" that are now maintained pursuant to Section 9507 of the
Code.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, applied on a basis consistent with the requirements
of Section 1.03.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority or instrumentality, bureau or court having jurisdiction over
any Bank, the Borrower, or the Borrower's Subsidiaries or any of their
respective Properties.
"Governmental Proceedings" means any action or proceedings by or before
any Governmental Authority, including, without limitation, the promulgation,
enactment or entry of any Legal Requirement.
"Guarantor" means each Subsidiary of the Borrower that has entered into
a Guaranty, and "Guarantors" means such Persons collectively.
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<PAGE> 14
"Guaranty" means (a) the Guaranty by the Subsidiaries of the Borrower
for the benefit of the Agent and the Banks dated as of the date of this
Agreement and (b) any Guaranty made after the date of this Agreement pursuant to
Section 5.08, each in substantially the form of the attached Exhibit B, as each
may be amended, modified, or supplemented from time to time.
"Hazardous Substance" or "Hazardous Waste" means any substance,
material, contaminant, or waste that is regulated by any Governmental Authority
and any material that is defined as a "hazardous waste," "hazardous substance,"
"hazardous material," "restricted hazardous waste," "toxic waste," or "toxic
pollutant" under any Environmental Law.
"Interest Expense" means, for any period, total interest expense for
the Borrower and its Subsidiaries, whether paid or accrued (including that
attributable to obligations which have been or should be, in accordance with
GAAP, recorded as Capital Leases), including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Derivatives, all
as determined in conformity with GAAP.
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Advance or
the date of the Conversion of any Base Rate Advance into such an Advance and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below and Section 2.02 and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below and Section 2.02. The duration of each such Interest Period
shall be one, two, three, or six months, in each case as the Borrower may, upon
notice received by the Agent not later than 11:00 a.m. (Charlotte, North
Carolina time) on, the third Business Day prior to the first day of such
Interest Period select; provided, however, that:
(a) the Borrower may not select any Interest Period for any Advance
which ends after the Maturity Date;
(b) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;
(c) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day, provided that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
(d) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month.
-9-
<PAGE> 15
"Issuing Bank" means NationsBank and any successor issuing bank
pursuant to Section 8.07.
"Lease Expense" means, for any period, all amounts payable by the
Borrower and its Subsidiaries during such period under any lease, sublease, or
other instrument (other than a Capital Lease) pursuant to which the Borrower or
any of its Subsidiaries is entitled to use any Property of another Person, all
as determined in accordance with GAAP.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulations T, U and X.
"Letter of Credit" means, individually, any letter of credit issued by
the Issuing Bank which is subject to this Agreement, and "Letters of Credit"
means all such letters of credit collectively.
"Letter of Credit Documents" means, with respect to any Letter of
Credit, such Letter of Credit and any agreements, documents, and instruments
entered into in connection with or relating to such Letter of Credit.
"Letter of Credit Exposure" means, at any time, the sum of (a) the
aggregate undrawn maximum face amount of each Letter of Credit at such time and
(b) the aggregate unpaid amount of all Reimbursement Obligations at such time.
"Leverage Ratio" means, as of the last day of any fiscal quarter, the
ratio of the Borrower's (a) Debt as of such day to (b) EBITDA for the four
fiscal quarter period ending on such day, except that, for the fiscal quarters
ending June 30, 1999, September 30, 1999, and December 31, 1999, EBITDA shall be
determined by annualizing EBITDA for the one, two and three fiscal quarter
period, respectively, ending on such dates.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, or encumbrance to secure or provide for the payment of any
obligation of any Person, whether arising by contract, operation of law or
otherwise (including, without limitation, the interest of a vendor or lessor
under any conditional sale agreement, Capital Lease or other title retention
agreement).
"Liquid Investments" means:
(a) securities issued or directly and fully guaranteed or insured by
the United States;
(b) bankers acceptances or time deposits and certificates of deposit
with maturities of not more than 180 days from the date of acquisition thereof
and demand deposits ("bank debt securities"), which are either issued by (i) any
Bank or (ii) any other bank or trust company which has a combined capital
surplus and undivided profit of not less than $500,000,000.00 or the Dollar
Equivalent thereof, if at the time of deposit or purchase, such bank debt
securities are rated not less than "A" (or the then equivalent) by S&P or
Moody's;
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<PAGE> 16
(c) commercial paper with maturities of not more than 180 days from the
date of acquisition thereof issued by (i) any Bank or (ii) any other Person if
at the time of purchase such commercial paper is rated not less than "A-2" (or
the then equivalent) by S&P or not less than "P-2" (or the then equivalent) by
Moody's;
(d) repurchase or reverse purchase agreements relating to investments
described in clauses (a), (b) and (c) above with a market value at least equal
to the consideration paid in connection therewith, with any Person who regularly
engages in the business of entering into repurchase agreements and has a
combined capital surplus and undivided profit of not less than $500,000,000.00
or the Dollar Equivalent thereof, if at the time of entering into such agreement
the debt securities of such Person are rated not less than "A" (or the then
equivalent) by S&P or of Moody's;
(e) investments in any money market fund which holds investments
substantially of the type described in the foregoing clauses (a) through (d);
and
(f) such other instruments (within the meaning of Article 9 of the
Texas Business and Commerce Code) as the Borrower may request and the Agent may
approve in writing, which approval will not be unreasonably withheld.
All the Liquid Investments described in clauses (a) through (f) above shall have
maturities of not more than 397 days from the date of issue.
"Majority Banks" means, at any time, Banks holding 66-2/3% or more of
the then aggregate unpaid principal amount of the Advances owed to the Banks and
the Letter of Credit Exposure of the Banks at such time, or, if no such
principal amount and Letter of Credit Exposure is then outstanding, Banks having
66-2/3% or more of the aggregate amount of the Commitments at such time.
"Material Adverse Change" means (a) a material adverse change in the
business, financial condition, or results of operations of the Credit Parties,
taken as a whole, since the date of the Financial Statements or (b) a material
adverse effect (i) on the Borrower's ability to perform its monetary
obligations, negative covenants, or material other obligations under any of the
Credit Documents; (ii) on the ability of the other Credit Parties, taken as a
whole, to perform their monetary obligations, negative covenants, or material
other obligations under the Credit Documents; or (iii) on the business,
financial condition, or results of operations of the Credit Parties, taken as a
whole.
"Material Agreements" means (a) the Purchase Agreement, (b) all
indentures and other loan or credit agreements to which any of the Credit
Parties is a party, and (c) any other agreement for the purchase or sale of
goods or services under which the amount payable to or by the Credit Parties,
taken as a whole, exceeds 5% of the Borrower's consolidated gross revenue for
the prior fiscal year.
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"Maturity Date" means the earlier of (a) April 2, 2002 and (b) the
earlier termination in whole of the Commitments pursuant to Section 2.04 or
Article VII.
"Maximum Rate" means the maximum nonusurious interest rate under
applicable law.
"Moody's" means Moody's Investors Service, Inc., or any successor to
its business.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or any member of the Controlled Group
is making or accruing an obligation to make contributions.
"NationsBank" means NationsBank, N.A. and its successors.
"Net Cash Proceeds" means:
(a) with respect to any sale, transfer, or other disposition of any of
the Property of any Credit Party (including the sale or transfer of stock or
other equity interest by such Credit Party and property insurance proceeds), all
cash and Liquid Investments received by any Credit Party from such sale,
transfer, or other disposition after, without duplication, (i) payment of, or
provision for, all brokerage commissions, legal fees, accounting fees, and other
reasonable out-of-pocket fees and expenses actually incurred; (ii) payment of,
or provision for, taxes payable as a result of such disposition, (iii) payment
of any outstanding obligations relating to such Property paid in connection with
any such sale, transfer, or other disposition; and (iv) recording of the amount
of reserves required in accordance with GAAP for indemnity or similar
obligations of the Credit Parties directly related to such sale, transfer, or
other disposition and
(b) with respect to the issuance of any debt securities, all cash
received by the Borrower or any of its Subsidiaries from the issuance of such
debt securities after payment of or deduction for (i) all underwriter's or
placement agent's discounts and fees and (ii) reasonable legal, accounting, and
other fees and expenses of the Borrower or such Subsidiary incurred in
connection with the issuance of any such debt securities.
"Net Income" means, for any period, the Borrower's net income for such
period, as determined in accordance with GAAP.
"Net Worth" means, at any date for any Person that is a corporation,
the sum of (a) the par value (or value stated on the books of such Person) of
the capital stock of all classes of such Person, (b) the additional paid-in
capital of such Person, and (c) the amount of the retained earnings of such
Person, all determined in accordance with GAAP, excluding, however, the value of
any redeemable preferred stock or similar capital stock and any treasury stock
of such Person.
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"Nonordinary Course Asset Sales" means, any sales, conveyances, or
other transfers made by the Borrower or any of its Subsidiaries (a) of any
division of the Borrower or any of its Subsidiaries, (b) of the capital stock of
a Subsidiary of the Borrower by the Borrower or any of its Subsidiaries, or (c)
outside the ordinary course of business, of assets in a transaction or related
series of transactions in which the aggregate consideration (whether cash,
securities, other Property or assumption of Debt) exceeds $1,000,000.00.
"Note" means a promissory note of the Borrower payable to the order of
any Bank, in substantially the form of the attached Exhibit C, evidencing
indebtedness of the Borrower to such Bank resulting from Advances owing to such
Bank.
"Notice of Borrowing" means a notice of borrowing in the form of the
attached Exhibit D signed by the chief executive officer, chief financial
officer, or controller of the Borrower.
"Notice of Conversion or Continuation" means a notice of conversion or
continuation in the form of the attached Exhibit E signed by the chief executive
officer, chief financial officer, or controller of the Borrower.
"Notice of Swing Loan Request or Prepayment" means a notice of swing
loan request or prepayment in the form of the attached Exhibit F signed by the
chief executive officer, chief financial officer, or controller the Borrower.
"Obligations" means all Advances, Swing Loans, Reimbursement
Obligations, and other amounts payable by the Borrower to the Agent, or the
Banks under the Credit Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" means:
(a) the acquisition of the Acquired Business;
(b) the acquisition of business assets, stock, partnership interests,
joint venture interests, or other equity interests by any Credit Party from
another Person (other than investments permitted under clause (i) of the
definition of "Permitted Investments"):
(i) made in substantially the same or complementary lines of
business of the Borrower and which does not violate any other provision
of this Agreement;
(ii) for which (a) the aggregate cash consideration paid for such
acquisition and all other acquisitions made after the date of this
Agreement during the four quarter period in which such acquisition
occurs plus (B) the aggregate principal amount of Debt assumed or
acquired in connection with such acquisition and all other acquisitions
made after the date of this Agreement during such period does not
exceed $20,000,000.00;
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<PAGE> 19
(iii) which, at the time of such acquisition, no Default has
occurred and is continuing or would occur upon the consummation of such
acquisition;
(iv) for which, if such acquisition or a related series of
acquisitions had an aggregate purchase price (whether in cash,
Property, assumption of Debt, or issuance of equity) of $5,000,000.00
or more, the Agent shall have received (a) a completed and duly
executed compliance certificate in the form of the attached Exhibit H
demonstrating pro forma financial covenant compliance, including
adjustments to the Borrower's EBITDA for such acquired business, for
the four quarters ending immediately preceding the date of such
acquisition; (B) if available, reviewed or audited financial statements
for the business acquired for at least the three fiscal years preceding
the date of the acquisition; and (C) copies of the internal financial
analysis of the acquired business completed by the Borrower and other
financial due diligence reviewed by the Borrower; and
(v) for which the aggregate consideration paid (whether in cash,
Property, assumption of Debt, or issuance of equity) for such
acquisition and all other acquisitions made after the date of this
Agreement during the four fiscal quarter period in which such
acquisition occurs does not exceed $35,000,000.00; and
(c) the acquisition of business assets, stock, partnership interests,
joint venture interests, or other equity interests by any Credit Party from
another Person for which the Majority Banks shall have consented in writing
after receipt of a completed request for consent in the form of the attached
Exhibit I including the information contemplated under clause (b)(iv) of this
definition.
To determine the value of capital stock or Property other than cash used as
consideration, the value of the Borrower's capital stock shall be based on the
closing price on the Business Day before the date of the public announcement of
the acquisition and the value of such other Property shall be the fair market
value as determined by the Borrower's board of directors in good faith.
"Permitted Debt" means all of the following Debt:
(a) Debt of the Credit Parties under the Credit Documents;
(b) Debt listed in Schedule 1.01(b) and any rearrangements, extensions,
or refinancings thereof on terms and for amounts substantially similar to the
terms and amounts existing as of the date of this Agreement;
(c) intercompany Debt incurred in the ordinary course of business owed
(i) by any wholly-owned Subsidiary of the Borrower to the Borrower; (ii) by the
Borrower to any of its wholly-owned Subsidiaries; and (iii) by any wholly-owned
Subsidiary of the Borrower to another wholly-owned Subsidiary of the Borrower;
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<PAGE> 20
(d) purchase money indebtedness, any obligations under Capital Leases,
and any Debt used to finance any Credit Party's owned or leased real estate
(including any rearrangements, extensions, or refinancing thereof), in each case
incurred or assumed after the Effective Date in an aggregate principal amount
outstanding at any time not to exceed $5,000,000.00; provided that the Borrower
may not enter into additional indebtedness of the type described in this clause
(d) (other than rearrangements, extensions, or refinancings thereof) if a
Default is continuing or entering into the additional indebtedness would
reasonably be expected to cause a Default;
(e) Debt under a Derivative so long as such Derivative is a bona fide
hedging activity (and is not for speculative purposes) and is in the ordinary
course of business;
(f) contingent obligations of any Credit Party as a guarantor of the
obligations of another Credit Party so long as such primary obligation is
otherwise permitted or not prohibited hereunder;
(g) Debt with respect to performance bonds, surety bonds, appeal bonds
or customs bonds required in the ordinary course of business or in connection
with the judgments that do not result in an Event of Default, provided that the
aggregate outstanding amount of all such performance bonds, surety bonds, appeal
bonds and customs bonds permitted by this clause shall not at any time exceed
$2,000,000.00; and
(h) Debt of the Credit Parties not otherwise permitted by this
Agreement in an aggregate principal amount at any time outstanding not exceeding
$3,000,000.00.
"Permitted Investments" means:
(a) investments in the form of trade credit to customers of the Credit
Parties arising in the ordinary course of business and represented by accounts
from such customers;
(b) Liquid Investments;
(c) investments listed in Schedule 1.01(c);
(d) Permitted Acquisitions;
(e) contributions, loans, or advances to, or investments in (i) a
wholly-owned Subsidiary of the Borrower, including investments in connection
with the creation of any such Subsidiary or (ii) the Borrower (including in each
case those made before the date of this Agreement), other than transfers of
assets constituting more than 30% of the net book value of the Borrower's
tangible assets on the date of this Agreement;
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<PAGE> 21
(f) loans and advances by the Credit Parties to employees, officers and
directors of the Credit Parties in connection with relocations, purchases by
such employees of Borrower common stock or options or similar rights to purchase
Borrower common stock and other ordinary course of business purposes (including
travel and entertainment expenses) in an aggregate amount outstanding at any
time not to exceed $500,000.00;
(g) promissory notes and other noncash consideration received by the
Credit Parties in connection with any asset sale permitted hereunder, with the
bankruptcy or reorganization of suppliers and customers, or with the settlement
of delinquent obligations of, and disputes with, customers and suppliers arising
in the ordinary course of business;
(h) advances in the form of a prepayment of up to 90 days of expenses,
so long as such expenses were incurred in the ordinary course of business and
are being paid in accordance with customary trade terms of the Borrower or any
of its Subsidiaries;
(i) loans, advances or investments in or acquisition of business
assets, stock, partnership interests, joint venture interests, or other equity
interests in an online internet venture in an aggregate amount not to exceed
$10,000,000.00 outstanding at any time so long as neither the Borrower nor any
of its Subsidiaries shall have guaranteed any obligations of such venture, shall
be a general partner in such venture, or shall otherwise have personal liability
for any obligations of such venture and Borrower and its Subsidiaries' interest
in such venture is pledged to the Agent for the benefit of the Banks as required
by Section 5.08;
(j) in addition to investments permitted by this Agreement, loans,
advances and investments to or in a Person in an aggregate amount for all loans,
advances and investments made pursuant to this clause not to exceed
$1,000,000.00 in the aggregate outstanding at any time; and
(k) such other investments as the Agent may approve in writing.
"Permitted Liens" means all of the following Liens:
(a) Liens securing the Credit Obligations;
(b) Liens disclosed to the Banks in Schedule 1.01(d) securing the
Debt described in part (b) of the definition of Permitted Debt;
(c) Liens imposed by law or contract, such as landlord's,
materialmen's, mechanics', carriers', workmen's and repairmen's liens, and other
similar liens arising in the ordinary course of business securing obligations
which are not overdue for a period of more than 30 days;
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<PAGE> 22
(d) Liens arising in the ordinary course of business out of pledges or
deposits under workers compensation laws, unemployment insurance, old age
pensions, or other social security or retirement benefits, or similar
legislation to secure public or statutory obligations;
(e) Liens for taxes, assessment, or other governmental charges which
are not yet delinquent or which are being actively contested in good faith by
appropriate proceedings;
(f) Liens securing purchase money debt, Capital Leases, or real estate
Debt permitted under clause (d) of the definition of Permitted Debt, provided
that each such Lien encumbers only the property purchased, leased, owned, or
financed in connection with the creation of any such purchase money debt,
Capital Lease, or real estate Debt, additions and accessions thereto,
improvements thereof and proceeds of any of the foregoing;
(g) Liens arising from judgments, decrees, awards or attachments in
circumstances not constituting an Event of Default;
(h) licenses, sublicenses, leases or subleases granted to third Persons
in the ordinary course of business not interfering in any material respect with
the business of the Borrower or any of its Subsidiaries;
(i) easements, rights-of-way, restrictions, minor defects or
irregularities in title, encroachments and other similar charges or
encumbrances, in each case not securing Debt and not interfering in any material
respect with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
(j) Liens arising from precautionary UCC financing statements regarding
operating leases;
(k) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Borrower or any of its Subsidiaries in the
ordinary course of business;
(l) additional Liens incurred by the Credit Parties so long as the
value of the property subject to such Liens, and the Debt and other obligations
secured thereby, does not exceed $3,000,000.00 outstanding at any time; and
(m) Liens arising out of the Permitted Debt contemplated by clause (g)
of the definition of "Permitted Debt."
