<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 000-22751
------------------------
CONCENTRA MANAGED CARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3363415
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
312 UNION WHARF, BOSTON MASSACHUSETTS 02109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 367-2163
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant totaled $1,082,718,910 (based on the closing price of the Company's
Common Stock on The Nasdaq National Market on March 16, 1998).
As of March 16, 1997, the Registrant had outstanding an aggregate of
46,126,831 shares of its Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Registrant's 1997 Annual Report to Stockholders are
incorporated by reference into Part II and IV of this report.
Certain parts of the Registrant's definitive Proxy Statement dated April 7,
1998 are incorporated by reference into Part III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONCENTRA MANAGED CARE, INC.
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 26
Item 3. Legal Proceedings.............................................................................. 26
Item 4. Submission of Matters to a Vote of Security Holders............................................ 26
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 27
Item 6. Selected Financial Data........................................................................ 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 27
Item 8. Financial Statements and Supplementary Data.................................................... 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 27
Item 11. Executive Compensation......................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 27
Item 13. Certain Relationships and Related Transactions................................................. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 28
</TABLE>
2
<PAGE>
FORWARD LOOKING INFORMATION
This Report contains forward looking statements that involve risks and
uncertainties. Accordingly, no assurance can be given that the actual events and
results will not be materially different than the anticipated results described
in the forward looking statements. See "Item 1. Business--Competition" and "Item
1. Business--Risk Factors" for a description of various factors that could
materially affect the ability of the Company to achieve the anticipated results
described in the forward looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
Concentra Managed Care, Inc. (the "Company" or "Concentra")* is the leading
provider and comprehensive outsource solution for cost containment and fully
integrated care management for employers and payors in the occupational, auto
and group healthcare markets. The Company offers its comprehensive services to
employers, insurers and third-party administrators of all sizes. Concentra was
formed by the merger of OccuSystems, Inc. ("OccuSystems") and CRA Managed Care,
Inc., on August 29, 1997.
The Company's continuum of services is comprised of three main categories:
(1) field case management, (2) specialized cost-containment services and (3)
health services. The Company's field case management organization consists of
1,350 field case managers in 130 offices in 49 states and the District of
Columbia, providing medical management and vocational rehabilitation services.
The Company's specialized cost-containment services, including first report of
injury services, utilization management, specialized preferred provider network
management, telephonic case management and medical bill review services, are
provided in 83 service locations in 49 states. Health services include primary
care services and preventive services including pre-employment testing and loss
prevention services, and are provided through 145 clinics located in 37 markets
in 20 states. Through the twelve months ended December 31, 1997, revenues from
field case management, specialized cost-containment services and health services
represented approximately 30%, 24% and 46% of total revenues, respectively.
INDUSTRY OVERVIEW
WORKERS' COMPENSATION
Workers' compensation is a state-mandated, comprehensive insurance program
that requires employers to fund medical expenses, lost wages and other costs
resulting from work-related injuries and illnesses. Since their introduction in
the early 1900s, these programs have been expanded to all fifty states and the
District of Columbia. In addition, federal statutes provide workers'
compensation benefits for federal employees. Each state is responsible for
implementing and regulating its own program. Consequently, workers' compensation
benefits and arrangements vary on a state-by-state basis and are often highly
complex. According to statistics published in the 1998 Workers' Compensation
Year Book, total workers' compensation costs to employers in the United States
were estimated to be approximately $92 billion in 1996. While the industry is
fragmented with a large number of competitors in the various subsegments of
workers' compensation services, Concentra believes that it is the only
integrated provider of care management and cost-containment on a nationwide
basis.
Workers' compensation legislation generally requires employers, directly or
indirectly through an insurance vehicle, to fund all of an employee's costs of
medical treatment and a significant portion of lost wages, legal fees and other
associated costs, with no co-payment or deductible due from the injured worker.
Typically, work-related injuries are broadly defined, and injured or ill
employees are entitled to extensive benefits. Employers are required directly or
indirectly to provide first-dollar coverage with no co-payment or deductible due
from the injured or ill employee for medical treatment and, in many states,
* "Concentra" is a registered service mark of Concentra Managed Care, Inc.
3
<PAGE>
there is no lifetime limit on expenses. However, in exchange for providing this
coverage for employees, employers are not subject to litigation by employees for
benefits in excess of those provided pursuant to the relevant state statute. In
most states, the extensive benefits coverage (for both medical costs and lost
wages) is provided through the purchase of commercial insurance from private
insurance companies, participation in state-run insurance funds or employer
self-insurance. In at least two states, employers are permitted to refrain from
purchasing or procuring any such insurance coverage, thereby exposing themselves
to significant potential liability as the result of an employee's work-related
injury or death. Such employers are sometimes termed "non-subscribers".
Provider reimbursement methods vary on a state-by-state basis. A majority of
states have adopted fee schedules pursuant to which all health care providers
are uniformly reimbursed. The fee schedules are set by each state and generally
prescribe the maximum amounts that may be reimbursed for a designated procedure.
In states without fee schedules, health care providers are reimbursed based on
usual, customary and reasonable ("UCR") fees charged in the particular state in
which the services are provided. These fees are based on national data and are
adjusted geographically by zip code.
WORKERS' COMPENSATION MANAGED CARE SERVICES: FIELD CASE MANAGEMENT AND
SPECIALIZED COST CONTAINMENT
The workers' compensation managed care services market is served by the
Company and a small number of other competitors that offer a comprehensive line
of workers' compensation managed care services on a nationwide basis. A large
number of additional companies offer some managed care services on a limited
geographic basis. The result is a fragmented market with what the Company
believes is only a small number of companies offering a fully integrated and
comprehensive approach to managing workers' compensation costs on a nationwide
basis.
Workers' compensation managed care services broadly fall into two
categories: field case management services and specialized cost containment
services. Field case management services involve working on a one-on-one basis
with injured employees and facilitating communication among their various health
care professionals, employers and insurance company adjusters. Field case
management services are designed both to assist in maximizing medical
improvement and, where appropriate, to expedite return to work. Specialized cost
containment services are designed to reduce the cost of workers' compensation
claims through a variety of techniques such as first report of injury services,
utilization management (precertification, concurrent review and retrospective
bill review), telephonic case management, Preferred Provided Organization
("PPO") network access, independent medical examinations ("IMEs"), peer reviews
and hospital bill auditing.
Managed care techniques are intended to control the cost of health care
services and to measure the performance of providers through intervention and
on-going review of services proposed and actually provided. Managed care
techniques were originally developed to stem the rising costs of group health
medical care. Historically, employers were slow to apply managed care techniques
to workers' compensation costs primarily because the aggregate costs are
relatively small compared to costs associated with group health benefits and
because state-by-state regulations related to workers' compensation are far more
complex than those related to group health. However, in recent years, employers
and insurance carriers have been increasing their focus on applying managed care
techniques to control their workers' compensation costs.
Since workers' compensation benefits are mandated by law and are subject to
extensive regulation, payors and employers do not have the same flexibility to
alter benefits as they have with other health benefit programs. In addition,
workers' compensation programs vary from state to state, making it difficult for
payors and multi-state employers to adopt uniform policies to administer, manage
and control the costs of benefits. As a result, managing the cost of workers'
compensation requires approaches that are tailored to the specific state
regulatory environment in which the employer operates. Many states do not permit
4
<PAGE>
employers to restrict a claimant's choice of provider, making it difficult for
employers to utilize managed care approaches characteristic of the group health
insurance market. However, employers in at least 35 states currently have the
right to direct employees to a specific primary health care provider during the
onset of a workers' compensation case, subject to the right of the employee to
change physicians after a specific period. Recently, a number of states have
adopted legislation encouraging the use of workers' compensation managed care
organizations ("MCOs") in an effort to allow employers to control their workers'
compensation costs. MCO laws generally provide employers an opportunity to
channel injured employees into provider networks. In certain states, MCO laws
require licensed MCOs to offer certain specified services, such as utilization
management, case management, peer review and provider bill review. Most of the
MCO laws adopted to date establish a framework within which a company such as
Concentra can provide its customers a full range of managed care services for
greater cost control.
GROUP HEALTH COST CONTAINMENT SERVICES
The Company's recent acquisition of Preferred Payment Systems, Inc. ("PPS")
significantly expanded Concentra's current market presence in retrospective bill
review services for the group health marketplace. Through its comprehensive
portfolio of products, the Company reduces costs ordinarily payable on medical
bills submitted by healthcare providers and the administrative expense
associated with reviewing and analyzing medical bills. These services include
professional fee negotiation, line-item analysis, and other specialized audit
and bill review processes, as well as access to a nationwide PPO network.
WORKERS' COMPENSATION HEALTH SERVICES: OCCUPATIONAL HEALTHCARE
The market to provide occupational healthcare services is highly fragmented.
Occupational healthcare care is largely provided by independent physicians, who
have experienced increasing pressures in recent years from cost containment
efforts, growing regulatory complexity, medical liability concerns and increased
competition. Although risk sharing programs have yet to become a major factor in
occupational healthcare, the Company anticipates that such programs, including
capitation plans (i.e., plans that charge fees on a per capita basis, regardless
of services provided) and case rate plans (i.e., plans that charge fees on a per
diagnosis basis), may play an increasing role in the delivery of occupational
healthcare services. In addition, the Company anticipates that competition in
the occupational healthcare industry may shift from individual practitioners to
specialized provider groups, such as those managed by the Company, insurance
companies, health maintenance organizations ("HMOs") and other significant
providers of managed care products.
Occupational healthcare consists of two primary components: (i) workers'
compensation injury care and related services; and (ii) non-injury healthcare
services related to employer needs or statutory requirements.
INJURY CARE
Due to several factors, including a general rise in the cost of occupational
healthcare and the requirement that employers pay the majority of lost wages and
all compensable medical and non-medical costs of their employees, the dollar
amount of workers' compensation claims has increased significantly in recent
years, resulting in escalating costs to employers. The Company anticipates that
employers' direct costs of workers' compensation will continue to escalate
primarily because of broader definitions of work-related injuries and illnesses
covered by workers' compensation laws, the shifting of medical costs from group
health plans to the workers' compensation system, an aging work force and, most
importantly, the absence of comprehensive cost containment programs (such as
those that encourage early return-to-work and limited duty) that are necessary
to reduce the non-medical costs associated with workers' compensation. As
workers' compensation costs escalate, the Company expects that employers will
continue to seek and implement strategies and programs to reduce workers'
compensation costs and to improve worker productivity, health and safety.
5
<PAGE>
Reimbursement to healthcare providers is determined by a number of different
methods in states where employers obtain workers' compensation insurance
coverage. As of December 31, 1997, 41 states had adopted fee schedules pursuant
to which all healthcare providers are uniformly reimbursed. These fee schedules
are set by each state and generally prescribe the maximum amounts that may be
reimbursed for a designated procedure. In states without fee schedules,
healthcare providers are reimbursed based on usual and customary fees charged in
the particular market for the services provided. Of the 21 states in which the
Company operates occupational healthcare clinics, 16 have fee schedules.
Limitations on an employee's right to choose a specific healthcare provider
is dependent upon the particular state statute. According to the Workers'
Compensation Research Institute, as of December 31, 1996, 24 states limited the
employee's choice of provider and 36 states placed restrictions on switching
providers, including provisions requiring employer approval for any changes.
Generally, the employer will also have the ability to direct the employee when
the employer is self-insured or a non-subscriber. The Company believes that
employers greatly influence their employees' choices of physicians even in
states in which the employees may select their providers. As a result, it has
been the Company's experience that its results of operations and prospects in a
particular state are not materially dependent upon state statutes regarding
direction of employees.
NON-INJURY HEALTHCARE SERVICES
Non-injury healthcare services provided by the Company include
employment-related physical examinations, drug and alcohol testing, functional
capacity testing and other related programs designed to meet specific employer
needs. Non-injury healthcare services also include programs to assist employers
in complying with a continuously expanding list of federal and state
governmental requirements, including hearing conservation programs, toxic
chemical exposure surveillance and monitoring programs, and Department of
Transportation and Federal Aviation Administration physical examinations.
Federal laws governing health issues in the workplace, including the Americans
with Disabilities Act (the "ADA"), have increased employers' demand for
healthcare professionals who are experts in the delivery of these regulated
services.
CONCENTRA'S BUSINESS STRATEGY
The Company's objective is to expand and capitalize on its presence as a
national provider of fully-integrated care management and cost-containment
services. Concentra's strategy is to (i) leverage its national organization and
local market presence to expand its relationship with national payors who are
increasingly seeking national solutions to their workers' compensation, group
health and auto-injury needs; (ii) capitalize on its customer base by
cross-selling case management, cost-containment and health services to its
existing customers; (iii) continue to consolidate physician practices
specializing in occupational medicine; (iv) further develop and affiliate with
vertically integrated networks of providers, including specialists and
hospitals; (v) continue to streamline patient care, client communication and
claims resolution through the use of information technology; and (vi) expand its
product offerings and enhance opportunities for growth through additional
strategic acquisitions.
The Company will seek to implement this strategy as follows:
CONTINUED FOCUS ON WORKERS' COMPENSATION MANAGED CARE
The Company continually seeks to continue its primary focus on providing
workers' compensation managed care services to workers' compensation insurers,
TPAs and self-insured employers. The Company believes that to serve this complex
market, a core understanding of medical-related issues, a thorough understanding
of return to work issues and techniques, and an in-depth understanding of the
state-by-state regulatory environment is required. Concentra has developed such
expertise through its years of serving this market. Concentra believes it can
leverage its expertise through 19 years of experience serving this
6
<PAGE>
market through its predecessors CRA and OccuSystems as a highly skilled provider
of workers' compensation managed care services to further expand its national
market presence and increase its market share.
INCREASE GROUP HEALTH COST CONTAINMENT PENETRATION
The Company will further expand its reach into the group health marketplace
by offering new and existing customers a comprehensive retrospective bill
auditing service which will help such customers contain costs related to
out-of-network group health charges. Through its newly acquired subsidiary, PPS,
Concentra is uniquely positioned to capitalize upon the experience gained
through its purchase and successful operation of Prompt Associates since October
1996.
INCREASE NATIONAL ACCOUNTS PENETRATION
The Company is working to increase its penetration of large, national payors
by leveraging its broad-based workers' compensation expertise and its experience
with its existing base of national accounts. Many large, national insurance
carriers and self-insured employers are seeking workers' compensation managed
care service providers that have the ability to provide services on a nationwide
basis. These large payors want a comprehensive solution to their workers'
compensation needs from a service provider that is adept at understanding and
working with many different and complex state legislative environments. The
Company's national organization of local service locations enables the Company
to meet the needs of these large, national payors while maintaining the local
market presence necessary to monitor changes in state-specific regulations and
to facilitate case resolution through locally provided managed care services.
CROSS-SELL COMPREHENSIVE PRODUCT OFFERING
The Company is positioned to capitalize on the relationships developed
through its 130 office field case management network by aggressively
cross-selling its specialized cost containment services to its existing customer
base. Concentra believes that it is one of a small number of companies with a
comprehensive offering of workers' compensation managed care services. The
Company complements its extensive field case management network with 83 service
locations nationwide that provide one or more specialized cost containment
services. Of the Company's approximately 1,250 case management customers, only
approximately 20% are also utilizing the Company's specialized cost containment
services. The Company believes that this low utilization rate among Concentra's
existing customers provides a significant opportunity to expand Concentra's
specialized cost containment business.
EMPHASIZE EARLY INTERVENTION
The Company intends to increase its marketing of early intervention
services, such as first report of injury, precertification, telephonic case
management and access to PPO networks. Early intervention enables the Company to
promptly identify cases that have the potential to result in significant
expenses and to take appropriate measures to control these expenses before they
are incurred. In addition, the Company believes that providing early
intervention services generally results in the Company obtaining earlier access
to claims files, thereby improving the Company's opportunity to provide the full
range of its managed care services.
LEVERAGE MANAGED CARE EXPERTISE TO AUTOMOBILE INSURANCE MARKET
The Company intends to capitalize on the recent introduction of managed care
techniques to the automobile insurance market. Concentra intends to leverage its
existing presence in the automobile insurance market and its existing office
infrastructure to efficiently expand the geographic coverage of automobile
managed care services.
7
<PAGE>
CONTINUE TO CONSOLIDATE PHYSICIAN PRACTICES SPECIALIZING IN OCCUPATIONAL
MEDICINE
The Company estimates that there are more than 2,000 healthcare centers in
the United States in which physicians who specialize in occupational medicine
are providing occupational healthcare services. The Company believes that, due
to increasing business and regulatory complexity, capital requirements and the
development of larger integrated networks such as the Company's, an increasing
number of physicians are seeking to affiliate with larger, professionally
managed organizations. The Company has established affiliations with more than
261 physicians and intends to move aggressively to establish additional
affiliations.
DEVELOP CLUSTERS OF OCCUPATIONAL HEALTHCARE CENTERS
The Company organizes its centers in each market into clusters to serve
employers, payors and workers more effectively, to leverage management and other
resources and to facilitate the development of integrated networks of affiliated
physicians and other healthcare providers. The Company has entered into five
joint venture agreements through which it operates 15 centers and two management
agreements through which it operates five centers. The Company intends to
develop additional centers in new markets and within existing markets primarily
through acquisitions, joint ventures and management agreements. The Company is
in discussions with numerous potential acquisition and joint venture candidates
and is planning the development of several other centers.
DEVELOP AND AFFILIATE WITH VERTICALLY INTEGRATED NETWORKS OF PROVIDERS
The Company is positioning its centers to operate successfully within
emerging models of healthcare payment and delivery by actively developing and
affiliating with vertically integrated networks of specialists, hospitals and
other healthcare providers. These networks are designed to provide quality care
to patients at substantially reduced costs. With these networks, the Company
believes that it can cost-effectively develop risk sharing programs, such as
case rate and capitation products, covering the full range of costs associated
with work-related injury and illness care.
EMPLOY ITS INFORMATION SYSTEMS AND ITS REGULATORY AND PRACTICE MANAGEMENT
EXPERTISE TO OPTIMIZE THE PERFORMANCE OF ITS CENTERS AND ENHANCE ITS
AFFILIATED PHYSICIANS' PRACTICES
The Company's extensive proprietary knowledge base and information systems
relating to workplace injuries, treatment protocols, outcomes data and the
workers' compensation system enhance the Company's ability to furnish
high-quality, efficient healthcare services while complying with the complexity
of regulations governing the occupational healthcare system. Furthermore, it is
the Company's strategy to use its knowledge base and information systems to
continue to expand its non- injury care services. The Company's expertise also
allows it to efficiently run all business aspects of center operations,
including billing and collection, accounting, tax and financial management,
marketing, human resource and real estate management, enabling its affiliated
physicians to focus on the practice of medicine.
INNOVATIVE REIMBURSEMENT PROGRAMS
Utilizing its proprietary information systems, the Company has developed an
extensive data base of clinical outcomes, established case rates by diagnosis
and conducted the risk analysis necessary to create and offer services on a case
rate and capitated basis. The Company is expanding its marketing of such
services to employers, insurers and managed care organizations and is working
with insurers and other payors to develop other innovative reimbursement
programs.
EXECUTE OTHER STRATEGIC ACQUISITIONS
The Company will continue to seek other complementary strategic acquisitions
to further expand its product offerings and enhance its opportunities for
growth. While the Company currently maintains a
8
<PAGE>
broad offering of services, the evolution of the marketplace may give rise to
opportunities in the workers' compensation, group health and related industries.
SERVICES AND OPERATIONS
Concentra's services include a full continuum of care management and cost
containment services.
FIELD CASE MANAGEMENT SERVICES
Concentra provides field case management services to the workers'
compensation insurance industry through case managers working at the local level
on a one-on-one basis with injured employees and their various health care
professionals, employers and insurance company adjusters. The Company's services
are designed to assist in maximizing medical improvement and, where appropriate,
to expedite the employees' return to work through medical management and
vocational rehabilitation services.
Concentra's field case management services consist of one-on-one management
of a work-related injury by the Company's approximately 1,350 field case
managers serving 49 states and the District of Columbia from Concentra's 130
local field case management offices. This service typically involves a case with
a significant potential or actual amount of lost work time or a catastrophic
injury that requires detailed management and therefore is referred out by the
local adjuster to the local Concentra marketer calling on that office. Concentra
field case managers specialize in expediting the injured employee's return to
work through both medical management and vocational rehabilitation by working
with all the interested parties in a work-related injury. Medical management
services provided by Concentra's field case managers include coordinating the
efforts of all the health care professionals involved and increasing the
effectiveness of the care being provided by encouraging compliance and active
participation on the part of the injured worker. Vocational rehabilitation
services include job analysis, work capacity assessments, labor market
assessments, job placement assistance and return to work coordination. Field
case management services represented approximately 38%, 34% and 30% of the
Company's revenues for the years ended December 31, 1995, 1996, and 1997,
respectively.
The Company believes that the following factors will contribute to the
continued growth of its field case management services: (i) increased employer
acceptance of field case management techniques due to greater exposure to the
workers' compensation managed care market; (ii) earlier identification of
individuals in need of field case management services due to increased
utilization of the Company's specialized cost containment services, particularly
early intervention services; (iii) increased market share at the expense of
smaller, undercapitalized competitors; and (iv) the ability to access national
accounts for use of case management services.
SPECIALIZED COST CONTAINMENT SERVICES
In 1990, as part of the Company's strategy of providing a comprehensive
range of services, Concentra began broadening its business by providing a number
of additional services focused directly on helping to reduce the medical and
lost wages indemnity costs associated with workers' compensation for its
clients. Today, these specialized cost containment services include first report
of injury service, utilization management (precertification, concurrent review
and retrospective bill review), telephonic case management, PPO network access,
IMEs, peer reviews and hospital bill auditing. By adding these services to
Concentra's traditional strength and national breadth in field case management,
the Company now offers its clients an integrated workers' compensation managed
care program. Concentra is able to offer its services on a combined basis as a
full service managed care program, beginning with the first report of injury and
including all managed care services needed to manage aggressively the medical
costs, temporary wage replacement payments and permanent disability payments
associated with a work-related injury. Concentra also offers each of its
services on an unbundled basis. Concentra's comprehensive approach to managing
workers' compensation costs serves the needs of a broad range of clients, from
local adjusters to national
9
<PAGE>
accounts. In addition to providing specialized cost containment services for
work-related injuries and illnesses, the Company also provides similar services
to payors of automobile accident medical claims and social security disability
advocacy services to payors of long term disability. Specialized cost
containment services collectively represented approximately 14%, 17% and 24% of
the Company's revenues for the fiscal years ending December 31, 1995, 1996 and
1997, respectively.
The Company believes that the demand for specialized cost containment
services will continue to increase due to a number of factors, including: (i)
the increasing payor awareness of the availability of these techniques for cost
containment and case management; (ii) the perceived effectiveness of managed
care techniques at reducing costs for group health insurance plans; (iii) the
verifiable nature of the savings that can be obtained by application of
specialized cost containment techniques applicable to workers' compensation; and
(iv) the broad applicability of these techniques to all injured employees, not
just severely injured employees likely to be absent from work.
FIRST REPORT OF INJURY SERVICE. The Company provides a computerized first
report of injury reporting service through two national call centers to which an
employer or claims adjuster phones in all injuries as soon as they occur to the
Company's centralized service center. Through its June 1997 acquisition of First
Notice Systems, Inc. ("FNS"), the Company significantly expanded this capability
through the addition of two national call systems. Each report is electronically
transferred or mailed to the state agency, the employer and the insurance
company. This service assists in the timely preparation and distribution of
state-mandated injury reports and also provides Concentra and its customers with
an early intervention tool to maximize control over workers' compensation
claims. Concentra now has the ability to provide outsourced call center
reporting for first notice of injury/loss to the insurance industry. FNS
provides its services primarily to the auto industry for first notice of loss
reporting and to workers' compensation carriers for first report of injuries
reporting with property casualty carriers that write both auto and workers'
compensation insurance.
UTILIZATION MANAGEMENT: PRECERTIFICATION AND CONCURRENT REVIEW. Concentra's
precertification and concurrent review services are used by clients to ensure
that certain medical procedures are precertified by a Concentra registered nurse
and/or physician for medical necessity and appropriateness of treatment before
the medical procedure is performed. Concentra's determinations represent only
recommendations to the customer, the ultimate decision to approve or disapprove
the request is made by the claims adjuster. Precertification calls are made by
either the claimant or the provider to one of Concentra's national utilization
management reporting units. Once a treatment plan has been precertified, a
Concentra employee performs a follow-up call (concurrent review) at the end of
an approved time period to evaluate compliance and/or discuss alternative plans.
UTILIZATION MANAGEMENT: RETROSPECTIVE BILL REVIEW. Through a sophisticated
software program, Concentra reviews and reduces its customers' medical bills
(including hospital bills) to either the various state-mandated fee schedules
for workers' compensation claims or a percentage of the UCR rates that exist in
non-fee schedule states. Additionally, this automated retrospective bill review
service enables clients to access certain PPO pricing schedules that represent
additional savings below the fee schedules or UCR rates. The savings that accrue
to Concentra's clients for this service can be significant. Retrospective bill
review also creates an important historical database for provider practice
patterns and managed care provider compliance requirements. Concentra provides
retrospective bill review service from 43 service locations throughout the
country, 20 of which are operated at a client location using Concentra
employees. The Company also establishes arrangements that enable customers to
run the retrospective bill review service in-house by their own employees.
ACCESS TO PREFERRED PROVIDER NETWORKS. Concentra provides its clients with
access to PPO networks within all the markets Concentra serves through one of
its own PPOs, including its recently acquired Focus subsidiary, or by
contracting with existing national or regional PPOs. These PPOs provide injured
workers with access to quality medical care and pre-negotiated volume discounts,
thereby offering Concentra's
10
<PAGE>
clients the ability to influence, or in certain states to direct, their
employees into the PPO network as a means of managing their work-related claims.
In addition to providing a vehicle for managing the workers' compensation
process, the discounts associated with these PPO arrangements generate
additional savings through the retrospective bill review program described
above. Focus' national network includes approximately 201,000 individual
providers and 3,041 hospitals covering 36 states and the District of Columbia.
TELEPHONIC CASE MANAGEMENT. This service provides for short-duration (30 to
60 days) telephonic management of workers' compensation claims. The telephonic
case management units accept first reports of injury, negotiate discounts with
hospitals and other providers, identify care alternatives and work with injured
employees to minimize lost time on the job. Each of the telephonic case
management units is staffed with nurses who are experienced in medical case
management. The telephonic case management units represent an important
component of early intervention and act as a referral source of appropriate
cases to Concentra's local field case management offices. This service is
offered from five locations across the country.
INDEPENDENT MEDICAL EXAMS. IMEs are provided to assess independently the
extent and nature of an employee's injury or illness. Concentra provides its
clients with access to independent physicians who perform the IMEs from 16 of
the Company's service locations and, upon completion, prepare reports describing
their findings.
PEER REVIEWS. This service is provided by a physician, therapist,
chiropractor or other provider who reviews medical files to confirm that the
care being provided appears to be necessary and appropriate. The reviewer does
not meet with the patient, but merely reviews the file as presented.
HOSPITAL BILL AUDITS. This service is provided by the Company's registered
nurses who review hospital bills for appropriateness, relatedness and medical
necessity. The nurse may subsequently negotiate fees and obtain discounts for
prompt payment or inappropriate charges. Through its recently announced
acquisition of PPS, the Company has further expanded its client base for
hospital bill audits to include the group health payor community. PPS is a
leading provider of out-of-network bill review services to the group health
payor community. These services reduce clients' costs by utilizing the Company's
team of negotiators and proprietary data base systems to reprice inpatient
hospital and outpatient facility bills on a line-by-line basis. Such bills are
repriced to either a usual and customary rate, a PPO contract rate, or a
combination thereof. PPS provides these services nationwide through its offices
in three states. Concentra has created a data base over the past seven years
from the details of inpatient hospital and outpatient facility bills from across
the country which has allowed it to standardize a high percentage of hospital
charge codes for a significant number of such institutions.
AUTOMOBILE INSURANCE MANAGED CARE. The Company offers an integrated service
to the automobile insurance market that permits insurers to direct automobile
accident victims into networks of medical providers. The Company currently
offers this integrated service in Colorado, New York and Hawaii and has produced
significant savings for its insurance company clients since the initiation of
its services. Services offered to the automobile insurance market include
precertification, telephonic case management, direction of injured persons into
specialized PPO networks, medical bill review and field case management.
OCCUPATIONAL HEALTHCARE SERVICES
Due to increasing financial, administrative, regulatory and legal burdens
associated with the practice of medicine in the emerging managed care
environment, many physicians are seeking alternative practice models such as
large group practices. The Company seeks to provide the necessary business
support services to enable physicians to focus on the medical rather than the
business aspects of their practices. The Company provides a wide array of
business services with which the Company is affiliated (the "Physician Groups"),
such as providing nurses and other medical support personnel, practice and
facilities
11
<PAGE>
management, billing and collection, accounting, tax and financial management,
human resource management, risk management, marketing and information-based
services such as process management and outcomes analysis. As another service to
the Physician Groups, the Company recruits physicians, nurses, physical
therapists and other healthcare providers.
Physician and physical therapy services are provided at the Company's
occupational healthcare centers under agreements with the Physician Groups,
which are independently organized professional corporations that hire licensed
physicians and physical therapists to provide medical services to the centers'
patients. The management agreements between the Company and the Physician Groups
with respect to the 261 affiliated physicians have 40-year terms. Pursuant to
each management agreement, receivables are collected by the Company on behalf of
the Physician Groups. The Company advances funds for payment of each Physician
Group's expenses, including salaries, shortly after services are rendered to
patients. Under the terms of each management agreement, the Company provides
each Physician Group with most non-physician support and all facilities,
supplies and marketing services necessary for the Physician Group to render
services to the centers' patients. For those services, the Company receives a
management fee based on a portion of cash receipts from all medical services
generated by the Physician Group. The management fee is subject to renegotiation
and may be adjusted from time to time to reflect industry practice, business
conditions and actual expenses for administrative discounts and bad debts. The
Company provides services to the Physician Groups as an independent contractor
and is responsible only for the non-medical aspects of the Physician Groups'
practices. The Physician Groups retain sole responsibility for all medical
decisions.
Individual physicians who perform services pursuant to contracts with a
Physician Group are employees of the Physician Group. The physicians providing
services for the Physician Groups do not maintain other practices. The owners of
the Physician Groups are physicians, and each Physician Group has a physician
medical director. It is the responsibility of the owners of the Physician Group
to hire and manage all physicians associated with the Physician Group and to
develop operating policies and procedures and professional standards and
controls. Pursuant to each management agreement, the Physician Group indemnifies
the Company from any loss or expense arising from acts or omissions of the
Physician Group or its professionals or other personnel, including claims for
malpractice.
OCCUPATIONAL HEALTHCARE CENTERS
The Company's 145 occupational healthcare centers provide treatment for
work-related injuries and illnesses, physical and rehabilitation therapy,
preplacement physical examinations and evaluations, case management, diagnostic
testing, drug and alcohol testing and various other employer-requested or
government-mandated occupational health services. During the twelve months ended
December 31, 1997, 52% of all patient visits to the Company's centers were for
the treatment of injuries or illnesses and 48% were for physical examinations
and other non-injury occupational medical services.
Preplacement physical examinations and drug and alcohol testing are most
frequently conducted on a walk-in basis but may be scheduled in advance. More
specialized services, such as audiogram testing or pulmonary function testing,
are usually scheduled in advance. Employees suffering from work-related injuries
or illnesses are treated on an urgent basis. The most common treatments to
employees are for soft tissue injuries, lacerations (including tendon repairs),
moderate trauma injuries to the spine or extremities, and exposure to hazardous
material.
Each of the Company's centers is staffed with at least one licensed
physician who is an employee of a Physician Group and at least one licensed
physical therapist. The licensed physicians are generally trained and
experienced in occupational and industrial medicine or have emergency, family
practice, internal medicine or general medicine backgrounds. Most centers
utilize a staff of between 10 and 15 full-time persons (or their part-time
equivalents), including licensed physicians, nurses, licensed physical
therapists and administrative support personnel.
12
<PAGE>
JOINT VENTURES AND MANAGEMENT AGREEMENTS
The Company's strategy is to continue to develop clusters of occupational
healthcare centers in new and existing geographic markets through the formation
of strategic joint ventures in addition to the acquisition and development of
physician practices. In selected markets in which a hospital management company,
hospital system or other healthcare provider has a significant presence, the
Company may focus its expansion efforts on the establishment of joint ventures
or management contracts. In its joint venture relationships, the Company
typically acquires a majority ownership interest in the venture and agrees to
manage the venture for a management fee based on net revenues. Effective May 1
1997, the Company formed a joint venture with Pinnacle Health Hospitals and
Community General Osteopathic Hospital to operate occupational healthcare
centers in the Harrisburg, Pennsylvania, area. Also effective May 1, 1997, the
Company formed a joint venture with St. Vincent Infirmary Medical Center to
operate occupational healthcare centers in the Little Rock, Arkansas, area. In
addition, the Company operates joint ventures in Tucson, Arizona with El Dorado
Hospital and Medical Center (owned by Columbia/HCA Healthcare Corporation, in
Oklahoma City, Oklahoma with INTEGRIS Ambulatory Care Corporation, and in Des
Moines, Iowa, with Mercy Clinics, Inc., an affiliate of Mercy Hospital System.
The Company is currently in negotiations with other joint venture candidates in
certain other markets. The Company currently manages four centers in Dade and
Broward Counties, Florida through a management agreement with Palmetto General
Hospital, an affiliate of Tenet Health System, and one center in Fargo, North
Dakota through an agreement with a physician group. See "Risk
Factors--Dependence on Future Acquisitions and Joint Ventures."
OTHER ANCILLARY PROGRAMS
The Company offers other ancillary programs as discussed below. It has been
the Company's experience that, by offering a full range of programs to
complement its core occupational healthcare and care management operations, it
strengthens its relationships with existing clients and increases the likelihood
of attracting new clients. The Company anticipates expanding its ancillary
programs as needed to address occupational legislation and regulations enacted
in the future.
COMPLIANCE WITH ADA. The ADA is a federal statute that generally prohibits
employers from discriminating against qualified disabled individuals in the
areas of the job application process, hiring, discharge, compensation and job
training. The ADA became effective July 26, 1992, for employers with more than
25 employees, and now applies to all employers with 15 or more employees. The
Company, through its "ADApt Program," assists employers with ADA compliance
issues by proactively addressing ADA requirements relating to job descriptions,
pre-placement physical examinations, analysis and compliance and confidentiality
of applicant/employee information. ADApt helps employers adapt their hiring and
termination procedures, job descriptions and injury/illness management programs
in order to comply with ADA guidelines.
RISK ASSESSMENT AND INJURY PREVENTION PROGRAMS. The Company assists clients
in reducing workplace injuries and illnesses through its on-site risk assessment
and injury prevention programs. These programs include identifying workplace
hazards, designing plant-specific safety programs and helping clients comply
with federal and state occupational health regulations. The Company also
provides ongoing educational programs for its clients.
CUSTOMERS
Concentra has over 1,250 managed care services customers across the United
States and Canada, including most of the major underwriters of workers'
compensation insurance, large TPAs and self-insured employers. The Company's
largest managed care services customer in 1997 accounted for approximately 3.4%
of total managed care services revenue and 1.8% of total Company revenue. The
Company is
13
<PAGE>
compensated primarily on a fee-for-service basis. The Company's occupational
healthcare centers currently serve more than 70,000 employers, ranging from
large corporations to businesses with only a few employees. Due to the nature of
its business, the Company's marketing efforts are primarily directed toward
employers with a significant number of employees. Business derived from
employees of companies with 50 or less employees is generally due to an
occupational healthcare center's location, name recognition, quality service and
convenience.
Although the Company has entered into written agreements with certain of its
customers from time to time, it has not been the Company's historical practice
to enter into written agreements with its customers. Accordingly, the Company's
customers generally can elect to terminate their relationships with the Company
on short notice.
SALES AND MARKETING
The Company actively markets its services primarily to workers' compensation
insurance companies, third party administrators ("TPAs") and employers and
employer groups. The Company also markets to the automobile insurance market,
group health and long-term disability marketplaces, but to a significantly
lesser degree. The Company's marketing organization includes over 250 full-time
sales and marketing personnel. While the majority of Concentra's current managed
care services business is generated from workers' compensation insurance
companies, self-insured employers (often in connection with a TPA) also have
been an important source of business and the Company believes they will likely
become more important in the future as larger corporations continue to evaluate
self-insuring their workers' compensation programs.
Marketing of Concentra's services occurs at both the local insurance company
adjuster and employer level for much of the field case management and
occupational healthcare center business as well as the corporate level for
national managed care accounts and self-insured corporations where a more
sophisticated sales presentation is required. The Company's local marketing has
been a critically important component of the Company's marketing strategy
because of the decision-making authority that resides at the local level and the
relationship-driven nature of that portion of the business. However, with the
advent of comprehensive managed care legislation, a more proactive environment
for workers' compensation change and a more sophisticated product offered by
Concentra, the Company will continue to focus on the marketing of national
headquarters offices of insurance companies and self-insured companies.
Concentra has a dedicated staff of national accounts salespeople responsible for
marketing and coordinating a full selection of services to corporate offices. In
addition, the Company periodically distributes follow-up questionnaires to
employers and patients to monitor and enhance medical care and service
satisfaction levels.
QUALITY ASSURANCE
The Company regularly evaluates its quality of service delivery by means of
audits of compliance with special instructions, completion of activities in a
timely fashion, quality of reporting, identification of savings, accuracy of
billing and professionalism in contacts with health care providers and the
effectiveness of the Company's services. Audits are conducted on a nationwide
basis for a particular customer or on a local office basis by selecting random
files for review. A detailed report is generated outlining the audit findings
and providing specific recommendations for service delivery improvements. When
appropriate, follow-up audits are conducted to ensure that recommendations from
the initial audit have been implemented.
14
<PAGE>
COMPETITION
MANAGED CARE SERVICES
The managed care services market is fragmented, with a large number of
competitors. Concentra competes with numerous companies, including national
managed care providers, insurance companies, and Health Maintenance
Organizations ("HMOs"). Concentra's primary competitors are companies that offer
one or more workers' compensation managed care services on a national basis. The
Company also competes with numerous smaller companies which generally provide
unbundled services on a local level where such companies often have a
relationship with a local adjuster. Several large workers' compensation
insurance carriers offer managed care services for their insurance customers
either through the insurance carrier's own personnel or by outsourcing various
services to providers such as Concentra. The Company also competes to some
degree with large HMOs, which, Concentra believes, have historically focused
their networks primarily on controlling health care costs rather than managing
the process of returning an injured employee to work.
The Company believes that, as managed care techniques continue to gain
acceptance in the workers' compensation marketplace, Concentra's competitors
will increasingly consist of nationally focused workers' compensation managed
care service companies, insurance companies, HMOs and other significant
providers of managed care products. Many of the Company's current and potential
competitors are significantly larger and have greater financial and marketing
resources than those of the Company.
Within the past few years, several states have experienced decreases in
workers' compensation insurance premium rates. The Company believes that managed
care and return to work services will continue to be necessary in the future to
sustain and increase workers' compensation cost savings.
The Company competes on the basis of its specialized knowledge and expertise
in the workers' compensation managed care services industry, effectiveness of
services, ability to offer a range of services in multiple markets, information
systems and price.
OCCUPATIONAL HEALTHCARE SERVICES
The market to provide healthcare services within the workers' compensation
system is also highly fragmented and competitive. The Company's competitors have
typically been independent physicians, hospital emergency departments and
hospital medical centers. The Company believes that, as integrated networks are
developed, its competitors will increasingly consist of specialized provider
groups, insurance companies, HMOs and other managed care providers.
The Company competes on the basis of its specialization in the occupational
healthcare industry, knowledge and expertise, effectiveness of services, ability
to offer services in multiple markets and information systems. The Company
believes that it has a unique competitive advantage by specializing in and
focusing on occupational medicine at the primary care provider level, which is
the entry point to the occupational healthcare delivery system.
The recruiting of physicians, nurses, physical therapists and other
healthcare providers can be competitive, although the Company has experienced
less difficulty in recruiting as the Company has grown and its reputation has
developed. The loss of services provided by physicians, other providers or
physical therapists for an extended period of time, or the inability to attract
such individuals, could have an adverse effect on the Company's business.
INFORMATION SERVICES
The Company has developed proprietary management and patient billing
information systems to monitor and process each case that the Company manages
and to administer a significant portion of the Company's receivables. The
Company also uses licensed software from national vendors to maintain its
15
<PAGE>
financial records and perform other general business. As part of these systems,
the Company employs a personal computer network to transmit patient and billing
information from certain of its centers via a telecommunications network to the
Company's various central business offices. The Company employs a Chief
Information Officer who evaluates the Company's current systems and prospective
business information needs and whose staff refines and enhances the systems to
address changing information requirements.
The Company is currently establishing a wide area network ("WAN") in each
market in which it provides occupational healthcare services. All occupational
healthcare centers in a market will utilize a patient administration system
(called "OccuSource-SM-") which runs on a client/server architecture allowing
each center to access and share a common database for its market. The database
contains employer protocols, patient records and other information regarding the
Company's operations in such market. Creating a WAN in each market allows the
centers in the market to share information and thereby improve center and
physician efficiencies and enhance customer service. The Company is linking each
market WAN into a nationwide WAN in order to create a centralized repository of
Company data to be used, among other things, for clinical outcomes analysis. The
Company believes that its commitment to continued development of its information
services provides a unique and sustainable competitive advantage within the
occupational healthcare industry.
GOVERNMENT REGULATION
GENERAL
As a provider of care management and cost containment services, the
Company's operations and relationships are subject to extensive and increasing
regulation by a number of governmental entities at the federal, state and local
levels. The Company is also subject to laws and regulations relating to business
corporations in general.
Laws and regulations affecting the Company's operations fall into five
principal categories: (i) workers' compensation laws that restrict the methods
and procedures that the Company may employ in its workers' compensation managed
care programs or require licensor, certification or other approval of such
programs; (ii) laws that require licensing, certification or other approval of
businesses, such as the Company, that provide medical review services; (iii)
laws regulating the operation of managed care provider networks; (iv) laws
regarding the provision of healthcare services; and (v) proposed laws which, if
adopted, would have as their objective the reform of the health care system as a
whole. Laws and regulations affecting the Company's operations change
frequently.
The Company believes that it is in material compliance with regulatory
requirements applicable to its business. Nevertheless, because of the special
nature of the Company's relationship with the Physician Groups, many aspects of
the Company's business operations have not been the subject of state or federal
regulatory interpretation and there can be no assurance that a review of the
Company's or the Physician Groups' business by courts or regulatory authorities
will not result in a determination that could adversely affect the operations of
the Company or the Physician Groups or that the healthcare regulatory
environment will not change so as to restrict the Company's or the Physician
Groups' existing operations or their expansion.
WORKERS' COMPENSATION LEGISLATION
In performing workers' compensation managed care services, the Company must
comply with state workers' compensation laws. Workers' compensation laws require
employers to assume financial responsibility for medical costs, a portion of
lost wages and related legal costs of work-related illnesses and injuries. These
laws establish the rights of workers to receive benefits and to appeal benefit
denials. The workers' compensation laws also regulate the methods and procedures
which the Company may employ in its workers' compensation managed care programs.
For example, workers' compensation laws prohibit
16
<PAGE>
medical co-payments and deductibles by employees. In addition, certain states
restrict employers' rights to select health care providers and establish maximum
fee levels for treatment of injured workers.
In several states, recent workers' compensation reform legislation has eased
to some degree these regulatory restraints on managed care for injured workers.
Legislative reforms in some states permit employers to designate health plans
such as HMOs and PPOs to cover workers' compensation claimants. In some
instances, such health plans are required to obtain licensor, certification or
other approvals to cover workers' compensation claimants. Because many health
plans have the capacity to manage health care for workers' compensation
claimants, such legislation may intensify competition in the market served by
the Company.
Within the past few years, several states have experienced decreases in the
number of workers' compensation claims and the cost per claim, which have been
reflected in workers' compensation insurance premium rate reductions in those
states. The Company believes that these declines in workers' compensation costs
are due principally to intensified efforts by payors to manage and control
claims costs, to improve risk management by employers and to legislative
reforms. If declines in workers' compensation costs occur in many states and
persist over the long-term, such declines may have an adverse impact upon the
Company's business and results of operations.
Many states are considering or have enacted legislation reforming their
workers' compensation laws. These reforms generally give employers greater
control over who will provide medical care to their employees and where those
services will be provided, and attempt to contain medical costs associated with
workers' compensation claims. At present, ten of the states in which the Company
does business have implemented treatment-specific fee schedules that set maximum
reimbursement levels for healthcare services. The federal government and four
states provide for a "reasonableness" review of medical costs paid or reimbursed
by workers' compensation. When not governed by a fee schedule, the Company
adjusts its charges to the usual and customary levels authorized by the payor.
SPECIALIZED COST CONTAINMENT SERVICES
Many of the Company's specialized cost containment services include
prospective or concurrent review of requests for medical care or therapy.
Approximately half of the states have enacted laws that require licensor,
certification or other approval of businesses, such as the Company, that provide
medical review services. Some of these laws apply to medical review of care
covered by workers' compensation. These laws typically establish minimum
standards for qualifications of personnel, confidentiality, internal quality
control, and dispute resolution procedures. These regulatory programs may result
in increased costs of operation for the Company, which may have an adverse
impact upon the Company's ability to compete with other available alternatives
for health care cost control.
USE OF PROVIDER NETWORKS
The Company's ability to provide comprehensive workers' compensation managed
care services depends in part on its ability to contract with or create networks
of health care providers which share the Company's objectives. For some of its
clients, the Company offers injured workers access to networks of providers who
are selected by the Company for quality of care and pricing. New laws regulating
the operation of managed care provider networks have been adopted by a number of
states. These laws may apply to managed care provider networks having contracts
with the Company or to provider networks which the Company may organize or
acquire. To the extent the Company is governed by these regulations, it may be
subject to additional licensing requirements, financial oversight and procedural
standards for beneficiaries and providers.
17
<PAGE>
AUTOMOBILE INSURANCE LEGISLATION
The automobile insurance industry, like the workers' compensation industry,
is regulated on a state-by-state basis. While regulatory approval is not
required for the Company to offer most of its services to the automobile
insurance market, state regulatory approval is required in order to offer
automobile insurers products that permit them to direct claimants into a network
of medical providers. To date, only Colorado, New York and Hawaii have
legislation that permits such direction of care and the Company offers this
managed care service to automobile insurers in Colorado. No assurance can be
given that other states will adopt legislation permitting such direction of care
for automobile accident victims or, if such legislation is adopted, that the
Company will be able to obtain regulatory approval to provide such services.
CORPORATE PRACTICE OF MEDICINE AND OTHER LAWS
Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities such as the
Company and licensed professionals and professional corporations, particularly
with respect to fee-splitting between a physician and another person or entity
and non-physicians exercising control over physicians engaged in the practice of
medicine.
Laws and regulations relating to the practice of medicine, fee-splitting and
similar issues vary widely from state to state, are often vague, and are seldom
interpreted by courts or regulatory agencies in a manner that provides guidance
with respect to business operations such as those of the Company. Although the
Company attempts to structure all of its operations so that they comply with the
relevant state statutes and believes that its operations and planned activities
do not violate any applicable medical practice, fee-splitting or similar laws,
there can be no assurance that (i) courts or governmental officials with the
power to interpret or enforce these laws and regulations will not assert that
the Company or certain transactions in which it is involved are in violation of
such laws and regulations and (ii) future interpretations of such laws and
regulations will not require structural and organizational modifications of the
Company's business.
FRAUD AND ABUSE LAWS
A federal law (the "Anti-Kickback Statute") prohibits any offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or other governmental health program patients or
patient care opportunities, or in return for the purchase, lease or order of
items or services that are covered by Medicare or other governmental health
programs. Violations of the statute can result in the imposition of substantial
civil and criminal penalties. In addition, as of January 1, 1995, certain
anti-referral provisions (the "Stark Amendments") prohibit a physician with a
"financial interest" in an entity from referring a patient to that entity for
the provision of any of 11 "designated medical services" (some of which are
provided by Physician Groups affiliated with the Company).
At least six of the states in which the Company conducts business (Arizona,
California, Florida, New Jersey, Maryland and Texas) have enacted statutes
similar in scope and purpose to the Anti-Kickback Statute. There is no authority
interpreting these statutes in a manner directly relevant to the Company's
business. The Company believes that regulatory authorities and state courts
interpreting these statutes may regard federal law under the Anti-Kickback
Statute as persuasive, and further believes that its arrangements with the
Physician Groups comply with the Anti-Kickback Statute. In addition, most states
have statutes, regulations or professional codes that restrict a physician from
accepting various kinds of remuneration in exchange for making referrals.
Several states are considering legislation that would prohibit referrals by a
physician to an entity in which the physician has a specified financial
interest.
All of the foregoing laws are subject to modification and interpretation,
have not often been interpreted by appropriate authorities in a manner directly
relevant to the Company's business, and are enforced by authorities vested with
broad discretion. The Company has attempted to structure all of its
18
<PAGE>
operations so that they comply with all applicable state anti-referral
prohibitions. The Company also continually monitors developments in this area.
If these laws are interpreted in a manner contrary to the Company's
interpretation, reinterpreted, or amended, or if new legislation is enacted with
respect to healthcare fraud and abuse or similar issues, the Company will seek
to restructure any affected operations so as to maintain compliance with
applicable law. No assurance can be given that such restructuring will be
possible, or, if possible, will not adversely affect the Company's business.
UNCERTAINTIES RELATED TO CHANGING HEALTHCARE ENVIRONMENT
In recent years, the healthcare industry has experienced change. Although
managed care has yet to become a major factor in occupational healthcare, the
Company anticipates that managed care programs, including capitation plans, may
play an increasing role in the delivery of occupational healthcare services, and
competition in the occupational healthcare industry may shift from individual
practitioners to specialized provider groups such as those managed by the
Company, insurance companies, HMOs and other significant providers of managed
care products. To facilitate the Company's managed care strategy, the Company is
developing risk-sharing products for the workers' compensation industry that
will be marketed to employers, insurers and managed care organizations. No
assurance can be given that the Company will prosper in the changing healthcare
environment or that the Company's strategy to develop managed care programs will
succeed in meeting employers' and workers' occupational healthcare needs. See
"Strategy."
Increasing health care costs have caused the federal government and many
states to advance health care reform proposals. One of the proposals being
considered is 24-hour health coverage, in which the coverage of traditional
employer-sponsored health plans is combined with workers' compensation coverage
to provide a single insurance plan for work-related and non-work-related health
problems. Incorporating workers' compensation coverage into conventional health
plans may adversely affect the market for the Company's services.
ENVIRONMENTAL
The Company is subject to various federal, state and local statutes and
ordinances regulating the disposal of infectious waste. If any environmental
regulatory agency finds the Company's facilities to be in violation of waste
laws, penalties and fines may be imposed for each day of violation and the
affected facility could be forced to cease operations. The Company believes that
its waste handling and discharge practices are in material compliance with
applicable law.
ERISA
The provision of goods and services to certain types of employee health
benefit plans is subject to the Employee Retirement Income Security Act of 1974
("ERISA"). ERISA is a complex set of laws and regulations subject to periodic
interpretation by the Internal Revenue Service and the Department of Labor
("DOL"). ERISA regulates certain aspects of the relationship between the
Company's managed care contracts and employers that maintain employee benefit
plans subject to ERISA. DOL is engaged in ongoing ERISA enforcement activities
that may result in additional constraints on how ERISA-governed benefit plans
conduct their activities. There can be no assurance that future revisions to or
judicial or regulatory interpretations of ERISA will not have a material adverse
effect on the Company's business or results of operations.
SEASONALITY
The Company's health services business is seasonal in nature. Patient visits
at the Company's centers are lower in the first and fourth quarters, primarily
because of fewer occupational injuries and illnesses during those time periods
due to plant closings, vacations, and holidays. In addition, employers generally
19
<PAGE>
hire fewer employees in the fourth quarter, thereby reducing the number of
pre-hiring physical examinations and drug and alcohol tests conducted at the
Company's centers during that quarter. Although the Company's expansion of
services and rapid growth may obscure the effect of seasonality in the Company's
financial results, the Company's first and fourth quarters generally reflect
lower net health services revenues on a same market basis when compared to the
Company's second and third quarters.
INSURANCE
The Physician Groups maintain medical malpractice insurance under one
insurance policy in the amount of $1,000,000 per occurrence and $15,000,000 in
the aggregate. Pursuant to the management agreements between the Company and the
Physician Groups, each Physician Group has agreed to indemnify the Company from
certain losses, including medical malpractice. In addition, the Company
maintains an umbrella policy that provides excess medical malpractice insurance
in the amount of $10,000,000 per occurrence and $10,000,000 in the aggregate and
$3,000,000 of general liability insurance.
The Company is party to certain claims and litigation in the ordinary course
of business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
20
<PAGE>
EMPLOYEES
The Company currently has approximately 7,270 employees. None of Concentra's
employees is subject to a collective bargaining agreement. The Company has
experienced no work stoppages and believes that its employee relations are good.
All physicians, physician assistants, and physical therapists who provide
professional services in the Company's occupational healthcare clinics are
either employed by or contract with the professional associations with which the
Company is affiliated.
RISK FACTORS
DEPENDENCE ON FUTURE ACQUISITIONS AND JOINT VENTURES; ACQUISITION RISKS
The Company's growth in new and existing markets is dependent upon an
aggressive acquisition and joint venture strategy. The Company is in various
stages of negotiations to acquire businesses and practices from a number of
prospective selling groups. There can be no assurance that further suitable
acquisition candidates can be found, that acquisitions can be financed or
consummated on favorable terms or that such acquisitions, if completed, will be
successful. In addition, there can be no assurance that the Company will be able
to integrate successfully the operations of any acquired business or institute
Company-wide systems and procedures to operate successfully the combined
enterprises. The success of the Company's acquisitions will be determined by
numerous factors, including the Company's ability to identify suitable
acquisition candidates, competition for such acquisitions, the purchase price,
the financial performance of the acquired businesses after acquisition and the
ability of the Company to integrate effectively the operations of acquired
businesses. A strategy of growth by acquisition also involves the risk of
assuming unknown or contingent liabilities of the acquired business, which could
be material, individually or in the aggregate. Any failure by the Company to
identify suitable candidates for acquisition, to integrate or operate acquired
businesses effectively or to insulate itself from unwanted liabilities of
acquired businesses may have a material adverse effect on the Company's
business, financial condition and results of operations. The Emerging Issues
Task Force of the Financial Accounting Standards Board is currently evaluating
certain matters relating to the physician practice management industry,
including a review of accounting for business combinations. The Company is
unable to predict the impact, if any, that this review may have on the Company's
acquisition strategy.
The Company has also entered into, and is in various stages of negotiations
to form, joint ventures to own and operate occupational healthcare centers in
selected markets and to enter into management agreements in selected markets.
The Company's strategy is to form these joint ventures or enter into these
management agreements with competitively-positioned hospital management
companies, hospital systems and other healthcare providers. There can be no
assurances that the Company will continue to utilize joint ventures or
management agreements as part of its growth strategy, that further suitable
joint ventures or management agreements can be formed or that such existing or
future ventures will be successful.
EFFECT OF AMORTIZATION ON RESULTS OF OPERATIONS
The Company has pursued acquisitions as an important component of its
business strategy, and expects that it will continue to pursue acquisitions. The
Company has had, and will continue to have, significant charges for depreciation
and amortization expense related to the fixed assets and intangibles acquired,
or to be acquired, in its acquisitions. Consequently, the Company expects that
such depreciation and amortization will continue to impact its results of
operations. The Company periodically reviews whether changes have occurred,
either specific to the business or generally in the industry, which might
require revision of the remaining estimated useful life of the assigned goodwill
or render all or a portion of the goodwill non-recoverable. In accordance with
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," impairments are
determined by comparing undiscounted estimated future cash flows to the carrying
value of long-lived
21
<PAGE>
assets. At December 31, 1997, intangible assets were approximately $229 million
compared to total assets of $436 million and stockholders' equity of $223
million.
MANAGEMENT OF GROWTH
The Company has experienced rapid growth. The continued rapid growth of the
Company could place a significant strain on its management and other resources.
The Company anticipates that continued growth, if any, will require it to
continue to recruit, hire, train and retain a substantial number of new and
highly skilled administrative, information technology, finance, sales and
marketing and support personnel. The Company's ability to compete effectively
and to manage future growth, if any, will depend on its ability to continue to
implement and improve operational, financial and management information systems
on a timely basis and to expand, train, motivate and manage its work force.
Should the Company continue to experience rapid growth, there can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's operations or that management will adequately
anticipate all demands that growth will place on the Company. If the Company's
management is unable to manage growth effectively, the quality of the Company's
products and its business, operating results and financial condition could be
materially and adversely affected.
COMPETITION
The market to provide healthcare services within the workers' compensation
system is highly fragmented and competitive. The Company's primary competitors
have typically been independent physicians, hospital emergency departments and
hospital-owned or hospital-affiliated medical facilities. The Company believes
that, due to the emergence of managed care, its competitors will increasingly
consist of specialized provider groups, insurance companies, HMOs and other
significant providers of managed care products.
The Company also faces competition from large insurers, HMOs, PPOs, TPAs and
other managed health care companies. The Company believes that, as managed care
techniques continue to gain acceptance in the workers' compensation marketplace,
the Company's competitors will increasingly consist of nationally focused
workers' compensation managed care service companies, insurance companies, HMOs
and other significant providers of managed care products. Legislative reforms in
some states permit employers to designate health plans such as HMOs and PPOs to
cover workers' compensation claimants. Because many health plans have the
ability to manage medical costs for workers' compensation claimants, such
legislation may intensify competition in the market served by the Company. Many
of the Company's current and potential competitors are significantly larger and
have greater financial and marketing resources than those of the Company, and
there can be no assurance that the Company will continue to maintain its
existing performance or be successful with any new products or in any new
geographic markets it may enter.
UNCERTAINTIES RELATED TO CHANGING HEALTHCARE ENVIRONMENT; CHANGES IN MARKET
DYNAMICS
The healthcare industry has experienced substantial changes in recent years.
Although managed care has yet to become a major factor in occupational
healthcare, the Company anticipates that managed care programs, including case
rate and capitation plans, may play an increasing role in the delivery of
occupational healthcare services, and that competition in the occupational
healthcare industry may shift from individual practitioners to specialized
provider groups such as those managed by the Company, insurance companies, HMOs
and other significant providers of managed care products. To facilitate the
Company's managed care strategy, the Company is developing risk-sharing products
for the workers' compensation industry that will be marketed to employers,
insurers and managed care organizations. No assurance can be given that the
Company will prosper in the changing healthcare environment or that the
Company's strategy to develop managed care programs will succeed in meeting
employers' and workers' occupational healthcare needs.
22
<PAGE>
Legislative reforms in some states permit employers to designate health
plans such as HMOs and PPOs to cover workers' compensation claimants. Because
many health plans have the capacity to manage health care for workers'
compensation claimants, such legislation may intensify competition in the market
served by the Company. Within the past few years, several states have
experienced decreases in the number of workers' compensation claims and the
average cost per claim which have been reflected in workers' compensation
insurance premium rate reductions in those states. The Company believes that
declines in workers' compensation costs in these states are due principally to
intensified efforts by payors to manage and control claim costs, to improved
risk management by employers and to legislative reforms. If declines in workers'
compensation costs occur in many states and persist over the long-term, they may
have an adverse impact on the Company's business and results of operations.
UNCERTAINTIES REGARDING HEALTHCARE REFORM
There have been numerous initiatives at the federal and state levels for
comprehensive reforms affecting the payment for and availability of healthcare
services. The Company believes that such initiatives will continue during the
foreseeable future. Aspects of certain of these reforms as proposed in the past
could, if adopted, adversely affect the Company.
RISKS INHERENT IN PROVISION OF MEDICAL SERVICES; POSSIBLE LITIGATION AND LEGAL
LIABILITY
The professional associations with which the Company is affiliated (the
"Physician Groups") and certain employees of the Company are involved in the
delivery of healthcare services to the public and, therefore, are exposed to the
risk of professional liability claims. Claims of this nature, if successful,
could result in substantial damage awards to the claimants which may exceed the
limits of any applicable insurance coverage. The Company is indemnified under
its management agreements with the Physician Groups for claims against them,
maintains liability insurance for itself and negotiates liability insurance for
the physicians in the Physician Groups. Successful malpractice claims asserted
against the Physician Groups or the Company, however, could have a material
adverse effect on the Company's financial condition and profitability.
The Company, through its utilization management services, makes
recommendations concerning the appropriateness of providers' proposed medical
treatment plans of patients throughout the country, and as a result it could be
subject to changes arising from any adverse medical consequences. The Company
does not grant or deny claims for payment of benefits and the Company does not
believe that it engages in the practice of medicine or the delivery of medical
services. There can be no assurance, however, that the Company will not be
subject to claims or litigation related to the grant or denial of claims for
payment of benefits or allegations that the Company engages in the practice of
medicine or the delivery of medical services. In addition, there can be no
assurance that the Company will not be subject to other litigation that may
adversely affect the Company's business or results of operations. The Company
maintains errors and omissions insurance and such other lines of coverage as the
Company believes are reasonable in light of the Company's experience to date.
There can be no assurance, however, that such insurance will be sufficient or
available at reasonable cost to protect the Company from liability which might
adversely affect the Company's business or results of operations.
CORPORATE PRACTICE OF MEDICINE AND OTHER LAWS AND REGULATIONS
Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities such as the
Company and licensed professionals and professional corporations, particularly
with respect to fee-splitting between a physician and another person or entity
and non-physicians exercising control over physicians engaged in the practice of
medicine.
23
<PAGE>
Laws and regulations relating to the practice of medicine, fee-splitting and
similar issues vary widely from state to state, are often vague, and are seldom
interpreted by courts or regulatory agencies in a manner that provides guidance
with respect to business operations such as those of the Company. Although the
Company attempts to structure all of its operations so that they comply with the
relevant state statutes and applicable medical practice, fee-splitting and
similar laws, there can be no assurance that (i) courts or governmental
officials with the power to interpret or enforce these laws and regulations will
not assert that the Company or certain transactions in which it is involved are
in violation of such laws and regulations and (ii) future interpretations of
such laws and regulations will not require structural and organizational
modifications of the Company's business.
Many states, including a number of those in which the Company transacts
business, have licensing and other regulatory requirements applicable to the
Company's business. Approximately half of the states have enacted laws that
require licensing of businesses which provide medical review services, such as
the Company. Some of these laws apply to medical review of care covered by
workers' compensation. These laws typically establish minimum standards for
qualifications of personnel, confidentiality, internal quality control, and
dispute resolution procedures. These regulatory programs may result in increased
costs of operation for the Company, which may have an adverse impact upon the
Company's ability to compete with other available alternatives for healthcare
cost control. In addition, new laws regulating the operation of managed care
provider networks have been adopted by a number of states. These laws may apply
to managed care provider networks having contracts with the Company or to
provider networks which the Company has organized and may organize in the
future. To the extent the Company is governed by these regulations, it may be
subject to additional licensing requirements, financial oversight and procedural
standards for beneficiaries and providers. Regulation in the healthcare and
workers' compensation fields is constantly evolving. The Company is unable to
predict what additional government regulations, if any, affecting its business
may be promulgated in the future. The Company's business may be adversely
affected by failure to comply with existing laws and regulations, failure to
obtain necessary licenses and government approvals or failure to adapt to new or
modified regulatory requirements. In addition, the automobile insurance
industry, like the workers' compensation industry, is regulated on a
state-by-state basis. Although regulatory approval is not required for the
Company to offer most of its services to the automobile insurance market, state
regulatory approval is required in order to offer automobile insurers' products
that permit them to direct claimants into a network of medical providers.
FRAUD AND ABUSE LAWS
A federal law (the "Anti-Kickback Statute") prohibits the offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or other governmental health program patients or
patient care opportunities, or in return for the purchase, lease or order of
items or services that are covered by Medicare or other governmental health
programs. Violations of the statute can result in the imposition of substantial
civil and criminal penalties. In addition, as of January 1, 1995, certain
anti-referral provisions (the "Stark Amendments") prohibit a physician with a
"financial interest" in an entity from referring a patient to that entity for
the provision of any of eleven "designated health services" (some of which are
provided by Physician Groups affiliated with the Company).
At least six of the states in which the Company conducts business (Florida,
California, Texas, Arizona, New Jersey and Maryland) have enacted statutes
similar in scope and purpose to the Anti-Kickback Statute. There is currently no
authority interpreting these statutes in a manner directly relevant to the
Company's business. The Company believes that regulatory authorities and state
courts interpreting these statutes may regard federal law under the
Anti-Kickback Statute as persuasive, and further believes that its arrangements
with the Physician Groups comply with the Anti-Kickback Statute. In addition,
most states have statutes, regulations or professional codes that restrict a
physician from accepting various kinds of remuneration in exchange for making
referrals. Several states are considering legislation that would prohibit
referrals by a physician to an entity in which the physician has a specified
financial interest.
24
<PAGE>
All of the foregoing laws are subject to modification and interpretation,
and have not often been interpreted by appropriate authorities in a manner
adverse to the Company's business, and are enforced by authorities vested with
broad discretion. The Company has attempted to structure all of its operations
so that they comply with all applicable anti-kickback and anti-referral
prohibitions. The Company also continually monitors developments in this area.
If these laws are interpreted in a manner contrary to the Company's
interpretation, are reinterpreted or amended, or if new legislation is enacted
with respect to healthcare fraud and abuse or similar issues, the Company will
seek to restructure any affected operations so as to maintain compliance with
applicable law. No assurance can be given that such restructuring will be
possible, or, if possible, will not adversely affect the Company's business or
results of operations.
RELIANCE ON DATA PROCESSING AND LICENSED SOFTWARE
Certain aspects of the Company's business are dependent upon its ability to
store, retrieve, process and manage data and to maintain and upgrade its data
processing capabilities. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors or other
computer problems could have a material adverse affect on the Company's business
and results of operations. Certain of the software used by the Company within
its medical bill review operation is licensed from an independent third party
software company pursuant to a non-exclusive license that may be terminated by
either party upon six months notice. While the Company has historically
maintained a good relationship with the licensor, there can be no assurance that
this software license will not be terminated or that the licensor will be able
to continue the license on its existing terms. Although management believes that
alternative software would be available if the existing license were terminated,
such termination could be disruptive and could have a material adverse effect on
the Company's business and results of operations.
INFORMATION SYSTEM UPGRADES AND YEAR 2000 COMPLIANCE
The Company continually evaluates and upgrades its management information
systems. The Company has completed a number of acquisitions in recent years, and
the information systems of some of the acquired operations have not been fully
integrated with the Company's information systems. Although the Company does not
anticipate any disruption in its operations or financial reporting as a result
of system upgrades or system integrations, there can be no assurance that such
disruption will not occur or that the desired benefits from the system upgrades
will be realized. Currently, there is significant uncertainty in the software
industry and among software users regarding the impact of the year 2000 on
installed software. Software database modifications and/or implementation
modifications will be required to enable such software to distinguish between
21st and 20th century dates. The Company uses third-party system software which
will need to be modified or replaced in order to address year 2000 compliance.
If the Company does not identify and implement modifications or new software
prior to January 1, 2000, its operations could be disrupted. In addition, the
Company's operations could be disrupted if the companies with which the Company
does business do not identify and correct any such year 2000 problems and such
failure adversely affects their ability to do business with the Company. While
the Company considers the cost to become year 2000 compliant to be a normal
operating cost necessary to periodically upgrade system software, there can be
no assurance that costs incurred in becoming year 2000 compliant will not have a
material adverse effect on the Company's business or operating results or
financial condition.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been volatile and may be
volatile in the future. Future developments concerning the Company or its
competitors, including developments related to governmental regulations,
acquisitions, operating results, the healthcare industry generally and general
market and economic conditions, may have a significant impact on the market
price of the Company's Common Stock.
25
<PAGE>
DIVIDEND POLICY AND RESTRICTIONS
The Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future and anticipates that future earnings will be retained to
finance future operations and expansion. The revolving credit agreement with its
senior lenders prohibits the Company from paying dividends and making other
distributions on its Common Stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and certain
provisions of the Delaware General Corporation Law may make it difficult to
change control of the Company and replace incumbent management. For example, the
Company's Certificate of Incorporation provides for a staggered Board of
Directors and permits the Board of Directors, without stockholder approval, to
issue additional shares of Common Stock or establish one or more series of
Preferred Stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as the Board of Directors may determine. The Company has also
adopted a Rights Plan, which is intended to deter certain takeover practices or
takeover bids.
ITEM 2. PROPERTIES
The Company's principal corporate office is located in Boston,
Massachusetts. The Company leases the 11,000 square feet of space in this site
pursuant to a lease agreement expiring in 2003. Except for ten offices which are
owned by the Company, the Company also leases all of its offices located in 49
states and three Canadian provinces. Thirteen of the Company's offices are
leased from Colonial Realty Trust, of which Ms. Silverman and Mr. Larson are the
trustees and beneficiaries. The Company believes that its facilities are
adequate for its current needs and that suitable additional space will be
available as required.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain claims and litigation in the ordinary course
of business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matter was submitted to a vote of
security holders.
26
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference from page 36 of the Registrant's 1997
Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference to Note 13 to the Consolidated Financial
Statements on page 34 of the Registrant's 1997 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference from pages 14 through 18 of the
Registrant's 1997 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from pages 19 through 35 of the
Registrant's 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the captions "Section 16(a) Beneficial Ownership
Reporting Compliance," "Governance of the Company," "Election of Directors" and
"Executive Officers of the Company" in the Company's definitive Proxy Statement,
which will be filed with the Commission on or about April 4, 1998, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the captions "Executive Compensation",
"Compensation Plans," "Option and Compensation Committee Report on Executive
Compensation" and "Governance of the Company--Committees of the Board of
Directors" in the Company's definitive Proxy Statement, which will be filed with
the Commission on or about April 4, 1998, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Security Ownership of Certain
Beneficial Owners" and "Management" in the Company's definitive Proxy Statement,
which will be filed with the Commission on or about April 4, 1998, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Certain Transactions" in the
Company's definitive Proxy Statement, which will be filed with the Commission on
or about April 4, 1998, is incorporated herein by reference.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS
(2) FINANCIAL STATEMENT SCHEDULE
The financial statement schedule, Supplemental Schedule II--Allowance for
Doubtful Accounts, is filed with this report and appears on page S-1.
The Report of Independent Accountants on Financial Statement Schedules is
filed with this report and appears on page 34.
All other schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission, are not required under the related
instructions or are not applicable and, therefore, have been omitted.
(3) EXHIBITS
The following is a list of exhibits filed as part of the Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated April 21, 1997 among CRA Managed Care, Inc. ("CRA"),
OccuSystems, Inc. ("OccuSystems") and the Registrant (incorporated by reference to Appendix A to the
Joint Proxy Statement/Prospectus forming a part of the Registrant's Registration Statement on Form S-4
(File No. 333-27105) filed with the Securities and Exchange Commission (the "SEC") on July 31, 1997)
+2.2 Agreement and Plan of Merger dated February 24, 1998 among the Registrant and Preferred Payment Systems,
Inc.
2.3 Asset Purchase Agreement dated June 4, 1997, among CRA, FNS Acquisition Corp., First Notice Systems,
Inc. and the stockholders of First Notice Systems, Inc. (incorporated by reference to Exhibit 1 to CRA's
Current Report on Form 8-K (File No. 02-25856) dated June 18, 1997)
+3.1 Amended and Restated Certificate of Incorporation dated August 27, 1997
3.2 Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
4.1 Form of Certificate of Common Stock, par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-27105)
filed with the SEC on July 31, 1997)
4.2 Indenture dated December 24, 1996 between OccuSystems and United States Trust Company of New York, as
Trustee, (the "OccuSystems Indenture") relating to the 6% Convertible Subordinated Notes due 2001
(incorporated by reference to Exhibit 4.1 to OccuSystems' Registration Statement on Form S-3 (File No.
333-20933) as filed with the SEC on January 31, 1997)
+4.2 First Supplemental Indenture dated August 29, 1997 between OccuSystems, the Registrant and United States
Trust Company of New York, as Trust, relating to the 6% Convertible Subordinated Notes due 2001
4.3 Indenture dated as of March 16, 1998 between the Registrant and Chase Bank of Texas, N.A., as Trustee,
(the "Concentra Indenture") relating to the 4.5% Convertible Subordinated Notes due 2003 (incorporated
by reference to the Registrant's Current Report on Form 8-K (File No. 000-22751) filed with the SEC on
March 30, 1998)
</TABLE>
28
<PAGE>
<TABLE>
<C> <S>
4.4 Form of 6% Convertible Subordinated Note due 2001, establishing the terms of the 6% Convertible
Subordinated Notes due 2001 pursuant to the OccuSystems Indenture (incorporated by reference to Exhibit
A to the OccuSystems Indenture which Indenture is incorporated by reference to Exhibit 4.1 to
OccuSystems' Registration Statement on Form S-3 (File No. 333-20933) as filed with the SEC on January
31, 1997)
4.5 Form of 4.5% Convertible Subordinated Notes due 2003, establishing the terms of the 4.5% Convertible
Subordinated Notes due 2003 pursuant to the Concentra Indenture (incorporated by reference to the
Registrant's Current Report on Form 8-K (File No.000-22751) filed with the SEC on March 30, 1998)
+4.6 Certificate of Designation of Series A Junior Participating Preferred Stock
4.7 Form of Right Certificate (included as Exhibit B to the Rights Agreement filed as Exhibit 10.2 hereto).
Pursuant to the Rights Agreement, printed Right Certificates will not be delivered until as soon as
practicable after the Distribution Date (as defined in the Rights Agreement)
4.8 Registration Rights Agreement dated as of March 11, 1998, among the Registrant, BT Alex. Brown
Incorporated, BancAmerica Robertson Stephens, Donaldson, Lufkin & Jenrette Securities Corporation and
Piper Jaffray Inc. (incorporated by reference to the Registrant's Current Report on Form 8-K (File No.
000-22751) filed with the SEC on March 30, 1998)
4.9 Registration Rights Agreement dated as of March 8, 1994, among Comprehensive Rehabilitation Associates,
Inc., J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., First
Union Corporation, Lois E. Silverman and Donald J. Larson (incorporated by reference to Exhibit 10.7 to
CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
+10.1 Amended and Restated Credit Agreement dated as of February 20, 1998, between the Registrant, as
Borrower, and First Union National Bank, as Administrative Agent, Fleet National Bank, as Documentation
Agent, and the banks and financial institutions listed as signatories thereto, as amended by that
certain letter agreement dated as of March 9, 1998, and as further amended by that certain letter
agreement dated as of March 12, 1998
10.2 Purchase Agreement dated as of March 11, 1998, among the Registrant, BT Alex. Brown Incorporated,
BancAmerica Robertson Stephens, Donaldson, Lufkin & Jenrette Securities Corporation and Piper Jaffray,
Inc. (incorporated by reference to the Registrant's Current Form on Form 8-K (File No. 000-22751) filed
with the SEC on March 30, 1998)
10.3 Rights Agreement dated September 29, 1997 between the Registrant and ChaseMellon Shareholder Services,
L.L.C. (incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A
filed with the SEC on October 1, 1998)
10.4 Concentra Managed Care, Inc. 1997 Long-Term Incentive Plan (incorporated by reference to Appendix G to
the Joint Proxy Statement/Prospectus forming a part of the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.5 Concentra Managed Care, Inc. 1997 Employee Stock Purchase Plan (incorporated by reference to Appendix H
to the Joint Proxy Statement/Prospectus forming a part of the Registrant's Registration Statement on
Form S-4 (file no. 333-27105) filed with the SEC on July 31, 1997)
10.6 CRA Managed Care, Inc. 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.25 to
CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.7 CRA Managed Care, Inc. 1994 Non-Qualified Stock Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.3 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the
SEC on March 17, 1995)
</TABLE>
29
<PAGE>
<TABLE>
<C> <S>
10.8 CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration Restricted Stock Option Plan (incorporated
by reference to Exhibit 10.5 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with
the SEC on March 17, 1995)
10.9 OccuSystems, Inc. 1995 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to
OccuSystems' Registration Statement on Form S-1 (File No. 33-79734) filed with the SEC on May 8, 1995)
10.10 First Amended and Restated OccuSystems, Inc. and its Subsidiaries and Affiliates Stock Option and
Restricted Stock Purchase Plan dated April 28, 1992 (incorporated by reference to Exhibit 10.11 to
OccuSystems' Registration Statement on Form S-1 (File No. 33-79734) filed with the SEC on May 8, 1995)
10.11 Employment Agreement dated April 21, 1997, between the Registrant and Donald J. Larson (incorporated by
reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-4 (File No. 333-27105)
filed with the SEC on July 31, 1997)
10.12 Employment Agreement dated April 21, 1997, between the Registrant and Joseph F. Peace (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-4 (File No. 333-27105)
filed with the SEC on July 31, 1997)
10.13 Employment Agreement dated April 21, 1997, between the Registrant and Richard A. Parr II (incorporated
by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-4 (File No.
333-27105) filed with the SEC on July 31, 1997)
10.14 Employment Agreement dated April 21, 1997, between the Registrant and Daniel J. Thomas (incorporated by
reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-4 (File No. 333-27105)
filed with the SEC on July 31, 1997)
10.15 Employment Agreement dated April 21, 1997, between the Registrant and W. Thomas Fogarty (incorporated by
reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-4 (File No. 333-27105)
filed with the SEC on July 31, 1997)
10.16 Employment Agreement dated April 21, 1997, between the Registrant and James M. Greenwood (incorporated
by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-4 (File No.
333-27105) filed with the SEC on July 31, 1997)
+10.17 Indemnification Agreement dated September 17, 1997, between the Registrant and Donald J. Larson
(identical agreements were executed between the Registrant and each of the following: Joseph F. Peace,
Richard A. Parr II, Daniel J. Thomas, James M. Greenwood, W. Tom Fogarty, Kenneth Loffredo, Mitchell T.
Rabkin, George H. Conrades, Robert A. Ortenzio, Lois E. Silverman, Paul B. Queally, John K. Carlyle,
Robert W. O'Leary)
10.18 Termination Agreement dated as of May 15, 1997, between the Registrant and Lois E. Silverman
(incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-4 (File
No. 333-27105) filed with the SEC on July 31, 1997)
10.19 Termination Agreement dated as of May 15, 1997, between the Registrant and Richard D. Rehm (incorporated
by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-4 (File No.
333-27105) filed with the SEC on July 31, 1997)
10.20 Agreement of Acceptance dated as of July 29, 1997, among the Registrant, Donald J. Larson and Lois E.
Silverman (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.21 Software License Agreement dated February 10, 1995 between CRA and CompReview, Inc. (confidential
treatment granted) (incorporation by reference to CRA's Registration Statement on Form S-1 (File No.
33-90426) filed with the SEC on March 17, 1995)
</TABLE>
30
<PAGE>
<TABLE>
<C> <S>
10.22 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 168 U.S. Route 1, Falmouth, ME 04105 (incorporated by reference to Exhibit 10.10 to CRA's
Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.23 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 46 Austin Street, Newtonville, MA 02160 (incorporated by reference to Exhibit 10.11 to CRA's
Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.24 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 312 Union Wharf, Boston, MA 02109 (incorporated by reference to Exhibit 10.17 to CRA's
Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.25 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 565 Turnpike Street, North Andover, MA 01845 (incorporated by reference to Exhibit 10.18 to
CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.26 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 15A Riverway Place, Bedford, NH 03110 (incorporated by reference to Exhibit 10.19 to CRA's
Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.27 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 509 Stillwells Corner Road, Freehold, NJ 07728 (incorporated by reference to Exhibit 10.20 to
CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.28 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 732 Thimble Shoals Blvd., Newport News, VA 23606 (incorporated by reference to Exhibit 10.21
to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)
10.29 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office space
located at 10132 Colvin Run Road, Suite A, Great Falls, VA 22066 (incorporated by reference to Exhibit
10.22 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17,
1995)
10.30 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between
Concentra Health Services, Inc. (formerly OccuCenters, Inc.) ("CHS") and Occupational Health Centers of
Southwest, P.A., a Texas professional association (incorporated by reference to Exhibit 10.6 to
OccuSystems' Annual Report on Form 10-K (File No. 0-24440) filed with the SEC on March 29, 1996)
10.31 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between CHS
and Occupational Health Centers of Southwest, P.A., a Arizona professional association (incorporated by
reference to Exhibit 10.7 to OccuSystems' Annual Report on Form 10-K (File No. 0-24440) filed with the
SEC on March 29, 1996)
10.32 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between CHS
and Occupational Health Centers of New Jersey, a New Jersey professional association (incorporated by
reference to Exhibit 10.8 to OccuSystems' Registration Statement on Form S-1 (File No. 33-01660) filed
with the SEC on March 28, 1996)
</TABLE>
31
<PAGE>
<TABLE>
<C> <S>
10.33 Warrant Agreement dated January 3, 1995 between OccuSystems and Creditanstalt-Bankverein (incorporation
by reference to Exhibit 10.13 to OccuSystems' Registration Statement on Form S-1 (File No. 33-01660)
filed with the SEC on March 28, 1996)
+10.34 Voting Agreement dated May 15, 1997, by and between Lois E. Silverman and Donald J. Larson
+11.1 Statement regarding calculation of shares used in determining earnings per share and pro forma earnings
per share.
+13.1 Excerpts from the Company's 1997 Annual Report to Stockholders.
+21.1 List of Subsidiaries.
+23.1 Consent of Arthur Andersen LLP.
+27.1 Financial Data Schedule
+27.2 Financial Data Schedule
+27.3 Financial Data Schedule
</TABLE>
- ------------------------
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K
During the quarter ended December 31, 1997, the Registrant filed the
following Current Reports on Form 8-K:
(1) On November 7, 1997, the Company filed a Current Report on Form 8-K
dated October 31, 1997, reporting under Item 5 (Other Events) the earnings for
the quarter ended September 30, 1997 for the Registrant.
(2) On October 14, 1997, the Company filed a Current Report on Form 8-K
dated October 9, 1997, reporting under Item 5 (Other Events) the consummation of
the purchase of 16 occupational medicine centers from Vencor, Inc.
(3) On October 1, 1997, the Company filed a Current Report on Form 8-K dated
September 29, 1997, reporting under Item 5 (Other Events) the declaration of a
dividend of one preferred share purchase right for each outstanding share of
common stock of the Registrant in connection with the Registrant's Rights
Agreement dated as of September 29, 1997 between the Registrant and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1998.
<TABLE>
<S> <C> <C>
CONCENTRA MANAGED CARE, INC.
By: /s/ JOSEPH F. PESCE
-----------------------------------------
Joseph F. Pesce
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman, Chief Executive
/s/ DONALD J. LARSON Officer and Director
- ------------------------------ (Principal Executive March 31, 1998
Donald J. Larson Officer
/s/ DANIEL J. THOMAS President and Chief
- ------------------------------ Operating Officer and March 31, 1998
Daniel J. Thomas Director
Executive Vice President,
/s/ JOSEPH F. PESCE Chief Financial Officer,
- ------------------------------ and Treasurer (Principal March 31, 1998
Joseph F. Pesce Financial and Accounting
Officer)
/s/ JOHN K. CARLYLE
- ------------------------------ Director March 31, 1998
John K. Carlyle
/s/ GEORGE H. CONRADES
- ------------------------------ Director March 31, 1998
George H. Conrades
/s/ ROBERT W. O'LEARY
- ------------------------------ Director March 31, 1998
Robert W. O'Leary
/s/ ROBERT A. ORTENZIO
- ------------------------------ Director March 31, 1998
Robert A. Ortenzio
/s/ PAUL B. QUEALLY
- ------------------------------ Director March 31, 1998
Paul B. Queally
/s/ MITCHELL T. RABKIN
- ------------------------------ Director March 31, 1998
Mitchell T. Rabkin
/s/ LOIS E. SILVERMAN
- ------------------------------ Director March 31, 1998
Lois E. Silverman
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Concentra Managed Care, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Concentra Managed Care, Inc. incorporated by
reference in this Form 10-K and have issued our report thereon dated January 30,
1998 (except with respect to the matter discussed in Footnote 14, as to which
the date is March 11, 1998). Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index of the financial statement schedules is presented for the purpose
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
January 30, 1998
34
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ---------- -----
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated April 21, 1997 among CRA Managed Care, Inc. ("CRA"),
OccuSystems, Inc. ("OccuSystems") and the Registrant (incorporated by reference to Appendix A to
the Joint Proxy Statement/Prospectus forming a part of the Registrant's Registration Statement on
Form S-4 (File No. 333-27105) filed with the Securities and Exchange Commission (the "SEC") on
July 31, 1997)
+2.2 Agreement and Plan of Merger dated February 24, 1998 among the Registrant and Preferred Payment
Systems, Inc.
2.3 Asset Purchase Agreement dated June 4, 1997, among CRA, FNS Acquisition Corp., First Notice
Systems, Inc. and the stockholders of First Notice Systems, Inc. (incorporated by reference to
Exhibit 1 to CRA's Current Report on Form 8-K (File No. 02-25856) dated June 18, 1997)
+3.1 Amended and Restated Certificate of Incorporation dated August 27, 1997
3.2 Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
4.1 Form of Certificate of Common Stock, par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 (File No.
333-27105) filed with the SEC on July 31, 1997)
4.2 Indenture dated December 24, 1996 between OccuSystems and United States Trust Company of New
York, as Trustee, (the "OccuSystems Indenture") relating to the 6% Convertible Subordinated Notes
due 2001 (incorporated by reference to Exhibit 4.1 to OccuSystems' Registration Statement on Form
S-3 (File No. 333-20933) as filed with the SEC on January 31, 1997)
+4.2 First Supplemental Indenture dated August 29, 1997 between OccuSystems, the Registrant and United
States Trust Company of New York, as Trust, relating to the 6% Convertible Subordinated Notes due
2001
4.3 Indenture dated as of March 16, 1998 between the Registrant and Chase Bank of Texas, N.A., as
Trustee, (the "Concentra Indenture") relating to the 4.5% Convertible Subordinated Notes due 2003
(incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 000-22751)
filed with the SEC on March 30, 1998)
4.4 Form of 6% Convertible Subordinated Note due 2001, establishing the terms of the 6% Convertible
Subordinated Notes due 2001 pursuant to the OccuSystems Indenture (incorporated by reference to
Exhibit A to the OccuSystems Indenture which Indenture is incorporated by reference to Exhibit
4.1 to OccuSystems' Registration Statement on Form S-3 (File No. 333-20933) as filed with the SEC
on January 31, 1997)
4.5 Form of 4.5% Convertible Subordinated Notes due 2003, establishing the terms of the 4.5%
Convertible Subordinated Notes due 2003 pursuant to the Concentra Indenture (incorporated by
reference to the Registrant's Current Report on Form 8-K (File No.000-22751) filed with the SEC
on March 30, 1998)
+4.6 Certificate of Designation of Series A Junior Participating Preferred Stock
4.7 Form of Right Certificate (included as Exhibit B to the Rights Agreement filed as Exhibit 10.2
hereto). Pursuant to the Rights Agreement, printed Right Certificates will not be delivered until
as soon as practicable after the Distribution Date (as defined in the Rights Agreement)
</TABLE>
35
<PAGE>
<TABLE>
<C> <S> <C>
4.8 Registration Rights Agreement dated as of March 11, 1998, among the Registrant, BT Alex. Brown
Incorporated, BancAmerica Robertson Stephens, Donaldson, Lufkin & Jenrette Securities Corporation
and Piper Jaffray Inc. (incorporated by reference to the Registrant's Current Report on Form 8-K
(File No. 000-22751) filed with the SEC on March 30, 1998)
4.9 Registration Rights Agreement dated as of March 8, 1994, among Comprehensive Rehabilitation
Associates, Inc., J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt
Fund, L.P., First Union Corporation, Lois E. Silverman and Donald J. Larson (incorporated by
reference to Exhibit 10.7 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed
with the SEC on March 17, 1995)
+10.1 Amended and Restated Credit Agreement dated as of February 20, 1998, between the Registrant, as
Borrower, and First Union National Bank, as Administrative Agent, Fleet National Bank, as
Documentation Agent, and the banks and financial institutions listed as signatories thereto, as
amended by that certain letter agreement dated as of March 9, 1998, and as further amended by
that certain letter agreement dated as of March 12, 1998
10.2 Purchase Agreement dated as of March 11, 1998, among the Registrant, BT Alex. Brown Incorporated,
BancAmerica Robertson Stephens, Donaldson, Lufkin & Jenrette Securities Corporation and Piper
Jaffray, Inc. (incorporated by reference to the Registrant's Current Form on Form 8-K (File No.
000-22751) filed with the SEC on March 30, 1998)
10.3 Rights Agreement dated September 29, 1997 between the Registrant and ChaseMellon Shareholder
Services, L.L.C. (incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed with the SEC on October 1, 1998)
10.4 Concentra Managed Care, Inc. 1997 Long-Term Incentive Plan (incorporated by reference to Appendix
G to the Joint Proxy Statement/Prospectus forming a part of the Registrant's Registration
Statement on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.5 Concentra Managed Care, Inc. 1997 Employee Stock Purchase Plan (incorporated by reference to
Appendix H to the Joint Proxy Statement/Prospectus forming a part of the Registrant's
Registration Statement on Form S-4 (file no. 333-27105) filed with the SEC on July 31, 1997)
10.6 CRA Managed Care, Inc. 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.25 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March
17, 1995)
10.7 CRA Managed Care, Inc. 1994 Non-Qualified Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.3 to CRA's Registration Statement on Form S-1 (File No.
33-90426) filed with the SEC on March 17, 1995)
10.8 CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration Restricted Stock Option Plan
(incorporated by reference to Exhibit 10.5 to CRA's Registration Statement on Form S-1 (File No.
33-90426) filed with the SEC on March 17, 1995)
10.9 OccuSystems, Inc. 1995 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to
OccuSystems' Registration Statement on Form S-1 (File No. 33-79734) filed with the SEC on May 8,
1995)
10.10 First Amended and Restated OccuSystems, Inc. and its Subsidiaries and Affiliates Stock Option and
Restricted Stock Purchase Plan dated April 28, 1992 (incorporated by reference to Exhibit 10.11
to OccuSystems' Registration Statement on Form S-1 (File No. 33-79734) filed with the SEC on May
8, 1995)
</TABLE>
36
<PAGE>
<TABLE>
<C> <S> <C>
10.11 Employment Agreement dated April 21, 1997, between the Registrant and Donald J. Larson
(incorporated by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-4
(File No. 333-27105) filed with the SEC on July 31, 1997)
10.12 Employment Agreement dated April 21, 1997, between the Registrant and Joseph F. Peace
(incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-4
(File No. 333-27105) filed with the SEC on July 31, 1997)
10.13 Employment Agreement dated April 21, 1997, between the Registrant and Richard A. Parr II
(incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.14 Employment Agreement dated April 21, 1997, between the Registrant and Daniel J. Thomas
(incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.15 Employment Agreement dated April 21, 1997, between the Registrant and W. Thomas Fogarty
(incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.16 Employment Agreement dated April 21, 1997, between the Registrant and James M. Greenwood
(incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
+10.17 Indemnification Agreement dated September 17, 1997, between the Registrant and Donald J. Larson
(identical agreements were executed between the Registrant and each of the following: Joseph F.
Peace, Richard A. Parr II, Daniel J. Thomas, James M. Greenwood, W. Tom Fogarty, Kenneth
Loffredo, Mitchell T. Rabkin, George H. Conrades, Robert A. Ortenzio, Lois E. Silverman, Paul B.
Queally, John K. Carlyle, Robert W. O'Leary)
10.18 Termination Agreement dated as of May 15, 1997, between the Registrant and Lois E. Silverman
(incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.19 Termination Agreement dated as of May 15, 1997, between the Registrant and Richard D. Rehm
(incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form
S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.20 Agreement of Acceptance dated as of July 29, 1997, among the Registrant, Donald J. Larson and
Lois E. Silverman (incorporated by reference to Exhibit 10.19 to the Registrant's Registration
Statement on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)
10.21 Software License Agreement dated February 10, 1995 between CRA and CompReview, Inc. (confidential
treatment granted) (incorporation by reference to CRA's Registration Statement on Form S-1 (File
No. 33-90426) filed with the SEC on March 17, 1995)
10.22 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 168 U.S. Route 1, Falmouth, ME 04105 (incorporated by reference to Exhibit 10.10
to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17,
1995)
10.23 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 46 Austin Street, Newtonville, MA 02160 (incorporated by reference to Exhibit
10.11 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March
17, 1995)
</TABLE>
37
<PAGE>
<TABLE>
<C> <S> <C>
10.24 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 312 Union Wharf, Boston, MA 02109 (incorporated by reference to Exhibit 10.17 to
CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March 17,
1995)
10.25 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 565 Turnpike Street, North Andover, MA 01845 (incorporated by reference to
Exhibit 10.18 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC
on March 17, 1995)
10.26 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 15A Riverway Place, Bedford, NH 03110 (incorporated by reference to Exhibit
10.19 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC on March
17, 1995)
10.27 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 509 Stillwells Corner Road, Freehold, NJ 07728 (incorporated by reference to
Exhibit 10.20 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC
on March 17, 1995)
10.28 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 732 Thimble Shoals Blvd., Newport News, VA 23606 (incorporated by reference to
Exhibit 10.21 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the SEC
on March 17, 1995)
10.29 Lease Agreement dated January 1, 1994 between the Registrant and Colonial Realty Trust for office
space located at 10132 Colvin Run Road, Suite A, Great Falls, VA 22066 (incorporated by reference
to Exhibit 10.22 to CRA's Registration Statement on Form S-1 (File No. 33-90426) filed with the
SEC on March 17, 1995)
10.30 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between
Concentra Health Services, Inc. (formerly OccuCenters, Inc.) ("CHS") and Occupational Health
Centers of Southwest, P.A., a Texas professional association (incorporated by reference to
Exhibit 10.6 to OccuSystems' Annual Report on Form 10-K (File No. 0-24440) filed with the SEC on
March 29, 1996)
10.31 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between
CHS and Occupational Health Centers of Southwest, P.A., a Arizona professional association
(incorporated by reference to Exhibit 10.7 to OccuSystems' Annual Report on Form 10-K (File No.
0-24440) filed with the SEC on March 29, 1996)
10.32 Occupational Medicine Center Management and Consulting Agreement dated December 31, 1993, between
CHS and Occupational Health Centers of New Jersey, a New Jersey professional association
(incorporated by reference to Exhibit 10.8 to OccuSystems' Registration Statement on Form S-1
(File No. 33-01660) filed with the SEC on March 28, 1996)
10.33 Warrant Agreement dated January 3, 1995 between OccuSystems and Creditanstalt-Bankverein
(incorporation by reference to Exhibit 10.13 to OccuSystems' Registration Statement on Form S-1
(File No. 33-01660) filed with the SEC on March 28, 1996)
+11.1 Statement regarding calculation of shares used in determining earnings per share and pro forma
earnings per share.
+13.1 Excerpts from the Company's 1997 Annual Report to Stockholders.
+21.1 List of Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
</TABLE>
38
<PAGE>
<TABLE>
<C> <S> <C>
+27.1 Financial Data Schedule
+27.2 Financial Data Schedule
+27.3 Financial Data Schedule
</TABLE>
- ------------------------
+ Filed herewith.
39
<PAGE>
SUPPLEMENTAL SCHEDULE II
CONCENTRA MANAGED CARE, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE ADDITIONS ADDITIONS BALANCE
AT THE CHARGED TO ACQUIRED DEDUCTIONS AT THE
BEGINNING COSTS AND THROUGH FROM END OF
OF THE YEAR EXPENSES ACQUISITIONS RESERVES THE YEAR
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1995.............................. $ 3,643,000 $ 4,499,000 $ 2,259,000 $ 2,984,000 $ 7,417,000
1996.............................. 7,417,000 6,619,000 5,089,000 7,897,000 11,228,000
1997.............................. 11,228,000 18,121,000 6,951,000 19,039,000 17,261,000
</TABLE>
S-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONCENTRA MANAGED CARE, INC.
CONCENTRA SUBSIDIARY, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
DATED AS OF FEBRUARY 24, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
<S> <C> <C>
Section 1.1 THE MERGER 2
Section 1.2 THE CLOSING 2
Section 1.3 EFFECTIVE TIME 2
Section 1.4 EFFECT OF THE MERGER 2
Section 1.5 CERTIFICATE OF INCORPORATION; BYLAWS 2
Section 1.6 DIRECTORS AND OFFICERS 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK 3
Section 2.2 DISSENTERS' RIGHTS 5
Section 2.3 NO FRACTIONAL SHARES 6
Section 2.4 STOCK TRANSFER BOOKS 6
Section 2.5 WITHHOLDING 6
Section 2.6 ESCROW AGREEMENT 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PPS AND PPS STOCKHOLDERS
Section 3.1 ORGANIZATION AND GOOD STANDING 7
Section 3.2 SUBSIDIARIES OF PPS 7
Section 3.3 CAPITALIZATION 7
Section 3.4 AUTHORITY 8
Section 3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS 8
Section 3.6 PERMITS; COMPLIANCE 9
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS 9
Section 3.8 ABSENCE OF LITIGATION 10
Section 3.9 TAXES 10
Section 3.10 ERISA COMPLIANCE; LABOR 12
Section 3.11 CONTRACTS AND AGREEMENTS 16
Section 3.12 FINANCIAL STATEMENTS 16
Section 3.13 CERTAIN BUSINESS PRACTICES 17
Section 3.14 PROPERTIES 17
Section 3.15 INTELLECTUAL RIGHTS 17
Section 3.16 INSIDER INTERESTS 17
Section 3.17 ENVIRONMENTAL MATTERS 17
-i-
<PAGE>
Section 3.18 VOTE REQUIRED 18
Section 3.19 BUSINESS RELATIONS 18
Section 3.20 AFFILIATES 18
Section 3.21 BROKERS 18
Section 3.22 OPINION OF FINANCIAL ADVISOR 18
Section 3.23 DISCLOSURE 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PPS SIGNATORIES
Section 4.1 OWNERS OF PPS COMMON STOCK AND CONVERTIBLE SUBORDINATED
NOTES 19
Section 4.2 AUTHORITY 19
Section 4.3 NO CONFLICTS 20
Section 4.4 INVESTOR STATUS 20
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE CONCENTRA COMPANIES
Section 5.1 ORGANIZATION AND GOOD STANDING; SUBSIDIARIES 21
Section 5.2 SUBSIDIARIES OF CONCENTRA 21
Section 5.3 CAPITALIZATION 22
Section 5.4 AUTHORITY 22
Section 5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS 23
Section 5.6 PERMITS; COMPLIANCE 23
Section 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS 24
Section 5.8 ABSENCE OF LITIGATION 24
Section 5.9 TAXES 25
Section 5.10 CONTRACTS AND AGREEMENTS 25
Section 5.11 CERTAIN BUSINESS PRACTICES 25
Section 5.12 PROPERTIES 25
Section 5.13 INTELLECTUAL RIGHTS 26
Section 5.14 INSIDER INTERESTS 26
Section 5.15 ENVIRONMENTAL MATTERS 26
Section 5.16 VOTE REQUIRED 26
Section 5.17 BUSINESS RELATIONS 26
Section 5.18 AFFILIATES 27
Section 5.19 BROKERS 27
Section 5.20 SEC DOCUMENTS 27
Section 5.21 OPINION OF FINANCIAL ADVISOR 28
ARTICLE VI
CONCURRENT DELIVERIES
-ii-
<PAGE>
ARTICLE VII
POST-CLOSING OBLIGATIONS
Section 7.1 ANNOUNCEMENT OF POST-MERGER RESULTS 30
Section 7.2 FORM S-8 REGISTRATION STATEMENT 31
Section 7.3 INCOME TAX RETURNS 31
Section 7.4 TAX ADJUSTMENTS 31
Section 7.5 TAX DIVIDENDS 32
Section 7.6 TAX TREATMENT 32
Section 7.7 DIRECTORS' AND OFFICERS' INSURANCE 32
ARTICLE VIII
INDEMNIFICATION
Section 8.1 INDEMNIFICATION OF CONCENTRA INDEMNIFIED PARTIES 32
Section 8.2 INDEMNIFICATION OF PPS INDEMNIFIED PARTIES 33
Section 8.3 DEFENSE OF THIRD-PARTY CLAIMS 33
Section 8.4 DIRECT CLAIMS 35
Section 8.5 LIMITATIONS 35
Section 8.6 RECOURSE AGAINST ESCROWED CONSIDERATION 36
Section 8.7 INSTRUCTIONS TO ESCROW AGENT 37
Section 8.8 APPOINTMENT OF PPS SIGNATORY REPRESENTATIVE 37
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS 38
Section 9.2 NOTICES 38
Section 9.3 CERTAIN DEFINITIONS 40
Section 9.4 HEADINGS 41
Section 9.5 SEVERABILITY 41
Section 9.6 ENTIRE AGREEMENT 41
Section 9.7 ASSIGNMENT 42
Section 9.8 PARTIES IN INTEREST 42
Section 9.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE 42
Section 9.10 GOVERNING LAW 42
Section 9.11 COUNTERPARTS 42
Section 9.12 NO WAIVER RELATING TO CLAIMS FOR FRAUD 42
</TABLE>
ANNEXES
- --------
Annex A -- Officers of Surviving Corporation
Annex B -- Merger Consideration
Annex C -- Escrowed Consideration
-iii-
<PAGE>
EXHIBITS
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of PPS Affiliate Letter
Exhibit C -- Form of Concentra Affiliate Letter
Exhibit D -- Form of Non-Competition Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 24, 1998 (this
"AGREEMENT"), is by and among CONCENTRA MANAGED CARE, INC., a Delaware
corporation ("CONCENTRA"), CONCENTRA SUBSIDIARY, INC., a Delaware corporation
and direct wholly-owned subsidiary of Concentra ("MERGER SUB"), PREFERRED
PAYMENT SYSTEMS, INC., a Delaware corporation ("PPS"), and the stockholders of
PPS identified on the signature pages hereto (the "PPS SIGNATORIES"). Concentra
and Merger Sub are sometimes collectively referred to herein as the "CONCENTRA
COMPANIES."
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("DELAWARE LAW"), will merge with and into PPS (the "MERGER");
WHEREAS, the Board of Directors of PPS has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of PPS and
is fair to, and in the best interests of, PPS and its stockholders, has approved
and adopted this Agreement and the transactions contemplated hereby, and has
recommended approval and adoption of this Agreement by the stockholders of PPS;
WHEREAS, the stockholders of PPS have approved and adopted this Agreement;
WHEREAS, the Board of Directors of Concentra has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Concentra and is fair to, and in the best interests of, Concentra and its
stockholders, and has approved and adopted this Agreement and the transactions
contemplated hereby;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted this
Agreement and the transactions contemplated hereby, and Concentra, as the sole
stockholder of Merger Sub, has approved and adopted this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, for accounting purposes, it is intended that the Merger will be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section I.1 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined in Section 1.3 of this Agreement), Merger Sub
shall be merged with and into PPS. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and PPS shall continue as the
surviving corporation of the Merger (the "SURVIVING CORPORATION") and shall
succeed to and assume all the rights and obligations of Merger Sub in
accordance with Delaware Law. The name of the Surviving Corporation shall be
"CONCENTRA PPS, INC."
Section I.2 THE CLOSING. Subject to the terms and conditions of
this Agreement, the closing of the Merger (the "CLOSING") shall take place (a)
at the offices of McDermott, Will & Emery, 227 West Monroe Street, Chicago,
Illinois, at 9:00 a.m., local time, concurrently with the execution of this
Agreement, or (b) at such other time, date or place as Concentra and PPS may
agree. The date on which the Closing occurs is hereinafter referred to as the
"CLOSING DATE."
Section I.3 EFFECTIVE TIME. Concurrently with the execution and
delivery hereof, the parties hereto are causing the Merger to be consummated
by filing a Certificate of Merger (herein so called) with the Secretary of
State of the State of Delaware, in such form as is required by, and executed
in accordance with the relevant provisions of, Delaware Law (the date and
time of the completion of such filing being the "EFFECTIVE TIME").
Section I.4 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and
franchises of each of Merger Sub and PPS shall vest in the Surviving
Corporation, and all debts, obligations, liabilities and duties of each of
Merger Sub and PPS shall become the debts, obligations, liabilities and
duties of the Surviving Corporation.
Section I.5 CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective
Time, the Certificate of Incorporation and the Bylaws of Merger Sub, as amended
pursuant to the Certificate of Merger, shall be the Certificate of Incorporation
and the Bylaws of the Surviving Corporation.
Section I.6 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the individuals
listed on ANNEX A hereto shall be the officers of the Surviving Corporation in
the capacities stated therein, in each case until their respective successors
are duly elected or appointed and qualified.
-2-
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section II.1 MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK. At
the Effective Time, by virtue of the Merger and without any action on the part
of the Concentra Companies, PPS or the holders of any of the PPS Stock
(hereinafter defined):
(a) CONVERSION OF PPS COMMON STOCK. Subject to the other provisions
of this Article II, each share of common stock, par value $.01 per share, of PPS
("PPS COMMON STOCK") (excluding the Cash Shares (as defined herein), the
Dissenting Shares (as defined herein) and the shares described in Section 2.1(e)
hereof) issued and outstanding immediately prior to the Effective Time and held
of record by the holders of PPS Common Stock identified in Part I of ANNEX B
attached hereto shall, as of the Effective Time, be converted into the right to
receive a number of shares of common stock, par value $.01 per share, of
Concentra ("CONCENTRA COMMON STOCK") equal to the remainder of 8,000,000 divided
by 3,021,887 (approximately 2.6474, the "EXCHANGE RATIO"), payable upon
surrender of the certificate formerly representing such share of PPS Common
Stock (the "COMMON STOCK CONSIDERATION"). Holders of the shares of Concentra
Common Stock issued in the Merger shall also have the right to receive for each
share of Concentra Common Stock so issued one associated Series A Junior
Participating Preferred Stock purchase right (a "RIGHT") in accordance with the
Rights Agreement, dated as of September 17, 1997, between Concentra and
ChaseMellon Shareholder Services, L.L.C. References herein to the shares of
Concentra Common Stock issuable in the Merger shall be deemed to include the
associated Rights. Subject to the other provisions of this Article II, each
share of PPS Common Stock (excluding the Dissenting Shares and shares described
in Section 2.1(e) hereof) issued and outstanding immediately prior to the
Effective Time and held of record by the holders of PPS Common Stock identified
on Part II of ANNEX B attached hereto (which holders have elected to receive
cash for their shares of PPS Common Stock in lieu of the Common Stock
Consideration) (the "CASH SHARES") shall, as of the Effective Time, be converted
into the right to receive in cash an amount equal to (x) the average closing
price per share of Concentra Common Stock on the Nasdaq National Market of the
Nasdaq Stock Market, Inc. (the "NASDAQ NATIONAL MARKET") for the 20 trading days
ending on the fifth trading day prior to the date hereof (approximately $31.54,
the "AVERAGE CLOSING PRICE"), multiplied by (y) the Exchange Ratio, payable upon
surrender of the certificate formerly representing such share of PPS Common
Stock (the "CASH CONSIDERATION"). As of the Effective Time, all such shares of
PPS Common Stock shall cease to be outstanding and shall automatically be
canceled and retired and shall cease to exist. Each holder of a certificate
representing any such shares of PPS Common Stock shall cease to have any rights
with respect thereto, except the right to receive the Common Stock Consideration
or the Cash Consideration as set forth above. Such certificates previously
evidencing PPS Common Stock shall be exchanged for either (x) certificates
evidencing whole shares of Concentra Common Stock or (y) cash, in each case upon
the surrender of such certificates. If any holder of PPS Stock is unable to
surrender such holder's certificate(s) theretofore representing PPS Stock
because such certificate has been lost or destroyed, such holder may deliver in
lieu thereof an affidavit and indemnity bond in form and substance and with
surety reasonably satisfactory to Concentra at the Closing. No interest shall
be paid on any Merger Consideration (as defined herein) payable to former
holders of PPS Stock. No fractional shares of Concentra Common Stock shall be
issued in exchange for shares of PPS Common Stock and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.3 of this Agreement.
-3-
<PAGE>
(b) CONVERSION OF PPS REDEEMABLE PREFERRED STOCK. Subject to the
other provisions of this Article II, each share of Redeemable Preferred Stock,
par value $.01 per share, of PPS (the "PPS Redeemable Preferred Stock," and,
together with the PPS Common Stock, the "PPS STOCK") issued and outstanding
immediately prior to the Effective Time and held of record by the holders of PPS
Redeemable Preferred Stock identified on Part III of ANNEX B shall, as of the
Effective Time, be converted into the right to receive a number of shares of
Concentra Common Stock determined by dividing $500 by the Average Closing Price,
issuable to the holder thereof upon surrender of the certificate formerly
representing such share (the "PREFERRED STOCK CONSIDERATION" and, collectively
with the Common Stock Consideration and the Cash Consideration, the "MERGER
CONSIDERATION"). As of the Effective Time, all such shares of PPS Redeemable
Preferred Stock shall cease to be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of PPS Redeemable Preferred Stock shall cease to
have any rights with respect thereto, except the right to receive the Preferred
Stock Consideration to be paid in consideration therefor upon surrender of such
certificate at the Closing. No fractional shares of Concentra Common Stock
shall be issued in exchange for shares of PPS Redeemable Preferred Stock and, in
lieu thereof, a cash payment shall be made pursuant to Section 2.3 of this
Agreement.
(c) CONVERSION OF PPS CONVERTIBLE NOTES. Immediately prior to the
Effective Time, the holders of those certain Convertible Subordinated Notes
dated August 30, 1996 (the "CONVERTIBLE SUBORDINATED NOTES") issued by PPS in
the aggregate principal amount of $10,000,000 shall have (i) converted each
$1,000 in aggregate principal amount of the Convertible Subordinated Notes into
one share of Redeemable Convertible Participating Preferred Stock, par value
$.01 per share, of PPS ("PPS CONVERTIBLE PREFERRED STOCK") and one share of PPS
Redeemable Preferred Stock and (ii) converted each such share of PPS Convertible
Preferred Stock into 96.8316 shares of PPS Common Stock. Prior to such
conversion, PPS shall have paid to the holders of such Convertible Subordinated
Notes all accrued and unpaid interest thereon. The shares of PPS Redeemable
Preferred Stock and PPS Common Stock acquired in such conversions shall be
converted in the Merger into Concentra Common Stock in accordance with the
foregoing provisions of this Article II.
(d) CONVERSION OF MERGER SUB COMMON STOCK. Each share of common
stock, par value $.01 per share, of Merger Sub ("MERGER SUB COMMON STOCK")
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and non-assessable
share of common stock, par value $.01 per share, of the Surviving Corporation
("SURVIVING CORPORATION COMMON STOCK").
(e) TREASURY SHARES. Notwithstanding any provision of this Agreement
to the contrary, each share of PPS Common Stock and PPS Redeemable Preferred
Stock held in the treasury of PPS, and each share of PPS Common Stock owned by
Concentra or any direct or indirect wholly-owned subsidiary of Concentra or of
PPS immediately prior to the Effective Time, shall be canceled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.
(f) CONVERSION OF PPS OPTIONS. Subject to the other provisions of
this Article II, each option or right to purchase shares of PPS Common Stock (a
"PPS OPTION")
-4-
<PAGE>
outstanding immediately prior to the Effective Time (other than options held
by PPS stockholders who elect to receive Cash Consideration pursuant to
Section 2.1(a)) shall, as of the Effective Time, be assumed by Concentra and
converted into an option for that number of shares of Concentra Common Stock
(a "CONCENTRA OPTION") equal to the product of (i) the number of shares of
PPS Common Stock for which such PPS Option was exercisable multiplied by (ii)
the Exchange Ratio. As of the Effective Time, each such Concentra Option
shall be exercisable upon the same terms and conditions as then are
applicable to such PPS Option, PROVIDED, HOWEVER, that the exercise price of
the Concentra Option shall be equal to the quotient of (A) the exercise price
of the PPS Option as of the date hereof divided by (B) the Exchange Ratio.
All PPS stockholders who elect to receive Cash Consideration pursuant to
Section 2.1(a) shall receive as of the Effective Time, in exchange for the
cancellation of the PPS Options held by them, an aggregate amount in cash
equal to (x) the number of shares subject to such PPS Options multiplied by
the Exchange Ratio multiplied by the Average Closing Price minus (y)the
aggregate exercise price of such PPS Option divided by the Exchange Ratio, as
set forth opposite such person's name on Part I of ANNEX C hereto. To the
extent that any such PPS Option constitutes an "incentive stock option"
(within the meaning of Section 422 of the Code) immediately prior to the
Effective Time, such option shall continue to qualify as an incentive stock
option to the maximum extent permitted by Section 422 of the Code. It is the
intention of the parties hereto that the assumption by Concentra of the PPS
Options provided by this Section 2.1(f) satisfy the conditions of Section
424(b) of the Code. Schedule 3.3 sets forth each PPS Option, together with
the exercise price, vesting schedule and expiration date thereof.
Section II.2 DISSENTERS' RIGHTS. Notwithstanding anything in this
Agreement to the contrary, each share of PPS Common Stock issued and
outstanding immediately prior to the Effective Time and held by stockholders
who have not voted such shares in favor of the approval and adoption of this
Agreement or consented thereto in writing and qualify under and have complied
with all of the provisions of Section 262 of Delaware Law ("Dissenting
Shares") shall not, by virtue of the Merger, be converted into the right to
receive the Merger Consideration, but such stockholders shall be entitled to
receive payment of the appraised value of such shares of PPS Common Stock
held by them in accordance with the provisions of Section 262 of Delaware
Law; provided, however, that if (a) any holder of Dissenting Shares (i)
subsequently delivers a written withdrawal of his demand for appraisal rights
(with the written consent of Concentra if such written withdrawal is not made
within 60 days after the Effective Time), or (ii) fails to perfect
dissenters' rights as provided in Section 262 of Delaware Law, or (b) if
neither any holder of Dissenting Shares nor the Surviving Corporation has
filed a petition demanding a determination of the value of Dissenting Shares
within the time provided in Section 262 of Delaware Law, each Delaware
Dissenting Share held by such holder or holders (as the case may be) shall
thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Cash
Consideration.
Section II.3 NO FRACTIONAL SHARES. No certificates or scrip
evidencing fractional shares of Concentra Common Stock shall be issued upon the
surrender for exchange of certificates theretofore representing PPS Stock, and
such fractional share interests shall not entitle the owner thereof to any
rights of a stockholder of Concentra. In lieu of any such fractional shares,
(i) each holder of a certificate previously evidencing PPS Common Stock or PPS
Redeemable Preferred Stock, upon surrender of such certificate for exchange
pursuant to this Article II, shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (A) the Average Closing
Price by (B) the fractional interest of a share of Concentra Common Stock to
-5-
<PAGE>
which such holder would otherwise be entitled (after taking into account all
shares of PPS Common Stock or PPS Redeemable Preferred Stock held of record by
such holder at the Effective Time).
Section II.4 STOCK TRANSFER BOOKS. At the Effective Time, the
stock transfer books of PPS shall be closed and there shall be no further
registration of transfers of shares of PPS Common Stock thereafter on the
records of PPS.
Section II.5 WITHHOLDING. Concentra (or any affiliate thereof) shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any former holder of PPS Stock such
amounts as Concentra (or any affiliate thereof) is required to deduct and
withhold with respect to the making of such payment under the Code or any
other provision of federal, state, local or foreign tax law, and Concentra
agrees to remit to the proper taxing authority such amounts so withheld. To
the extent that amounts are so withheld by Concentra, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to
the former holder of the PPS Stock in respect of which such deduction and
withholding was made by Concentra. Concentra agrees to pay promptly to the
former holders of PPS Stock any refunded amounts received by Concentra that
are attributable to such withholding.
Section II.6 ESCROW AGREEMENT. Pursuant to Article VIII hereof, the PPS
Signatories have agreed to indemnify the Concentra Indemnified Parties
(hereinafter defined) from and against certain Concentra Indemnified Costs
(hereinafter defined). On or prior to Closing, the PPS Stockholder
Representative (hereinafter defined) (on behalf of the PPS Signatories listed
in Part I of ANNEX D), the PPS Signatories listed on Part II of ANNEX D
hereto (the "TA STOCKHOLDERS"), Concentra and First Trust National
Association (or such other person as Concentra and the PPS Stockholder
Representative shall mutually select) (the "ESCROW AGENT") shall enter into
an Indemnification Escrow Agreement in the form of EXHIBIT A attached hereto
(the "ESCROW AGREEMENT"). Notwithstanding any other provision in this
Agreement to the contrary, in order to secure the indemnity obligations of
the PPS Signatories to the Concentra Indemnified Parties under this
Agreement, 166,866 of the shares of Concentra Common Stock which would
otherwise be delivered to the PPS Signatories as Common Stock Consideration
at Closing pursuant to Section 2.1(a) (the "ESCROWED SHARES"), together with
Stock Powers executed in blank, and $345,917 in cash which would otherwise be
delivered to the PPS Signatories as Cash Consideration at Closing pursuant to
Section 2.1(a) (the "ESCROWED CASH" and together with the Escrowed Shares,
the "ESCROWED CONSIDERATION") shall be deposited into and held in escrow
pursuant to the terms of the Escrow Agreement. Concentra is hereby directed
by each PPS Signatory to deposit the number of Escrowed Shares or an amount
in cash equal to the Escrowed Cash set forth opposite such PPS Signatory's
name in ANNEX D hereto with the Escrow Agent at the Closing and Concentra
shall make such deposit as directed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PPS AND PPS STOCKHOLDERS
PPS and each holder of PPS Common Stock listed on ANNEX E attached
hereto (collectively, the "PPS STOCKHOLDERS"), jointly and severally,
represent and warrant to Concentra as of the date hereof as follows (with the
understanding that Concentra is relying on such
-6-
<PAGE>
representations and warranties in entering into and performing this
Agreement):
Section III.1 ORGANIZATION AND GOOD STANDING. PPS is a corporation,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
state listed on SCHEDULE 3.1, which states represent every jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary, except where the failure to be
so qualified or to be in good standing would not have a PPS Material Adverse
Effect (as defined herein). PPS has delivered to Concentra true and
complete copies of its Certificate of Incorporation and Bylaws as in effect
at the date of this Agreement. PPS is not in violation of any provisions of
its Certificate of Incorporation or Bylaws, including any certificates of
designation relating to any preferred stock. As used in this Agreement, "PPS
MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
properties, assets, results of operations or financial condition of PPS.
Section III.2 SUBSIDIARIES OF PPS. PPS does not own, directly
or indirectly, any shares of capital stock or other ownership interests of any
corporation, partnership, joint venture, limited liability company or other
legal entity.
Section III.3 CAPITALIZATION. The authorized capital stock of PPS
consists of 10,000,000 shares of PPS Common Stock and 1,000,000 shares of
preferred stock, par value $.01 per share (the "PPS PREFERRED STOCK"). As of
the date hereof, (a) 1,831,781 shares of PPS Common Stock were issued and
outstanding, (b) 221,790 shares of PPS Common Stock were reserved for
issuance pursuant to outstanding options under PPS's Amended and Restated
1996 Incentive Stock Plan and PPS's 1996 Replacement Stock Option Plan
(collectively, the "PPS STOCK OPTION PLANS"), (c) 10,000 shares of PPS
Convertible Preferred Stock and 10,000 shares of PPS Redeemable Preferred
Stock were reserved for issuance upon conversion of the Convertible
Subordinated Notes, (d) 968,316 shares of PPS Common Stock were reserved for
issuance upon conversion of such shares of PPS Convertible Preferred Stock,
and (e) no shares of PPS Common Stock were held in PPS's treasury. Other
than the Convertible Subordinated Notes, PPS has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of PPS on any matter. All of the issued
and outstanding shares of PPS Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. There are
not at the date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate PPS to issue, transfer or sell any shares of
capital stock of PPS (other than under the PPS Stock Option Plans, the PPS
Convertible Notes and the PPS Convertible Preferred Stock).
Section III.4 AUTHORITY. PPS has all requisite corporate power and
authority to enter into this Agreement and any other Transaction Documents
(hereinafter defined) to which it is a party and to consummate the
transactions contemplated hereby or thereby. The execution and delivery of
this Agreement and the other Transaction Documents to which PPS is a party
and the consummation by PPS of the transactions contemplated hereby or
thereby have been duly authorized by all necessary corporate action on the
part of PPS. This Agreement and the Transaction Documents to which PPS is a
party have been, or upon execution and delivery will be, duly executed and
delivered and constitute, or upon execution and delivery will constitute, the
valid
-7-
<PAGE>
and binding obligations of PPS enforceable against it in accordance with
their respective terms, subject as to enforceability, to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity. As used in this Agreement with respect to
any party hereto, "TRANSACTION DOCUMENTS" means any of the following
documents to which such person or entity is a party: (a) the Escrow
Agreement; (b) that certain Registration Rights Agreement of even date
herewith (the "REGISTRATION RIGHTS AGREEMENT") between Concentra and the PPS
Signatories; (c) that certain Standstill Agreement of even date herewith
among Concentra, Steven E. Nelson, Don P. Greenberg, James T. Doody and Byron
W. Smith; (d) the employment agreements and the non-competition agreements of
even date herewith between the Surviving Corporation and each individual or
entity listed on Schedule 3.4 hereto (the "EMPLOYMENT AGREEMENTS"); and (e)
all other documents to be executed by any of PPS, any of the PPS Signatories,
the PPS Stockholder Representative, Concentra or Merger Sub in connection
with the consummation of the transactions contemplated by this Agreement.
Section III.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution
and delivery of this Agreement and the other Transaction Documents to which
PPS is a party do not, and the performance by PPS of the transactions
contemplated hereby or thereby will not, subject to obtaining the consents,
approvals, authorizations and permits and making the filings described in
this Section 3.5 or as otherwise described on SCHEDULE 3.5, (a) violate,
conflict with or result in any breach of any provision of PPS's Certificate
of Incorporation or Bylaws, (b) violate, conflict with or result in a
violation or breach of, or constitute a default (with or without due notice
or lapse of time or both) under, or give any party the right to terminate or
accelerate (whether as a result of a change of control of PPS or otherwise as
a result of this Agreement) any obligation, or result in the loss of any
benefit or give any person the right to require any security to be
repurchased, or give rise to the creation of any lien upon any of the assets
of PPS under, any of the terms, conditions or provisions of any loan or
credit agreement, note, bond, mortgage, indenture, deed of trust or any PPS
Material Contract (as defined in Section 3.11) to which PPS is a party or by
which PPS or any of its assets are bound, or (c) violate any order, writ,
judgment, injunction, decree, statute, law, rule or regulation of any
Governmental Entity (as defined in Section 9.3(e)) binding upon PPS or by
which or to which any of PPS's assets is bound or subject. No consent,
approval, authorization or permit of or registration, declaration or filing
with, any Governmental Entity is required by or with respect to PPS in
connection with the execution and delivery of this Agreement and any other
Transaction Documents by PPS or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of a premerger
notification report and any other filings required under the HSR Act (as
defined in Section 9.3(f)) and the expiration or termination of any waiting
period in connection therewith, (ii) the filing and recordation of the
Certificate of Merger as required by Delaware Law, (iii) applicable
requirements, if any, of the Code and state, local and foreign tax laws, (iv)
the consents listed on SCHEDULE 3.5, and (v) where failure to obtain such
consents, approvals, authorizations or permits, or to make such
registrations, declarations or filings, would not prevent or delay
consummation of any of the transactions contemplated hereby in any material
respect, or otherwise prevent PPS from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a PPS Material Adverse Effect.
Section III.6 PERMITS; COMPLIANCE. (a) Except as disclosed in SCHEDULE
3.6, PPS is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
identification and registration numbers, approvals and orders
-8-
<PAGE>
(collectively, "PERMITS") necessary to own, lease and operate its cost
containment, outsourcing and other businesses and its other properties and to
carry on its businesses as they are now being conducted, except where the
failure to possess such Permits would not reasonably be expected to have a
PPS Material Adverse Effect. SCHEDULE 3.6 sets forth, to PPS's and the PPS
Stockholders' Knowledge, a list of the Permits (other than Permits that the
failure to possess could not reasonably be expected to have a PPS Material
Adverse Effect) held by PPS and the jurisdiction issuing the same, all of
which, except as set forth in SCHEDULE 3.6, are in good standing and not
subject to meritorious challenge. SCHEDULE 3.6 also sets forth, as of the
date of this Agreement, all actions, proceedings or investigations, pending
or, to the Knowledge of PPS and the PPS Stockholders, threatened against PPS
that could reasonably be expected to result in the loss, revocation,
suspension or cancellation of a Permit held by PPS, except for any
suspension, loss or revocation that could not reasonably be expected to have
a PPS Material Adverse Effect. Except as set forth in SCHEDULE 3.6, to the
Knowledge of PPS and the PPS Stockholders, PPS is not in conflict with, in
default under or in violation of, and has not received, since December 31,
1995, from any Governmental Entity any written notice with respect to any
conflict with, default under or violation of, (A) any law applicable to PPS
or by or to which any of its properties are bound or subject, (B) any
judgment, order or decree applicable to PPS or (C) any of the Permits held by
PPS, except for any such conflicts, defaults or violations that could not
reasonably be expected to have a PPS Material Adverse Effect.
Section III.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in SCHEDULE 3.7, since December 31, 1997, PPS has conducted its business only
in the ordinary course consistent with past practice. Since December 31,
1997, except as disclosed in SCHEDULE 3.7, there has not been (a) any event,
circumstance or fact (whether or not covered by insurance), individually or
in the aggregate, that has resulted in a PPS Material Adverse Effect, (b) any
event, circumstance or fact (whether or not covered by insurance),
individually or in the aggregate, that materially impairs the operation of
the physical assets of PPS, (c) any material change by PPS in its accounting
methods, principles or practices, (d) any entry by PPS into any agreement,
commitment or transaction material to PPS, except in the ordinary course of
business and consistent with past practice or except in connection with the
negotiation and execution and delivery of this Agreement and the other
Transaction Documents, (e) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of PPS or any
redemption, purchase or other acquisition of any of PPS's securities, (f)
other than pursuant to the Plans (hereinafter defined) or as required by law,
any increase in, amendment to, or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, (g) granted any
general increase in compensation, bonus or other benefits payable to the
employees of PPS, except for increases occurring in the ordinary course of
business in accordance with its customary practice, (h) paid any bonus to the
employees of PPS except in the ordinary course and consistent with past
practice, (i) any incurrence of indebtedness for borrowed money or assumption
or guarantee of indebtedness for borrowed money by PPS, or the grant of any
lien on the material assets of PPS to secure indebtedness for borrowed money,
(j) any sale or transfer of any material assets of PPS other than in the
ordinary course of business and consistent with past practice, or (k) any
loan, advance or capital contribution to or investment in any person by PPS.
Section III.8 ABSENCE OF LITIGATION. Except as set forth on SCHEDULE
3.8, there is no claim, action, suit, inquiry, judicial or administrative
proceeding, grievance or arbitration pending or, to the Knowledge of PPS and
the PPS Stockholders, threatened against PPS or any of its assets
-9-
<PAGE>
by or before any arbitrator or Governmental Entity, nor are there any
investigations relating to PPS or any of its assets pending or, to the
Knowledge of PPS or the PPS Stockholders, threatened by or before any
arbitrator or Governmental Entity. Except as set forth in SCHEDULE 3.8,
there is no judgment, decree, injunction, order, determination, award,
finding or letter of deficiency of any Governmental Entity or arbitrator, or
settlement agreement, outstanding against PPS or any of its assets. There is
no claim, action, suit, inquiry or judicial or administrative proceeding
pending or, to the Knowledge of PPS or the PPS Stockholders, threatened
against any PPS Stockholder or PPS relating to the transactions contemplated
by this Agreement or the other Transaction Documents.
Section III.9 TAXES.
(a) All material Tax Returns (as defined in Section 9.3(m)) required
to be filed by or with respect to PPS, and any affiliated, consolidated,
combined, unitary or similar group of which PPS is or was a member, have been
duly and timely filed (taking into account all valid extensions of filing
dates), and all such Tax Returns are true, correct and complete in all material
respects. PPS and any affiliated, consolidated, combined, unitary or similar
group of which PPS is or was a member, has duly and timely paid (or there has
been paid on its behalf) all material Taxes that are due, except for Taxes being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established in PPS's audited financial statements for the
year ended December 31, 1997 ("PPS FINANCIAL STATEMENTS"), in accordance with
generally accepted accounting principles ("GAAP") consistently applied. With
respect to any period for which Taxes (as defined in Section 9.3(k)) are not yet
due with respect to PPS, and any affiliated, consolidated, combined, unitary or
similar group of which PPS is or was a member, PPS has made due and sufficient
current accruals for such Taxes in accordance with GAAP in the PPS Financial
Statements. PPS has withheld and paid all material Taxes required by all
applicable laws to be withheld or paid in connection with any amounts paid or
owing to any employee, creditor, independent contractor, stockholder or other
third party.
(b) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any claim for, or
the period for the collection or assessment of, Taxes due from or with
respect to PPS, or any affiliated, consolidated, combined, unitary or similar
group of which PPS is or was a member, for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority, or
similar person is pending in regard to any Taxes due from or with respect to
PPS or any affiliated, consolidated, combined, unitary or similar group of
which PPS is or was a member, other than normal and routine audits by
nonfederal governmental authorities. All material deficiencies of Taxes
assessed by any applicable taxing authority have been paid, fully settled or
adequately provided for in the PPS Financial Statements. PPS has not
received written notice that any assessment of material Taxes is proposed
against PPS or any of its assets.
(c) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to
PPS or any of its assets. PPS has not agreed to make any material adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method, and there is no application
pending with any taxing authority requesting permission for any changes in
any accounting method of PPS which, in each respective case, will or would
reasonably cause PPS to include any material adjustment in taxable income for
any taxable period (or portion thereof) ending after the Closing Date.
-10-
<PAGE>
(d) PPS is not a party to, is not bound by and has no obligation
under, any Tax sharing agreement, Tax allocation agreement or similar
contract, agreement or arrangement.
(e) PPS has not executed or entered into with the Internal Revenue
Service (the "IRS") or any taxing authority, a closing agreement pursuant to
Section 7121 of the Code or any similar provision of state, local, foreign or
other income tax law, which will require any increase in taxable income or
alternative minimum taxable income, or any reduction in tax credits for, PPS
for any taxable period ending after the Closing Date.
(f) There are no requests from any taxing authority for information
relating to Taxes of PPS and, to the Knowledge of PPS, no material
reassessments (for property or ad valorem tax purposes) of any assets or any
property owned or leased by PPS have been proposed in written form.
(g) Neither PPS nor any PPS Stockholder has taken any action or has
any Knowledge of any fact or circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(h) PPS has properly elected to be, and prior to the transactions
contemplated by this Agreement will be properly, treated as an S corporation
(as defined in Section 1361(a)(1) of the Code) for federal (and, where
permissible, state) income Tax purposes.
Section III.10 ERISA COMPLIANCE; LABOR.
(a) SCHEDULE 3.10 is a list of the names and annual rates of
compensation of the employees of PPS whose annual rates of compensation
during the fiscal year ending December 31, 1997 (including base salary,
bonuses, commissions and incentive pay), exceeded or are expected to exceed
$50,000 and provides a description of each of the following which is
sponsored, maintained or contributed to by PPS for the benefit of the
employees of PPS, former employees of PPS, directors of PPS, former directors
of PPS, or any agents, consultants or similar representatives providing
services to or for PPS, or has been so sponsored, maintained or contributed
to within six years prior to the Closing Date for the benefit of such
individuals:
(i) each "employee benefit plan," as such term is defined in
section 3(3) of ERISA (including, but not limited to, employee benefit
plans, such as foreign plans, which are not subject to the provisions of
ERISA (each, a "PLAN");
(ii) each personnel policy, stock option plan, stock purchase
plan, stock appreciation right, phantom stock plan, collective bargaining
agreement, bonus plan or arrangement, incentive award plan or arrangement,
vacation policy, severance pay plan, policy or agreement, deferred
compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement
and each other employee benefit plan, agreement, arrangement, program,
practice or understanding which is not described in Section 3.10.(a)(i)
(individually, a "BENEFIT PROGRAM OR AGREEMENT" and, collectively, the
"BENEFIT PROGRAMS AND AGREEMENTS").
-11-
<PAGE>
(b) True, correct and complete copies of each of the Plans, related
trusts, insurance or group annuity contracts and each other funding or
financing arrangement relating to any Plan, including all amendments thereto,
have been furnished to Concentra. There has also been furnished to
Concentra, with respect to each Plan required to file such report and
description, the most recent report on Form 5500 and the summary plan
description. True, correct and complete copies or descriptions of each
Benefit Program or Agreement have also been furnished to Concentra. A
schedule of employer expenses with respect to each Plan and Benefit Program
or Agreement for the current plan year and past plan year has been furnished
to Concentra along with any administration agreement associated with any
Plan. Concentra has also been furnished the recent actuarial report or
valuation for each Plan subject to Title IV of ERISA. Additionally, the most
recent determination letter from the IRS for each of the Plans intended to be
qualified under section 401 of the Code, and any outstanding determination
letter application for such plans have been furnished.
(c) (i) PPS has substantially performed all obligations, whether
arising by operation of law or by contract, required to be performed by it in
connection with the Plans and the Benefit Programs or Agreements, and to the
Knowledge of PPS there have been no material defaults or violations by any
other party to the Plans or Benefit Programs and Agreements;
(ii) All reports and disclosures relating to the Plans required
to be filed by PPS with or furnished to governmental agencies, Plan
participants or Plan beneficiaries have been filed or furnished in
accordance with applicable law in a timely manner, and each Plan and each
Benefit Program or Agreement has been administered in substantial
compliance with its governing documents;
(iii) Each of the Plans intended to be qualified under section 401
of the Code satisfies the requirements of such section and has received a
favorable determination letter from the IRS regarding such qualified status
and has not, since receipt of the most recent favorable determination
letter, been amended or, to the knowledge of PPS or the PPS Stockholders,
operated in a way which would adversely affect such qualified status;
(iv) Each Plan and Benefit Program or Agreement has been
administered in substantial compliance with its terms, the applicable
provisions of ERISA, the Code and all other applicable laws and the terms
of all applicable collective bargaining agreements;
(v) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of PPS and the PPS
Stockholders, threatened against, or with respect to, any of the Plans or
Benefit Programs and Agreements or their assets;
(vi) All contributions required to be made to the Plans pursuant
to their terms and provisions have been made timely;
(vii) As to any Plan subject to Title IV of ERISA, there has been
no event or condition which presents the risk of Plan termination, no
accumulated funding deficiency, whether or not waived, within the meaning
of section 302 of ERISA or section 412 of the Code has been incurred, no
reportable event within the meaning of section 4043 of ERISA (for which the
disclosure requirements of Regulation section 4043.1 et seq.,
-12-
<PAGE>
promulgated by the Pension Benefit Guaranty Corporation ("PBGC") have not
been waived) has occurred, no notice of intent to terminate the Plan has
been given under section 4041 of ERISA, no proceeding has been instituted
under section 4042 of ERISA to terminate the Plan, no liability to the
PBGC has been incurred, and the assets of the Plan equal or exceed the
actuarial present value of the benefit liabilities, within the meaning of
section 4041 of ERISA, under the Plan, based upon reasonable actuarial
assumptions and the asset valuation principles established by the PBGC;
(viii) As to any Plan intended to be qualified under section
401 of the Code, there has been no termination or partial termination of
the Plan within the meaning of section 411(d)(3) of the Code;
(ix) No act, omission or transaction has occurred which
would result in imposition on PPS of (A) breach of fiduciary duty liability
damages under section 409 of ERISA, (B) a civil penalty assessed pursuant
to subsections (c), (i) or (l) of section 502 of ERISA or (C) a Tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(x) There is no matter pending (other than routine qualification
determination filings) with respect to any of the Plans before the IRS, the
Department of Labor or the PBGC;
(xi) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to section 501(c)(9) of the
Code, satisfies the requirements of such section and has received a
favorable determination letter from the IRS regarding such exempt status
and has not, since receipt of the most recent favorable determination
letter, been amended or operated in a way that would adversely affect such
exempt status;
(xii) With respect to any employee benefit plan, within the
meaning of section 3(3) of ERISA, which is not listed in SCHEDULE 3.10 but
which is sponsored, maintained or contributed to, or has been sponsored,
maintained or contributed to within six years prior to the Effective Time,
by any corporation, trade, business or entity under common control with
PPS, within the meaning of section 414(b), (c) or (m) of the Code or
section 4001 of ERISA ("COMMONLY CONTROLLED ENTITY"), (A) no withdrawal
liability, within the meaning of section 4201 of ERISA, has been incurred,
which withdrawal liability has not been satisfied, (B) no liability to the
PBGC has been incurred by any Commonly Controlled Entity, which liability
has not been satisfied, (C) no accumulated funding deficiency, whether or
not waived, within the meaning of section 302 of ERISA or section 412 of
the Code has been incurred, and (D) all contributions (including
installments) to such plan required by section 302 of ERISA and section 412
of the Code have been timely made; and
(xiii) Except as otherwise set forth in SCHEDULE 3.10, the
execution and delivery of this Agreement and the Transactions Documents and
the consummation of the transactions contemplated hereby and thereby will
not (A) require PPS to make a larger contribution to, or pay greater
benefits under, any Plan or Benefit Program or Agreement than it otherwise
would or (B) create or give rise to any additional vested rights or service
credits under any Plan or Benefit Program or Agreement.
-13-
<PAGE>
(d) Except as otherwise set forth in SCHEDULE 3.10, PPS is not a
party to any agreement, nor has it established any policy or practice,
requiring it to make a payment or provide any other form of compensation or
benefit to any person performing services for PPS upon termination of such
services which would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement.
(e) Except as otherwise set forth in SCHEDULE 3.10, in connection
with the consummation of the transactions contemplated by this Agreement, no
payments have or will be made under the Plans or Benefit Programs and
Agreements which, in the aggregate, would result in imposition of the
sanctions imposed under sections 280G and 4999 of the Code.
(f) Except as otherwise set forth in SCHEDULE 3.10, PPS is not a
party to or bound by any severance agreement.