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company, or other entity, or a government or any
political subdivision or agency thereof or any trustee, receiver, custodian or
similar official.
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<PAGE> 23
"Plan" means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower or any member of the Controlled Group
and covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.
"Pledge Agreements" means the Pledge Agreements made by the Borrower
and, if applicable, its Subsidiaries in substantially the same form as the
attached Exhibit J, as the same may be amended, supplemented, and otherwise
modified from time to time.
"Prime Rate" means the per annum rate of interest established from time
to time by NationsBank as its prime rate, which rate may not be the lowest rate
of interest charged by NationsBank to its customers.
"Property" of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.
"Pro Rata Share" means, at any time with respect to any Bank, either
(a) the ratio (expressed as a percentage) of such Bank's Commitments at such
time to the aggregate Commitments at such time, (b) if the Commitments have been
terminated, the ratio (expressed as a percentage) of such Bank's aggregate
outstanding Advances and Letter of Credit Exposure at such time to the aggregate
outstanding Advances and Letter of Credit Exposure of all the Banks at such
time, or (c) if no Advances are then outstanding and no Commitments then in
effect, the ratio (expressed as a percentage) of the aggregate principal amount
of such Bank's Advances when most recently outstanding to the aggregate
principal amount of all Advances when most recently outstanding.
"Purchase Agreement" means the Purchase Agreement dated as of February
26, 1999 among the Borrower and Foundation Health Systems, Inc. ("FHS"),
Foundation Health Pharmaceutical Services, Inc. ("FHPS"), Foundation Health
Corporation, and Integrated Pharmaceutical Services, Inc. ("IPS"), pursuant to
which the Borrower will acquire (a) all of the outstanding capital stock of FHPS
from FHS and (b) certain assets of IPS from IPS.
"Register" has the meaning set forth in Section 9.06(b).
"Regulations T, U, and X" means Regulation T, U, and X of the Federal
Reserve Board, as each is from time to time in effect, and all official rulings
and interpretations thereunder or thereof.
"Reimbursement Obligations" means all of the obligations of the
Borrower set forth in paragraph (c) of Section 2.13.
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<PAGE> 24
"Release" shall have the meaning set forth in 42 U.S.C. Section
9601(22) or under any other Environmental Law.
"Response" shall have the meaning set forth in 42 U.S.C. Section
9601(25) or under any other Environmental Law.
"Responsible Officer" means the chief executive officer, president, the
chief financial officer, any senior or executive vice president, the controller,
the treasurer, or any secretary of any Person.
"Restricted Payment" means the making by any Person of (a) any
dividends or other distributions (in cash, property, or otherwise) on, or any
payment for the purchase, redemption or other acquisition of, any shares of any
capital stock of such Person, other than dividends, distributions, and other
payments payable by the issuance of such Person's stock and (b) any voluntary
prepayment of principal or interest (in cash, property or otherwise) on any Debt
(other than the Obligations or Capital Leases or made in common stock of the
Borrower).
"Security Documents" means, collectively, the Pledge Agreements and any
and all other instruments, documents or agreements now or hereafter executed by
the Borrower or any other Person to secure the Credit Obligations.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., or any successor to its business.
"Subsidiary" of a Person means any corporation or other entity of which
(a) more than 50% of the outstanding capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
similar governing body of such corporation or other entity (irrespective of
whether at such time capital stock or other ownership interests of any other
class or classes of such corporation or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person, by such Person and one or more Subsidiaries of
such Person or by one or more Subsidiaries of such Person, and (b) the financial
information of such corporation or other entity is required to be consolidated
with the financial information of such Person in accordance with GAAP.
"Swing Loan" has the meaning set forth in Section 2.01(b).
"Swing Note" means a promissory note of the Borrower payable to the
order of the Agent in substantially the form of the attached Exhibit K,
evidencing indebtedness of the Borrower to the Agent from Swing Loans owing to
the Agent.
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<PAGE> 25
"Termination Event" means (a) the occurrence of a Reportable Event with
respect to a Plan, as described in Section 4043 of ERISA and the regulations
issued thereunder (other than a Reportable Event not subject to the provision
for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the
Borrower or any of its Affiliates from a Plan during a plan year in which it was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA,
(d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any
other event or condition which constitutes grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Type" has the meaning set forth in Section 1.04.
Section 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
Section 1.03. Accounting Terms; Changes in GAAP.
(a) All accounting terms not specifically defined in this Agreement
shall be construed in accordance with GAAP applied on a consistent basis with
those applied in the preparation of the Financial Statements (except for changes
to which the Borrower's independent public accountants take no exception).
(b) Unless otherwise indicated, all financial statements of the
Borrower, all calculations for compliance with covenants in this Agreement, all
determinations of the Applicable Margin, and all calculations of any amounts to
be calculated under the definitions in Section 1.01 shall be based upon the
consolidated accounts of the Borrower and its Subsidiaries in accordance with
GAAP and consistent with the principles of consolidation applied in preparing
the Financial Statements (except for changes in the principles of consolidation
to which the Borrower's independent public accountants take no exception).
Section 1.04. Types of Advances. Advances are distinguished by "Type".
The "Type" of an Advance refers to the determination whether such Advance is a
Eurodollar Rate Advance or Base Rate Advance, each of which constitutes a Type.
Section 1.05. Miscellaneous. Article, Section, Schedule and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.
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ARTICLE II
THE ADVANCES AND THE LETTERS OF CREDIT
Section 2.01. The Advances and the Swing Loans.
(a) The Advances. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make Advances to the Borrower from
time to time on any Business Day during the period from the date of this
Agreement until the Maturity Date in an aggregate amount not to exceed at any
time outstanding (i) the amount set opposite such Bank's name on the signature
pages of this Agreement as its Commitment, or if such Bank has entered into any
Assignment and Acceptance after the Effective Date, set forth for such Bank as
its Commitment in the Register maintained by the Agent pursuant to Section
9.06(b), as such amount may be reduced pursuant to Section 2.04 (such Bank's
"Commitment") less (ii) such Bank's Pro Rata Share of the Letter of Credit
Exposure at such time; provided that the aggregate principal amount of
outstanding Advances, plus the Letter of Credit Exposure, plus the aggregate
principal amount of outstanding Swing Loans shall never exceed $75,000,000.00.
Each Borrowing shall (i) be in an aggregate amount not less than (a) in the case
of Base Rate Advances, $500,000.00 and in integral multiples of $100,000.00 in
excess thereof and (B) in the case of Eurodollar Rate Advances, $3,000,000.00
and in integral multiples of $1,000,000.00 in excess thereof, provided that such
limits shall not apply to Advances which refinance Swing Loans or reimburse
drawings under any Letter of Credit and (ii) consist of Advances of the same
Type made on the same day by the Banks ratably according to their respective
Commitments. Within the limits of each Bank's Commitment, the Borrower may from
time to time borrow, prepay pursuant to Section 2.07 and reborrow under this
Section 2.01.
(b) Swing Loans.
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<PAGE> 27
(i) On the terms and conditions set forth in this Agreement, the
Agent may, in its discretion from time to time on any Business Day
during the period from the date of this Agreement until the Maturity
Date, make loans ("Swing Loans") under the Swing Note to the Borrower
in an aggregate principal amount not to exceed $10,000,000.00
outstanding at any time; provided, that the aggregate principal amount
of outstanding Advances, plus the Letter of Credit Exposure, plus the
aggregate principal amount of outstanding Swing Loans shall never
exceed $75,000,000.00. Subject to the other provisions of this
Agreement, the Borrower may from time to time borrow, prepay (in whole
or in part and without premium or penalty) and reborrow Swing Loans.
Except as provided in the following clause (ii), each Swing Loan and
optional prepayment of a Swing Loan shall be made pursuant to telephone
notice to the Agent given no later that 1:00 p.m. (Charlotte, North
Carolina time) on the date of the proposed Swing Loan or prepayment,
promptly confirmed by a completed and executed Notice of Swing Loan
Request or Prepayment in the form of the attached Exhibit F telecopied
to the Agent. The Agent will make the Swing Loan available to the
Borrower, and the Borrower will make the prepayment available to the
Agent, at the Borrower's account with the Agent.
(ii) The Borrower shall repay the outstanding principal amount of
the Swing Loans on the Maturity Date. The Borrower and the Banks agree
that the Agent may request each Bank to pay, and upon such a request
made in accordance with the following sentence each Bank shall pay, to
the Agent such Bank's Pro Rata Share of all outstanding Swing Loans as
a Base Rate Advance under such Bank's Commitment (a) on each Wednesday,
or if such Wednesday is not a Business Day on the next Business Day
after such Wednesday, on which the aggregate outstanding principal
balance of all Swing Loans, after giving effect to all Swing Loans to
be made on such day and notices of prepayments of Swing Loans given for
such day, is greater than or equal to $3,000,000.00, (B) on any
Business Day on which a Swing Loan has been outstanding for 14 or more
days, and (C) upon written request from the Agent. In connection with
any Advance to be made as contemplated by the foregoing sentence, the
Agent shall give each Bank a notice to make a Base Rate Advance to the
Borrower in the amount of its Pro Rata Share of the outstanding Swing
Loans by 1:00 p.m. (Charlotte, North Carolina time) on the date the
proposed Advances are to be made. All Advances made pursuant to each
request made by the Agent pursuant to the foregoing sentence shall be
considered to be a Borrowing, and the Borrower hereby irrevocably
instructs the Agent to apply the proceeds of such Advances to the
prepayment of the outstanding Swing Loans. Each Bank (including the
Agent) shall make its Pro Rata Share of each such Borrowing available
to the Agent in immediately available funds by 3 p.m. (Charlotte, North
Carolina time) on the date requested.
(iii) Upon the acceleration of the Maturity Date pursuant to
Section 7.02 or 7.03, each Bank shall pay to the Agent such Bank's Pro
Rata Share of all outstanding Swing Loans as a Base Rate Advance under
such Bank's Commitment, but in no event shall any Bank be
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<PAGE> 28
obligated to fund more than its Commitment. Upon the date of such
payment all accrued but unpaid interest on the Swing Note to such date
shall be due and payable by the Borrower to the Agent.
Section 2.02. Method of Borrowing.
(a) Notice. Each Borrowing shall be made pursuant to a Notice of
Borrowing, given not later than (i) 11:00 a.m. (Charlotte, North Carolina time)
on the third Business Day before the date of the proposed Borrowing, in the case
of a Eurodollar Rate Advance or (ii) 10:00 a.m. (Charlotte, North Carolina time)
on the Business Day of the proposed Borrowing, in the case of a Base Rate
Advance, by the Borrower to the Agent, which shall give to each Bank prompt
notice and use best efforts to give notice not later than 12:00 p.m. (Charlotte,
North Carolina time) on the day of receipt of timely Notice of Borrowing of such
proposed Borrowing by telecopier or telex. Each Notice of a Borrowing shall be
by telecopier or telex, confirmed immediately in writing specifying the
requested (i) date of such Borrowing, (ii) Type of Advances comprising such
Borrowing, (iii) aggregate amount of such Borrowing, and (iv) if such Borrowing
is to be comprised of Eurodollar Rate Advances, Interest Period for each such
Advance. In the case of a proposed Borrowing comprised of Eurodollar Rate
Advances, the Agent shall promptly notify each Bank of the applicable interest
rate under Section 2.06(b). Each Bank shall (i) in the case of all Borrowings
other than Borrowings made on the same day as the day the Notice of Borrowing is
received, before 11:00 a.m. (Charlotte, North Carolina time) on the date of such
Borrowing and (ii) in the case of Borrowings made on the same day as the date of
the Notice of Borrowing, before 2:00 p.m. (Charlotte, North Carolina time), make
available for the account of its Applicable Lending Office to the Agent at its
address referred to in Section 9.02, or such other location as the Agent may
specify by notice to the Banks, in same day funds, such Bank's Pro Rata Share of
such Borrowing. After the Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article III, the Agent will make such
funds available to the Borrower at its account with the Agent.
(b) Conversions and Continuations. In order to elect to Convert or
Continue an Advance under this Section, the Borrower shall deliver an
irrevocable Notice of Conversion or Continuation to the Agent at the Agent's
office no later than 11:00 a.m. (Charlotte, North Carolina time) (i) the
Business Day of the proposed conversion date in the case of a Conversion to a
Base Rate Advance and (ii) at least three Business Days in advance of the
proposed Conversion or Continuation date in the case of a Conversion to, or a
Continuation of, a Eurodollar Rate Advance. Each such Notice of Conversion or
Continuation shall be in writing or by telex or telecopier, confirmed
immediately in writing specifying (i) the requested Conversion or Continuation
date (which shall be a Business Day), (ii) the amount, Type of the Advance to be
Converted or Continued, (iii) whether a Conversion or Continuation is requested,
and if a Conversion, into what Type of Advance, and (iv) in the case of a
Conversion to, or a Continuation of, a Eurodollar Rate Advance, the requested
Interest Period. Promptly after receipt of a Notice of Conversion or
Continuation under this paragraph, the Agent shall provide each Bank with a copy
thereof and, in the case of a Conversion to or a Continuation
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of a Eurodollar Rate Advance, notify each Bank of the applicable interest rate
under Section 2.06(b). For purposes other than the making of deemed
representations and warranties pursuant to Section 3.02, the portion of Advances
comprising part of the same Borrowing that are converted to Advances of another
Type shall constitute a new Borrowing.
(c) Certain Limitations. Notwithstanding anything in paragraphs (a) and
(b) above:
(i) at no time shall there be more than five Interest Periods
applicable to outstanding Eurodollar Rate Advances;
(ii) the Borrower may not select Eurodollar Rate Advances for any
Borrowing at any time when a Default has occurred and is continuing;
(iii) (A) if any Bank shall, at least one Business Day before the
date of any requested Borrowing, notify the Agent that the introduction
of or any change in or in the interpretation of any law or regulation
makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Bank or its Applicable
Lending Office to perform its obligations under this Agreement to make
Eurodollar Rate Advances or to fund or maintain Eurodollar Rate
Advances, the right of the Borrower to select Eurodollar Rate Advances
for such Borrowing or for any subsequent Borrowing shall be suspended
until such Bank shall notify the Agent that the circumstances causing
such suspension no longer exist, and each Advance comprising such
Borrowing shall be a Base Rate Advance, and (B) such Bank agrees to use
commercially reasonable efforts (consistent with its internal policies
and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such designation would avoid
the effect of this paragraph and would not, in the reasonable judgment
of such Bank, be otherwise disadvantageous to such Bank;
(iv) if the Agent is unable to determine the Eurodollar Rate for
Eurodollar Rate Advances comprising any requested Borrowing, the right
of the Borrower to select Eurodollar Rate Advances for such Borrowing
or for any subsequent Borrowing shall be suspended until the Agent
shall notify the Borrower and the Banks that the circumstances causing
such suspension no longer exist, and each Advance comprising such
Borrowing shall be a Base Rate Advance;
(v) if the Majority Banks shall, at least one Business Day before
the date of any requested Borrowing, notify the Agent that the
Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing
will not adequately reflect the cost to such Banks of making or funding
their respective Eurodollar Rate Advances, as the case may be, for such
Borrowing, the right of the Borrower to select Eurodollar Rate Advances
for such Borrowing or for any subsequent Borrowing shall be suspended
until the Agent shall notify the Borrower and the Banks that the
circumstances causing such suspension no longer exist, and each Advance
comprising such Borrowing shall be a Base Rate Advance; and
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(vi) if the Borrower shall fail to select the duration or
continuation of any Interest Period for any Eurodollar Rate Advances in
accordance with the provisions contained in the definition of Interest
Period in Section 1.01 and paragraph (b) above, the Agent will
forthwith so notify the Borrower and the Banks and such Advances will
be made available to the Borrower on the date of such Borrowing as Base
Rate Advances or, if an existing Advance, Convert into Base Rate
Advances.
(d)Treatment of Affected Loans. If the obligation of any Bank to make a
Eurodollar Rate Advance or to Continue, or to Convert Base Rate Advances into,
Eurodollar Rate Advance shall be suspended pursuant to Sections 2.02(c) or
2.07(d) (such Eurodollar Rate Advances being herein called "Affected Loans"),
such Bank's Affected Loans shall be automatically Converted into Base Rate
Advances on the last day(s) of the then current Interest Period(s) for Affected
Loans (or, in the case of a Conversion required by Section 2.02(c)(iii), on such
earlier date as such Bank may specify to the Borrower with a copy to the Agent)
and, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 2.02(c) or 2.07(d) that gave rise to such
Conversion no longer exist:
(i) to the extent that such Bank's Affected Loans have been so
Converted, all payments and prepayments of principal that would
otherwise be applied to such Bank's Affected Loans shall be applied
instead to its Base Rate Advances; and
(ii) all Loans that would otherwise be made or Continued by such
Bank as Eurodollar Rate Advances shall be made or Continued instead as
Base Rate Advances, and all Base Rate Advances of such Bank that would
otherwise be Converted into Eurodollar Rate Advances shall be Converted
instead into (or shall remain as) Base Rate Advances.
If such Bank gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 2.02(c) or 2.07(d) that gave rise to the
Conversion of such Bank's Affected Loans pursuant to this Section 2.02(d) no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Rate Advances made by other Banks
are outstanding, such Bank's Base Rate Advances shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Rate Advances, to the extent necessary so that,
after giving effect thereto, all Eurodollar Rate Advances held by the Banks by
such Bank are held pro rata (as to principal amounts, Types, and Interest
Periods) in accordance with their respective Commitments.
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(e) Notices Irrevocable. Each Notice of Borrowing, Notice of Conversion
or Continuation, and Notice of Swing Loan Request or Prepayment shall be
irrevocable and binding on the Borrower.
(f) Agent Reliance. Unless the Agent shall have received notice from a
Bank before the date of any Borrowing that such Bank will not make available to
the Agent such Bank's Pro Rata Share of such Borrowing, the Agent may assume
that such Bank has made its Pro Rata Share of such Borrowing available to the
Agent on the date of such Borrowing in accordance with paragraph (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Bank shall not have so made its Pro Rata Share of such Borrowing available
to the Agent, such Bank and the Borrower severally agree to immediately repay to
the Agent on demand such corresponding amount, together with interest on such
amount, for each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Agent, at (i) in the case of the
Borrower, the interest rate applicable on such day to Advances comprising such
Borrowing and (ii) in the case of such Bank, the Federal Funds Rate for such
day. If such Bank shall repay to the Agent such corresponding amount and
interest as provided above, such corresponding amount so repaid shall constitute
such Bank's Advance as part of such Borrowing for purposes of this Agreement
even though not made on the same day as the other Advances comprising such
Borrowing.