(g) Each Plan which is an "EMPLOYEE WELFARE BENEFIT PLAN", as such
term is defined in section 3(1) of ERISA, may be unilaterally amended or
terminated in its entirety without liability except as to benefits accrued
thereunder prior to such amendment or termination.
(h) No Plan or Benefit Program or Agreement provides retiree
medical or retiree life insurance benefits to any person and PPS is not
contractually or otherwise obligated (whether or not in writing) to provide
any person with life insurance or medical benefits upon retirement or
termination of employment, other than as required by the provisions of
section 601 through 608 of ERISA and section 4980B of the Code.
(i) As to each Plan described on SCHEDULE 3.10 which is a
multiemployer plan within the meaning of section 3(37) of ERISA, SCHEDULE
3.10 accurately describes the dollar amount of withdrawal liability which
would be owed by PPS to such Plan if PPS ceased contributing to such Plan
immediately after consummation of the transactions contemplated by this
Agreement.
(j) Except as set forth on SCHEDULE 3.10, no Plan or Benefit
Program or Agreement provides that payments pursuant to such Plan or Benefit
Program or Agreement may be made in securities of PPS or a Commonly
Controlled Entity, nor does any trust maintained pursuant to any Plan or
Benefit Program or Agreement hold any securities of PPS or a Commonly
Controlled Entity.
(k) PPS is not a party to any collective bargaining agreement. PPS
has not agreed to recognize any union or other collective bargaining
representative, nor has any union or other collective bargaining
representative been certified as the exclusive bargaining representative of
any of its employees. To the Knowledge of PPS and the PPS Stockholders,
there is no question concerning representation as to any collective
bargaining representative concerning employees of PPS, and no labor union or
representative thereof claims to or is seeking to represent employees of PPS.
To the Knowledge of PPS and the PPS Stockholders, no union organizational
campaign or representation petition is currently pending with respect to any
of the employees of PPS. There is no labor strike or labor dispute,
slowdown, work stoppage or lockout pending or, to the Knowledge of PPS and
the PPS Stockholders, threatened against or affecting PPS, and PPS has not
experienced any labor strike, slowdown, work stoppage or lockout since
January 1, 1995. PPS (i) is, and has always been since January 1, 1995, in
substantial compliance with all applicable laws regarding
-14-
<PAGE>
labor and employment practices, including, without limitation, applicable
laws relating to terms and conditions of employment, equal employment
opportunity, employee compensation, employee benefits, affirmative action,
wages and hours, plant closing and mass layoff, occupational safety and
health, immigration, workers' compensation, disability, unemployment
compensation, whistle blower laws or other employment or labor relations
laws, except where the failure to be in substantial compliance would not have
a PPS Material Adverse Effect, (ii) is not engaged, nor has it since January
1, 1995 engaged, in any unfair labor practices, and has no, and has not had
since January 1, 1995 any, unfair labor practice charges or complaints before
the National Labor Relations Board pending or, to the Knowledge of PPS and
the PPS Stockholders, threatened against it, (iii) has no, and has not had
since January 1, 1995 any, grievances, arbitrations, or other proceedings
arising or asserted to arise under any collective bargaining agreement
pending or, to the Knowledge of PPS and the PPS Stockholders threatened,
against it and (iv) has no, and has not had since January 1, 1995 any,
charges, complaints, or proceedings before the Equal Employment Opportunity
Commission, Department of Labor or any other Governmental Entity responsible
for regulating labor or employment practices, pending, or, to the Knowledge
of PPS and the PPS Stockholders, threatened against it.
Section III.11 CONTRACTS AND AGREEMENTS . The contracts and agreements
listed in SCHEDULE 3.11 constitute all of the written and oral contracts,
commitments, leases and other agreements (including, without limitation,
promissory notes, loan agreements and other evidences of indebtedness) to
which PPS is a party or by which any of its properties are bound with respect
to which the obligations of or the benefits to be received by PPS could
reasonably be expected to have a value in excess of $500,000 in any
consecutive 12-month period and all real property leases or sub-leases to
which PPS is a party (each a "PPS MATERIAL CONTRACT"). PPS is not, and, to
the Knowledge of PPS and the PPS Stockholders, no other party thereto is, in
default (and no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default) under any PPS Material
Contract, and PPS has not waived any right under any PPS Material Contract.
PPS has not received any notice of default or termination under any PPS
Material Contract and PPS has not assigned or otherwise transferred any
rights under any PPS Material Contract.
Section III.12 FINANCIAL STATEMENTS. PPS has delivered to Concentra
copies of (a) the audited consolidated balance sheets of PPS and its
subsidiaries as of December 31, 1995, December 31, 1996 and December 31,
1997, together with the audited consolidated statements of income and cash
flows of PPS and its subsidiaries for the years then ended, and the notes
thereto, accompanied by the reports thereon of Arthur Andersen LLP,
independent public accountants and (b) the audited statements of income and
cash flows of About Health, Inc. ("ABOUT HEALTH") for each of the two years
in the period ended December 31, 1996, and the notes thereto, accompanied by
the reports thereon of Coopers & Lybrand L.L.P., independent public
accountants (such audited consolidated financial statements collectively
being referred to as the "FINANCIAL STATEMENTS"). The Financial Statements,
including the notes thereto, were prepared in accordance with GAAP applied on
a consistent basis throughout the periods covered thereby (except to the
extent disclosed therein or required by changes in GAAP) and fairly present
in all material respects the financial position of PPS and its subsidiaries
at the dates thereof and the results of the operations of PPS and its
subsidiaries and About Health for the respective periods indicated.
Except as disclosed in SCHEDULE 3.12, there is no liability or
obligation of any kind, whether accrued, absolute, fixed, contingent or
otherwise, of PPS that is not reflected or reserved
-15-
<PAGE>
against in PPS's balance sheet dated December 31, 1997 (or referred to in the
footnotes to the Financial Statements), other than (a) liabilities incurred
in the ordinary course of business since December 31, 1997, (b) any such
liability which would not be required to be presented in financial statements
or the notes thereto prepared in conformity with GAAP, or (c) liabilities
incurred in connection with the consummation of the transactions contemplated
under this Agreement (which liabilities are set forth on SCHEDULE 3.12).
Section III.13 CERTAIN BUSINESS PRACTICES. To PPS's and the PPS
Stockholders' Knowledge, except as set forth in SCHEDULE 3.13, none of PPS,
or any directors, officers, agents or employees of PPS (in their capacities
as such) have (a) used any funds for unlawful contributions, gifts,
entertainment or other unlawful purposes relating to political activity, (b)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or (c) made any other unlawful payment.
Section III.14 PROPERTIES. Except as set forth in SCHEDULE 3.14, to the
Knowledge of PPS and the PPS Stockholders, PPS has good and marketable title,
free and clear of all liens, the existence of which could reasonably be
expected to have a PPS Material Adverse Effect, to all of its properties and
assets whether tangible or intangible, real, personal or mixed, reflected in
the Financial Statements as being owned by PPS as of the date thereof, other
than (a) any properties or assets that have been sold or otherwise disposed
of in the ordinary course of business since the date of such Financial
Statements, (b) liens disclosed in the notes to such Financial Statements and
(c) liens arising in the ordinary course of business after the date of such
Financial Statements. All buildings, and all fixtures, equipment and other
property and assets that are material to the business of PPS and are held
under leases or sub-leases by PPS (excluding any leases or sub-leases that
are terminable by the lessor upon 30 or fewer days notice) are held under
valid instruments enforceable against PPS in accordance with their respective
terms, subject to applicable laws of bankruptcy, insolvency or similar laws
relating to creditors' rights generally and to general principles of equity
(whether applied in a proceeding in law or equity).
Section III.15 INTELLECTUAL RIGHTS. To the Knowledge of PPS and the PPS
Stockholders, SCHEDULE 3.15 sets forth a true and complete list and
description of all registered patents, trademarks, servicemarks, tradenames,
copyrights and applications therefor owned by or registered in the name of
PPS, or in which PPS has any right, license or interest (the "PPS
INTELLECTUAL PROPERTY RIGHTS"). Except as set forth in SCHEDULE 3.15, to the
Knowledge of PPS and the PPS Stockholders, PPS is not a party to any license
agreement, whether written or oral, either as licensor or licensee, with
respect to any PPS Intellectual Property Rights. To the knowledge of PPS,
PPS has good and marketable title to or the right to use all PPS Intellectual
Property Rights and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the operation of the business of PPS
without the payment of any royalty or similar payment. To the Knowledge of
PPS and the PPS Stockholders, PPS is not infringing any patent, trademark,
servicemark, tradename or copyright of others, and neither PPS nor any PPS
Stockholder is aware of any infringement by others of any such rights owned
by PPS.
Section III.16 INSIDER INTERESTS. No officer or director of PPS or
holder of more than five percent of PPS Common Stock outstanding on a
fully-diluted basis has any interest in any material property, real or
personal, tangible or intangible, including without limitation, any computer
software or PPS Intellectual Property Rights, used in or pertaining to the
business of PPS, except
-16-
<PAGE>
for the ordinary rights of a stockholder or employee stock optionholder.
Section III.17 ENVIRONMENTAL MATTERS. PPS does not hold, and neither
PPS nor any subsidiary of PPS has ever held, any ownership interest in any
real property. The real property and facilities operated and leased by PPS
and the operations of PPS thereon comply and have at all times complied in
all material respects with all applicable laws and rules of common law
pertaining to the environment, natural resources and public or employee
health and safety, including all Environmental Laws. As used in this
Agreement, "ENVIRONMENTAL LAWS" means all applicable laws and rules of common
law pertaining to the environment, natural resources and public or employee
health and safety including the Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"),
the Emergency Planning and Community Right to Know Act, the Superfund
Amendments and Reauthorization Act of 1986, the Resource Conservation and
Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean
Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil
Pollution Act of 1990, the Hazardous Materials Transportation Act, and any
similar or analogous statutes, regulations and decisional law of any
Governmental Authority, as each of the foregoing may be amended and in effect
on or prior to Closing. PPS does not have and has not assumed any liability
for any remediation or other obligations in connection with any Environmental
Laws.
Section III.18 VOTE REQUIRED. PPS has obtained the votes of the
holders of all classes and series of PPS capital stock necessary to adopt and
approve this Agreement and the transactions contemplated hereby under
Delaware Law.
Section III.19 BUSINESS RELATIONS. Neither PPS nor any PPS Stockholder
knows or has any reason to believe that any customer or supplier of PPS will
cease or otherwise refuse to do business with PPS after the Effective Time in
the same manner as such business was previously conducted with PPS. PPS has
not received any notice of any disruption (including delayed deliveries or
allocations by suppliers) in the availability of the materials, services or
products used by PPS in the conduct of its business, nor is PPS aware of any
facts which could lead it to believe that the operations of PPS will be
subject to any such material disruption.
Section III.20 AFFILIATES. SCHEDULE 3.20 identifies all persons who,
to the Knowledge of PPS and the PPS Stockholders, may be deemed to be
"affiliates" of PPS as such term is used in Accounting Series Releases No.
130 and No. 135 of the Securities and Exchange Commission (the "SEC").
Section III.21 BROKERS. Except as disclosed in SCHEDULE 3.21, no
broker, finder or investment banker (other than Morgan Stanley & Co.
Incorporated) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PPS or the PPS Stockholders.
Prior to the date of this Agreement, PPS has made available to Concentra a
complete and correct copy of all agreements between PPS and Morgan Stanley &
Co. Incorporated pursuant to which such firm will be entitled to any payment
relating to the transactions contemplated by this Agreement.
Section III.22 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
PPS has received the written opinion of Morgan Stanley & Co. Incorporated to
the effect that, as of the date of this Agreement and subject to the
considerations set forth in such opinion, the Exchange Ratio is fair,
-17-
<PAGE>
from a financial point of view, to the holders of PPS Common Stock.
Section III.23 DISCLOSURE. To the knowledge of PPS and the PPS
Stockholders, at the time it was filed, PPS's Registration Statement on Form
S-1 (File No. 333-40833) (the "PPS REGISTRATION STATEMENT") filed with the
SEC on November 21, 1997 did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PPS SIGNATORIES
Each PPS Signatory hereby severally, and not jointly, represents and
warrants to Concentra as follows:
Section IV.1 OWNERS OF PPS COMMON STOCK AND CONVERTIBLE SUBORDINATED
NOTES. As of the date hereof, each such PPS Signatory is the holder of record
and beneficially owns the number of shares and class of PPS Stock set forth
opposite his, her or its name on ANNEX B.
Section IV.2 AUTHORITY. (a) If such PPS Signatory is an entity (I.E.,
not a natural person), such PPS Signatory has been duly created and is
validly existing under the laws of the jurisdiction of its creation; such PPS
Signatory has all requisite power and authority to execute and deliver this
Agreement and the Transaction Documents to which it is a party and to perform
its obligations hereunder and thereunder; and the execution, delivery and
performance by such PPS Signatory of this Agreement and Transaction Documents
to which it is a party and the consummation by such PPS Signatory of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of such PPS Signatory.
(a) Such PPS Signatory has full legal capacity to execute and
deliver this Agreement and the Transaction Documents to which he, she or it
is a party and to perform the obligations of such PPS Signatory hereunder and
thereunder. This Agreement has been duly and validly executed and delivered
by such PPS Signatory and constitutes a valid and binding obligation of such
PPS Signatory, enforceable against him, her or it in accordance with its
terms, subject as to enforceability to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). The Transaction Documents to which such PPS Signatory is a party
have been duly and validly executed and delivered by such PPS Signatory and
constitute valid and binding obligations of such PPS Signatory, enforceable
against him, her or it in accordance with its terms, subject as to
enforceability, to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity and with respect to
the Registration Rights Agreement, subject to limitations as to
enforceability of the indemnification and contribution provisions of such
agreement). Each consent, authorization, order or approval of, or filing or
registration with, any Governmental Entity required by applicable law on or
before the Closing Date for or in connection with the execution and delivery
by such PPS Signatory of this Agreement or any Transaction Documents, or the
-18-
<PAGE>
performance by such PPS Signatory of his, her or its obligations hereunder or
under any Transaction Documents, will have been obtained or made on or before
the Closing Date, except where the failure to obtain any such consent,
authorization, order, approval, filing or registration would not affect such
PPS Signatory's ability to perform his, her or its obligations under this
Agreement or under any Transaction Documents in any material respect.
Section IV.3 NO CONFLICTS. The execution, delivery and performance by
such PPS Signatory of this Agreement and the Transaction Documents to which
it is a party does not (a) violate or breach any provision of any law or
statute applicable to such PPS Signatory (and, if such PPS Signatory is a
legal entity, any provision of its organizational or constituent documents),
or (b) violate, breach, cause a default under or result in the creation of a
lien pursuant to, any agreement or instrument to which such PPS Signatory is
a party or to which it or any of its properties may be subject.
Section IV.4 INVESTOR STATUS. Each holder of PPS Common Stock alone,
or with his or her purchaser representative, has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of accepting Concentra Common Stock under the
terms and conditions of this Agreement. In the event Morgan Stanley & Co.
Incorporated ("Morgan Stanley") has acted as a purchaser representative for a
holder of PPS Common Stock, such holder of PPS Common Stock hereby
acknowledges that (i) Morgan Stanley has acted as financial advisor to PPS in
connection with the transactions contemplated by this Agreement and other
potential transactions, (ii) Morgan Stanley may from time to time execute
trades of Concentra Common Stock received pursuant to this Agreement or
otherwise on behalf of certain PPS Signatories and (iii) Morgan Stanley has
from time to time performed and may in the future perform certain services
for Concentra and received and will receive customary compensation therefor.
Each holder of PPS Common Stock has received a copy of (A) the CRA Managed
Care, Inc. 1996 Annual Report to Stockholders, (B) the OccuSystems, Inc. 1996
Annual Report to Stockholders, (C) the Joint Proxy Statement/Prospectus of
CRA Managed Care, Inc., OccuSystems, Inc. and Concentra dated August 1, 1997,
(D) the Concentra Quarterly Report on Form 10-Q for the period ended
September 31, 1997, (E) the Concentra Current Reports on Form 8-K dated
August 29, 1997, September 29, 1997, October 9, 1997, October 31, 1997,
January 15, 1998 and January 28, 1998, (F) the PPS Registration Statement and
(G) the memorandum dated February 18, 1998 from PPS to the holders of PPS
Common Stock (collectively, the "MERGER DISCLOSURE DOCUMENTS"). Each PPS
Signatory has had an opportunity to ask questions of and receive answers from
Concentra and PPS concerning the terms and conditions of the Agreement and to
obtain any additional information to the extent that Concentra or PPS
possesses such information or can acquire it without unreasonable effort or
expense, necessary to verify the accuracy of the information contained in the
Merger Disclosure Documents. Each PPS Signatory is acquiring the Concentra
Common Stock to be received by such PPS Signatory pursuant to this Agreement
for (i) such PPS Signatory and not for any other person and (ii) investment
purposes only and not with a view to, or in connection with the distribution
of such stock in violation of federal securities laws.
Section IV.5 RESTRICTIONS ON TRANSFER. Each PPS Signatory acknowledges
that if it should decide to dispose of any of the Concentra Common Stock to
be received by it in the Merger, it may do so only pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder (the "SECURITIES
ACT") or pursuant to an exemption from registration under the Securities Act.
In connection with any offer, resale, pledge or other transfer (individually
and collectively, a "TRANSFER") of any Concentra
-19-
<PAGE>
Common Stock other than pursuant to an effective registration statement,
Concentra may require that the transferor of the Concentra Common Stock
provide to Concentra an opinion of counsel which opinion shall be reasonably
satisfactory in form and substance to Concentra, to the effect that such
Transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and any state
or foreign securities laws. Each PPS Signatory agrees to the imprinting, so
long as appropriate, of substantially the following legends on certificates
representing the Concentra Common Stock received hereunder:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND ACCORDINGLY
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE CONCENTRA COMPANIES
The Concentra Companies jointly and severally represent and warrant to
PPS and the PPS Signatories as follows (with the understanding that PPS is
relying on such representations and warranties in entering into and
performing this Agreement):
Section V.1 ORGANIZATION AND GOOD STANDING; SUBSIDIARIES. Each of
Concentra and its subsidiaries is a corporation, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each state in which the
nature of its business or the ownership or leasing of its properties makes
such qualification necessary, except where the failure to be so qualified or
to be in good standing would not have a Concentra Material Adverse Effect (as
defined herein). Concentra is not in violation of any provisions of its
Certificate of Incorporation or Bylaws, and none of its subsidiaries is in
violation of their respective comparable organizational documents or bylaws,
including any certificate of designations relating to any preferred stock.
As used in this Agreement, "CONCENTRA MATERIAL ADVERSE EFFECT" means a
material adverse effect on the business, properties, assets, results of
operations or financial condition of Concentra and its subsidiaries taken as
a whole.
Section V.2 SUBSIDIARIES OF CONCENTRA. Concentra owns directly or
indirectly each of the outstanding shares of capital stock (or other
ownership interests having by their terms ordinary voting power to elect a
majority of directors or others performing similar functions with respect to
such subsidiary) of each of its subsidiaries. Each of the outstanding shares
of capital stock of each such subsidiary is duly authorized, validly issued,
fully paid and nonassessable, and is owned, directly or indirectly, by
Concentra. Each of the outstanding shares of capital stock of each subsidiary
of Concentra is owned, directly or indirectly, by Concentra free and clear of
all liens, pledges, security interests, claims or other encumbrances other
than liens in favor of First Union National Bank, as agent, under Concentra's
existing $200 million Amended and Restated Senior
-20-
<PAGE>
Credit Facility Agreement dated as of February 20, 1998 by and among
Concentra, as Borrower, and First Union National Bank, as Administrative
Agent, and Fleet National Bank, as Documentation Agent, and the other lenders
signatory thereto (the "CONCENTRA CREDIT AGREEMENT"), and liens imposed by
local law which are not material.
Section V.3 CAPITALIZATION. The authorized capital stock of Concentra
consists of 100,000,000 shares of Concentra Common Stock and 20,000,000
shares of preferred stock, no par value (the "CONCENTRA PREFERRED STOCK"). As
of January 31, 1998, (a) 38,675,271 shares of Concentra Common Stock were
issued and outstanding, (b) no shares of preferred stock were issued and
outstanding, (c) 3,291,246 shares of Concentra Common Stock were reserved of
Concentra for issuance upon conversion of the 6% Convertible Subordinated
Notes due 2001 of Concentra in the aggregate principal amount of $97,750,000
(the "CONCENTRA CONVERTIBLE NOTES") and (d) 26,482 shares of Concentra Common
Stock were reserved for issuance upon conversion of that certain 6%
Convertible Promissory Note dated October 1, 1993 issued by Concentra to John
Anderson, D.O. in connection with the Stock Purchase Agreement dated October
1, 1993 between a subsidiary of Concentra and John Anderson, D.O. (the
"ANDERSON NOTE"). Other than the Concentra Convertible Notes and the
Anderson Note, Concentra has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Concentra on any matter. All issued and outstanding
shares of Concentra Common Stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as disclosed in
the Concentra Reports (as defined herein), as of the date of this Agreement
there are not any existing or authorized options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or
commitments which obligate Concentra or any of its subsidiaries to issue,
transfer or sell any shares of capital stock of Concentra or any of its
subsidiaries.
Section V.4 AUTHORITY. Concentra and Merger Sub each has all requisite
corporate power and authority to enter into this Agreement and any
Transaction Documents to which it is a party and to consummate the
transactions contemplated hereby or thereby. The execution and delivery of
this Agreement and the other Transaction Documents to which Concentra or
Merger Sub is a party and the consummation by Concentra and Merger Sub of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary corporate action on the part of Concentra and Merger Sub. This
Agreement and the Transaction Documents to which Concentra or Merger Sub is a
party have been, or upon execution and delivery will be, duly executed and
delivered and constitute, or upon execution and delivery will constitute, the
valid and binding obligations of Concentra or Merger Sub, as applicable,
enforceable against it in accordance with their respective terms, subject as
to enforceability, to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
Section V.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution
and delivery of this Agreement and the other Transaction Documents to which
Concentra or Merger Sub is a party do not, and the performance by Concentra
and Merger Sub of the transactions contemplated hereby or thereby will not,
subject to obtaining the consents, approvals, authorizations, and permits and
making the filings described in this Section 5.5, (a) violate, conflict with,
or result in any breach of any provision of the Certificate of Incorporation
or Bylaws of Concentra or Merger Sub or the comparable organizational
documents or bylaws of any of its subsidiaries, (b) violate, conflict with,
-21-
<PAGE>
or result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under, or give any party the
right to terminate or accelerate (whether as a result of a change of control
of Concentra or its subsidiaries or otherwise as a result of this Agreement)
any obligation, or result in the loss of any benefit or give any person the
right to require any security to be repurchased, or give rise to the creation
of any lien upon any of the assets of Concentra or its subsidiaries under,
any of the terms, conditions or provisions of any loan or credit agreement,
note, bond, mortgage, indenture, deed of trust or any other agreement to
which Concentra or its subsidiaries is a party or by which Concentra or its
subsidiaries or any of their assets is bound or (c) violate any order, writ,
judgment, injunction, decree, statute, law, rule or regulation of any
Governmental Entity binding upon Concentra or its subsidiaries or by which or
to which any of the assets of Concentra or its subsidiaries are bound or
subject, other than with respect to clauses (b) and (c) above any violations,
conflicts, breaches or defaults that would not have a Concentra Material
Adverse Effect. No consent, approval, authorization or permit of or
registration, declaration, or filing with any Governmental Entity is required
by or with respect to Concentra or its subsidiaries in connection with the
execution and delivery of this Agreement and any other Transaction Documents
by Concentra or its subsidiaries or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of a premerger
notification report and any other filings required under the HSR Act and the
expiration or termination of any waiting period in connection therewith, (ii)
the filing and recordation of the Certificate of Merger as required by
Delaware law, (ii) applicable requirements, if any, of the Code and state,
local and foreign tax laws, (iii) the consents listed on Schedule 5.5; (iv)
filings with the SEC and state securities or "Blue Sky" authorities
contemplated hereby, and (v) where failure to obtain such consents,
approvals, authorizations or permits, or to make such registrations,
declarations or filings, would not prevent or delay consummation of any of
the transactions contemplated hereby in any material respect, or otherwise
prevent Concentra or Merger Sub from performing its obligations under this
Agreement or any Transaction Document in any material respect, and would not,
individually or in the aggregate, have a Concentra Material Adverse Effect.
Section V.6 PERMITS; COMPLIANCE. (a) Concentra and its subsidiaries
are in possession of all Permits necessary to own, lease and operate their
businesses and their other properties as they are now being conducted, except
where the failure to possess such Permits could not reasonably be expected to
have a Concentra Material Adverse Effect. There are no actions, proceedings
or investigations, pending or, to the Knowledge of Concentra, threatened
against Concentra or any of its subsidiaries that could reasonably be
expected to result in the loss, revocation, suspension or cancellation of a
Permit held by Concentra or a subsidiary of Concentra, except for any
suspension, loss or revocation that could not reasonably be expected to have
a Concentra Material Adverse Effect. To the Knowledge of Concentra, neither
Concentra nor any of its subsidiaries is in conflict with, in default under
or in violation of, and none of them has received, since December 31, 1995,
from any Governmental Entity any written notice with respect to any conflict
with, default under or violation of, (A) any law applicable to Concentra or
any of its subsidiaries or by or to which any of their respective properties
are bound or subject, (B) any judgment, order or decree applicable to
Concentra or any of its subsidiaries or (C) any of the Permits held by
Concentra or a subsidiary of Concentra, except for any such conflicts,
defaults or violations that could not reasonably be expected to have a
Concentra Material Adverse Effect.
Section V.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Concentra and its
subsidiaries have conducted their respective businesses only in the ordinary
course consistent with past practice. Since September 30, 1997, there has
not been (a) any event, circumstance or fact (whether or not
-22-
<PAGE>
covered by insurance), individually or in the aggregate, that has resulted in
a Concentra Material Adverse Effect, (b) any event, circumstance or fact
(whether or not covered by insurance), individually or in the aggregate, that
materially impairs the operation of the physical assets of Concentra or its
subsidiaries, (c) any material change by Concentra in its accounting methods,
principles or practices, (d) any entry by Concentra or any of its
subsidiaries into any agreement, commitment or transaction material to
Concentra and its subsidiaries taken as a whole, except in the ordinary
course of business and consistent with past practice or except in connection
with the negotiation and execution and delivery of this Agreement and the
other Transaction Documents, (e) any declaration, setting aside or payment of
any dividend or distribution in respect of any capital stock of Concentra or
any of its subsidiaries or any redemption, purchase or other acquisition of
any of Concentra's or any of its subsidiaries' securities, (f) other than
pursuant to the Concentra Plans or as required by law, any increase in,
amendment to, or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock
purchase or other employee benefit plan, (g) granted any general increase in
compensation, bonus or other benefits payable to the employees of Concentra
or its subsidiaries, except for increases occurring in the ordinary course of
business in accordance with its customary practice, (h) paid any bonus to the
employees of Concentra or its subsidiaries other than in the ordinary course
and consistent with past practice, (i) except for the amendment and
restatement of the Concentra Credit Agreement dated February 20, 1998 entered
into in connection with the transactions contemplated by this Agreement, any
incurrence of material indebtedness for borrowed money or assumption or
guarantee of indebtedness for borrowed money by Concentra or any of its
subsidiaries (other than loans from Concentra to any wholly-owned
subsidiary), or the grant of any lien on the material assets of Concentra or
its subsidiaries to secure indebtedness for borrowed money, (j) any sale or
transfer of any material assets of Concentra or its subsidiaries other than
in the ordinary course of business and consistent with past practice, or (k)
any material loan, advance or capital contribution to or investment in any
person by Concentra or any subsidiary of Concentra (excluding any loan,
advance or capital contribution by Concentra, or investment by Concentra in,
Concentra or any wholly-owned subsidiary of Concentra).
Section V.8 ABSENCE OF LITIGATION. Except as disclosed in the
Concentra Reports (as defined herein) filed and publicly available prior to
the date of this Agreement, there is no material claim, action, suit,
inquiry, judicial or administrative proceeding, grievance, or arbitration
pending or, to the Knowledge of Concentra, threatened against Concentra or
its subsidiaries or any of the assets of Concentra or its subsidiaries by or
before any arbitrator or Governmental Entity, nor are there any
investigations relating to Concentra or its subsidiaries or any of their
respective assets pending or, to the Knowledge of Concentra, threatened by or
before any arbitrator or Governmental Entity. Except as disclosed in the
Concentra Reports, there is no judgment, decree, injunction, order,
determination, award, finding or letter of deficiency of any Governmental
Entity or arbitrator, or settlement agreement, outstanding against Concentra,
any of its subsidiaries or any of their respective assets. There is no
claim, action, suit, inquiry or judicial or administrative proceeding pending
or, to the Knowledge of Concentra, threatened against Concentra or any of its
subsidiaries relating to the transactions contemplated by this Agreement or
the other Transaction Documents.
Section V.9 TAXES. All material Tax Returns required to be filed by or
with respect to Concentra, each of its subsidiaries, and any affiliated,
consolidated, combined, unitary or similar group of which Concentra or any of
its subsidiaries is or was a member, have been duly and timely filed (taking
into account all valid extensions of filing dates), and all such Tax Returns
are true,
-23-
<PAGE>
correct and complete in all material respects. Concentra, each of its
subsidiaries, and any affiliated, consolidated, combined, unitary or similar
group of which Concentra or any of its subsidiaries is or was a member, has
duly and timely paid (or there has been paid on its behalf) all material
Taxes that are due, except for Taxes being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
in Concentra's balance sheet dated September 30, 1997 (the "CONCENTRA
FINANCIAL STATEMENTS"), in accordance with GAAP.
Section V.10 CONTRACTS AND AGREEMENTS. Neither Concentra nor any of
its subsidiaries is, and, to the Knowledge of Concentra, no other party
thereto is, in default (and no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a default) and
neither Concentra nor any of its subsidiaries has received any notice of
default or termination, waived any right or assigned or otherwise transferred
any right, under any written and oral contract, commitment, lease or other
agreement (including, without limitation, promissory notes, loan agreements
and other evidence of indebtedness) to which Concentra or any of its
subsidiaries is a party or by which any of their respective properties are
bound which default, termination or waiver, assignment or other transfer
could reasonably be expected to result in a Concentra Material Adverse Effect.
Section V.11 CERTAIN BUSINESS PRACTICES. To Concentra's Knowledge,
except as set forth in Schedule 5.10, none of Concentra or any of its
subsidiaries, or any directors, officers, agents or employees of Concentra or
any of its subsidiaries (in their capacities as such) have (a) used any funds
for unlawful contributions, gifts, entertainment or other unlawful purposes
relating to political activity, (b) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (c) made any other unlawful
payment.
Section V.12 PROPERTIES. To the Knowledge of Concentra, Concentra and
its subsidiaries have good and marketable title, free and clear of all liens,
the existence of which could reasonably be expected to have a Concentra
Material Adverse Effect, to all of their properties and assets whether
tangible or intangible, real, personal or mixed, reflected in the Concentra
Financial Statements (as hereinafter defined) as being owned by Concentra and
its subsidiaries as of the date thereof, other than (a) any properties or
assets that have been sold or otherwise disposed of in the ordinary course of
business since the date of such Concentra Financial Statements, (b) liens
disclosed in the notes to such Concentra Financial Statements, (c) liens
arising in the ordinary course of business and (d) liens granted pursuant to
the Concentra Credit Agreement. All buildings, and all fixtures, equipment
and other property and assets that are material to the business of Concentra
and its subsidiaries, taken as a whole, that are held under leases or
sub-leases by Concentra or any of its subsidiaries (excluding any leases or
sub-leases that are terminable by the lessor upon 30 or fewer days notice)
are held under valid instruments enforceable against Concentra or one of its
subsidiaries in accordance with their respective terms, subject to applicable
laws of bankruptcy, insolvency or similar laws relating to creditors' rights
generally and to general principles of equity (whether applied in a
proceeding in law or equity).
Section V.13 INTELLECTUAL RIGHTS. To the Knowledge of Concentra,
Concentra or one of its subsidiaries has good and marketable title to or the
right to use all registered patents, trademarks, servicemarks, tradenames,
copyrights and applications therefor owned by or registered in the name of
Concentra and its subsidiaries, or in which Concentra or any of its
subsidiaries has any right, license or interest (the "CONCENTRA INTELLECTUAL
PROPERTY RIGHTS") and all inventions, processes,
-24-
<PAGE>
designs, formulae, trade secrets and know-how necessary for the operation of
the businesses of Concentra and its subsidiaries without the payment of any
royalty or similar payment. To the Knowledge of Concentra, neither Concentra
nor any of its subsidiaries is infringing any patent, trademark, servicemark,
tradename or copyright of others, and Concentra is not aware of any
infringement by others of any such rights owned by Concentra and its
subsidiaries.
Section V.14 INSIDER INTERESTS. Except as disclosed in the Concentra
Reports (as defined herein), no officer or director of Concentra or holder of
more than five percent of Concentra Common Stock outstanding on a
fully-diluted basis has any interest in any material property, real or
personal, tangible or intangible, including without limitation, any computer
software or Concentra Intellectual Property Rights, used in or pertaining to
the business of Concentra or any subsidiary of Concentra, except for the
ordinary rights of a stockholder or employee stock optionholder.
Section V.15 ENVIRONMENTAL MATTERS. The real property and facilities
owned, operated and leased by Concentra or its subsidiaries and the
operations of Concentra and its subsidiaries thereon comply and have at all
times complied in all material respects with all applicable laws and rules of
common law pertaining to the environment, natural resources and public or
employee health and safety, including all Environmental Laws. Concentra does
not have and has not assumed any liability for any remediation or other
obligations in connection with any Environmental Laws that could reasonably
be expected to result in a Concentra Material Adverse Effect.
Section V.16 VOTE REQUIRED. Concentra has obtained the approval of its
Board of Directors and the votes of the holders of all classes and series of
Concentra capital stock necessary to adopt and approve this Agreement and the
transactions contemplated hereby under Delaware Law.
Section V.17 BUSINESS RELATIONS. Concentra does not Know or have any
reason to believe that any customer or supplier of Concentra or any
subsidiary of Concentra will cease or otherwise refuse to do business with
Concentra or any subsidiary of Concentra after the Effective Time in the same
manner as such business was previously conducted with Concentra or any
subsidiary of Concentra. Concentra has not received any notice of any
disruption (including delayed deliveries or allocations by suppliers) in the
availability of the materials, services or products used by Concentra or any
subsidiary of Concentra in the conduct of their businesses, nor is Concentra
aware of any facts which could lead it to believe that the operations of
Concentra or any of its subsidiaries will be subject to any such material
disruption.
Section V.18 AFFILIATES. Schedule 5.18 identifies all persons who, to
the Knowledge of Concentra, may be deemed to be "affiliates" of Concentra as
such term is used in Accounting Series Releases No. 130 and No. 135 of the
SEC.
Section V.19 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Concentra.
-25-
<PAGE>
Section V.20 SEC DOCUMENTS.
(a) Concentra and its predecessors have filed all forms, reports
and documents required to be filed by it with the SEC since May 15, 1995
(collectively, the "CONCENTRA REPORTS"). As of their respective dates, the
Concentra Reports and any such reports, forms and other documents filed by
Concentra with the SEC after the date of this Agreement (i) complied, or will
comply, as to form in all material respects with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not, or will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representation
in clause (ii) of the preceding sentence shall not apply to any misstatement
or omission in any Concentra Report filed prior to the date of this Agreement
which was superseded by a subsequent Concentra Report filed prior to the date
of this Agreement. No Concentra subsidiary is required to file any report,
form or other document with the SEC.
(b) Each of the consolidated balance sheets of Concentra included
in or incorporated by reference into the Concentra Reports (including the
related notes and schedules) (collectively, the "CONCENTRA BALANCE SHEETS")
fairly present the consolidated financial position of Concentra and
Concentra's subsidiaries as of their respective dates, and each of the
consolidated statements of income, retained earnings and cash flows of
Concentra included in or incorporated by reference into the Concentra Reports
(including any related notes and schedules) (collectively the "CONCENTRA
INCOME STATEMENTS" and together with the Concentra Balance Sheets, the
"CONCENTRA FINANCIAL STATEMENTS") fairly present the results of operations,
retained earnings or cash flows, as the case may be, of Concentra and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect). The Concentra Financial Statements, including
the notes thereto, were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except to the extent
disclosed therein or required by changes in GAAP). Neither Concentra nor any
of its subsidiaries have any liabilities or obligations of any kind (whether
accrued, absolute, fixed, contingent or otherwise) that are not reflected on,
or reserved against, in the balance sheet contained in the Concentra
Financial Statements or in the notes thereto, except for (i) liabilities or
obligations arising in the ordinary course of business since September 30,
1997 and (ii) liabilities or obligations which would not be required to be
presented in financial statements or the notes thereto prepared in accordance
with GAAP.
Section V.21 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
Concentra has received the written opinion of Piper Jaffray Inc. to the
effect that, as of the date of this Agreement, the Merger Consideration is
fair, from a financial point of view, to the holders of Concentra Common
Stock.
ARTICLE VI
CONCURRENT DELIVERIES
At or before the Closing, the following documents were delivered and the
following actions occurred:
-26-
<PAGE>
(a) PPS TAX OPINION. PPS shall have received from McDermott, Will
& Emery a written opinion, dated as of the Closing Date, to the effect that
(i) the Merger, when effected in accordance with this Agreement, will qualify
as a reorganization under Section 368(a) of the Code, (ii) no gain or loss
will be recognized by Concentra, PPS or Merger Sub as a result of the Merger,
and (iii) no gain or loss will be recognized by the holders of PPS Common
Stock upon the exchange of their PPS Common Stock solely for Concentra Common
Stock (except with respect to cash received in lieu of fractional shares of
Concentra Common Stock), and a copy of such opinion shall have been delivered
to Concentra.
(b) AFFILIATE LETTERS. Each person identified as an affiliate of
Concentra and PPS on SCHEDULES 3.20 and 5.19, respectively, shall have
delivered an executed letter agreement substantially in the form of EXHIBIT B
or EXHIBIT C, as applicable, hereto.
(c) CONCENTRA POOLING LETTER. Concentra shall have received an
opinion, dated the Closing Date, from Concentra's independent auditors,
Arthur Andersen LLP, to the effect that the business combination to be
effected by the Merger would be properly accounted for as a
pooling-of-interests.
(d) PPS POOLING LETTER. PPS shall have received an opinion, dated
the Closing Date, from PPS's independent auditors, Arthur Andersen LLP, to
the effect that the business combination to be effected by the Merger would
be properly accounted for as a pooling-of-interests.
(e) CONSENTS UNDER AGREEMENTS. Concentra shall have been furnished
with evidence reasonably satisfactory to it of (i) the consent or approval of
each person that is a party to a contract or agreement identified in SCHEDULE
3.11 whose consent or approval shall be required in order to permit the
consummation of the transactions contemplated by this Agreement; and (ii) the
consent to the Merger of each PPS Signatory listed on Schedule 3.4 hereto.
(f) LEGAL OPINION. Concentra shall have received from McDermott,
Will & Emery a written opinion dated the Closing Date, in form and substance
satisfactory to Concentra, which opinion shall expressly provide that it may
be relied upon by the lenders, underwriters or other sources of financing, if
any, with respect to the transactions contemplated by this Agreement.
(g) CONVERSION OF PPS CONVERTIBLE NOTES. All Convertible
Subordinated Notes shall have been converted into PPS Convertible Preferred
Stock and PPS Redeemable Preferred Stock and all PPS Convertible Preferred
Stock shall have been converted into PPS Common Stock on or prior to the
Closing Date.
(h) TERMINATION OF PPS AGREEMENTS. The PPS Amended and Restated
Shareholders' Agreement dated as of July 31, 1997, the PPS Registration
Rights Agreement dated as of August 30, 1996, the PPS Amendment to
Registration Rights Agreement dated as of July 31, 1997 and the PPS
Registration Rights Agreement dated as of July 31, 1997 shall each have been
terminated and PPS shall have no further obligations or liabilities
thereunder.
(i) DELIVERY OF CERTIFICATES REPRESENTING PPS STOCK. Each holder of
PPS Common Stock (excluding holders of Dissenting Shares who elect to pursue
their dissent and appraisal rights under Delaware Law) and PPS Redeemable
Preferred Stock shall have delivered to
-27-
<PAGE>
Concentra the certificates representing such PPS Common Stock and PPS
Redeemable Preferred Stock, as applicable, which certificates shall be
properly endorsed for transfer or accompanied by duly executed stock powers
in either case executed in blank or in favor of Concentra or its designee.
(j) LEGAL OPINION. PPS and the PPS Signatories shall have received
from Concentra's General Counsel a written opinion dated the Closing Date in
form and substance satisfactory to PPS.
(k) INTEREST PAYMENTS. All accrued and unpaid interest on the
Convertible Subordinated Notes shall have been paid prior to the conversion
thereof.
(l) PPS INDEBTEDNESS. On or before the Closing Date, (i) all
principal and accrued and unpaid interest on all bank debt of PPS outstanding
as of the Closing Date and (ii) all principal and accrued and unpaid interest
on all Subordinated Notes of PPS issued pursuant to that certain Subordinated
Loan and Guaranty Agreement dated as of July 31, 1997 by and among PPS and
the purchasers named therein shall have been paid in full.
(m) CONCENTRA STOCK CERTIFICATES. On the Closing Date, Concentra
shall have delivered to each holder of PPS Common Stock and PPS Redeemable
Preferred Stock (other than holders of Dissenting Shares who have elected to
pursue their dissent and appraisal rights under Delaware Law and holders of
Cash Shares who have elected to receive Cash Consideration pursuant to
Section 2.1(a)) a certificate representing the number of shares of Concentra
Common Stock plus cash in lieu of fractional shares which such holder has the
right to receive pursuant to Article II hereof.
(n) CASH CONSIDERATION. On the Closing Date, Concentra shall have
delivered to each holder of Cash Shares who has elected to receive Cash
Consideration the Cash Consideration which such holder has the right to
receive pursuant to Section 2.1 hereof.
(o) REGISTRATION RIGHTS AGREEMENT. Concentra and each of the PPS
Signatories have executed and delivered that certain Registration Rights
Agreement of even date herewith by and among Concentra and the PPS
Signatories.
(p) STANDSTILL AGREEMENT. Concentra and each of Steven E. Nelson,
James T. Doody, Don P. Greenberg and Byron W. Smith have executed and
delivered that certain Standstill Agreement of even date herewith by and
among Concentra and such person.
(q) INDEMNIFICATION ESCROW AGREEMENT. Concentra, the Escrow Agent
and each of the PPS Signatories have executed and delivered that certain
Indemnification Escrow Agreement of even date herewith by and among
Concentra, the Escrow Agent and the PPS Signatories.
(r) NON-COMPETITION AGREEMENTS. PPS and each of Steven E. Nelson,
Don P. Greenberg, James T. Doody, Byron W. Smith, Craig W. Cunningham, Robert
C. Trumpy, Sonny Bloom, Brent R. Anderson, Thomas J. Bartlett and Rosemary
Weiner have executed and delivered individual Non-Competition Agreements,
each of even date herewith by and between PPS and each such person.
-28-
<PAGE>
(s) EMPLOYMENT AGREEMENTS. PPS and each of Steven E. Nelson, James
T. Doody, Don P. Greenberg, Byron W. Smith, Craig W. Cunningham, Robert C.
Trumpy, Sonny Bloom and Thomas J. Bartlett have executed and delivered
individual Employment Agreements, each of even date herewith by and between
Concentra and each such person.
(t) NASDAQ ADDITIONAL LISTING APPLICATION. The shares of Concentra
Common Stock to be issued in the Merger and those reserved for issuance upon
the exercise of the assumed PPS Options shall have been approved for
quotation on the Nasdaq National Market.
ARTICLE VII
POST-CLOSING OBLIGATIONS
Section VII.1 ANNOUNCEMENT OF POST-MERGER RESULTS. No later than May
15, 1998 Concentra will make public the results of operations for the quarter
ending March 31, 1998 and will file with the SEC a Form 10-Q or Form 8-K with
respect thereto. Concentra agrees that such Form 10-Q or Form 8-K (as the
case may be) shall include all disclosure necessary to satisfy the
requirement(s) under the applicable pooling rules (including ASR No. 135 and
SAB No. 65) to allow affiliates of Concentra or PPS to reduce their risk
relative to their stockholdings (E.G. publication of at least 30 days of
combined operating results including combined sales and net income).
Section VII.2 FORM S-8 REGISTRATION STATEMENT. Promptly (but in no
event later than three business days) following the Closing Date, Concentra
shall file with the SEC and use its commercially reasonable efforts to have
declared effective as soon as possible following such filing, a Form S-8
registration statement with respect to the Pippen Options listed on Annex C
attached hereto.
Section VII.3 INCOME TAX RETURNS.
(a) As soon as practicable after the closing, PPS shall prepare its
1997 federal and state S corporation income tax returns (the "1997 TAX
RETURNS"). The PPS Signatories may confer with PPS's auditors and employees
concerning the preparation of such 1997 Tax Returns and the income or loss
reported thereon. The 1997 Tax Returns shall be prepared on a basis
consistent with PPS's historical practices. The 1997 Tax Returns shall be
filed by PPS no later than the due dates for such returns (including
extensions, if authorized by the PPS Signatories). The parties agree to
negotiate in good faith to resolve any disagreement between the PPS
Signatories and PPS as to the reporting of any tax items on the 1997 Tax
Returns.
(b) As soon as practicable after the close of PPS's tax year, PPS
shall prepare its final federal and state S corporation income tax returns
(the "FINAL TAX RETURNS"). The PPS Signatories may confer with PPS's
auditors and employees concerning the preparation of such Final Tax Returns
and the income or loss reported thereon. The Final Tax Returns shall, in
accordance with Internal Revenue Code Section 1362(e)(6), reflect the income
of PPS for the period beginning January 1, 1998 and ending on the Closing
Date and shall otherwise be prepared on a basis consistent with PPS's
historical practices. The Final Tax Returns shall be filed by PPS no later
than the due dates for such returns (including extensions, if authorized by
the PPS
-29-
<PAGE>
Signatories). The parties agree to negotiate in good faith to resolve any
disagreement between the PPS Signatories and PPS as to the reporting of any
Tax Items on the Final Tax Returns.
Section VII.4 TAX ADJUSTMENTS.
(a) Concentra shall not, without the prior written consent of the
PPS Signatories (which consent shall not be unreasonably withheld), amend any
income tax return of PPS for any taxable period of PPS ending on or prior to
the Closing Date ("PRE-CLOSING TAX PERIOD").
(b) Concentra shall promptly notify the PPS Signatories in writing
upon receipt by Concentra or PPS of notice of any pending or threatened tax
audits of, or assessments against, PPS for any Pre-Closing Tax Period. The
PPS Signatories shall have the right to control, or to represent PPS in, any
tax audit or administrative or court proceedings relating to any Pre-Closing
Tax Period and to employ counsel of their choice at their expense. Concentra
shall have the right to participate in any such proceeding and the PPS
Signatories agree that they will cooperate with PPS and its counsel in any
material aspect of any such proceeding. In that regard, the PPS Signatories
shall not, without the consent of Concentra (which shall not be unreasonably
withheld), agree to any settlement which creates an adjustment of a timing
nature which results unfavorably in the form of increased taxable income or
increased tax liability to Concentra or PPS for any taxable period of PPS
commencing after the Closing Date.
(c) PPS shall permit the PPS Signatories and their counsel to have
full access to PPS's books and records and to consult with PPS's auditors and
employees, upon reimbursement of the reasonable cost of Concentra associated
therewith, to the extent such access and consultation are necessary or
helpful with respect to any pending or threatened tax audits, or assessments
against, PPS for any Pre-Closing Tax Period.
Section VII.5 TAX DIVIDENDS. Concentra acknowledges and agrees that PPS
has declared, and PPS has paid and after the date hereof will pay to the PPS
Signatories, dividends (the "TAX DIVIDENDS") in an amount sufficient to
satisfy their tax liabilities arising out of their status as shareholders of
PPS during the Pre-Closing Tax Period. Prior to the Closing Date, PPS shall
have declared a formula dividend to the PPS Signatories in an aggregate
amount equal to the excess of (i) 43.99% of the taxable income of PPS for the
1997 and 1998 tax years, over (ii) the amount of dividends previously paid by
PPS with respect to the 1997 and 1998 tax years. The dividend payable with
respect to the 1997 tax year shall be paid not later than ten days prior to
the filing of the 1997 Tax Return. The dividend payable with respect to the
1998 tax year shall be paid not later than ten days prior to the filing of
the Final Tax Returns.
Section VII.6 TAX TREATMENT. Neither PPS nor Concentra nor any of
Concentra's subsidiaries or other affiliates shall (i) knowingly take any
action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code or (ii) knowingly enter into any contract, agreement,
commitment or arrangement with respect to the foregoing.
Section VII.7 DIRECTORS' AND OFFICERS' INSURANCE. Concentra shall pay
$25,000 to purchase extended reporting period coverage for the directors' and
officers' liability insurance policy maintained by PPS immediately prior to
the Effective Time (provided that Concentra may substitute therefor policies
of at least the same coverage and amounts containing terms and
-30-
<PAGE>
conditions that are no less advantageous to the former directors and officers
of PPS and which coverages and amounts shall be no less than the coverages
and amounts provided at the time for Concentra's directors and officers) with
respect to matters arising on or before the Effective Time.
ARTICLE VIII
INDEMNIFICATION
Section VIII.1 INDEMNIFICATION OF CONCENTRA INDEMNIFIED PARTIES.
(a) Subject to the overall limitations and time limitations set
forth in Section 8.5 below and the limitations on recourse set forth in
Section 8.6 below, each PPS Signatory, jointly and severally, agrees to
indemnify and hold harmless Concentra and each officer, director, employee,
consultant, stockholder and affiliate of Concentra (which after the Closing
shall include PPS) (collectively, the "CONCENTRA INDEMNIFIED PARTIES") from
and against any and all damages, losses, claims, liabilities, demands,
charges, suits, penalties, costs and expenses (including court costs and
attorneys' fees and expenses incurred in investigating and preparing for any
litigation or proceeding) (collectively, "DAMAGES") which any of the
Concentra Indemnified Parties may sustain, or to which any of Concentra
Indemnified Parties may be subjected, relating to or arising directly or
indirectly out of any breach or default by PPS of any of its representations
or warranties contained in Article III hereof (determined without regard to
any qualifications as to materiality in such representations or warranties)
or any covenants or agreements under this Agreement. Any Damages which any
Concentra Indemnified Party sustains, or to which any of the Concentra
Indemnified Parties may be subjected, are referred to herein as "CONCENTRA
INDEMNIFIED COSTS".
(b) Subject to the overall limitations and time limitations set
forth in Section 8.5 below and the limitations on recourse set forth in
Section 8.6 below, each PPS Signatory, severally and not jointly, agrees to
indemnify and hold harmless each Concentra Indemnified Party from and against
any and all Damages which any of the Concentra Indemnified Parties may
sustain, or to which any of the Concentra Indemnified Parties may be
subjected, related or arising directly or indirectly out of any breach or
default by such PPS Signatory of any of his, her or its representations or
warranties contained in Article IV hereof or any covenants or agreements
under this Agreement.
Section VIII.2 INDEMNIFICATION OF PPS INDEMNIFIED PARTIES. Subject to
the overall limitations and time limitations set forth in Section 8.5 below
and the limitations on recourse set forth in Section 8.6 below, Concentra
agrees to indemnify and hold harmless PPS, each of the PPS Signatories and
each officer, director, authorized representative, employee, consultant,
stockholder, limited partner, general partner or affiliate of PPS or any PPS
Signatory which is not a natural person (collectively, the "PPS INDEMNIFIED
PARTIES" and together with Concentra Indemnified Parties, the "INDEMNIFIED
PARTIES") from and against any and all Damages which any of the PPS
Indemnified Parties may sustain, or to which any of the PPS Indemnified
Parties may be subjected, related to or arising directly or indirectly out of
any breach or default by Concentra of any of its representations or
warranties contained in Article V hereof (determined without regard to any
qualifications as to materiality in such representations or warranties),
covenants or agreements under this Agreement. Any Damages which any PPS
Indemnified Party sustains, or to which any of the PPS Indemnified Parties
may be subjected, are referred to herein as the "PPS INDEMNIFIED
-31-
<PAGE>
COSTS" and together with Concentra Indemnified Costs, the "INDEMNIFIED
COSTS". Any Indemnified Costs arising out of or relating to any breach or
default by any party who is obligated to provide indemnification hereunder
(an "INDEMNIFYING PARTY") of any of his, her or its representations,
warranties, covenants or agreements under this Agreement are referred to
herein as Indemnified Representation Costs.
Section VIII.3 DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party
shall give prompt written notice to any Indemnifying Party of the
commencement or assertion of any action, proceeding, demand or claim by a
third party (collectively, a "THIRD-PARTY ACTION") in respect of which such
Indemnified Party shall seek indemnification hereunder. Any failure so to
notify an Indemnifying Party shall not relieve such Indemnifying Party from
any liability that it, he or she may have to such Indemnified Party under
this Article VIII except to the extent the failure to give such notice
materially and adversely prejudices such Indemnifying Party. The
Indemnifying Party shall have the right to assume control of the defense of,
settle or otherwise dispose of such third-party action on such terms as he,
she or it deems appropriate; PROVIDED, HOWEVER, that:
(a) The Indemnified Party shall be entitled, at his, her or its own
expense, to participate in the defense of such third-party action (PROVIDED,
HOWEVER, that the Indemnifying Parties shall pay the attorneys' fees of the
Indemnified Party if (i) the employment of separate counsel shall have been
authorized in writing by any such Indemnifying Party in connection with the
defense of such third-party action, (ii) the Indemnifying Parties shall not
have employed counsel reasonably satisfactory to the Indemnified Party to
have charge of such third-party action, or (iii) the Indemnified Party's
counsel shall have advised the Indemnified Party in writing, with a copy to
the Indemnifying Party, that there is a conflict of interest that could make
it inappropriate under applicable standards of professional conduct to have
common counsel);
(b) The Indemnifying Party shall obtain the prior written approval
of the Indemnified Party before entering into or making any settlement,
compromise, admission or acknowledgment of the validity of such third-party
action or any liability in respect thereof if, pursuant to or as a result of
such settlement, compromise, admission or acknowledgment, injunctive or other
equitable relief would be imposed against the Indemnified Party;
(c) To the extent that the Indemnified Party participates in the
defense of any third party action as contemplated by Section 8.3(a), the
Indemnified Party shall obtain the prior written approval of the Indemnifying
Party before entering into or making any settlement, compromise, admission or
acknowledgment of the validity of such third party action or any liability in
respect thereof.
(d) No Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a release from all liability in respect of such
third-party action; and
(e) The Indemnifying Party shall not be entitled to control (but
shall be entitled to participate at his, her or its own expense in the
defense of), and the Indemnified Party shall be entitled to have sole control
over, the defense or settlement, compromise, admission or acknowledgment of
any third-party action (i) as to which the Indemnifying Party fails to assume
the defense within a reasonable length of time or (ii) to the extent the
third-party action seeks an order,
-32-
<PAGE>
injunction or other equitable relief against the Indemnified Party which, if
successful, would materially adversely affect the business, operations,
assets or financial condition of the Indemnified Party; PROVIDED, HOWEVER,
that the Indemnified Party shall make no settlement, compromise, admission or
acknowledgment that would give rise to liability on the part of any
Indemnifying Party without the prior written consent of such Indemnifying
Party.
The parties hereto shall extend reasonable cooperation in connection with the
defense of any third-party action pursuant to this Article VIII and, in
connection therewith, shall furnish such records, information, and testimony
and attend such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested.
Section VIII.4 DIRECT CLAIMS. In any case in which an Indemnified Party
seeks indemnification hereunder which is not subject to Section 8.3 because
no third-party action is involved, the Indemnified Party shall notify the
Indemnifying Party in writing of any Indemnified Costs which such Indemnified
Party claims are subject to indemnification under the terms hereof. The
failure of the Indemnified Party to exercise promptness in such notification
shall not amount to a waiver of such claim except to the extent the resulting
delay materially prejudices the position of the Indemnifying Party with
respect to such claim.
Section VIII.5 LIMITATIONS. Subject to Section 8.6 and Section 9.12
hereof, the following limitations shall apply to claims for Indemnified Costs
made pursuant to this Article VIII:
(a) MINIMUM LOSS. No Indemnifying Party shall be required to
indemnify an Indemnified Party under this Article VIII for any Indemnified
Representation Costs except to the extent that the aggregate amount of
Indemnified Costs for which the Indemnified Party is otherwise entitled to
indemnification pursuant to this Article VIII exceeds $750,000 (the "MINIMUM
LOSS"), whereupon the Indemnified Party shall be entitled to be paid the
excess of (A) the aggregate amount of such Indemnified Representation Costs
over (B) the Minimum Loss, subject to the limitations on recovery and
recourse set forth in this Section 8.5 and in Section 8.6 below. For
purposes of determining the aggregate amount of Minimum Loss suffered by an
Indemnified Party, each representation and warranty contained in this
Agreement for which indemnification can be or is sought hereunder (other than
those contained in Section 3.11 and Section 3.23) shall be read (including,
without limitation, for purposes of determining whether a breach of such
representation or warranty has occurred) without regard to materiality
qualifications that may be contained therein (including a PPS Material
Adverse Effect or a Concentra Material Adverse Effect). As used in the
foregoing provisions of this Section 8.5(a), an "INDEMNIFIED PARTY" refers to
all of the Concentra Indemnified Parties on the one hand and all of the PPS
Indemnified Parties on the other hand, and an "INDEMNIFYING PARTY" refers to
Concentra on the one hand and PPS and each of the PPS Signatories, taken
together, on the other hand.
(b) LIMITATION AS TO TIME. No Indemnifying Party shall be liable
for any Indemnified Costs pursuant to this Article VIII relating to or
arising out of any breach of a representation or warranty contained in this
Agreement unless a written claim for indemnification in accordance with
Section 8.3 or 8.4 is given by the Indemnified Party to the Indemnifying
Party with respect thereto by 5:00 p.m., Eastern time, by the 182nd day after
the Closing Date. Notwithstanding anything in this Agreement to the
contrary, there shall be no time limitation with respect to claims relating
to or arising out of a breach of a covenant or agreement contained in this
Agreement or claims contemplated by Section 9.12 hereof.
-33-
<PAGE>
(c) LIABILITY CAP. Without limiting any of the foregoing
provisions of this Section 8.5, the parties hereto agree that the
indemnification obligations of PPS and the PPS Signatories under this Article
VIII shall be limited to the Escrowed Consideration and the indemnification
obligations of Concentra under this Article VIII shall be limited to an
amount equal to $5,250,000 in Indemnified Costs.
(d) LIMITATIONS ON INDEMNIFICATION. Article VIII shall not apply
to any claims arising under or related to the Non-Competition Agreements, the
Registration Rights Agreement, the Standstill Agreement, the Employment
Agreements, the Escrow Agreement or the Affiliate Letters.
Section VIII.6 RECOURSE AGAINST ESCROWED CONSIDERATION. Subject to
Section 9.12 hereof, any claim by a Concentra Indemnified Party against any
PPS Signatory for Concentra Indemnified Costs payable under this Article
VIII, shall be payable only out of the Escrowed Consideration for all amounts
due to the Concentra Indemnified Party from such PPS Signatory with respect
to such claim and shall be payable in an amount not to exceed the Maximum
Escrow Amount (as defined below) of such PPS Signatory. In no event shall
the Concentra Indemnified Party be entitled to be paid out of the Escrowed
Consideration in respect of claims against a PPS Signatory an amount in
excess of such PPS Signatory's Maximum Escrow Amount. In the event of any
claim pursuant to Section 8.1(a) or 8.1(b) by a Concentra Indemnified Party
against one or more PPS Signatories other than a claim contemplated by
Section 9.12, each such PPS Signatory's Maximum Escrow Amount shall be
reduced (but not below zero) by such PPS Signatory's PRO RATA portion,
determined in accordance with the percentage set forth opposite such PPS
Signatory's name on ANNEX D, of the amount paid out of the Escrowed
Consideration in respect of such claim (or, if applicable, such PPS
Signatory's Maximum Escrow Amount shall be reduced (but not below zero), by
the portion of such PPS Signatory's Maximum Escrow Amount as may be set forth
in written release instructions executed and delivered to the Escrow Agent by
the PPS Signatory Representative and/or the TA Signatories, as applicable),
and, to the extent that the portion of such claim for which such PPS
Signatory is liable exceeds such PPS Signatory's Maximum Escrow Amount as of
the time of payment of such claim out of the Escrowed Consideration, then the
Concentra Indemnified Party shall not be entitled to seek payment from such
PPS Signatory directly for such excess; PROVIDED, that with respect to claims
arising out of or based upon a breach of a representation or warranty
contained in Article III hereof, the Concentra Indemnified Party shall then
be entitled to seek the remaining amount of such claim from such other PPS
Signatories whose respective Maximum Escrow Amounts exceed zero, PRO RATA
based upon the Maximum Escrow Amounts of such PPS Signatories as of the time
of payment of such claim, until such claim has been paid in full or each PPS
Signatory's Maximum Escrow Amount has been reduced to zero. For purposes of
this Section 8.6, a PPS Signatory's "MAXIMUM ESCROW AMOUNT" shall mean, at
any time, such PPS Signatory's PRO RATA share of the Escrowed Consideration,
less any amounts previously deducted from such PPS Signatory's Maximum Escrow
Amount in accordance with this Section 8.6. For the purposes of satisfying a
claim for Concentra Indemnified Costs under the Section 8.6, a share of
Escrowed Stock shall be valued at an amount equal to the average closing
price of the Concentra Common Stock on the Nasdaq National Market (or such
other quotation system or exchange on which Concentra Common Stock is then
listed or quoted) as reported by the Wall Street Journal for the 20
consecutive trading days ending five trading days prior to the payment of
such claim. Subject to the provisions of Section 9.12, the parties hereto
intend and agree that, notwithstanding anything to the contrary stated in any
other paragraph of this Agreement, the Concentra
-34-
<PAGE>
Indemnified Parties' sole recourse against the PPS Signatories for any claim
with respect to a breach of this Agreement shall be governed by, and subject
to the terms and provisions of, the Escrow Agreement (a form of which is
attached thereto as EXHIBIT A), and that the maximum aggregate liability for
the PPS Signatories under this Article VIII shall in no event exceed the
value of Escrowed Consideration.
Section VIII.7 INSTRUCTIONS TO ESCROW AGENT. Each PPS Signatory other
than the TA Stockholders hereby covenants and agrees with Concentra that, if
such PPS Signatory is or becomes obligated to indemnify a Concentra
Indemnified Party for Concentra Indemnified Costs under this Article VIII,
such PPS Signatory hereby authorizes and directs the PPS Signatory
Representative (hereinafter defined) to, on behalf of such PPS Signatory,
execute and deliver to the Escrow Agent written instructions to release to
such Concentra Indemnified Party the amount of Escrowed Consideration that is
necessary to indemnify the Concentra Indemnified Party for such Concentra
Indemnified Costs.
Section VIII.8 APPOINTMENT OF PPS SIGNATORY REPRESENTATIVE. By the
execution and delivery of this Agreement, each PPS Stockholder other than the
TA Stockholders hereby irrevocably constitutes and appoints Steven E. Nelson
as the true and lawful agent and attorney-in-fact (the "PPS STOCKHOLDER
REPRESENTATIVE") of such PPS Signatory with full power of substitution to act
in the name, place and stead of such PPS Signatory with respect to (a) the
power to execute any amendment to this Agreement as the PPS Stockholder
Representative shall deem necessary or appropriate in his sole discretion,
(b) delivery of the written instructions described in Section 8.7 on behalf
of such PPS Signatory, and (c) the performance of the obligations and rights
of such PPS Signatory under the Escrow Agreement, including, without
limitation, the power to execute the Escrow Agreement and any amendments
thereto on behalf of such PPS Signatory, to do or refrain from doing all such
further acts and things, and to execute, deliver and receive all such
documents, waivers, extensions and amendments as such PPS Stockholder
Representative shall deem necessary or appropriate in his sole discretion in
connection with the administration of the Escrow Agreement (and any such
actions shall be binding on such PPS Signatory).
Concentra and any other person, may conclusively and absolutely rely,
without inquiry, upon any action of the PPS Stockholder Representative as the
action of each PPS Signatory (other than the TA Stockholders) in all matters
referred to herein, and each such PPS Signatory confirms all that the PPS
Stockholder Representative shall do or cause to be done by virtue of his
appointment as PPS Stockholder Representative. All actions by the PPS
Stockholder Representative in his capacity as such are acknowledged by the
parties hereto to be taken by it solely as agent and attorney-in-fact for the
PPS Signatories (other than the TA Stockholders). By the execution of this
Agreement, Steven E. Nelson has accepted his appointment as PPS Stockholder
Representative and in consideration for Steven E. Nelson's agreement to act
as the PPS Stockholder Representative, each PPS Signatory (other than the TA
Stockholders) hereby agrees to indemnify and hold Steven E. Nelson harmless
from and against all damages, losses, liabilities, charges, penalties, costs
and expenses (including court costs and attorneys' fees and expenses, if any)
incurred by him in connection with his performance as PPS Stockholder
Representative. Each PPS Signatory (other than the TA Stockholders)
covenants and agrees that he or she will not voluntarily revoke the power of
attorney conferred in this Section 8.8. If any PPS Signatory (other than a
TA Stockholder) dies or becomes incapacitated, disabled or incompetent (such
deceased, incapacitated, disabled or incompetent PPS Signatory being a
"FORMER PPS SIGNATORY") and, as a result, the power of attorney conferred by
this Section 8.8 is revoked by operation of law, it shall
-35-
<PAGE>
not be a breach under this Agreement if the heirs, beneficiaries, estate,
administrator, executor, guardian, conservator or other legal representative
of such Former PPS Signatory (each a "SUCCESSOR PPS SIGNATORY") confirms the
appointment of the PPS Stockholder Representative as agent and
attorney-in-fact for such Successor PPS Signatory. If at any time Steven E.
Nelson dies or resigns from his position as the PPS Stockholder
Representative, the other PPS Signatories holding a majority of the PPS
Common Stock as of the date hereof shall designate a successor to Steven E.
Nelson as soon as practicable.
ARTICLE IX
GENERAL PROVISIONS
Section IX.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as set forth in Section 9.1(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of this
Agreement.
(b) Each representation, warranty, covenant and agreement set forth
in this Agreement shall survive the Effective Time. Each representation and
warranty made by any of the parties to this Agreement shall expire on the
last day, if any, that any claims for breaches of such representation and
warranty may be made pursuant to Section 8.5 hereof, except that any such
representation or warranty that has been made the subject of a third-party or
direct claim prior to such expiration date shall survive with respect to such
claim until the final resolution of such claim pursuant to Article VIII.
Except as otherwise specifically stated in this Agreement, all covenants and
agreements in this Agreement shall survive the Closing indefinitely.
Section IX.2 NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given upon receipt, if delivered personally, sent by nationally
recognized overnight courier service, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to the Concentra Companies, to:
Concentra Managed Care, Inc.
312 Union Wharf
Boston, MA 02109
Attention: Chief Executive Officer
Telecopier No.: (617) 367-8519
-36-
<PAGE>
Concentra Managed Care, Inc.
3010 LBJ Freeway, Suite 400
Dallas, TX 75234
Attention: General Counsel
Telecopier No.: (972) 243-7540
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Attention: Jeffrey A. Chapman
Mark Early
Telecopier No.: (214) 999-7716
(b) If to PPS, to:
Preferred Payment Systems, Inc.
312 Union Wharf
Boston, MA 02109
Attention: Chief Executive Officer
Telecopier No.: (617) 367-8519
(c) If to PPS Signatories (other than a TA Stockholder), to:
Steven E. Nelson, as PPS Stockholder Representative
1230 East Diehl, Suite 300
Naperville, Illinois 60563
Telecopier No.: (630) 245-0740
with copies to:
McDermott, Will & Emery
227 West Monroe Street, Suite 4400
Chicago, IL 60606-5096
Attention: Bernard Kramer
Telecopier No.: (312) 984-3669
(d) If to a TA Stockholder, to:
TA Associates
High Street Tower
Suite 2500
125 High Street
Boston, Massachusetts 02110
Attention: Richard Tadler
Jonathan Goldstein
-37-
<PAGE>
Telecopier No.: (617) 574-6728
with copies to:
Goodwin, Proctor & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Kevin M. Dennis
Telecopier No.: (617) 523-1231
Section IX.3 CERTAIN DEFINITIONS. For the purposes of this Agreement,
the term:
(a) "AFFILIATE" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which banks in
the State of Illinois or the State of Massachusetts are authorized or
obligated to be closed;
(c) "CONTROL" (including the terms "CONTROLLED," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise;
(d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(e) "GOVERNMENTAL ENTITY" shall mean any governmental department,
commission, board, bureau, agency, court or other instrumentality of the
United States or any state, county, parish or municipality, jurisdiction or
other political subdivision thereof.
(f) "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended;
(g) "KNOWLEDGE" or "KNOWN" shall mean, with respect to any matter
in question, if a PPS Stockholder or an executive officer of PPS or
Concentra, as the case may be, has actual knowledge of such matter;
(h) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(i) "SUBSIDIARY" or "SUBSIDIARIES" of PPS, Concentra, the Surviving
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which PPS, Concentra, the Surviving
Corporation or any such other person, as the case may be (either alone or
through or together with any other subsidiaries), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity;
-38-
<PAGE>
(j) "TAX" or "TAXES" shall mean any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation, (i)
income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability, employment,
social security, workers compensation, unemployment compensation, utility,
severance, excise, stamp, windfall profits, transfer and gains taxes, (ii)
customs, duties, imposts, charges, levies or other similar assessments of any
kind, and (iii) interest, penalties and additions to tax imposed with respect
thereto;
(k) "TAX ITEM" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which increases or decreases Tax
paid or payable; and
(l) "TAX RETURN" shall mean all returns, declarations, reports,
estimates, information returns and statements required to be filed by or with
respect to PPS, Concentra or any of its subsidiaries, as applicable, in respect
of any Taxes, including, without limitations, (i) any consolidated federal
income Tax return in which PPS, Concentra, or any of its subsidiaries, as
applicable, is included and (ii) any state, local or foreign income Tax returns
filed on a consolidated, combined or unitary basis (for purposes of determining
Tax liability) in which PPS, Concentra, or any of its subsidiaries, as
applicable, is included.
Section IX.4 HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section IX.5 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
Section IX.6 ENTIRE AGREEMENT. This Agreement (together with the
Transaction Documents, the Exhibits and Schedules hereto, and other
certificates documents and instruments delivered hereunder), constitute the
entire agreement of the parties, and supersede all prior agreements and
undertakings, both written and oral, among the parties, with respect to the
subject matter of this Agreement.
Section IX.7 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
Section IX.8 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
-39-
<PAGE>
Section IX.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are in addition to, and not exclusive
of, any rights or remedies otherwise available.
Section IX.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law.
Section IX.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
Section IX.12 NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of
any party under Article VIII shall be in addition to, and not exclusive of
any other liability that such party may have at law or equity based on such
party's intentional misrepresentations or fraudulent acts or omissions. None
of the provisions set forth in this Agreement, including, but not limited, to
the provisions set forth in Sections 8.5(a) (relating to Minimum Loss),
8.5(b) (relating to limitations on the period of time during which a claim
for indemnification may be brought), 8.5(c) (relating to liability caps) or
8.6 (relating to recourse against Escrowed Consideration), shall be deemed a
waiver by any party to this Agreement of any right or remedy which such party
may have at law or equity based on any other party's intentional
misrepresentations or fraudulent acts or omissions, nor shall any such
provisions limit, or be deemed to limit, (a) the amounts of recovery sought
or awarded in any such claim for fraud, (b) the time period during which a
claim for fraud may be brought, or (c) the recourse which any such party may
seek against another party with respect to a claim for fraud; PROVIDED, that
with respect to such rights and remedies at law or equity, the parties
further acknowledge and agree that none of the provisions of this Section
9.12, nor any references to this Section 9.12 throughout this Agreement,
shall be deemed a waiver of any defenses which may be available in respect of
actions or claims for fraud, including but not limited to, defenses of
statutes of limitations or limitations of damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-40-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
CONCENTRA MANAGED CARE, INC.
By: /s/ James M. Greenwood
----------------------------------
Name: James M. Greenwood
Title: Executive Vice President -
Corporate Development
CONCENTRA SUBSIDIARY, INC.
By: /s/ James M. Greenwood
----------------------------------
Name: James M. Greenwood
Title: Vice President
PREFERRED PAYMENT SYSTEMS, INC.
By: /s/ Steven E. Nelson
----------------------------------
Name: /s/ Steven E. Nelson
-----------------------------
Title: President
----------------------------
PPS SIGNATORIES:
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: /s/ [Authorized Officer]
----------------------------------
Name:
-----------------------------
Title:
----------------------------
-41-
<PAGE>
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAPIII Partners L.P.,
its General Partner
By: /s/ [Authorized Officer]
----------------------------------
Name:
-----------------------------
Title:
----------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: /s/ [Authorized Officer]
----------------------------------
Name:
-----------------------------
Title:
----------------------------
TA VENTURE INVESTORS LIMITED PARTNERSHIP
By: /s/ [Authorized Officer]
----------------------------------
By: /s/ [Authorized Officer]
----------------------------------
Name:
-----------------------------
Title:
----------------------------
/s/ Donna Ambrosino
-----------------------------------------
DONNA AMBROSINO
/s/ Brent R. Anderson
-----------------------------------------
BRENT R. ANDERSON
/s/ Thomas J. Bartlett
-----------------------------------------
THOMAS J. BARTLETT
-42-
<PAGE>
/s/ Sonny Bloom
-----------------------------------------
SONNY BLOOM
/s/ Joan Bottigliero
-----------------------------------------
JOAN BOTTIGLIERO
/s/ Chad Charles
-----------------------------------------
CHAD CHARLES
/s/ Craig W. Cunningham
-----------------------------------------
CRAIG W. CUNNINGHAM
/s/ James T. Doody
-----------------------------------------
JAMES T. DOODY
/s/ Donald A. Gieser
-----------------------------------------
DONALD A. GIESER
/s/ Don P. Greenberg
-----------------------------------------
DON P. GREENBERG
IRREVOCABLE INTER VIVOS TRUST FOR THE
BENEFIT OF MIRIAM GREENBERG
By: /s/ Richard T. Greenberg
-------------------------------------
Richard T. Greenberg, its Trustee
IRREVOCABLE INTER VIVOS TRUST FOR THE
BENEFIT OF DANIEL GREENBERG
By: /s/ J. Goldberg
-------------------------------------
J. Goldberg, its Trustee
IRREVOCABLE INTER VIVOS TRUST FOR THE
BENEFIT OF DAVID GREENBERG
By: /s/ J. Goldberg
-------------------------------------
J. Goldberg, its Trustee
IRREVOCABLE INTER VIVOS TRUST FOR THE
BENEFIT OF ROBERT GREENBERG
-43-
<PAGE>
By: /s/ J. Goldberg
-------------------------------------
J. Goldberg, its Trustee
IRREVOCABLE INTER VIVOS TRUST FOR THE
BENEFIT OF AMY GREENBERG
By: /s/ J. Goldberg
-------------------------------------
J. Goldberg, its Trustee
/s/ Daniel Kenney
-----------------------------------------
DANIEL KENNEY
/s/ Mary Jane Labelle
-----------------------------------------
MARY JANE LABELLE
/s/ Zan Larsen
-----------------------------------------
ZAN LARSEN
/s/ Patricia Loid
-----------------------------------------
PATRICIA LOID
/s/ Daniel Marion
-----------------------------------------
DANIEL MARION
/s/ Brian Masters
-----------------------------------------
BRIAN MASTERS
/s/ Steven E. Nelson
-----------------------------------------
STEVEN E. NELSON
/s/ Thomas Nolte
-----------------------------------------
THOMAS NOLTE
/s/ Kimberly Pritchett
-----------------------------------------
KIMBERLY PRITCHETT
/s/ Janet Rancati
-----------------------------------------
JANET RANCATI
-44-
<PAGE>
/s/ Debra Skinner
-----------------------------------------
DEBRA SKINNER
/s/ Byron W. Smith
-----------------------------------------
BYRON W. SMITH
/s/ Timothy C. Smith
-----------------------------------------
TIMOTHY C. SMITH
/s/ Rosemary Weiner
-----------------------------------------
ROSEMARY WEINER
/s/ William Zaun
-----------------------------------------
WILLIAM ZAUN
-45-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CONCENTRA MANAGED CARE, INC.
Concentra Managed Care, Inc. (the "CORPORATION"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby amend and restate in its entirety its
Certificate of Incorporation, which was originally filed on April 21, 1997.
The undersigned hereby certifies that this Amended and Restated
Certificate of Incorporation has been duly adopted in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delware.
FIRST: The name of the corporation is Concentra Managed Care, Inc.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801
in New Castle County, Delaware. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the Delaware General Corporation
Law.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is One Hundred and Twenty Million
(120,000,000), of which (a) One Hundred Million (100,000,000) shares shall be
designated as Common Stock, par value $0.01 per share, and (b) Twenty Million
(20,000,000) shares shall be designated as Preferred Stock, par value $.01
per share.
The following is a statement of the designations, preferences,
limitations and relative rights, including voting rights in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
A. COMMON STOCK
1. Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common
Stock shall be entitled to vote upon all matters submitted to a vote of the
stockholders of the Corporation and shall be entitled to one vote for each
share of Common Stock held.
1
<PAGE>
2. Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in
cash, stock or otherwise) as may be declared thereon by the Board of
Directors at any time and from time to time out of any funds of the
Corporation legally available therefor.
3. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of
the preferential amounts, if any, to be distributed to the holders of shares
of the Preferred Stock or any series thereof, the holders of shares of the
Common Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them. A
liquidation, dissolution or winding-up of the Corporation, as such terms are
used in this Paragraph (3), shall not be deemed to be occasioned by or to
include any merger of the Corporation with or into one or more corporations
or other entities, any acquisition or exchange of the outstanding shares of
one or more classes or series of the Corporation or any sale, lease, exchange
or other disposition of all or a part of the assets of the Corporation.
B. PREFERRED STOCK
1. Shares of the Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions, as shall be stated and expressed herein or in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation (or a duly authorized committee thereof). Each
such series of Preferred Stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation (or a duly authorized committee thereof) is
hereby expressly authorized, subject to the limitations provided by law, to
establish and designate series of the Preferred Stock, to fix the number of
shares constituting each series and to fix the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of the
shares of each series and the variations of the relative rights and
preferences as between series, and to increase and to decrease the number of
shares constituting each series, provided that the Board of Directors (or a
duly authorized committee thereof) may not decrease the number of shares
within a series to less than the number of shares within such series that are
then issued. The relative powers, preferences, rights and qualifications,
limitation or restrictions may vary between and among series of Preferred
Stock in any and all respects so long as all shares of the same series of
identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon
cumulate. The authority of the Board of Directors of the Corporation (or a
duly authorized committee thereof) with respect to each series shall include,
but shall not be limited to, the authority to determine the following:
(a) The designation of such series;
2
<PAGE>
(b) The number of shares initially constituting such series;
(c) The rate or rates and the time at which dividends on the shares of
such series shall be paid, the periods in respect of which dividends are
payable, the conditions upon such dividends, the relationship and
preferences, if any, of such dividends to dividends payable on any other
class or series of shares, whether or not such dividends shall be cumulative,
partially cumulative or noncumulative, if such dividends shall be cumulative
or partially cumulative, the date or dates from and after which, and the
amounts in which, they shall accumulate, whether such dividends shall be
share dividends, cash or other dividends or any combination thereof, and if
such dividends shall include share dividends, whether such share dividends
shall be payable in shares of the same or any other class or series of shares
of the Corporation (whether now or hereafter authorized), or any combination
thereof and the other terms and conditions, if any, applicable to dividends
on shares of such series;
(d) Whether or not the shares of such series shall be redeemable or
subject to repurchase at the option of the Corporation or the holder thereof
or upon the happening of a specified event, if such shares shall be
redeemable, the terms and conditions or such redemption, including but not
limited to the date or dates upon or after which such shares shall be
redeemable, the amount per share which shall be payable upon such redemption,
which amount may vary under different conditions and at different redemption
dates and whether such amount shall be payable in cash, property or rights,
including securities of the Corporation or another corporation;
(e) The rights of the holders of shares of such series (which may vary
depending upon the circumstances or nature of such liquidation, dissolution
or winding up) in the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and the relationship or
preference, if any, of such rights to rights of holders of stock of any other
class or series. A liquidation, dissolution or winding up of the
Corporation, as such terms are used in this subparagraph (e), shall not be
deemed to be occasioned by or to include any merger of the Corporation with
or into one or more corporations or other entities, any acquisition or
exchange of the outstanding shares of one or more classes or series of the
Corporation or any sale, lease, exchange or other disposition of all or a
part of the assets of the Corporation.
(f) Whether or not the shares of such series shall having voting powers
and, if such shares shall have such voting powers, the terms and condition
thereof, including, but not limited to, the right of the holders of such
shares to vote as a separate class either alone or with the holders of shares
of one or more other classes or series of stock and the right to have more
(or less) than one vote per shares;
(g) Whether or not a sinking fund shall be provided for the redemption
of the shares of such series and, if such a sinking fund shall be provided,
the terms and conditions thereof.;
3
<PAGE>
(h) Whether or not a purchase fund shall be provided for the shares of
such series and, if such a purchase fund shall be provided, the terms and
conditions thereof;
(i) Whether or not the shares of such series, at the option of either
the Corporation or the holder or upon the happening of a specified event,
shall be convertible into stock of any other class or series and, if such
shares shall be so convertible, the terms and conditions of conversion,
including, but not limited to, any provision for the adjustment of the
conversion rate or the conversion price;
(j) Whether or not the shares of such series, at the option of either
the Corporation or the holder or upon the happening of a specified event,
shall be exchangeable for securities, indebtedness or property of the
Corporation and, if such shares shall be so exchangeable, the terms and
conditions of exchange, including, but not limited to, any provision for the
adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations and relative rights as shall not
be inconsistent with the provisions of this Article Fourth or the limitations
provided by law.
2. Except as otherwise provided herein, as required by law or in any
resolution of the Board of Directors (or a duly authorized committee thereof)
creating any series of Preferred Stock, the holders of shares of Preferred
Stock and all series thereof who are entitled to vote shall vote together
with the holders of shares of Common Stock, and not separately by class.
FIFTH: The number of directors constituting the initial Board of
Directors is two (2), and the name of each person who is to serve as director
until the first annual meeting of stockholders or until his successor is
elected and qualified is John K. Carlyle and Donald J. Larson. The mailing
address of John K. Carlyle is 3010 LBJ Freeway, Suite 400, Dallas, Texas
75234. The mailing address of Donald J. Larson is 312 Union Wharf, Boston,
Massachusetts 02109.
The Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III. Directors shall serve for staggered terms
of three years each, except that initially the Class I directors will serve
until the Corporation's 1998 annual meeting of stockholders, the Class II
directors will serve until the Corporation's 1999 annual meeting of
stockholders and the Class III directors will serve until the Corporation's
2000 annual meeting of stockholders.
SIXTH: Directors of the Corporation need not be elected by written
ballot unless the bylaws of the Corporation otherwise provide.
SEVENTH: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to
adopt, amend or repeal the bylaws of the corporation.
4
<PAGE>
EIGHTH: No action required to be taken or that may be taken at any
meeting of common stockholders of the Corporation may be taken without a
meeting, and the power of common stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
Notwithstanding any other provisions of this Certificate of Incorporation or
any provision of law that might otherwise permit a lesser or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of not
less than eighty percent of the shares of the Corporation then entitled to be
voted in an election of directors, voting together as a single class, shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article Eighth.
NINTH: Special meetings of the common stockholders of the Corporation,
and any proposals to be considered at such meetings, may be called and
proposed exclusively by the Board of Directors, pursuant to a resolution
approved by a majority of the members of the Board of Directors at the time
in office, and no stockholder of the Corporation shall require the Board of
Directors to call a special meeting of common stockholders or to propose
business at a special meeting of common stockholders. No business proposed
by a stockholder to be considered at an annual meeting of the common
stockholders (including the nomination of any person to be elected as a
director of the Corporation) shall be considered by the common stockholders
at that meeting unless, no later than 60 days before the annual meeting of
stockholders, the Corporation receives from the stockholder proposing that
business a written notice that sets forth (1) the nature of the proposed
business with reasonable particularity, including the exact text of any
proposal to be presented for adoption and the reasons for conducting that
business at the annual meeting; (2) with respect to each such stockholder,
that stockholder's name and address (as they appear on the records of the
Corporation), business address and telephone number, residence address and
telephone number, and the number of shares of each class of stock of the
Corporation beneficially owned by that stockholder; (3) any interest of the
stockholder in the proposed business; (4) the name or names of each person
nominated by the stockholder to be elected or reelected as a director, if
any; (5) with respect to each nominee, that nominee's name, business address
and telephone number, and residence address and telephone number, the number
of shares, if any, of each class of stock of the Corporation owned directly
and beneficially by that nominee, and all information relating to that
nominee that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (or any provision of
law subsequently replacing Regulation 14A), together with a notarized letter
signed by the nominee stating his or her acceptance of the nomination by that
stockholder, stating his or her intention to serve as a director if elected,
and consenting to being named as a nominee for director in any proxy
statement relating to such election. The person presiding at the annual
meeting shall determine whether business (including the nomination of any
person as a director) has been properly brought before the meeting and, if
the facts so warrant, shall not permit any business (or voting with respect
to any particular nominee) to be transacted that has not been properly
brought before the meeting. Notwithstanding any other provisions of this
Certificate of
5
<PAGE>
Incorporation or any other provision of law that might otherwise permit a
lesser or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the capital stock of the Corporation
required by law or by this Certificate of Incorporation, the affirmative vote
of the holders of not less than two-thirds of the shares of the Corporation
then entitled to be voted in an election of directors, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article Ninth.
TENTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of the corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for the corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
the corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of the corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of the
corporation, as the case may be, and also on the corporation.
ELEVENTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation
and any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of the directors,
officers, or stockholders of the Corporation are directors, officers, or
stockholders, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee which authorizes the
contract or transaction, or solely because his, her, or their votes are
counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed
or are known to the board of directors or the committee, and the board of
directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (2) the material
facts as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (3) the contract or transaction is fair
as to the Corporation as of the time it is authorized, approved, or ratified
by the board of directors, a committee thereof, or the stockholders. Common
or interested directors may be counted in
6
<PAGE>
determining the presence of a quorum at a meeting of the board of directors
or of a committee which authorizes the contract or transaction.
TWELFTH: No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit. In addition to the circumstances in which a
director of the corporation is not personally liable as set forth in the
preceding sentence, a director of the corporation shall not be liable to the
fullest extent permitted by any amendment to the Delaware General Corporation
Law hereafter enacted that further limits the liability of a director.
THIRTEENTH: The corporation shall have the right, subject to any
express provisions or restrictions contained in this Certificate of
Incorporation or bylaws of the corporation, from time to time, to amend this
certificate of incorporation or any provision hereof in any manner now or
hereafter provided by law, and all rights and powers of any kind conferred
upon a director or stockholder of this corporation by this Certificate of
Incorporation or any amendment hereof are subject to such right of the
Corporation.
I, the undersigned, do make, file and record this Amended and Restated
Certificate of Incorporation and do certify that this is my act and deed and
that the facts herein stated are true, and accordingly, I do hereunto set my
hand this 27th day of August 1997.
/s/ Richard A. Parr II
--------------------------------------------
Richard A. Parr II
Executive Vice President and General Counsel
7
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE dated as of August 29, 1997 by and among
OccuSystems, Inc., a Delaware corporation ("OccuSystems"), United States
Trust Company of New York, a New York state banking corporation, as Trustee
(the "Trustee"), and Concentra Managed Care, Inc., a Delaware corporation
("Concentra").
RECITALS
A. OccuSystems executed and delivered to the Trustee an indenture dated
as of December 24, 1996 (the "INDENTURE") pursuant to which OccuSystems
issued $97,750,000 aggregate principal amount of its 6% Convertible
Subordinated Notes due 2001 (the "NOTES").
B. Article V of the Indenture provides that OccuSystems may, without
the consent of the holders of the Notes, enter into a supplemental indenture
(the "SUPPLEMENTAL INDENTURE") to evidence the succession of another
corporation to OccuSystems and the assumption by such successor of all the
obligations of OccuSystems in connection with the Notes and the Indenture.
C. OccuSystems has entered into an Agreement and Plan of Reorganization
dated April 21, 1997 (the "REORGANIZATION AGREEMENT"), by and among
OccuSystems, CRA Managed Care, Inc., a Massachusetts corporation ("CRA"), and
Concentra pursuant to which (i) OccuSystems will be merged with and into
Concentra with the separate corporate existence of OccuSystems ceasing and
(ii) a wholly-owned subsidiary of Concentra will be merged with and into CRA
with the separate corporate existence of such subsidiary ceasing (the
"MERGERS").
D. OccuSystems desires to amend the Indenture to provide for the
assumption by Concentra of the obligations of OccuSystems under the Notes and
the Indenture.
E. OccuSystems has duly authorized the execution and delivery of this
First Supplemental Indenture.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, the parties hereto hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
Section 1. CONFIRMATION OF ORIGINAL INDENTURE. Except as amended and
supplemented hereby, the Indenture is hereby ratified, confirmed and
reaffirmed in all respects. The Indenture and this First Supplemental
Indenture shall be read, taken and construed as one and the same instrument.
Section 2. SUCCESSOR CORPORATION SUBSTITUTED. In accordance with
Article V of the Indenture, upon consummation of the Mergers, Concentra shall
succeed to, and be substituted for, and may exercise every right and power
of, OccuSystems under the Indenture with the same effect as if Concentra had
been named therein as OccuSystems.
<PAGE>
Section 3. ASSUMPTION OF OBLIGATIONS. Upon the consummation of the
Mergers, Concentra hereby assumes all of the obligations of OccuSystems under
the Indenture and the Notes with the same effect as if Concentra had been
named therein as OccuSystems.
Section 4. MISCELLANEOUS.
(a) EXECUTION AS SUPPLEMENTAL INDENTURE. This First Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Indenture and, as provided in the Indenture, this Supplemental Indenture
forms a part of the Indenture.
(b) COUNTERPARTS. This First Supplemental Indenture may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
(c) EFFECT OF HEADINGS. The headings contained in this First
Supplemental Indenture are for convenience only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, OccuSystems, the Trustee and Concentra have cause
this Supplemental Indenture to be signed on their behalf by their duly
authorized representatives, all as of the date first above written.
OCCUSYSTEMS, INC.
By: /s/ Richard A. Parr II
--------------------------------------------
Richard A. Parr II
Executive Vice President and General Counsel
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Gerald F. Ganey
--------------------------------------------
Name: Gerald F. Ganey
---------------------------------------
Title: Senior Vice President
--------------------------------------
CONCENTRA MANAGED CARE, INC.
By: /s/ Richard A. Parr II
--------------------------------------------
Richard A. Parr II
Executive Vice President and General Counsel
<PAGE>
[LETTERHEAD] PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "CONCENTRA MANAGED CARE, INC.", FILED IN THIS OFFICE ON THE
SECOND DAY OF OCTOBER, A.D. 1997, AT 10 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
2740970 8100 AUTHENTICATION: 8683071
971332125 DATE: 10-02-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF OPERATIONS
FILED 10:00 AM 10/02/1997
971331953 - 2740970
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
CONCENTRA MANAGED CARE, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
Concentra Managed Care, Inc., a Delaware corporation (the
"CORPORATION"), through the undersigned duly authorized officer, in accordance
with the provisions of Sections 103 and 151 of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
That the Board of Directors of the Corporation on September 28, 1997,
pursuant to the authority conferred upon the Board of Directors by the
Amended and Restated Certificate of Incorporation of the Corporation (the
"CERTIFICATE OF INCORPORATION") and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, adopted
the following resolution creating a series of 250,000 shares of Preferred
Stock, par value $.01 per share:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of Article IV, Section B of its Certificate of Incorporation, a
series of the Preferred Stock of the Corporation, par value $.01 per share,
be, and it hereby is, created and that the voting powers, designations,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting the Series A
Preferred Stock shall be 250,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number
less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
A-1
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $0.01 per share (the "COMMON STOCK"), of the Corporation, and of any
other junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable on the first business day of February, May,
August and November in each year (each such date being referred to herein as
a "QUARTERLY DIVIDEND PAYMENT DATE") as provided in paragraphs (b) and (c) of
this Section 2 in an amount per share (rounded to the nearest cent) equal to
the greater of (1) $1.00 in cash or (2) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount
(payable in cash) of all cash dividends, and 1,000 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. If the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (2) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that was outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); PROVIDED that, if
no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
payable in cash on the Series A Preferred Stock shall nevertheless accrue and
be cumulative on the outstanding shares of Series A Preferred Stock as
provided in paragraph (c) of this Section 2.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of
A-2
<PAGE>
holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Quaterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. If the Corporation shall at any time declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that was outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Series 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, or declared and a sum sufficient for
the payment therefor be set apart for payment and be in the process of
payment, the Corporation shall not:
A-3
<PAGE>
(1) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(2) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, PROVIDED that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (as to both dividends and upon
dissolution, liquidation or winding up) to the Series A Preferred Stock;
or
(4) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock or any shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the holders of the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in
the Certificate of Incorporation, or in any other Certificate of Designation
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (a) to the
A-4
<PAGE>
holders of shares of stock ranking junior (either as to dividends or as to
amounts payable upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of Series A Preferred
Stock shall have received an amount per share (rounded to the nearest cent)
equal to the greater of (1) $1,000 per share, or (2) an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of Common
Stock, plus, in either case, an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment, or (b) to the holders of stock ranking on a parity (either as to
dividends or as to amounts payable upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except distributions made ratably on
the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such Shares are entitled upon such
liquidation, dissolution or winding up. If the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lessor number of shares of Common Stock, then in each case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (a)(2)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that was outstanding immediately prior to
such event.
Section 7. CONSOLIDATION, MERGER, ETC. If the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, or any combination thereof, then in
any such case each share of Series A Preferred Stock shall at the same time
be similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount of stock, securities, cash or any other property (payable in
kind), or any combination thereof, as the case may be, into which or for
which each share of Common Stock is changed or exchanged. If the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that was
outstanding immediately prior to such event.
Section 8. REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable. So long as any shares of Series A Preferred Stock remain
outstanding, the Corporation shall not purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the
A-5
<PAGE>
Series A Preferred Stock unless the Corporation shall substantially
concurrently also purchase or acquire for consideration a proportionate
number of shares of Series A Preferred Stock.
Section 9. RANK. The Series A Preferred Stock shall rank, with respect
to payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences, privileges or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President, and attested by its Secretary, on
this 1st day of October, 1997.
CONCENTRA MANAGED CARE, INC.
By: /s/ Donald J. Larson
----------------------------------
Donald J. Larson
President and Chief Executive
Officer
ATTEST:
By: /s/ Richard A. Parr II
--------------------------
Richard A. Parr II
Secretary
A-6
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
among
CONCENTRA MANAGED CARE, INC.,
THE LENDERS NAMED HEREIN,
FIRST UNION NATIONAL BANK,
as Administrative Agent,
and
FLEET NATIONAL BANK,
as Documentation Agent
$200,000,000 Senior Credit Facility
Arranged by
FIRST UNION CAPITAL MARKETS CORP.
Dated as of September 17, 1997,
As Amended and Restated as of February 20, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
RECITALS 1
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1. Defined Terms 2
1.2. Accounting Terms 19
1.3. Other Terms; Construction 20
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1. Commitments; Conversion of Existing Loans 20
2.2. Borrowings 21
2.3. Disbursements; Funding Reliance; Domicile of Loans 22
2.4. Notes 23
2.5. Termination and Reduction of Commitments 23
2.6. Mandatory Payments and Prepayments 23
2.7. Voluntary Prepayments 24
2.8. Interest 25
2.9. Fees 26
2.10. Interest Periods 27
2.11. Conversions and Continuations 28
2.12. Method of Payments; Computations 29
2.13. Recovery of Payments 30
2.14. Use of Proceeds 30
2.15. Pro Rata Treatment 30
2.16. Increased Costs; Change in Circumstances; Illegality; etc 31
2.17. Taxes 33
2.18. Compensation 35
2.19. Sale and Assignment of Existing Loans 35
ARTICLE III
LETTERS OF CREDIT
3.1. Issuance 36
3.2. Outstanding Letters of Credit 37
3.3. Notices 38
-i-
<PAGE>
3.4. Participations 38
3.5. Reimbursement 38
3.6. Payment by Loans 39
3.7. Payment to Lenders 39
3.8. Obligations Absolute 39
3.9. Cash Collateral Account 41
3.10. Effectiveness 42
ARTICLE IV
CONDITIONS OF EFFECTIVENESS AND BORROWING
4.1. Conditions of Effectiveness and Initial Borrowing 42
4.2. Conditions of All Borrowings 46
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Organization and Power 47
5.2. Authorization; Enforceability 47
5.3. No Violation 47
5.4. Governmental and Third-Party Authorization; Permits 48
5.5. Litigation 48
5.6. Taxes 48
5.7. Subsidiaries 49
5.8. Full Disclosure 49
5.9. Margin Regulations 49
5.10. No Material Adverse Change 49
5.11. Financial Matters 49
5.12. Ownership of Properties 52
5.13. ERISA 52
5.14. Environmental Matters 52
5.15. Compliance With Laws 53
5.16. Regulated Industries 53
5.17. Insurance 53
5.18. Material Contracts 53
5.19. Pledge Agreement 53
5.20. PPS Merger Agreement 54
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1. Financial Statements 54
6.2. Other Business and Financial Information 55
-ii-
<PAGE>
6.3. Corporate Existence; Franchises; Maintenance of Properties 57
6.4. Compliance with Laws 57
6.5. Payment of Obligations 57
6.6. Insurance 57
6.7. Maintenance of Books and Records; Inspection 57
6.8. Permitted Acquisitions 58
6.9. Creation or Acquisition of Subsidiaries 59
6.10. Year 2000 61
6.11. Further Assurances 61
6.12. Merger or Dissolution of Certain Subsidiaries 61
ARTICLE VII
FINANCIAL COVENANTS
7.1. Senior Leverage Ratio 61
7.2. Total Leverage Ratio 62
7.3. Fixed Charge Coverage Ratio 62
7.4. Lease Expense 62
7.5. Consolidated Net Worth 62
ARTICLE VIII
NEGATIVE COVENANTS
8.1. Merger; Consolidation 63
8.2. Indebtedness 64
8.3. Liens 65
8.4. Disposition of Assets 66
8.5. Investments 67
8.6. Restricted Payments 69
8.7. Transactions with Affiliates 70
8.8. Lines of Business 70
8.9. Certain Amendments 70
8.10. Limitation on Certain Restrictions 70
8.11. No Other Negative Pledges 71
8.12. Fiscal Year 71
8.13. Accounting Changes 71
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default 71
9.2. Remedies: Termination of Commitments, Acceleration, etc. 73
9.3. Remedies: Set-Off 74
-iii-
<PAGE>
ARTICLE X
THE ADMINISTRATIVE AGENT
10.1. Appointment 74
10.2. Nature of Duties 74
10.3. Exculpatory Provisions 75
10.4. Reliance by Administrative Agent 75
10.5. Non-Reliance on Administrative Agent and Other Lenders 76
10.6. Notice of Default 76
10.7. Indemnification 76
10.8. The Administrative Agent in its Individual Capacity 77
10.9. Successor Administrative Agent 77
10.10. Collateral Matters 78
10.11. Issuing Lender 78
10.12. Documentation Agent 78
ARTICLE XI
MISCELLANEOUS
11.1. Fees and Expenses 78
11.2. Indemnification 79
11.3. Governing Law; Consent to Jurisdiction 79
11.4. Arbitration; Preservation and Limitation of Remedies 80
11.5. Notices 81
11.6. Amendments, Waivers, etc 81
11.7. Assignments, Participations 82
11.8. No Waiver 84
11.9. Successors and Assigns 85
11.10. Survival 85
11.11. Severability 85
11.12. Construction 85
11.13. Confidentiality 85
11.14. Counterparts; Effectiveness 86
11.15. Disclosure of Information 86
11.16. Entire Agreement 86
11.17. Effect of Amendment and Restatement 86
</TABLE>
-iv-
<PAGE>
EXHIBITS
Exhibit A Form of Note
Exhibit B-1 Form of Notice of Borrowing
Exhibit B-2 Form of Notice of Conversion/Continuation
Exhibit B-3 Form of Letter of Credit Notice
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Amended and Restated Pledge Agreement
Exhibit F Form of Amended and Restated Subsidiary Guaranty
Exhibit G-1 Form of Opinion of Special Counsel to Borrower
Exhibit G-2 Form of Opinion of General Counsel to Borrower
SCHEDULES
Schedule I Commitments
Schedule 5.4 Consents and Approvals
Schedule 5.7 Subsidiaries
Schedule 5.18 Material Contracts
Schedule 8.2 Indebtedness
Schedule 8.3 Liens
Schedule 8.5 Investments
Schedule 8.7 Transactions with Affiliates
ANNEXES
Annex I
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 20th day of
February, 1998 (this "Agreement"), is made among CONCENTRA MANAGED CARE, INC., a
Delaware corporation with its principal offices in Boston, Massachusetts (the
"Borrower"), the banks and financial institutions listed on the signature pages
hereto or that become parties hereto after the date hereof (collectively, the
"Lenders"), FIRST UNION NATIONAL BANK ("First Union"), as administrative agent
for the Lenders (in such capacity, the "Administrative Agent"), and FLEET
NATIONAL BANK, as documentation agent (in such capacity, the "Documentation
Agent"). Capitalized terms used herein without definition and defined in
Section 1.1 shall have the meanings given to them in such Section.
RECITALS
A. The Borrower, certain banks and other financial institutions, First
Union, as Administrative Agent, and Fleet National Bank, as Documentation
Agent, are parties to a Credit Agreement, dated as of September 17, 1997 (as
amended to, but not including, the Restatement Effective Date, the "Original
Credit Agreement"), providing for the availability to the Borrower of a
revolving credit facility in the aggregate principal amount of $100,000,000
on the terms and subject to the conditions set forth therein.
B. The Borrower proposes to acquire (the "PPS Acquisition") all of the
issued and outstanding capital stock of Preferred Payment Systems, Inc., a
Delaware corporation ("PPS"), pursuant to an Agreement and Plan of Merger, to
be dated as of the closing date thereunder and to be entered into by and
among the Borrower, Concentra Subsidiary, Inc., PPS and the stockholders of
PPS named therein (the "PPS Merger Agreement").
C. In order to finance a portion of the purchase price of the PPS
Acquisition, to pay or reimburse certain fees and expenses in connection
therewith, and to provide for the ongoing working capital and general
corporate requirements of the Borrower and its Subsidiaries, the Borrower has
requested certain amendments to the Original Credit Agreement, including an
increase in the aggregate Commitments, and the Lenders, the Administrative
Agent and the Documentation Agent have agreed to make such amendments by
amending and restating the Original Credit Agreement in its entirety on the
terms and subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual provisions, covenants and
agreements herein contained, the parties hereto hereby agree that, as of the
Restatement Effective Date, the Original Credit Agreement shall be amended
and restated in its entirety as follows:
<PAGE>
ARTICLE I
DEFINITIONS
I.1. DEFINED TERMS. For purposes of this Agreement, in addition to
the terms defined elsewhere herein, the following terms shall have the
meanings set forth below (such meanings to be equally applicable to the
singular and plural forms thereof):
"About Health" shall mean About Health, Inc., a Maryland corporation,
which was merged with and into the Borrower effective October 31, 1997.
"Account Designation Letter" shall mean a letter from the Borrower to
the Administrative Agent, duly completed and signed by an Authorized Officer
and in form and substance satisfactory to the Administrative Agent, listing
any one or more accounts to which the Borrower may from time to time request
the Administrative Agent to forward the proceeds of any Loans made hereunder.
"Acquisition" shall mean any transaction or series of related
transactions, consummated on or after the date hereof, by which the Borrower
directly, or indirectly through one or more Subsidiaries, (i) acquires any
going business, or all or substantially all of the assets, of any Person,
whether through purchase of assets, merger or otherwise, or (ii) acquires
securities or other ownership interests of any Person having 100% of the
combined voting power of the then outstanding securities or other ownership
interests of such Person. For the sake of clarification but without
limitation of the foregoing, any Non-Guarantor Acquisition shall be
considered an Acquisition for purposes of this Agreement.
"Acquisition Amount" shall mean, with respect to any Acquisition, the
sum (without duplication) of (i) the amount of cash paid by the Borrower and
its Subsidiaries in connection with such Acquisition, (ii) the Fair Market
Value of all Capital Stock of the Borrower issued or given in connection with
such Acquisition, (iii) the amount (determined by using the face amount or
the amount payable at maturity, whichever is greater) of all Indebtedness
incurred, assumed or acquired by the Borrower and its Subsidiaries in
connection with such Acquisition, (iv) all additional purchase price amounts
in connection with such Acquisition in the form of earnouts and other
contingent obligations that should be recorded as a liability on the balance
sheet of the Borrower and its Subsidiaries or expensed, in either event in
accordance with GAAP, Regulation S-X under the Securities Act of 1933, as
amended, or any other rule or regulation of the Securities and Exchange
Commission, (v) all amounts paid in respect of covenants not to compete,
consulting agreements and other affiliated contracts in connection with such
Acquisition, (vi) the amount of all transaction fees and expenses (including,
without limitation, legal, accounting and finders' fees and expenses) incurred
by the Borrower and its Subsidiaries in connection with such Acquisition and
(vii) the aggregate fair market value of all other consideration given by the
Borrower and its Subsidiaries in connection with such Acquisition; PROVIDED
that, in the case of any Non-Guarantor Acquisition, the Acquisition Amount
shall additionally include the aggregate outstanding amount of all Investments
of the Borrower and its Subsidiaries in the applicable Non-Guarantor Subsidiary
immediately prior to the consummation of such Non-Guarantor Acquisition.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate as in effect at such time plus
the Applicable Margin Percentage for
-2-
<PAGE>
LIBOR Loans as in effect at such time.
"Administrative Agent" shall mean First Union, in its capacity as
Administrative Agent appointed under ARTICLE X, and its successors and
permitted assigns in such capacity.
"Affiliate" shall mean, as to any Person, each other Person that
directly, or indirectly through one or more intermediaries, owns or Controls,
is Controlled by or under common Control with, such Person or is a director
or officer of such Person. For purposes of this definition, the beneficial
ownership of securities or other ownership interests of any Person having 10%
or more of the combined voting power of the then outstanding securities or
other ownership interests of such Person ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors or other governing body of such Person shall be deemed
to constitute "Control" of such Person.
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.
"Annualized Consolidated EBITDA" shall mean, as of the last day of any
fiscal quarter, the product of (i) Consolidated EBITDA for the period of two
consecutive fiscal quarters then ended and (ii) two (2).
"Applicable Margin Percentage" shall mean, at any time from and after
the Restatement Effective Date, the applicable percentage (a) to be added to
the LIBOR Rate pursuant to SECTION 2.8 for purposes of determining the
Adjusted LIBOR Rate, and (b) to be used in calculating the commitment fee
payable pursuant to SECTION 2.9(b), in each case as determined under the
following matrix with reference to the Total Leverage Ratio:
<TABLE>
Applicable Margin Applicable Margin
Percentage for Percentage for
Total Leverage Ratio LIBOR Loans Commitment Fee
-------------------- ----------- --------------
<S> <C> <C>
Greater than 3.0 to 1.0 1.25% 0.25%
Greater than 2.5 to 1.0
but less than or equal to 3.0 to 1.0 1.125% 0.25%
Greater than 2.0 to 1.0
but less than or equal to 2.5 to 1.0 1.00% 0.20%
Greater than 1.5 to 1.0
but less than or equal to 2.0 to 1.0 0.875% 0.1875%
Less than or equal to 1.5 to 1.0 0.75% 0.125%
</TABLE>
On each Adjustment Date (as hereinafter defined), the Applicable Margin
Percentage for all LIBOR Loans and the commitment fee payable pursuant to
SECTION 2.9(b) shall be adjusted effective as of such date (based upon the
calculation of the Total Leverage Ratio as of the last day of the fiscal
period to
-3-
<PAGE>
which such Adjustment Date relates) in accordance with the above matrix. For
purposes of this definition, "Adjustment Date" shall mean, with respect to
any fiscal quarter of the Borrower beginning with the fiscal quarter ending
March 31, 1998, the tenth (10th) day (or, if such day is not a Business Day,
on the next succeeding Business Day) after receipt by the Administrative
Agent pursuant to SECTION 6.1(a) or SECTION 6.1(b), as the case may be, and
SECTION 6.2(a) of (i) financial statements for the most recently completed
applicable fiscal period and (ii) a duly completed Compliance Certificate
with respect to such fiscal period. Until the Adjustment Date with respect
to the fiscal quarter ending March 31, 1998, the Applicable Margin Percentage
for LIBOR Loans shall be 1.00%, and the Applicable Margin Percentage to be
used in calculating the commitment fee payable pursuant to SECTION 2.9(b)
shall be 0.20%.
"Assignee" shall have the meaning given to such term in SECTION 11.7(a).
"Assignment and Acceptance" shall mean an Assignment and Acceptance
entered into between a Lender and an Assignee and accepted by the
Administrative Agent and the Borrower, in substantially the form of EXHIBIT D.
"Authorized Officer" shall mean, with respect to any action specified
herein, any officer of the Borrower duly authorized by resolution of the board
of directors of the Borrower to take such action on its behalf, and whose
signature and incumbency shall have been certified to the Administrative Agent
by the secretary or an assistant secretary of the Borrower.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., as amended
from time to time, and any successor statute.
"Base Rate" shall mean the higher of (i) the per annum interest rate
publicly announced from time to time by First Union in Charlotte, North
Carolina, to be its prime rate (which may not necessarily be its best lending
rate), as adjusted to conform to changes as of the opening of business on the
date of any such change in such prime rate, and (ii) the Federal Funds Rate
plus 0.5% per annum, as adjusted to conform to changes as of the opening of
business on the date of any such change in the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any Loan that bears interest
at such time at the Base Rate.
"Borrowing" shall mean the incurrence by the Borrower (including as a
result of conversions and continuations of outstanding Loans pursuant to
SECTION 2.11) on a single date of a group of Loans of a single Type and, in
the case of LIBOR Loans, as to which a single Interest Period is in effect.
"Borrowing Date" shall mean, with respect to any Borrowing, the date
upon which such Borrowing is made.
"Business Day" shall mean (i) any day other than a Saturday or Sunday, a
legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan, any such day that is also a day on which tradings
are conducted in the London interbank Eurodollar market.
-4-
<PAGE>
"CDC" shall mean Concentra Development Corp., a Nevada corporation.
"CDC Notes" shall mean the 21.1% Senior Discount Notes of CDC, in an
aggregate principal amount not exceeding $28,354,422.64, issued pursuant to
the CDC Securities Purchase Agreement, as amended, modified or supplemented
from time to time in accordance with the terms of this Agreement.
"CDC Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of December 3, 1996, among CDC, CHS and the purchasers
named therein, as amended, modified or supplemented from time to time in
accordance with the terms of this Agreement.
"CHS" shall mean Concentra Health Services, Inc., a Nevada corporation
formerly known as OccuCenters, Inc. and a Wholly Owned Subsidiary of the
Borrower.
"CMCS" shall mean Concentra Managed Care Services, Inc., a Massachusetts
corporation formerly known as CRA Managed Care, Inc. and a Wholly Owned
Subsidiary of the Borrower.
"CRA" shall mean CRA Managed Care, Inc., a Massachusetts corporation now
known as Concentra Managed Care Services, Inc. References in this Agreement
and the other Credit Documents to CRA shall be deemed also to be references
to CMCS.
"Capital Expenditures" shall mean, for any period, the aggregate amount
(whether paid in cash or accrued as a liability) that would, in accordance
with GAAP, be included on the consolidated statement of cash flows of the
Borrower and its Subsidiaries for such period as additions to equipment,
fixed assets, real property or improvements or other capital assets
(including, without limitation, capital lease obligations); PROVIDED,
HOWEVER, that Capital Expenditures shall not include any such expenditures
(i) for replacements and substitutions for capital assets, to the extent made
with the proceeds of insurance, or (ii) made in connection with Permitted
Acquisitions as a portion of the Acquisition Amount with respect thereto.
"Capital Stock" shall mean (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation,
any and all partnership, membership, limited liability company or other
equity interests of such Person; and in each case, any and all warrants,
rights or options to purchase any of the foregoing.
"Cash Collateral Account" shall have the meaning given to such term in
SECTION 3.9.
"Cash Equivalents" shall mean (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America
and maturing within one year from the date of acquisition, (ii) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the
time of acquisition, having the highest rating obtainable from either
Standard & Poor's Ratings Services or Moody's Investors Service, Inc., (iii)
commercial paper issued by any Person organized under the laws of the United
States of America, maturing within one year from the date of acquisition and,
at the time of acquisition, having a rating of at least A-1 or the equivalent
thereof by Standard & Poor's Ratings Services or at least P-1 or the
equivalent thereof by Moody's
-5-
<PAGE>
Investors Service, Inc., (iv) time deposits and certificates of deposit
maturing within one year from the date of issuance and issued by a bank or
trust company organized under the laws of the United States of America or any
state thereof that has combined capital and surplus of at least $500,000,000,
(v) repurchase obligations with a term not exceeding seven (7) days with
respect to underlying securities of the types described in clause (i) above
entered into with any bank or trust company meeting the qualifications
specified in clause (iv) above, and (vi) money market funds at least 95% of
the assets of which are continuously invested in securities of the type
described in clause (i) above.
"Collateral" shall mean all the assets, property and interests in
property that shall from time to time be pledged or be purported to be
pledged as direct or indirect security for the Obligations pursuant to any
one or more of the Security Documents.
"Commitment" shall mean, with respect to any Lender at any time, the
amount set forth opposite such Lender's name on SCHEDULE I hereto under the
caption "Commitment" or, if such Lender has entered into one or more
Assignment and Acceptances, the amount set forth for such Lender at such time
in the Register maintained by the Administrative Agent pursuant to SECTION
11.7(b) as such Lender's "Commitment," as such amount may be reduced at or
prior to such time pursuant to the terms hereof.
"Compliance Certificate" shall mean a fully completed and duly executed
certificate in the form of EXHIBIT C, together with a Covenant Compliance
Worksheet.
"Consolidated EBITDA" shall mean, for any period, the aggregate of (i)
Consolidated Net Income for such period, PLUS (ii) the sum of Consolidated
Interest Expense, federal, state, local and other income taxes, depreciation,
amortization of intangible assets and other noncash expenses or charges
reducing income for such period, all to the extent taken into account in the
calculation of Consolidated Net Income for such period, MINUS (iii) to the
extent taken into account in the calculation of Consolidated Net Income for
such period, noncash credits increasing income for such period.
"Consolidated Fixed Charges" shall mean, for any period, the aggregate
(without duplication) of the following, all determined on a consolidated
basis for the Borrower and its Subsidiaries in accordance with GAAP for such
period: (a) Consolidated Interest Expense for such period, (b) aggregate
expense for federal, state, local and other income taxes for such period, (c)
Capital Expenditures for such period, (d) the aggregate (without duplication)
of all amounts paid by the Borrower and its Subsidiaries during such period
under capital leases, (e) the aggregate (without duplication) of all
scheduled payments of principal on Indebtedness required to have been made by
the Borrower and its Subsidiaries during such period (whether or not such
payments are actually made), and (f) the aggregate of all amounts paid by the
Borrower during such period as dividends or distributions in respect of its
Capital Stock or to purchase, redeem, retire or otherwise acquire its Capital
Stock.
"Consolidated Indebtedness" shall mean, as of the last day of any fiscal
quarter, the aggregate (without duplication) of all Indebtedness of the
Borrower and its Subsidiaries as of such date, determined on a consolidated
basis in accordance with GAAP. For purposes of determining Consolidated
Indebtedness as of any date, each Contingent Obligation of the Borrower and
its Subsidiaries required to be included in such determination shall be
valued at the maximum aggregate principal amount (whether or not drawn or
outstanding) of the Indebtedness that is the corresponding
-6-
<PAGE>
"primary obligation" (as such term is defined in the definition of Contingent
Obligation) as of such date.
"Consolidated Interest Expense" shall mean, for any period, the sum
(without duplication) of (i) total interest expense of the Borrower and its
Subsidiaries for such period in respect of Indebtedness of the Borrower and
its Subsidiaries (including, without limitation, all such interest expense
accrued or capitalized during such period, whether or not actually paid
during such period), determined on a consolidated basis in accordance with
GAAP, (ii) all net amounts payable under or in respect of Hedge Agreements,
to the extent paid or accrued by the Borrower and its Subsidiaries during
such period, and (iii) all commitment fees and other ongoing fees in respect
of Indebtedness (including the commitment fee provided for under SECTION
2.9(b) and the fees provided for under the Fee Letter) paid, accrued or
capitalized by the Borrower and its Subsidiaries during such period.
"Consolidated Lease Expense" shall mean, for any period, the aggregate
(without duplication) of total lease and rental expense of the Borrower and
its Subsidiaries for such period (including, without limitation, all such
lease and rental expense accrued or capitalized during such period, whether
or not actually paid during such period, including capital lease
obligations), determined on a consolidated basis in accordance with GAAP (but
excluding, in any event, amounts paid in respect of taxes, utilities,
insurance, common area maintenance and other like charges associated with the
lease and rental of real and personal property).
"Consolidated Net Income" shall mean, for any period, net income (or
loss) for the Borrower and its Subsidiaries for such period and prior to
accounting for the payment of any dividends, determined on a consolidated
basis in accordance with GAAP; PROVIDED, HOWEVER, that there shall be
excluded from the determination of such Consolidated Net Income:
(i) any net income attributable to any Subsidiary of the Borrower
that is not a Wholly Owned Subsidiary (A) to the extent such net income is
attributable to the proportionate share of the equity interests in such
Subsidiary owned by Persons other than the Borrower or a Wholly Owned
Subsidiary or (B) to the extent cash distributions to the Borrower or
another Subsidiary in respect of such net income are restricted or
prohibited under any applicable Requirements of Law or under any applicable
partnership, joint venture or limited liability company agreement or other
applicable governing documents of the distributing Subsidiary (subject, in
the case of a distribution to another Subsidiary, to the foregoing
limitation), and PROVIDED that the Borrower's equity in any net loss of any
such Subsidiary for such period shall be included in the determination of
such Consolidated Net Income;
(ii) any net income attributable to any other Person (including,
without limitation, any partnership, joint venture or limited liability
company) that is not a Subsidiary of the Borrower, except to the extent of
any cash distributions in respect thereof to the Borrower or another
Subsidiary which distributions are not restricted or prohibited under any
applicable Requirements of Law or under any applicable partnership, joint
venture or limited liability company agreement or other applicable
governing documents of the distributing Subsidiary (subject, in the case of
a distribution to another Subsidiary, to the foregoing limitation), and
PROVIDED that the Borrower's equity in any net loss of any such Person for
such period shall be included in the determination of such Consolidated Net
Income;
-7-
<PAGE>
(iii) any net income for any period prior to the date of acquisition
of any Person (other than PPS) acquired by the Borrower or any Subsidiary
in a business combination accounted for by the pooling of interests method;
and
(iv) any extraordinary or nonrecurring gains or losses or gains or
losses from the sale or writedown of assets outside of the ordinary course
of business.
"Consolidated Net Revenue" shall mean, for any period, net revenue for
the Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" shall mean, as of any date of determination,
the net worth of the Borrower and its Subsidiaries as of such date,
determined on a consolidated basis in accordance with GAAP (but excluding any
Disqualified Capital Stock).
"Consolidated Senior Indebtedness" shall mean, as of the last day of any
fiscal quarter, Consolidated Indebtedness as of such date LESS Consolidated
Subordinated Indebtedness as of such date.
"Consolidated Subordinated Indebtedness" shall mean, as of the last day
of any fiscal quarter, the aggregate (without duplication) of all
Subordinated Indebtedness of the Borrower and its Subsidiaries as of such
date, determined on a consolidated basis in accordance with GAAP.
"Control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Convertible Note Indenture" shall mean the Indenture, dated as of
December 24, 1996, between the Borrower (as successor by merger to
OccuSystems) and United States Trust Company of New York, as trustee (the
"Trustee"), as amended by the First Supplemental Indenture, dated as of
August 29, 1997, among OccuSystems, the Borrower and the Trustee, and as
further amended, modified or supplemented from time to time in accordance
with the terms of this Agreement.
"Convertible Notes" shall mean the $97,750,000 6% Convertible
Subordinated Notes due 2001 of the Borrower (as successor by merger to
OccuSystems) issued pursuant to the Convertible Note Indenture, as amended,
modified or supplemented from time to time in accordance with the terms of
this Agreement.
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Indebtedness,
liability or other obligation (the "primary obligation") of another Person
(the "primary obligor"), whether or not contingent, (a) to purchase,
repurchase or otherwise acquire such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or provide
funds (i) for the payment or discharge of any such primary obligation or (ii)
to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor in respect thereof to make payment of such primary obligation
or (d) otherwise to assure or hold harmless the
-8-
<PAGE>
owner of any such primary obligation against loss or failure or inability to
perform in respect thereof; provided, however, that, with respect to the
Borrower and its Subsidiaries, the term Contingent Obligation shall not
include endorsements for collection or deposit in the ordinary course of
business.
"Covenant Compliance Worksheet" shall mean a fully completed worksheet
in the form of Attachment A to EXHIBIT C.
"Credit Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Fee Letter, the Pledge Agreement, the Subsidiary Guaranty, any
other Security Documents, any Hedge Agreement to which the Borrower and any
Lender are parties and that is permitted or required to be entered into by
the Borrower hereunder, and all other agreements, instruments, documents and
certificates now or hereafter executed and delivered to the Administrative
Agent or any Lender by or on behalf of the Borrower or any of its
Subsidiaries with respect to this Agreement and the transactions contemplated
hereby, in each case as amended, modified, supplemented or restated from time
to time.
"Debt Issuance" shall mean the issuance or sale by the Borrower or any
of its Subsidiaries of any debt securities or any rights, warrants or options
to purchase or acquire any debt securities (in each case, other than debt
securities convertible into or exchangeable for shares of its capital stock
or other equity securities), whether in a public offering of such securities
or otherwise.
"Default" shall mean any event or condition that, with the passage of
time or giving of notice, or both, would constitute an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or
upon the happening of any event or otherwise, (i) matures or is mandatorily
redeemable or subject to any mandatory repurchase requirement, pursuant to a
sinking fund obligation or otherwise, (ii) is redeemable or subject to any
mandatory repurchase requirement at the sole option of the holder thereof, or
(iii) is convertible into or exchangeable for (whether at the option of the
issuer or the holder thereof) (a) debt securities or (b) any Capital Stock
referred to in (i) or (ii) above, in each case under (i), (ii) or (iii) above
at any time on or prior to the Maturity Date; PROVIDED, HOWEVER, that only
the portion of Capital Stock that so matures or is mandatorily redeemable, is
so redeemable at the option of the holder thereof, or is so convertible or
exchangeable on or prior to such date shall be deemed to be Disqualified
Capital Stock.
"Dollars" or "$" shall mean dollars of the United States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including any trade or
business, whether or not incorporated) that would be deemed to be under
"common control" with, or a member of the same "controlled group" as, the
Borrower or any of its Subsidiaries, within the meaning of Sections 414(b),
(c), (m) or (o) of the Internal Revenue Code or Section 4001 of ERISA.
"ERISA Event" shall mean any of the following with respect to a Plan or
Multiemployer Plan,
-9-
<PAGE>
as applicable: (i) a Reportable Event with respect to a Plan or a
Multiemployer Plan, (ii) a complete or partial withdrawal by the Borrower or
any ERISA Affiliate from a Multiemployer Plan that results in liability under
Section 4201 or 4204 of ERISA, or the receipt by the Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA, (iii) the
distribution by the Borrower or any ERISA Affiliate under Section 4041 or
4041A of ERISA of a notice of intent to terminate any Plan or the taking of
any action to terminate any Plan, (iv) the commencement of proceedings by the
PBGC under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the Borrower or any
ERISA Affiliate of a notice from any Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan, (v) the
institution of a proceeding by any fiduciary of any Multiemployer Plan
against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA,
which is not dismissed within thirty (30) days, (vi) the imposition upon the
Borrower or any ERISA Affiliate of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA, or the imposition or threatened imposition of any Lien upon any assets
of the Borrower or any ERISA Affiliate as a result of any alleged failure to
comply with the Internal Revenue Code or ERISA in respect of any Plan, (vii)
the engaging in or otherwise becoming liable for a nonexempt Prohibited
Transaction by the Borrower or any ERISA Affiliate, (viii) a violation of the
applicable requirements of Section 404 or 405 of ERISA or the exclusive
benefit rule under Section 401(a) of the Internal Revenue Code by any
fiduciary of any Plan for which the Borrower or any of its ERISA Affiliates
may be directly or indirectly liable or (ix) the adoption of an amendment to
any Plan that, pursuant to Section 401(a)(29) of the Internal Revenue Code or
Section 307 of ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Borrower or an ERISA Affiliate
fails to timely provide security to such Plan in accordance with the
provisions of such sections.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of
any other country that is a member of the Organization for Economic
Cooperation and Development or any successor thereto (the "OECD") or a
political subdivision of any such country and having total assets in excess
of $1,000,000,000, PROVIDED that such bank or other financial institution is
acting through a branch or agency located in the United States, in the
country under the laws of which it is organized or in another country that is
also a member of the OECD, (iii) the central bank of any country that is a
member of the OECD, (iv) a finance company, insurance company or other
financial institution or fund that is engaged in making, purchasing or
otherwise investing in loans in the ordinary course of its business and
having total assets in excess of $500,000,000, (v) any Affiliate of an
existing Lender or (vi) any other Person approved by the Required Lenders,
which approval shall not be unreasonably withheld.
"Environmental Claims" shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens,
accusations, allegations, notices of noncompliance or violation,
investigations (other than internal reports prepared by any Person in the
ordinary course of its business and not in response to any third party action
or request of any kind) or proceedings relating in any way to any actual or
alleged violation of or liability under any Environmental Law or relating to
any permit issued, or any approval given, under any such Environmental Law
(collectively, "Claims"), including, without limitation, (i) any and all
Claims by Governmental Authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
-10-
<PAGE>
Environmental Law and (ii) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Substances or arising from alleged
injury or threat of injury to human health or the environment.
"Environmental Laws" shall mean any and all federal, state and local
laws, statutes, ordinances, rules, regulations, permits, licenses, approvals,
rules of common law and orders of courts or Governmental Authorities,
relating to the protection of human health or occupational safety or the
environment, now or hereafter in effect and in each case as amended from time
to time, including, without limitation, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Substances.
"Equity Issuance" shall mean the issuance, sale or other disposition by
the Borrower or any of its Subsidiaries of its Capital Stock, any rights,
warrants or options to purchase or acquire any shares of its Capital Stock or
any other security or instrument representing, convertible into or
exchangeable for an equity interest in the Borrower or any of its
Subsidiaries; PROVIDED, HOWEVER, that the term Equity Issuance shall not
include (i) the issuance or sale of Capital Stock by any of the Subsidiaries
of the Borrower to the Borrower or any other Subsidiary, PROVIDED that such
Capital Stock is pledged to the Administrative Agent pursuant to the Pledge
Agreement, if such pledge is required hereunder, (ii) the issuance or sale of
Capital Stock by any Subsidiary to any Person other than the Borrower or any
other Subsidiary in exchange for start-up capital contributions deemed
reasonably necessary by a Financial Officer of the Borrower, which Capital
Stock represents at all times a minority interest in such Subsidiary,
PROVIDED that the Investments by the Borrower and its Subsidiaries in such
issuing Subsidiary are permitted under this Agreement, (iii) any Capital
Stock of the Borrower issued or sold in connection with the PPS Acquisition
or any Permitted Acquisition and constituting all or a portion of the
applicable purchase price, or (iv) any rights, options or other Capital Stock
issued pursuant to bona fide employee stock option or stock purchase plans or
arrangements approved by the Borrower's Board of Directors.
"Event of Default" shall have the meaning given to such term in
SECTION 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Existing Loans" shall have the meaning given to such term in
SECTION 2.1(b).
"Fair Market Value" shall mean, with respect to any Capital Stock of the
Borrower given in connection with an Acquisition, the value given to such
Capital Stock for purposes of such Acquisition by the parties thereto, as
determined in good faith pursuant to the relevant acquisition agreement or
otherwise in connection with such Acquisition.
"Federal Funds Rate" shall mean, for any period, a fluctuating per annum
interest rate (rounded upwards, if necessary, to the nearest 1/100 of one
percentage point) equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York,
-11-
<PAGE>
or if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by the Administrative Agent.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or any successor thereto.
"Fee Letter" shall mean the letter from First Union to the Borrower,
dated February 20, 1998, relating to certain fees payable by the Borrower in
respect of the transactions contemplated by this Agreement, as amended,
modified or supplemented from time to time.
"Financial Officer" shall mean, with respect to the Borrower, the chief
financial officer, vice president - finance, principal accounting officer or
treasurer of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, as of the last day of any
fiscal quarter, the ratio of (i) Annualized Consolidated EBITDA as of such
date to (ii) the product of (A) Consolidated Fixed Charges for the period of
two fiscal quarters then ending and (B) two (2).
"GAAP" shall mean generally accepted accounting principles, as set forth
in the statements, opinions and pronouncements of the Accounting Principles
Board, the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board, consistently applied and maintained, as
in effect from time to time (subject to the provisions of SECTION 1.2).
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any central bank thereof, any
municipal, local, city or county government, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government, and any corporation or other entity owned or
Controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Hazardous Substances" shall mean any substances or materials (i) that
are or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
defined by any Environmental Law as toxic, explosive, corrosive, ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence
of which require investigation or response under any Environmental Law, (iv)
that constitute a nuisance, trespass or health or safety hazard to Persons or
neighboring properties, (v) that consist of underground or aboveground
storage tanks, whether empty, filled or partially filled with any substance,
or (vi) that contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons,
petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas
or synthetic gas.
"Hedge Agreement" shall mean any interest or foreign currency rate swap,
cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Indebtedness" shall mean, with respect to any Person (without
duplication), (i) all indebtedness and obligations of such Person for
borrowed money or in respect of loans or advances of any kind, (ii) all
obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (iii) all
-12-
<PAGE>
reimbursement obligations of such Person with respect to surety bonds,
letters of credit and bankers' acceptances (in each case, whether or not
drawn or matured and in the stated amount thereof), (iv) all obligations of
such Person to pay the deferred purchase price of property or services, (v)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, (vi)
all obligations of such Person as lessee under leases that are or are
required to be, in accordance with GAAP, recorded as capital leases, to the
extent such obligations are required to be so recorded, (vii) the net
termination obligations of such Person under any Hedge Agreements, calculated
as of any date as if such agreement or arrangement were terminated as of such
date, (viii) all Contingent Obligations of such Person and (ix) all
indebtedness referred to in clauses (i) through (viii) above secured by any
Lien on any property or asset owned or held by such Person regardless of
whether the indebtedness secured thereby shall have been assumed by such
Person or is nonrecourse to the credit of such Person. The Indebtedness of
any Person shall include the Indebtedness of any partnership in which such
Person is a general partner.
"Interest Period" shall have the meaning given to such term in SECTION
2.10.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Investments" shall have the meaning given to such term in SECTION 8.5.
"Issuing Lender" shall mean First Union in its capacity as issuer of the
Letters of Credit, and its successors in such capacity.
"Joint Proxy Statement/Prospectus" means the Joint Proxy
Statement/Prospectus, dated August 1, 1997, filed by CRA and OccuSystems with
the Securities and Exchange Commission in connection with the Reorganization.
"LIBOR Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted LIBOR Rate.
"LIBOR Rate" shall mean, with respect to each LIBOR Loan comprising part
of the same Borrowing for any Interest Period, an interest rate per annum
obtained by dividing (i) (y) the rate of interest appearing on Telerate Page
3750 (or any successor page) or (z) if no such rate is available, the rate of
interest determined by the Administrative Agent to be the rate or the
arithmetic mean of rates (rounded upward, if necessary, to the nearest 1/16
of one percentage point) at which Dollar deposits in immediately available
funds are offered by First Union to first-tier banks in the London interbank
Eurodollar market, in each case under (y) and (z) above at approximately
11:00 a.m., London time, two (2) Business Days prior to the first day of such
Interest Period for a period substantially equal to such Interest Period and
in an amount substantially equal to the amount of First Union's LIBOR Loan
comprising part of such Borrowing, by (ii) the amount equal to 1.00 minus the
Reserve Requirement (expressed as a decimal) for such Interest Period.
"Lender" shall mean each financial institution signatory hereto and each
other financial institution that becomes a "Lender" hereunder pursuant to
SECTION 11.7, and their respective successors and assigns.
-13-
<PAGE>
"LENDING OFFICE" shall mean, with respect to any Lender, the office of
such Lender designated as its "Lending Office" on its signature page hereto
or in an Assignment and Acceptance, or such other office as may be otherwise
designated in writing from time to time by such Lender to the Borrower and
the Administrative Agent. A Lender may designate separate Lending Offices as
provided in the foregoing sentence for the purposes of making or maintaining
different Types of Loans, and, with respect to LIBOR Loans, such office may
be a domestic or foreign branch or Affiliate of such Lender.
"Letter of Credit Exposure" shall mean, with respect to any Lender at
any time, such Lender's ratable share (based on the proportion that its
Commitment bears to the aggregate Commitments at such time) of the sum of (i)
the aggregate Stated Amount of all Letters of Credit outstanding at such time
and (ii) the aggregate amount of all Reimbursement Obligations outstanding at
such time.
"Letter of Credit Notice" shall have the meaning given to such term in
SECTION 3.3.
"Letters of Credit" shall have the meaning given to such term in SECTION
3.1.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
security interest, lien (statutory or otherwise), preference, priority,
charge or other encumbrance of any nature, whether voluntary or involuntary,
including, without limitation, the interest of any vendor or lessor under any
conditional sale agreement, title retention agreement, capital lease or any
other lease or arrangement having substantially the same effect as any of the
foregoing.
"Loans" shall have the meaning given to such term in SECTION 2.1(a).
"Margin Stock" shall have the meaning given to such term in Regulation U.
"Material Adverse Change" shall mean (i) with reference to any time or
period prior to the Effective Time (as defined in the Reorganization
Agreement), a material adverse change in the condition (financial or
otherwise), operations, business, properties or assets of (A) the Borrower,
(B) CRA and its Subsidiaries, taken as a whole, or (C) OccuSystems and its
Subsidiaries, taken as a whole, (ii) with reference to any time or period
from and after the Effective Time (as defined in the Reorganization
Agreement) but prior to the Restatement Effective Date, a material adverse
change in the condition (financial or otherwise), operations, business,
properties or assets of (A) the Borrower and its Subsidiaries, taken as a
whole, or (B) PPS and its Subsidiaries, taken as a whole, and (iii) with
reference to any time or period from and after the Restatement Effective
Date, a material adverse change in the condition (financial or otherwise),
operations, business, properties or assets of the Borrower and its
Subsidiaries, taken as a whole.
"Material Adverse Effect" shall mean (i) with reference to any time or
period prior to the Effective Time (as defined in the Reorganization
Agreement), a material adverse effect upon the condition (financial or
otherwise), operations, business, properties or assets of (A) the Borrower,
(B) CRA and its Subsidiaries, taken as a whole, or (C) OccuSystems and its
Subsidiaries, taken as a whole, (ii) with reference to any time or period
from and after the Effective Time (as defined in the Reorganization
Agreement) but prior to the Restatement Effective Date, a material adverse
effect upon the condition (financial or otherwise), operations, business,
properties or assets of (A) the Borrower and its Subsidiaries, taken as a
whole, or (B) PPS and its Subsidiaries, taken as a whole, and (iii) with
-14-
<PAGE>
reference to any time or period from and after the Restatement Effective
Date, a material adverse effect upon (A) the condition (financial or
otherwise), operations, business, properties or assets of the Borrower and
its Subsidiaries, taken as a whole, (B) the ability of the Borrower and its
Subsidiaries, taken as a whole, to perform their collective obligations under
this Agreement or any of the other Credit Documents, or (C) the legality,
validity or enforceability of this Agreement or any of the other Credit
Documents or the rights and remedies of the Administrative Agent and the
Lenders hereunder and thereunder.
"Material Contract" shall have the meaning given to such term in SECTION
5.18.
"Maturity Date" shall mean September 17, 2002.
"Multiemployer Plan" shall mean any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate makes, is making or is obligated to make contributions or has made
or been obligated to make contributions.
"Net Cash Proceeds" shall mean, with respect to any Debt Issuance or
Equity Issuance, cash payments net of reasonable accounting, legal and
recording expenses, selling and brokerage commissions and discounts and
underwriting fees and other reasonable fees and expenses incurred in
connection with such issuance and sale.
"Non-Guarantor Acquisition" shall mean the purchase, redemption or
acquisition by the Borrower, whether directly or indirectly through one or
more Subsidiaries, of all (but not less than all) of the outstanding Capital
Stock of any Non-Guarantor Subsidiary (or other Person in which the
Borrower's direct or indirect Investments consist of less than a majority
ownership interest, and which Investments are permitted under clause (xii) of
SECTION 8.5) not already directly or indirectly owned by the Borrower
immediately prior to giving effect to such acquisition.
"Non-Guarantor Subsidiary" shall mean any Subsidiary of the Borrower
that (i) is not a Wholly Owned Subsidiary, (ii) is Controlled by the Borrower
and (iii) has not become a guarantor under the Subsidiary Guaranty. For
purposes of this definition, "Control" by the Borrower shall be deemed to
exist with respect to a Non-Guarantor Subsidiary if, for financial reporting
purposes, the financial statements of such Non-Guarantor Subsidiary are
consolidated with those of the Borrower in accordance with GAAP.
"Notes" shall mean the promissory notes of the Borrower in substantially
the form of EXHIBIT A, together with any amendments, modifications and
supplements thereto, substitutions therefor and restatements thereof.
"Notice of Borrowing" shall have the meaning given to such term in
SECTION 2.2(b).