(g) Bank Obligations Several. The failure of any Bank to make the
Advance to be made by it as part of any Borrowing shall not relieve any other
Bank of its obligation, if any, to make its Advance on the date of such
Borrowing. No Bank shall be responsible for the failure of any other Bank to
make the Advance to be made by such other Bank on the date of any Borrowing.
(h) Notes. The indebtedness of the Borrower to each Bank resulting from
Advances owing to such Bank shall be evidenced by a Note of the Borrower payable
to the order of such Bank in substantially the form of Exhibit C.
(i) Swing Note. The indebtedness of the Borrower to the Agent resulting
from Swing Loans owing to the Agent shall be evidenced by the Swing Note of the
Borrower payable to the order of the Agent in substantially the same form as
Exhibit K.
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Section 2.03. Fees.
(a) Commitment Fees. The Borrower agrees to pay to the Agent for the
account of each Bank a commitment fee on the average daily amount by which such
Bank's Commitment exceeds the sum of such Bank's outstanding Advances and its
Pro Rata Share of the Letter of Credit Exposure from the date of this Agreement
until the later of (i) the Maturity Date and (ii) the date on which all Advances
have been repaid in full and the Commitments have terminated, at the rate equal
to the Applicable Margin for commitment fees during such period. The fee payable
pursuant to this clause (a) is due quarterly in arrears on the first day of each
January, April, July, and October commencing July 1, 1999 and on the date on
which the commitment fee ends under the preceding sentence.
(b) Other Fees. The Borrower agrees to pay to the Agent and the
Arranger the agent's and arranger's fees described in the letter dated March 3,
1999 from the Agent to the Borrower on the dates required by such letter.
(c) Letter of Credit Fees. The Borrower agrees to pay (i) to the Agent
for the pro rata benefit of the Banks, a fee per annum for each Letter of Credit
equal to the Applicable Margin for Eurodollar Rate Advances and (ii) to the
Issuing Bank, a fee for each Letter of Credit of .125% per annum of the face
amount of such Letter of Credit. Each such fee shall be based on the maximum
amount available to be drawn under such Letter of Credit from the date of
issuance of the Letter of Credit until its Expiration Date and be payable
quarterly in arrears on the last day of each March, June, September, and
December.
Section 2.04. Reduction of the Commitments.
(a) (i) The Borrower shall have the right, upon at least three Business
Days' irrevocable notice to the Agent, to terminate in whole or reduce ratably
in part the unused portion of the Commitments; provided that each partial
reduction shall be in the aggregate amount of not less than $3,000,000.00 and in
integral multiples of $1,000,000.00 in excess thereof, and (ii) in conjunction
with the prepayment of Advances required by Section 2.07(c)(ii), the Commitments
shall be reduced automatically upon the receipt of the cash proceeds from a
Nonordinary Course Asset Sale, by an amount equal to 50% of the Net Cash
Proceeds any Credit Party receives from such Nonordinary Course Asset Sale.
(b) Any reduction or termination of the Commitments pursuant to this
Section 2.04 shall be permanent, with no obligation of the Banks to reinstate
such Commitments, and the commitment fees provided for in Section 2.03(a) shall
thereafter be computed on the basis of the Commitments, as so reduced.
Section 2.05. Repayment. The Borrower shall repay the outstanding
principal amount of and all accrued and unpaid interest on each Advance on the
Maturity Date.
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Section 2.06. Interest. The Borrower shall pay interest on the unpaid
principal amount of each Advance made by each Bank from the date of such Advance
until such principal amount shall be paid in full and on the unpaid principal
amount of each Swing Loan made by the Agent from the date of such Swing Loan
until such Swing Loan shall be paid in full, at the following rates per annum:
(a) Base Rate Advances and Swing Loans. For Base Rate Advances and for
Swing Loans, a rate per annum equal at all times to the lesser of (i) the Base
Rate in effect from time to time plus the Applicable Margin and (ii) the Maximum
Rate, payable in arrears on the last day of each calendar quarter.
(b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate
Advance, a rate per annum equal at all times during the Interest Period for such
Advance to the lesser of (i) the Adjusted Eurodollar Rate for such Interest
Period plus the Applicable Margin and (ii) the Maximum Rate, payable on the last
day of such Interest Period, and, in the case of six-month Interest Periods, on
the day which occurs during such Interest Period three months from the first day
of such Interest Period.
(c) Default Rate. After the occurrence and during the continuance of an
Event of Default and after written notice from the Agent to the Borrower that
the Majority Banks have elected to charge the default rate, all principal of the
Advances and the Swing Loans, the Reimbursement Obligations, and past due
interest shall bear interest from the later of the date of the occurrence of the
Event of Default that is continuing and another date after the occurrence of
such Event of Default indicated in such notice until the earlier of the date
such Event of Default is cured or waived and the date on which the Agent
notifies the Borrower in writing that the Majority Banks have elected to no
longer charge the default rate at a rate per annum equal to the lesser of (i)
the rate of interest otherwise applicable plus 2% and (ii) the Maximum Rate.
Section 2.07. Prepayments.
(a) Right to Prepay. The Borrower shall have no right to prepay any
principal amount of any Advance except as provided in this Section 2.07. All
prepayments shall be without premium or penalty except as provided in Section
2.08. Subject to Section 7.07, unless the Borrower designates otherwise, all
prepayments shall be applied first to Swing Loans, then to Base Rate Borrowings,
then to Eurodollar Borrowings, in order of maturity.
(b) Optional. The Borrower may elect to prepay any of the Advances,
after giving by 11:00 a.m. (Charlotte, North Carolina time) (i) in the case of
Eurodollar Rate Advances, at least three Business Days' or (ii) in case of Base
Rate Advances, same Business Day's prior written notice to the Agent stating the
proposed date and aggregate principal amount of such prepayment. If any such
notice is given, the Borrower shall prepay Advances comprising part of the same
Borrowing in
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whole or ratably in part in an aggregate principal amount equal to the amount
specified in such notice, together with accrued interest to the date of such
prepayment on the principal amount prepaid and amounts, if any, required to be
paid pursuant to Section 2.08 as a result of such prepayment being made on such
date; provided, however, that each partial payment shall be in an aggregate
amount not less than (i) in the case of Base Rate Advances, $500,000.00 and in
integral multiples of $100,000.00 in excess thereof and (ii) in the case of
Eurodollar Rate Advances, $3,000,000.00 and in integral multiples of
$1,000,000.00 in excess thereof.
(c) Mandatory.
(i) On the date of each reduction of the aggregate Commitments
pursuant to Section 2.04, the Borrower agrees to make a prepayment in
respect of the outstanding amount of Advances to the extent, if any,
that the aggregate unpaid principal amount of all Advances exceeds the
Commitment, as so reduced.
(ii) The Borrower shall repay the Advances by an amount equal to
50% of Net Cash Proceeds from a Nonordinary Course Asset Sale that are
not used within 120 days after the Borrower's or any of its
Subsidiaries' receipt thereof to purchase assets used in the Borrower
and its Subsidiaries business. Such repayments shall be made on the
120th day after the date of receipt of such Net Cash Proceeds.
(iii) The Borrower shall repay the Advances by an amount equal to
100% of the Net Cash Proceeds any Credit Party receives from the sale
of any capital stock (other than issuance under a warrant or option
issued in the ordinary course or business) or the issuance of any debt
securities. Such repayments shall be made promptly after the Borrower's
or any of its Subsidiaries' receipt thereof.
(iv) Each prepayment pursuant to this Section 2.07(c) shall be
accompanied by accrued interest on the amount prepaid to the date of
such prepayment and amounts, if any, required to be paid pursuant to
Section 2.08 as a result of such prepayment being made on such date.
(d) Illegality. If any Bank shall notify the Agent and the Borrower
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other Governmental
Authority asserts that it is unlawful for such Bank or its Applicable Lending
Office to perform its obligations under this Agreement to maintain any
Eurodollar Rate Advances of such Bank then outstanding hereunder, (i) the
Borrower shall, no later than 11:00 a.m. (Charlotte, North Carolina time), (a)
if not prohibited by law or regulation to maintain such Eurodollar Rate Advances
for the duration of the Interest Period, on the last day of the Interest Period
for each outstanding Eurodollar Rate Advance or (B) if prohibited by law or
regulation to maintain such Eurodollar Rate Advances for the duration of the
Interest Period, on the
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second Business Day following its receipt of such notice, prepay all of the
Eurodollar Rate Advances of all of the Banks then outstanding, together with
accrued interest on the principal amount prepaid to the date of such prepayment
and amounts, if any, required to be paid pursuant to Section 2.08 as a result of
such prepayment being made on such date, (ii) each Bank shall simultaneously
make a Base Rate Advance to the Borrower on such date in an amount equal to the
aggregate principal amount of the Eurodollar Rate Advances prepaid to such Bank,
and (iii) the right of the Borrower to select Eurodollar Rate Advances for any
subsequent Borrowing shall be suspended until the Bank which gave notice
referred to above shall notify the Agent that the circumstances causing such
suspension no longer exist. Each Bank agrees to use commercially reasonable
efforts (consistent with its internal policies and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such designation would avoid the effect of this paragraph and would not, in
the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank.
(e) Ratable Payments; Effect of Notice. Each payment of any Advance
pursuant to this Section 2.07 or any other provision of this Agreement shall be
made in a manner such that all Advances comprising part of the same Borrowing
are paid in whole or ratably in part. All notices given pursuant to this Section
2.07 shall be irrevocable and binding upon the Borrower.
Section 2.08. Breakage Costs. Upon the request of any Bank, the
Borrower shall pay to such Bank such amount or amounts as shall be sufficient
(in the reasonable opinion of such Bank) to compensate it for any loss, cost, or
expense (excluding loss of anticipated profits) incurred by it as a result of:
(a) Funding Losses. In the case of any Borrowing which the related
Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances,
the Borrower shall indemnify each Bank against any loss, out-of-pocket cost, or
expense incurred by such Bank as a result of any failure to fulfill on or before
the date specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(excluding any loss of anticipated profits), cost, or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by such
Bank to fund the Eurodollar Rate Advance to be made by such Bank as part of such
Borrowing when such Eurodollar Rate Advance, as a result of such failure, is not
made on such date.
(b) Prepayment Losses. If (i) any payment of principal of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance as a result of any voluntary prepayment, payment
pursuant to Section 2.07(d), the acceleration of the maturity of the Notes and
the Swing Note, or for any other reason or (ii) the Borrower fails to make a
principal or interest payment with respect to any Eurodollar Rate Advance on the
date such payment is due and payable, the Borrower shall, within 10 days of any
written demand sent by any Bank to the Borrower, pay to such Bank any amounts
required to compensate such Bank for any additional losses, out-of-pocket costs,
or expenses which it may reasonably incur as a result of such payment or
nonpayment,
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including, without limitation, any loss (excluding loss of anticipated profits),
cost, or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Bank to fund or maintain such Advance.
All such demands shall show in reasonable detail the calculation of such losses.
Section 2.09. Increased Costs and Reduced Return.
(a) Eurodollar Rate Advances. If, after the date of this Agreement, the
adoption of any applicable law, rule, or regulation, or any change in any
applicable law, rule, or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Applicable Lending Office) with any request or
directive (whether or not having the force of law) of any such governmental
authority, central bank, or comparable agency:
(i) shall subject such Bank (or its Applicable Lending Office)
to any tax, duty, or other charge with respect to any Eurodollar Rate
Advances, its Notes, or its obligation to make Eurodollar Rate
Advances, or change the basis of taxation of any amounts payable to
such Bank (or its Applicable Lending Office) under this Agreement or
its Notes in respect of any Eurodollar Rate Advances (other than
franchise taxes or taxes imposed on the overall net income of such Bank
by the jurisdiction in which such Bank has its principal office or such
Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than by way
of imposition or increase of reserve requirements included in the
Eurodollar Rate Reserve Percentage) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities or
commitments of, such Bank (or its Applicable Lending Office), including
the Commitments of such Bank hereunder; or
(iii) shall impose on such Bank (or its Applicable Lending
Office) or on the London interbank market any other condition affecting
this Agreement or its Notes or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making, Converting into, continuing, or
maintaining any Eurodollar Rate Advances or to reduce any sum received or
receivable by such Bank (or its Applicable Lending Office) under this Agreement
or its Notes with respect to any Eurodollar Rate Advances, then the Borrower
shall pay to such Bank within three Business Days after written demand made by
such Bank such amount or amounts as will compensate such Bank for such increased
cost or reduction.
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(b) Capital Adequacy. If, after the date of this Agreement, any Bank
shall have determined that the adoption of any applicable law, rule, or
regulation regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank, or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such governmental authority, central bank, or
comparable agency, has or would have the effect of reducing the rate of return
on the capital of such Bank or any corporation controlling such Bank as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank or such corporation could have achieved but for such adoption, change,
request, or directive (taking into consideration its policies with respect to
capital adequacy), then from time to time within three Business Days after
written demand by such Bank the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such reduction.
(c) Letters of Credit. If, after the date of this Agreement, the
adoption of any applicable law, rule, or regulation, or any change in any
applicable law, rule, or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Issuing Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
governmental authority, central bank, or comparable agency:
(i) shall subject the Issuing Bank (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any Letter of
Credit issued by it or its obligation to issue Letters of Credit, or
change the basis of taxation of any amounts payable to the Issuing Bank
(or its Applicable Lending Office) under this Agreement in respect of
any Letters of Credit issued by its (other than franchise taxes or
taxes imposed on the overall net income of the Issuing Bank by the
jurisdiction in which the Issuing Bank has its principal office or such
Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement relating to any
letters of credit or other assets of, or any deposits with or other
liabilities or commitments of, the Issuing Bank (or its Applicable
Lending Office); or
(iii) shall impose on the Issuing Bank (or its Applicable
Lending Office) any other condition affecting the provision under this
Agreement relating to Letters of Credit issued by it or its obligation
to issue Letters of Credit;
and the result of any of the foregoing is to increase the cost to the Issuing
Bank (or its Applicable Lending Office) of issuing or maintaining, or being
obligated to issue, any Letters of Credit or to reduce any sum received or
receivable by the Issuing Bank (or its Applicable Lending Office) under this
Agreement or the Letters of Credit, then the Borrower shall within three
Business Days after written demand by such Bank pay to the Issuing Bank on
demand such amount or amounts as will compensate the Issuing Bank for such
increased cost or reduction.
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(d) Mitigation. Each Bank and the Issuing Bank shall promptly (but in
any event within 90 days after the occurrence of the event giving rise to such
right to compensation) notify the Borrower and the Agent of any event of which
it has knowledge which will entitle such Bank or the Issuing Bank to
compensation pursuant to this Section 2.09 and will designate a different
Applicable Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the reasonable judgment of
such Bank or the Issuing Bank, be otherwise disadvantageous to it. Any Bank or
the Issuing Bank claiming compensation under this Section 2.09 shall furnish to
the Borrower and the Agent a copy of the applicable law, rule, regulation or
directive and a statement setting forth the additional amount or amounts to be
paid to it hereunder which shall be conclusive in the absence of manifest error.
In determining such amount, such Bank and the Issuing Bank may use any
reasonable averaging and attribution methods.
(e) Right to Replace. The Borrower shall have the right to replace each
Bank affected by a condition under Section 2.02(c)(iii) or (v), 2.07(d), or
2.09(a) or (b) for more than 30 days from the date such Bank was affected by
such condition (each such affected Bank, an "Affected Bank") with an Eligible
Assignee designated by the Borrower or by the Agent with the Borrower's consent.
Any replacement of a Bank pursuant to this paragraph shall be (i) made by the
Eligible Assignee's and the Affected Bank's entering into an Assignment and
Acceptance and by following the procedures in Section 9.06 for adding a Bank;
(ii) shall close within 10 days after the Agent's receipt of a notice of
election to replace such Bank from the Borrower; and (iii) shall only be made
upon the Affected Bank's being paid in full all principal, interest, and other
amounts owed to it as of the effective date of the replacement.
(f) Nondiscrimination. No Bank or Issuing Bank may pass through to the
Borrower charges or costs under Section 2.08 and 2.09 which are not also passed
through by such Bank or Issuing Bank to other customers of such Bank or Issuing
Bank similarly situated and subject to documents providing for such pass
through.
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Section 2.10. Payments and Computations.
(a) Payments. All payments of principal, interest, and other amounts to
be made by the Borrower under this Agreement and the other Credit Documents
shall be made to the Agent in Dollars, without setoff, deduction, or
counterclaim.
(b) Payment Procedures. The Borrower shall make each payment under this
Agreement and under the Notes not later than noon (Charlotte, North Carolina
time) on the day when due in Dollars to the Agent at the location referred to in
the Notes (or such other location as the Agent shall designate in writing to the
Borrower) in same day funds. The Agent will promptly thereafter, and in any
event prior to the close of business on the day any timely payment is made,
cause to be distributed like funds relating to the payment of principal,
interest or fees ratably (other than amounts payable solely to the Agent, the
Issuing Bank, or a specific Bank pursuant to Section 2.03(b), 2.03(c), 2.08,
2.09, 2.11, or 9.07) in accordance with each Bank's Pro Rata Share to the Banks
for the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Bank or the Issuing
Bank to such Bank for the account of its Applicable Lending Office, in each case
to be applied in accordance with the terms of this Agreement.
(c) Computations. All computations of interest based on the Base Rate,
the Eurodollar Rate, and the Federal Funds Rate and all computations of fees
shall be made by the Agent on the basis of a year of 360 days, in each case for
the actual number of days (including the first day, but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Agent of an interest rate shall be conclusive and binding
for all purposes, absent manifest error.
(d) Non-Business Day Payments. Whenever any payment shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(e) Agent Reliance. Unless the Agent shall have received written notice
from the Borrower prior to the date on which any payment is due to the Banks
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such date an amount equal to the amount then due such Bank. If and to
the extent the Borrower shall not have so made such payment in full to the
Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank, together with interest, for each day from the date
such amount is distributed to such Bank until the date such Bank repays such
amount to the Agent, at the Federal Funds Rate for such day, but not in excess
of the Maximum Rate.