"Notice of Conversion/Continuation" shall have the meaning given to such
term in SECTION 2.11(b).
"Obligations" shall mean all principal of and interest (including, to
the greatest extent permitted by law, post-petition interest) on the Loans,
all Reimbursement Obligations and all fees, expenses, indemnities and other
obligations owing, due or payable at any time by the Borrower to the
-15-
<PAGE>
Administrative Agent, any Lender, the Issuing Lender or any other Person
entitled thereto, under this Agreement or any of the other Credit Documents.
"OccuSystems" shall mean OccuSystems, Inc., a Delaware corporation that
was merged with and into the Borrower pursuant to the Reorganization.
"Original Credit Agreement" shall have the meaning given to such term in
the recitals hereof.
"Outstanding Letters of Credit" shall mean (i) that certain Irrevocable
Standby Letter of Credit No. S143097 issued January 9, 1998 by First Union as
Issuing Lender pursuant to the Original Credit Agreement, in favor of
Atlantic Mutual Insurance Company, in the face amount of $1,750,000, as the
same may be amended, renewed or extended from time to time, and (ii) that
certain Irrevocable Standby Letter of Credit No. S145197 issued February 9,
1998 by First Union as Issuing Lender pursuant to the Original Credit
Agreement, in favor of Transportation Insurance Company ET AL., in the face
amount of $1,000,000, as the same may be amended, renewed or extended from
time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"PPS" shall have the meaning given to such term in the recitals hereof.
"PPS Acquisition" shall have the meaning given to such term in the
recitals hereof.
"PPS Merger Agreement" shall have the meaning given to such term in the
recitals hereof.
"Participant" shall have the meaning given to such term in SECTION
11.7(d).
"Permitted Acquisition" shall mean (a) any Acquisition (including a
Non-Guarantor Acquisition) with respect to which all of the following
conditions are satisfied: (i) each business acquired shall be within the
permitted lines of business described in SECTION 8.8, (ii) any Capital Stock
given as consideration in connection therewith shall be Capital Stock of the
Borrower, (iii) in the case of an Acquisition involving the acquisition of
Control of Capital Stock of any Person (including any Non-Guarantor
Acquisition), the Borrower shall, directly or indirectly, acquire 100% of the
outstanding Capital Stock of such Person such that, immediately after giving
effect to such Acquisition, such Person (or the surviving Person, if the
Acquisition is effected through a merger or consolidation) shall be the
Borrower or a Wholly Owned Subsidiary; and if a Wholly Owned Subsidiary, such
Person or surviving Person shall become a guarantor under the Subsidiary
Guaranty, and all of its Capital Stock shall be pledged to the Administrative
Agent, in accordance with SECTION 6.9, and (iv) all of the conditions and
requirements of SECTIONS 6.8 and 6.9 applicable to such Acquisition are
satisfied; or (b) any other Acquisition to which the Required Lenders (or the
Administrative Agent on their behalf) shall have given their prior written
consent (which consent may be in their sole discretion and may be given
subject to such additional terms and conditions as the Required Lenders shall
establish) and with respect to which all of the conditions and requirements
set forth in this definition and in SECTION 6.8, and in or pursuant to any
such consent, have been satisfied or waived in writing by the Required
Lenders (or the Administrative Agent on their behalf).
"Permitted Liens" shall have the meaning given to such term in SECTION
8.3.
-16-
<PAGE>
"Person" shall mean any corporation, association, joint venture,
partnership, limited liability company, organization, business, individual,
trust, government or agency or political subdivision thereof or any other
legal entity.
"Plan" shall mean any "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA that is subject to the provisions of Title IV of
ERISA (other than a Multiemployer Plan) and to which the Borrower or any
ERISA Affiliate may have any liability.
"Pledge Agreement" shall mean a pledge agreement made by the Borrower
and its Subsidiaries in favor of the Administrative Agent, in substantially
the form of EXHIBIT E, as amended, modified or supplemented from time to time.
"Pro Forma Balance Sheet" shall have the meaning given to such term in
SECTION 5.11(f).
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or
by reason of a Department of Labor prohibited transaction individual or class
exemption or (ii) Section 4975(c) of the Internal Revenue Code that is not
exempt by reason of Section 4975(c)(2) or 4975(d) of the Internal Revenue
Code.
"Projections" shall have the meaning given to such term in SECTION
5.11(g).
"Register" shall have the meaning given to such term in SECTION 11.7(b).
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X,
respectively, of the Federal Reserve Board, and any successor regulations.
"Reimbursement Obligation" shall have the meaning given to such term in
SECTION 3.5.
"Reorganization" shall mean, collectively, the transactions contemplated
by the Reorganization Agreement and the related documents and described in
the Joint Proxy Statement/Prospectus, including the "CRA Merger" and the "OSI
Merger" (each as defined in the Reorganization Agreement) and the assumption
by the Borrower of the Convertible Notes, which transactions were consummated
on August 29, 1997.
"Reorganization Agreement" shall mean the Agreement and Plan of
Reorganization, dated as of April 21, 1997, among the Borrower, CRA and
OccuSystems.
"Reportable Event" shall mean (i) any "reportable event" within the
meaning of Section 4043(c) of ERISA for which the 30-day notice under Section
4043(a) of ERISA has not been waived by the PBGC (including any failure to
meet the minimum funding standard of, or timely make any required installment
under, Section 412 of the Internal Revenue Code or Section 302 of ERISA,
regardless of the issuance of any waivers in accordance with Section 412(d)
of the Internal Revenue Code), (ii) any such "reportable event" subject to
advance notice to the PBGC under Section 4043(b)(3) of ERISA, (iii) any
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Internal Revenue Code, and (iv) a cessation of
operations described in Section 4062(e) of ERISA.
-17-
<PAGE>
"Required Lenders" shall mean the Lenders holding outstanding Loans and
Commitments (or, after the termination of the Commitments, outstanding Loans
and Letter of Credit Exposure) representing more than sixty percent (60%) of
the aggregate at such time of all outstanding Loans and Commitments (or,
after the termination of the Commitments, the aggregate at such time of all
outstanding Loans and Letter of Credit Exposure).
"Requirement of Law" shall mean, with respect to any Person, the
charter, articles or certificate of organization or incorporation and bylaws
or other organizational or governing documents of such Person, and any
statute, law, treaty, rule, regulation, order, decree, writ, injunction or
determination of any arbitrator or court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject or otherwise
pertaining to any or all of the transactions contemplated by this Agreement
and the other Credit Documents.
"Reserve Requirement" shall mean, with respect to any Interest Period,
the reserve percentage (expressed as a decimal) in effect from time to time
during such Interest Period, as provided by the Federal Reserve Board,
applied for determining the maximum reserve requirements (including, without
limitation, basic, supplemental, marginal and emergency reserves) applicable
to First Union under Regulation D with respect to "Eurocurrency liabilities"
within the meaning of Regulation D, or under any similar or successor
regulation with respect to Eurocurrency liabilities or Eurocurrency funding.
"Responsible Officer" shall mean, with respect to the Borrower, the
president, the chief executive officer, the chief financial officer, any
executive vice president, or any other Financial Officer of the Borrower, and
any other officer or similar official thereof responsible for the
administration of the obligations of the Borrower in respect of this
Agreement.
"Restatement Effective Date" shall have the meaning given to such term
in SECTION 11.14.
"Security Documents" shall mean the Pledge Agreement and all other
pledge or security agreements, assignments or other similar agreements or
instruments executed and delivered by the Borrower or any of its Subsidiaries
pursuant to SECTION 6.9 or otherwise in connection with the transactions
contemplated hereby, in each case as amended, modified or supplemented from
time to time.
"Senior Leverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Senior Indebtedness as of such date to
(ii) Annualized Consolidated EBITDA as of such date.
"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the aggregate amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
"Subordinated Indebtedness" shall mean, with respect to the Borrower and
its Subsidiaries, (i) the Convertible Notes, (ii) the guarantee by CHS of the
obligations of CDC under the CDC Securities Purchase Agreement and the CDC
Notes, as set forth in paragraphs 10 and 11 of the CDC Securities Purchase
Agreement, and (iii) any other Indebtedness of the Borrower and its
Subsidiaries to the extent such Indebtedness is expressly subordinated and
made junior to the payment and
-18-
<PAGE>
performance in full of the Obligations and evidenced as such by one or more
written instruments having terms, provisions and conditions (including,
without limitation, subordination provisions) of which are satisfactory in
form and substance to the Required Lenders in their sole discretion and are
approved in writing by the Required Lenders (or the Administrative Agent on
their behalf), it being understood by the Borrower that the provisions of
this clause (iii) are not intended to (and shall not) permit the incurrence
by the Borrower or any Subsidiary of any such Indebtedness not otherwise
expressly permitted under SECTION 8.2.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other Person of which more than fifty percent (50%) of the outstanding
Capital Stock having ordinary voting power to elect a majority of the board
of directors, board of managers or other governing body of such Person, is at
the time, directly or indirectly, owned or Controlled by such Person and one
or more of its other Subsidiaries or a combination thereof (irrespective of
whether, at the time, securities of any other class or classes of any such
corporation or other Person shall or might have voting power by reason of the
happening of any contingency). When used without reference to a parent
entity, the term "Subsidiary" shall be deemed to refer to a Subsidiary of the
Borrower.
"Subsidiary Guarantor" shall mean any Subsidiary of the Borrower that is
a guarantor under the Subsidiary Guaranty.
"Subsidiary Guaranty" shall mean a guaranty agreement made by the
Subsidiary Guarantors in favor of the Administrative Agent and the Lenders,
in substantially the form of EXHIBIT F, as amended, modified or supplemented
from time to time.
"Syndication Completion Date" shall have the meaning given to such term
in SECTION 2.2(a).
"Total Leverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Indebtedness as of such date to (ii)
Annualized Consolidated EBITDA as of such date.
"Termination Date" shall mean the Maturity Date or such earlier date of
termination of the Commitments pursuant to SECTION 2.5 or SECTION 9.2.
"Type" shall have the meaning given to such term in SECTION 2.2(a).
"Unfunded Pension Liability" shall mean, with respect to any Plan or
Multiemployer Plan, the excess of its benefit liabilities under Section
4001(a)(16) of ERISA over the current value of its assets, determined in
accordance with the applicable assumptions used for funding under Section 412
of the Code for the applicable plan year.
"Unutilized Commitment" shall mean, with respect to any Lender at any
time, such Lender's Commitment at such time LESS the sum of (i) the aggregate
principal amount of all Loans made by such Lender that are outstanding at
such time and (ii) such Lender's Letter of Credit Exposure at such time.
"Wholly Owned" shall mean, with respect to any Subsidiary of any Person,
that 100% of the outstanding Capital Stock of such Subsidiary is owned,
directly or indirectly, by such Person.
I.2. ACCOUNTING TERMS. Except as specifically provided otherwise in
this Agreement, all
-19-
<PAGE>
accounting terms used herein that are not specifically defined shall have the
meanings customarily given them in accordance with GAAP. Notwithstanding
anything to the contrary in this Agreement, for purposes of calculation of
the financial covenants set forth in ARTICLE VII, all accounting
determinations and computations hereunder shall be made in accordance with
GAAP as in effect as of the date of this Agreement applied on a basis
consistent with the application used in preparing the most recent financial
statements of CRA and OccuSystems referred to in SECTIONS 5.11(a) and
5.11(b). In the event that any changes in GAAP after such date are required
to be applied to the Borrower and would affect the computation of the
financial covenants contained in ARTICLE VII, such changes shall be followed
only from and after the date this Agreement shall have been amended to take
into account any such changes.
I.3. OTHER TERMS; CONSTRUCTION. Unless otherwise specified or unless
the context otherwise requires, all references herein to sections, annexes,
schedules and exhibits are references to sections, annexes, schedules and
exhibits in and to this Agreement, and all terms defined in this Agreement
shall have the defined meanings when used in any other Credit Document or any
certificate or other document made or delivered pursuant hereto. All
references herein to the Lenders or any of them shall be deemed to include
the Issuing Lender unless specifically provided otherwise or unless the
context otherwise requires.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
II.1. COMMITMENTS; CONVERSION OF EXISTING LOANS. (a) Each Lender
severally agrees, subject to and on the terms and conditions of this
Agreement, to make loans (each, a "Loan," and collectively, the "Loans") to
the Borrower, from time to time on any Business Day during the period from
and including the Restatement Effective Date to but not including the
Termination Date, in an aggregate principal amount at any time outstanding
not greater than the excess, if any, of its Commitment at such time over its
Letter of Credit Exposure at such time, PROVIDED that no Borrowing of Loans
shall be made if, immediately after giving effect thereto, the sum of (y) the
aggregate principal amount of Loans outstanding at such time and (z) the
aggregate Letter of Credit Exposure of all Lenders at such time would exceed
the aggregate Commitments at such time. Subject to and on the terms and
conditions of this Agreement, the Borrower may borrow, repay and reborrow
Loans.
(b) On the Restatement Effective Date, the aggregate outstanding
principal amount of all Loans (as defined in the Original Credit Agreement)
made pursuant to the Original Credit Agreement and outstanding on the
Restatement Effective Date (collectively, the "Existing Loans") shall, after
giving effect to the concurrent assignment and purchase of a portion of the
Existing Loans among the Lenders in accordance with the provisions of SECTION
2.19, automatically be converted to an equivalent principal amount of Loans
hereunder, made by the Lenders ratably in accordance with their respective
Commitments, and for all purposes of this Agreement shall be deemed to be
Loans hereunder and entitled to the benefits of this Agreement and the other
Credit Documents.
(c) On the Restatement Effective Date, and as a condition to the
occurrence thereof, each Lender shall have made available to the
Administrative Agent (i) for the account of the Borrower, in accordance with
the terms of SECTION 2.2(c), an amount equal to the amount by which the Loans
to be
-20-
<PAGE>
made by such Lender on the Restatement Effective Date exceed the amount of
the Existing Loans of such Lender outstanding on the Restatement Effective
Date (after giving effect to any applicable adjustments made pursuant to the
provisions of SECTION 2.19), and (ii) if such Lender is a "Purchasing Lender"
(as defined in SECTION 2.19), for the account of the Selling Lenders, the
amount of Existing Loans being purchased by such Purchasing Lender pursuant
to SECTION 2.19, as established pursuant to the provisions of Section 2.19
and as set forth in ANNEX I hereto. Notwithstanding the foregoing or
anything else to the contrary contained in this Agreement or in any other
Credit Document, unless the Administrative Agent has received, prior to 2:00
p.m., Charlotte time, on the Restatement Effective Date, written notice from
a Lender that such Lender will not make available to the Administrative Agent
such Lender's ratable portion of the Borrowing to be made on the Restatement
Effective Date, the Administrative Agent may assume that such Lender has made
such portion available to the Administrative Agent in immediately available
funds on the Restatement Effective Date in accordance with the provisions of
this subsection, and the Administrative Agent may, in reliance upon such
assumption, but shall not be obligated to, make a corresponding amount
available to the Borrower on the Restatement Effective Date in accordance
with the provisions of SECTION 2.3(b).
II.2. BORROWINGS. (a) The Loans shall, at the option of the Borrower
and subject to the terms and conditions of this Agreement, be either Base
Rate Loans or LIBOR Loans (each, a "Type" of Loan), PROVIDED that (i) all
Loans comprising the same Borrowing shall, unless otherwise specifically
provided herein, be of the same Type, (ii) Existing Loans that are LIBOR
Loans shall retain their respective Interest Periods determined in accordance
with the applicable provisions of the Original Credit Agreement, (iii) the
Loans made on the Restatement Effective Date shall be made initially as Base
Rate Loans, and (iv) notwithstanding any other provision of this Agreement,
no LIBOR Loans having an Interest Period of longer than one month may be
borrowed at any time prior to the earlier of the 60th day after the
Restatement Effective Date and the date upon which the Administrative Agent
determines in its sole discretion, and notifies the Borrower, that the
secondary syndication of the credit facility provided for hereunder has been
completed (the earlier of such dates, the "Syndication Completion Date").
(b) In order to make a Borrowing (other than Borrowings involving
continuations or conversions of outstanding Loans, which shall be made
pursuant to SECTION 2.11), the Borrower will give the Administrative Agent
written notice not later than 12:00 noon, Charlotte time, three (3) Business
Days prior to each Borrowing to be comprised of LIBOR Loans and one (1)
Business Day prior to each Borrowing to be comprised of Base Rate Loans;
PROVIDED, HOWEVER, that requests for the Borrowing of Loans to be made on the
Restatement Effective Date may, at the discretion of the Administrative
Agent, be given later than the times specified hereinabove. Each such notice
(each, a "Notice of Borrowing") shall be irrevocable, shall be given in the
form of EXHIBIT B-1 and shall specify (1) the aggregate principal amount and
initial Type of the Loans to be made pursuant to such Borrowing, (2) in the
case of a Borrowing of LIBOR Loans, the initial Interest Period to be
applicable thereto, and (3) the requested date of such Borrowing (the
"Borrowing Date"), which shall be a Business Day. Upon its receipt of a
Notice of Borrowing, the Administrative Agent will promptly notify each
Lender of the proposed Borrowing. Notwithstanding anything to the contrary
contained herein:
(i) the aggregate principal amount of each Borrowing comprised
of Base Rate Loans shall not be less than $1,000,000 or, if greater, an
integral multiple of $500,000 in excess thereof (or, if less, in the
amount of the aggregate Unutilized Commitments), and the aggregate
principal amount of each Borrowing comprised of LIBOR Loans shall not be
less
-21-
<PAGE>
than $5,000,000 or, if greater, an integral multiple of $1,000,000 in
excess thereof;
(ii) if the Borrower shall have failed to designate the Type of Loans
comprising a Borrowing, the Borrower shall be deemed to have requested a
Borrowing comprised of Base Rate Loans; and
(iii) if the Borrower shall have failed to select the duration of the
Interest Period to be applicable to any Borrowing of LIBOR Loans, then the
Borrower shall be deemed to have selected an Interest Period with a
duration of one month.
(c) Not later than 2:00 p.m., Charlotte time, on the requested Borrowing
Date, each Lender will make available to the Administrative Agent at its
office referred to in SECTION 11.5 (or at such other location as the
Administrative Agent may designate) an amount, in Dollars and in immediately
available funds, equal to the amount of the Loan to be made by such Lender.
To the extent the Lenders have made such amounts available to the
Administrative Agent as provided hereinabove, the Administrative Agent will
make the aggregate of such amounts available to the Borrower in accordance
with SECTION 2.3(a) and in like funds as received by the Administrative Agent.
II.3. DISBURSEMENTS; FUNDING RELIANCE; DOMICILE OF LOANS. (a) The
Borrower hereby authorizes the Administrative Agent to disburse the proceeds
of each Borrowing in accordance with the terms of any written instructions
from any of the Authorized Officers, PROVIDED that the Administrative Agent
shall not be obligated under any circumstances to forward amounts to any
account not listed in an Account Designation Letter. The Borrower may at any
time deliver to the Administrative Agent an Account Designation Letter
listing any additional accounts or deleting any accounts listed in a previous
Account Designation Letter.
(b) Unless the Administrative Agent has received, prior to 2:00 p.m.,
Charlotte time, on the relevant Borrowing Date, written notice from a Lender
that such Lender will not make available to the Administrative Agent such
Lender's ratable portion of the relevant Borrowing, the Administrative Agent
may assume that such Lender has made such portion available to the
Administrative Agent in immediately available funds on such Borrowing Date in
accordance with the applicable provisions of SECTION 2.2, and the
Administrative Agent may, in reliance upon such assumption, but shall not be
obligated to, make a corresponding amount available to the Borrower on such
Borrowing Date. If and to the extent that such Lender shall not have made
such portion available to the Administrative Agent, and the Administrative
Agent shall have made such corresponding amount available to the Borrower,
such Lender, on the one hand, and the Borrower, on the other, severally agree
to pay to the Administrative Agent forthwith on demand such corresponding
amount, together with interest thereon for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Administrative Agent, (i) in the case of such Lender, at the Federal Funds
Rate, and (ii) in the case of the Borrower, at the rate of interest
applicable at such time to the Type of Loans comprising such Borrowing, as
determined under the provisions of SECTION 2.8. If such Lender shall repay
to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. The failure of any Lender to make any Loan required to be made by
it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Loan as part of such Borrowing, but
no Lender shall be responsible for the failure of any other Lender to make
the Loan to be made by such other Lender as part of any Borrowing.
-22-
<PAGE>
(c) Each Lender may, at its option, make and maintain any Loan at, to or
for the account of any of its Lending Offices, PROVIDED that any exercise of
such option shall not affect the obligation of the Borrower to repay such
Loan to or for the account of such Lender in accordance with the terms of
this Agreement.
II.4. NOTES. (a) The Loans made by each Lender shall be evidenced by a
Note appropriately completed in substantially the form of EXHIBIT A.
(b) Each Note issued to a Lender shall (i) be executed by the Borrower,
(ii) be payable to the order of such Lender, (iii) be dated as of the
Restatement Effective Date, (iv) be in a stated principal amount equal to
such Lender's Commitment, (v) bear interest in accordance with the provisions
of SECTION 2.8, as the same may be applicable from time to time to the Loans
made by such Lender, and (vi) be entitled to all of the benefits of this
Agreement and the other Credit Documents and subject to the provisions hereof
and thereof.
(c) Each Lender will record on its internal records the amount and Type
of each Loan made by it and each payment received by it in respect thereof
and will, in the event of any transfer of any of its Notes, either endorse on
the reverse side thereof or on a schedule attached thereto (or any
continuation thereof) the outstanding principal amount and Type of the Loans
evidenced thereby as of the date of transfer or provide such information on a
schedule to the Assignment and Acceptance relating to such transfer;
PROVIDED, HOWEVER, that the failure of any Lender to make any such
recordation or provide any such information, or any error therein, shall not
affect the Borrower's obligations under this Agreement or the Notes.
II.5. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Commitments
shall be automatically and permanently terminated on the Termination Date (or
on March 15, 1998, but only if the Restatement Effective Date shall not have
occurred on or prior to such date).
(b) At any time and from time to time after the date hereof, upon not
less than five (5) Business Days' prior written notice to the Administrative
Agent, the Borrower may terminate in whole or reduce in part the aggregate
Unutilized Commitments, PROVIDED that any such partial reduction shall be in
an aggregate amount of not less than $5,000,000 or, if greater, an integral
multiple thereof. The amount of any termination or reduction made under this
subsection (b) may not thereafter be reinstated.
(c) Each reduction of the Commitments pursuant to this Section shall be
applied ratably among the Lenders according to their respective Commitments.
II.6. MANDATORY PAYMENTS AND PREPAYMENTS. (a) Except to the extent due
or paid sooner pursuant to the provisions of this Agreement, the aggregate
outstanding principal of the Loans shall be due and payable in full on the
Maturity Date.
(b) In the event that, at any time, the sum of (y) the aggregate
principal amount of Loans outstanding at such time and (z) the aggregate
Letter of Credit Exposure of all Lenders at such time shall exceed the
aggregate Commitments at such time (after giving effect to any concurrent
termination or reduction thereof), the Borrower will immediately prepay the
outstanding principal amount of the Loans in the amount of such excess;
PROVIDED that, to the extent such excess amount is greater than the
-23-
<PAGE>
aggregate principal amount of Loans outstanding immediately prior to the
application of such prepayment, the amount so prepaid shall be retained by
the Administrative Agent and held in the Cash Collateral Account as cover for
Letter of Credit Exposure, as more particularly described in SECTION 3.9, and
thereupon such cash shall be deemed to reduce the aggregate Letter of Credit
Exposure by an equivalent amount.
(c) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding
principal amount of the Loans in an amount equal to 50% of the Net Cash
Proceeds from any Equity Issuance or 75% of the Net Cash Proceeds from any
Debt Issuance, and will deliver to the Administrative Agent, concurrently
with such prepayment, a certificate signed by a Financial Officer of the
Borrower in form and substance satisfactory to the Administrative Agent and
setting forth the calculation of such Net Cash Proceeds.
(d) Each prepayment of the Loans made pursuant to subsection (c) above
shall be applied (i) first, to reduce the outstanding principal amount of the
Loans, and (ii) second, to the extent of any excess remaining after
application as provided in clause (i) above, to pay any outstanding
Reimbursement Obligations, and thereafter to cash collateralize Letter of
Credit Exposure pursuant to SECTION 3.9, and shall be applied first to prepay
all Base Rate Loans before any LIBOR Loans are prepaid. Each payment or
prepayment pursuant to the provisions of this Section shall be applied
ratably among the Lenders holding the Loans being prepaid, in proportion to
the principal amount held by each.
(e) Each payment or prepayment of a LIBOR Loan made pursuant to the
provisions of this Section on a day other than the last day of the Interest
Period applicable thereto shall be made together with all amounts required
under SECTION 2.18 to be paid as a consequence thereof.
II.7. VOLUNTARY PREPAYMENTS. (a) At any time and from time to time,
the Borrower shall have the right to prepay the Loans, in whole or in part,
without premium or penalty (except as provided in clause (iii) below), upon
written notice given to the Administrative Agent not later than 12:00 noon,
Charlotte time, three (3) Business Days prior to each intended prepayment of
LIBOR Loans and one (1) Business Day prior to each intended prepayment of
Base Rate Loans, PROVIDED that (i) each partial prepayment shall be in an
aggregate principal amount of not less than $1,000,000 or, if greater, an
integral multiple of $500,000 in excess thereof, (ii) no partial prepayment
of LIBOR Loans made pursuant to any single Borrowing shall reduce the
aggregate outstanding principal amount of the remaining LIBOR Loans under
such Borrowing to less than $5,000,000 or to any greater amount not an
integral multiple of $1,000,000 in excess thereof, and (iii) unless made
together with all amounts required under Section 2.18 to be paid as a
consequence of such prepayment, a prepayment of a LIBOR Loan may be made only
on the last day of the Interest Period applicable thereto. Each such notice
shall specify the proposed date of such prepayment and the aggregate
principal amount and Type of the Loans to be prepaid (and, in the case of
LIBOR Loans, the Interest Period of the Borrowing pursuant to which made),
and shall be irrevocable and shall bind the Borrower to make such prepayment
on the terms specified therein. In the event the Borrower shall have failed
to select in any such notice the Type of Loans to be prepaid, then such
prepayment shall be applied first to prepay outstanding Base Rate Loans and
second, to the extent of any excess, to prepay outstanding LIBOR Loans in
such order and manner as the Administrative Agent may elect. Loans prepaid
pursuant to this subsection (a) may be reborrowed, subject to the terms and
conditions of this Agreement.
-24-
<PAGE>
(b) Each prepayment of the Loans made pursuant to subsection (a) above
shall be applied ratably among the Lenders holding the Loans being prepaid,
in proportion to the principal amount held by each.
II.8. INTEREST. (a) The Borrower will pay interest in respect of the
unpaid principal amount of each Loan, from the date of Borrowing thereof
until such principal amount shall be paid in full, (i) at the Base Rate, as
in effect from time to time during such periods as such Loan is a Base Rate
Loan, and (ii) at the Adjusted LIBOR Rate, as in effect from time to time
during such periods as such Loan is a LIBOR Loan. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement or in any
other Credit Document, interest borne by the Existing Loans during the period
prior to, but not including, the Restatement Effective Date shall be
determined pursuant to and in accordance with the applicable provisions of
the Original Credit Agreement.
(b) Upon the occurrence and during the continuance of an Event of
Default as the result of failure by the Borrower to pay any principal of or
interest on any Loan, any fees or other amount hereunder when due (whether at
maturity, pursuant to acceleration or otherwise), and (at the election of the
Required Lenders) upon the occurrence and during the continuance of any other
Event of Default, all outstanding principal amounts of the Loans and, to the
greatest extent permitted by law, all interest accrued on the Loans and all
other accrued and outstanding fees and other amounts hereunder, shall bear
interest at a rate per annum equal to the interest rate applicable from time
to time thereafter to such Loans (whether the Base Rate or the Adjusted LIBOR
Rate) plus 2% (or, in the case of fees and other amounts, at the Base Rate
plus 2%), and, in each case, such default interest shall be payable on
demand. To the greatest extent permitted by law, interest shall continue to
accrue after the filing by or against the Borrower of any petition seeking
any relief in bankruptcy or under any law pertaining to insolvency or debtor
relief.
(c) Accrued (and theretofore unpaid) interest shall be payable as follows:
(i) in respect of each Base Rate Loan (including any Base Rate Loan
or portion thereof paid or prepaid pursuant to the provisions of SECTION
2.6, except as provided hereinbelow), in arrears on the last Business Day
of each calendar quarter, beginning with the first such day to occur after
the Restatement Effective Date; PROVIDED, that in the event the Loans are
repaid or prepaid in full and the Commitments have been terminated, then
accrued interest in respect of all Base Rate Loans shall be payable
together with such repayment or prepayment on the date thereof;
(ii) in respect of each LIBOR Loan (including any LIBOR Loan or
portion thereof paid or prepaid pursuant to the provisions of SECTION 2.6,
except as provided hereinbelow), in arrears (y) on the last Business Day
of the Interest Period applicable thereto (subject to the provisions of
clause (iv) in SECTION 2.10) and (z) in addition, in the case of a LIBOR
Loan with an Interest Period having a duration of six months or longer,
on each date on which interest would have been payable under clause (y)
above had successive Interest Periods of three months' duration been
applicable to such LIBOR Loan; PROVIDED, that in the event all LIBOR
Loans made pursuant to a single Borrowing are repaid or prepaid in full,
then accrued interest in respect of such LIBOR Loans shall be payable
together with such repayment or prepayment on the date thereof; and
-25-
<PAGE>
(iii) in respect of any Loan, at maturity (whether pursuant to
acceleration or otherwise) and, after maturity, on demand.
(d) Nothing contained in this Agreement or in any other Credit Document
shall be deemed to establish or require the payment of interest to any Lender
at a rate in excess of the maximum rate permitted by applicable law. If the
amount of interest payable for the account of any Lender on any interest
payment date would exceed the maximum amount permitted by applicable law to
be charged by such Lender, the amount of interest payable for its account on
such interest payment date shall be automatically reduced to such maximum
permissible amount. In the event of any such reduction affecting any Lender,
if from time to time thereafter the amount of interest payable for the
account of such Lender on any interest payment date would be less than the
maximum amount permitted by applicable law to be charged by such Lender, then
the amount of interest payable for its account on such subsequent interest
payment date shall be automatically increased to such maximum permissible
amount, PROVIDED that at no time shall the aggregate amount by which interest
paid for the account of any Lender has been increased pursuant to this
sentence exceed the aggregate amount by which interest paid for its account
has theretofore been reduced pursuant to the previous sentence.
(e) The Administrative Agent shall promptly notify the Borrower and the
Lenders upon determining the interest rate for each Borrowing of LIBOR Loans
after its receipt of the relevant Notice of Borrowing or Notice of
Conversion/Continuation, and upon each change in the Base Rate; PROVIDED,
HOWEVER, that the failure of the Administrative Agent to provide the Borrower
or the Lenders with any such notice shall neither affect any obligations of
the Borrower or the Lenders hereunder nor result in any liability on the part
of the Administrative Agent to the Borrower or any Lender. Each such
determination (including each determination of the Reserve Requirement)
shall, absent manifest error, be conclusive and binding on all parties hereto.
II.9. FEES. The Borrower agrees to pay:
(a) To the Administrative Agent, for the account of each Lender, on the
Restatement Effective Date, the fees described in paragraph (2) of the Fee
Letter, in the amounts agreed upon pursuant thereto and to the extent not
theretofore paid to the Administrative Agent;
(b) To the Administrative Agent, for the account of each Lender, a
commitment fee for each calendar quarter (or portion thereof) for the period
from the Restatement Effective Date to the Termination Date, at a per annum
rate equal to the Applicable Margin Percentage in effect for such fee from
time to time during such quarter, on such Lender's ratable share (based on
the proportion that its Commitment bears to the aggregate Commitments) of the
average daily aggregate Unutilized Commitments, payable in arrears (i) on the
last Business Day of each calendar quarter, beginning with the first such day
to occur after the Restatement Effective Date, and (ii) on the Termination
Date;
(c) To the Administrative Agent, for the account of each Lender, a
letter of credit fee for each calendar quarter (or portion thereof) in
respect of all Letters of Credit outstanding during such quarter, at a per
annum rate equal to the Applicable Margin Percentage in effect from time to
time during such quarter for Loans that are maintained as LIBOR Loans, on
such Lender's ratable share (based on the proportion that its Commitment
bears to the aggregate Commitments) of the daily average aggregate Stated
Amount of such Letters of Credit, payable in arrears (i) on the last Business
Day of each calendar quarter, beginning with the first such day to occur
after the Restatement Effective Date,
-26-
<PAGE>
and (ii) on the later of the Termination Date and the date of termination of
the last outstanding Letter of Credit;
(d) To the Issuing Lender, for its own account, a facing fee for each
calendar quarter (or portion thereof) in respect of all Letters of Credit
outstanding during such quarter, at a per annum rate of 0.125% on the daily
average aggregate Stated Amount of such Letters of Credit, payable in arrears
(i) on the last Business Day of each calendar quarter, beginning with the
first such day to occur after the Restatement Effective Date, and (ii) on the
later of the Termination Date and the date of termination of the last
outstanding Letter of Credit; and
(e) To the Administrative Agent, for its own account, the annual
administrative fee described in paragraph (3) of the Fee Letter, on the
terms, in the amount and at the times set forth therein.
Notwithstanding the foregoing provisions of this Section or anything to
the contrary contained in this Agreement or in any other Credit Document, the
aggregate amount of the fees described in SECTIONS 2.9(b), 2.9(c) and 2.9(d)
of the Original Credit Agreement that has accrued during the period prior to,
but not including, the Restatement Effective Date shall be determined
pursuant to and in accordance with the applicable provisions of the Original
Credit Agreement and shall be payable to the applicable parties together with
the initial payments of the fees described in subsections (b), (c) and (d)
above.
II.10. INTEREST PERIODS. Concurrently with the giving of a Notice of
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of Base Rate Loans to be converted into, or LIBOR Loans to be
continued as, LIBOR Loans, the Borrower shall have the right to elect,
pursuant to such notice, the interest period (each, an "Interest Period") to
be applicable to such LIBOR Loans, which Interest Period shall, at the option
of the Borrower, be a one, two, three or six-month period; PROVIDED, HOWEVER,
that:
(i) all LIBOR Loans comprising a single Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan shall commence on
the date of the Borrowing of such LIBOR Loan (including the date of any
continuation of, or conversion into, such LIBOR Loan), and each successive
Interest Period applicable to such LIBOR Loan shall commence on the day on
which the next preceding Interest Period applicable thereto expires;
(iii) LIBOR Loans may not be outstanding under more than seven (7)
separate Interest Periods at any one time (for which purpose Interest
Periods shall be deemed to be separate even if they are coterminous);
(iv) if any Interest Period otherwise would expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period shall expire on
the next preceding Business Day;
-27-
<PAGE>
(v) the Borrower may not select any Interest Period that begins prior
to the third (3rd) Business Day after the Restatement Effective Date or
that expires after the Maturity Date;
(vi) the Borrower may not select any Interest Period having a duration
longer than one month at any time prior to the Syndication Completion Date;
(vii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month during which such
Interest Period would otherwise expire, such Interest Period shall expire
on the last Business Day of such calendar month; and
(viii) if, upon the expiration of any Interest Period applicable to a
Borrowing of LIBOR Loans, the Borrower shall have failed to elect a new
Interest Period to be applicable to such LIBOR Loans, then the Borrower
shall be deemed to have elected to convert such LIBOR Loans into Base Rate
Loans as of the expiration of the then current Interest Period applicable
thereto.
II.11. CONVERSIONS AND CONTINUATIONS. (a) The Borrower shall have the
right, on any Business Day occurring on or after the third (3rd) Business Day
after the Restatement Effective Date, to elect (i) to convert all or a
portion of the outstanding principal amount of any Base Rate Loans into LIBOR
Loans, or to convert any LIBOR Loans the Interest Periods for which end on
the same day into Base Rate Loans, or (ii) to continue all or a portion of
the outstanding principal amount of any LIBOR Loans the Interest Periods for
which end on the same day for an additional Interest Period, PROVIDED that
(w) any such conversion of LIBOR Loans into Base Rate Loans shall involve an
aggregate principal amount of not less than $1,000,000 or, if greater, an
integral multiple of $500,000 in excess thereof; any such conversion of Base
Rate Loans into, or continuation of, LIBOR Loans shall involve an aggregate
principal amount of not less than $5,000,000 or, if greater, an integral
multiple of $1,000,000 in excess thereof; and no partial conversion of LIBOR
Loans made pursuant to a single Borrowing shall reduce the outstanding
principal amount of such LIBOR Loans to less than $5,000,000 or to any
greater amount not an integral multiple of $1,000,000 in excess thereof, (y)
except as otherwise provided in SECTION 2.16(d), LIBOR Loans may be converted
into Base Rate Loans only on the last day of the Interest Period applicable
thereto (and, in any event, if a LIBOR Loan is converted into a Base Rate
Loan on any day other than the last day of the Interest Period applicable
thereto, the Borrower will pay, upon such conversion, all amounts required
under SECTION 2.18 to be paid as a consequence thereof), and (z) no
conversion of Base Rate Loans into LIBOR Loans or continuation of LIBOR Loans
shall be permitted during the continuance of a Default or Event of Default.
(b) The Borrower shall make each such election by giving the
Administrative Agent written notice not later than 12:00 noon, Charlotte
time, three (3) Business Days prior to the intended effective date of any
conversion of Base Rate Loans into, or continuation of, LIBOR Loans and one
(1) Business Day prior to the intended effective date of any conversion of
LIBOR Loans into Base Rate Loans. Each such notice (each, a "Notice of
Conversion/Continuation") shall be irrevocable, shall be given in the form of
EXHIBIT B-2 and shall specify (x) the date of such conversion or continuation
(which shall be a Business Day), (y) in the case of a conversion into, or a
continuation of, LIBOR Loans, the Interest Period to be applicable thereto,
and (z) the aggregate amount and Type of the Loans being converted or
continued. Upon the receipt of a Notice of Conversion/Continuation, the
Administrative Agent will promptly notify each Lender of the proposed
conversion or continuation. In the event that the Borrower shall fail to
deliver a Notice of Conversion/Continuation as provided herein
-28-
<PAGE>
with respect to any outstanding LIBOR Loans, such LIBOR Loans shall
automatically be converted to Base Rate Loans upon the expiration of the then
current Interest Period applicable thereto (unless repaid pursuant to the
terms hereof). In the event the Borrower shall have failed to select in a
Notice of Conversion/Continuation the duration of the Interest Period to be
applicable to any conversion into, or continuation of, LIBOR Loans, then the
Borrower shall be deemed to have selected an Interest Period with a duration
of one month.
II.12. METHOD OF PAYMENTS; COMPUTATIONS. (a) All payments by the
Borrower hereunder shall be made without setoff, counterclaim or other
defense, in Dollars and in immediately available funds to the Administrative
Agent, for the account of the Lenders entitled to such payment (except as
otherwise expressly provided herein as to payments required to be made
directly to the Issuing Lender and the Lenders) at its office referred to in
SECTION 11.5, prior to 12:00 noon, Charlotte time, on the date payment is
due. Any payment made as required hereinabove, but after 12:00 noon,
Charlotte time, shall be deemed to have been made on the next succeeding
Business Day. If any payment falls due on a day that is not a Business Day,
then such due date shall be extended to the next succeeding Business Day
(except that in the case of LIBOR Loans to which the provisions of clause
(iv) in SECTION 2.10 are applicable, such due date shall be the next
preceding Business Day), and such extension of time shall then be included in
the computation of payment of interest, fees or other applicable amounts.
(b) The Administrative Agent will distribute to the Lenders like amounts
relating to payments made to the Administrative Agent for the account of the
Lenders as follows: (i) if the payment is received by 12:00 noon, Charlotte
time, in immediately available funds, the Administrative Agent will make
available to each relevant Lender on the same date, by wire transfer of
immediately available funds, such Lender's ratable share of such payment
(based on the percentage that the amount of the relevant payment owing to
such Lender bears to the total amount of such payment owing to all of the
relevant Lenders), and (ii) if such payment is received after 12:00 noon,
Charlotte time, or in other than immediately available funds, the
Administrative Agent will make available to each such Lender its ratable
share of such payment by wire transfer of immediately available funds on the
next succeeding Business Day (or in the case of uncollected funds, as soon as
practicable after collected). If the Administrative Agent shall not have
made a required distribution to the appropriate Lenders as required
hereinabove after receiving a payment for the account of such Lenders, the
Administrative Agent will pay to each such Lender, on demand, its ratable
share of such payment with interest thereon at the Federal Funds Rate for
each day from the date such amount was required to be disbursed by the
Administrative Agent until the date repaid to such Lender. The
Administrative Agent will distribute to the Issuing Lender like amounts
relating to payments made to the Administrative Agent for the account of the
Issuing Lender in the same manner, and subject to the same terms and
conditions, as set forth hereinabove with respect to distributions of amounts
to the Lenders.
(c) Unless the Administrative Agent shall have received written notice
from the Borrower prior to the date on which any payment is due to any Lender
hereunder that such payment will not be made in full, the Administrative
Agent may assume that the Borrower has made such payment in full to the
Administrative Agent on such date, and the Administrative Agent may, in
reliance on such assumption, but shall not be obligated to, cause to be
distributed to such Lender on such due date an amount equal to the amount
then due to such Lender. If and to the extent the Borrower shall not have so
made such payment in full to the Administrative Agent, and without limiting
the obligation of the Borrower to make such payment in accordance with the
terms hereof, such Lender shall repay to the
-29-
<PAGE>
Administrative Agent forthwith on demand such amount so distributed to such
Lender, together with interest thereon for each day from the date such amount
is so distributed to such Lender until the date repaid to the Administrative
Agent, at the Federal Funds Rate.
(d) All computations of interest and fees hereunder (including
computations of the Reserve Requirement) shall be made on the basis of a year
consisting of 360 days (365 or 366 days, as the case may be, in the case of
interest on Base Rate Loans) and the actual number of days (including the
first day, but excluding the last day) elapsed.
II.13. RECOVERY OF PAYMENTS. (a) The Borrower agrees that to the
extent the Borrower makes a payment or payments to or for the account of the
Administrative Agent, any Lender or the Issuing Lender, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy, insolvency or similar state
or federal law, common law or equitable cause, then, to the extent of such
payment or repayment, the Obligation intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not
been received.
(b) If any amounts distributed by the Administrative Agent to any Lender
are subsequently returned or repaid by the Administrative Agent to the
Borrower or its representative or successor in interest, whether by court
order or by settlement approved by the Lender in question, such Lender will,
promptly upon receipt of notice thereof from the Administrative Agent, pay
the Administrative Agent such amount. If any such amounts are recovered by
the Administrative Agent from the Borrower or its representative or successor
in interest, the Administrative Agent will redistribute such amounts to the
Lenders on the same basis as such amounts were originally distributed.
II.14. USE OF PROCEEDS. The proceeds of the Loans (as defined in the
Original Credit Agreement) made pursuant to the Original Credit Agreement
were used to repay the Existing Senior Indebtedness (as defined in the
Original Credit Agreement) in full, to pay or reimburse reasonable
transaction fees and expenses in connection with the closing of the
transactions contemplated thereby, and thereafter for working capital and
general corporate purposes. The proceeds of the Loans made on or after the
Restatement Effective Date shall be used to finance a portion of the purchase
price of the PPS Acquisition and to pay or reimburse certain fees and
expenses in connection therewith, and thereafter for working capital and
general corporate purposes and in accordance with the terms and provisions of
this Agreement (including to finance Acquisitions in accordance with the
terms and provisions of this Agreement, including, without limitation, the
provisions set forth in SECTION 6.8).
II.15. PRO RATA TREATMENT. (a) All fundings, continuations and
conversions of Loans shall be made by the Lenders pro rata on the basis of
their respective Commitments (in the case of the initial funding of Loans
pursuant to SECTION 2.2) or on the basis of their respective outstanding
Loans (in the case of continuations and conversions of Loans pursuant to
SECTION 2.11, and additionally in all cases in the event the Commitments have
expired or have been terminated), as the case may be from time to time. All
payments on account of principal of or interest on any Loans, fees or any
other Obligations owing to or for the account of any one or more Lenders
shall be apportioned ratably among such Lenders in proportion to the amounts
of such principal, interest, fees or other Obligations owed to them
respectively.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by
-30-
<PAGE>
voluntary payment, realization upon security, exercise of the right of setoff
or banker's lien, counterclaim or cross action, or otherwise, other than
pursuant to SECTION 11.7) applicable to the payment of any of the Obligations
that exceeds its ratable share (according to the proportion of (i) the amount
of such Obligations due and payable to such Lender at such time to (ii) the
aggregate amount of such Obligations due and payable to all Lenders at such
time) of payments on account of such Obligations then or therewith obtained
by all the Lenders to which such payments are required to have been made,
such Lender shall forthwith purchase from the other Lenders such
participations in such Obligations as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; PROVIDED, HOWEVER, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase
from each such other Lender shall be rescinded and each such other Lender
shall repay to the purchasing Lender the purchase price to the extent of such
recovery, together with an amount equal to such other Lender's ratable share
(according to the proportion of (i) the amount of such other Lender's
required repayment to (ii) the total amount so recovered from the purchasing
Lender) of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. The Borrower agrees that
any Lender so purchasing a participation from another Lender pursuant to the
provisions of this subsection may, to the fullest extent permitted by law,
exercise any and all rights of payment (including, without limitation,
setoff, banker's lien or counterclaim) with respect to such participation as
fully as if such participant were a direct creditor of the Borrower in the
amount of such participation. If under any applicable bankruptcy, insolvency
or similar law, any Lender receives a secured claim in lieu of a setoff to
which this subsection applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent
with the rights of the Lenders entitled under this subsection to share in the
benefits of any recovery on such secured claim.
II.16. INCREASED COSTS; CHANGE IN CIRCUMSTANCES; ILLEGALITY; ETC. (a)
If, at any time after the Restatement Effective Date and from time to time,
the introduction of or any change in any applicable law, rule or regulation
or in the interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by any Lender with any guideline or request from any such
Governmental Authority (whether or not having the force of law), shall (i)
subject such Lender to any tax or other charge, or change the basis of
taxation of payments to such Lender, in respect of any of its LIBOR Loans or
any other amounts payable hereunder or its obligation to make, fund or
maintain any LIBOR Loans (other than any change in the rate or basis of tax
on the overall net income of such Lender or its applicable Lending Office),
(ii) impose, modify or deem applicable any reserve, special deposit or
similar requirement (other than as a result of any change in the Reserve
Requirement) against assets of, deposits with or for the account of, or
credit extended by, such Lender or its applicable Lending Office, or (iii)
impose on such Lender or its applicable Lending Office any other condition,
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any LIBOR Loans or issuing or participating
in Letters of Credit or to reduce the amount of any sum received or
receivable by such Lender hereunder (including in respect of Letters of
Credit), the Borrower will, within fifteen (15) days after delivery to the
Borrower by such Lender of written demand therefor (with a copy thereof to
the Administrative Agent), pay to such Lender such additional amounts as
shall compensate such Lender for such increase in costs or reduction in
return.
(b) If, at any time after the Restatement Effective Date and from time
to time, any Lender shall have reasonably determined that the introduction of
or any change in any applicable law, rule or regulation regarding capital
adequacy or in the interpretation or administration thereof by any
-31-
<PAGE>
Governmental Authority charged with the interpretation or administration
thereof, or compliance by such Lender with any guideline or request from any
such Governmental Authority (whether or not having the force of law), has or
would have the effect, as a consequence of such Lender's Commitment, Loans or
issuance of or participations in Letters of Credit hereunder, of reducing the
rate of return on the capital of such Lender or any Person Controlling such
Lender to a level below that which such Lender or Controlling Person could
have achieved but for such introduction, change or compliance (taking into
account such Lender's or Controlling Person's policies with respect to
capital adequacy), the Borrower will, within fifteen (15) days after delivery
to the Borrower by such Lender of written demand therefor (with a copy
thereof to the Administrative Agent), pay to such Lender such additional
amounts as will compensate such Lender or Controlling Person for such
reduction in return; PROVIDED, HOWEVER, that the Borrower shall not be
required to compensate the Administrative Agent or any Lender under this
subsection (b) to the extent that any such introduction or change is applied
by the relevant Governmental Authority solely to the Administrative Agent or
such Lender or, if any of the foregoing do not have the force of law, the
Administrative Agent or such Lender does not seek compensation in respect
thereof generally from substantially all of its borrowers that are bound by
indemnities requiring that such compensation be paid.
(c) If, on or prior to the first day of any Interest Period, (y) the
Administrative Agent shall have determined that adequate and reasonable means
do not exist for ascertaining the applicable LIBOR Rate for such Interest
Period or (z) the Administrative Agent shall have received written notice
from the Required Lenders of their determination that the rate of interest
referred to in the definition of "LIBOR Rate" upon the basis of which the
Adjusted LIBOR Rate for LIBOR Loans for such Interest Period is to be
determined will not adequately and fairly reflect the cost to such Lenders of
making or maintaining LIBOR Loans during such Interest Period, the
Administrative Agent will forthwith so notify the Borrower and the Lenders.
Upon such notice, (i) all then outstanding LIBOR Loans shall automatically,
on the expiration date of the respective Interest Periods applicable thereto
(unless then repaid in full), be converted into Base Rate Loans, (ii) the
obligation of the Lenders to make, to convert Base Rate Loans into, or to
continue, LIBOR Loans shall be suspended (including pursuant to the Borrowing
to which such Interest Period applies), and (iii) any Notice of Borrowing or
Notice of Conversion/Continuation given at any time thereafter with respect
to LIBOR Loans shall be deemed to be a request for Base Rate Loans, in each
case until the Administrative Agent or the Required Lenders, as the case may
be, shall have determined that the circumstances giving rise to such
suspension no longer exist (and the Required Lenders, if making such
determination, shall have so notified the Administrative Agent), and the
Administrative Agent shall have so notified the Borrower and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any
time after the Restatement Effective Date and from time to time, any Lender
shall have determined in good faith that the introduction of or any change in
any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance with any guideline or
request from any such Governmental Authority (whether or not having the force
of law), has or would have the effect of making it unlawful for such Lender
to make or to continue to make or maintain LIBOR Loans, such Lender will
forthwith so notify the Administrative Agent and the Borrower. Upon such
notice, (i) each of such Lender's then outstanding LIBOR Loans shall
automatically, on the expiration date of the respective Interest Period
applicable thereto (or, to the extent any such LIBOR Loan may not lawfully be
maintained as a LIBOR Loan until such expiration date, upon such notice), be
converted into a Base Rate Loan, (ii) the obligation of such
-32-
<PAGE>
Lender to make, to convert Base Rate Loans into, or to continue, LIBOR Loans
shall be suspended (including pursuant to any Borrowing for which the
Administrative Agent has received a Notice of Borrowing but for which the
Borrowing Date has not arrived), and (iii) any Notice of Borrowing or Notice
of Conversion/Continuation given at any time thereafter with respect to LIBOR
Loans shall, as to such Lender, be deemed to be a request for a Base Rate
Loan, in each case until such Lender shall have determined that the
circumstances giving rise to such suspension no longer exist and shall have
so notified the Administrative Agent, and the Administrative Agent shall have
so notified the Borrower.
(e) Determinations by the Administrative Agent or any Lender for
purposes of this Section of any increased costs, reduction in return, market
contingencies, illegality or any other matter shall, absent manifest error,
be conclusive, PROVIDED that such determinations are made in good faith. No
failure by the Administrative Agent or any Lender at any time to demand
payment of any amounts payable under this Section shall constitute a waiver
of its right to demand payment of any additional amounts arising at any
subsequent time. Nothing in this Section shall require or be construed to
require the Borrower to pay any interest, fees, costs or other amounts in
excess of that permitted by applicable law.
(f) Each Lender agrees that, upon the occurrence of any event giving
rise to the operation of this Section with respect to such Lender, it will,
if requested by the Borrower and to the extent permitted by law, endeavor in
good faith to designate another Lending Office for its LIBOR Loans, but only
if such designation would make it lawful for such Lender to continue to make
or maintain LIBOR Loans hereunder; PROVIDED that such designation is made on
such terms that such Lender, in its good faith determination, suffers no
increased cost or economic, legal or regulatory disadvantage, with the object
of avoiding the consequence of the event giving rise to the operation of this
Section.
II.17. TAXES. (a) Any and all payments by the Borrower hereunder or
under any Note shall be made, in accordance with the terms hereof and
thereof, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, other than net income and franchise taxes
imposed on the Administrative Agent or any Lender by the United States or by
the jurisdiction under the laws of which the Administrative Agent or such
Lender, as the case may be, is organized or in which its principal office or
(in the case of a Lender) its applicable Lending Office is located, or any
political subdivision or taxing authority thereof (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
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 hereunder or
under any Note to the Administrative Agent or any Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section), the Administrative Agent or such Lender, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower will make such deductions, (iii) the
Borrower will pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower
will deliver to the Administrative Agent or such Lender, as the case may be,
evidence of such payment.
(b) The Borrower will indemnify the Administrative Agent and each Lender
for the full amount of Taxes (including, without limitation, any Taxes
imposed by any jurisdiction on amounts payable under this Section) paid by
the Administrative Agent or such Lender, as the case may be, and
-33-
<PAGE>
any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or legally
asserted. This indemnification shall be made within 30 days from the date
the Administrative Agent or such Lender, as the case may be, makes written
demand therefor.
(c) Each of the Administrative Agent and the Lenders agrees that if it
subsequently recovers, or receives a permanent net tax benefit with respect
to, any amount of Taxes (i) previously paid by it and as to which it has been
indemnified by or on behalf of the Borrower or (ii) previously deducted by
the Borrower (including, without limitation, any Taxes deducted from any
additional sums payable under clause (i) of subsection (a) above), the
Administrative Agent or such Lender, as the case may be, shall reimburse the
Borrower to the extent of the amount of any such recovery or permanent net
tax benefit (but only to the extent of indemnity payments made, or additional
amounts paid, by or on behalf of the Borrower under this Section with respect
to the Taxes giving rise to such recovery or tax benefit); PROVIDED, HOWEVER,
that the Borrower, upon the request of the Administrative Agent or such
Lender, agrees to repay to the Administrative Agent or such Lender, as the
case may be, the amount paid over to the Borrower (together with any
penalties, interest or other charges), in the event the Administrative Agent
or such Lender is required to repay such amount to the relevant taxing
authority or other Governmental Authority. The determination by the
Administrative Agent or any Lender of the amount of any such recovery or
permanent net tax benefit shall, in the absence of manifest error, be
conclusive and binding.
(d) If any Lender is incorporated or organized under the laws of a
jurisdiction other than the United States of America or any state thereof (a
"Non-U.S. Lender") and claims exemption from United States withholding tax
pursuant to the Internal Revenue Code, such Non-U.S. Lender will deliver to
each of the Administrative Agent and the Borrower, on or prior to the
Restatement Effective Date (or, in the case of a Non-U.S. Lender that becomes
a party to this Agreement as a result of an assignment after the Restatement
Effective Date, on the effective date of such assignment), (i) in the case of
a Non-U.S. Lender that is a "bank" for purposes of Section 881(c)(3)(A) of
the Internal Revenue Code, a properly completed Internal Revenue Service Form
4224 or 1001, as applicable (or successor forms), certifying that such
Non-U.S. Lender is entitled to an exemption from or a reduction of
withholding or deduction for or on account of United States federal income
taxes in connection with payments under this Agreement or any of the Notes,
together with a properly completed Internal Revenue Service Form W-8 or W-9,
as applicable (or successor forms), and (ii) in the case of a Non-U.S. Lender
that is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal
Revenue Code, a certificate in form and substance reasonably satisfactory to
the Administrative Agent and the Borrower and to the effect that (x) such
Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the
Internal Revenue Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or submission
made to any governmental authority, any application made to a rating agency
or qualification for any exemption from any tax, securities law or other
legal requirements, (y) is not a 10-percent shareholder for purposes of
Section 881(c)(3)(B) of the Internal Revenue Code and (z) is not a controlled
foreign corporation receiving interest from a related person for purposes of
Section 881(c)(3)(C) of the Internal Revenue Code, together with a properly
completed Internal Revenue Service Form W-8 or W-9, as applicable (or
successor forms). Each such Non-U.S. Lender further agrees to deliver to
each of the Administrative Agent and the Borrower an additional copy of each
such relevant form on or before the date that such form expires or becomes
obsolete or after the occurrence of any event (including a change in its
applicable Lending Office) requiring a change in the most recent
-34-
<PAGE>
forms so delivered by it, in each case certifying that such Non-U.S. Lender
is entitled to an exemption from or a reduction of withholding or deduction
for or on account of United States federal income taxes in connection with
payments under this Agreement or any of the Notes, unless an event
(including, without limitation, any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required, which event renders all such forms inapplicable or the exemption to
which such forms relate unavailable and such Non-U.S. Lender notifies the
Administrative Agent and the Borrower that it is not entitled to receive
payments without deduction or withholding of United States federal income
taxes. Each such Non-U.S. Lender will promptly notify the Administrative
Agent and the Borrower of any changes in circumstances that would modify or
render invalid any claimed exemption or reduction.
(e) If any Lender is entitled to a reduction in (and not a complete
exemption from) the applicable withholding tax, the Borrower and the
Administrative Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If any of the forms or other documentation required under
subsection (d) above are not delivered to the Administrative Agent as therein
required, then the Borrower and the Administrative Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
II.18. COMPENSATION. The Borrower will compensate each Lender upon
demand for all losses, expenses and liabilities (including, without
limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such
Lender to fund or maintain LIBOR Loans) that such Lender may incur or sustain
(i) if for any reason (other than a default by such Lender) a Borrowing or
continuation of, or conversion into, a LIBOR Loan does not occur on a date
specified therefor in a Notice of Borrowing or Notice of
Conversion/Continuation, (ii) if any repayment, prepayment or conversion of
any LIBOR Loan occurs on a date other than the last day of an Interest Period
applicable thereto (including as a consequence of acceleration of the
maturity of the Loans pursuant to SECTION 9.2), (iii) if any prepayment of
any LIBOR Loan is not made on any date specified in a notice of prepayment
given by the Borrower or (iv) as a consequence of any other failure by the
Borrower to make any payments with respect to any LIBOR Loan when due
hereunder. Calculation of all amounts payable to a Lender under this Section
shall be made as though such Lender had actually funded its relevant LIBOR
Loan through the purchase of a Eurodollar deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of such LIBOR Loan, having a
maturity comparable to the relevant Interest Period; PROVIDED, HOWEVER, that
each Lender may fund its LIBOR Loans in any manner it sees fit and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section. Determinations by any Lender for purposes of
this Section of any such losses, expenses or liabilities shall, absent
manifest error, be conclusive, PROVIDED that such determinations are made in
good faith.
II.19. SALE AND ASSIGNMENT OF EXISTING LOANS. (a) Each of the Lenders
that is selling Existing Loans pursuant to this Section (each, a "Selling
Lender," and collectively, the "Selling Lenders") hereby represents and
warrants to each other Lender that is purchasing Existing Loans pursuant to
this Section (each, a "Purchasing Lender," and collectively, the "Purchasing
Lenders") that it is the legal and beneficial owner of the interest in the
Existing Loans being assigned by it hereunder and that such interest is free
and clear of any adverse claim. Each Selling Lender shall and does hereby
sell and assign to each Purchasing Lender, without recourse, representation
or warranty (except as set forth in the first sentence of this subsection
(a)), and each Purchasing Lender shall and does
-35-
<PAGE>
hereby purchase and assume from each Selling Lender, effective on the
Restatement Effective Date and concurrently with the conversion of the
Existing Loans into Loans as more completely set forth in SECTION 2.1(b), a
portion of all of the rights and obligations of each Selling Lender with
respect to such Selling Lender's Existing Loans as of the Restatement
Effective Date, the Credit Agreement and each of the other Credit Documents,
in each case in the amounts set forth in Annex I hereto (collectively, the
"Assigned Rights"), such that after giving effect to such sale and
assignment, the Lenders shall own that portion of the Loans representing the
converted Existing Loans in proportion to their respective Commitments,
determined immediately after giving effect to this Agreement. Upon payment
by the Purchasing Lenders to the Selling Lenders of the amounts calculated by
the Administrative Agent pursuant to subsection (b) below, each Lender shall
be entitled to its respective pro rata share of (y) all interest on and any
fees in respect of the Loans and Commitments payable on and after the
Restatement Effective Date and (z) all payments of principal made on the
Loans attributable to such Lender that occur after the Restatement Effective
Date.
(b) Pursuant to the sale and assignment of the Assigned Rights to the
Purchasing Lenders under this Section, each Selling Lender is entitled to
receive on the Restatement Effective Date a payment from each Purchasing
Lender in an amount equal to the portion of such Selling Lender's Existing
Loans representing the Assigned Rights ratably purchased by each Purchasing
Lender. In order to facilitate and give effect to the sale and assignment of
the Assigned Rights, each of the Selling Lenders and Purchasing Lenders
agrees that (i) the Administrative Agent shall calculate the amount owing to
the Selling Lenders and to be paid or funded by the Purchasing Lenders, (ii)
each of the Purchasing Lenders shall pay or fund, as the case may be, to the
Administrative Agent the amount specified by the Administrative Agent in
writing to such Purchasing Lender, and (iii) the Administrative Agent shall,
to the extent such payments or fundings are actually made, apply such amounts
ratably to pay the amount owned to the Selling Lenders, all as set forth more
completely in Annex I hereto. Each sale and assignment under this Section
shall be further subject to the provisions of SECTION 11.7 (except that the
provisions of clauses (iii) and (iv) of SECTION 11.7(a) shall not apply).
ARTICLE III
LETTERS OF CREDIT
III.1. ISSUANCE. Subject to and upon the terms and conditions herein
set forth, so long as no Default or Event of Default has occurred and is
continuing, the Issuing Lender will, at any time and from time to time on and
after the Restatement Effective Date and prior to the earlier of (i) the
seventh day prior to the Maturity Date and (ii) the Termination Date, and
upon request by the Borrower in accordance with the provisions of SECTION
3.3, issue for the account of the Borrower one or more irrevocable standby
letters of credit denominated in Dollars and in a form customarily used or
otherwise approved by the Issuing Lender, and on the Restatement Effective
Date the Issuing Lender shall be deemed to have issued the Outstanding
Letters of Credit (together with all amendments, modifications and
supplements thereto, substitutions therefor and renewals and restatements
thereof, collectively, the "Letters of Credit"). Unless the Issuing Lender
agrees otherwise, the Stated Amount of each Letter of Credit shall not be
less than $100,000. Notwithstanding the foregoing:
(a) No Letter of Credit shall be issued the Stated Amount upon issuance
of which (i) when added to the aggregate Letter of Credit Exposure of the
Lenders at such time, would exceed
-36-
<PAGE>
$10,000,000 or (ii) when added to the sum of (y) the aggregate Letter of
Credit Exposure of all Lenders at such time and (z) the aggregate principal
amount of all Loans then outstanding, would exceed the aggregate Commitments
at such time;
(b) No Letter of Credit shall be issued that by its terms expires later
than the seventh day prior to the Maturity Date or, in any event, more than
one (1) year after its date of issuance; PROVIDED, HOWEVER, that a Letter of
Credit may, if requested by the Borrower, provide by its terms, and on terms
acceptable to the Issuing Lender, for renewal for successive periods of one
year or less (but not beyond the seventh day prior to the Maturity Date),
unless and until the Issuing Lender shall have delivered a notice of
nonrenewal to the beneficiary of such Letter of Credit; and
(c) Letters of Credit may be used solely for the purpose of supporting
obligations of the Borrower and its Subsidiaries incurred in the ordinary
course of business (i) to third party insurers, to the extent arising under
laws requiring third party insurers and in lieu of cash payments of such
obligations, (ii) with respect to guaranties of cost savings under managed
care contracts and arrangements, (iii) with respect to leasehold obligations
of the Borrower and its Subsidiaries, and (iv) with respect to worker's
compensation, surety bonds and other similar statutory obligations and such
other obligations of the Borrower and its Subsidiaries as shall be, for the
purposes of issuing Letters of Credit in support thereof, acceptable to the
Issuing Bank and the Required Lenders and as are otherwise permitted to exist
under the terms of this Agreement; and
(d) The Issuing Lender shall be under no obligation to issue any Letter
of Credit if, at the time of such proposed issuance, (i) any order, judgment
or decree of any Governmental Authority or arbitrator shall purport by its
terms to enjoin or restrain the Issuing Lender from issuing such Letter of
Credit, or any Requirement of Law applicable to the Issuing Lender or any
request or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over the Issuing Lender shall
prohibit, or request that the Issuing Lender refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Issuing Lender with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which the Issuing Lender
is not otherwise compensated) not in effect on the Restatement Effective
Date, or any unreimbursed loss, cost or expense that was not applicable, in
effect or known to the Issuing Lender as of the Restatement Effective Date
and that the Issuing Lender in good faith deems material to it, or (ii) the
Issuing Lender shall have actual knowledge, or shall have received notice
from any Lender, prior to the issuance of such Letter of Credit that one or
more of the conditions specified in SECTIONS 4.1 (if applicable) or 4.2 are
not then satisfied (or have not been waived in writing as required herein) or
that the issuance of such Letter of Credit would violate the provisions of
subsection (a) above.
III.2. OUTSTANDING LETTERS OF CREDIT. The parties hereto agree that
each Outstanding Letter of Credit will be treated as if it had been
originally issued under this Agreement, that they are the sole such Letters
of Credit, and that as of the Restatement Effective Date each Outstanding
Letter of Credit shall be deemed to be a Letter of Credit for all purposes
hereunder and under the other Credit Documents. Specifically, and without
limitation of the foregoing or the other provisions of this Article, (i) the
Stated Amount of each Outstanding Letter of Credit, for so long as the same
shall be outstanding, shall be included in calculating (y) the limit set
forth in clause (i) of SECTION 3.1(a) and (z) the aggregate Letter of Credit
Exposure, (ii) each Lender hereby absolutely and unconditionally agrees to
pay to the Issuing Lender, in accordance with SECTION 3.6, such Lender's pro
rata share of
-37-
<PAGE>
each payment made by the Issuing Lender under each Outstanding Letter of
Credit, together with interest in accordance with SECTION 3.6, and (iii) with
respect to the Outstanding Letters of Credit, the Issuing Lender shall have
the benefit of all agreements, covenants and indemnities of the Issuing
Lender set forth in this Agreement and shall comply with all agreements and
obligations set forth herein that bind the Issuing Lender, insofar as the
same apply to Letters of Credit generally.
III.3. NOTICES. Whenever the Borrower desires the issuance of a Letter
of Credit (other than the Outstanding Letters of Credit), the Borrower will
give the Issuing Lender written notice with a copy to the Administrative
Agent not later than 12:00 noon, Charlotte time, three (3) Business Days (or
such shorter period as is acceptable to the Issuing Lender in any given case)
prior to the requested date of issuance thereof. Each such notice (each, a
"Letter of Credit Notice") shall be irrevocable, shall be given in the form
of EXHIBIT B-3 and shall specify (i) the requested date of issuance, which
shall be a Business Day, (ii) the requested Stated Amount and expiry date of
the Letter of Credit, and (iii) the name and address of the requested
beneficiary or beneficiaries of the Letter of Credit. The Borrower will also
complete any customary application procedures and documents required by the
Issuing Lender in connection with the issuance of any Letter of Credit. Upon
its issuance of any Letter of Credit, the Issuing Lender will promptly notify
the Administrative Agent of such issuance, and the Administrative Agent will
give prompt notice thereof to each Lender.
III.4. PARTICIPATIONS. Immediately upon the issuance of any Letter of
Credit, the Issuing Lender shall be deemed to have sold and transferred to
each Lender, and each Lender shall be deemed irrevocably and unconditionally
to have purchased and received from the Issuing Lender, without recourse or
warranty, an undivided interest and participation, pro rata (based on the
percentage of the aggregate Commitments represented by such Lender's
Commitment), in such Letter of Credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto and any
Collateral or other security therefor or guaranty pertaining thereto;
PROVIDED, HOWEVER, that the fee relating to Letters of Credit described in
SECTION 2.9(d) shall be payable directly to the Issuing Lender as provided
therein, and the Lenders shall have no right to receive any portion thereof.
Upon any change in the Commitments of any of the Lenders pursuant to SECTION
11.7(a), with respect to all outstanding Letters of Credit and Reimbursement
Obligations there shall be an automatic adjustment to the participations
pursuant to this Section to reflect the new pro rata shares of the assigning
Lender and the Assignee.
III.5. REIMBURSEMENT. The Borrower hereby agrees to reimburse the
Issuing Lender by making payment to the Administrative Agent, for the account
of the Issuing Lender, in immediately available funds, for any payment made
by the Issuing Lender under any Letter of Credit (each such amount so paid
until reimbursed, together with interest thereon payable as provided
hereinbelow, a "Reimbursement Obligation") immediately after, and in any
event within one (1) Business Day after its receipt of notice of, such
payment (PROVIDED that any such Reimbursement Obligation shall be deemed
timely satisfied (but nevertheless subject to the payment of interest thereon
as provided hereinbelow) if satisfied pursuant to a Borrowing of Loans made
on or prior to the next Business Day following the date of the Borrower's
receipt of notice of such payment), together with interest on the amount so
paid by the Issuing Lender, to the extent not reimbursed prior to 2:00 p.m.,
Charlotte time, on the date of such payment or disbursement, for the period
from the date of the respective payment to the date the Reimbursement
Obligation created thereby is satisfied, at the Base Rate as in effect from
time to time during such period, such interest also to be payable on demand.