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Section 2.11. Taxes.
(a) No Deduction for Certain Taxes. Any and all payments by the
Borrower to or for the account of any Bank or the Agent hereunder or under any
other Credit Document shall be made free and clear of and without deduction for
any and all present or future taxes, duties, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect to such payments,
excluding, in the case of each Bank and the Agent, taxes imposed on its income,
and franchise taxes imposed on it (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings, and liabilities with respect to such
payments being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable under
this Agreement or any other Credit Document to any Bank or the Agent, (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.11) such Bank or the Agent receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions, (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law, and (iv) the Borrower shall furnish to the Agent written evidence of
payment thereof.
(b) Other Taxes. In addition, the Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or property
taxes or charges or similar levies which arise from any payment made under this
Agreement or any other Credit Document or from the execution or delivery of, or
otherwise with respect to, this Agreement or any other Credit Document
(hereinafter referred to as "Other Taxes").
(c) Indemnification. The Borrower agrees to indemnify each Bank and the
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 2.11) paid by such Bank or the Agent (as the
case may be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto.
(d) Foreign Bank Withholding Exemption. Each Bank organized under the
laws of a jurisdiction outside the United States, on or prior to the date of its
execution and delivery of this Agreement in the case of each Bank listed on the
signature pages of this Agreement and on or prior to the date on which it
becomes a Bank in the case of each other Bank, and from time to time thereafter
if requested in writing by the Borrower or the Agent (but only so long as such
Bank remains lawfully able to do so), shall provide the Borrower and the Agent
with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which
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the United States is a party which reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States, (ii) Internal Revenue Service Form W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
and (iii) any other form or certificate required by any taxing authority
(including any certificate required by Sections 871(h) and 881(c) of the
Internal Revenue Code), certifying that such Bank is entitled to an exemption
from or a reduced rate of tax on payments pursuant to this Agreement or any of
the other Credit Documents. For any period with respect to which a Bank has
failed to provide the Borrower and the Agent with the appropriate form pursuant
to Section 2.11(d) (unless such failure is due to a change in treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Bank shall not be entitled to indemnification
under Section 2.11(a) or 2.11(b) with respect to Taxes imposed by the United
States; provided, however, that should a Bank, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Taxes because of
its failure to deliver a form required hereunder, the Borrower shall take such
steps as such Bank shall reasonably request to assist such Bank to recover such
Taxes.
(e) Change in Applicable Lending Office. If the Borrower is required to
pay additional amounts to or for the account of any Bank pursuant to this
Section 2.11, then such Bank will agree to use reasonable efforts to change the
jurisdiction of its Applicable Lending Office so as to eliminate or reduce any
such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
(f) Evidence of Tax Payments. Within 30 days after the date of any
payment of Taxes, the Borrower shall furnish to the Agent written evidence of
such payment.
(g) Survival. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.11 shall survive the termination of the Commitments
and the payment in full of the Notes.
Section 2.12. Sharing of Payments, Etc. If any Bank shall obtain any
payment or collateral (whether voluntary, involuntary, through the exercise of
any right of set-off or otherwise) on account of the Advances made by it in
excess of its Pro Rata Share of payments or collateral on account of the
Advances or Reimbursement Obligations obtained by all the Banks, such Bank shall
notify the Agent and forthwith purchase from the other Banks such participations
in the Advances made by them or Reimbursement Obligations held by them as shall
be necessary to cause such purchasing Bank to share the excess payment or
benefits of such collateral or proceeds ratably in accordance with the
requirements of this Agreement with each of them; provided, however, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such purchasing Bank, such purchase from each Bank shall be rescinded and such
Bank shall repay to the purchasing Bank the purchase price to the extent of such
Bank's ratable share (according to the proportion of (a) the
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amount of the participation sold by such Bank to the purchasing Bank as a result
of such excess payment to (b) the total amount of such excess payment) of such
recovery, together with an amount equal to such Bank's ratable share (according
to the proportion of (a) the amount of such Bank's required repayment to the
purchasing Bank to (b) the total amount of all such required repayments to the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower agrees
that any Bank so purchasing a participation from another Bank pursuant to this
Section 2.12 may, to the fullest extent permitted by law, unless and until
rescinded as provided above, exercise all its rights of payment (including the
right of set-off) with respect to such participation as fully as if such Bank
were the direct creditor of the Borrower in the amount of such participation.
Section 2.13. Letters of Credit.
(a) Issuance. From time to time from the date of this Agreement until
three months before the Maturity Date, at the request of the Borrower, the
Issuing Bank shall, on the terms and conditions hereinafter set forth, issue,
increase, or extend the expiration date of Letters of Credit for the account of
the Borrower on any Business Day. No Letter of Credit will be issued, increased,
or extended:
(i) if such issuance, increase, or extension would cause the
Letter of Credit Exposure to exceed the lesser of (1) $10,000,000.00
and (2) the aggregate Commitments less the aggregate outstanding
principal amount of all Advances less the aggregate outstanding
principal amount of all Swing Loans;
(ii) unless such Letter of Credit has an Expiration Date not later
than the earlier of (a) one year after the date of issuance thereof and
(B) the Maturity Date;
(iii) unless such Letter of Credit is in form and substance
acceptable to the Issuing Bank in its sole discretion;
(iv) unless such Letter of Credit is a standby letter of credit
not supporting the repayment of Debt of any Person;
(v) unless the Borrower has delivered to the Issuing Bank a
completed and executed letter of credit application on the Issuing
Bank's standard form, which application for the initial Issuing Bank is
in the form of the attached Exhibit G and which successor application
for the initial Issuing Bank or application for any successor Issuing
Bank shall contain terms no more restrictive than the terms of this
Agreement (and in the case of conflict between this Agreement and any
such application, this Agreement shall control); and
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(vi) unless such Letter of Credit is governed by the International
Standby Practices (ISP98), International Chamber of Commerce
Publication No. 590 or any successor to such publication. If the terms
of any letter of credit application referred to in the foregoing clause
(v) conflicts with the terms of this Agreement, the terms of this
Agreement shall control.
(b) Participations. Upon the date of the issuance or increase of a
Letter of Credit, the Issuing Bank shall be deemed to have sold to each other
Bank and each other Bank shall have been deemed to have purchased from the
Issuing Bank a participation in the related Reimbursement Obligations equal to
such Bank's Pro Rata Share at such date and such sale and purchase shall
otherwise be in accordance with the terms of this Agreement. The Issuing Bank
shall promptly notify each such participant Bank by telex, telephone, or
telecopy of each Letter of Credit issued or increased and the actual dollar
amount of such Bank's participation in such Letter of Credit.
(c) Reimbursement. The Borrower hereby agrees to pay on demand to the
Issuing Bank for the benefit of the Banks in respect of each Letter of Credit an
amount equal to any amount paid by the Issuing Bank under or in respect of such
Letter of Credit. In the event the Issuing Bank makes a payment pursuant to a
request for draw presented under a Letter of Credit and such payment is not
promptly reimbursed by the Borrower upon demand, the Issuing Bank shall give
notice of such payment to the Agent and the Banks, and each Bank shall promptly
reimburse the Issuing Bank for such Bank's Pro Rata Share of such payment, and
such reimbursement shall be deemed for all purposes of this Agreement to
constitute a Borrowing comprised of Base Rate Advances to the Borrower from such
Bank. If such reimbursement is not made by any Bank to the Issuing Bank on the
same day on which the Issuing Bank shall have made payment on any such draw,
such Bank shall pay interest thereon to the Issuing Bank at a rate per annum
equal to the Federal Funds Rate. The Borrower hereby unconditionally and
irrevocably authorizes, empowers, and directs the Agent and the Banks to record
and otherwise treat such payment under a Letter of Credit not immediately
reimbursed by the Borrower as a Borrowing comprised of Base Rate Advances to the
Borrower.
(d) Obligations Unconditional. The obligations of the Borrower under
this Agreement in respect of each Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, notwithstanding the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit Documents;
(ii) any amendment or waiver of or any consent to departure from
any Letter of Credit Documents;
(iii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against any beneficiary or
transferee of such Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank,
any Bank or any other Person, whether in connection with this
Agreement, the transactions contemplated in this Agreement or in any
Letter of Credit Documents or any unrelated transaction;
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(iv) any statement or any other document presented under such
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect to the extent the Issuing Bank would not be
liable therefor pursuant to the following paragraph (e);
(v) payment by the Issuing Bank under such Letter of Credit
against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit; or
(vi) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing;
provided, however, that nothing contained in this paragraph (d) shall be deemed
to constitute a waiver of any remedies of the Borrower in connection with the
Letters of Credit.
(e) Liability of Issuing Bank. The Borrower assumes all risks of the
acts or omissions of any beneficiary or transferee of any Letter of Credit with
respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of
its officers or directors shall be liable or responsible for:
(i) the use which may be made of any Letter of Credit or any acts
or omissions of any beneficiary or transferee in connection therewith;
(ii) the validity, sufficiency or genuineness of documents, or of
any endorsement thereon, even if such documents should prove to be in
any or all respects invalid, insufficient, fraudulent or forged;
(iii) payment by the Issuing Bank against presentation of documents
which do not comply with the terms of a Letter of Credit, including
failure of any documents to bear any reference or adequate reference to
the relevant Letter of Credit; or
(iv) any other circumstances whatsoever in making or failing to
make payment under any Letter of Credit (including the Issuing Bank's
own negligence),
except that the Borrower shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to, and shall promptly pay to, the Borrower, to the
extent of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by (a) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
a Letter of Credit comply with the terms of such Letter of Credit or (B) the
Issuing Bank's
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willful failure to make lawful payment under any Letter of Credit after the
presentation to it of a draft and certificate strictly complying with the terms
and conditions of such Letter of Credit.
In furtherance and not in limitation of the foregoing, the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
ARTICLE III
CONDITIONS OF LENDING
Section 3.01. Conditions Precedent to Initial Borrowing. The obligation
of each Bank to make its initial Advance as part of the initial Borrowing and of
the Issuing Bank to issue the initial Letters of Credit is subject to the
conditions precedent that:
(a) The Borrower, each Bank, and the Agent shall have duly and validly
executed originals of this Agreement and delivered them to the Agent;
(b) The Agent shall have received the following duly executed by all
the parties thereto, in form and substance satisfactory to the Agent, (except
for the Notes) in sufficient copies for each Bank:
(i) the Notes dated as of the Effective Date payable to the order
of each of the Banks, respectively and the Swing Note dated as of the
Effective Date payable to the order of the Agent;
(ii) a Guaranty executed by each of the Borrower's Subsidiaries;
(iii) a Pledge Agreement executed by the Borrower pledging 100% of
the capital stock of its Subsidiaries, together with the stock
certificates pledged in accordance with the Pledge Agreement and stock
powers executed in blank corresponding to such stock certificates;
(iv) evidence of arrangements by the Borrower for the payment of
all recording, documentation or stamp taxes due in connection with the
filing and recordation of the Security Documents;
(v) a certificate from the chief executive officer, president, or
chief financial officer of the Borrower dated as of the Effective Date
stating that as of such date (a) all representations and warranties of
the Borrower set forth in this Agreement are true and correct in all
material respects and (B) no Default has occurred and is continuing;
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(vi) copies, each certified as of the date of this Agreement by a
Responsible Officer of each Credit Party (a) of the resolutions of the
Board of Directors of such Credit Party authorizing the execution and
delivery of each Credit Document to which such Credit Party is a party
and (B) of the certificate of incorporation and bylaws of such Credit
Party, as the case may be;
(vii) a certificate of a Responsible Officer of each Credit Party
dated as of the date of this Agreement certifying as of such date the
names and true signatures of officers of such Credit Party authorized
to sign the Credit Documents to which such Credit Party is a party;
(viii) a favorable opinion of Akin, Gump, Strauss, Hauer & Feld,
counsel to the Credit Parties, dated as of the date of this Agreement,
in form and substance satisfactory to the Agent; and
(ix) such other documents, governmental certificates, agreements,
licenses, lien searches and information as the Agent or any Bank may
reasonably request.
(c)The Borrower shall have completed the acquisition of the Acquired
Business in accordance with the terms and conditions of the Purchase Agreement
contemporaneously with the making of the initial Borrowing without any material
modification thereto or waiver of any material term or condition thereof.
(d) The Borrower shall have paid (i) to the Agent for its account and
the account of the Arranger the fees required by Section 2.03(b) to be paid as
of the Effective Date and (ii) to the Agent for its account and the account of
the Banks, as appropriate, the costs and expenses required by Section 9.04 to be
paid as of the Effective Date.
(e) No Default or Event of Default shall have occurred and be
continuing.
(f) The representations and warranties contained in Article IV and in
each other Credit Document shall be true and correct in all material respects.
(g) The Agent shall have received the audited consolidating financial
statements of the Borrower for the fiscal years ending 1996, 1997, and 1998,
including the balance sheets and statements of operations, stockholders' equity
and cash flow audited by independent public accountants of recognized national
standing and, for the fiscal quarters ending June 30, 1998, September 30, 1998,
and December 31, 1998, the unaudited balance sheet and statements of operations
and cash flow, in all cases prepared in conformity with GAAP.
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(h) (i) Since September 30, 1998, no Material Adverse Change shall have
occurred, and (ii) no material adverse change shall have occurred in the
financial or capital markets generally which the Agent or the Arranger in its
sole discretion deems material in connection with the syndication of this
Agreement.
(i) As of the date of this Agreement, there is no pending or, to the
best knowledge of the Borrower, threatened action or proceeding affecting the
Borrower or any of its Subsidiaries before any court, Governmental Authority or
arbitrator, which would reasonably be expected to cause a Material Adverse
Change or which purports to affect the legality, validity, binding effect or
enforceability of this Agreement or any other Credit Document or the
consummation of any of the transactions contemplated hereby or thereby.
(j) As of the date of this Agreement, the Credit Parties shall be in
compliance with all existing financial obligations.
(k) The Agent shall have received information satisfactory to it
regarding litigation, tax, accounting, labor, insurance, pension liabilities
(actual or contingent), real estate leases, material contracts, debt agreements,
property ownership, environmental matters, contingent liabilities, and
management of the Credit Parties.
(l) The Agent shall have received information satisfactory to it and
the Lenders confirming that (i) the Credit Parties are taking all necessary and
appropriate steps to ascertain the extent of, and to quantify and successfully
address, business and financial risks facing the Credit Parties as a result of
the "Year 2000 Problem" (that is, the risk that computer applications used by
the Credit Parties or the Acquired Business or any of its Subsidiaries (or
suppliers, vendors, or customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), including risks resulting from the failure of key
vendors and customers of the Credit Parties to successfully address the Year
2000 Problem, and (b) the Credit Parties' material computer applications will,
and the Borrower has taken all reasonable steps to obtain assurances from its
key vendors and suppliers that their material computer applications will, on a
timely basis, adequately address the Year 2000 Problem (that is, be "Year 2000
Compliant"), except to the extent that the failure to be Year 2000 Compliant
would not cause a Material Adverse Change.
Section 3.02. Conditions Precedent to all Borrowings. The obligation of
each Bank to fund an Advance on the occasion of each Borrowing and of the
Issuing Bank to issue or increase any Letter of Credit and of the Agent to fund
a Swing Loan shall be subject to the further conditions precedent that on the
date of such Borrowing, the issuance or increase of such Letter of Credit, or
the making of such Swing Loan:
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(a) the following statements shall be true (and each of the giving of
the applicable Notice of Borrowing or Notice of Swing Loan Request or Prepayment
and the acceptance by the Borrower of the proceeds of such Borrowing or Swing
Loan or the issuance or increase of such Letter of Credit shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
or Swing Loan or the issuance or increase of such Letter of Credit, such
statements are true):
(i) for other than a Borrowing in connection with a Notice of
Continuation or Conversion, the representations and warranties
contained in Article IV and those in each other Credit Document (other
than representations and warranties that are expressly made as of a
specific date) are correct in all material respects on and as of the
date of such Borrowing or Swing Loan or the issuance or increase of
such Letter of Credit, before and after giving effect to such Borrowing
or Swing Loan or to the issuance or increase of such Letter of Credit
and to the application of the proceeds from such Borrowing or such
Swing Loan, as though made on and as of such date and
(ii) no Default has occurred and is continuing or would result
from such Borrowing or from the application of the proceeds therefrom
or from the making of such Swing Loan or from the issuance or increase
of such Letter of Credit; and
(b) the Agent shall have received such other approvals, opinions or
documents deemed necessary or desirable by any Bank as a result of circumstances
occurring after the date of this Agreement, as any Bank through the Agent may
reasonably request.
Section 3.03. Determinations Under Sections 3.01 and 3.02. For purposes
of determining compliance with the conditions specified in Sections 3.01 and
3.02, each Bank shall be deemed to have consented to, approved or accepted or to
be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Banks unless an
officer of the Agent responsible for the transactions contemplated by the Credit
Documents shall have received written notice from such Bank prior to the
Borrowings hereunder specifying its objection thereto and such Bank shall not
have made available to the Agent such Bank's ratable portion of such Borrowings.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
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Section 4.01. Corporate Existence; Subsidiaries. The Borrower is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware and in good standing and qualified to do business in each
jurisdiction where its ownership or lease of property or conduct of its business
requires such qualification and where a failure to be qualified would reasonably
be expected to cause a Material Adverse Change. Each Subsidiary of the Borrower
is a corporation duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation and in good standing and qualified
to do business in each jurisdiction where its ownership or lease of property or
conduct of its business requires such qualification and where a failure to be
qualified would reasonably be expected to cause a Material Adverse Change. The
Borrower has no Subsidiaries other than (a) the Subsidiaries listed on the
attached Schedule 4.01 and (b) those which have, after the Effective Date,
complied with the requirements of Section 5.08. Schedule 4.01 lists the
jurisdiction of incorporation and the address of the principal office of each
Subsidiary of the Borrower existing on the date of this Agreement.
Section 4.02. Corporate Power. The execution, delivery, and performance
by each Credit Party of the Credit Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby (a) are within
such Credit Party's corporate powers, (b) have been duly authorized by all
necessary corporate action, (c) do not contravene (i) such Credit Party's
certificate or articles, as the case may be, of incorporation or by-laws or (ii)
any law or any contractual restriction binding on or affecting such Credit
Party, the contravention of which would reasonably be expected to cause a
Material Adverse Change and (d) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement. At the time of each
Borrowing, such Borrowing and the use of the proceeds of such Borrowing will be
within the Borrower's corporate powers, will have been duly authorized by all
necessary corporate action, (a) will not contravene (i) the Borrower's
certificate of incorporation or by-laws or (ii) any law or any contractual
restriction binding on or affecting the Borrower the contravention of which
would reasonably be expected to cause a Material Adverse Change and (b) will not
result in or require the creation or imposition of any Lien prohibited by this
Agreement.
Section 4.03. Authorization and Approvals. No authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
or any other Person (each a "Filing") is required for the due execution,
delivery and performance by the Credit Parties of the Credit Documents or the
consummation of the transactions contemplated thereby, except (a) Filings
necessary in order to obtain and maintain perfection of Liens, (b) Filings
necessary in connection with the conduct of the Borrower's business required to
be made after any date this representation is made or deemed made, (c) Filings
necessary in connection with the exercise of remedies under the Credit
Documents, (d) such other Filings as have been obtained or made, (e) Filings
related to environmental matters, ERISA matters, labor matters, securities laws,
taxes and intellectual property required to be made after any date this
representation is made or deemed made, and (f) Filings required to maintain
corporate and similar standing and existence required to be made after any date
this representation is made or deemed made. At the time of each Borrowing, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority or any other Person will be required for such
Borrowing or the use of the proceeds of such Borrowing.
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Section 4.04. Enforceable Obligations. Each Credit Document has been
duly executed and delivered by each Credit Party which is a party to it. Each
Credit Document is the legal, valid, and binding obligation of each Credit Party
which is a party to it, enforceable against such Credit Party in accordance with
its terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors' rights generally and by general principles of equity (whether
considered in proceeding at law or in equity).
Section 4.05. Financial Statements. (a) The audited balance sheet of
the Borrower and its Subsidiaries as at March 31, 1998, and the related
statements of operations, stockholders' equity, and cash flow of the Borrower
and its Subsidiaries for the fiscal year then ended, copies of which have been
furnished to each Bank, and the balance sheet of the Borrower and its
Subsidiaries as at December 31, 1998, and the related statements of operations
and cash flow of the Borrower and its Subsidiaries for the nine months then
ended, duly certified by an authorized financial officer of the Borrower, copies
of which have been furnished to each Bank, fairly present, subject, in the case
of such balance sheets as at December 31, 1998 and the statements of operations
and cash flow for the nine months then ended, to year-end audit adjustments and
absence of footnotes, the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of the operations of the Borrower
and its Subsidiaries for the periods ended on such dates, and such balance
sheets and statements of operations, stockholders' equity, and cash flow were
prepared in accordance with GAAP.
(b) Since March 31, 1998, no Material Adverse Change has occurred.
Section 4.06. Ownership and Liens. Each Credit Party has title to, or a
valid leasehold interest in, all of the Property used in its business, including
as of the date of this Agreement the Property reflected in the December 1998
financial statements referred to in Section 4.05 (other than Property sold since
such date), and none of the Property owned or leased by any Credit Party is
subject to any Lien except Permitted Liens.
Section 4.07. True and Complete Disclosure. No representation,
warranty, or other statement made by any Credit Party (or on behalf of any
Credit Party) in this Agreement or any other Credit Document contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made as of the date of this Agreement the
effect of which would reasonably be expected to cause a Material Adverse Change.
There is no fact known to any Responsible Officer of the Borrower on the date of
this Agreement and on the Effective Date that has not been disclosed to the
Agent which would reasonably be expected to cause a Material Adverse Change. All
projections, estimates, and pro forma financial information furnished by the
Borrower or on behalf
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of the Borrower were prepared on the basis of assumptions, data, information,
tests, or conditions believed to be reasonable at the time such projections,
estimates, and pro forma financial information were furnished.
Section 4.08. Litigation. Except as otherwise disclosed to the Banks in
writing, there is no pending or, to the best knowledge of the Borrower,
threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, Governmental Agency or arbitrator, which would
reasonably be expected to cause a Material Adverse Change or which purports to
affect the legality, validity, binding effect or enforceability of this
Agreement, any Note, the Swing Note, or any other Credit Document or the
consummation of any of the transactions contemplated hereby or thereby.
Section 4.09. Use of Proceeds. The proceeds of Advances and Swing Loans
may be used by the Borrower only for working capital, for Capital Expenditures,
and for general corporate purposes, including for acquisitions. The Borrower is
not engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U). No proceeds of any
Advance or any Swing Loan will be used to purchase or carry any margin stock in
violation of Regulation T, U or X.
Section 4.10. Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 4.11. Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "Subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"Subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 4.12. Taxes. Each of the Borrower and each of its Subsidiaries
has filed or caused to be filed all tax returns required by law to be filed and
has paid or caused to be paid all taxes, assessments and other governmental
charges levied upon or in respect of any of its Properties, other than taxes the
validity or amount of which are being contested in good faith by the Borrower or
such Subsidiary by appropriate proceedings and for which the Borrower or such
Subsidiary shall have set aside on its books adequate reserves in accordance
with GAAP. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes for all fiscal periods are adequate, and
there is not unpaid assessment for additional taxes for any fiscal period or any
basis therefor.
Section 4.13. Pension Plans. No Termination Event has occurred with
respect to any Plan, and each Plan has complied with and been administered in
all material respects in accordance with applicable provisions of ERISA and the
Code. No "accumulated funding deficiency" (as defined in
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Section 302 of ERISA) has occurred and there has been no excise tax imposed
under Section 4971 of the Code. To the knowledge of any Responsible Officer of
the Borrower, no Reportable Event has occurred with respect to any Multiemployer
Plan, and each Multiemployer Plan has complied with and been administered in all
material respects with applicable provisions of ERISA and the Code. The present
value of all benefits vested under each Plan (based on the assumptions used to
fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed the value of the assets of such Plan allocable to such vested
benefits in any amount that would reasonably be expected to cause a Material
Adverse Change. Neither the Borrower nor any member of the Controlled Group has
had a complete or partial withdrawal from any Multiemployer Plan for which there
is any material withdrawal liability. As of the most recent valuation date
applicable thereto, neither the Borrower nor any member of the Controlled Group
has received notice that any Multiemployer Plan is insolvent or in
reorganization. Based upon GAAP existing as of the date of this Agreement and
current factual circumstances, the Borrower has no reason to believe that the
annual cost during the term of this Agreement to the Borrower or any of its
Subsidiaries for post-retirement benefits to be provided to the current and
former employees of the Borrower or any of its Subsidiaries under welfare
benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate,
reasonably be expected to cause a Material Adverse Change.
Section 4.14. Insurance. The Borrower and each of its Subsidiaries
carry insurance with reputable insurers in respect of such of their respective
Properties, in such amounts and against such risks as is customarily maintained
by other Persons of similar size engaged in similar businesses or, self-insure
to the extent that is customary for Persons of similar size engaged in similar
businesses.
Section 4.15. No Burdensome Restrictions; No Defaults.
(a) No Credit Party is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction or provision of applicable Legal Requirement
which would reasonably be expected to cause a Material Adverse Change. No Credit
Party is in default under or with respect to any contract, agreement, lease or
other instrument to which such Credit Party is a party and which would
reasonably be expected to cause a Material Adverse Change. To the knowledge of
each Responsible Officer of the Borrower, no Credit Party has received any
notice of default under any contract, agreement, lease or other instrument to
which such Credit Party is a party which is continuing or which, if not cured,
would reasonably be expected to cause a Material Adverse Change.
(b) No Default has occurred and is continuing.
Section 4.16. Environmental Condition.
(a) The Credit Parties, taken as a whole, (i) have obtained all
Environmental Permits necessary for the ownership and operation of their
respective material Properties and the conduct of
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their respective businesses; (ii) have been and are in compliance with all terms
and conditions of such Environmental Permits and with all other material
requirements of applicable Environmental Laws of which the failure to comply
would reasonably be expected to cause a Material Adverse Change; (iii) have not
received notice of any violation or alleged violation of any Environmental Law
or Environmental Permit the violation of which would reasonably be expected to
cause a Material Adverse Change; and (iv) are not subject to any Environmental
Claim known to any Credit Party, which Environmental Claim would reasonably be
expected to cause a Material Adverse Change.
(b) To the knowledge of any Responsible Officer of the Borrower, none
of the present or previously owned or operated Property of the Borrower or of
any of its present or former Subsidiaries, wherever located, (i) has been placed
on or, to any Credit Party's knowledge, proposed to be placed on the National
Priorities List, the Comprehensive Environmental Response Compensation Liability
Information System list, or their state or local analogs, or have been otherwise
designated or listed as a potential site for removal, remediation, cleanup,
closure, restoration, reclamation, or other response activity under any
Environmental Laws; (ii) is subject to a Lien, arising under or in connection
with any Environmental Laws, that attaches to any revenues or to any Property
owned or operated by the Borrower or any of its Subsidiaries, wherever located,
which Lien would reasonably be expected to cause a Material Adverse Change; or
(iii) to any Credit Party's knowledge, has been the site of any Release of
Hazardous Substances or Hazardous Wastes from present or past operations which
has caused at the site or at any third-party site any condition that has
resulted in or would reasonably be expected to result in the need for Response
that would cause a Material Adverse Change.
(c) Without limiting the foregoing, the present and, to the best
knowledge of any Responsible Officer of the Borrower, future liability, if any,
of the Credit Parties, taken as a whole, which would reasonably be expected to
arise in connection with requirements under Environmental Laws will not result
in a Material Adverse Change.
Section 4.17. Permits, Licenses, etc. The Credit Parties possess all
permits, licenses, patents, patent rights or licenses, trademarks, trademark
rights, trade names rights and copyrights which are material to the conduct of
its business. The Credit Parties manage and operate their businesses in
accordance with all applicable Legal Requirements which the failure to so manage
or operate would reasonably be expected to cause a Material Adverse Change.
Section 4.18. Security Interests. On the Effective Date, all
governmental actions and all other filings, recordings, registrations, third
party consents, and other actions which are necessary to create and perfect the
Liens provided for in the Security Documents will have been made, obtained, and
taken in all relevant jurisdictions, or satisfactory arrangements will have been
made for all governmental actions and all other filings, recordings,
registrations, third party consents, and other actions which are necessary to
create and perfect the Liens provided for in the Security Documents to be made,
obtained, or taken in all relevant jurisdictions.
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Section 4.19. Compliance with Laws, Material Agreements. No Credit
Party is in violation of any Legal Requirement the failure to comply with which
would reasonably be expected to cause a Material Adverse Change. No Credit Party
is in violation of any provision of any Material Agreement to which it is a
party, and the execution and delivery of this Agreement and the Credit Documents
and the consummation of the transactions contemplated thereunder shall not
result in any breach of any provisions of, or constitute a default under, any
Material Agreement, except any violation, breach, or default which could not
reasonably be expected to result in a Material Adverse Change.
Section 4.20. Year 2000. The Borrower has (a) completed a review and
assessment of all areas within its and each of its Subsidiaries' and the
Acquired Business' and its Subsidiaries' business and operations (including
those affected by suppliers, vendors, and customers) that could be adversely
affected by the Year 2000 Problem (as defined in Section 3.01(l)), (b) developed
a plan and timeline for addressing on a timely basis, but in any event before
July 1, 1999, the Year 2000 Problem, and (c) to date, implemented that plan
substantially in accordance with that timetable. Based on the foregoing, the
Borrower believes that all computer applications (including those of its
suppliers, vendors, and customers) that are material to its or any of its
Subsidiaries' or the Acquired Business' or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis, but in any event before
July 1, 1999, to be Year 2000 Compliant (as defined in Section 3.01(l)), except
to the extent that a failure to do so could not reasonably be expected to result
in a Material Adverse Change.
Section 4.21. Regulatory Matters. Without limiting the representations
and warranties included in Section 4.19, the Borrower represents and warrants
the following, to the extent that the inaccuracy of any of the following would
reasonably be expected to cause a Material Adverse Change:
(a) FDA Regulations. No Credit Party is in violation of any regulation
or policy of the U.S. Food and Drug Administration, including those regulating
controlled substances and regulating promotional activities performed on behalf
of sponsors of medical products.
(b) Anti-Remuneration Laws. No Credit Party is in violation of any
state or federal law or regulation (including Medicare and Medicaid laws)
regulating the payment or receipt of remuneration to induce the referral of
patients or the purchase of items or services.
(c) ERISA Regulation. No Credit Party is in violation of any ERISA
provision imposing a fiduciary obligation with regard to employee pension and
health benefit plans, including self-funded corporate health plans, with which
such Credit Party has contracted to provide services.
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(d) Consumer Protection Laws. No Credit Party is in violation of any
state or federal law regulating "drug switching programs" or requiring
disclosure to physicians or patients of the financial relationships between
pharmacies and pharmacy benefit management companies when seeking to change a
prescription from one drug to another.
(e) Network Access Laws. No Credit Party is in violation of any state
or federal law which regulates such Credit Party's ability to limit access to
pharmacy provider networks or to remove network providers, or "any willing
provider" legislation.
(f) Plan Design Restrictions. No Credit Party is in violation of any
state or federal law prohibiting such Credit Party from implementing certain
restrictive design features, such as requiring members of a health benefit plan
to use network providers or failing to provide coverage for certain benefits or
conditions, or "freedom of choice" legislation.
(g) Licensure Laws. No Credit Party is in violation of any state law
requiring registration or licensure with a state agency of companies that
provide utilization review services.
(h) Drug Price Legislation. No Credit Party is in violation of any
state or federal law regulating drug prices, discounts, or incentives.
(i) Financial Risk Plan Regulation. No Credit Party is in violation of
any state or federal law which requires the establishment of reserves or the
demonstration of financial responsibility by companies which accept material
financial risk in providing benefits under a health benefit plan, including but
not limited to insurance laws, HMO laws, and limited prepaid health service plan
laws.
(j) Mail Pharmacy Regulation. No Credit Party is in violation of any
state law (i) requiring an out-of-state mail service pharmacy (a) to register
with the board of pharmacy or similar regulatory body in the state or (B) to
comply with the laws of a state into which the mail service pharmacy dispenses
medication or (ii) otherwise affecting such Credit Party's mail service
operations.
(k) Controlled Substance Regulation. No Credit Party is in violation of
any state or federal law regulating the production, distribution, sale, storage,
or safeguarding of controlled substances.
Section 4.22. Net Worth. As of the date of this Agreement, the
Borrower's Net Worth is greater than or equal to $58,000,000.00.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Note, the Swing Note, or any amount under any Credit
Document shall remain unpaid, any Letter of Credit shall remain outstanding, or
any Bank shall have any Commitment hereunder, the Borrower agrees, unless the
Majority Banks shall otherwise consent in writing, to comply with the following
covenants.
Section 5.01. Compliance with Laws, Material Agreements, Etc. The
Borrower will comply, and cause each of its Subsidiaries to comply, with all
Legal Requirements of which the failure to comply would reasonably be expected
to cause a Material Adverse Change. Without limiting the generality and coverage
of the foregoing, the Borrower shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects, with all Material Agreements,
Environmental Laws, and, in all material respects, all laws, regulations, or
directives with respect to equal employment opportunity and employee safety in
all jurisdictions in which the Borrower, or any of its Subsidiaries do business;
provided, however, that this Section 5.01 shall not prevent the Borrower, or any
of its Subsidiaries from, in good faith and with reasonable diligence,
contesting the validity or application of any such laws or regulations by
appropriate legal proceedings.
Section 5.02. Maintenance of Insurance. The Borrower will maintain, and
cause each of its Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Borrower or
such Subsidiary operates, provided that the Borrower or such Subsidiary may
self-insure to the extent and in the manner normal for similarly situated
companies of like size, type and financial condition that are part of a group of
companies under common control.
Section 5.03. Preservation of Corporate Existence, Etc. The Borrower
will preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified, and cause
each such Subsidiary to qualify and remain qualified, as a foreign corporation
in each jurisdiction in which qualification is necessary or desirable in view of
its business and operations or the ownership of its properties, and, in each
case, where failure to qualify or preserve and maintain its rights and
franchises would reasonably be expected to cause a Material Adverse Change;
provided, however, that nothing contained in this Section 5.03 shall prevent any
transaction permitted by Section 6.05.
Section 5.04. Payment of Taxes, Etc. The Borrower will pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent and which the failure to timely pay or discharge
would reasonably be expected to cause a Material Adverse Change,
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(a) all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or Property that are material in amount, prior to the
date on which penalties attach thereto and (b) all lawful claims that are
material in amount which, if unpaid, might by law become a Lien upon its
Property; provided, however, that neither the Borrower nor any such Subsidiary
shall be required to pay or discharge any such tax, assessment, charge, levy, or
claim which is being contested in good faith and by appropriate proceedings, and
with respect to which reserves in conformity with GAAP have been provided.
Section 5.05. Visitation Rights; Environmental Inspections.
(a) At any reasonable time and from time to time and so long as any
visit or inspection will not interfere unreasonably with any Credit Party's
operations, upon reasonable notice, the Borrower will, and will cause its
Subsidiaries to, permit the Agent and any Bank or any of its agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit and inspect at its reasonable
discretion the properties of, any such Credit Party, to discuss the affairs,
finances, and accounts of any such Credit Party with any of its respective
officers or directors.
(b) If any event or series of events causes the Credit Parties to spend
more than $1,000,000.00 in the aggregate in connection with corrective action,
including, without limitation, any necessary cleanup, removal, or remediation of
Hazardous Substances or Hazardous Waste, for failure to comply with any
Environmental Law (other than Environmental Laws described in clause (d) of the
definition of Environmental Laws), then, at the Majority Banks' written request,
the Borrower shall at its expense (such expense being reasonably acceptable to
the Borrower) contract for the services of Persons to enter upon the Credit
Parties' properties to perform environmental site assessments for the purpose of
determining whether there exists any Environmental condition that would result
in a similar liability, cost, or expense to the Borrower or any of its
Subsidiaries under any of the conditions necessitating the corrective measures
described above. The scope of any such environmental assessment shall be subject
to the Borrower's consent, which consent shall not be unreasonably withheld.