The Issuing Lender will provide the Administrative Agent and the Borrower
with prompt notice of any payment or disbursement made
-38-
<PAGE>
under any Letter of Credit, although the failure to give, or any delay in
giving, any such notice shall not release, diminish or otherwise affect the
Borrower's obligations under this Section or any other provision of this
Agreement. The Administrative Agent will promptly pay to the Issuing Lender
any such amounts received by it under this Section.
III.6. PAYMENT BY LOANS. In the event that the Issuing Lender makes any
payment under any Letter of Credit and the Borrower shall not have timely
satisfied in full its Reimbursement Obligation to the Issuing Lender pursuant
to SECTION 3.5, and to the extent that any amounts then held in the Cash
Collateral Account established pursuant to SECTION 3.9 shall be insufficient
to satisfy such Reimbursement Obligation in full, the Issuing Lender will
promptly notify the Administrative Agent, and the Administrative Agent will
promptly notify each Lender, of such failure. If the Administrative Agent
gives such notice prior to 12:00 noon, Charlotte time, on any Business Day,
each Lender will make available to the Administrative Agent, for the account
of the Issuing Lender, its pro rata share (based on the percentage of the
aggregate Commitments represented by such Lender's Commitment) of the amount
of such payment on such Business Day in immediately available funds. If the
Administrative Agent gives such notice after 12:00 noon, Charlotte time, on
any Business Day, each such Lender shall make its pro rata share of such
amount available to the Administrative Agent on the next succeeding Business
Day. If and to the extent any Lender shall not have so made its pro rata
share of the amount of such payment available to the Administrative Agent,
such Lender agrees to pay to the Administrative Agent, for the account of the
Issuing Lender, forthwith on demand such amount, together with interest
thereon at the Federal Funds Rate for each day from such date until the date
such amount is paid to the Administrative Agent. The failure of any Lender
to make available to the Administrative Agent its pro rata share of any
payment under any Letter of Credit shall not relieve any other Lender of its
obligation hereunder to make available to the Administrative Agent its pro
rata share of any payment under any Letter of Credit on the date required, as
specified above, but no Lender shall be responsible for the failure of any
other Lender to make available to the Administrative Agent such other
Lender's pro rata share of any such payment. Each such payment by a Lender
under this Section of its pro rata share of an amount paid by the Issuing
Lender shall constitute a Loan by such Lender (the Borrower being deemed to
have given a timely Notice of Borrowing therefor), which Loan shall be made
initially as a Base Rate Loan, and shall be treated as a Loan for all
purposes of this Agreement; PROVIDED that for purposes of determining the
aggregate Unutilized Commitments immediately prior to giving effect to the
application of the proceeds of such Loans, the Reimbursement Obligation being
satisfied thereby shall be deemed not to be outstanding at such time.
III.7. PAYMENT TO LENDERS. Whenever the Issuing Lender receives a
payment in respect of a Reimbursement Obligation as to which the Administrative
Agent has received, for the account of the Issuing Lender, any payments from
the Lenders pursuant to SECTION 3.6, the Issuing Lender will promptly pay to
the Administrative Agent, and the Administrative Agent will promptly pay to
each Lender that has paid its pro rata share thereof, in immediately
available funds, an amount equal to such Lender's ratable share (based on the
proportionate amount funded by such Lender to the aggregate amount funded by
all Lenders) of such Reimbursement Obligation.
III.8. OBLIGATIONS ABSOLUTE. The Reimbursement Obligations of the
Borrower, and the obligations of the Lenders under SECTION 3.6 to make
payments to the Administrative Agent, for the account of the Issuing Lender,
with respect to Letters of Credit, shall be irrevocable, shall remain in
effect until the Issuing Lender shall have no further obligations to make any
payments or disbursements under any circumstances with respect to any Letter
of Credit, and, except to the extent resulting from
-39-
<PAGE>
any gross negligence or willful misconduct on the part of the Issuing Lender,
shall be absolute and unconditional, shall not be subject to counterclaim,
setoff or other defense or any other qualification or exception whatsoever
and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(a) Any lack of validity or enforceability of this Agreement, any of the
other Credit Documents or any documents or instruments relating to any Letter
of Credit;
(b) Any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations in respect of any Letter of
Credit or any other amendment, modification or waiver of or any consent to
departure from any Letter of Credit or any documents or instruments relating
thereto (it being understood that the Borrower or any applicant on its behalf
shall not have any right to consent to any such amendment, modification,
waiver or change except to the extent required under the UCP or the terms of
such Letter of Credit or in the event the Borrower would be adversely
affected thereby);
(c) The existence of any claim, setoff, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of
Credit, any transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting), the Administrative Agent, the Issuing Lender,
any Lender or other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated hereby or any unrelated
transactions (including any underlying transaction between the Borrower and
the beneficiary named in any such Letter of Credit);
(d) Any draft, certificate or any other document presented under the
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 (PROVIDED that such draft, certificate or other document appears on
its face to comply with the terms of such Letter of Credit), any errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, telecopier or otherwise, or any errors in translation or
in interpretation of technical terms;
(e) Any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit (PROVIDED that any
draft, certificate or other document presented pursuant to such Letter of
Credit appears on its face to comply with the terms thereof), any
nonapplication or misapplication by the beneficiary or any transferee of the
proceeds of such drawing or any other act or omission of such beneficiary or
transferee in connection with such Letter of Credit;
(f) The exchange, release, surrender or impairment of any Collateral or
other security for the Obligations;
(g) The occurrence of any Default or Event of Default; or
(h) Any other circumstance or event whatsoever, including, without
limitation, any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor.
Any action taken or omitted to be taken by the Issuing Lender under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall be binding
-40-
<PAGE>
upon the Borrower and each Lender and shall not create or result in any
liability of the Issuing Lender to the Borrower or any Lender. It is
expressly understood and agreed that, for purposes of determining whether a
wrongful payment under a Letter of Credit resulted from the Issuing Lender's
gross negligence or willful misconduct, (i) the Issuing Lender's acceptance
of documents that appear on their face to comply with the terms of such
Letter of Credit, without responsibility for further investigation,
regardless of any notice or information to the contrary, (ii) the Issuing
Lender's exclusive reliance on the documents presented to it under such
Letter of Credit as to any and all matters set forth therein, including the
amount of any draft presented under such Letter of Credit, whether or not the
amount due to the beneficiary thereunder equals the amount of such draft and
whether or not any document presented pursuant to such Letter of Credit
proves to be insufficient in any respect (so long as such document appears on
its face to comply with the terms of such Letter of Credit), and whether or
not any other statement or any other document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever, and (iii) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit with the terms thereof shall, in each case, be deemed not to
constitute gross negligence or willful misconduct of the Issuing Lender.
III.9. CASH COLLATERAL ACCOUNT. At any time and from time to time (i)
after the occurrence and during the continuance of an Event of Default, the
Administrative Agent, at the direction or with the consent of the Required
Lenders, may require the Borrower to deliver to the Administrative Agent such
additional amount of cash as is equal to the aggregate Stated Amount of all
Letters of Credit at any time outstanding (whether or not any beneficiary
under any Letter of Credit shall have drawn or be entitled at such time to
draw thereunder) and (ii) in the event of a prepayment under SECTION 2.6(b),
or to the extent any amount of a required prepayment under SECTION 2.6(c)
remains after prepayment of all outstanding Loans and Reimbursement
Obligations and termination of the Commitments, as contemplated by SECTION
2.6(d), the Administrative Agent will retain such amount as may then be
required to be retained, such amounts in each case under clauses (i) and (ii)
above to be held by the Administrative Agent in a cash collateral account
(the "Cash Collateral Account"). The Borrower hereby grants to the
Administrative Agent, for the benefit of the Issuing Lender and the Lenders,
a Lien upon and security interest in the Cash Collateral Account and all
amounts held therein from time to time as security for Letter of Credit
Exposure, and for application to the Borrower's Reimbursement Obligations as
and when the same shall arise. The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest on the investment of such amounts in Cash
Equivalents, which investments shall be made at the direction of the Borrower
(unless a Default or Event of Default shall have occurred and be continuing,
in which case the determination as to investments shall be made at the option
and in the discretion of the Administrative Agent), amounts in the Cash
Collateral Account shall not bear interest. Interest and profits, if any, on
such investments shall accumulate in such account. In the event of a
drawing, and subsequent payment by the Issuing Lender, under any Letter of
Credit at any time during which any amounts are held in the Cash Collateral
Account, the Administrative Agent will deliver to the Issuing Lender an
amount equal to the Reimbursement Obligation created as a result of such
payment (or, if the amounts so held are less than such Reimbursement
Obligation, all of such amounts) to reimburse the Issuing Lender therefor.
Any amounts remaining in the Cash Collateral Account after the expiration of
all Letters of Credit and reimbursement in full of the Issuing Lender for all
of its obligations thereunder shall be held by the Administrative Agent, for
the benefit of the Borrower, to be applied against the Obligations in such
order and manner as the Administrative Agent may direct. If the Borrower is
required to provide cash collateral pursuant to SECTION 2.6(b), such amount
(to the
-41-
<PAGE>
extent not applied as aforesaid) shall be returned to the Borrower on demand,
PROVIDED that after giving effect to such return (i) the sum of (y) the
aggregate principal amount of all Loans outstanding at such time and (z) the
aggregate Letter of Credit Exposure of all Lenders at such time would not
exceed the aggregate Commitments at such time and (ii) no Default or Event of
Default shall have occurred and be continuing at such time. If the Borrower
is required to provide cash collateral as a result of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three (3) Business Days after all Events of Default have been
cured or waived.
III.10. EFFECTIVENESS. Notwithstanding any termination of the
Commitments or repayment of the Loans, or both, the obligations of the
Borrower under this Article shall remain in full force and effect until the
Issuing Lender and the Lenders shall have no further obligations to make any
payments or disbursements under any circumstances with respect to any Letter
of Credit.
ARTICLE V
CONDITIONS OF EFFECTIVENESS AND BORROWING
IV.1. CONDITIONS OF EFFECTIVENESS AND INITIAL BORROWING. The
effectiveness of this Agreement and the amendment and restatement of the
Original Credit Agreement effected hereby, and the obligation of each Lender
to make Loans and the obligation of the Issuing Lender to issue Letters of
Credit hereunder, in each case on the Restatement Effective Date, is subject
to the satisfaction of the following conditions precedent:
(a) The Administrative Agent shall have received the following, each
dated as of the Restatement Effective Date (unless otherwise specified) and,
except for the Notes and any certificates or instruments required to be
delivered under the Pledge Agreement, in sufficient copies for each Lender:
(i) a Note for each Lender that is a party hereto as of the
Restatement Effective Date, in the amount of such Lender's Commitment, each
duly completed in accordance with the relevant provisions of SECTION 2.4
and executed by the Borrower;
(ii) the Subsidiary Guaranty, duly completed and executed by each
Wholly Owned Subsidiary of the Borrower;
(iii) the Pledge Agreement, duly completed and executed by the
Borrower and each Subsidiary of the Borrower that owns Capital Stock of a
Subsidiary Guarantor, together with the certificates evidencing the Capital
Stock being pledged thereunder as of the Restatement Effective Date and
undated assignments separate from certificate for each such certificate,
duly executed in blank, and any promissory notes being pledged thereunder,
duly endorsed in blank; and
(iv) the favorable opinions of (A) Hutchins, Wheeler & Dittmar, A
Professional Corporation, special counsel to the Borrower, in substantially
the form of EXHIBIT G-1, and (B) Richard A. Parr II, general counsel to the
Borrower, in substantially the form of EXHIBIT G-2, in each case addressed
to the Administrative Agent and the Lenders and
-42-
<PAGE>
addressing such other matters as the Administrative Agent or any Lender may
reasonably request.
(b) The Administrative Agent shall have received a certificate, signed by
the president, the chief executive officer or the chief financial officer of
the Borrower, in form and substance satisfactory to the Administrative Agent,
certifying that (i) all representations and warranties of the Borrower contained
in this Agreement and the other Credit Documents are true and correct in all
material respects as of the Restatement Effective Date, both immediately
before and after giving effect to the consummation of the transactions
contemplated hereby, the making of any Loans hereunder on the Restatement
Effective Date and the application of the proceeds thereof, (ii) no Default
or Event of Default has occurred and is continuing, both immediately before
and after giving effect to the consummation of the transactions contemplated
hereby, the making of any Loans hereunder on the Restatement Effective Date
and the application of the proceeds thereof, (iii) both immediately before
and after giving effect to the consummation of the transactions contemplated
hereby, the making of any Loans hereunder on the Restatement Effective Date
and the application of the proceeds thereof, no Material Adverse Change has
occurred since December 31, 1996, and, to the knowledge of such officer,
there exists no event, condition or state of facts that could reasonably be
expected to result in a Material Adverse Change, and (iv) all conditions set
forth in this Section and in SECTION 4.2 to the effectiveness of this
Agreement and to any extensions of credit hereunder on the Restatement
Effective Date have been satisfied or waived as required hereunder.
(c) The Administrative Agent shall have received a certificate of the
secretary (or clerk) or an assistant secretary (or clerk) of each of the
Borrower and the Subsidiaries executing the Subsidiary Guaranty on the
Restatement Effective Date, in form and substance satisfactory to the
Administrative Agent, certifying (i) that attached thereto is a true and
complete copy of the articles or certificate of organization or incorporation
and all amendments thereto of the Borrower or such Subsidiary, as the case
may be, certified as of a recent date by the Secretary of State (or
comparable Governmental Authority) of its jurisdiction of organization, and
that the same has not been amended since the date of such certification
(PROVIDED that any such Subsidiary that furnished a certified copy of its
articles or certificate of incorporation pursuant to the closing of the
Original Credit Agreement may, in lieu of the foregoing, certify that the
same has not been amended since the date of such closing), (ii) that attached
thereto is a true and complete copy of the bylaws of the Borrower or such
Subsidiary, as the case may be, as then in effect and as in effect at all
times from the date on which the resolutions referred to in clause (iii)
below were adopted to and including the date of such certificate (PROVIDED
that any such Subsidiary that furnished a certified copy of its bylaws
pursuant to the closing of the Original Credit Agreement may, in lieu of the
foregoing, certify that the same has not been amended since the date of such
closing), and (iii) that attached thereto is a true and complete copy of
resolutions adopted by the board of directors of the Borrower or such
Subsidiary, as the case may be, authorizing the execution, delivery and
performance of this Agreement and the other Credit Documents to which it is a
party, and as to the incumbency and genuineness of the signature of each
officer of the Borrower or such Subsidiary, as the case may be, executing
this Agreement or any of such other Credit Documents, and (if required)
attaching all such copies of the documents described above.
(d) The Administrative Agent shall have received (i) a certificate as of
a recent date of the good standing of each of the Borrower and the
Subsidiaries referred to in subsection (c) above under the laws of its
jurisdiction of organization, from the Secretary of State (or comparable
Governmental Authority) of such jurisdiction, (ii) a certificate as of a
recent date of the qualification of the Borrower
-43-
<PAGE>
to conduct business as a foreign corporation in the Commonwealth of
Massachusetts and in the State of Texas, from the Secretary of the
Commonwealth of Massachusetts and the Secretary of State of Texas,
respectively, and (iii) to the extent generally provided, a tax clearance,
tax good standing or similar certificate or letter as to each of the Borrower
and the Subsidiaries referred to in subsection (c) above, from the Department
of Revenue (or comparable Governmental Authority) in each applicable
jurisdiction under (i) and (ii) above.
(e) All legal, tax and accounting matters, all documentation and all
corporate or other proceedings incident to the PPS Acquisition and the other
transactions contemplated hereby, including the corporate structure of the
Borrower and its Subsidiaries, shall be satisfactory in form and substance to
the Administrative Agent; all approvals, permits and consents of any
Governmental Authorities or other Persons required in connection with the
execution and delivery of this Agreement and the other Credit Documents, the
consummation of the PPS Acquisition and the consummation of the transactions
contemplated hereby shall have been obtained, without the imposition of
conditions that are not acceptable to the Administrative Agent, and all
related filings, if any, shall have been made, and all such approvals,
permits, consents and filings shall be in full force and effect and the
Administrative Agent shall have received such copies thereof as it shall have
requested; all applicable waiting periods shall have expired without any
adverse action being taken by any Governmental Authority having jurisdiction;
and no action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before, and no order, injunction
or decree shall have been entered by, any court or other Governmental
Authority, in each case to enjoin, restrain or prohibit, to obtain
substantial damages in respect of, or that is otherwise related to or arises
out of, this Agreement, any of the other Credit Documents or the consummation
of the PPS Acquisition or any of the other transactions contemplated hereby
or that, in the opinion of the Administrative Agent, could reasonably be
expected to have a Material Adverse Effect.
(f) The PPS Merger Agreement shall not have been amended, modified or
supplemented, nor any provision thereof waived, in any material respect since
the date thereof, except as shall have been approved in writing by the
Administrative Agent and the Lenders; the Borrower shall have duly complied
with and performed in all material respects all of its agreements and
conditions set forth in the PPS Merger Agreement required to be complied with
or performed by it on or prior to the closing date thereunder; the PPS Merger
Agreement and the other documents and instruments executed and delivered in
connection therewith shall be in full force and effect; the Administrative
Agent shall have received evidence satisfactory to it that the PPS
Acquisition has been consummated in all material respects in accordance with
the terms of the PPS Merger Agreement and in compliance with all applicable
Requirements of Law; and the Administrative Agent shall have received a
letter from McDermott, Will & Emery, counsel to PPS, addressed to the
Administrative Agent and the Lenders and in sufficient copies for each
Lender, to the effect that the Administrative Agent and the Lenders are
entitled to rely on their opinion delivered to the Borrower in connection
with the PPS Acquisition as if such opinion were addressed to them and
attaching a copy thereof.
(g) The Administrative Agent shall have received certified reports from
an independent search service satisfactory to it listing any judgment or tax
lien filing or Uniform Commercial Code financing statement that names the
Borrower, PPS or any Subsidiary as debtor in any of certain jurisdictions
designated by the Administrative Agent.
(h) Since December 31, 1996, both immediately before and after giving
effect to the
-44-
<PAGE>
consummation of the transactions contemplated by this Agreement, there shall
not have occurred any Material Adverse Change or any event, condition or
state of facts that could reasonably be expected to result in a Material
Adverse Change.
(i) There shall not have occurred any material disruption or material
adverse change in, or other condition with respect to, the United States
financial and capital markets that could reasonably be expected to have a
material adverse effect on the syndication of the credit facility provided
for hereunder, and there shall be no competing issues of debt securities or
commercial bank or other credit facilities of the Borrower or any Subsidiary
being offered, placed or arranged.
(j) The Borrower shall have executed and delivered the Fee Letter and
shall have paid (i) to the Administrative Agent, for the ratable benefit of
the Lenders, the fees described in paragraph (2) of the Fee Letter, and (ii)
all other fees and expenses of the Administrative Agent or any Lender
required hereunder, under the Fee Letter or under any other Credit Document
to be paid on or prior to the Restatement Effective Date (including fees and
expenses of counsel) in connection with this Agreement and the transactions
contemplated hereby.
(k) The Administrative Agent shall have received a Covenant Compliance
Worksheet, duly completed and certified by the chief financial officer of the
Borrower and in form and substance satisfactory to the Administrative Agent,
demonstrating the Borrower's compliance with the financial covenants set
forth in SECTIONS 7.1 through 7.5 at the levels applicable thereto as of
March 31, 1998, determined on a pro forma basis as of December 31, 1997 after
giving effect to the consummation of the PPS Acquisition and the transactions
contemplated hereby and the making of the Loans hereunder made on the
Restatement Effective Date (PROVIDED that, with respect to compliance with
SECTION 7.5 for the foregoing purposes, pro forma Consolidated Net Worth shall
not be less than $195,000,000, and PROVIDED FURTHER that, notwithstanding the
provisions of SECTIONS 7.1 through 7.3 and the related defined terms, for
purposes of the foregoing Covenant Compliance Worksheet the calculations of
the financial covenants set forth in such Sections shall be made with reference
to pro forma Consolidated EBITDA and Consolidated Fixed Charges, each for the
period of four consecutive fiscal quarters ended December 31, 1997).
(l) Each of the representations and warranties contained in ARTICLE V
and in the other Credit Documents shall be true and correct in all material
respects on and as of the Restatement Effective Date with the same effect as
if made on and as of such date (except to the extent any such representation
or warranty is expressly stated to have been made as of a specific date, in
which case such representation or warranty shall be true and correct in all
material respects as of such date).
(m) No Default or Event of Default shall have occurred and be
continuing under (i) the Original Credit Agreement, as of the Restatement
Effective Date and immediately prior to the effectiveness of this Agreement,
or (ii) this Agreement.
(n) After giving effect to the PPS Acquisition and the other
transactions contemplated by this Agreement, the Borrower and its
Subsidiaries shall have no Indebtedness other than Indebtedness expressly
permitted under SECTION 8.2, and the Administrative Agent shall have received
evidence satisfactory to it that, concurrently with the making of the Loans
hereunder to be made on the Restatement Effective Date, (i) all principal,
interest and other amounts outstanding with respect to any Indebtedness of
the Borrower or any Subsidiary (including the PPS bank credit facility and
all PPS
-45-
<PAGE>
subordinated notes) not expressly permitted under SECTION 8.2 to remain
outstanding on and after the Restatement Effective Date or otherwise to be
terminated (the "Terminating Indebtedness") shall be repaid and satisfied in
full, (ii) all commitments to extend credit under the agreements and
instruments relating thereto shall be terminated, and (iii) any Liens
securing any Terminating Indebtedness shall be released and any related
filings terminated of record (or arrangements satisfactory to the
Administrative Agent made therefor).
(o) CHS and the holders of the Notes (as defined in the CDC Securities
Purchase Agreement) issued under the CDC Securities Purchase Agreement shall
have entered into an instrument, in form and substance satisfactory to the
Administrative Agent, effecting certain modifications to the CDC Securities
Purchase Agreement requested by the Administrative Agent, and the
Administrative Agent shall have received a copy thereof; and such
modifications shall have become effective.
(p) The Administrative Agent shall have received an Account Designation
Letter, together with written instructions from an Authorized Officer,
including wire transfer information, directing the payment of the proceeds of
the Loans to be made hereunder on the Restatement Effective Date.
(q) The Administrative Agent and each Lender shall have received such
other documents, certificates, opinions and instruments in connection with
the transactions contemplated hereby as it shall have reasonably requested.
Notwithstanding the foregoing or anything to the contrary contained in
this Agreement or in any other Credit Document, if the Restatement Effective
Date shall not have occurred on or prior to March 15, 1998, then it shall not
thereafter occur (unless the Required Lenders shall have agreed in writing to
an extension of such date), and this Agreement shall cease to be of any
further force or effect and the Original Credit Agreement shall continue to
be effective, as it may have been or may thereafter be amended, modified or
supplemented from time to time.
IV.2. CONDITIONS OF ALL BORROWINGS. The obligation of each Lender to
make any Loans hereunder and the obligation of the Issuing Lender to issue
any Letters of Credit hereunder, including any Loans made or Letters of
Credit issued on the Restatement Effective Date, is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date or date of issuance:
(a) The Administrative Agent shall have received a Notice of Borrowing
in accordance with SECTION 2.2(b), or (together with the Issuing Lender) a
Letter of Credit Notice in accordance with SECTION 3.3, as applicable;
(b) Each of the representations and warranties contained in ARTICLE V
and in the other Credit Documents shall be true and correct in all material
respects on and as of such Borrowing Date (including the Restatement
Effective Date, in the case of any Loans made hereunder on such date) or date
of issuance with the same effect as if made on and as of such date, both
immediately before and after giving effect to the Loans to be made or Letter
of Credit to be issued on such date (except to the extent any such
representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty shall be true
and correct in all material respects as of such date); and
-46-
<PAGE>
(c) No Default or Event of Default shall have occurred and be
continuing on such date, both immediately before and after giving effect to
the Loans to be made or Letter of Credit to be issued on such date.
Each giving of a Notice of Borrowing or a Letter of Credit Notice, and
the consummation of each Borrowing or issuance of a Letter of Credit, shall
be deemed to constitute a representation by the Borrower that the statements
contained in subsections (b) and (c) above are true, both as of the date of
such notice or request and as of the relevant Borrowing Date or date of
issuance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to induce the Lenders to extend the credit contemplated hereby,
the Borrower represents and warrants to the Administrative Agent and the
Lenders, both before and after giving effect to the consummation of the PPS
Acquisition, as follows:
V.1. ORGANIZATION AND POWER. Each of the Borrower and its Subsidiaries
(i) is a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has the full corporate, partnership or
limited liability company power and authority to execute, deliver and perform
the Credit Documents to which it is or will be a party, to own and hold its
property and to engage in its business as presently conducted, and (iii) is
duly qualified to do business as a foreign corporation, partnership or
limited liability company and is in good standing in each jurisdiction where
the nature of its business or the ownership of its properties requires it to
be so qualified, except where the failure to be so qualified would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect.
V.2. AUTHORIZATION; ENFORCEABILITY. Each of the Borrower and its
Subsidiaries has taken, or on the Restatement Effective Date will have taken,
all necessary corporate, partnership or limited liability company action to
execute, deliver and perform each of the Credit Documents to which it is or
will be a party, and has, or on the Restatement Effective Date (or any later
date of execution and delivery) will have, validly executed and delivered
each of the Credit Documents to which it is or will be a party. This
Agreement constitutes, and each of the other Credit Documents upon execution
and delivery will constitute, the legal, valid and binding obligation of each
of the Borrower and its Subsidiaries that is a party hereto or thereto,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, by general equitable
principles or by principles of good faith and fair dealing.
V.3. NO VIOLATION. The execution, delivery and performance by each of
the Borrower and its Subsidiaries of this Agreement and each of the other
Credit Documents to which it is or will be a party, and compliance by it with
the terms hereof and thereof, do not and will not (i) violate any provision
of its articles or certificate of organization or incorporation, bylaws,
certificate of partnership, partnership agreement, operating agreement or
other constituent documents, as applicable, or contravene any other
Requirement of Law applicable to it, (ii) conflict with, result in a breach
of or
-47-
<PAGE>
constitute (with notice, lapse of time or both) a default under any
indenture, agreement or other instrument relating to the borrowing of monies,
or any other Material Contract, to which it is a party, by which it or any of
its properties is bound or to which it is subject, or (iii) except for the
Liens granted in favor of the Administrative Agent pursuant to the Security
Documents, result in or require the creation or imposition of any Lien upon
any of its properties or assets pursuant to any such indenture, agreement,
instrument or other Material Contract. No Subsidiary is a party to any
agreement or instrument or otherwise subject to any restriction or
encumbrance that restricts or limits its ability to make dividend payments or
other distributions in respect of its Capital Stock, to repay Indebtedness
owed to the Borrower or any other Subsidiary, to make loans or advances to
the Borrower or any other Subsidiary, or to transfer any of its assets or
properties to the Borrower or any other Subsidiary, in each case other than
such restrictions or encumbrances existing under or by reason of the Credit
Documents or applicable Requirements of Law.
V.4. GOVERNMENTAL AND THIRD-PARTY AUTHORIZATION; PERMITS. (a) No
consent, approval, authorization or other action by, notice to, or registration
or filing with, any Governmental Authority or other Person is or will be
required as a condition to or otherwise in connection with the due execution,
delivery and performance by each of the Borrower and its Subsidiaries of this
Agreement or any of the other Credit Documents to which it is or will be a
party or the legality, validity or enforceability hereof or thereof, other
than consents, authorizations and filings in connection with the PPS
Acquisition that have been (or on or prior to the Restatement Effective Date
will have been) made or obtained and that are (or on the Restatement
Effective Date will be) in full force and effect, which consents,
authorizations and filings are listed on SCHEDULE 5.4.
(a) Each of the Borrower and its Subsidiaries has, and is in good
standing with respect to, all governmental approvals, licenses, permits and
authorizations necessary to conduct its business as presently conducted and
to own or lease and operate its properties, except for those the failure to
obtain which would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect.
V.5. LITIGATION. There are no actions, investigations, suits or
proceedings pending or, to the knowledge of the Borrower, threatened, at law,
in equity or in arbitration, before any court, other Governmental Authority
or other Person, (i) against or affecting the Borrower, any of its
Subsidiaries or any of their respective properties that would, if adversely
determined, be reasonably likely to have a Material Adverse Effect, or (ii)
with respect to this Agreement, any of the other Credit Documents or the PPS
Acquisition.
V.6. TAXES. Each of the Borrower and its Subsidiaries has timely filed
all federal, state and local tax returns and reports required to be filed by
it and has paid all taxes, assessments, fees and other charges levied upon it
or upon its properties that are shown thereon as due and payable, other than
those that are being contested in good faith and by proper proceedings and
for which adequate reserves have been established in accordance with GAAP.
Such returns accurately reflect in all material respects all liability for
taxes of the Borrower and its Subsidiaries for the periods covered thereby.
There is no ongoing audit or examination or, to the knowledge of the
Borrower, other investigation by any Governmental Authority of the tax
liability of the Borrower or any of its Subsidiaries, and there is no
unresolved claim by any Governmental Authority concerning the tax liability
of the Borrower or any of its Subsidiaries for any period for which tax
returns have been or were required to have been filed, other than claims for
which adequate reserves have been established
-48-
<PAGE>
in accordance with GAAP. Neither the Borrower nor any of its Subsidiaries
has waived or extended or has been requested to waive or extend the statute
of limitations relating to the payment of any taxes. As of the Restatement
Effective Date, no federal income tax return or report has been required to
have been filed by the Borrower.
V.7. SUBSIDIARIES. SCHEDULE 5.7 sets forth a list, as of the
Restatement Effective Date and after giving effect to the PPS Acquisition, of
all of the Subsidiaries of the Borrower and, as to each such Subsidiary, the
percentage ownership (direct and indirect) of the Borrower in each class of
its capital stock and each direct owner thereof. Except for the shares of
capital stock expressly indicated on SCHEDULE 5.7, there are no shares of
capital stock, warrants, rights, options or other equity securities, or other
Capital Stock of any Subsidiary of the Borrower outstanding or reserved for
any purpose. All outstanding shares of capital stock of each Subsidiary of
the Borrower are duly and validly issued, fully paid and nonassessable.
V.8. FULL DISCLOSURE. All factual information (including, without
limitation, factual information set forth in the Joint Proxy
Statement/Prospectus and the registration statement filed on Form S-1 by PPS
with the Securities and Exchange Commission on November 21, 1997) heretofore
or contemporaneously furnished to the Administrative Agent or any Lender in
writing by or on behalf of the Borrower or any of its Subsidiaries for
purposes of or in connection with this Agreement and the transactions
contemplated hereby is, and all other such factual information hereafter
furnished to the Administrative Agent or any Lender in writing by or on
behalf of the Borrower or any of its Subsidiaries will be, true and accurate
in all material respects on the date as of which such information is dated or
certified (or, if such information has been amended or supplemented, on the
date as of which any such amendment or supplement is dated or certified) and
not made incomplete by omitting to state a material fact necessary to make
the statements contained therein, in light of the circumstances under which
such information was provided, not misleading. The Joint Proxy
Statement/Prospectus complied with, in all material respects, as of the date
distributed to the stockholders of CRA, as of the date of the special meeting
of the stockholders of CRA to consider and vote on the CRA Proposal (as
defined therein), and as of the date of the CRA Merger (as defined therein),
and all filings of and solicitations under the Joint Proxy Statement/Prospectus
by CRA have been made, in all material respects, in accordance with, the
applicable provisions of the Exchange Act and the proxy solicitation rules
and other applicable rules and regulations thereunder. The Joint Proxy
Statement/Prospectus complied with, in all material respects, as of the date
distributed to the stockholders of OccuSystems, as of the date of the special
meeting of the stockholders of OccuSystems to consider and vote on the
OccuSystems Proposal (as defined therein), and as of the date of the
OccuSystems Merger (as defined therein), and all filings of and solicitations
under the Joint Proxy Statement/Prospectus by OccuSystems have been made, in
all material respects, in accordance with, the applicable provisions of the
Exchange Act and the proxy solicitation rules and other applicable rules and
regulations thereunder.
V.9. MARGIN REGULATIONS. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying
Margin Stock. No proceeds of the Loans will be used, directly or indirectly,
to purchase or carry any Margin Stock, to extend credit for such purpose or
for any other purpose that would violate or be inconsistent with Regulations
G, T, U or X or any provision of the Exchange Act.
V.10. NO MATERIAL ADVERSE CHANGE. There has been no Material Adverse
Change since December 31, 1996, and there exists no event, condition or state of
facts that could reasonably be
-49-
<PAGE>
expected to result in a Material Adverse Change.
V.11. FINANCIAL MATTERS. (a) The Borrower has heretofore furnished to
the Administrative Agent copies of (i) the audited consolidated balance
sheets of CRA and its Subsidiaries as of December 31, 1996, 1995, and 1994,
and the related consolidated statements of income and cash flows for the
fiscal years ended December 31, 1996, 1995 and 1994, together with the
opinion of Arthur Andersen LLP thereon, and (ii) the unaudited consolidated
balance sheet of CRA and its Subsidiaries as of June 30, 1997, and the
related consolidated statements of income and cash flows for the six-month
period then ended. Such financial statements have been prepared in
accordance with GAAP (subject, with respect to the unaudited financial
statements, to the absence of notes required by GAAP and to normal year-end
adjustments) and present fairly the financial condition of CRA and its
Subsidiaries on a consolidated basis as of the respective dates thereof and
the consolidated results of operations of CRA and its Subsidiaries for the
respective periods then ended. Except as fully reflected in the most recent
financial statements referred to above and the notes thereto, there are no
material liabilities or obligations with respect to CRA or any of its
Subsidiaries of any nature whatsoever (whether absolute, contingent or
otherwise and whether or not due).
(b) The Borrower has heretofore furnished to the Administrative Agent
copies of (i) the audited consolidated balance sheets of OccuSystems and its
Subsidiaries as of December 31, 1996, 1995, and 1994, and the related
consolidated statements of income and cash flows for the fiscal years ended
December 31, 1996, 1995 and 1994, together with the opinion of Arthur
Andersen LLP thereon, and (ii) the unaudited consolidated balance sheet of
OccuSystems and its Subsidiaries as of June 30, 1997, and the related
consolidated statements of income and cash flows for the six-month period
then ended. Such financial statements have been prepared in accordance with
GAAP (subject, with respect to the unaudited financial statements, to the
absence of notes required by GAAP and to normal year-end adjustments) and
present fairly the financial condition of OccuSystems and its Subsidiaries on
a consolidated basis as of the respective dates thereof and the consolidated
results of operations of OccuSystems and its Subsidiaries for the respective
periods then ended. Except as fully reflected in the most recent financial
statements referred to above and the notes thereto, there are no material
liabilities or obligations with respect to OccuSystems or any of its
Subsidiaries of any nature whatsoever (whether absolute, contingent or
otherwise and whether or not due).
(c) The Borrower has heretofore furnished to the Administrative Agent
copies of the unaudited consolidated balance sheets of the Borrower and its
Subsidiaries as of September 30, 1997 and December 31, 1996, the unaudited
consolidated statements of income of the Borrower and its Subsidiaries for
the three-month and nine-month periods ended September 30, 1997 and 1996, and
the unaudited consolidated statements of cash flows of the Borrower and its
Subsidiaries for the nine-month periods ended September 30, 1997 and 1996.
Such financial statements have been prepared in accordance with GAAP (subject
to the absence of notes required by GAAP and to normal year-end adjustments)
and present fairly the financial condition of the Borrower and its
Subsidiaries on a consolidated basis as of the respective dates thereof and
the consolidated results of operations of the Borrower and its Subsidiaries
for the respective periods then ended (and, as to the financial statements as
of and for any period ended any date prior to September 30, 1997, giving pro
forma effect to the consummation of the Reorganization). Except as fully
reflected in the most recent financial statements referred to above and the
notes thereto, there are no material liabilities or obligations with respect
to the Borrower or any of its Subsidiaries of any nature whatsoever (whether
absolute, contingent or otherwise and whether or not due).
-50-
<PAGE>
(d) The Borrower has heretofore furnished to the Administrative Agent
copies of (i) the audited consolidated balance sheets of PPS and its
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income and cash flows for the fiscal years ended December 31,
1996 and 1995, together with the opinion of Arthur Andersen LLP thereon, and
(ii) the unaudited consolidated balance sheet of PPS and its Subsidiaries as
of September 30, 1997, and the related consolidated statements of income and
cash flows for the nine-month period then ended. Such financial statements
have been prepared in accordance with GAAP (subject, with respect to the
unaudited financial statements, to the absence of notes required by GAAP and
to normal year-end adjustments) and present fairly the financial condition of
PPS and its Subsidiaries on a consolidated basis as of the respective dates
thereof and the consolidated results of operations of PPS and its
Subsidiaries for the respective periods then ended. Except as fully
reflected in the most recent financial statements referred to above and the
notes thereto, there are no material liabilities or obligations with respect
to PPS or any of its Subsidiaries of any nature whatsoever (whether absolute,
contingent or otherwise and whether or not due).
(e) The Borrower has heretofore furnished to the Administrative Agent
copies of the audited balance sheets of About Health as of December 31, 1996
and 1995, and the related statements of income and cash flows for the fiscal
years ended December 31, 1996 and 1995, together with the opinion of Coopers
& Lybrand L.L.P. thereon. Such financial statements have been prepared in
accordance with GAAP and present fairly the financial condition of About
Health as of the respective dates thereof and the results of operations of
About Health for the respective periods then ended.
(f) The unaudited pro forma balance sheet of the Borrower as of
December 31, 1997, a copy of which has heretofore been delivered to the
Administrative Agent, gives pro forma effect to the consummation of the PPS
Acquisition, the transactions contemplated by this Agreement and the payment
of all transaction fees and expenses related to the foregoing, all as if such
events had occurred on such date (the "Pro Forma Balance Sheet"). The Pro
Forma Balance Sheet has been prepared in accordance with GAAP (subject to the
absence of footnotes required by GAAP and subject to normal year-end
adjustments) and, subject to stated assumptions made in good faith and having
a reasonable basis set forth therein, presents fairly the financial condition
of the Borrower on an unaudited pro forma basis as of the date set forth
therein after giving effect to the consummation of the transactions described
above.
(g) The Borrower has previously furnished to the Administrative Agent a
copy of projected balance sheets and statements of income and cash flows of
the Borrower prepared on an annual basis for the seven-year period ending
December 31, 2003, giving effect to the consummation of the PPS Acquisition
and the transactions contemplated by this Agreement (the "Projections"). In
the opinion of management of the Borrower, the assumptions used in the
preparation of the Projections were fair, complete and reasonable when made
and continue to be fair, complete and reasonable as of the Restatement
Effective Date. The Projections were prepared in good faith by the executive
and financial personnel of the Borrower, are complete and represent a
reasonable estimate of the future performance and financial condition of the
Borrower, subject to the uncertainties and approximations inherent in any
projections.
(h) Each of the Borrower and its Subsidiaries, after giving effect to
the transactions contemplated by this Agreement, (i) has capital sufficient
to carry on its businesses as conducted and as
-51-
<PAGE>
proposed to be conducted, (ii) has assets with a fair saleable value,
determined on a going concern basis, (y) not less than the amount required to
pay the probable liability on its existing debts as they become absolute and
matured and (z) greater than the total amount of its liabilities (including
identified contingent liabilities, valued at the amount that can reasonably
be expected to become absolute and matured), and (iii) does not intend to,
and does not believe that it will, incur debts or liabilities beyond its
ability to pay such debts and liabilities as they mature.
V.12. OWNERSHIP OF PROPERTIES. Each of the Borrower and its
Subsidiaries (i) has good and marketable title to all real property owned by
it, (ii) holds interests as lessee under valid leases in full force and
effect with respect to all material leased real and personal property used in
connection with its business, (iii) possesses or has rights to use licenses,
patents, copyrights, trademarks, service marks, trade names and other assets
sufficient to enable it to continue to conduct its business substantially as
heretofore conducted and without any material conflict with the rights of
others, and (iv) has good title to all of its other properties and assets
reflected in the most recent financial statements referred to in SECTION
5.11(c) (except as sold or otherwise disposed of since the date thereof in
the ordinary course of business), in each case under (i), (ii), (iii) and
(iv) above free and clear of all Liens other than Permitted Liens.
V.13. ERISA. Each Plan is and has been administered in compliance in
all material respects with all applicable Requirements of Law, including,
without limitation, the applicable provisions of ERISA and the Internal
Revenue Code. No ERISA Event has occurred and is continuing or, to the
knowledge of the Borrower, is reasonably expected to occur with respect to
any Plan, in either case that would be reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect. No Plan has any Unfunded
Pension Liability, and neither the Borrower nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA, in either instance where the same would be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. Neither
the Borrower nor any ERISA Affiliate is required to contribute to or has, or
has at any time had, any liability to a Multiemployer Plan.
V.14. ENVIRONMENTAL MATTERS. (a) No Hazardous Substances are or have
been generated, used, located, released, treated, disposed of or stored by
the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower,
by any other Person (including any predecessor in interest) or otherwise, in,
on or under any portion of any real property, leased or owned, of the
Borrower or any of its Subsidiaries, except in material compliance with all
applicable Environmental Laws, and no portion of any such real property or,
to the knowledge of the Borrower, any other real property at any time leased,
owned or operated by the Borrower or any of its Subsidiaries, has been
contaminated by any Hazardous Substance; and no portion of any real property,
leased or owned, of the Borrower or any of its Subsidiaries has been or is
presently the subject of an environmental audit, assessment or remedial
action.
(b) No portion of any real property, leased or owned, of the Borrower
or any of its Subsidiaries has been used by the Borrower or any of its
Subsidiaries or, to the knowledge of the Borrower, by any other Person, as or
for a mine, a landfill, a dump or other disposal facility, a gasoline service
station, or (other than for petroleum substances stored in the ordinary
course of business) a petroleum products storage facility; no portion of such
real property or any other real property at any time leased, owned or
operated by the Borrower or any of its Subsidiaries has, pursuant to any
Environmental Law, been placed on the "National Priorities List" or "CERCLIS
List" (or any
-52-
<PAGE>
similar federal, state or local list) of sites subject to possible
environmental problems; and there are not and have never been any underground
storage tanks situated on any real property, leased or owned, of the Borrower
or any of its Subsidiaries.
(c) All activities and operations of the Borrower and its Subsidiaries
are in compliance with the requirements of all applicable Environmental Laws,
except to the extent the failure so to comply, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.
Each of the Borrower and its Subsidiaries has obtained all licenses and
permits under Environmental Laws necessary to its respective operations; all
such licenses and permits are being maintained in good standing; and each of
the Borrower and its Subsidiaries is in compliance with all terms and
conditions of such licenses and permits, except for such licenses and permits
the failure to obtain, maintain or comply with which would not be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect.
Neither the Borrower nor any of its Subsidiaries is involved in any suit,
action or proceeding, or has received any notice, complaint or other request
for information from any Governmental Authority or other Person, with respect
to any actual or alleged Environmental Claims that, if adversely determined,
would be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect; and, to the knowledge of the Borrower, there are no
threatened actions, suits, proceedings or investigations with respect to any
such Environmental Claims, nor any basis therefor.
V.15. COMPLIANCE WITH LAWS. Each of the Borrower and its Subsidiaries
has timely filed all material reports, documents and other materials required
to be filed by it under all applicable Requirements of Law with any
Governmental Authority, has retained all material records and documents
required to be retained by it under all applicable Requirements of Law, and
is otherwise in compliance with all applicable Requirements of Law in respect
of the conduct of its business and the ownership and operation of its
properties, except for such Requirements of Law the failure to comply with
which, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect.
V.16. REGULATED INDUSTRIES. Neither the Borrower nor any of its
Subsidiaries is (i) an "investment company," a company "controlled" by an
"investment company," or an "investment advisor," within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding company," 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.
V.17. INSURANCE. The assets, properties and business of the Borrower
and its Subsidiaries are insured against such hazards and liabilities, under
such coverages and in such amounts, as are customarily maintained by prudent
companies similarly situated and under policies issued by insurers of
recognized responsibility.
-53-
<PAGE>
V.18. MATERIAL CONTRACTS. SCHEDULE 5.18 lists, as of the Restatement
Effective Date and after giving effect to the PPS Acquisition, each "material
contract" (within the meaning of Item 601(b)(10) of Regulation S-K under the
Exchange Act) to which the Borrower or any of its Subsidiaries is a party, by
which any of them or their respective properties is bound or to which any of
them is subject (collectively, "Material Contracts"), and also indicates the
parties, subject matter and term thereof. As of the Restatement Effective
Date, (i) each Material Contract is in full force and effect and is
enforceable by the Borrower or the Subsidiary that is a party thereto in
accordance with its terms, and (ii) neither the Borrower nor any of its
Subsidiaries (nor, to the knowledge of the Borrower, any other party thereto)
is in breach of or default under any Material Contract in any material
respect or has given notice of termination or cancellation of any Material
Contract.
V.19. PLEDGE AGREEMENT. The provisions of the Pledge Agreement are and
will be effective to create in favor of the Administrative Agent, for its
benefit and the benefit of the Lenders, a valid and enforceable security
interest in and Lien upon all right, title and interest of each of the
Borrower and its Subsidiaries that is a party thereto in and to the
Collateral purported to be pledged by it thereunder and described therein,
and upon (i) the initial extension of credit hereunder, (ii) in the case of
uncertificated securities, control thereof by the Administrative Agent within
the meaning of Section 8-106 (or its successor provision) of the applicable
Uniform Commercial Code, and (iii) the possession by the Administrative Agent
of any certificates evidencing the securities pledged thereby, such security
interest and Lien shall constitute a fully perfected and first priority
security interest in and Lien upon such right, title and interest of the
Borrower or such Subsidiary, as applicable, in and to such Collateral, to the
extent that such security interest and Lien can be perfected by such actions
and possession, subject only to Permitted Liens.
V.20. PPS MERGER AGREEMENT. The Borrower has heretofore furnished to
the Administrative Agent a true and complete copy of the PPS Merger
Agreement, together with all schedules and exhibits referred to therein or
delivered pursuant thereto and all amendments, modifications and waivers
relating thereto. On the Restatement Effective Date, the PPS Acquisition
shall be consummated in all material respects in accordance with the terms of
the PPS Merger Agreement and in compliance with all applicable Requirements
of Law, including any necessary stockholder approvals.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and
all Reimbursement Obligations together with all other amounts then due and
owing hereunder:
VI.1. FINANCIAL STATEMENTS. The Borrower will deliver to each Lender:
(a) As soon as available and in any event within forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
beginning with the fiscal quarter ending March 31, 1998, unaudited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as
-54-
<PAGE>
of the end of such fiscal quarter and unaudited consolidated and
consolidating statements of income and cash flows for the Borrower and its
Subsidiaries for the fiscal quarter then ended and for that portion of the
fiscal year then ended, in each case setting forth comparative consolidated
(or consolidating) figures as of the end of and for the corresponding period
in the preceding fiscal year, all in reasonable detail and prepared in
accordance with GAAP (subject to the absence of notes required by GAAP and
subject to normal year-end adjustments) applied on a basis consistent with
that of the preceding quarter or containing disclosure of the effect on the
financial condition or results of operations of any change in the application
of accounting principles and practices during such quarter; and
(b) As soon as available and in any event within 100 days after the end
of each fiscal year, beginning with the fiscal year ended December 31, 1997,
(i) an audited consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and audited consolidated
statements of income and cash flows for the Borrower and its Subsidiaries for
the fiscal year then ended, including the notes thereto, in each case setting
forth comparative figures as of the end of and for the preceding fiscal year,
all in reasonable detail and certified by the independent certified public
accounting firm regularly retained by the Borrower or another independent
certified public accounting firm of recognized national standing reasonably
acceptable to the Required Lenders, together with (y) a report thereon by
such accountants that is not qualified as to going concern or scope of audit
and to the effect that such financial statements present fairly the
consolidated financial condition and results of operations of the Borrower
and its Subsidiaries as of the dates and for the periods indicated in
accordance with GAAP applied on a basis consistent with that of the preceding
year or containing disclosure of the effect on the financial condition or
results of operations of any change in the application of accounting
principles and practices during such year, and (z) a report by such
accountants to the effect that, based on and in connection with their
examination of the financial statements of the Borrower and its Subsidiaries,
they obtained no knowledge of the occurrence or existence of any Default or
Event of Default relating to accounting or financial reporting matters, or a
statement specifying the nature and period of existence of any such Default
or Event of Default disclosed by their audit; PROVIDED, HOWEVER, that such
accountants shall not be liable by reason of the failure to obtain knowledge
of any Default or Event of Default that would not be disclosed or revealed in
the course of their audit examination, and (ii) an unaudited consolidating
balance sheet of the Borrower and its Subsidiaries as of the end of such
fiscal year and unaudited consolidating statements of income and cash flows
for the Borrower and its Subsidiaries for the fiscal year then ended, all in
reasonable detail.
VI.2. OTHER BUSINESS AND FINANCIAL INFORMATION. The Borrower will
deliver to each Lender:
(a) Concurrently with each delivery of the financial statements
described in SECTION 6.1, a Compliance Certificate with respect to the period
covered by the financial statements then being delivered, executed by a
Financial Officer of the Borrower, together with a Covenant Compliance
Worksheet reflecting the computation of the financial covenants set forth in
SECTIONS 7.1 through 7.5 as of the last day of the period covered by such
financial statements;
(b) Concurrently with each delivery of the financial statements
described in SECTION 6.1, an aging of the accounts receivable of the Borrower
as of the end of the most recently completed fiscal quarter covered by the
financial statements then being delivered, classified by payor class or by
method otherwise reasonably acceptable to the Administrative Agent, certified
by a Financial Officer of the Borrower to be correct in all material respects;
-55-
<PAGE>
(c) As soon as available and in any event within thirty (30) days after
the close of each fiscal year, beginning with the fiscal year ended December
31, 1998, a consolidated operating budget for the Borrower and its
Subsidiaries for the succeeding fiscal year (prepared on a quarterly basis),
consisting of a consolidated balance sheet and consolidated statements of
income and cash flows, together with a certificate of a Financial Officer of
the Borrower to the effect that such budgets have been prepared in good faith
and are reasonable estimates of the financial position and results of
operations of the Borrower and its Subsidiaries for the period covered
thereby;
(d) Promptly upon receipt thereof, copies of any "management letter"
submitted to the Borrower or any of its Subsidiaries by its certified public
accountants in connection with each annual, interim or special audit, and
promptly upon completion thereof, any response reports from the Borrower or
any such Subsidiary in respect thereof;
(e) Promptly upon the sending, filing or receipt thereof, copies of (i)
all financial statements, reports, notices and proxy statements that the
Borrower or any of its Subsidiaries shall send or make available generally to
its shareholders, and (ii) all regular, periodic and special reports,
registration statements and prospectuses (other than on Form S-8) that the
Borrower or any of its Subsidiaries shall render to or file with the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. or any national securities exchange;
(f) Promptly upon (and in any event within five (5) Business Days after)
any Responsible Officer of the Borrower obtaining knowledge thereof, written
notice of any of the following:
(i) the occurrence of any Default or Event of Default, together
with a written statement of a Responsible Officer of the Borrower
specifying the nature of such Default or Event of Default, the period of
existence thereof and the action that the Borrower has taken and proposes
to take with respect thereto;
(ii) the institution or threatened institution of any action, suit,
investigation or proceeding against or affecting the Borrower or any of
its Subsidiaries, including any such investigation or proceeding by any
Governmental Authority (other than routine periodic inquiries,
investigations or reviews), that would, if adversely determined, be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect, and any material development in any litigation or other
proceeding previously reported pursuant to SECTION 5.5 or this subsection;
(iii) the receipt by the Borrower or any of its Subsidiaries from any
Governmental Authority of (y) any notice asserting any failure by the
Borrower or any of its Subsidiaries to be in compliance with applicable
Requirements of Law or that threatens the taking of any action against the
Borrower or such Subsidiary or sets forth circumstances that, if taken or
adversely determined, would be reasonably likely to have a Material Adverse
Effect, or (z) any notice of any actual or threatened suspension,
limitation or revocation of, failure to renew, or imposition of any
restraining order, escrow or impoundment of funds in connection with, any
license, permit, accreditation or authorization of the Borrower or any of
its Subsidiaries, where such action would be reasonably likely to have a
Material Adverse Effect;
-56-
<PAGE>
(iv) the occurrence of any ERISA Event, together with (x) a written
statement of a Responsible Officer of the Borrower specifying the details
of such ERISA Event and the action that the Borrower has taken and proposes
to take with respect thereto, (y) a copy of any notice with respect to such
ERISA Event that may be required to be filed with the PBGC and (z) a copy
of any notice delivered by the PBGC to the Borrower or such ERISA Affiliate
with respect to such ERISA Event;
(v) the occurrence of any of the following: (x) the assertion of any
Environmental Claim against or affecting the Borrower, any of its
Subsidiaries or any of their respective real property, leased or owned; (y)
the receipt by the Borrower or any of its Subsidiaries of notice of any
alleged violation of or noncompliance with any Environmental Laws; or (z)
the taking of any remedial action by the Borrower, any of its Subsidiaries
or any other Person in response to the actual or alleged generation,
storage, release, disposal or discharge of any Hazardous Substances on, to,
upon or from any real property leased or owned by the Borrower or any of
its Subsidiaries; but in each case under clauses (x), (y) and (z) above,
only to the extent the same would be reasonably likely to have a Material
Adverse Effect; and
(vi) any other matter or event that has, or would be reasonably likely
to have, a Material Adverse Effect, together with a written statement of a
Responsible Officer of the Borrower setting forth the nature and period of
existence thereof and the action that the Borrower has taken and proposes
to take with respect thereto; and
(g) As promptly as reasonably possible, such other information about the
business, condition (financial or otherwise), operations or properties of the
Borrower or any of its Subsidiaries (including any Plan and any information
required to be filed under ERISA) as the Administrative Agent or any Lender
may from time to time reasonably request.
VI.3. CORPORATE EXISTENCE; FRANCHISES; MAINTENANCE OF PROPERTIES. The
Borrower will, and will cause each of its Subsidiaries to, (i) maintain and
preserve in full force and effect its corporate existence, except as
expressly permitted otherwise by SECTION 8.1, (ii) obtain, maintain and
preserve in full force and effect all other rights, franchises, licenses,
permits, certifications, approvals and authorizations required by
Governmental Authorities and necessary to the ownership, occupation or use of
its properties or the conduct of its business, except to the extent the
failure to do so would not be reasonably likely to have a Material Adverse
Effect, and (iii) keep all material properties in good working order and
condition (normal wear and tear excepted) and from time to time make all
necessary repairs to and renewals and replacements of such properties, except
to the extent that any of such properties are obsolete or are being replaced.
VI.4. COMPLIANCE WITH LAWS. The Borrower will, and will cause each of
its Subsidiaries to, comply in all respects with all Requirements of Law
applicable in respect of the conduct of its business and the ownership and
operation of its properties, except to the extent the failure so to comply
would not be reasonably likely to have a Material Adverse Effect.
VI.5. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause each of
its Subsidiaries to, (i) pay all liabilities and obligations as and when due
(subject to any applicable subordination provisions), except to the extent
failure to do so would not be reasonably likely to have a Material Adverse
Effect, and (ii) pay and discharge all taxes, assessments and governmental
charges or levies
-57-
<PAGE>
imposed upon it, upon its income or profits or upon any of its properties,
prior to the date on which penalties would attach thereto, and all lawful
claims that, if unpaid, might become a Lien upon any of the properties of the
Borrower or any of its Subsidiaries; PROVIDED, HOWEVER, that neither the
Borrower nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge, levy or claim that is being contested in good faith and
by proper proceedings and as to which the Borrower or such Subsidiary is
maintaining adequate reserves with respect thereto in accordance with GAAP.
VI.6. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurance
companies insurance with respect to its assets, properties and business,
against such hazards and liabilities, of such types and in such amounts, as
is customarily maintained by companies in the same or similar businesses
similarly situated.
VI.7. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. The Borrower will,
and will cause each of its Subsidiaries to, (i) maintain adequate books,
accounts and records, in which full, true and correct entries shall be made
of all financial transactions in relation to its business and properties, and
prepare all financial statements required under this Agreement, in each case
in accordance with GAAP and in compliance with the requirements of any
Governmental Authority having jurisdiction over it, and (ii) permit employees
or agents of the Administrative Agent or any Lender to inspect its properties
and examine or audit its books, records, working papers and accounts and make
copies and memoranda of them, and to discuss its affairs, finances and
accounts with its officers and employees and, upon notice to the Borrower,
the independent public accountants of the Borrower and its Subsidiaries (and
by this provision the Borrower authorizes such accountants to discuss the
finances and affairs of the Borrower and its Subsidiaries), all at such times
and from time to time, upon reasonable notice and during business hours, as
may be reasonably requested.
VI.8. PERMITTED ACQUISITIONS. (a) Subject to the provisions of
subsection (b) below and the requirements contained in the definition of
Permitted Acquisition, and subject to the other terms and conditions of this
Agreement, the Borrower may from time to time after the Restatement Effective
Date effect Permitted Acquisitions, PROVIDED that, with respect to each
Permitted Acquisition:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of the consummation of such Permitted Acquisition or
would exist immediately after giving effect thereto;
(ii) the Acquisition Amount with respect thereto shall not exceed
$50,000,000 ($15,000,000 if such Permitted Acquisition is a Non-Guarantor
Acquisition); and
(iii) the aggregate principal amount of Loans used to fund payment of
the Acquisition Amount with respect thereto shall not exceed (y) if the
Total Leverage Ratio as of the last day of the most recently ended fiscal
quarter is greater than 2.0 to 1.0, $25,000,000, or (z) if the Total
Leverage Ratio as of the last day of the most recently ended fiscal quarter
is less than or equal to 2.0 to 1.0, $35,000,000.
(b) Not less than five (5) Business Days prior to the consummation of
any Permitted Acquisition with respect to which the Acquisition Amount equals
or exceeds $25,000,000, the Borrower shall have delivered to the
Administrative Agent and each Lender the following:
-58-
<PAGE>
(i) a reasonably detailed description of the material terms of such
Permitted Acquisition (including, without limitation, the purchase price
and method and structure of payment) and of each Person or business that
is the subject of such Permitted Acquisition (each, a "Target");
(ii) historical financial statements of the Target (or, if there are
two or more Targets that are the subject of such Permitted Acquisition and
that are part of the same consolidated group, consolidated historical
financial statements for all such Targets) for the two (2) most recent
fiscal years available and, if available, for any interim periods since the
most recent fiscal year-end;
(iii) consolidated projected income statements of the Borrower and its
Subsidiaries (giving effect to such Permitted Acquisition and the
consolidation with the Borrower of each relevant Target) for the three-year
period following the consummation of such Permitted Acquisition, in
reasonable detail, together with any appropriate statement of assumptions
and pro forma adjustments; and
(iv) a certificate, in form and substance reasonably satisfactory to
the Administrative Agent, executed by a Financial Officer of the Borrower
setting forth the Acquisition Amount and further to the effect that, to the
best of such individual's knowledge, (x) the consummation of such Permitted
Acquisition will not result in a violation of any provision of this
Section, and after giving effect to such Permitted Acquisition and any
Borrowings made in connection therewith, the Borrower will be in compliance
with the financial covenants contained in SECTIONS 7.1 through 7.5, such
compliance determined with regard to calculations made on a PRO FORMA basis
in accordance with GAAP as of the last day of the most recently ended
fiscal quarter as if each Target had been consolidated with the Borrower
for those periods applicable to such covenants (such calculations to be
attached to the certificate), (y) the Borrower believes in good faith
that it will continue to comply with such financial covenants for a period
of one year following the date of the consummation of such Permitted
Acquisition, and (z) after giving effect to such Permitted Acquisition and
any Borrowings in connection therewith, the Borrower believes in good
faith that it will have sufficient availability under the Commitments to
meet its ongoing working capital requirements.
(c) As soon as reasonably practicable after the consummation of any
Permitted Acquisition, the Borrower will deliver to the Administrative Agent
and each Lender a copy of the fully executed acquisition agreement (including
schedules and exhibits thereto) and other material documents and closing
papers delivered in connection therewith.
(d) Within forty-five (45) days after the end of each fiscal quarter,
the Borrower will deliver to the Administrative Agent and each Lender, with
respect to any Permitted Acquisition during such fiscal quarter the
Acquisition Amount in respect of which equals or exceeds $5,000,000 but is
less than $25,000,000, the items described in clauses (i) and (ii) of
subsection (b) above.
(e) The consummation of each Permitted Acquisition shall be deemed to be
a representation and warranty by the Borrower that (except as shall have been
approved in writing by the Required Lenders) all conditions thereto set forth
in this Section and in the description furnished under clause (i) of
subsection (b) above have been satisfied, that the same is permitted in
accordance with the
-59-
<PAGE>
terms of this Agreement, and that the matters certified to by the Financial
Officer of the Borrower in the certificate referred to in clause (iv) of
subsection (b) above are, to the best of such individual's knowledge, true
and correct in all material respects as of the date such certificate is
given, which representation and warranty shall be deemed to be a
representation and warranty as of the date thereof for all purposes
hereunder, including, without limitation, for purposes of SECTIONS 4.2 and
9.1.
VI.9. CREATION OR ACQUISITION OF SUBSIDIARIES. Subject to the
provisions of SECTIONS 6.8 and 8.5, the Borrower and its Subsidiaries may
from time to time create or acquire new Subsidiaries and may acquire the
remaining outstanding Capital Stock of existing Non-Guarantor Subsidiaries,
PROVIDED that:
(a) In the case of any Permitted Acquisition involving the acquisition
of Control of Capital Stock of any Person, after giving effect to such
Acquisition such Person (or the surviving Person, if the Acquisition is
effected through a merger or consolidation), if a Subsidiary, shall be a
Wholly Owned Subsidiary;
(b) Concurrently with (and in any event within ten (10) Business Days
after) the creation or direct or indirect acquisition by the Borrower
thereof, each such new Subsidiary that is a Wholly Owned Subsidiary
(including any new Wholly Owned Subsidiary acquired in a Permitted
Acquisition) will execute and deliver to the Administrative Agent a joinder
to the Subsidiary Guaranty, and concurrently with (and in any event within
ten (10) Business Days after) becoming a Wholly Owned Subsidiary, each
existing Non-Guarantor Subsidiary that becomes a Wholly Owned Subsidiary will
execute and deliver to the Administrative Agent a joinder to the Subsidiary
Guaranty, in each case pursuant to which such Wholly Owned Subsidiary shall
become a party thereto as a Subsidiary Guarantor and shall guarantee the
payment in full of the Obligations of the Borrower under this Agreement and
the other Credit Documents;
(c) Concurrently with (and in any event within ten (10) Business Days
after) the creation or acquisition of any new Wholly Owned Subsidiary (or the
election by any non-Wholly Owned Subsidiary to become a Subsidiary Guarantor)
all or a portion of the Capital Stock of which is directly owned by the
Borrower, including as a result of an existing Non-Guarantor Subsidiary
becoming a Wholly Owned Subsidiary as described in subsection (a) above), the
Borrower will execute and deliver to the Administrative Agent an amendment or
supplement to the Pledge Agreement pursuant to which all of the Capital Stock
of such Subsidiary owned by the Borrower shall be pledged to the
Administrative Agent, together with the certificates evidencing such Capital
Stock and undated stock powers duly executed in blank; and concurrently with
(and in any event within ten (10) Business Days after) the creation or
acquisition of any new Wholly Owned Subsidiary (or the election by any
non-Wholly Owned Subsidiary to become a Subsidiary Guarantor) all or a
portion of the Capital Stock of which is directly owned by another Subsidiary
(the "Parent Subsidiary"), including as a result of an existing Non-Guarantor
Subsidiary becoming a Wholly Owned Subsidiary as described in subsection (a)
above), the Parent Subsidiary will execute and deliver to the Administrative
Agent an appropriate joinder, amendment or supplement to the Pledge
Agreement, pursuant to which all of the Capital Stock of such Subsidiary
owned by such Parent Subsidiary shall be pledged to the Administrative Agent,
together with the certificates evidencing such Capital Stock and undated
stock powers duly executed in blank; and
(d) As promptly as reasonably possible, the Borrower and its
Subsidiaries will deliver any
-60-
<PAGE>
such other documents, certificates and opinions (including opinions of
counsel in the jurisdiction of organization of each such Subsidiary, which
may be furnished by internal counsel), in form and substance reasonably
satisfactory to the Administrative Agent, as the Administrative Agent may
reasonably request in connection therewith and will take such other action as
the Administrative Agent may reasonably request to create in favor of the
Administrative Agent a perfected security interest in the Collateral being
pledged pursuant to the documents described above. At any time after the
creation or acquisition thereof, any non-Wholly Owned Subsidiary may elect to
become a Subsidiary Guarantor by executing and delivering to the
Administrative Agent a joinder to the Subsidiary Guaranty as set forth in
subsection (b) above; and in the event any such non-Wholly Owned Subsidiary
shall so elect to become a Subsidiary Guarantor, all of the Capital Stock of
such non-Wholly Owned Subsidiary owned by the Borrower or any applicable
Parent Subsidiary shall be pledged to the Administrative Agent as set forth
in subsection (c) above, and such non-Wholly Owned Subsidiary shall
additionally deliver such other documents, certificates and opinions as the
Administrative Agent may reasonably request pursuant to this subsection (d)
Neither the Borrower nor any Subsidiary shall be required to pledge to the
Administrative Agent the Capital Stock of any Non-Guarantor Subsidiary owned
by it; PROVIDED, HOWEVER, that at no time shall any Capital Stock of any
Subsidiary that is not pledged to the Administrative Agent be owned, directly
or indirectly, by any other Subsidiary with respect to which the
Administrative Agent does not have a first priority perfected pledge of 100%
of the outstanding Capital Stock.
VI.10. YEAR 2000. The Borrower will, and will cause each of its
Subsidiaries to, take all necessary action to ensure that its computer-based
systems are able to operate and effectively process data including dates on
and after January 1, 2000. At the request of the Administrative Agent, the
Borrower will provide to the Administrative Agent evidence acceptable to the
Administrative Agent of the Borrower's Year 2000 compatibility.
VI.11. FURTHER ASSURANCES. The Borrower will, and will cause each of
its Subsidiaries to, make, execute, endorse, acknowledge and deliver any
amendments, modifications or supplements hereto and restatements hereof and
any other agreements, instruments or documents, and take any and all such
other actions, as may from time to time be reasonably requested by the
Administrative Agent or the Required Lenders to perfect and maintain the
validity and priority of the Liens granted pursuant to the Security Documents
and to effect, confirm or further assure or protect and preserve the
interests, rights and remedies of the Administrative Agent and the Lenders
under this Agreement and the other Credit Documents.
VI.12. MERGER OR DISSOLUTION OF CERTAIN SUBSIDIARIES. The Borrower
will, within thirty (30) days after the Restatement Effective Date, cause
each Wholly Owned Subsidiary (and each Subsidiary of Concentra Laboratory,
L.L.C. ("Concentra Lab")) listed on SCHEDULE 5.7, the Capital Stock of which
has not been pledged to the Administrative Agent pursuant to the Pledge
Agreement, to be merged with and into (or dissolved and liquidated into) the
Borrower or a Wholly Owned Subsidiary the Capital Stock of which has been
pledged to the Administrative Agent pursuant to the Pledge Agreement (or, in
the case of Subsidiaries of Concentra Lab, to be merged with and into (or
dissolved and liquidated into) Concentra Lab).
-61-
<PAGE>
ARTICLE VII
FINANCIAL COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and
all Reimbursement Obligations together with all other amounts then due and
owing hereunder:
VII.1. SENIOR LEVERAGE RATIO. The Borrower will not permit the Senior
Leverage Ratio as of the last day of any fiscal quarter during the periods
set forth below to be greater than the ratio set forth below opposite such
period:
<TABLE>
Maximum Senior
Date Leverage Ratio
---- --------------
<S> <C>
December 31, 1997 through
December 31, 1998 2.50 : 1.00
January 1, 1999 through
December 31, 1999 2.25 : 1.00
Thereafter 2.00 : 1.00
</TABLE>
VII.2. TOTAL LEVERAGE RATIO. The Borrower will not permit the Total
Leverage Ratio as of the last day of any fiscal quarter during the periods
set forth below to be greater than the ratio set forth below opposite such
period:
<TABLE>
Maximum Total
Date Leverage Ratio
---- --------------
<S> <C>
December 31, 1997 through
December 31, 1998 3.50 : 1.00
January 1, 1999 through
December 31, 1999 3.25 : 1.00
Thereafter 3.00 : 1.00
</TABLE>
VII.3. FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the
Fixed Charge Coverage Ratio as of the last day of any fiscal quarter,
beginning with the fiscal quarter ended December 31, 1997, to be less than
1.25 : 1.00.