Such site assessments shall be performable only at selected properties for which
the requesting Banks shall have demonstrable evidence of being similarly
affected as the affected properties, and which have the same or similar physical
or operational characteristics as the affected properties such that the selected
properties would be reasonably expected to have the same or similar conditions
as those causing the incurrence of the costs referred to above. Such
environmental assessments shall remain confidential and shall not be disclosed
to any third party except as permitted by Section 9.08.
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Section 5.06. Reporting Requirements. The Borrower will furnish to the
Agent and each Bank:
(a) Defaults. As soon as possible and in any event within five days
after the occurrence of each Default known to a Responsible Officer of the
Borrower or any of its Subsidiaries which is continuing on the date of such
statement, a statement of an authorized financial officer of the Borrower
setting forth the details of such Default and the actions which the Borrower has
taken and proposes to take with respect thereto;
(b) Quarterly Financials. As soon as available and in any event not
later than 45 days after the end of each of the first three quarters of each
fiscal year of the Borrower, the consolidated balance sheet of the Borrower and
its Subsidiaries as of the end of such quarter and the consolidated statements
of operations and cash flow of the Borrower and its Subsidiaries, for such
quarterly period and for the portion of the fiscal year ending with such period,
in each case setting forth in comparative form the figures for the preceding
fiscal year (if such figures were prepared for the preceding fiscal year), all
in reasonable detail and certified as presenting fairly the financial condition
of the Borrower and the results of operations, but subject to omission of
complete footnotes and changes resulting from year-end adjustments, by an
authorized financial officer of the Borrower as having been prepared in
accordance with GAAP, together with a compliance certificate duly executed by
the president, chief executive officer, chief financial officer, or the
treasurer of the Borrower in substantially the form of the attached Exhibit H
and together with a comparison, comparing the results against the Borrower's
budget for the period;
(c) Annual Financials. As soon as available and in any event not later
than 90 days after the end of each fiscal year of the Borrower and its
Subsidiaries, the consolidated balance sheet of the Borrower and its
Subsidiaries as of the close of such year, and the statements of operations,
stockholders' equity, and cash flow of the Borrower and its Subsidiaries, for
such fiscal year, in each case setting forth in comparative form the figures for
the preceding fiscal year, all in reasonable detail and accompanied by a report
thereon by Arthur Andersen LLP or another firm of independent certified public
accountants of recognized national standing selected by the Borrower and
acceptable to the Agent, containing an opinion to the effect that such
consolidated financial statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial conditions of the Borrower
and its Subsidiaries and the result of their operations and that the examination
by such accountants in connection with their report upon such financial
statements has been made in accordance with generally accepted auditing
standards, and that such accounting firm has obtained no knowledge that a
Default has occurred and is continuing, or if, in the opinion of such accounting
firm, a Default has occurred and is continuing, a statement as to the nature
thereof, together with a compliance certificate duly executed by the president,
chief executive officer, chief financial officer, or the treasurer of the
Borrower in substantially the form of the attached Exhibit H;
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(d) Annual Budgets. Promptly and in any event within 30 days after the
beginning of each fiscal year, a budget for the Borrower on a consolidated basis
and certified by the chief financial officer of the Borrower, including
projected Capital Expenditures, together with supporting assumptions, all in
reasonable detail and reasonably satisfactory in scope to the Agent;
(e) Other Reports. Promptly and in any event within 15 days after the
sending or filing thereof, copies of all financial statements and reports sent
by the Borrower or any Subsidiary to shareholders generally and copies of all
debt offering statements, press releases and other statements made available
generally by the Borrower or any Subsidiary to the public concerning material
developments in the business of the Borrower or any Subsidiary;
(f) Termination Events. As soon as possible and in any event (i) within
30 days after the Borrower knows or has reason to know that any Termination
Event described in clause (a) of the definition of Termination Event with
respect to any Plan has occurred, and (ii) within 10 days after any Responsible
Officer of the Borrower knows or has reason to know that any other Termination
Event with respect to any Plan has occurred, a statement of the chief financial
officer of the Borrower describing such Termination Event and the action, if
any, which the Borrower or such Affiliate proposes to take with respect thereto;
(g) Termination of Plans. Promptly and in any event within two Business
Days after the knowledge of any Responsible Officer of the Borrower of receipt
thereof by the Borrower or any member of the Controlled Group from the PBGC,
copies of each notice received by the Borrower or any such member of the
Controlled Group of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(h) Other ERISA Notices. Promptly and in any event within five Business
Days after the knowledge of any Responsible Officer of the Borrower of receipt
thereof by the Borrower or any member of the Controlled Group from a
Multiemployer Plan sponsor, a copy of each notice received by the Borrower or
any member of the Controlled Group concerning the imposition of withdrawal
liability pursuant to Section 4202 of ERISA in an amount that could reasonably
be expected to cause a Material Adverse Change;
(i) Environmental Notices. Promptly upon the knowledge of any
Responsible Officer of the Borrower of receipt thereof by the Borrower or any of
its Subsidiaries, a copy of any form of notice, summons or citation received
from the EPA, or any other Governmental Authority directly engaged in protection
of the Environment, concerning (i) material violations or alleged material
violations of Environmental Laws, which seeks to impose liability therefor and
which, based upon information reasonably available to the Borrower at the time
or after such violation, would reasonably be expected to cause a Material
Adverse Change, (ii) any action or omission on the part of the Borrower or any
of its Subsidiaries in connection with Hazardous Waste or Hazardous Substances
which, based upon information reasonably available to the Borrower at the time
of such
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receipt, would reasonably cause a Material Adverse Change, (iii) any notice of
potential responsibility under CERCLA, or (iv) concerning the filing of a Lien
other than a Permitted Lien upon, against or in connection with the Borrower,
its present or former Subsidiaries, or any of their leased or owned material
Property, wherever located;
(j) Material Changes. Prompt written notice of any condition or event
of which any Responsible Officer of the Borrower has knowledge, which condition
or event has resulted or may reasonably be expected to result in (i) a Material
Adverse Change or (ii) a breach of or noncompliance with any term, condition, or
covenant of any contract to which the Borrower or any of its Subsidiaries is a
party or by which they or their properties may be bound, which breach or
noncompliance would reasonably be expected to cause a Material Adverse Change;
(k) Disputes, etc. Prompt written notice of any claims, litigation,
proceedings, or disputes, or to the knowledge of any Responsible Officer of the
Borrower threatened, or affecting the Borrower, or any of its Subsidiaries
which, if adversely determined, could reasonably be expected to cause a Material
Adverse Change; and
(l) Other Information. Such other information respecting the business
or Properties, or the condition or operations, financial or otherwise, of the
Borrower, or any of its Subsidiaries, as any Bank through the Agent may from
time to time reasonably request.
Section 5.07. Maintenance of Property. Borrower shall, and shall cause
each of its Subsidiaries to, (a) maintain their material owned, leased, or
operated property, equipment, buildings and fixtures in good condition, repair
and working order, and supplied with all necessary equipment, and make all
necessary repairs, renewals, replacements, betterments, and improvements
thereto, all as may be reasonably necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times,
and (b) not knowingly or willfully permit the commission of waste or other
injury, or the occurrence of pollution, contamination or any other condition in,
on or about the owned or operated property involving the Environment that would
reasonably be expected to cause a Material Adverse Change.
Section 5.08. New Subsidiaries. Upon the creation of any new Subsidiary
or the investment in a venture permitted by this Agreement the Borrower will
cause (a) such Subsidiary to execute and deliver to each Bank a Guaranty and
such evidence of corporate authority to enter into such Guaranty as the Agent
may reasonably request and (b) the stockholder of such new Subsidiary or the
owner of the Borrower's interest in the venture to execute a Pledge Agreement
pledging 100% of the Borrower and its Subsidiaries' interests in the capital
stock or other equity interests of such new Subsidiary and such venture and such
evidence of corporate authority to enter into such Pledge Agreement as the Agent
may reasonably request, along with share certificates pledged thereby and
appropriately executed stock powers in blank.
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Section 5.09. Security. The Borrower agrees that at all times before
the termination of this Agreement and the payment in full of the Credit
Obligations, the Agent shall have an Acceptable Security Interest in the
Collateral to secure the performance and payment of the Credit Obligations.
Section 5.09. Books and Records. The Borrower will keep, and will cause
each Subsidiary to keep, adequate and proper records and books of account in
which full and correct entries will be made of its dealings, business and
affairs, so that the financial statements of the Borrower may be prepared in
accordance with GAAP.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Note, the Swing Note, or any amount under any Credit
Document shall remain unpaid, any Letter of Credit remain outstanding, or any
Bank shall have any Commitment, the Borrower agrees, unless the Majority Banks
otherwise consent in writing, to comply with the following covenants.
Section 6.01. Debt. The Borrower shall not, and shall not permit any of
its Subsidiaries to, create, assume, suffer to exist, or in any manner become or
be liable in respect of, any Debt except Permitted Debt.
Section 6.02. Liens, Etc. The Borrower will not create, assume, incur,
or suffer to exist, or permit any of its Subsidiaries to create, assume, incur,
or suffer to exist, any Lien on the Property of the Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired, or assign any right to
receive income, except Permitted Liens.
Section 6.03. Restricted Payments. The Borrower shall not, and shall
not permit any of its Subsidiaries to, make any Restricted Payment except
Restricted Payments made by any of the Borrower's Subsidiaries to the Borrower
or by the Borrower to any of its wholly-owned Subsidiaries.
Section 6.04. Agreements Restricting Liens and Distributions. The
Borrower will not, nor will it permit any of its Subsidiaries to, enter into or
be party to any agreement (other than a Credit Document) which (a) except with
respect to specific property encumbered to secure payment of Debt related to
such property, imposes restrictions greater than those under this Agreement upon
the creation or assumption of any Lien upon its properties, revenues or assets,
whether now owned or hereafter acquired or (b) limits Restricted Payments to or
any advance by any of the Borrower's Subsidiaries to the Borrower.
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Section 6.05. Merger or Consolidation; Asset Sales. The Borrower will
not, and will not permit any of its Subsidiaries to:
(a) merge or consolidate with or into any other Person, except that (i)
the Borrower may merge with any of its wholly-owned Subsidiaries, (ii) any of
the Borrower's wholly-owned Subsidiaries may merge with another of the
Borrower's wholly-owned Subsidiaries, and (iii) a merger used to consummate a
Permitted Acquisition may occur, provided that immediately after giving effect
to any such proposed transaction no Default would exist and, in the case of any
such merger to which a Credit Party is a party, such Credit Party is the
surviving corporation or such surviving corporation has assumed such Credit
Party' obligations under the Credit Documents in a manner reasonably acceptable
to the Agent.
(b) sell, lease, transfer, or otherwise dispose of any assets other
than (i) sales of inventory in the ordinary course of business, (ii)
dispositions of assets outside the ordinary course of business to any Person
other than a Credit Party for an aggregate consideration (whether in cash,
Property, assumption of Debt, or issuance of equity) of $5,000,000.00 or less
for each such sale or related series of sales and for which at least 70% of the
purchase price received by the Credit Parties is in Dollars and in cash, (iii)
dispositions of assets outside the ordinary course of business not otherwise
permitted by (ii) above in an aggregate amount for any fiscal year not to exceed
$500,000.00, (iv) dispositions of equipment no longer used or useful in the
Credit Parties' business, and (v) Permitted Investments.
Section 6.06. Permitted Investments. The Borrower will not, and will
not permit any of its Subsidiaries to, make or permit to exist any loans,
advances, or capital contributions to, or make any investment in, or purchase or
commit to purchase any stock or other securities or evidences of indebtedness of
or interests in any Person, except Permitted Investments.
Section 6.07. Affiliate Transactions. Except as expressly permitted
elsewhere in this Agreement, the Borrower will not, and will not permit any of
its Subsidiaries to, make, directly or indirectly: (a) any investment in any
Affiliate (other than a wholly-owned Subsidiary of the Borrower) (a "Restricted
Affiliate"); (b) any transfer, sale, lease, assignment or other disposal of any
assets to any Restricted Affiliate or any purchase or acquisition of assets from
any Restricted Affiliate; or (c) any arrangement or other transaction directly
or indirectly with or for the benefit of any Restricted Affiliate (including
without limitation, guaranties and assumptions of obligations of an Affiliate);
provided that the Credit Parties may enter into any arrangement or other
transaction with any Restricted Affiliate if the monetary or business
consideration arising therefrom would be substantially as advantageous to the
Credit Parties as the monetary or business consideration which it would obtain
in a comparable arm's length transaction with a Person not a Restricted
Affiliate.
Section 6.08. Compliance with ERISA. The Borrower will not, and will
not permit any of its Subsidiaries to, (a) terminate any Plan so as to result in
any material (in the opinion of the Majority Banks) liability of the Borrower or
any of its Affiliates to the PBGC or (b) permit to exist
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any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any
other event or condition, which presents a material (in the opinion of the
Majority Banks) risk of such a termination by the PBGC of any Plan under Section
4042 of ERISA.
Section 6.09. Maintenance of Ownership of Subsidiaries. Except for
issuances, sales or other dispositions to the Borrower or a wholly-owned
Subsidiary of the Borrower, the Borrower will not, and will not permit any of
its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of
any of the Borrower's Subsidiaries or permit any Subsidiary to issue, sell, or
otherwise dispose of any shares of its capital stock or the capital stock of any
of the Borrower's Subsidiaries.
Section 6.10. Fixed Coverage Ratio. The Borrower will not permit the
ratio of (a) EBITDA plus Lease Expense to (b) its Fixed Charges as of the end of
any fiscal quarter for the four fiscal quarters then ended to be less than 3.25
to 1.0. For the fiscal quarters ending June 30, 1999, September 30, 1999, and
December 31, 1999 the foregoing ratio shall be calculated for the one, two, and
three fiscal quarter period, respectively, ending on such dates.
Section 6.11. Leverage Ratio. The Borrower will not permit its Leverage
Ratio
(a) as of the last day of any fiscal quarter ending on or prior to
September 30, 1999 to be greater than 3.0 to 1.0 and
(b) as of the last day of the fiscal quarter ending December 31, 1999
to be greater than 2.5 to 1.0.
Section 6.12. Minimum Net Worth. The Borrower's Net Worth at any time
shall not be less than (i) for the period commencing on the Effective Date and
ending June 30, 1999, $55,000,000.00 and (ii) for each fiscal quarter
thereafter, (a) $55,000,000.00 plus (B) 75% of the cumulative Net Income for
each fiscal quarter beginning with the fiscal quarter beginning July 1, 1999, if
Net Income is positive for such quarter, but without reductions for fiscal
quarters during which Net Income is negative plus (C) 85% of the Net Cash
Proceeds from the sale of capital stock, warrants, or options to purchase
capital stock or other equity interests, and other equity interests of Borrower
or any Credit Party since the Effective Date plus (D) 85% of any increase in Net
Worth from the conversion of any Debt to equity, without duplication of the
preceding clause (C), the issuance of any capital stock, warrants, or options to
purchase capital stock or other equity interest, and other equity interests, and
any other transaction the effect of which is to increase the Borrower's Net
Worth.
Section 6.13. Capital Expenditures. The Borrower shall not, and shall
not permit any of its Subsidiaries to, make any Capital Expenditure (other than
Capital Expenditures that are part of a Permitted Acquisition) which when
aggregated with all other Capital Expenditures (other than Capital Expenditures
that are part of a Permitted Acquisition) during any fiscal year would exceed
$10,000,000.00.
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ARTICLE VII
DEFAULT AND REMEDIES
Section 7.01. Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" under any Credit Document:
(a) Payment. The Borrower shall fail to (i) pay any principal of any
Note, the Swing Note or any Reimbursement Obligation when due or (ii) pay any
interest on any Note or the Swing Note, or any fee or other amount payable
hereunder or under any other Credit Document within three Business Days of when
the same becomes due and payable;
(b) Representation and Warranties. Any representation or warranty made
or deemed to be made (i) by the Borrower in this Agreement or in any other
Credit Document, (ii) by the Borrower (or any of its officers) in connection
with this Agreement or any other Credit Document, or (iii) by any Subsidiary in
any Credit Document shall prove to have been incorrect in any material respect
when made or deemed to be made;
(c) Covenant Breaches. (i) The Borrower shall (a) fail to perform or
observe any covenant contained in Article VI of this Agreement or (B) fail to
perform or observe any other term or covenant set forth in this Agreement or in
any other Credit Document which is not covered by clause (i)(a) above or any
other provision of this Section 7.01 if such failure shall remain unremedied for
10 Business Days after the earlier of (1) written notice of such default shall
have been given to the Borrower by the Agent or any Bank, or (2) a Responsible
Officer of the Borrower's actual knowledge of such default or (ii) any Credit
Party shall fail to perform or observe any covenant made by it in any Credit
Document to which it is a party and such failure shall remain unremedied for 10
Business Days after the earlier of (a) written notice of such default shall have
been given to the Borrower by the Agent or any Bank, or (B) a Responsible
Officer of the Borrower's actual knowledge of such default;
(d) Cross-Defaults. (i) The Borrower or any Credit Party shall fail to
pay any principal of or premium or interest on its Debt which is outstanding in
a principal amount of at least $1,000,000.00 individually or when aggregated
with all such Debt of the Borrower or the Credit Parties so in default (but
excluding Debt evidenced by the Notes and the Swing Note) when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; (ii) any other event shall occur or
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condition shall exist under any agreement or instrument relating to Debt which
is outstanding in a principal amount of at least $1,000,000.00 individually or
when aggregated with all such Debt of the Credit Parties so in default, and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt prior to
the stated maturity thereof; or (iii) any such Debt shall be declared to be due
and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment or prepayments contractually required from proceeds received
upon the sale of any Property);
(e) Insolvency. The Borrower or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Borrower or any of its Subsidiaries seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against the Borrower
or any such Subsidiary, either such proceeding shall remain undismissed for a
period of 30 days or any of the actions sought in such proceeding shall occur;
or the Borrower or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this paragraph (e);
(f) Judgments. Any judgment or order for the payment of money in excess
of $1,000,000.00 (reduced for purposes of this paragraph for the amount in
respect of such judgment or order that a reputable insurer has acknowledged as
being payable under any valid and enforceable insurance policy) shall be
rendered against the Borrower or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 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;
(g) Termination Events. Any Termination Event with respect to a Plan
shall have occurred, and, 30 days after notice thereof shall have been given to
the Borrower by the Agent, (i) such Termination Event shall have created and
caused to be continuing a material risk of Plan termination or liability for
withdrawal from the Plan as a substantive employer and (ii) the then present
value of such Plan's vested benefits exceeds the then current value of assets
accumulated in such Plan by more than the amount of $1,000,000.00 (or in the
case of a Termination Event involving the withdrawal of a "substantial employer"
(as defined in Section 4001(a)(2) of ERISA), the withdrawing employer's
proportionate share of such excess shall exceed such amount);
(h) Plan Withdrawals. The Borrower or any member of the Controlled
Group as employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such
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Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability in an annual amount exceeding $1,000,000.00;
(i) Guaranties. Any Guaranty shall at any time and for any reason other
than according to its terms cease to be in full force and effect or shall be
contested by any party thereto; or any Guarantor shall deny it has any liability
or obligation under its Guaranty;
(j) Security Documents. Any Security Document shall at any time and for
any reason cease to create the Lien on the property purported to be subject to
such agreement in accordance with the terms of such agreement and, if such
deficiency can be cured, such Credit Party has failed to cure such deficiency
after demand by the Agent, or cease to be in full force and effect, or shall be
contested by any Credit Party which is a party thereto; or
(k) Change in Control. A Change in Control shall occur.
Section 7.02. Optional Acceleration of Maturity. If any Event of
Default (other than an Event of Default pursuant to paragraph (e) of Section
7.01) shall have occurred and be continuing, then, and in any such event,
(a) the Agent (i) shall at the request, or may with the consent, of the
Majority Banks, by notice to the Borrower, declare the obligation of each Bank
to make Advances and the obligation of the Issuing Bank to issue, increase, or
extend Letters of Credit to be terminated, whereupon the same shall forthwith
terminate, and (ii) shall at the request, or may with the consent, of the
Majority Banks, by notice to the Borrower, declare the Notes and the Swing Note,
all interest thereon, the Reimbursement Obligations, and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes and the Swing Note, all such interest, all such Reimbursement Obligations
and all such amounts shall become and be forthwith due and payable in full,
without presentment, demand, protest or further notice of any kind (including,
without limitation, any notice of intent to accelerate or notice of
acceleration), all of which are hereby expressly waived by the Borrower;
(b) the Borrower shall, on demand of the Agent at the request or with
the consent of the Majority Banks, deposit with the Agent into the Cash
Collateral Account an amount of cash equal to the Letter of Credit Exposure as
security for the Obligations to the extent the Reimbursement Obligations are not
otherwise paid at such time; and
(c) the Agent shall at the request of, or may with the consent of, the
Majority Banks proceed to enforce its rights and remedies under the Security
Documents, the Guaranties, or any other Credit Document for the ratable benefit
of the Banks by appropriate proceedings.
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Section 7.03. Automatic Acceleration of Maturity. If any Event of Default
pursuant to paragraph (e) of Section 7.01 shall occur,
(a) the obligation of each Bank to make Advances and the obligation of
the Issuing Bank to issue, increase, or extend Letters of Credit shall
immediately and automatically be terminated and the Notes, the Swing Note, all
interest on the Notes and the Swing Note, all Reimbursement Obligations, and all
other amounts payable under this Agreement shall immediately and automatically
become and be due and payable in full, without presentment, demand, protest or
any notice of any kind (including, without limitation, any notice of intent to
accelerate or notice of acceleration), all of which are hereby expressly waived
by the Borrower;
(b) the Borrower shall deposit with the Agent into the Cash Collateral
Account an amount of cash equal to the outstanding Letter of Credit Exposure as
security for the Obligations to the extent the Reimbursement Obligations are not
otherwise paid at such time; and
(c) the Agent shall at the request of, or may with the consent of, the
Majority Banks proceed to enforce its rights and remedies under the Security
Documents, the Guaranties, or any other Credit Document for the ratable benefit
of the Banks by appropriate proceedings.
Section 7.04. Cash Collateral Account.
(a) Pledge. The Borrower hereby pledges, and grants to the Agent for
the benefit of the Banks, a security interest in all funds held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of the Obligations, including all Reimbursement Obligations owing to
the Issuing Bank or any other Bank due and to become due from the Borrower to
the Issuing Bank or any other Bank under this Agreement in connection with the
Letters of Credit. Nothing in this Section 7.04, however, shall either obligate
the Agent to require any funds to be deposited in the Cash Collateral Account or
limit the right of the Agent, which it may exercise at any time and from time to
time, to release to the Borrower any funds held in the Cash Collateral Account
pursuant to the other provisions of this Section 7.04.
(b) Application against Reimbursement Obligations; Release of Funds.
The Agent may, at any time or from time to time apply funds then held in the
Cash Collateral Account to the payment of any Reimbursement Obligations owing to
the Issuing Bank, in such order as the Agent may elect, as shall have become or
shall become due and payable by the Borrower to the Issuing Bank under this
Agreement in connection with the Letters of Credit. So long as no Event of
Default referred to in paragraph (a) or (e) of Section 7.01 shall have occurred
and be continuing, the Agent will release to the Borrower at the Borrower's
written request funds held in the Cash Collateral Account in an amount up to but
not exceeding the excess, if any (immediately prior to the release of any such
funds), of (i) the total amount of funds held in the Cash Collateral Account
over (ii) the Letter of Credit Exposure.
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(c) Duty of Care. The Agent shall exercise reasonable care in the
custody and preservation of any funds held in the Cash Collateral Account and
shall be deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Agent accords its own property, it
being understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any such
funds.
Section 7.05. Non-exclusivity of Remedies. No remedy conferred upon the
Agent is intended to be exclusive of any other remedy, and each remedy shall be
cumulative of all other remedies existing by contract, at law, in equity, by
statute or otherwise.
Section 7.06. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, each Bank (and each of its affiliates) is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, but excluding deposits that such Bank
knows or, with reasonable inquiry should know, are held by the Borrower in a
fiduciary capacity for the benefit of others) at any time held and other
indebtedness at any time owing by such Bank (or any of its affiliates) to or for
the credit or the account of the Borrower against any and all of the obligations
of the Borrower now or hereafter existing under this Agreement and the Note held
by such Bank, irrespective of whether such Bank shall have made any demand under
this Agreement or such Note and although such obligations may be unmatured. Each
Bank agrees promptly to notify the Borrower after any such set-off and
application made by such Bank; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Bank under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such Bank may
have.
Section 7.07. Application of Payments. Prior to an Event of Default,
all payments made hereunder shall be applied as directed by the Borrower, but
such payments are subject to the terms of this Agreement, including the
application of prepayments according to Section 2.07. During the existence of an
Event of Default, all payments and collections shall be applied to the Credit
Obligations in accordance with Section 2.10 first to any reimbursements and
indemnifications due to the Banks, then ratably to any accrued and unpaid
interest and fees due to the Banks, then to the outstanding principal balance of
the Swing Loans, then ratably to the outstanding principal balance of the
Advances and the Reimbursement Obligations.
ARTICLE VIII
THE AGENT AND THE ISSUING BANK
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Section 8.01. Appointment, Powers, and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Credit Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Credit Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 8.05 and
the first sentence of Section 8.06 shall include its affiliates and its own and
its affiliates' officers, directors, employees, and agents): (a) shall not have
any duties or responsibilities except those expressly set forth in this
Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be
responsible to the Banks for any recital, statement, representation, or warranty
(whether written or oral) made in or in connection with any Credit Document or
any certificate or other document referred to or provided for in, or received by
any of them under, any Credit Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of any Credit
Document, or any other document referred to or provided for therein or for any
failure by any Credit Party or any other Person to perform any of its
obligations thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Credit Party or the satisfaction of any condition
or to inspect the property (including the books and records) of any Credit Party
or any of its Subsidiaries or affiliates; (d) shall not be required to initiate
or conduct any litigation or collection proceedings under any Credit Document;
and (e) shall not be responsible for any action taken or omitted to be taken by
it under or in connection with any Credit Document, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
Section 8.02. Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telecopy) reasonably
believed by it to be genuine and correct and to have been signed, sent or made
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel (including counsel for any Credit Party), independent
accountants, and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the holder thereof for all purposes of this
Agreement unless and until the Agent receives and accepts an Assignment and
Acceptance executed in accordance with Section 9.06. As to any matters not
expressly provided for by this Agreement, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Banks, and such instructions
shall be binding on all of the Banks; provided, however, that the Agent shall
not be required to take any action that exposes the Agent to personal liability
or that is contrary to any Credit Document or applicable law or unless it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking any such
action.
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Section 8.03. Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default or Event of Default unless the Agent
has received written notice from a Bank or the Borrower specifying such Default
or Event of Default and stating that such notice is a "Notice of Default". In
the event that the Agent receives such a notice of the occurrence of a Default
or Event of Default, the Agent shall give prompt notice thereof to the Banks.
The Agent shall (subject to Section 8.02) take such action with respect to such
Default or Event of Default as shall reasonably be directed by the Majority
Banks, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks.
Section 8.04. Rights as Bank. With respect to its Commitment and the
Advances made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. NationsBank (and any
successor acting as Agent) and its affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to, make investments in,
provide services to, and generally engage in any kind of lending, trust, or
other business with any Credit Party or any of its Subsidiaries or affiliates as
if it were not acting as Agent, and NationsBank (and any successor acting as
Agent) and its affiliates may accept fees and other consideration from any
Credit Party or any of its Subsidiaries or affiliates for services in connection
with this Agreement or otherwise without having to account for the same to the
Banks.
Section 8.05. Indemnification. The Banks agree to indemnify the Agent
(to the extent not reimbursed under Section 9.07, but without limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
attorneys' fees), or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (including by any Bank) in
any way relating to or arising out of any Credit Document or the transactions
contemplated thereby or any action taken or omitted by the Agent under any
Credit Document (including any of the foregoing arising from the negligence of
the Agent); provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
Person to be indemnified. Without limitation of the foregoing, each Bank agrees
to reimburse the Agent promptly upon demand for its ratable share of any costs
or expenses payable by the Borrower under Section 9.04, to the extent that the
Agent is not promptly reimbursed for such costs and expenses by the Borrower;
provided, however that upon recovery of any or all of such costs and expenses by
the Agent from the Borrower, the Agent shall remit to each Bank its ratable
share of such amounts so recovered. The agreements contained in this Section
shall survive payment in full of the Advances and all other amounts payable
under this Agreement.
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Section 8.06. Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Credit Parties and their Subsidiaries and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under the Credit
Documents. Except for notices, reports, and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition, or
business of any Credit Party or any of its Subsidiaries or affiliates that may
come into the possession of the Agent or any of its affiliates.
Section 8.07. Resignation of Agent and Issuing Bank. The Agent and the
Issuing Bank may resign at any time by giving notice thereof to the Banks and
the Borrower. Upon any such resignation, the Majority Banks shall have the right
to appoint a successor Agent or Issuing Bank (in each case, so long as no
Default has occurred and is continuing, subject to the consent of the Borrower
which shall not be unreasonably withheld). If no successor Agent or Issuing Bank
shall have been so appointed by the Majority Banks and shall have accepted such
appointment within 30 days after the retiring Agent's or Issuing Bank's giving
of notice of resignation, then the retiring Agent or Issuing Bank may, on behalf
of the Banks, appoint a successor Agent or Issuing Bank (in each case, so long
as no Default has occurred and is continuing, subject to the consent of the
Borrower which shall not be unreasonably withheld) which shall be an Eligible
Assignee and, in the case of the Issuing Bank, a Bank. Upon the acceptance of
any appointment as Agent or Issuing Bank hereunder by a successor, such
successor shall thereupon succeed to and become vested with all the rights,
powers, discretion, privileges, and duties of the retiring Agent or Issuing
Bank, and the retiring Agent or Issuing Bank shall be discharged from its duties
and obligations hereunder and under the other Credit Documents, except that the
retiring Issuing Bank shall remain the Issuing Bank with respect to any Letters
of Credit issued by it and outstanding on the effective date of its resignation
and the provisions affecting the Issuing Bank with respect to such Letters of
Credit shall inure to the benefit of the retiring Issuing Bank until the
termination of all such Letters of Credit. After any retiring Agent's or Issuing
Bank's resignation hereunder as Agent or Issuing Bank, the provisions of this
Article VIII shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent or Issuing Bank.
ARTICLE IX
MISCELLANEOUS
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Section 9.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any other Credit Party therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Majority Banks and the Borrower, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks and the Borrower, do any of the following:
(a) waive any of the conditions specified in Section 3.01 or 3.02, (b) increase
the Commitments of the Banks, (c) reduce the principal of, or interest on, the
Notes or the Swing Note or any fees or other amounts payable hereunder or under
any other Credit Document, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or the Swing Note or any fees or other
amounts payable hereunder, (e) change the number of Banks which shall be
required for the Banks or any of them to take any action hereunder or under any
other Credit Document, (f) amend Section 2.12 or this Section 9.01, (g) release
any Collateral or any Credit Party from its obligations under any Credit
Document to which it is a party, except pursuant to the terms of the applicable
Credit Document; or (h) amend the definition of "Majority Banks"; and provided,
further, that no amendment, waiver or consent shall, unless in writing and
signed by the Agent or the Issuing Bank in addition to the Banks required above
to take such action, affect the rights or duties of the Agent or the Issuing
Bank, as the case may be, under this Agreement or any other Credit Document.
Section 9.02. Notices, Etc. All notices and other communications shall
be in writing (including telecopy or telex) and mailed, telecopied, telexed,
hand delivered or delivered by a nationally recognized overnight courier, if to
the Borrower or to a Guarantor, at the Borrower's address at 545 E. John
Carpenter Freeway, Suite 1570, Irving, Texas 75062, Attention: Mr. Danny
Phillips (telecopy: (972) 830-6196; telephone: (972) 830-6199); if to any Bank,
at its Applicable Lending Office specified opposite its name on Schedule
1.01(a); if to the Agent or the Issuing Bank, at its address at 700 Louisiana,
8th floor, Houston, Texas 77002, Attention: Mr. Larry Gordon, Vice President
(telecopy: (713) 247-6719; telephone: (713) 247-6619); and if a Notice of
Borrowing, a Notice of Swing Loan Request or Prepayment, or a Notice of
Conversion or Continuation, to the Agent at the Applicable Lending Office for
the Agent specified opposite its name on Schedule 1.01(a), or, as to each party,
at such other address or teletransmission number as shall be designated by such
party in a written notice to the other parties. All such notices and
communications shall, when mailed, telecopied, telexed, hand-delivered, or
delivered by overnight courier, be effective three days after deposited in the
mails, when telecopy transmission is completed, when confirmed by telex
answer-back or when delivered, respectively, except that notices and
communications to the Agent pursuant to Article II or VIII shall not be
effective until received by the Agent.
Section 9.03. No Waiver; Remedies. No failure on the part of any Bank,
the Agent, or the Issuing Bank to exercise, and no delay in exercising, any
right hereunder or under any Note or the Swing Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided in this Agreement are cumulative and not exclusive of any
remedies provided by law.
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Section 9.04. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses of the Agent in connection with the syndication,
preparation, execution, delivery, administration, modification, and amendment of
this Agreement, the other Credit Documents, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Agent (including the cost of internal counsel) with
respect thereto and with respect to advising the Agent as to its rights and
responsibilities under the Credit Documents. The Borrower further agrees to pay
on demand all costs and expenses of the Agent, the Issuing Bank and the Banks,
if any (including, without limitation, reasonable attorneys' fees and expenses
and the cost of internal counsel), in connection with the enforcement (whether
through negotiations, legal proceedings, or otherwise) of the Credit Documents
and the other documents to be delivered hereunder. Without prejudice to the
survival of any other agreement of the Borrower hereunder, the agreements and
obligations of the Borrower contained in this Section 9.04 shall survive the
payment in full of the Advances and all other amounts payable under this
Agreement.
Section 9.05. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agent, and when the
Agent shall have, as to each Bank, either received a counterpart of this
Agreement executed by such Bank or been notified by such Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent, the Issuing Bank, and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights or delegate its duties under this Agreement or any interest in
this Agreement without the prior written consent of each Bank.
Section 9.06. Bank Assignments and Participations.
(a) Assignments. Each Bank may assign to one or more Eligible Assignees
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Advances, its Note, and its
Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Bank or an
assignment of all of a Bank's rights and obligations under this
Agreement, any such partial assignment shall be in an amount equal to
at least $5,000,000.00 and in integral multiples of $1,000,000.00 in
excess thereof;
(iii) each such assignment by a Bank shall be of a constant, and
not varying, percentage of all of its rights and obligations under this
Agreement and the Notes (other than
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rights of reimbursement and indemnity arising before the effective date
of such assignment) and shall be of an equal pro rata share of the
Assignor's interest in the Revolving Credit Advances, Letter of Credit
Exposure, and Commitments; and
(iv) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of the attached Exhibit A, together with any Note subject to such
assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance and
payment of the processing fee, the assignee thereunder shall be a party to this
Agreement and, to the extent of such assignment, have the obligations, rights,
and benefits of a Bank hereunder and the assigning Bank shall, to the extent of
such assignment, relinquish its rights and be released from its obligations
under this Agreement. Upon the consummation of any assignment pursuant to this
Section, the assignor, the Agent and the Borrower shall make appropriate
arrangements so that, if required, new Notes are issued to the assignor and the
assignee. If the assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall deliver to the Borrower and the
Agent certification as to exemption from deduction or withholding of Taxes in
accordance with Section 2.11.
(b) The Register. The Agent shall maintain a copy of each Assignment
and Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the Commitment of, and
principal amount of the Advances owing to, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and the Banks may
treat each Person whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(c) Procedures. Upon its receipt of an Assignment and Acceptance
executed by the parties thereto, together with any Note subject to such
assignment and payment of the processing fee, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
(d) Participations. Each Bank may sell participations to one or more
Persons in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and its Advances); provided,
however, that (i) such Bank's obligations under this Agreement shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
to this Agreement for the performance of such obligations, (iii) the participant
shall be entitled to the benefit of the yield protection provisions contained in
Section 2.09 and the right of set-off contained in Section 7.06, and (iv) the
Borrower shall continue to deal solely and directly
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with such Bank in connection with such Bank's rights and obligations under this
Agreement, and such Bank shall retain the sole right to enforce the obligations
of the Borrower relating to its Advances and its Note and to approve any
amendment, modification, or waiver of any provision of this Agreement (other
than amendments, modifications, or waivers decreasing the amount of principal of
or the rate at which interest is payable on such Advances or Note, extending any
scheduled principal payment date or date fixed for the payment of interest on
such Advances or Note, or extending its Commitment).