VII.4. LEASE EXPENSE. The Borrower will not permit Consolidated Lease
Expense (i) for the period of two consecutive fiscal quarters ended December
31, 1997, to be greater than 6.0% of Consolidated Net Revenue for such
period, (ii) for the period of three consecutive fiscal quarters ending March
31, 1998, to be greater than 6.0% of Consolidated Net Revenue for such
period, and
-62-
<PAGE>
(iii) for any period of four consecutive fiscal quarters ending at any time
thereafter, to be greater than 6.0% of Consolidated Net Revenue for such
period.
VII.5. CONSOLIDATED NET WORTH. The Borrower will not permit
Consolidated Net Worth:
(i) as of the last day of the fiscal quarter ended December 31,
1997, to be less than the sum of (A) $210,926,000, PLUS (B) 50% of
Consolidated Net Income for the fiscal quarter ended December 31, 1997
(PROVIDED that Consolidated Net Income for such fiscal quarter shall be
taken into account for purposes of this calculation only if positive), PLUS
(C) 100% of the aggregate amount of all increases in the stated capital and
additional paid-in capital accounts of the Borrower and its Subsidiaries,
as determined on a consolidated basis in accordance with GAAP, resulting
from the issuance of equity securities (including pursuant to the exercise
of options, rights or warrants or pursuant to the conversion of convertible
securities) or other Capital Stock during the fiscal quarter ended December
31, 1997; and
(ii) as of the last day of any fiscal quarter ending at any time
thereafter, beginning with the fiscal quarter ending March 31, 1998, to be
less than the sum of (A) $195,000,000, PLUS (B) 50% of the aggregate of
Consolidated Net Income for each fiscal quarter ending after December 31,
1997 (PROVIDED that Consolidated Net Income for any such fiscal quarter
shall be taken into account for purposes of this calculation only if
positive), PLUS (C) 100% of the aggregate amount of all increases in the
stated capital and additional paid-in capital accounts of the Borrower and
its Subsidiaries, as determined on a consolidated basis in accordance with
GAAP, resulting from the issuance of equity securities (including pursuant
to the exercise of options, rights or warrants or pursuant to the
conversion of convertible securities) or other Capital Stock after
December 31, 1997.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and
all Reimbursement Obligations together with all other amounts then due and
owing hereunder:
VIII.1. MERGER; CONSOLIDATION. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, liquidate, wind up or dissolve,
or enter into any consolidation, merger or other combination, or agree to do
any of the foregoing; PROVIDED, HOWEVER, that:
(i) the Borrower may merge or consolidate with another Person so long
as (x) the Borrower is the surviving entity, (y) unless such other Person
is a Wholly Owned Subsidiary immediately prior to giving effect thereto,
such merger or consolidation shall constitute a Permitted Acquisition and
the applicable conditions and requirements of SECTIONS 6.8 and 6.9 shall
be satisfied, and (z) immediately after giving effect thereto, no Default
or Event of Default would exist;
-63-
<PAGE>
(ii) any Subsidiary may merge or consolidate with another Person so
long as (x) the surviving entity is the Borrower or a Subsidiary Guarantor,
(y) unless such other Person is a Wholly Owned Subsidiary immediately prior
to giving effect thereto, such merger or consolidation shall constitute a
Permitted Acquisition and the applicable conditions and requirements of
SECTIONS 6.8 and 6.9 shall be satisfied, and (z) immediately after giving
effect thereto, no Default or Event of Default would exist;
(iii) any Wholly Owned Subsidiary organized solely for the purpose of
facilitating the acquisition of ownership interests in a Non-Guarantor
Subsidiary may merge or consolidate with a Non-Guarantor Subsidiary so long
as (x) the consideration in such transaction consists solely of Capital
Stock of the surviving entity, (y) no Person other than the Borrower or a
Wholly Owned Subsidiary receives any such consideration, and (z) if such
merger or consolidation effects a capital contribution to, or otherwise
constitutes an Investment in, such Non-Guarantor Subsidiary, such
Investment shall be permitted under clause (ix) of SECTION 8.5;
(iv) any Wholly Owned Subsidiary of another Subsidiary may merge or
consolidate with such parent Subsidiary so long as (y) no Person other than
such parent Subsidiary receives any consideration in such transaction, and
(z) immediately after giving effect thereto, no Default or Event of Default
would exist;
(v) Concentra Subsidiary, Inc. may merge with and into PPS pursuant to
and in accordance with the terms of the PPS Merger Agreement, in order to
effect the PPS Acquisition; and
(vi) any Wholly Owned Subsidiary that does not conduct any active
trade or business may dissolve and thereafter liquidate and wind up its
affairs so long as (y) no Default or Event of Default would result
therefrom and (z) its assets, if any, are distributed only to the Borrower
or another Wholly Owned Subsidiary.
VIII.2. INDEBTEDNESS. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, create, incur, assume or suffer to exist
any Indebtedness or Disqualified Capital Stock other than:
(i) Indebtedness incurred under this Agreement, the Notes and the
Subsidiary Guaranty;
(ii) Indebtedness existing on the Restatement Effective Date and
described in SCHEDULE 8.2, PROVIDED that the principal amount thereof as
shown on such Schedule shall not be increased;
(iii) accrued expenses (including salaries, accrued vacation and other
compensation), current trade or other accounts payable and other current
liabilities arising in the ordinary course of business and not incurred
through the borrowing of money, PROVIDED that the same shall be paid when
due except to the extent being contested in good faith and by appropriate
proceedings;
(iv) non-current liabilities for post-employment healthcare and other
insurance
-64-
<PAGE>
benefits;
(v) unsecured loans and advances by the Borrower or any Subsidiary
Guarantors to any other Subsidiary Guarantor or by any Subsidiary Guarantor
to the Borrower, provided that (y) any such loan or advance is
subordinated in right and time of payment to the Obligations and is
evidenced by a promissory note, in form and substance satisfactory to the
Administrative Agent, pledged to the Administrative Agent pursuant to the
Pledge Agreement, and (z) no such loan or advance shall be made to any
Subsidiary that is the subject of a proceeding of the type described in
SECTION 9.1(f) or 9.1(g);
(vi) unsecured loans and advances by the Borrower or any Subsidiary
Guarantors to any Non-Guarantor Subsidiary, PROVIDED that (x) any such
loan or advance is subordinated in right and time of payment to the
Obligations and is evidenced by a promissory note, in form and substance
satisfactory to the Administrative Agent, pledged to the Administrative
Agent pursuant to the Pledge Agreement, (y) no such loan or advance shall
be made to any Subsidiary that is the subject of a proceeding of the type
described in SECTION 9.1(f) or 9.1(g), and (z) any such loan or advance
shall not be prohibited under clause (ix) of SECTION 8.5;
(vii) Indebtedness of the Borrower under Hedge Agreements entered into
with one or more Lenders in respect of the Indebtedness incurred pursuant
to this Agreement, PROVIDED that the notional amount of all such agreements
at any time shall not exceed the aggregate Commitments at such time;
(viii) Disqualified Capital Stock consisting of the Capital Stock of
Non-Guarantor Subsidiaries and partnerships, joint ventures and limited
liability companies in which the Borrower and its Subsidiaries hold less
than a majority interest, PROVIDED that (i) the Investments of the Borrower
and its Subsidiaries in such Disqualified Capital Stock are permitted under
the applicable provisions of SECTION 8.5, and (ii) such Disqualified
Capital Stock, by its terms, is redeemable or subject to repurchase or
acquisition by the Borrower or any Subsidiary only upon (w) the bankruptcy
or dissolution of the holder thereof or a change of control of such holder,
(x) such holder's failure to make any required capital contribution, (y)
any attempt by such holder to sell, assign or transfer such Disqualified
Capital Stock or to cause a dissolution of the partnership, joint venture
or limited liability company in contravention of the applicable governing
documents, or (z) any fundamental disagreement between the parties that
cannot be resolved as provided in the applicable governing documents;
(ix) customary indemnification obligations of the Borrower and its
Subsidiaries incurred in connection with Permitted Acquisitions made in
compliance with SECTION 6.8;
(x) guarantees by the Borrower of obligations of Subsidiary Guarantors
under leases or Indebtedness permitted hereunder; and
(xi) other Indebtedness of the Borrower and its Subsidiaries not
covered under clauses (i) through (x) above (including without limitation
purchase money Indebtedness secured by Liens of the type described in
clause (vi) of SECTION 8.3) not exceeding $10,000,000 in aggregate
principal amount outstanding at any time.
-65-
i<PAGE>
VIII.3. LIENS. The Borrower will not, and will not permit or cause any of
its Subsidiaries to, directly or indirectly, make, create, incur, assume or
suffer to exist, any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or file or permit the filing
of, or permit to remain in effect, any financing statement or other similar
notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any state or under any similar
recording or notice statute, or agree to do any of the foregoing, other than
the following (collectively, "Permitted Liens"):
(i) Liens created under the Security Documents;
(ii) Liens in existence on the Restatement Effective Date and set
forth on SCHEDULE 8.3;
(iii) Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics, materialmen and landlords, and other similar Liens incurred in
the ordinary course of business for sums not constituting borrowed money
that are not overdue for a period of more than thirty (30) days or that
are being contested in good faith by appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP (if so
required);
(iv) Liens (other than any Lien imposed by ERISA, the creation or
incurrence of which would result in an Event of Default under
SECTION 9.1(j)) incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure the performance of letters
of credit, bids, tenders, statutory obligations, surety and appeal bonds,
leases, government contracts and other similar obligations (other than
obligations for borrowed money) entered into in the ordinary course of
business;
(v) Liens for taxes, assessments or other governmental charges
or statutory obligations that are not delinquent or remain payable without
any penalty or that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with GAAP (if so required);
(vi) Liens securing purchase money Indebtedness of the Borrower
and its Subsidiaries incurred solely to finance the payment of all or part
of the purchase price of any equipment, real property or other fixed assets
acquired in the ordinary course of business, including Indebtedness in
respect of capital lease obligations, and any renewals, refinancings or
replacements thereof, PROVIDED that the aggregate principal amount at any
time outstanding of all Indebtedness secured by such Liens (other than
capital lease obligations), when taken together with all other Indebtedness
of the Borrower and its Subsidiaries incurred subject to the limitation set
forth in clause (xi) of SECTION 8.2, does not exceed the dollar amount set
forth in such clause, and PROVIDED FURTHER that any such Lien (a) shall
attach to such property concurrently with or within ten (10) days after the
acquisition thereof by the Borrower or such Subsidiary, (b) shall not
exceed the lesser of (y) the fair market value of such property or (z) the
cost thereof to the Borrower or such Subsidiary and (c) shall not encumber
any other property of the Borrower or any of its Subsidiaries; and any
extensions, renewals and replacements of such Liens, PROVIDED that no such
extension, renewal or replacement shall extend to any property other than
the property covered by the Lien being extended, renewed or
-66-
<PAGE>
replaced or shall secure Indebtedness in an amount greater than the amount
of the Indebtedness secured by the Lien being extended, renewed or
replaced;
(vii) any attachment or judgment Lien not constituting an Event of
Default under SECTION 9.1(h) that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP (if so required);
(viii) Liens arising from the filing, for notice purposes only, of
financing statements in respect of operating leases; and
(ix) with respect to any real property occupied by the Borrower
or any of its Subsidiaries, all easements, rights of way, licenses and
similar encumbrances on title that do not materially impair the use of such
property for its intended purposes.
VIII.4. DISPOSITION OF ASSETS. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
all or any portion of its assets, business or properties (including, without
limitation, any Capital Stock of any Subsidiary), or enter into any
arrangement with any Person providing for the lease by the Borrower or any
Subsidiary as lessee of any asset that has been sold or transferred by the
Borrower or such Subsidiary to such Person, or agree to do any of the
foregoing, except for:
(i) sales of inventory in the ordinary course of business;
(ii) the sale or exchange of used or obsolete equipment to the
extent (y) the proceeds of such sale are applied towards, or such equipment
is exchanged for, replacement equipment or (z) such equipment is no longer
necessary for the operations of the Borrower or its applicable Subsidiary
in the ordinary course of business;
(iii) the sale or disposition of Cash Equivalents;
(iv) the sale, lease or other disposition of assets by a Subsidiary of
the Borrower to the Borrower or to a Subsidiary Guarantor if, immediately
after giving effect thereto, no Default or Event of Default would exist;
(v) the sale, transfer or other disposition of assets to a Non-
Guarantor Subsidiary in a transaction constituting an Investment in such
Non-Guarantor Subsidiary permitted under clause (ix) of SECTION 8.5; and
(vi) the sale or disposition of assets outside the ordinary
course of business for fair value, PROVIDED that (x) the aggregate
consideration for such sales or dispositions does not exceed $500,000 in
the aggregate for the Borrower and its Subsidiaries during any fiscal year,
(y) in no event shall the Borrower or any of its Subsidiaries sell or
otherwise dispose of any of the Capital Stock of any Subsidiary (except as
otherwise expressly permitted by this Agreement), and (z) immediately after
giving effect thereto, no Default or Event of Default would exist.
VIII.5. INVESTMENTS. The Borrower will not, and will not permit or
cause any of its
-67-
<PAGE>
Subsidiaries to, directly or indirectly, purchase, own, invest in or
otherwise acquire any Capital Stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or
make or permit to exist any loans, advances or extensions of credit to, or
any investment in cash or by delivery of property in, any other Person, or
purchase or otherwise acquire (whether in one or a series of related
transactions) any portion of the assets, business or properties of another
Person (including pursuant to an Acquisition), or create or acquire any
Subsidiary, or become a partner or joint venturer in any partnership or joint
venture (collectively, "Investments"), or make a commitment or otherwise
agree to do any of the foregoing, other than:
(i) Cash Equivalents;
(ii) Investments existing on the Restatement Effective Date and
described in SCHEDULE 8.5;
(iii) Investments consisting of purchases and acquisitions of
inventory, supplies, materials and equipment in the ordinary course of
business;
(iv) Investments consisting of loans and advances to employees
for reasonable travel, relocation and business expenses in the ordinary
course of business, extensions of trade credit in the ordinary course of
business, and prepaid expenses incurred in the ordinary course of business;
(v) without duplication, Investments consisting of intercompany
Indebtedness permitted under clause (v) of SECTION 8.2;
(vi) Investments of the Borrower under Hedge Agreements permitted
under clause (vii) of SECTION 8.2;
(vii) Investments consisting of the making of capital contributions or
the purchase of Capital Stock (a) by the Borrower or any Subsidiary in
any other Wholly Owned Subsidiary that is (or immediately after giving
effect to such Investment will be) a Subsidiary Guarantor, PROVIDED that
the Borrower complies with the provisions of SECTION 6.9, and (b) by any
Subsidiary in the Borrower;
(viii) Permitted Acquisitions consummated in compliance with the
provisions of SECTION 6.8;
(ix) Investments consisting of the making of capital contributions
in, or loans or advances to, Non-Guarantor Subsidiaries, including by
transfer or disposition of assets or by purchase of less than all of the
outstanding ownership interests therein not already directly or
indirectly owned by the Borrower immediately prior to giving effect to
such purchase, PROVIDED that (y) any such Investments consisting of
loans or advances shall be made in compliance with the provisions of
clause (vi) of SECTION 8.2, and (z) the aggregate outstanding amount of
all such Investments (including, without limitation, cash, property
(valued at the fair market value thereof at the time of contribution),
assumed or acquired Indebtedness, retained Capital Stock and all other
consideration contributed to capital, and all loans and advances) shall
not exceed (1) at any time with respect to all ventures in any single
market (whether through one or more
-68-
<PAGE>
Non-Guarantor Subsidiaries), $5,000,000, and (2) with respect to all
Non-Guarantor Subsidiaries, (A) $15,000,000 at any time during the
fiscal year ended December 31, 1997, (B) $30,000,000 at any time during
the fiscal year ending December 31, 1998, (C) $45,000,000 at any time
during the fiscal year ending December 31, 1999, (D) $60,000,000 at any
time during the fiscal year ending December 31, 2000, (E) $75,000,000 at
any time during the fiscal year ending December 31, 2001, and (F)
$90,000,000 at any time during the fiscal year ending December 31, 2002;
(x) Investments by CHS consisting of the purchase, on or after
May 3, 1999, of all of CDC's outstanding common stock pursuant to paragraph
4B of the CDC Securities Purchase Agreement together with the simultaneous
purchase of the CDC Notes as required pursuant to paragraph 4A thereof,
PROVIDED that (A) prior to such purchase the Borrower shall have prepared
and delivered to the Administrative Agent a certificate, signed by a
Financial Officer of the Borrower, satisfactory in form and substance to
the Administrative Agent and to the effect that, after giving effect to
such purchase, the Borrower is in compliance with the financial covenants
contained in SECTIONS 7.1 through 7.5, such compliance determined with
regard to calculations made on a PRO FORMA basis in accordance with GAAP as
of the last day of the most recently ended fiscal quarter as if CDC had
been consolidated with the Borrower for those periods applicable to such
covenants (such calculations to be attached to such certificate), and
(B) immediately after giving effect to such purchase, no Default or Event
of Default would exist;
(xi) the PPS Acquisition; and
(xii) other Investments not covered under clauses (i) through (xi)
above (including, without limitation, Investments in partnerships, limited
liability companies and joint ventures in which the Borrower, directly or
indirectly, owns or Controls 50% or less of the Capital Stock of such
entity or the financial statements of which are not, or under GAAP should
not be, consolidated with those of the Borrower for financial reporting
purposes) not exceeding $2,000,000 in aggregate amount outstanding at any
time.
VIII.6. Restricted Payments. (a) The Borrower will not, and will not
permit or cause any of its Subsidiaries to, directly or indirectly, declare
or make any dividend payment, or make any other distribution of cash,
property or assets, in respect of any Capital Stock of the Borrower or any of
its Subsidiaries or any warrants, rights or options to acquire any such
Capital Stock, or purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Borrower or any of its Subsidiaries or any warrants,
rights or options to acquire any such Capital Stock, or set aside funds for
any of the foregoing, except that:
(i) the Borrower may declare and make dividend payments or other
distributions payable solely in its common stock;
(ii) the Borrower may, pursuant to a bona fide shareholder rights
plan, declare and make dividend payments or other distributions payable
solely in rights in respect of its common stock or other class of Capital
Stock created expressly for the purposes of such plan;
(iii) any Subsidiary of the Borrower may declare and make dividend
payments or
-69-
<PAGE>
other distributions to the Borrower or another Wholly Owned Subsidiary
of the Borrower, to the extent not prohibited under applicable
Requirements of Law;
(iv) the Borrower or any Wholly Owned Subsidiary may, in a
transaction constituting a Non-Guarantor Acquisition permitted under clause
(viii) of SECTION 8.5, purchase, redeem or acquire outstanding Disqualified
Capital Stock permitted under clause (viii) of SECTION 8.2; and
(v) the Borrower may, in an aggregate amount during any fiscal
year (beginning with the fiscal year ending December 31, 1998) not to
exceed 25% of Consolidated Net Income for the preceding fiscal year, (y)
declare and pay cash dividends in respect of its common stock and (z)
purchase, redeem, retire or otherwise acquire shares of its capital stock,
PROVIDED that, immediately after giving effect to each such payment of
dividends, purchase, redemption, retirement or acquisition, (A) the
Borrower would be in compliance with the financial covenants contained in
SECTIONS 7.1 through 7.5, such compliance determined on a PRO FORMA basis
in accordance with GAAP as of the last day of the most recently ended
fiscal quarter as if such payment of dividends, purchase, redemption,
retirement or acquisition had been effected as of such date, and (B) no
Default or Event of Default would exist.
(b) The Borrower will not, and will not permit or cause any of its
Subsidiaries to, make (or give any notice in respect of) any voluntary or
optional payment or prepayment of principal on the CDC Notes, the Convertible
Notes or any other Subordinated Indebtedness, or directly or indirectly make
any redemption (including pursuant to any change of control provision),
retirement, defeasance or other acquisition for value of the CDC Notes, the
Convertible Notes or any other Subordinated Indebtedness, or make any deposit
or otherwise set aside funds for any of the foregoing purposes; PROVIDED,
HOWEVER, that CHS may purchase the CDC Notes as permitted under clause (x) of
SECTION 8.5.
VIII.7. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will
not permit or cause any of its Subsidiaries to, enter into any transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any officer, director,
stockholder or other Affiliate of the Borrower or any Subsidiary, except in
the ordinary course of its business and upon fair and reasonable terms that
are no less favorable to it than would obtain in a comparable arm's length
transaction with a Person other than an Affiliate of the Borrower or such
Subsidiary; PROVIDED, HOWEVER, that nothing contained in this Section shall
prohibit:
(i) transactions described on SCHEDULE 8.7 (and any extensions,
modifications or renewals of such transactions that satisfy the
requirements of this Section) or otherwise expressly permitted under this
Agreement;
(ii) transactions among or between the Borrower and its Wholly
Owned Subsidiaries;
(iii) the payment by the Borrower of reasonable and customary fees
to members of its Board of Directors; and
(iv) performance by the Borrower or any Subsidiary of its
obligations under
-70-
<PAGE>
employment and noncompetition agreements.
VIII.8. LINES OF BUSINESS. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, engage in any business other than the
businesses engaged in by the Borrower and its Subsidiaries on the Restatement
Effective Date and businesses and activities reasonably related thereto.
VIII.9. CERTAIN AMENDMENTS. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, (i) amend, modify or waive, or permit
the amendment, modification or waiver of, any provision of the CDC Notes, the
Convertible Notes or any other Subordinated Indebtedness or the CDC
Securities Purchase Agreement, the Convertible Note Indenture or any
agreement or instrument evidencing or governing any other Subordinated
Indebtedness, or breach or otherwise violate any of the subordination
provisions applicable thereto, including, without limitation, restrictions
against payment of principal and interest thereon, or (ii) amend, modify or
change any provision of its articles or certificate of incorporation or
organization or bylaws, or the terms of any class or series of its Capital
Stock, other than in a manner that could not reasonably be expected to
adversely affect the Lenders.
VIII.10. LIMITATION ON CERTAIN RESTRICTIONS. The Borrower will not,
and will not permit or cause any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any restriction or encumbrance on (i) the ability of the Borrower and its
Subsidiaries to perform and comply with their respective obligations under
the Credit Documents or (ii) the ability of any Subsidiary of the Borrower to
make any dividend payments or other distributions in respect of its Capital
Stock, to repay Indebtedness owed to the Borrower or any other Subsidiary, to
make loans or advances to the Borrower or any other Subsidiary, or to
transfer any of its assets or properties to the Borrower or any other
Subsidiary, in each case other than such restrictions or encumbrances
existing under or by reason of (i) the Credit Documents, (ii) the CDC
Securities Purchase Agreement (to the extent applicable to CHS) or (iii)
applicable Requirements of Law.
VIII.11. NO OTHER NEGATIVE PLEDGES. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any agreement or restriction that prohibits or
conditions the creation, incurrence or assumption of any Lien upon or with
respect to any part of its property or assets, whether now owned or hereafter
acquired, or agree to do any of the foregoing, other than as set forth in (i)
this Agreement and the Security Documents, (ii) any agreement or instrument
creating a Permitted Lien (but only to the extent such agreement or
restriction applies to the assets subject to such Permitted Lien), (iii) the
CDC Securities Purchase Agreement (to the extent applicable to CHS) and (iv)
operating leases of real or personal property entered into by the Borrower or
any of its Subsidiaries as lessee in the ordinary course of business.
VIII.12. FISCAL YEAR. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, change the ending date of its fiscal year
to a date other than December 31.
VIII.13. ACCOUNTING CHANGES. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, make or permit any material
change in its accounting policies or reporting practices, except as may be
required by GAAP.
-71-
<PAGE>
ARTICLE IX
EVENTS OF DEFAULT
IX.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Borrower shall fail to pay any principal of or interest on any
Loan, any Reimbursement Obligation, any fee or any other Obligation when due;
(b) The Borrower shall fail to observe, perform or comply with any
condition, covenant or agreement contained in any of SECTIONS 2.14, 6.3(i),
6.12 or in ARTICLE VII or ARTICLE VIII;
(c) The Borrower or any of its Subsidiaries shall fail to observe,
perform or comply with any condition, covenant or agreement contained in this
Agreement or any of the Credit Documents other than those enumerated in
subsections (a) and (b) above, and such failure shall continue unremedied for
any grace period specifically applicable thereto or, if no such grace period
is applicable, for a period of (i) ten (10) days, in the case of the
covenants set forth in SECTIONS 6.1 and 6.2, and (ii) thirty (30) days, in
all other instances, in each case after the earlier of (y) the date on which
a Responsible Officer of the Borrower acquires knowledge thereof and (z) the
date on which written notice thereof is delivered by the Administrative Agent
or any Lender to the Borrower;
(d) (i) Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries in this Agreement, any of
the other Credit Documents or in any certificate, instrument, report or other
document furnished in connection herewith or therewith or in connection with
the transactions contemplated hereby or thereby shall prove to have been
false or misleading in any material respect as of the time made, deemed made
or furnished; or (ii) any representation or warranty made or deemed made by
or on behalf of CRA or Occusystems in the Reorganization Agreement or in any
certificate, instrument, report or other document furnished in connection
therewith or in connection with the transactions contemplated thereby shall
prove to have been false or misleading in any material respect as of the time
made, deemed made or furnished;
(e) The Borrower or any of its Subsidiaries shall (i) fail to pay when
due (whether by scheduled maturity, acceleration or otherwise and after
giving effect to any applicable grace period) any principal of or interest on
any Indebtedness (other than the Indebtedness incurred pursuant to this
Agreement) having an aggregate principal amount of at least $1,000,000 or
(ii) fail to observe, perform or comply with any condition, covenant or
agreement contained in any agreement or instrument evidencing or relating to
any such Indebtedness, or any other event shall occur or condition exist in
respect thereof, and the effect of such failure, event or condition is to
cause, or permit the holder or holders of such Indebtedness (or a trustee or
agent on its or their behalf) to cause (with the giving of notice, lapse of
time, or both), such Indebtedness to become due, or to be prepaid, redeemed,
purchased or defeased, prior to its stated maturity;
(f) The Borrower or any of its Subsidiaries shall (i) file a voluntary
petition or commence a voluntary case seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts or any other
relief under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail
-72-
<PAGE>
to controvert in a timely and appropriate manner, any petition or case of the
type described in subsection (g) below, (iii) apply for or consent to the
appointment of or taking possession by a custodian, trustee, receiver or
similar official for or of itself or all or a substantial part of its
properties or assets, (iv) fail generally, or admit in writing its inability,
to pay its debts generally as they become due, (v) make a general assignment
for the benefit of creditors or (vi) take any corporate action to authorize
or approve any of the foregoing;
(g) Any involuntary petition or case shall be filed or commenced against
the Borrower or any of its Subsidiaries seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts, the
appointment of a custodian, trustee, receiver or similar official for it or
all or a substantial part of its properties or any other relief under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or
similar law now or hereafter in effect, and such petition or case shall
continue undismissed and unstayed for a period of sixty (60) days; or an
order, judgment or decree approving or ordering any of the foregoing shall be
entered in any such proceeding;
(h) Any one or more money judgments, writs or warrants of attachment,
executions or similar processes involving an aggregate amount (exclusive of
amounts fully bonded or covered by insurance as to which the surety or
insurer, as the case may be, has acknowledged its liability in writing) in
excess of $1,000,000 shall be entered or filed against the Borrower or any of
its Subsidiaries or any of their respective properties and the same shall not
be dismissed, stayed or discharged for a period of thirty (30) days or in any
event later than five days prior to the date of any proposed sale thereunder;
(i) Any Security Document to which the Borrower or any of its
Subsidiaries is now or hereafter a party shall for any reason cease to be in
full force and effect or cease to be effective to give the Administrative
Agent a valid and perfected security interest in and Lien upon the Collateral
purported to be covered thereby, subject to no Liens other than Permitted
Liens, in each case unless any such cessation occurs in accordance with the
terms thereof or is due to any act or failure to act on the part of the
Administrative Agent or any Lender; or the Borrower or any such Subsidiary
shall assert any of the foregoing; or any Subsidiary of the Borrower or any
Person acting on behalf of any such Subsidiary shall deny or disaffirm such
Subsidiary's obligations under the Subsidiary Guaranty;
(j) Any ERISA Event shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result thereof, together with all other ERISA
Events that have occurred and are then continuing, the Borrower and its ERISA
Affiliates would be reasonably likely to incur liability to any one or more
Plans or Multiemployer Plans or to the PBGC (or to any combination thereof)
in excess of $1,000,000;
(k) Any one or more licenses, permits, accreditations or authorizations
of the Borrower or any of its Subsidiaries shall be suspended, limited or
terminated or shall not be renewed, or any other action shall be taken, by
any Governmental Authority in response to any alleged failure by the Borrower
or any of its Subsidiaries to be in compliance with applicable Requirements
of Law, and such action, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect; or
(l) Any of the following shall occur: (i) any Person or group of Persons
acting in concert as a partnership or other group, other than Donald J.
Larson or Lois E. Silverman or a group
-73-
<PAGE>
comprised solely of such Persons, shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise,
have become, after the date hereof, the "beneficial owner" (within the
meaning of such term under Rule 13d-3 under the Exchange Act) of securities
of the Borrower representing 20% or more of the combined voting power of the
then outstanding securities of the Borrower ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors; (ii) the Board of Directors of the Borrower shall
cease to consist of a majority of the individuals who constituted the Board
of Directors as of the date hereof or who shall have become a member thereof
subsequent to the date hereof after having been nominated, or otherwise
approved in writing, by at least a majority of individuals who constituted
the Board of Directors of the Borrower as of the date hereof (or their
replacements approved as herein required); or (iii) a Change of Control (as
defined in the Convertible Note Indenture) shall occur under the Convertible
Note Indenture.
IX.2. REMEDIES: TERMINATION OF COMMITMENTS, ACCELERATION, ETC. Upon
and at any time after the occurrence and during the continuance of any Event
of Default, the Administrative Agent shall at the direction, or may with the
consent, of the Required Lenders, take any or all of the following actions at
the same or different times:
(a) Declare the Commitments and the Issuing Lender's obligation to issue
Letters of Credit, to be terminated, whereupon the same shall terminate
(PROVIDED that, upon the occurrence of an Event of Default pursuant to
SECTION 9.1(f) or SECTION 9.1(g), the Commitments and the Issuing Lender's
obligation to issue Letters of Credit shall automatically be terminated);
(b) Declare all or any part of the outstanding principal amount of the
Loans to be immediately due and payable, whereupon the principal amount so
declared to be immediately due and payable, together with all interest
accrued thereon and all other amounts payable under this Agreement, the Notes
and the other Credit Documents, shall become immediately due and payable
without presentment, demand, protest, notice of intent to accelerate or other
notice or legal process of any kind, all of which are hereby knowingly and
expressly waived by the Borrower (PROVIDED that, upon the occurrence of an
Event of Default pursuant to SECTION 9.1(f) or SECTION 9.1(g), all of the
outstanding principal amount of the Loans and all other amounts described in
this subsection (b) shall automatically become immediately due and payable
without presentment, demand, protest, notice of intent to accelerate or other
notice or legal process of any kind, all of which are hereby knowingly and
expressly waived by the Borrower);
(c) Direct the Borrower to deposit (and the Borrower hereby agrees,
forthwith upon receipt of notice of such direction from the Administrative
Agent, to deposit) with the Administrative Agent from time to time such
additional amount of cash as is equal to the aggregate Stated Amount of all
Letters of Credit then outstanding (whether or not any beneficiary under any
Letter of Credit shall have drawn or be entitled at such time to draw
thereunder), such amount to be held by the Administrative Agent in the Cash
Collateral Account as security for the Letter of Credit Exposure as described
in SECTION 3.9; and
(d) Exercise all rights and remedies available to it under this
Agreement, the other Credit Documents and applicable law.
9.3. REMEDIES: SET-OFF. In addition to all other rights and remedies
available under the
-74-
<PAGE>
Credit Documents or applicable law or otherwise, upon and at any time after
the occurrence and during the continuance of any Event of Default, each
Lender may, and each is hereby authorized by the Borrower, at any such time
and from time to time, to the fullest extent permitted by applicable law,
without presentment, demand, protest or other notice of any kind, all of
which are hereby knowingly and expressly waived by the Borrower, to set off
and to apply any and all deposits (general or special, time or demand,
provisional or final) and any other property at any time held (including at
any branches or agencies, wherever located), and any other indebtedness at
any time owing, by such Lender to or for the credit or the account of the
Borrower against any or all of the Obligations to such Lender now or
hereafter existing, whether or not such Obligations may be contingent or
unmatured, the Borrower hereby granting to each Lender a continuing security
interest in and Lien upon all such deposits and other property as security
for such Obligations. Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set-off and application; PROVIDED,
HOWEVER, that the failure to give such notice shall not affect the validity
of such set-off and application.
ARTICLE X
THE ADMINISTRATIVE AGENT
X.1. APPOINTMENT. Each Lender hereby irrevocably appoints and
authorizes First Union to act as Administrative Agent hereunder and under the
other Credit Documents and to take such actions as agent on its behalf
hereunder and under the other Credit Documents, and to exercise such powers
and to perform such duties, as are specifically delegated to the
Administrative Agent by the terms hereof or thereof, together with such other
powers and duties as are reasonably incidental thereto.
X.2. NATURE OF DUTIES. The Administrative Agent shall have no duties
or responsibilities other than those expressly set forth in this Agreement
and the other Credit Documents. The Administrative Agent shall not have, by
reason of this Agreement or any other Credit Document, a fiduciary
relationship in respect of any Lender; and nothing in this Agreement or any
other Credit Document, express or implied, is intended to or shall be so
construed as to impose upon the Administrative Agent any obligations or
liabilities in respect of this Agreement or any other Credit Document except
as expressly set forth herein or therein. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document
by or through agents or attorneys-in-fact and shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact that it
selects with reasonable care. The Administrative Agent shall be entitled to
consult with legal counsel, independent public accountants and other experts
selected by it with respect to all matters pertaining to this Agreement and
the other Credit Documents and its duties hereunder and thereunder and shall
not be liable for any action taken or omitted to be taken in good faith by it
in accordance with the advice of such counsel, accountants or experts. The
Lenders hereby acknowledge that the Administrative Agent shall not be under
any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Credit Document
unless it shall be requested in writing to do so by the Required Lenders (or,
where a higher percentage of the Lenders is expressly required hereunder,
such Lenders).
X.3. EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action taken or omitted to be taken by
it or such Person under or in connection with the Credit Documents, except
for
-75-
<PAGE>
its or such Person's own gross negligence or willful misconduct, (ii)
responsible in any manner to any Lender for any recitals, statements,
information, representations or warranties herein or in any other Credit
Document or in any document, instrument, certificate, report or other writing
delivered in connection herewith or therewith, for the execution,
effectiveness, genuineness, validity, enforceability or sufficiency of this
Agreement or any other Credit Document, or for the financial condition of the
Borrower, its Subsidiaries or any other Person, or (iii) required to
ascertain or make any inquiry concerning the performance or observance of any
of the terms, provisions or conditions of this Agreement or any other Credit
Document or the existence or possible existence of any Default or Event of
Default, or to inspect the properties, books or records of the Borrower or
any of its Subsidiaries.
X.4. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
notice, statement, consent or other communication (including, without
limitation, any thereof by telephone, telecopy, telex, telegram or cable)
believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons. The Administrative
Agent may deem and treat each Lender as the owner of its interest hereunder
for all purposes hereof unless and until a written notice of the assignment,
negotiation or transfer thereof shall have been given to the Administrative
Agent in accordance with the provisions of this Agreement. The
Administrative Agent shall be entitled to refrain from taking or omitting to
take any action in connection with this Agreement or any other Credit
Document (i) if such action or omission would, in the reasonable opinion of
the Administrative Agent, violate any applicable law or any provision of this
Agreement or any other Credit Document or (ii) unless and until it shall have
received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such
Lenders) as it deems appropriate or it shall first have been indemnified to
its satisfaction by the Lenders against any and all liability and expense
(other than liability and expense arising from its own gross negligence or
willful misconduct) that may be incurred by it by reason of taking,
continuing to take or omitting to take any such action. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the
Administrative Agent as a result of the Administrative Agent's acting or
refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Lenders (or, where a higher
percentage of the Lenders is expressly required hereunder, such Lenders), and
such instructions and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders (including all subsequent Lenders).
X.5. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender expressly acknowledges that neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representation or warranty to it and that no act by
the Administrative Agent or any such Person hereinafter taken, including any
review of the affairs of the Borrower and its Subsidiaries, shall be deemed
to constitute any representation or warranty by the Administrative Agent to
any Lender. Each Lender represents to the Administrative Agent that (i) it
has, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
prospects, operations, properties, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries and made its own
decision to enter into this Agreement and extend credit to the Borrower
hereunder, and (ii) it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
hereunder and under the other Credit Documents and to
-76-
<PAGE>
make such investigation as it deems necessary to inform itself as to the
business, prospects, operations, properties, financial and other condition
and creditworthiness of the Borrower and its Subsidiaries. Except as
expressly provided in this Agreement and the other Credit Documents, the
Administrative Agent shall have no duty or responsibility, either initially
or on a continuing basis, to provide any Lender with any credit or other
information concerning the business, prospects, operations, properties,
financial or other condition or creditworthiness of the Borrower, its
Subsidiaries or any other Person that may at any time come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
X.6. NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent shall have received written notice from the
Borrower or a Lender referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Administrative Agent receives such a notice, the Administrative
Agent will give notice thereof to the Lenders as soon as reasonably practicable;
PROVIDED, HOWEVER, that if any such notice has also been furnished to the
Lenders, the Administrative Agent shall have no obligation to notify the Lenders
with respect thereto. The Administrative Agent shall (subject to SECTIONS 10.4
and 11.6) take such action with respect to such Default or Event of Default as
shall reasonably be directed by the Required Lenders; PROVIDED that, unless and
until the Administrative Agent shall have received such directions, the
Administrative 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 interests of the Lenders.
X.7. INDEMNIFICATION. To the extent the Administrative Agent is not
reimbursed by or on behalf of the Borrower, and without limiting the
obligation of the Borrower to do so, the Lenders agree (i) to indemnify the
Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact and Affiliates, ratably in proportion to their respective
percentages as used in determining the Required Lenders as of the date of
determination, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including,
without limitation, attorneys' fees and expenses) or disbursements of any
kind or nature whatsoever that may at any time (including, without
limitation, at any time following the repayment in full of the Loans and the
termination of the Commitments) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of
this Agreement or any other Credit Document or any documents contemplated by
or referred to herein or the transactions contemplated hereby or thereby or
any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing, and (ii) to reimburse the
Administrative Agent upon demand, ratably in proportion to their respective
percentages as used in determining the Required Lenders as of the date of
determination, for any expenses incurred by the Administrative Agent in
connection with the preparation, negotiation, execution, delivery,
administration, amendment, modification, waiver or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement or any of the
other Credit Documents (including, without limitation, reasonable attorneys'
fees and expenses and compensation of agents and employees paid for services
rendered on behalf of the Lenders); PROVIDED, HOWEVER, that no Lender shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent resulting from the gross negligence or willful misconduct of the party
to be indemnified.
-77-
<PAGE>
X.8. THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. With respect
to its Commitment, the Loans made by it, the Letters of Credit issued or
participated in by it and the Note or Notes issued to it, the Administrative
Agent in its individual capacity and not as Administrative Agent shall have
the same rights and powers under the Credit Documents as any other Lender and
may exercise the same as though it were not performing the agency duties
specified herein; and the terms "Lenders," "Required Lenders," "holders of
Notes" and any similar terms shall, unless the context clearly otherwise
indicates, include the Administrative Agent in its individual capacity. The
Administrative Agent and its Affiliates may accept deposits from, lend money
to, make investments in, and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower, any of its
Subsidiaries or any of their respective Affiliates as if the Administrative
Agent were not performing the agency duties specified herein, and may accept
fees and other consideration from any of them for services in connection with
this Agreement and otherwise without having to account for the same to the
Lenders.
X.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign at any time by giving ten (10) days' prior written notice to the
Borrower and the Lenders. Upon any such notice of resignation, the Required
Lenders will, with the prior written consent of the Borrower (which consent
shall not be unreasonably withheld), appoint from among the Lenders a
successor to the Administrative Agent (PROVIDED that the Borrower's consent
shall not be required in the event a Default or Event of Default shall have
occurred and be continuing). If no successor to the Administrative Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within such ten-day period, then the retiring Administrative
Agent may, on behalf of the Lenders and after consulting with the Lenders and
the Borrower, appoint a successor Administrative Agent from among the Lenders.
Upon the acceptance of any appointment as Administrative Agent by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder and under
the other Credit Documents. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent. If no successor to the Administrative
Agent has accepted appointment as Administrative Agent by the thirtieth (30th)
day following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon
become effective, and the Lenders shall thereafter perform all of the duties
of the Administrative Agent hereunder and under the other Credit Documents
until such time, if any, as the Required Lenders appoint a successor
Administrative Agent as provided for hereinabove.
X.10. COLLATERAL MATTERS. (a) The Administrative Agent is hereby
authorized on behalf of the Lenders, without the necessity of any notice to or
further consent from the Lenders, from time to time (but without any obligation)
to take any action with respect to the Collateral and the Security Documents
that may be necessary to perfect and maintain perfected the Liens upon the
Collateral granted pursuant to the Security Documents.
(b) The Lenders hereby authorize the Administrative Agent, at its option
and in its discretion, to release any Lien granted to or held by the
Administrative Agent upon any Collateral (i) upon termination of the
Commitments, termination or expiration of all outstanding Letters of Credit and
payment in full of all of the Obligations, (ii) constituting property sold or to
be sold or disposed of as part of or in connection with any disposition
expressly permitted hereunder or under any other
-78-
<PAGE>
Credit Document or to which the Required Lenders have consented or (iii)
otherwise pursuant to and in accordance with the provisions of any applicable
Credit Document. Upon request by the Administrative Agent at any time, the
Lenders will confirm in writing the Administrative Agent's authority to
release Collateral pursuant to this subsection (b).
X.11. ISSUING LENDER. The provisions of this Article (other than
SECTION 10.9) shall apply to the Issuing Lender MUTATIS MUTANDIS to the same
extent as such provisions apply to the Administrative Agent.
X.12. DOCUMENTATION AGENT. Notwithstanding any other provision of this
Agreement or any of the other Credit Documents, the Documentation Agent is named
as such for recognition purposes only, and in its capacity as such shall have no
powers, rights, duties, responsibilities or liabilities with respect to this
Agreement and the other Credit Documents and the transactions contemplated
hereby and thereby.
ARTICLE XI
MISCELLANEOUS
XI.1. FEES AND EXPENSES. The Borrower agrees (i) whether or not the
transactions contemplated by this Agreement shall be consummated, to pay upon
demand all reasonable out-of-pocket costs and expenses of the Administrative
Agent (including, without limitation, the reasonable fees and expenses of
counsel to the Administrative Agent, including the allocated costs of internal
counsel) in connection with the preparation, negotiation, execution, delivery
and syndication of this Agreement and the other Credit Documents, and any
amendment, modification or waiver hereof or thereof or consent with respect
hereto or thereto, (ii) to pay upon demand all reasonable out-of-pocket costs
and expenses of the Administrative Agent and each Lender (including, without
limitation, reasonable attorneys' fees and expenses, including the allocated
costs of internal counsel) in connection with (y) any refinancing or
restructuring of the credit arrangement provided under this Agreement, whether
in the nature of a "work-out," in any insolvency or bankruptcy proceeding or
otherwise and whether or not consummated, and (z) after the occurrence and
during the continuance of an Event of Default, the enforcement, attempted
enforcement or preservation of any rights or remedies under this Agreement or
any of the other Credit Documents, whether in any action, suit or proceeding
(including any bankruptcy or insolvency proceeding) or otherwise, and (iii) to
pay and hold the Administrative Agent and each Lender harmless from and against
all liability for any intangibles, documentary, stamp or other similar taxes,
fees and excises, if any, including any interest and penalties, and any finder's
or brokerage fees, commissions and expenses (other than any fees, commissions or
expenses of finders or brokers engaged by the Administrative Agent or any
Lender), that may be payable in connection with the transactions contemplated by
this Agreement and the other Credit Documents.
XI.2. INDEMNIFICATION. The Borrower agrees, whether or not the
transactions contemplated by this Agreement shall be consummated, to indemnify
and hold the Administrative Agent and each Lender and each of their respective
directors, officers, employees, agents and Affiliates (each, an "Indemnified
Person") harmless from and against any and all claims, losses, damages,
obligations, liabilities, penalties, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses, including the allocated
costs of internal counsel) of any kind or nature
-79-
<PAGE>
whatsoever, whether direct, indirect or consequential (collectively,
"Indemnified Costs"), that may at any time be imposed on, incurred by or
asserted against any such Indemnified Person as a result of, arising from or
in any way relating to the preparation, execution, performance or enforcement
of this Agreement or any of the other Credit Documents, any of the
transactions contemplated herein or therein or any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
any Loans or Letters of Credit (including, without limitation, in connection
with the actual or alleged generation, presence, discharge or release of any
Hazardous Substances on, into or from, or the transportation of Hazardous
Substances to or from, any real property at any time owned or leased by the
Borrower or any of its Subsidiaries, any other Environmental Claims or any
violation of or liability under any Environmental Law), or any action, suit or
proceeding (including any inquiry or investigation) by any Person, whether
threatened or initiated, related to any of the foregoing, and in any case
whether or not such Indemnified Person is a party to any such action,
proceeding or suit or a subject of any such inquiry or investigation;
PROVIDED, HOWEVER, that no Indemnified Person shall have the right to be
indemnified hereunder for any Indemnified Costs to the extent resulting from
the gross negligence or willful misconduct of such Indemnified Person. All of
the foregoing Indemnified Costs of any Indemnified Person shall be paid or
reimbursed by the Borrower, as and when incurred and upon demand.
XI.3. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
OTHER CREDIT DOCUMENTS HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN, AND SHALL
BE DEEMED TO HAVE BEEN MADE IN, NORTH CAROLINA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED
THAT EACH LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, AS IN EFFECT FROM TIME
TO TIME (THE "UNIFORM CUSTOMS"), AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM
CUSTOMS, THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF). THE BORROWER HEREBY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH
CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE
OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER ANY OF THE
OTHER CREDIT DOCUMENTS, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER CREDIT DOCUMENTS, OR ANY PROCEEDING TO WHICH THE
ADMINISTRATIVE AGENT OR ANY LENDER OR THE BORROWER IS A PARTY, INCLUDING ANY
ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY LENDER OR THE BORROWER. THE BORROWER IRREVOCABLY
AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT
RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY
HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY SUCH PROCEEDING. THE
-80-
<PAGE>
BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR
CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH IN SECTION 11.5, AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS,
PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING ANY
ACTION OR PROCEEDING AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION.
XI.4. ARBITRATION; PRESERVATION AND LIMITATION OF REMEDIES. (a) Upon
demand of any party hereto, whether made before or after institution of any
judicial proceeding, any dispute, claim or controversy arising out of, connected
with or relating to this Agreement or any other Credit Document ("Disputes")
between or among the Borrower, its Subsidiaries, the Administrative Agent and
the Lenders, or any of them, shall be resolved by binding arbitration as
provided herein. Institution of a judicial proceeding by a party does not waive
the right of that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaims, claims brought as class actions,
claims arising from documents executed in the future, or claims arising out of
or connected with the transactions contemplated by this Agreement and the other
Credit Documents. Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA"), as in effect from time to time,
and Title 9 of the U.S. Code, as amended. All arbitration hearings shall be
conducted in the city in which the principal office of the Administrative Agent
is located. The expedited procedures set forth in Rule 51 ET SEQ. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted. Notwithstanding the foregoing, this arbitration
provision does not apply to Disputes under or related to Hedge Agreements.
(b) Notwithstanding the preceding binding arbitration provisions, the
parties hereto agree to preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute. Any party hereto shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any Collateral by
exercising a power of sale granted pursuant to any of the Credit Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help, including peaceful occupation
of real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies, including
injunctive relief, sequestration, garnishment, attachment, appointment of a
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute. The parties hereto agree that no
party shall have a remedy of punitive or exemplary damages against any other
party in any Dispute, and each party hereby waives any right or claim to
punitive or exemplary damages that it has now or that may arise in the future in
connection with any Dispute, whether such Dispute is resolved by arbitration or
judicially.
-81-
<PAGE>
XI.5. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered to the party to be notified at the following
addresses:
(a) if to the Borrower, to Concentra Managed Care, Inc., 312
Union Wharf, Boston, Massachusetts 02109, Attention: Chief Financial
Officer, Telecopy No. (617) 367-8519, with a copy to Concentra Managed
Care, Inc., 5080 Spectrum Drive, Suite 400, West Tower, Dallas, Texas
75248, Attention: Richard A. Parr II, Telecopy No. (972) 243-7540;
(b) if to the Administrative Agent, to First Union National Bank,
One First Union Center, TW-10, 301 South College Street, Charlotte, North
Carolina 28288-0608, Attention: Syndication Agency Services, Telecopy No.
(704) 383-0288; and
(c) if to any Lender, to it at the address set forth on its
signature page hereto (or if to any Lender not a party hereto as of the
date hereof, at the address set forth in its Assignment and Acceptance);
or in each case, to such other address as any party may designate for itself by
like notice to all other parties hereto. All such notices and communications
shall be deemed to have been given (i) if mailed as provided above by any method
other than overnight delivery service, on the third Business Day after deposit
in the mails, (ii) if mailed by overnight delivery service, telegraphed,
telexed, telecopied or cabled, when delivered for overnight delivery, delivered
to the telegraph company, confirmed by telex answerback, transmitted by
telecopier or delivered to the cable company, respectively, or (iii) if
delivered by hand, upon delivery; PROVIDED that notices and communications to
the Administrative Agent shall not be effective until received by the
Administrative Agent.
XI.6. AMENDMENTS, WAIVERS, ETC. No amendment, modification, waiver or
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Credit Document, shall be effective
unless in a writing signed by the Required Lenders (or by the Administrative
Agent at the direction or with the consent of the Required Lenders), and then
the same shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED, HOWEVER, that no such amendment,
modification, waiver, discharge, termination or consent shall:
(a) unless agreed to by each Lender directly affected thereby,
(i) reduce or forgive the principal amount of any Loan, reduce the rate of or
forgive any interest thereon, or reduce or forgive any fees or other Obligations
(other than fees payable to the Administrative Agent for its own account),
(ii) extend the Maturity Date or any other date fixed for the payment of any
principal of or interest on any Loan (other than additional interest payable
under SECTION 2.8(b) at the election of the Required Lenders, as provided
therein), any fees (other than fees payable to the Administrative Agent for its
own account) or any other Obligations, or (iii) extend the expiry date of any
Letter of Credit beyond the seventh day prior to the Maturity Date;
(b) unless agreed to by all of the Lenders, (i) increase or extend any
Commitment of any Lender (it being understood that a waiver of any Event of
Default, if agreed to by the requisite
-82-
<PAGE>
Lenders hereunder, shall not constitute such an increase), (ii) change the
percentage of the aggregate Commitments or of the aggregate unpaid principal
amount of the Loans, or the number or percentage of Lenders, that shall be
required for the Lenders or any of them to take or approve, or direct the
Administrative Agent to take, any action hereunder (including as set forth in
the definition of "Required Lenders"), (iii) except as may be otherwise
specifically provided in this Agreement or in any other Credit Document,
release all or substantially all of the Collateral or the Borrower's
obligations in relation thereto, or release any Subsidiary Guarantor from its
obligations under the Subsidiary Guaranty, or (iv) change any provision of
SECTION 2.15 or this Section; and
(c) unless agreed to by the Issuing Lender or the Administrative Agent
in addition to the Lenders required as provided hereinabove to take such action,
affect the respective rights or obligations of the Issuing Lender or the
Administrative Agent, as applicable, hereunder or under any of the other Credit
Documents;
and PROVIDED FURTHER that the Fee Letter and any Hedge Agreement to which any
Lender is a party may be amended or modified, and any rights thereunder waived,
in a writing signed by the parties thereto.
XI.7. ASSIGNMENTS, PARTICIPATIONS. (a) Each Lender may assign to one or
more other Eligible Assignees (each, an "Assignee") all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the outstanding Loans made by it, the Note or
Notes held by it and its participations in Letters of Credit); PROVIDED,
HOWEVER, that (i) any such assignment (other than an assignment to a Lender or
an Affiliate of a Lender) shall not be made without the prior written consent of
the Administrative Agent and the Borrower (to be evidenced by its
counterexecution of the relevant Assignment and Acceptance), which consent shall
not be unreasonably withheld (PROVIDED that the Borrower's consent shall not be
required in the event a Default or Event of Default shall have occurred and be
continuing), (ii) each such assignment shall be of a uniform, and not varying,
percentage of all of the assigning Lender's rights and obligations under this
Agreement, (iii) except in the case of an assignment to a Lender or an Affiliate
of a Lender, no such assignment shall be in an aggregate principal amount
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) less than $5,000,000, determined by combining the amount of the
assigning Lender's outstanding Loans, Letter of Credit Exposure and Unutilized
Commitment being assigned pursuant to such assignment (or, if less, the entire
Commitment of the assigning Lender), and (iv) the parties to each such
assignment will execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment, and will pay a nonrefundable
processing fee of $3,000 to the Administrative Agent for its own account. Upon
such execution, delivery, acceptance and recording of the Assignment and
Acceptance, from and after the effective date specified therein, which effective
date shall be at least five Business Days after the execution thereof (unless
the Administrative Agent shall otherwise agree), (A) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of the assigning Lender hereunder with respect
thereto and (B) the assigning Lender shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (other than rights under the provisions of
this Agreement and the other Credit Documents relating to indemnification or
payment of fees, costs and expenses, to the extent such rights relate to the
time prior to the effective date of such Assignment and Acceptance) and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of such
-83-
<PAGE>
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). The terms and provisions of each Assignment
and Acceptance shall, upon the effectiveness thereof, be incorporated into and
made a part of this Agreement, and the covenants, agreements and obligations of
each Lender set forth therein shall be deemed made to and for the benefit of the
Administrative Agent and the other parties hereto as if set forth at length
herein.
(b) The Administrative Agent will maintain at its address for notices
referred to herein 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 Lenders and the Commitments of, and principal amount of the Loans owing to,
each Lender 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 Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower and
each Lender at any reasonable time and from time to time upon reasonable prior
notice.
(c) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an Assignee and, if required,
counterexecuted by the Borrower, together with the Note or Notes subject to such
assignment and the processing fee referred to in subsection (a) above, the
Administrative Agent will (i) accept such Assignment and Acceptance, (ii) on the
effective date thereof, record the information contained therein in the Register
and (iii) give notice thereof to the Borrower and the Lenders. Within five (5)
Business Days after its receipt of such notice, the Borrower, at its own
expense, will execute and deliver to the Administrative Agent, in exchange for
the surrendered Note or Notes, a new Note or Notes to the order of the Assignee
(and, if the assigning Lender has retained any portion of its rights and
obligations hereunder, to the order of the assigning Lender), prepared in
accordance with the provisions of SECTION 2.4 as necessary to reflect, after
giving effect to the assignment, the Commitments of the Assignee and (to the
extent of any retained interests) the assigning Lender, dated the date of the
replaced Note or Notes and otherwise in substantially the form of EXHIBIT A.
The Administrative Agent will return cancelled Notes to the Borrower.
(d) Each Lender may, without the consent of the Borrower, the
Administrative Agent or any other Lender, sell to one or more other Persons
(each, a "Participant") participations in any portion comprising less than all
of its rights and obligations under this Agreement (including, without
limitation, a portion of its Commitment, the outstanding Loans made by it, the
Note or Notes held by it and its participations in Letters of Credit); PROVIDED,
HOWEVER, that (i) such Lender's obligations under this Agreement shall remain
unchanged and such Lender shall remain solely responsible for the performance of
such obligations, (ii) no Lender shall sell any participation that, when taken
together with all other participations, if any, sold by such Lender, covers all
of such Lender's rights and obligations under this Agreement, (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and no Lender shall permit any Participant to
have any voting rights or any right to control the vote of such Lender with
respect to any amendment, modification, waiver, consent or other action
hereunder or under any other Credit Document (except as to actions that would
(x) reduce or forgive the principal amount of any Loan, reduce the rate of or
forgive any interest thereon, or reduce or forgive any fees or other
Obligations, (y) extend the Maturity Date or any other date fixed for the
payment of any principal of or interest on any Loan, any fees or any other
Obligations, or (z) increase or extend any Commitment of any Lender), and
(iv) no Participant shall
-84-
<PAGE>
have any rights under this Agreement or any of the other Credit Documents,
each Participant's rights against the granting Lender in respect of any
participation to be those set forth in the participation agreement, and all
amounts payable by the Borrower hereunder shall be determined as if such
Lender had not granted such participation. Notwithstanding the foregoing,
each Participant shall have the rights of a Lender for purposes of SECTIONS
2.16(a), 2.16(b), 2.17, 2.18 and 9.3, and shall be entitled to the benefits
thereto, to the extent that the Lender granting such participation would be
entitled to such benefits if the participation had not been made, PROVIDED
that no Participant shall be entitled to receive any greater amount pursuant
to any of such Sections than the Lender granting such participation would have
been entitled to receive in respect of the amount of the participation made by
such Lender to such Participant had such participation not been made.
(e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; PROVIDED, HOWEVER, that no such pledge or assignment shall
release a Lender from any of its obligations hereunder.
(f) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the Assignee or Participant or proposed Assignee or Participant any
information relating to the Borrower and its Subsidiaries furnished to it by or
on behalf of any other party hereto, PROVIDED that such Assignee or Participant
or proposed Assignee or Participant agrees in writing to keep such information
confidential to the same extent required of the Lenders under SECTION 11.13.
XI.8. NO WAIVER. The rights and remedies of the Administrative Agent and
the Lenders expressly set forth in this Agreement and the other Credit Documents
are cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise. No failure or delay on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or be
construed to be a waiver of any Default or Event of Default. No course of
dealing between any of the Borrower and the Administrative Agent or the Lenders
or their agents or employees shall be effective to amend, modify or discharge
any provision of this Agreement or any other Credit Document or to constitute a
waiver of any Default or Event of Default. No notice to or demand upon the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right
of the Administrative Agent or any Lender to exercise any right or remedy or
take any other or further action in any circumstances without notice or demand.
XI.9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, and all references herein to any party shall be deemed to
include its successors and assigns; PROVIDED, HOWEVER, that (i) the Borrower
shall not sell, assign or transfer any of its rights, interests, duties or
obligations under this Agreement without the prior written consent of all of the
Lenders and (ii) any Assignees and Participants shall have such rights and
obligations with respect to this Agreement and the other Credit Documents as are
provided for under and pursuant to the provisions of SECTION 11.7.
XI.10. SURVIVAL. All representations, warranties and agreements made by
or on behalf of
-85-
<PAGE>
the Borrower or any of its Subsidiaries in this Agreement and in the other
Credit Documents shall survive the execution and delivery hereof or thereof,
the making and repayment of the Loans and the issuance and repayment of the
Letters of Credit. In addition, notwithstanding anything herein or under
applicable law to the contrary, the provisions of this Agreement and the other
Credit Documents relating to indemnification or payment of fees, costs and
expenses, including, without limitation, the provisions of SECTIONS 2.16(a),
2.16(b), 2.17, 2.18, 10.7, 11.1 and 11.2, shall survive the payment in full of
all Loans and Letters of Credit, the termination of the Commitments and all
Letters of Credit, and any termination of this Agreement or any of the other
Credit Documents.
XI.11. SEVERABILITY. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
XI.12. CONSTRUCTION. The headings of the various articles, sections and
subsections of this Agreement have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof. Except as otherwise expressly provided herein and in the other Credit
Documents, in the event of any inconsistency or conflict between any provision
of this Agreement and any provision of any of the other Credit Documents, the
provision of this Agreement shall control.
XI.13. CONFIDENTIALITY. Each Lender agrees to keep confidential,
pursuant to its customary procedures for handling confidential information of a
similar nature and in accordance with safe and sound banking practices, all
nonpublic information provided to it by or on behalf of the Borrower or any of
its Subsidiaries in connection with this Agreement or any other Credit Document;
PROVIDED, HOWEVER, that any Lender may disclose such information (i) to its
directors, employees, agents, auditors, counsel and other professional advisors
on a "need-to-know" basis, (ii) at the demand or request of any bank regulatory
authority, court or other Governmental Authority having or asserting
jurisdiction over such Lender, as may be required pursuant to subpoena or other
legal process, or otherwise in order to comply with any applicable Requirement
of Law, (iii) in connection with any proceeding to enforce its rights hereunder
or under any other Credit Document or any other litigation or proceeding related
hereto or to which it is a party, (iv) to the Administrative Agent or any other
Lender, (v) to the extent the same has become publicly available other than as a
result of a breach of this Agreement and (vi) pursuant to and in accordance with
the provisions of SECTION 11.7(f).
XI.14. COUNTERPARTS; EFFECTIVENESS. (a) This Agreement may be executed
in any number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
(b) This Agreement shall become effective on the date (the "Restatement
Effective Date") upon which (i) each of the Borrower, the Lenders and the
Administrative Agent shall have executed a counterpart hereof and each of the
Administrative Agent and the Borrower shall have received written or telephonic
notification of such execution and authorization of delivery thereof and (ii)
each of the conditions specified in SECTIONS 2.1(c), 4.1 and 4.2 shall have been
satisfied in accordance with the terms of this Agreement.
-86-
<PAGE>
XI.15. DISCLOSURE OF INFORMATION. The Borrower agrees and consents to
the Administrative Agent's disclosure of information relating to this
transaction to GOLD SHEETS and other similar bank trade publications. Such
information will consist of deal terms and other information customarily found
in such publications.
XI.16. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF, (B) SUPERSEDE ANY AND ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF, INCLUDING, WITHOUT LIMITATION, THE COMMITMENT
LETTER FROM FIRST UNION TO THE BORROWER DATED JUNE 26, 1997, BUT SPECIFICALLY
EXCLUDING THE FEE LETTER, AND (C) MAY NOT BE AMENDED, SUPPLEMENTED, CONTRADICTED
OR OTHERWISE MODIFIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
XI.17. EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement amends and
restates the Original Credit Agreement in its entirety; PROVIDED, HOWEVER, that
the provisions of the Original Credit Agreement and the other Credit Documents
relating to indemnification or payment of fees, costs and expenses for the
benefit of the Administrative Agent and the Lenders (in each case, as defined in
the Original Credit Agreement), including, without limitation, the provisions of
SECTIONS 2.16(a), 2.16(b), 2.17, 2.18, 10.7, 11.1 and 11.2 of the Original
Credit Agreement, shall survive the effectiveness of this Agreement and the
amendment and restatement of the Original Credit Agreement effected hereby; and
PROVIDED FURTHER that, as more particularly set forth in SECTIONS 2.8(a) and
2.9, certain applicable provisions of the Original Credit Agreement shall
survive the effectiveness of this Agreement and shall continue to apply for the
purposes specified in this Agreement. Upon the effectiveness of this Agreement,
(i) all Existing Loans shall be deemed to be Loans hereunder, shall be evidenced
by the Notes and shall be entitled to all of the benefits of this Agreement and
the other Credit Documents, and (ii) all other Credit Documents, instruments,
certificates, financial statements and other documents executed or delivered by
or on behalf of the Borrower or any of its Subsidiaries pursuant to the Original
Credit Agreement at any time prior to the effectiveness of this Agreement shall
be deemed to have been executed or delivered pursuant to this Agreement.
-87-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
CONCENTRA MANAGED CARE, INC.
By: /s/ Joseph F. Pesce
-----------------------------------
Title: Chief Financial Officer
--------------------------------
(signatures continued)
S-1
<PAGE>
FIRST UNION NATIONAL BANK, as Administrative
Agent and as a Lender
By: /s/ Joseph H. Towell
-----------------------------------
Title: Senior Vice President
--------------------------------
Instructions for wire transfers to the
Administrative Agent:
First Union National Bank
ABA Routing No. 053000219
Charlotte, North Carolina
General Ledger No. 465906, RC No. 5007
Attention: Syndication Agency Services
Re: Concentra Managed Care, Inc.
Address for notices as a Lender:
First Union National Bank
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: James B. Sloan, Jr.
Telephone: (704) 383-6784
Telecopy: (704) 383-9144
Lending Office:
First Union National Bank
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: James B. Sloan, Jr.
Telephone: (704) 383-6784
Telecopy: (704) 383-9144
(signatures continued)
S-2
<PAGE>
FLEET NATIONAL BANK, as Documentation
Agent and as a Lender
By: /s/ Maryann S. Smith
-----------------------------------
Title: Vice President
--------------------------------
Address for notices:
One Federal Street
MAOFD07B
Boston, Massachusetts 02110
Attention: Maryann Smith
Telephone: (617) 346-4613
Telecopy: (617) 346-4666
Lending Office:
One Federal Street
MAOFD07B
Boston, Massachusetts 02110
Attention: Maryann Smith
Telephone: (617) 346-4613
Telecopy: (617) 346-4666
(signatures continued)
S-3
<PAGE>
BANK ONE, TEXAS, N.A.
By: /s/ James B. Lukowitcz
-----------------------------------
Title: Vice President
--------------------------------
Address for notices:
1717 Main Street
3rd Floor, Healthcare
Dallas, Texas 75201
Attention: James B. Lukowicz
Telephone: (214) 290-3347
Telecopy: (214) 290-2492
Lending Office:
1717 Main Street
3rd Floor, Healthcare
Dallas, Texas 75201
Attention: James B. Lukowicz
Telephone: (214) 290-3347
Telecopy: (214) 290-2492
(signatures continued)
S-4
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Joan Considine
-----------------------------------
Title: Vice President
--------------------------------
Address for notices:
999 Broad Street
Bridgeport, Connecticut 06604
Attention: Joan Considine
Telephone: (203) 382-6317
Telecopy: (203) 382-6314
Lending Office:
999 Broad Street
Bridgeport, Connecticut 06604
Attention: Joan Considine
Telephone: (203) 382-6317
Telecopy: (203) 382-6314
S-5
<PAGE>
CREDITANSTALT AG
By: /s/ Carl G. Drake
-----------------------------------
Title: Vice President
--------------------------------
By: /s/ Robert M. Biringer
-----------------------------------
Title: Executive Vice President
--------------------------------
Address for notices:
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Attention: John Taylor
Telephone: (770) 390-1852
Telecopy: (770) 390-1851
Lending Office:
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Attention: John Taylor
Telephone: (770) 390-1852
Telecopy: (770) 390-1851
S-6
<PAGE>
SCHEDULE I
COMMITMENTS
Lender Commitment
- ------ ----------
First Union National Bank $75,000,000
Fleet National Bank $40,000,000
Bank One, Texas, N.A. $25,000,000
Creditanstalt AG $35,000,000
The Chase Manhattan Bank $25,000,000
------------
Total $200,000,000
<PAGE>
ANNEX I
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
LENDER EXISTING LOANS (PRIOR EXISTING LOANS (AFTER AMOUNT PURCHASED COMMITMENT COMMITMENT
TO ASSIGNMENTS) ASSIGNMENTS) (SOLD) PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Union National Bank $12,960,000 $20,250,000 $ 7,290,000 37.5% $ 75,000,000
- --------------------------------------------------------------------------------------------------------------------------
Fleet National Bank $11,880,000 $10,800,000 $(1,080,000) 20.0% $ 40,000,000
- --------------------------------------------------------------------------------------------------------------------------
Bank One, Texas, N.A. $ 9,180,000 $ 6,750,000 $(2,430,000) 12.5% $ 25,000,000
- --------------------------------------------------------------------------------------------------------------------------
Creditanstalt AG $10,800,000 $ 9,450,000 $(1,350,000) 17.5% $ 35,000,000
- --------------------------------------------------------------------------------------------------------------------------
The Chase Manhattan Bank $ 9,180,000 $ 6,750,000 $(2,430,000) 12.5% $ 25,000,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $54,000,000 $54,000,000 $ 0 100.0% $200,000,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
March 9, 1998
Concentra Managed Care, Inc.
312 Union Wharf
Boston, Massachusetts 02109
Attention: Joseph F. Pesce,
Chief Financial Officer
Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as
of February 20, 1998 (the "Credit Agreement"), among Concentra Managed Care,
Inc. (the "Borrower"), the banks and other financial institutions named
therein (collectively, the "Lenders"), First Union National Bank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), and Fleet National Bank, as Documentation Agent. Capitalized terms
used herein without definition shall have the meanings given to them in the
Credit Agreement.
The Borrower proposes to issue and sell up to $200,000,000 in aggregate
principal amount of its convertible subordinated notes, to mature not earlier
than March 15, 2003 and to bear interest at a rate per annum not to exceed
5.0% (the "Notes"). In connection with the issuance and sale of the Notes,
the Borrower has notified the Administrative Agent (and the Administrative
Agent hereby notifies the Lenders) that the Borrower intends (i) pursuant to
Section 2.7 of the Credit Agreement, to make a voluntary prepayment of the
Loans in whole on or about March 16, 1998, and (ii) pursuant to Section
2.5(b) of the Credit Agreement, to reduce the aggregate Commitments from
$200,000,000 to $100,000,000, effective as of the date of the prepayment
referred to in clause (i) above. The Borrower has requested that the
Required Lenders approve the issuance of the Notes and waive any Default or
Event of Default that would otherwise occur as a consequence thereof, and the
Required Lenders have agreed to provide such approval and waiver on the terms
and conditions set forth herein.