(e) Federal Reserve Bank. Notwithstanding any other provision set forth
in this Agreement, any Bank may at any time assign and pledge all or any portion
of its Advances and its Note to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations hereunder.
(f) Confidentiality. Any Bank may furnish any information concerning
the Borrower or any of its Subsidiaries in the possession of such Bank from time
to time to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 9.08.
Section 9.07. INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY AND
HOLD HARMLESS THE AGENT, THE ISSUING BANK, THE ARRANGER, AND EACH BANK AND EACH
OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
AND ADVISORS (EACH AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS,
DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, (A) REASONABLE ATTORNEYS' FEES, INCLUDING THE ALLOCATED COST OF
INTERNAL COUNSEL, AND (B) SETTLEMENT COSTS) THAT MAY BE INCURRED BY OR ASSERTED
OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN
CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION
WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION OF DEFENSE IN
CONNECTION THEREWITH) THE CREDIT DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE ADVANCES (INCLUDING
ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY),
EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS
FOUND IN A FINAL ORDER OR JUDGMENT BY A COURT OF COMPETENT JURISDICTION OR OTHER
TRIBUNAL OR ARBITRATION PANEL (OR, IF SUCH FINAL ORDER OR JUDGMENT IS LATER
REVERSED, BY A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT
JURISDICTION) OR BY AGREEMENT TO HAVE (A) RESULTED PRIMARILY FROM AN INDEMNIFIED
PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR (B) ARISEN OUT OF
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A CLAIM AMONG INDEMNIFIED PARTIES AND THEIR STOCKHOLDERS. IN THE CASE OF AN
INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS
SECTION 9.07 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH
INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER, ITS
DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON
OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. EACH PARTY TO THIS AGREEMENT
AGREES NOT TO ASSERT ANY CLAIM AGAINST THE BORROWER OR ANY OF ITS SUBSIDIARIES,
THE AGENT, THE ISSUING BANK, THE ARRANGER, ANY BANK, ANY OF THEIR AFFILIATES, OR
ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS, AND
ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR
PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE CREDIT DOCUMENTS,
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE
PROCEEDS OF THE ADVANCES.
Section 9.08. Confidentiality. The Agent and each Bank (each, a
"Lending Party") agrees to keep confidential any information furnished or made
available to it by or on behalf of the Borrower or any of its Subsidiaries
pursuant to this Agreement that is marked confidential; provided that nothing
herein shall prevent any Lending Party from disclosing such information (a) to
any other Lending Party or any affiliate of any Lending Party, or any officer,
director, employee, agent, or advisor of any Lending Party or affiliate of any
Lending Party, (b) to any other Person if reasonably incidental to the
administration of the credit facility provided herein, (c) as required by any
law, rule, or regulation, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any regulatory agency or authority,
(f) that is or becomes available to the public or that is or becomes available
to any Lending Party other than as a result of a disclosure by any Lending Party
prohibited by this Agreement, (g) in connection with any litigation to which
such Lending Party or any of its affiliates may be a party, (h) to the extent
necessary in connection with the exercise of any remedy under this Agreement or
any other Loan Document, and (i) subject to provisions substantially similar to
those contained in this Section, to any actual or proposed participant or
assignee.
Section 9.09. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties to this Agreement in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 9.10. Survival of Representations, etc. All representations and
warranties contained in this Agreement or made in writing by or on behalf of the
Borrower in connection herewith shall survive the execution and delivery of this
Agreement and the Credit Documents, the making of the
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Advances and any investigation made by or on behalf of the Banks, none of which
investigations shall diminish any Bank's right to rely on such representations
and warranties. All obligations of the Borrower provided for in Sections 2.08,
2.09, 2.11(c), 9.04 and 9.07 and of the Agent and the Banks provided for in
Section 9.08 (but only for one year after repayment in full of the Obligations)
shall survive any termination of this Agreement and repayment in full of the
Obligations.
Section 9.11. Severability. In case one or more provisions of this
Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions contained herein or therein shall
not be affected or impaired thereby.
Section 9.12. Business Loans. The Borrower warrants and represents that
the Loans evidenced by the Notes are and shall be for business, commercial,
investment or other similar purposes and not primarily for personal, family,
household or agricultural use, as such terms are used in Chapter One ("Chapter
One") of the Texas Credit Code. At all such times, if any, as Chapter One shall
establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling"
(as such term is defined in Chapter One) from time to time in effect.
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Section 9.13. Usury Not Intended. It is the intent of the Borrower and
each Bank in the execution and performance of this Agreement and the other
Credit Documents to contract in strict compliance with applicable usury laws,
including conflicts of law concepts, governing the Advances and Swing Loans of
each Bank including such applicable laws of the State of Texas, if any, and the
United States of America from time to time in effect. In furtherance thereof,
the Banks and the Borrower stipulate and agree that none of the terms and
provisions contained in this Agreement or the other Credit Documents shall ever
be construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the Maximum
Rate and that for purposes of this Agreement "interest" shall include the
aggregate of all charges which constitute interest under such laws that are
contracted for, charged or received under this Agreement; and in the event that,
notwithstanding the foregoing, under any circumstances the aggregate amounts
taken, reserved, charged, received or paid on the Advances, include amounts
which by applicable law are deemed interest which would exceed the Maximum Rate,
then such excess shall be deemed to be a mistake and each Bank receiving same
shall credit the same on the principal of its Notes (or if such Notes shall have
been paid in full, refund said excess to the Borrower). In the event that the
maturity of the Notes are accelerated by reason of any election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest may never include more than the Maximum Rate and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited on the applicable Notes (or, if the
applicable Notes shall have been paid in full, refunded to the Borrower of such
interest). In determining whether or not the interest paid or payable under any
specific contingencies exceeds the Maximum Rate, the Borrower and the Banks
shall to the maximum extent permitted under applicable law amortize, prorate,
allocate and spread in equal parts during the period of the full stated term of
the Notes all amounts considered to be interest under applicable law at any time
contracted for, charged, received or reserved in connection with the
Obligations. The provisions of this Section shall control over all other
provisions of this Agreement or the other Credit Documents which may be in
apparent conflict herewith.
Section 9.14. Governing Law. This Agreement and the other Credit
Documents shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York.
Section 9.15. Waiver of Jury. EACH OF THE BORROWER, THE OTHER CREDIT
PARTIES, THE BANKS, THE AGENT, AND THE ISSUING BANK HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER CREDIT DOCUMENT, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A
LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS
$50,000.00 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING
AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE.
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THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO
THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN
AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY
AND MERGED INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT
DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES (AND SUPERSEDE THE COMMITMENT LETTER DATED MAY 3, 1999) AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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EXECUTED as of the day first above written.
BORROWER:
ADVANCE PARADIGM, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AGENT:
NATIONSBANK, N.A.
By:
--------------------------------
Lawrence J. Gordon
Vice President
BANKS:
COMMITMENT NATIONSBANK, N.A.
$30,000,000.00
By:
--------------------------------
Lawrence J. Gordon
Vice President
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<PAGE> 81
COMMITMENT BANK ONE, TEXAS, N.A.
$30,000,000.00
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
COMMITMENT CHASE BANK OF TEXAS,
$15,000,000.00 NATIONAL ASSOCIATION
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 10.3
GUARANTY
This Guaranty dated as of March 31, 1999 ("Guaranty") is by each
Subsidiary of the Borrower (as defined below) listed on the signature page
(each a "Guarantor" and collectively the "Guarantors"), in favor of the Agent
for the Banks referred to below.
INTRODUCTION
A. This Guaranty is given in connection with the Credit Agreement
dated as of March 31, 1999 (as the same may be amended or modified from
time-to-time, the "Credit Agreement") among Advance Paradigm, Inc., a Delaware
corporation ("Borrower"), the Banks, and NationsBank, N.A., as agent for the
Banks ("Agent").
B. The Borrower is the principal financing entity for all capital
requirements of its Subsidiaries, and from time-to-time the Borrower has made
capital contributions and advances to its Subsidiaries, including each of the
Guarantors. Each Guarantor is a wholly-owned subsidiary of the Borrower and
will derive substantial direct and indirect benefit from the transactions
contemplated by the Credit Agreement.
C. Under the Credit Agreement, it is a condition to the making of the
Advances by the Banks, the issuance of the Letters of Credit by the Issuing
Bank, and the making of Swing Loans by the Agent that each of the Guarantors
shall have executed and delivered this Guaranty.
Therefore, in order to induce the Banks to make the Advances, the
Issuing Bank to issue Letters of Credit and the Agent to make Swing Loans, each
of the Guarantors hereby agrees with Agent for its benefit and the ratable
benefit of the Banks as follows:
Section 1. Definitions. Unless otherwise defined, capitalized terms are defined
in the Credit Agreement.
Section 2. Guaranty. Each Guarantor hereby unconditionally guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of the Borrower now or hereafter existing under
the Credit Agreement, the Notes, the Swing Notes and any other Credit Document,
whether for principal, Reimbursement Obligations, obligations under any
Derivatives executed with a Bank or an Affiliate of a Bank, interest, fees,
expenses, or otherwise (such obligations being the "Guaranteed Obligations"),
and any and all expenses (including reasonable counsel fees and expenses)
incurred by the Agent, the Issuing Bank, or any Bank in enforcing any rights
under this Guaranty. Each Guarantor agrees that this Guaranty is a guarantee of
payment, not of collection and that each Guarantor is primarily liable for the
payment of the Guaranteed Obligations.
<PAGE> 2
Section 3. Limit of Liability. The obligations of the each Guarantor hereunder
shall be limited to an aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance under Section 548 of
the United States Bankruptcy Code or any comparable provisions of any
applicable state law.
Section 4. Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement and the other Credit Documents, regardless of any law, regulation, or
order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Agent, the Issuing Bank, or the Banks with respect
thereto. The liability of each Guarantor under this Guaranty shall be absolute
and unconditional irrespective of:
(a) any lack of validity or enforceability of the Credit
Agreement, any other Credit Document, or any other agreement or instrument
relating thereto;
(b) any change in the time, manner, or place of payment of,
or in any other term of, any of the Guaranteed Obligations, any increase,
reduction, extension, or rearrangement of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from the Credit
Agreement or any Credit Document;
(c) any exchange, release, or nonperfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any other Guaranty, for any of the Guaranteed Obligations; or
(d) any other circumstances which might otherwise constitute
a defense available to, or a discharge of the Borrower or a Guarantor.
Section 5. Certain Waivers.
5.01. Notice. Each Guarantor hereby waives promptness, diligence,
notice of acceptance, notice of acceleration, notice of intent to accelerate,
and any other notice with respect to any of the Guaranteed Obligations and this
Guaranty.
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<PAGE> 3
5.02. Other Remedies. Each Guarantor hereby waives any requirement
that the Agent, the Issuing Bank, or any Bank protect, secure, perfect, or
insure any Lien or any Property subject thereto or exhaust any right or take
any action against the Borrower or any other Person or any collateral.
5.03. Subrogation. (a) Until the irrevocable payment in full of the
Guaranteed Obligations, none of the Guarantors will take any action pursuant to
any claim or rights which it may acquire against the Borrower or any other
Guarantor that arise from each Guarantor's obligations under this Guaranty or
any other Credit Document, including, without limitation, any right of
subrogation (including, without limitation, any statutory rights of subrogation
under Section 509 of the Bankruptcy Code, 11 U.S.C. Section 509, or otherwise),
reimbursement, exoneration, contribution, indemnification or any right to
participate in any claim or remedy of the Agent, the Issuing Bank, or any Bank
against the Borrower or any collateral, if any, which the Agent, the Issuing
Bank, or any Bank now has or acquires. If any amount shall be paid to any
Guarantor in violation of the preceding sentence and the Guaranteed Obligations
shall not have been paid in full, such amount shall be held in trust for the
benefit of the Agent, the Issuing Bank, and the Banks, and shall promptly be
paid to the Agent for the benefit of the Agent, the Issuing Bank, and the Banks
to be applied to the Guaranteed Obligations, whether matured or unmatured, as
the Agent may elect. Each Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by the
Credit Agreement and that the waiver set forth in this Section 5.03(a) is
knowingly made in contemplation of such benefits.
(b) Each Guarantor agrees that, to the extent that any
Borrower makes payments to the Agent, the Issuing Bank, or any Bank, or the
Agent, the Issuing Bank, or any Bank receives any proceeds of collateral, and
such payments or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, or otherwise required to
be repaid, then to the extent of such repayment the Guaranteed Obligations
shall be reinstated and continued in full force and effect as of the date such
initial payment or collection of proceeds occurred. EACH GUARANTOR SHALL DEFEND
AND INDEMNIFY THE AGENT, THE ISSUING BANK, AND EACH BANK (EACH AN "INDEMNIFIED
PARTY") FROM AND AGAINST ANY CLAIM OR LOSS UNDER THIS SUBSECTION 5.03(b)
(INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) IN THE DEFENSE OF ANY SUCH
ACTION OR SUIT, INCLUDING LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES
INCURRED BY REASON OF NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED, BUT EXCLUDING
ANY SUCH LOSSES, LIABILITIES, CLAIMS,
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<PAGE> 4
DAMAGES, OR EXPENSES (A) INCURRED BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF AN INDEMNIFIED PARTY OR (B) ASSERTED BY AN INDEMNIFIED PARTY OR A
STOCKHOLDER OR AFFILIATE THEREOF AGAINST AN INDEMNIFIED PARTY.
Section 6. Representations and Warranties. Each Guarantor hereby represents and
warrants as follows:
(a) Corporate Authority. Each Guarantor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization. The execution, delivery and performance by each Guarantor of this
Guaranty are within each Guarantor's powers, have been duly authorized by all
necessary action, and do not (i) contravene (A) each Guarantor's charter or
bylaws or (B) any law or material contractual restriction affecting each
Guarantor or its Property, the contravention of which would reasonably be
expected to cause a Material Adverse Change, or (ii) result in or require the
creation or imposition of any Lien prohibited by the Credit Agreement.
(b) Government Approval. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery, and performance by each of the
Guarantors of this Guaranty.
(c) Binding Obligations. This Guaranty is the legal, valid,
and binding obligation of each Guarantor enforceable against each Guarantor in
accordance with its terms subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium, or similar law affecting creditors'
rights (whether considered in a proceeding at law or in equity).
Section 7. Covenants. Each Guarantor will comply with all provisions of
Articles V and VI of the Credit Agreement to the extent such Sections are
applicable to each Guarantor.
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Section 8. Miscellaneous.
8.01. Amendments, Etc. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by each of the Guarantors therefrom shall
be effective unless the same shall be in writing and signed by the Agent,
Majority Banks and the Borrower, provided that any amendment or waiver
releasing any Guarantor from any liability hereunder shall be signed by all the
Banks and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
8.02. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing, including telegraphic
communication, and delivered or teletransmitted to the addresses set forth next
to the signatures below, or to such other address as shall be designated by
each Guarantor or Agent in written notice to the other party. All such notices
and other communications shall be effective when delivered or teletransmitted
to the above addresses.
8.03. No Waiver; Remedies. No failure on the part of the Agent, the
Issuing Bank, or any Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
8.04. Right of Set-Off. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent, if any, specified by Section 7.02 of the Credit
Agreement to authorize the Agent to declare the Notes, the Swing Notes, and any
other amount payable under the Credit Agreement due and payable pursuant to the
provisions of such Section 7.02 or the automatic acceleration of the Notes, the
Swing Notes, and all amounts payable under the Credit Agreement pursuant to
Section 7.03 thereunder, the Agent, the Issuing Bank, and each Bank is hereby
authorized at any time, to the fullest extent permitted by law, to set off and
apply any deposits (general or special, time or demand, provisional or final,
but excluding deposits that such Bank knows or, with reasonable inquiry should
know, are held by Borrower in a fiduciary capacity for the benefit of others)
and other indebtedness owing by the Agent, the Issuing Bank, or such Bank to
the account of each Guarantor against any and all of the obligations of each
Guarantor under this Guaranty, irrespective of whether or not the Agent, the
Issuing Bank, or such Bank shall have made any demand under this Guaranty and
although such obligations may be contingent and unmatured. The Agent, the
Issuing Bank, and each Bank
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<PAGE> 6
agrees promptly to notify each Guarantor after any such set-off and application
made by the Agent, the Issuing Bank, or such Bank provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Agent, the Issuing Bank, and the Banks under this Section
8.04 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Agent, the Issuing Bank, or the
Banks may have.
8.05. Continuing Guaranty; Transfer of Interest. This Guaranty shall
create a continuing guaranty and shall (a) remain in full force and effect
until payment in full and termination of the Guaranteed Obligations, (b) be
binding upon each Guarantor, its successors, and assigns, and (c) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of
the Agent, the Issuing Bank, the Banks, and their respective successors and
Eligible Assignees. Without limiting the generality of the foregoing clause,
when any Bank assigns or otherwise transfers any interest held by it under the
Credit Agreement or other Credit Document to any other Person (pursuant to
Section 9.06 of the Credit Agreement), that other Person shall thereupon become
vested with all the benefits held by such Bank under this Guaranty. Upon the
payment in full and termination of the Guaranteed Obligations, the guaranty
granted hereby shall terminate and all rights hereunder shall revert to each
Guarantor to the extent such rights have not been applied pursuant to the terms
hereof. Upon any such termination, the Agent will, at each Guarantor's expense,
execute and deliver to each Guarantor such documents as such Guarantor shall
reasonably request and take any other actions reasonably requested to evidence
or effect such termination.
8.06. Governing Law. This Guaranty shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York.
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<PAGE> 7
Each of the Guarantors has caused this Guaranty to be duly executed as
of the date first above written.
GUARANTORS:
INNOVATIVE MEDICAL RESEARCH, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
ADVANCE PARADIGM MAIL SERVICES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
-7-
<PAGE> 8
ADVANCE PARADIGM DATA SERVICES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
ADVANCE PARADIGM CLINICAL SERVICES, INC.
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
-8-
<PAGE> 9
BAUMEL-EISNER NEUROMEDICAL
INSTITUTE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
FOUNDATION HEALTH PHARMACEUTICAL
SERVICES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 545 E. John Carpenter Freeway
Suite 1570
Irving, Texas 75062
Attention: Mr. Danny Phillips
Telecopy No.: (972) 830-6196
-9-