Accordingly, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Required Lenders hereby approve the issuance and sale of
the Notes on the terms set forth in the preceding paragraph and agree to
waive any Default or Event of Default that would otherwise occur under
Section 8.2 of the Credit Agreement as a consequence thereof; PROVIDED that
the terms and provisions of the Notes and the definitive indenture (the "Note
Indenture") governing the Notes (other than the interest rate, interest
payment dates, maturity date and other terms relating solely to the timing of
the issuance of the Notes) shall be identical in all material respects to the
terms and provisions of the Convertible Notes and the
<PAGE>
March 9, 1998
Page 2
- -----------------
Convertible Note Indenture (each such term being used herein with the meaning
given to it in the Credit Agreement), including, without limitation, with
respect to terms of subordination, affirmative and negative covenants, events
of default and the absence of scheduled amortization of principal.
The Borrower and the Required Lenders hereby agree that, from and after
the date hereof, all references in the Credit Agreement and the other Credit
Documents to the "Convertible Notes" and the "Convertible Note Indenture"
shall be deemed also to be references to the Notes and the Note Indenture,
respectively, as the same may be amended, modified or supplemented from time
to time, for all purposes (including, without limitation, for purposes of
Sections 8.6(b), 8.9 and 9.1(l) of the Credit Agreement) and with the intent
that the Notes and the Note Indenture shall be subject to the provisions of
the Credit Agreement and the other Credit Documents on the same terms and to
the same extent as the Convertible Notes and the Convertible Note Indenture,
respectively. The Borrower and the Lenders agree further that, upon giving
effect to the reduction in the aggregate Commitments described in the second
preceding paragraph, the Commitments of the Lenders shall be as set forth on
SCHEDULE I hereto, which Schedule shall thereupon be deemed to replace
Schedule I to the Credit Agreement in its entirety.
As an inducement to obtain the approval and waiver set forth herein, the
Borrower represents and warrants to the Administrative Agent and each Lender
that (i) each of the representations and warranties of the Borrower contained
in the Credit Agreement and in the other Credit Documents is true and correct
on and as of the date hereof with the same effect as if made on and as of the
date hereof (except to the extent any such representation or warranty is
expressly stated to have been made as of a specific date, in which case such
representation or warranty is true and correct as of such date), (ii) no
Default or Event of Default has occurred and is continuing, and (iii) after
giving effect to the issuance of the Notes and the application of the
proceeds therefrom, the Borrower will be in compliance with the financial
covenants set forth in Sections 7.1 through 7.5 of the Credit Agreement (at
the levels applicable thereto as of March 31, 1998) determined on a pro forma
basis as of December 31, 1997 as if the Notes had been issued and the PPS
Acquisition consummated on the first day of the period of four consecutive
fiscal quarters ended on such date.
If any Default or Event of Default should occur and be continuing under
the Credit Agreement, the Administrative Agent and the Lenders will be under
no obligation to forbear the exercise of their rights and remedies under the
Credit Agreement, the other Credit Documents, applicable law or otherwise.
The approval and waiver of the Required Lenders set forth herein is limited
as specified, and shall not constitute or be deemed to constitute an
amendment, modification or waiver of any provision of the Credit Agreement or
a waiver of any Default or Event of Default except as expressly set forth
herein.
This letter shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina (without regard to
the conflicts of law provisions thereof). This letter may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. This letter shall become effective upon the execution hereof by
the Borrower and the Required Lenders (PROVIDED that the non-pro rata
adjustment of the Lenders' Commitments pursuant to the reduction of the
aggregate Commitments provided for herein, as set forth on SCHEDULE I hereto,
shall require the execution hereof by all of the Lenders).
<PAGE>
March 9, 1998
Page 3
- -----------------
If you are in agreement with the terms of this letter, please indicate
your acceptance by signing below.
Very truly yours,
FIRST UNION NATIONAL BANK, as
Administrative Agent and as a Lender
By: /s/ Joseph H. Towell
-------------------------------------
Title: Senior Vice President
----------------------------------
FLEET NATIONAL BANK
By: /s/ Maryann S. Smith
-------------------------------------
Title: Vice President
----------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ James B. Lukowitcz
-------------------------------------
Title: Vice President
----------------------------------
THE CHASE MANHATTAN BANK
By: /s/ Joan Considine
-------------------------------------
Title: Vice President
----------------------------------
(signatures continued)
<PAGE>
March 9, 1998
Page 4
- -----------------
CREDITANSTALT AG
By: /s/ John G. Taylor
-------------------------------------
Title: Senior Associate
----------------------------------
By: /s/ Scott Kray
-------------------------------------
Title: Vice President
----------------------------------
Agreed to and accepted
as of the date hereof:
CONCENTRA MANAGED CARE, INC.
By: /s/ Joseph F. Pesce
-------------------------------------
Title: Chief Financial Officer
----------------------------------
<PAGE>
SCHEDULE I
COMMITMENTS
<TABLE>
Lender Commitment
- ------ ------------
<S> <C>
First Union National Bank $ 24,000,000
Fleet National Bank $ 22,000,000
Bank One, Texas, N.A. $ 17,000,000
The Chase Manhattan Bank $ 17,000,000
Creditanstalt AG $ 20,000,000
------------
Total $100,000,000
</TABLE>
<PAGE>
March 12, 1998
Concentra Managed Care, Inc.
312 Union Wharf
Boston, Massachusetts 02109
Attention: Joseph F. Pesce,
Chief Financial Officer
Gentlemen:
Reference is made to (i) the Amended and Restated Credit Agreement,
dated as of February 20, 1998 (the "Credit Agreement"), among Concentra
Managed Care, Inc. (the "Borrower"), the banks and other financial
institutions named therein (collectively, the "Lenders"), First Union
National Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), and Fleet National Bank, as Documentation Agent, and
(ii) the letter agreement, dated March 9, 1998 (the "Approval Letter"), among
the Borrower and the Lenders, relating to the issuance and sale by the
Borrower of its 4.5% convertible senior notes due March 15, 2003 (the
"Notes"). Capitalized terms used herein without definition shall have the
meanings given to them in the Credit Agreement.
Pursuant to the Approval Letter, among other things, the Required
Lenders have approved the issuance and sale by the Borrower of up to
$200,000,000 in aggregate principal amount of the Notes. The Borrower has
requested that the Required Lenders (a) approve the issuance of additional
Notes in an aggregate principal amount of up to $30,000,000 pursuant to the
exercise of the over-allotment option granted to the initial purchasers of
the Notes, and (b) waive any Default or Event of Default that would otherwise
occur as a consequence thereof, and the Required Lenders have agreed to
provide such approval and waiver on the terms and conditions set forth herein.
Accordingly, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Required Lenders hereby approve the issuance and sale of up
to $30,000,000 in aggregate principal amount of the Notes (in addition to the
$200,000,000 aggregate principal amount approved pursuant to the Approval
Letter) and agree to waive any Default or Event of Default that would
otherwise occur under Section 8.2 of the Credit Agreement as a consequence
thereof. The Borrower agrees that all references in the Approval Letter to
the "Notes" shall be deemed to include references to the additional Notes
approved hereby.
As an inducement to obtain the approval and waiver set forth herein, the
Borrower hereby remakes and reaffirms, as of the date hereof, the
representations and warranties made to the
<PAGE>
March 12, 1998
Page 2
- -----------------------
Administrative Agent and each Lender in the Approval Letter (including, after
giving effect to the issuance of the additional Notes pursuant to exercise of
the over-allotment option, the representation as to pro forma financial
covenant compliance).
If any Default or Event of Default should occur and be continuing under
the Credit Agreement, the Administrative Agent and the Lenders will be under
no obligation to forbear the exercise of their rights and remedies under the
Credit Agreement, the other Credit Documents, applicable law or otherwise.
The approval and waiver of the Required Lenders set forth herein is limited
as specified, and shall not constitute or be deemed to constitute an
amendment, modification or waiver of any provision of the Credit Agreement or
a waiver of any Default or Event of Default except as expressly set forth
herein.
This letter shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina (without regard to
the conflicts of law provisions thereof). This letter may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. This letter shall become effective upon the execution hereof by
the Borrower and the Required Lenders.
<PAGE>
March 12, 1998
Page 3
- -----------------------
If you are in agreement with the terms of this letter, please indicate
your acceptance by signing below.
Very truly yours,
FIRST UNION NATIONAL BANK, as
Administrative Agent and as a Lender
By: /s/ Joseph H. Towell
-------------------------------------
Title: Senior Vice President
----------------------------------
FLEET NATIONAL BANK
By: /s/ Maryann S. Smith
-------------------------------------
Title: Vice President
----------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ C. L. Turner III
-------------------------------------
Title: SRM
----------------------------------
THE CHASE MANHATTAN BANK
By: /s/ Joan Considine
-------------------------------------
Title: Vice President
----------------------------------
(signatures continued)
<PAGE>
March 12, 1998
Page 4
- -----------------------
CREDITANSTALT AG
By: /s/ John G. Taylor
-------------------------------------
Title: Senior Associate
----------------------------------
By: /s/ Scott Kray
-------------------------------------
Title: Vice President
----------------------------------
Agreed to and accepted
as of the date hereof:
CONCENTRA MANAGED CARE, INC.
By: /s/ Joseph F. Pesce
-------------------------------------
Title: Chief Financial Officer
----------------------------------
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made and entered
into as of this 17th day of September 1997, by and between Concentra Managed
---- --------------
Care, Inc., a Delaware corporation (the "CORPORATION"), and Donald J Larson, a
---------------
Massachusetts resident ("INDEMNITEE").
- -------------
RECITALS:
A. Competent and experienced persons are reluctant to serve or to
continue to serve corporations as directors or in other capacities unless
they are provided with adequate protection through insurance or
indemnification (or both) against claims and actions against them arising out
of their service to and activities on behalf of those corporations.
B. The current uncertainties relating to the availability of adequate
insurance for directors and officers have increased the difficulty for
corporations to attract and retain competent and experienced persons.
C. The Board of Directors of the Corporation has determined that the
continuation of present trends in litigation will make it more difficult to
attract and retain competent and experienced persons, that this situation is
detrimental to the best interests of the Corporation's stockholders, and that
the Corporation should act to assure its directors and officers that there
will be increased certainty of adequate protection in the future.
D. The Certificate of Incorporation of the Corporation requires the
Corporation to indemnify its directors and officers to the fullest extent
permitted by law.
E. It is reasonable, prudent, and necessary for the Corporation to
obligate itself contractually to indemnify its directors and officers to the
fullest extent permitted by applicable law in order to induce them to serve
or continue to serve the Corporation.
F. Indemnitee is willing to serve, continue to serve, and to take on
additional service for or on behalf of the Corporation on the condition that
he be indemnified to the fullest extent permitted by law.
G. Concurrently with the execution of this Agreement, Indemnitee is
agreeing to serve or to continue to serve as a director or officer of the
Corporation.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee's
agreement to serve or continue to serve as a director or officer of the
Corporation, and the covenants contained in this Agreement, the Corporation
and Indemnitee hereby covenant and agree as follows:
<PAGE>
1. CERTAIN DEFINITIONS:
(a) "ACQUIRING PERSON" means any Person other than (i) the
Corporation, (ii) any of the Corporation's Subsidiaries, (iii) any employee
benefit plan of the Corporation or of a Subsidiary of the Corporation or of a
corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of stock
of the Corporation, (iv) any trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or of a Subsidiary of the
Corporation or of a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation, or (v) any Person who, as of
January 1, 1997, was the "beneficial owner" (as hereinafter defined),
directly or indirectly, of securities of the Corporation representing twenty
percent or more of the combined voting power of the Voting Securities of the
Corporation outstanding as of such date.
(b) "CHANGE IN CONTROL" means the occurrence of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (x) the then outstanding shares of
Common Stock of the Corporation (the "OUTSTANDING CORPORATION COMMON STOCK")
or (y) the combined voting power of the then outstanding voting securities of
the Corporation entitled to vote generally in the election of directors (the
"OUTSTANDING CORPORATION VOTING SECURITIES"); PROVIDED, HOWEVER, that for
purposes of this Subparagraph (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the
Corporation, (B) any acquisition by the Corporation, (C) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation or (D) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the date of this Plan, constitute the
Board of Directors cease for any reason to constitute at least a majority of
the Incumbent Board;
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Corporation or an acquisition of assets of another corporation (a "BUSINESS
COMBINATION"), in each case, unless, following such Business Combination, (A)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result
<PAGE>
of such transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the Corporation or
the corporation resulting from the Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership of
the Corporation existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(c) "CLAIM" means any threatened, pending, or completed action,
suit, or proceeding (including, without limitation, securities laws actions,
suits, and proceedings), or any inquiry or investigation (including
discovery), whether conducted by the Corporation or any other party, that
Indemnitee in good faith believes might lead to the institution of any
action, suit, or proceeding, whether civil, criminal, administrative,
investigative, or other.
(d) "EXPENSES" means all costs, expenses (including attorneys'
and expert witnesses' fees), and obligations paid or incurred in connection
with investigating, defending (including affirmative defenses and
counterclaims), being a witness in, or participating in (including on
appeal), or preparing to defend, be a witness in, or participate in, any
Claim relating to any Indemnifiable Event.
(e) "INCUMBENT BOARD" means the individuals who, as of the date of
this Agreement, constitute the Board of Directors and any other individual
who becomes a director of the Corporation after that date and whose election
or appointment by the Board of Directors or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Incumbent
Board.
(f) "INDEMNIFIABLE EVENT" means any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent,
or fiduciary of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, trustee, agent, or fiduciary of
another corporation, partnership, joint venture, employee benefit plan,
trust, or other enterprise, or by reason of any thing done or not done by
Indemnitee in any such capacity.
<PAGE>
For purposes of this Agreement, the Corporation agrees that Indemnitee's
service on behalf of or with respect to any Subsidiary of the Corporation
shall be deemed to be at the request of the Corporation.
(g) "PERSON" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company,
a corporation, a limited liability company, a partnership, a trust or other
entity. A Person, together with that Person's affiliates and associates (as
those terms are defined in Rule 12b-2 under the Exchange Act for purposes of
this definition only), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting or
disposing of securities of the Corporation with that Person, shall be deemed
a single "Person."
(h) "POTENTIAL CHANGE IN CONTROL" shall be deemed to have
occurred if (i) the Corporation enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any Person
(including the Corporation) publicly announces an intention to take or to
consider taking actions that, if consummated, would constitute a Change in
Control; (iii) after the Corporation has become a reporting company under the
Exchange Act, any Acquiring Person who is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing 10% or
more of the combined voting power of the then outstanding Voting Securities
of the Corporation increases his beneficial ownership of such securities by
5% or more over the percentage so owned by that Person on the date hereof; or
(iv) the Board of Directors of the Corporation adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control
has occurred.
(i) "REVIEWING PARTY" means any appropriate person or body
consisting of a member or members of the Corporation's Board of Directors or
any other person or body appointed by the Board (including Special Counsel
referred to in Section 3) who is not a party to the particular Claim for
which Indemnitee is seeking indemnification.
(j) "SPECIAL COUNSEL" means special, independent counsel selected
by Indemnitee and approved by the Corporation (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for the
Corporation or for Indemnitee within the last three years (other than as
Special Counsel under this Agreement or similar agreements).
(k) "SUBSIDIARY" means, with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly,
by that Person.
(l) "VOTING SECURITIES" means any securities that vote generally
in the election of directors or in the selection of any other similar
governing body.
<PAGE>
2. BASIC INDEMNIFICATION AND EXPENSE REIMBURSEMENT ARRANGEMENT.
(a) In the event Indemnitee was, is, or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Corporation shall indemnify Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than 30 days after written demand is presented to the Corporation,
against any and all Expenses, judgments, fines, penalties, and amounts paid
in settlement (including all interest, assessments, and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties, or amounts paid in settlement) of or with respect to that Claim.
Notwithstanding the foregoing, the obligations of the Corporation under
Section 2(a) shall be subject to the condition that the Reviewing Party shall
not have determined (in a written opinion, in any case in which Special
Counsel referred to in Section 3 hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law. Nothing contained
in this Agreement shall require any determination under this Section 2(a) to
made by the Reviewing Party prior to the disposition or conclusion of the
Claim against the Indemnitee; provided, however, that Expense Advances shall
continue to be made by the Corporation pursuant to and to the extent required
by the provisions of Section 2(b).
(b) If so requested by Indemnitee, the Corporation shall pay any
and all Expenses incurred by Indemnitee (or, if applicable, reimburse
Indemnitee for any and all Expenses incurred by Indemnitee and previously
paid by Indemnitee) within two business days after such request (an "EXPENSE
ADVANCE"). The Corporation shall be obligated to make or pay an Expense
Advance in advance of the final disposition or conclusion of any Claim. In
connection with any request for an Expense Advance, if requested by the
Corporation, Indemnitee or Indemnitee's counsel shall submit an affidavit
stating that the Expenses incurred were reasonable. Any dispute as to the
reasonableness of any Expense shall not delay an Expense Advance by the
Corporation, and the Corporation agrees that any such dispute shall be
resolved only upon the disposition or conclusion of the underlying Claim
against the Indemnitee. If, when, and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be indemnified with
respect to a Claim under applicable law, the Corporation shall be entitled to
be reimbursed by Indemnitee and Indemnitee hereby agrees to reimburse the
Corporation without interest (which agreement shall be an unsecured
obligation of Indemnitee) for all related Expense Advances theretofore made
or paid by the Corporation; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Corporation for any Expense
Advance, and the Corporation shall be obligated to continue to make Expense
Advances, until a final judicial determination is made with respect thereto
(as to which all rights of appeal therefrom have been exhausted or lapsed).
If there has not been a Change in Control, the Reviewing Party shall be
selected by the Board of Directors of the Corporation. If there has been a
Change in Control, the Reviewing Party shall be advised by or shall be
Special Counsel referred to in Section 3 hereof, if and as Indemnitee so
requests. If there has been no determination by the Reviewing Party or if
the Reviewing Party determines
<PAGE>
that Indemnitee substantively would not be permitted to be indemnified in
whole or in part under applicable law, Indemnitee shall have the right to
commence litigation in any court in the states of Massachusetts, Delaware, or
Texas having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the
Corporation hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Corporation and Indemnitee.
3. CHANGE IN CONTROL. The Corporation agrees that, if there is a Change
in Control and if Indemnitee requests in writing that Special Counsel advise the
Reviewing Party or be the Reviewing Party, then the Corporation shall not deny
any indemnification payments (and Expense Advances shall continue to be paid by
the Corporation pursuant to Section 2(b)) that Indemnitee requests or demands
under this Agreement or any other agreement or law now or hereafter in effect
relating to Claims for Indemnifiable Events. The Corporation further agrees not
to request or seek reimbursement from Indemnitee of any related Expense Advances
unless, with respect to a denied indemnification payment, Special Counsel has
rendered its written opinion to the Corporation and Indemnitee that the
Corporation would not be permitted under applicable law to pay Indemnitee such
indemnification payment. The Corporation agrees to pay the reasonable fees of
Special Counsel referred to in this Section 3 and to indemnify fully Special
Counsel against any and all expenses (including attorneys' fees), claims,
liabilities, and damages arising out of or relating to this Agreement or Special
Counsel's engagement pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Corporation shall, upon written request by Indemnitee, create a
trust for the benefit of Indemnitee (the "TRUST") and from time to time upon
written request of Indemnitee shall fund the Trust in an amount sufficient to
satisfy any and all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with investigating, preparing for, and
defending any Claim relating to an Indemnifiable Event, and any and all
judgments, fines, penalties, and settlement amounts (including all interest,
assessments, and other charges paid or payable in connection with or in respect
of such expenses, judgments, fines, penalties, and settlement amounts) of any
and all Claims relating to an Indemnifiable Event from time to time actually
paid or claimed, reasonably anticipated, or proposed to be paid. The amount or
amounts to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by the Reviewing Party, in any situation in which
Special Counsel referred to in Section 3 is involved. The terms of the Trust
shall provide that, upon a Change in Control, (i) the Trust shall not be revoked
or the principal thereof invaded, without the written consent of Indemnitee;
(ii) the trustee of the Trust shall advance, within two business days of a
request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby
agrees to reimburse the Trust under the circumstances in which Indemnitee would
be required to reimburse the Corporation for Expense Advances under Section 2(b)
of this Agreement); (iii) the Trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth above; (iv) the
trustee of the Trust shall promptly pay to Indemnitee all amounts for which
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise; and (v) all unexpended funds in that Trust shall revert to the
Corporation upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under
<PAGE>
the terms of this Agreement. The trustee of the Trust shall be chosen by
Indemnitee. Nothing in this Section 4 shall relieve the Corporation of any
of its obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Corporation shall
indemnify Indemnitee against any and all costs and expenses (including
attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall
(within two business days of that request) advance those costs and expenses
to Indemnitee, that are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Corporation under this Agreement or any
other agreement or provision of the Corporation's Certificate of
Incorporation or By-laws now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Corporation, regardless of
whether Indemnitee ultimately is determined to be entitled to that
indemnification, advance expense payment, or insurance recovery, as the case
may be.
6. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Corporation for some or a portion of
the Expenses, judgments, fines, penalties, and amounts paid in settlement of a
Claim but not, however, for all of the total amount thereof, the Corporation
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
7. CONTRIBUTION.
(a) CONTRIBUTION PAYMENT. To the extent the indemnification provided
for under any provision of this Agreement is determined (in the manner
hereinabove provided) not to be permitted under applicable law, then in the
event Indemnitee was, is, or becomes a party to or witness or other participant
in, or is threatened to be made a party to or witness or other participant in, a
Claim by reason of (or arising in part out of) an Indemnifiable Event, the
Corporation, in lieu of indemnifying Indemnitee, shall contribute to the amount
of any and all Expenses, judgments, fines, or penalties assessed against or
incurred or paid by Indemnitee on account of that Claim and any and all amounts
paid in settlement of that Claim (including all interest, assessments, and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties, or amounts paid in settlement) for which such
indemnification is not permitted ("CONTRIBUTION AMOUNTS"), in such proportion as
is appropriate to reflect the relative fault with respect to the Indemnifiable
Event giving rise to the Contribution Amounts of Indemnitee, on the one hand,
and of the Corporation and any and all other parties (including officers and
directors of the Corporation other than Indemnitee) who may be at fault with
respect to such Indemnifiable Event (collectively, including the Corporation,
the "THIRD PARTIES") on the other hand.
<PAGE>
(b) RELATIVE FAULT. The relative fault of the Third Parties and
the Indemnitee shall be determined (i) by reference to the relative fault of
Indemnitee as determined by the court or other governmental agency assessing
the Contribution Damages or (ii) to the extent such court or other
governmental agency does not apportion relative fault, by the Reviewing Party
(which shall include Special Counsel) after giving effect to, among other
things, the relative intent, knowledge, access to information, and
opportunity to prevent or correct the applicable Indemnifiable Event and
other relevant equitable considerations of each party. The Corporation and
Indemnitee agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does take account of the equitable
considerations referred to in this Section 7(b).
8. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified under any provision of this Agreement or to receive contribution
pursuant to Section 7 of this Agreement, the burden of proof shall be on the
Corporation to establish that Indemnitee is not so entitled.
9. NO PRESUMPTION. For purposes of this Agreement, the termination of
any claim, action, suit, or proceeding, by judgment, order, settlement (whether
with or without court approval), or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
10. ACTION OF OTHERS. The knowledge and/or actions, or failure to act, of
any director, officer, agent, or employee of the Corporation shall not be
imputed to the Indemnitee for purposes of determining the right to
indemnification under this Agreement.
11. INDEMNITEE'S INDIVIDUAL CAPACITY. The Corporation acknowledges that
the Indemnitee is undertaking to act as a director of the Corporation at the
request of the Corporation and solely in the Indemnitee's individual capacity
and not in any capacity as a director, officer, member, partner, employee,
trustee, or other representative of any other corporation, partnership,
association, business trust, trust, or similar organization or entity. The
Corporation covenants and agrees to indemnify any such organization or entity
from and against any and all judgments, fines, or penalties assessed against or
incurred or paid by such organization or entity and any and all amounts paid in
settlement (including all interest, attorneys' and expert witnesses' fees, and
other charges paid or payable in connection with such judgments, fines,
penalties, or amounts paid in settlement) with respect to any action or inaction
taken in the course of the Indemnitee's duties as a director of the Corporation.
12. NON-EXCLUSIVITY. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Corporation's By-laws
or Certificate of Incorporation or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Corporation's By-laws or
Certificate of Incorporation and this Agreement, it is the intent of the
<PAGE>
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by that change.
13. LIABILITY INSURANCE. Except as otherwise agreed to by the Corporation
and Indemnitee in a written agreement, to the extent the Corporation maintains
an insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by that policy or those policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Corporation director or officer.
14. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Corporation or any affiliate
of the Corporation against Indemnitee or Indemnitee's spouse, heirs, executors,
or personal or legal representatives after the expiration of three years from
the date of accrual of that cause of action, and any claim or cause of action of
the Corporation or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within that three-year
period; provided, however, that, if any shorter period of limitations is
otherwise applicable to any such cause of action, the shorter period shall
govern.
15. AMENDMENTS. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall that waiver constitute a continuing waiver.
16. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall, subject to the conflicting rights of an insurer pursuant to
any policy contemplated by Section 13 hereof, be subrogated to the extent of
that payment to all of the rights of recovery of Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure
those rights, including the execution of the documents necessary to enable the
Corporation effectively to bring suit to enforce those rights.
17. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Corporation's Certificate of
Incorporation or By-laws, or otherwise) of the amounts otherwise indemnifiable
hereunder.
18. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by purchase,
merger, consolidation, or otherwise to all or substantially all of the business
or assets of the Corporation), spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Corporation or
another enterprise at the Corporation's request.
<PAGE>
19. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, that provision shall be fully severable; this Agreement shall
be construed and enforced as if that illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of that illegal, invalid, or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as similar
in terms to the illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
20. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in that state without giving effect to the
principles of conflicts of laws.
21. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
22. NOTICES. Whenever this Agreement requires or permits notice to be
given by one party to the other, such notice must be in writing to be effective
and shall be deemed delivered and received by the party to whom it is sent upon
actual receipt (by any means) of such notice. Receipt of a notice by any
officer of the Corporation shall be deemed receipt of such notice by the
Corporation.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
EXECUTED as of the date first written above.
CONCENTRA MANAGED CARE, INC.
By: /s/ Richard A. Parr II
-------------------------------------
Name: Richard A. Parr II
----------------------------
Title: Executive Vice President
-----------------------------
and General Counsel
-----------------------------
Indemnitee /s/ Donald J. Larson
-----------------------------
<PAGE>
AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, Donald J. Larson hereby agrees to vote all
shares now or hereafter owned by him in Concentra Managed Care, Inc. in favor
of election of Lois E. Silverman, or in the event of her death a member of
her family designated by her estate, or a designee of Ms. Silverman or her
estate, reasonably acceptable to the Board of Concentra, as a Director of
Concentra Managed Care, Inc. This Agreement shall continue for so long as
Lois E. Silverman, her estate, or any member of her immediate family or any
trust of which she or any member of her immediate family is a beneficiary or
trustee, shall own at least 519,113 shares of Concentra Managed Care, Inc.
Executed as of May 15, 1997.
/s/ Donald J. Larson
-------------------------------
Donald J. Larson
<PAGE>
EXHIBIT 11.1
CONCENTRA MANAGED CARE, INC.
Calculation of Shares Used in Determining
Basic and Diluted Earnings Per Share
for the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income available to shareholders $9,861,000 $21,134,000 $2,837,000
---------- ----------- ----------
---------- ----------- ----------
Average shares of common stock outstanding 28,960,000 35,561,000 37,924,000
---------- ----------- ----------
---------- ----------- ----------
Basic Earnings per Share $0.34 $0.59 $0.07
---------- ----------- ----------
---------- ----------- ----------
DILUTED EARNINGS PER SHARE:
Net income available to shareholders $9,861,000 $21,134,000 $2,837,000
Interest on common stock equivalents, net of tax - 187,000 -
---------- ----------- ----------
Diluted net income $9,861,000 $21,321,000 $2,837,000
---------- ----------- ----------
---------- ----------- ----------
Average shares of common stock outstanding 28,960,000 35,561,000 37,924,000
Dilutive options, warrants and notes payable 1,835,000 1,732,000 1,105,000
---------- ----------- ----------
Diluted shares of common stock and equivalents 30,795,000 37,293,000 39,029,000
---------- ----------- ----------
---------- ----------- ----------
Diluted Earnings per Share $0.32 $0.57 $0.07
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. REFERENCE IS HEREBY
MADE TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR CERTAIN
CONSIDERATIONS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTAINED IN THIS DOCUMENT.
OVERVIEW
On August 29, 1997, Concentra Managed Care, Inc. ("CONCENTRA" or the
"Company"), a Delaware corporation, was formed by the merger (the "Merger")
of CRA Managed Care, Inc. ("CRA") and OccuSystems, Inc. ("OccuSystems"). The
Merger was a tax-free stock for stock exchange accounted for as a pooling of
interests. On February 24, 1998, the Company acquired Preferred Payment
Systems, Inc., and significantly expanded its presence in the out-of-network
group health bill review market.
Concentra Managed Care Services, Inc. ("Managed Care Services"), an operating
subsidiary of Concentra which was formerly CRA Managed Care, Inc., provides
field case management and specialized cost containment services designed to
reduce workers' compensation costs. Field case management services involve
working on a one-on-one basis with injured employees and their various health
care professionals, employers and insurance company adjusters to assist in
maximizing medical improvement and, where appropriate, to expedite the return
to work. Managed Care Services' field case management revenue growth has
resulted from both local market share gains and geographic office expansion.
Managed Care Services believes that the size of its field case management
office network is sufficient to serve adequately the needs of its nationwide
customers. As a result, Managed Care Services anticipates opening only a few
new field case management offices per year to satisfy client needs in
selected regions. The Company would, however, examine the possibility of
acquiring additional field case management offices or businesses if an
appropriate strategic opportunity arose. Since 1990, Managed Care Services
has also offered specialized cost containment services. Specialized cost
containment services include utilization management, specialized preferred
provider organization ("PPO") network management, telephonic case management,
and retrospective medical bill review services that are designed to reduce
the cost of workers' compensation claims and automobile accident injury
claims. Managed Care Services has experienced significant growth in its
specialized cost containment services by virtue of the following
acquisitions: (1) FOCUS HealthCare Management, Inc. ("FOCUS") on April 2,
1996, (2) Prompt Associates, Inc. ("PROMPT") on October 29, 1996, (3) First
Notice Systems, Inc. ("FNS"), on June 4, 1997, and (4) other smaller
acquisitions. Managed Care Services currently derives most of its revenues
on a fee-for-service basis.
Concentra Health Services, Inc. ("Health Services"), an operating subsidiary
of Concentra, which was formerly OccuCenters, Inc., manages occupational
healthcare centers at which it provides support personnel, marketing,
information systems, and management services to its affiliated physicians.
Health Services owns all of the operating assets of the occupational
healthcare centers, including leasehold interests and medical equipment.
Health Services generates its net patient service revenues primarily from the
diagnosis, treatment and management of work-related injuries and illnesses
and from other occupational healthcare services, such as employment-related
physical examinations, drug and alcohol testing, functional capacity testing
and other related programs. For the year ended December 31, 1997, Health
Services derived 63.5% of its net revenues from the treatment of work-related
injuries and illnesses and 36.5% of its net revenues from non-injury related
medical services.
Physician and physical therapy services are provided at the Health Services
centers under management agreements with affiliated physician associations
(the "Physician Groups"), which are organized professional corporations that
hire licensed physicians and physical therapists to provide medical services
to the centers' patients. Since Health Services effectively controls the
Physician Groups, Health Services results of operations reflect the revenues
generated by the Physician Groups and the costs associated with the delivery
of their services. The financial statements of the Physician Groups are
consolidated because Health Services has unilateral control over the assets
and operations of the Physician Groups and notwithstanding the lack of
technical majority ownership, consolidation of the Physician Groups with
Heath Services is necessary to present fairly the financial position and
results of operations of Health Services due to the existence of a
parent-subsidiary relationship by means other than record ownership of the
Physician Group's voting stock. The shareholders of the Physician Groups are
the physician
1
<PAGE>
leaders of Health Services, and are employed by Health Services or one of its
wholly-owned subsidiaries. Through a shareholder agreement, Health Services
restricts any transfer of Physician Group ownership without its consent and
can require the holder of such shares to transfer ownership to a Health
Services designee upon the occurrence of certain events, including but not
limited to the cessation of employment. Control of the Physician Groups is
perpetual due to the nature of the relationship and the management agreements
between the entities. The employed physicians do not control fee schedules,
payor contracts, or employment decisions regarding personnel. The risk of
loss for billed services provided by the Physician Groups resides ultimately
with Health Services as CONCENTRA Managed Care, Inc. is required to provide
financial support on an as needed basis.
The following table provides certain information concerning the Company's
service locations:
<TABLE>
Years ended December 31,
------------------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service locations at the end of the period:
Field case management 110 118 123
Cost containment services 50 70 83
Medical centers (1) 71 109 140
Physician practices acquired during the period (2) 24 32 22
Physician practices developed during the period 3 10 8
Number of affiliated physicians at the end of the period 129 196 252
Medical centers - same market revenue growth (3) 12.2% 10.7% 11.0%
</TABLE>
(1) Does not include the assets of the practices which were acquired and
subsequently divested or consolidated into existing centers within the market.
(2) Represents the assets of practices which were acquired during each
period presented and not subsequently divested.
(3) Same market revenue growth sets forth the aggregate net change from the
prior period for all markets in which Health Services has operated for longer
than one year (excluding revenue growth due to acquisitions of additional
centers).
RESULT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Total revenues increased 31.2% in 1997 to $458,952,000 from $349,687,000 in
1996. Managed Care Services' revenues increased 37.3% in 1997 to
$246,715,000 from $179,652,000 in 1996, as field case management revenues
increased 16.7% in 1997 to $138,723,000 from $118,864,000 in 1996 and
specialized cost containment revenues increased 77.7% in 1997 to $107,992,000
from $60,788,000 in 1996. Health Services' revenues increased 24.8% in 1997
to $212,237,000 from $170,035,000 in 1996.
The field case management revenue growth is primarily due to growth in
revenues from existing service locations, and the opening of 13 offices
subsequent to December 31, 1995. The specialized cost containment revenue
growth is largely attributable to the acquisition of FOCUS, PROMPT and FNS.
Excluding these acquisitions, cost containment revenues for 1997 would have
increased approximately 41.0% over 1996. This revenue increase is
attributable to growth in retrospective medical bill review, telephonic case
management and claims review services in existing service locations and the
expansion into additional service locations. The Health Services revenue
growth resulted from the acquisition of practices (including the acquisition
of 16 occupational medical centers and the management of an additional four
medical centers from Vencor, Inc. ("VMC")), development of sites in new
markets, an increase in business in existing markets, as well as an increase
in consulting and other ancillary services.
COST OF SERVICES
Total cost of services increased 28.6% in 1997 to $357,430,000 from
$277,839,000 in 1996. Managed Care Services' cost of services increased
34.9% in 1997 to $198,443,000 from $147,085,000 in 1996, while Health
Services' cost of services increased 21.6% in 1997 to $158,987,000 from
$130,754,000 in 1996.
2
<PAGE>
Total cost of services as a percentage of revenue decreased to 77.9% in 1997
compared to 79.5% in 1996. Managed Care Services' cost of services as a
percentage of revenue decreased to 80.4% in 1997 compared to 81.9% in 1996,
while Health Services' cost of services as a percentage of revenue decreased
to 74.9% in 1997 compared to 76.9% in 1996.
Managed Care Services has seen improvement in gross margin primarily
resulting from a shift in its revenue mix towards specialized cost
containment services, including the services provided by FOCUS, PROMPT and
FNS, which historically have had higher gross profit margins than revenues
derived from field case management. Health Services' gross profit margin
improvement has resulted from increased efficiencies and productivity. As
certain functions are consolidated and other staff-related changes occur,
coupled with increased patient volume, the margins of acquired or developed
practices have tended to improve.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 19.8% in 1997 to $36,224,000
from $30,234,000 in 1996, or 7.9% and 8.6% as a percentage of revenue for
1997 and 1996, respectively. The increase in general and administrative
expenses in 1997 was due primarily to expenses associated with acquisitions
and the continued investment in the Information Services and Technology Group.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles increased 52.5% in 1997 to $5,249,000 from
$3,442,000 in 1996, or 1.1% and 1.0% as a percentage of revenues for 1997 and
1996, respectively. This increase is the result of amortizing additional
intangible assets such as goodwill, customer lists. and assembled workforces
primarily associated with the purchase of FOCUS, PROMPT, FNS, VMC, and other
smaller acquisitions.
NON-RECURRING CHARGE
The Company recorded a non-recurring charge of $38,625,000 associated with
the Merger. The charges incurred were approximately $12,450,000 for
professional fees and services, $14,200,000 in costs associated with
personnel reductions, $6,575,000 in facility consolidations and closings,
$2,525,000 for the write-off of start-up costs, and $2,875,000 of other
merger and transitional expenses.
INTEREST EXPENSE
Interest expense increased $6,141,000 in 1997 to $8,972,000 from $2,831,000
in 1996 due primarily to the issuance of $97,750,000 of 6% Convertible
Subordinated Notes in December 1996 and to increased outstanding credit
facility borrowings used to finance acquisitions.
INTEREST INCOME
Interest income increased $1,438,000 in 1997 to $2,297,000 from $859,000 in
1996 due primarily to the investment of excess cash generated from the
issuance of the 6% Convertible Subordinated Notes until the funds were
utilized to finance certain acquisitions.
OTHER EXPENSE, NET
Other expense, net increased $227,000 in 1997 to $1,063,000 from $836,000 in
1996 primarily due to minority interests.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes in 1997 and 1996 was $10,849,000 and
$13,266,000, respectively, resulting in effective tax rates of 79.3% and
38.6%, respectively. Excluding the tax effects of the non-recurring charge,
the effective tax rate would have been 39.1% for 1997. The Company expects to
provide for its taxes at an effective tax rate of approximately 41%-42% for
1998.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES
Total revenues increased 23.5% in 1996 to $349,687,000 from $283,041,000 in
1995. Managed Care Services' revenues increased 23.0% in 1996 to $179,652,000
from $146,055,000 in 1995, as field case management revenues increased 11.6%
in 1996 to $118,864,000 from $106,462,000 in 1995 and specialized cost
containment revenues
3
<PAGE>
increased 53.5% in 1996 to $60,788,000 from $39,593,000 in 1995. Health
Services' revenues increased 24.1% in 1996 to $170,035,000 from $136,986,000
in 1995.
The field case management revenue growth is primarily due to growth in
revenues from existing service locations and the opening of eight offices
subsequent to December 31, 1995. The specialized cost containment revenue
growth is largely attributable to the acquisitions of FOCUS and PROMPT.
Excluding acquisitions, cost containment revenues for 1996 would have
increased approximately 27.0% over 1995. This revenue increase is
attributable to growth in retrospective bill review, telephonic case
management and claims review services in existing service locations and the
expansion into additional service locations. The Health Services revenue
growth resulted from the acquisition of practices, development of sites in
new markets, an increase of business in existing markets, as well as an
increase in consulting and other ancillary services.
COST OF SERVICES
Total cost of services increased 20.9% in 1996 to $277,839,000 from
$229,899,000 in 1995. Managed Care Services' cost of services increased
20.0% in 1996 to $147,085,000 from $122,615,000 in 1995, while Health
Services' cost of services increased 21.9% in 1996 to $130,754,000 from
$107,284,000 in 1995.
Total cost of services as a percentage of revenue decreased to 79.5% in 1996
compared to 81.2% in 1995. Managed Care Services' cost of services as a
percentage of revenue decreased to 81.9% in 1996 compared to 84.0% in 1995,
while Health Services' cost of services as a percentage of revenue decreased
to 76.9% in 1996 compared to 78.3% in 1995.
Managed Care Services has seen improvement in gross margin primarily
resulting from a shift in its services revenue mix towards specialized cost
containment services, including the services provided by FOCUS and PROMPT,
which historically have had higher gross profit margins than revenues derived
from field case management. Health Services' gross profit margin improvement
has resulted from increased efficiencies and productivity. As certain
functions are consolidated and other staff-related changes occur, coupled
with increased patient volume, the margins of acquired or developed practices
have tended to improve over time.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 9.4% in 1996 to $30,234,000
from $27,632,000 in 1995, or 8.6% and 9.8% as a percentage of revenue for
1996 and 1995, respectively. The increase in general and administrative
expenses in 1996 was due primarily to expenses associated with acquisitions
and the continued investment in the Information Services and Technology Group.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles increased 84.0% in 1996 to $3,442,000 from
$1,871,000 in 1995, or 1.0% and .07% as a percentage of revenue for 1996 and
1995, respectively. This increase is the result of amortizing additional
intangible assets such as goodwill, customer lists, and assembled workforces,
primarily associated with the purchase of FOCUS, PROMPT, and various smaller
acquisitions.
NON-RECURRING CHARGE
The Company recorded a non-recurring charge of $964,000 and $898,000 in 1996
and 1995, respectively, associated with pooling costs of the pooled entities.
INTEREST EXPENSE
Interest expense decreased $2,668,000 in 1996 to $2,831,000 from $5,499,000
in 1995 due primarily to decreased outstanding borrowings under the credit
facilities.
INTEREST INCOME
Interest income increased $46,000 in 1996 to $859,000 from $813,000 in 1995
due primarily to the investment of excess cash associated with the issuance
of the 6% Convertible Subordinated Notes.
OTHER EXPENSE, NET
Other expense, net increased $275,000 in 1996 to $836,000 from $561,000 in
1995 primarily due to minority interests.
4
<PAGE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes in 1996 and 1995 was $13,266,000
and $7,633,000, respectively, resulting in effective tax rates of 38.6% and
43.6%, respectively.
LOSS ON RETIREMENT OF DEBT
The Company used the net proceeds from the sale of Common Stock, supplemented
by borrowings under its credit facility to fully repay certain long-term
debt. The early repayment of this debt resulted in the Company recording a
net loss on the retirement of debt of $3,140,000 comprised of the write-off
of associated deferred finance costs, debt discounts and fees associated with
the termination of the interest rate swaps previously required by the loan
agreement offset by a tax benefit.
SEASONALITY
The Company's business is seasonal in nature. Health Services' patient
visits at its medical centers are lower in the first and fourth quarters,
primarily because of fewer occupational injuries and illnesses during those
time periods due to plant closings, vacations, and holidays. In addition,
employers generally hire fewer employees in the fourth quarter, thereby
reducing the number of pre-placement physical examinations and drug and
alcohol tests conducted at the medical centers during that quarter. Managed
Care Services' field case management revenues have historically been flat in
the fourth quarter compared to the third quarter due to the impact of
vacations and holidays. Although the Company's rapid growth may obscure the
effect of seasonality in the Company's financial results, the first and
fourth quarters generally reflect lower revenues when compared to the
Company's second and third quarters.
INFORMATION SYSTEMS - YEAR 2000
The Company expects to incur significant costs over the next two to three
years to address the "Year 2000" information systems issue. The Year 2000
concern, which is common to most companies, concerns the inability of
information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000 approaches.
The Company is in the process of completing an assessment of the majority of
its systems and is in the process of developing specific workplans to remedy
this issue. The Company currently believes that it will be able to modify or
replace its affected systems in time to minimize the effect on its business.
As a part of the ongoing investment in information technology, some of the
Company's Year 2000 issues will be addressed. While the Company is unable to
give an accurate estimate of the incremental costs to make these Year 2000
system modifications, it is expected these costs will not be significantly
different from the Company's currently planned investment for information
technology, and therefore, should not have a material adverse effect on the
Company's long-term results of operations, liquidity or consolidated
financial position.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from (used for) operations were ($9,062,000), $7,532,000
and $11,851,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. During 1997, working capital used $31,392,000 of cash primarily
due to an increase in accounts receivable of $25,763,000 and an increase in
prepaid expenses of $15,580,000, offset by an increase in accounts payable and
accrued expenses of $9,951,000. Accounts receivable increased primarily due
to continued revenue growth while accounts payable increased due to the
timing of payments and the remaining obligations relating to the
non-recurring charge.
The Company utilized net cash of $76,093,000 in connection with the
acquisition of FNS, VMC and other smaller acquisitions. The Company also
utilized $25,736,000 of cash to purchase property and equipment during 1997,
the majority of which was spent on new computer hardware and software
technology. The Company received cash of $12,045,000 in connection with the
sale of short-term investments.
The Company has a $100,000,000 Senior Credit Facility ("Senior Credit
Facility") which is secured by a first priority security interest in
substantially all of the Company's properties and assets. At December 31,
1997, the Company had borrowings under the Senior Credit Facility of
$49,000,000 at an average of interest rate of 6.94%.
On February 24, 1998, the Company acquired all of the outstanding common
stock of Preferred Payment Systems ("PPS") of Naperville, Illinois, in
exchange for approximately 7,100,000 shares of Common Stock, the payment of
approximately $15,050,000 in cash to dissenting shareholders and the
assumption of approximately $49,000,000 of
5
<PAGE>
debt which was repaid at the time of acquisition. The Company expanded its
borrowing capacity under the Senior Credit Facility to $200,000,000 to
finance this acquisition. This acquisition will be accounted for as a
pooling of interests. PPS, founded in 1990, is a leading nationwide
provider of specialized cost containment and outsourcing services for
healthcare payors.
On March 11, 1998, the Company issued $200,000,000 aggregate principal amount
of 4.5% Convertible Subordinated Notes due March 15, 2003 (the "4.5%
Convertible Subordinated Notes"). The 4.5% Convertible Subordinated Notes
are convertible into the Company's common stock, at the option of the holder,
at a conversion price of $41.25 per share, representing a conversion premium
of 25% over the closing price. The 4.5% Convertible Subordinated Notes are
general unsecured obligations of the Company ranking equal in right of payment
with the 6% Convertible Subordinated Notes and all other unsecured
indebtedness of the Company. In addition, the Company is a holding company
that conducts all of its operations through subsidiaries, and the 4.5%
Convertible Subordinated Notes and the 6% Convertible Subordinated Notes are
structurally subordinate to all obligations of the Company's subsidiaries.
The 4.5% Convertible Subordinated Notes were sold through a private placement
under Rule 144A of the Securities Act of 1933, as amended. The Company
intends to use the proceeds from the sale of the 4.5% Convertible
Subordinated Notes to repay existing debt under the Senior Credit Facility
and for general corporate purposes. The Senior Credit Facility borrowing
capacity was subsequently reduced to the original $100,000,000 amount.
The Company's long-term liquidity needs consist of working capital and
capital expenditure requirements, repayment of borrowings under the Senior
Credit Facility, the funding of any future acquisitions, as well as the
repayment of the 6% Convertible Subordinated Notes in 2001 and 4.5%
Convertible Subordinated Notes in 2003. The Company intends to fund these
long-term liquidity needs from the cash generated from operations, available
borrowings under the Senior Credit Facility and, if necessary, future debt or
equity financing. There can be no assurance that any future debt or equity
financing will be available on terms favorable to the Company.
6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
CONCENTRA Managed Care, Inc.:
We have audited the accompanying consolidated balance sheets of CONCENTRA
Managed Care, Inc. (a Delaware corporation) as of December 31, 1996 and 1997,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CONCENTRA Managed Care, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
January 30, 1998 (except with respect to the matter discussed
in Footnote 14, as to which the date is March 11, 1998)
7
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
DECEMBER 31,
------------------------------
ASSETS 1996 1997
- ------------------------------------------------------------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 56,056,000 $ 10,046,000
Short-term investments 12,045,000 -
Accounts receivable, net of allowances of $11,228,000 and
$17,261,000 respectively 75,145,000 99,931,000
Prepaid expenses and other current assets 4,092,000 13,760,000
Prepaid and deferred income taxes 4,788,000 12,096,000
------------ ------------
Total current assets 152,126,000 135,833,000
Land 1,815,000 2,525,000
Buildings and improvements 4,038,000 5,747,000
Leasehold improvements 14,560,000 22,071,000
Computer hardware and software 23,066,000 37,881,000
Furniture and equipment 27,053,000 33,198,000
------------ ------------
Property and equipment, at cost 70,532,000 101,422,000
Accumulated depreciation and amortization (25,968,000) (37,237,000)
------------ ------------
Property and equipment, net 44,564,000 64,185,000
Other assets:
Goodwill, net 152,639,000 225,586,000
Assembled workforce and customer lists, net 2,501,000 3,524,000
Other assets 7,772,000 7,295,000
------------ ------------
$359,602,000 $436,423,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
CURRENT LIABILITIES:
Revolving credit facilities $ 5,700,000 $ 49,000,000
Current portion of long-term debt 940,000 497,000
Accounts payable and accrued expenses 10,524,000 31,985,000
Accrued payroll and related expenses 10,997,000 15,522,000
Accrued income taxes 7,494,000 -
------------ ------------
Total current liabilities 35,655,000 97,004,000
Long-term debt, net of current portion 99,089,000 98,103,000
Deferred income taxes 6,303,000 7,713,000
Other liabilities 9,436,000 9,680,000
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY :
Preferred stock - $.01 par value; 1,000,000 and 20,000,000
authorized; none issued and outstanding - -
Common stock - $.01 par value; 90,000,000 and 100,000,000
authorized; 37,284,103 and 38,774,221 shares issued
and outstanding, respectively 373,000 388,000
Paid-in capital 234,207,000 247,128,000
Retained deficit (25,461,000) (23,593,000)
------------ ------------
Total stockholders' equity 209,119,000 223,923,000
------------ ------------
$359,602,000 $436,423,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Field case management $106,462,000 $118,864,000 $138,723,000
Specialized cost containment 39,593,000 60,788,000 107,992,000
------------ ------------ ------------
Managed Care Services 146,055,000 179,652,000 246,715,000
Health Services 136,986,000 170,035,000 212,237,000
------------ ------------ ------------
Total revenue 283,041,000 349,687,000 458,952,000
COST OF SERVICES:
Managed Care Services 122,615,000 147,085,000 198,443,000
Health Services 107,284,000 130,754,000 158,987,000
------------ ------------ ------------
Total cost of services 229,899,000 277,839,000 357,430,000
------------ ------------ ------------
Total gross profit 53,142,000 71,848,000 101,522,000
General and administrative expenses 27,632,000 30,234,000 36,224,000
Amortization of intangibles 1,871,000 3,442,000 5,249,000
Non-recurring charge 898,000 964,000 38,625,000
------------ ------------ ------------
Operating income 22,741,000 37,208,000 21,424,000
Interest expense 5,499,000 2,831,000 8,972,000
Interest income (813,000) (859,000) (2,297,000)
Other, net 561,000 836,000 1,063,000
------------ ------------ ------------
Income before income taxes 17,494,000 34,400,000 13,686,000
Provision for income taxes 7,633,000 13,266,000 10,849,000
------------ ------------ ------------
Net income before extraordinary items 9,861,000 21,134,000 2,837,000
Loss on retirement of debt, net of taxes (3,140,000) - -
------------ ------------ ------------
Net income $ 6,721,000 $ 21,134,000 $ 2,837,000
------------ ------------ ------------
------------ ------------ ------------
Basic Earnings Per Share:
Income before extraordinary items $ 0.34 $ 0.59 $ 0.07
Loss on retirement of debt, net of taxes (0.11) - -
------------ ------------ ------------
Net income $ 0.23 $ 0.59 $ 0.07
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares outstanding 28,960,000 35,561,000 37,924,000
------------ ------------ ------------
------------ ------------ ------------
Diluted Earnings Per Share:
Income before extraordinary items $ 0.32 $ 0.57 $ 0.07
Loss on retirement of debt, net of taxes (0.10) - -
------------ ------------ ------------
Net income $ 0.22 $ 0.57 $ 0.07
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares and common
share equivalents outstanding 30,795,000 37,293,000 39,029,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,721,000 $ 21,134,000 $ 2,837,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 5,409,000 6,377,000 10,230,000
Amortization and write-off of intangibles 2,210,000 3,442,000 5,249,000
Amortization of deferred compensation - - 562,000
Amortization and write-off of start-up costs 929,000 322,000 2,845,000
Amortization of deferred finance costs and debt discount 228,000 - 607,000
Loss on retirement of debt 4,592,000 - -
Change in assets and liabilities:
Accounts receivable (6,541,000) (15,436,000) (25,763,000)
Prepaid expenses and other assets (754,000) (5,330,000) (15,580,000)
Accounts payable, accrued expenses, and income taxes (943,000) (2,977,000) 9,951,000
------------ ------------ ------------
Net cash provided by (used in) operating activities 11,851,000 7,532,000 (9,062,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (49,245,000) (68,805,000) (76,093,000)
Purchase of property and equipment (9,379,000) (23,203,000) (25,736,000)
Sale (purchase) of investments, net - (12,045,000) 12,045,000
Proceeds from sale of property and equipment and other 566,000 (8,000) 663,000
------------ ------------ ------------
Net cash used in investing activities (58,058,000) (104,061,000) (89,121,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under revolving credit facilities, net (416,000) 1,400,000 43,300,000
Proceeds from the issuance of long-term debt 29,046,000 121,239,000 -
Payments on long-term debt (82,919,000) (36,220,000) (1,082,000)
Net proceeds from the issuance of common stock
and preferred stock 105,807,000 57,039,000 9,955,000
Dividends and distributions to shareholders (1,848,000) (1,613,000) -
------------ ------------ ------------
Net cash provided by financing activities 49,670,000 141,845,000 52,173,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,463,000 45,316,000 (46,010,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,277,000 10,740,000 56,056,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,740,000 $ 56,056,000 $ 10,046,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,947,000 $ 3,015,000 $ 8,081,000
Income taxes paid $ 7,154,000 $ 8,437,000 $ 12,129,000
Liabilities and debt assumed in acquisitions $ 13,500,000 $ 9,030,000 $ 12,774,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
Convertible Class A $0.01 Par Value
Preferred Stock Common Stock Common Stock
------------------------- ------------------------ --------------------------
Number Number Number
of Shares Value of Shares Value of Shares Value
----------- ----------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 5,868,455 $12,084,000 8,394,200 $38,000 9,905,617 $98,000
Conversion of Convertible Preferred
Stock into Common Stock (5,868,455) (12,084,000) 0 0 2,835,000 28,000
Conversion of Class A Common Stock
into $0.01 par value Common Stock 0 0 (8,394,200) (38,000) 8,394,200 84,000
Sale of Common Stock 0 0 0 0 9,859,573 99,000
Common Stock issued in connection
with acquisitions 0 0 0 0 373,488 4,000
Issuance of Common Stock warrants 0 0 0 0 0 0
Exercise of Common Stock warrants 0 0 0 0 82,222 1,000
Common Stock issued under employee
stock purchase and option plans 0 0 0 0 205,628 2,000
Conversion of notes payable into
Common Stock 0 0 0 0 18,241 0
Dividends and shareholder distributions 0 0 0 0 0 0
Net income 0 0 0 0 0 0
---------- ----------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1995 0 0 0 0 31,673,969 316,000
---------- ----------- ---------- ------- ---------- --------
---------- ----------- ---------- ------- ---------- --------
Sale of Common Stock 0 0 0 0 2,143,200 22,000
Common Stock issued in connection
with acquisitions 0 0 0 0 715,246 7,000
Common Stock issued under employee
stock purchase and option plans 0 0 0 0 640,453 6,000
Exercise of Common Stock warrants 0 0 0 0 151,111 2,000
Conversion of notes payable into
Common Stock 0 0 0 0 105,983 1,000
Conversion of debenture payable into
Common Stock 0 0 0 0 1,854,141 19,000
Dividends and shareholder distributions 0 0 0 0 0 0
Net Income 0 0 0 0 0 0
---------- ----------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1996 0 0 0 0 37,284,103 373,000
---------- ----------- ---------- ------- ---------- --------
---------- ----------- ---------- ------- ---------- --------
Common Stock issued in connection
with acquisitions 0 0 0 0 591,718 6,000
Common Stock issued under employee
stock purchase and option plans 0 0 0 0 816,829 8,000
Amortization of deferred compensation 0 0 0 0 0 0
Conversion of notes payable into
Common Stock 0 0 0 0 81,571 1,000
Dividends and shareholder distributions 0 0 0 0 0 0
Net Income 0 0 0 0 0 0
---------- ----------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1997 0 $0 0 $0 38,774,221 $388,000
---------- ----------- ---------- ------- ---------- --------
---------- ----------- ---------- ------- ---------- --------
<CAPTION>
Stock-
Paid-in Retained holders'
Capital Earnings Treasury Stock Equity (Deficit)
----------- ------------ ------------------------- ----------------
Number
of Shares Value
----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 39,735,000 $(18,555,000) (3,033,455) $(40,866,000) $(7,466,000)
Conversion of Convertible Preferred
Stock into Common Stock 2,807,000 (31,617,000) 3,033,455 40,866,000 0
Conversion of Class A Common Stock
into $0.01 par value Common Stock 0 (46,000) 0 0 0
Sale of Common Stock 104,648,000 0 0 0 104,747,000
Common Stock issued in connection
with acquisitions 1,503,000 (194,000) 0 0 1,313,000
Issuance of Common Stock warrants 450,000 0 0 0 450,000
Exercise of Common Stock warrants 246,000 0 0 0 247,000
Common Stock issued under employee
stock purchase and option plans 1,802,000 0 0 0 1,804,000
Conversion of notes payable into
Common Stock 128,000 0 0 0 128,000
Dividends and shareholder distributions 0 (1,698,000) 0 0 (1,698,000)
Net income 0 6,721,000 0 0 6,721,000
----------- ------------ --------- ------------ -----------
BALANCE, DECEMBER 31, 1995 151,319,000 (45,389,000) 0 0 106,246,000
----------- ------------ --------- ------------ -----------
----------- ------------ --------- ------------ -----------
Sale of Common Stock 51,818,000 0 0 0 51,840,000
Common Stock issued in connection
with acquisitions 6,725,000 407,000 0 0 7,139,000
Common Stock issued under employee
stock purchase and option plans 7,693,000 0 0 0 7,699,000
Exercise of Common Stock warrants 1,062,000 0 0 0 1,064,000
Conversion of notes payable into
Common Stock 824,000 0 0 0 825,000
Conversion of debenture payable into
Common Stock 14,766,000 0 0 0 14,785,000
Dividends and shareholder distributions 0 (1,613,000) 0 0 (1,613,000)
Net Income 0 21,134,000 0 0 21,134,000
----------- ------------ --------- ------------ -----------
BALANCE, DECEMBER 31, 1996 234,207,000 (25,461,000) 0 0 209,119,000
----------- ------------ --------- ------------ -----------
----------- ------------ --------- ------------ -----------
Common Stock issued in connection
with acquisitions 1,722,000 (969,000) 0 0 759,000
Common Stock issued under employee
stock purchase and option plans 9,947,000 0 0 0 9,955,000
Amortization of deferred compensation 562,000 0 0 0 562,000
Conversion of notes payable into
Common Stock 690,000 0 0 0 691,000
Dividends and shareholder distributions 0 0 0 0 0
Net Income 0 2,837,000 0 0 2,837,000
----------- ------------ --------- ------------ -----------
BALANCE, DECEMBER 31, 1997 $247,128,000 ($23,593,000) 0 $0 $223,923,000
----------- ------------ --------- ------------ -----------
----------- ------------ --------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONCENTRA MANAGED CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
On August 29, 1997, CONCENTRA Managed Care, Inc. ("CONCENTRA" or the
"Company"), a Delaware corporation, was formed by the merger (the "Merger")
of CRA Managed Care, Inc. ("CRA") and OccuSystems, Inc. ("OccuSystems"). As a
result of the Merger, CRA changed its name to CONCENTRA Managed Care
Services, Inc. ("Managed Care Services") and OccuCenters, Inc., the operating
subsidiary of OccuSystems, changed its name to CONCENTRA Health Services,
Inc. ("Health Services"). The Merger was a tax-free stock for stock exchange
accounted for as a pooling of interests. The outstanding shares of CRA and
OccuSystems were exchanged for new shares in CONCENTRA. The 22,022,378
outstanding shares of OccuSystems were exchanged one for one for shares of
CONCENTRA common stock while the 9,013,906 outstanding shares of CRA were
exchanged for 16,098,836 shares of CONCENTRA common stock, representing a
conversion ratio of 1.786 to 1.0.
The Company recorded a non-recurring charge of $38,625,000 associated with
the Merger. The charges incurred were approximately $12,450,000 for
professional fees and services, $14,200,000 in costs associated with
personnel reductions, $6,575,000 in facility consolidations and closings,
$2,525,000 for the write-off of start-up costs and $2,875,000 of other merger
and transitional expenses.
(2) SIGNIFICANT ACQUISITIONS
Managed Care Services has experienced a significant amount of its growth by
virtue of the acquisitions of FOCUS HealthCare Management, Inc. ("FOCUS"),
Prompt Associates, Inc. ("PROMPT"), First Notice Systems, Inc. ("FNS") and
several other smaller acquisitions. Health Services has also experienced a
significant amount of its growth from the acquisition of practices, including
the acquisition of 16 occupational medical centers and contracts to manage
four additional medical centers from Vencor, Inc. ("VMC").
On April 2, 1996, the Company purchased FOCUS for $21,000,000 in cash.
FOCUS, based in Brentwood, Tennessee, has built and maintains one of the
nation's largest workers' compensation preferred provider organization
("PPO") networks and had annual revenues of approximately $9,900,000 for the
year ended December 31, 1995.
On October 29, 1996, the Company purchased PROMPT for $30,000,000 in cash.
PROMPT, which is based in Salt Lake City, Utah, is one of the leading
providers of hospital bill audit services to the group health payor community
for claims that fall outside of an indemnity carrier's, third-party
administrator's ("TPA") or health maintenance organization's ("HMO") network
of hospital or outpatient facilities and had annual revenues of approximately
$10,000,000 for the year ended December 31, 1995.
On June 4, 1997, the Company purchased FNS for $40,000,000 in cash. FNS,
based in Boston, Massachusetts, is a leading provider of outsourced call
reporting for first notice of loss/injury to the automobile insurance and
workers' compensation industries and had annual revenues of approximately
$9,000,000 for the year ended December 31, 1996.
On September 30, 1997, the Company purchased 16 occupational medical centers
and the management of four additional medical centers from Vencor, Inc.
("VMC") for approximately $27,000,000 in cash. These medical centers had
annual revenues of approximately $23,000,000 for the year ended December 31,
1996.
The acquisitions of FOCUS, PROMPT, FNS and VMC have been accounted for by the
Company as purchases whereby the basis for accounting for their assets and
liabilities are based upon their fair values at the dates of acquisition.
The excess of the purchase price over fair value of net assets acquired
(goodwill) for the FOCUS, PROMPT, FNS and VMC acquisitions was $19,217,000,
$28,791,000, $35,852,000 and $28,983,000, respectively, and is being
amortized over a forty year period.
12
<PAGE>
During 1995, the Company used the net proceeds from the sale of Common Stock,
supplemented by borrowings under its credit facility to fully repay certain
long-term debt. The early repayment of this debt resulted in the Company
recording a net loss on the retirement of debt of $3,140,000 comprised of
the write-off of associated deferred finance costs, debt discounts and fees
associated with the termination of the interest rate swaps previously
required by the loan agreement, offset by a tax benefit.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Physician and physical therapy services are provided at the Health Services
centers under management agreements with affiliated physician associations
(the "Physician Groups"), which are organized professional corporations that
hire licensed physicians and physical therapists to provide medical services
to the centers' patients. Since Health Services effectively controls the
Physician Groups, Health Services results of operations reflect the revenues
generated by the Physician Groups and the costs associated with the delivery
of their services. The financial statements of the Physician Groups are
consolidated because Health Services has unilateral control over the assets
and operations of the Physician Groups and notwithstanding the lack of
technical majority ownership, consolidation of the Physician Groups with
Health Services is necessary to present fairly the financial position and
results of operations of Health Services due to the existence of a
parent-subsidiary relationship by means other than record ownership of the
Physician Group's voting stock. The shareholders of the Physician Groups are
the physician leaders of Health Services, and are employed by Health Services
or one of its wholly-owned subsidiaries. Through a shareholder agreement,
Health Services restricts any transfer of Physician Group ownership without
its consent and can require the holder of such shares to transfer ownership
to a Health Services designee upon the occurrence of certain events,
including but not limited to the cessation of employment. Control of the
Physician Groups is perpetual due to the nature of the relationship and the
management agreements between the entities. The employed physicians do not
control fee schedules, payor contracts, or employment decisions regarding
personnel. The risk of loss for billed services provided by the Physician
Groups resides ultimately with Health Services as CONCENTRA Managed Care,
Inc. is required to provide financial support on an as needed basis.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents. The
carrying amount approximates fair value due to the short maturity of those
instruments.
(c) REVENUE RECOGNITION
The Company recognizes revenue primarily as services have been rendered based
upon time and expenses incurred. A certain portion of the Company's revenues
are derived from fee schedule auditing which is based on the number of charges
reviewed, and to a limited extent, based on a percentage of savings achieved
for the Company's customers. In these circumstances, the customer is obligated
to pay the Company when the services have been rendered and the savings
identified. During the fee schedule audit process (i.e. medical bill review),
each bill reviewed and audited is returned to the customer accompanied by an
Explanation of Benefit ("EOB"). The EOB details the total savings with respect
to the bill being reviewed as well as the amount owed to the Company as a
percentage of savings identified and the line charge associated with the bill
being reviewed.
Insurance claims are modeled by PROMPT prior to the insurance company's
internal review procedures to determine if the claims should be modeled or
are payable by the insurance company. During the insurance company's review
process, some claims have pre-existing PPO or HMO arrangements, or other
pre-existing conditions and disqualifying situations. When these situations
occur, a refund (chargeback) is requested for the amounts paid (invoiced) on
these claims. PROMPT's policy is to record a sales allowance as an offset to
revenues and accounts receivable based upon the historical tracking of
discounts and chargebacks at the time the claims are modeled. A portion of
the allowance for doubtful accounts attributable to PROMPT is based on
historical experience of ineligible claims which are either charged back or
given a negotiated discount. PROMPT utilizes several methods to project
unpresented discounts and chargebacks including a tracking of the actual
experience of contractual discounts. Other factors that affect
collectibility and bad debts for each service line are also evaluated and
additional allowance amounts are provided as necessary.
13
<PAGE>
Accounts receivable at December 31, 1996 and 1997 include $4,500,000 of
unbilled accounts receivable relating to services rendered during the period
but not invoiced until after the period-end. These unbilled accounts
receivable relate primarily to field case management services, which are
billed on an hourly basis, whereby the Company has not yet provided a
sufficient amount of services to warrant the generation of an invoice. The
customers are obligated to pay for the services once performed. The Company
estimates unbilled accounts receivable by tracking and monitoring its
historical experience.
(D) DEPRECIATION
The Company provides for depreciation on property and equipment using
straight-line and accelerated methods by charges to operations in amounts
that allocate the cost of depreciable assets over their estimated lives as
follows:
Asset Classification Estimated Useful Life
- -------------------- ----------------------
Furniture and fixtures 7 Years
Office and computer equipment 3 - 5 Years
Automobiles 5 Years
Buildings and improvements 30 Years
Leasehold improvements The shorter of the
life of lease or asset life
(E) INTANGIBLE ASSETS
The value of goodwill, assembled workforces, and customer lists are recorded
at cost at the date of acquisition. Goodwill, including any excess arising
from earn-out payments, is being amortized on a straight-line basis over a
40-year period in accordance with Accounting Principles Board Opinion No. 17
("APB No. 17"), "Intangible Assets". The Company believes that the life of
the core businesses acquired and the delivery of occupational healthcare
services is indeterminate and likely to exceed 40 years. The assembled
workforces and customer lists are being amortized over five-year and
seven-year periods, respectively. As of December 31, 1996 and 1997, the
Company recorded accumulated amortization on intangible assets of $24,158,000
and $29,407,000, respectively.
Subsequent to an acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate that the remaining
balance of goodwill may not be recoverable or that the remaining useful life
may warrant revision. When factors indicate that goodwill should be evaluated
for possible impairment, the Company uses an estimate of the related business
segments' undiscounted cash flows over the remaining life of the goodwill and
compares it to the business segment's goodwill balance to determine whether
the goodwill is recoverable or if impairment exists, in which case an
adjustment is made to the carrying value of the asset. When an adjustment is
required the Company evaluates the remaining goodwill amortization using the
factors outlined in APB No. 17.
(F) DEFERRED FINANCE COSTS
The Company has capitalized costs associated primarily with the 6%
Convertible Subordinated Notes and is amortizing this as interest expense
over the life of the notes. Included in other assets at December 31, 1996
and 1997 were deferred finance costs, net of accumulated amortization, of
$3,366,000 and $2,921,000, respectively.
(G) DEFERRED START-UP COSTS
Prior to the Merger, Health Services capitalized the start-up costs
associated with the internal development of its medical centers until
operational and would amortize these costs over a three year period. The
American Institute of Certified Public Accountants proposed a change to the
accounting and reporting treatment of start-up costs effective with fiscal
year ends beginning after December 15, 1998 which requires start-up costs to
be expensed as incurred. As a result of this pending change in accounting
principle, the Company wrote-off deferred start-up costs of approximately
$2,525,000 at the effective time of the Merger and included this in the
non-recurring charge. As of December 31, 1996, the amount recorded as
deferred start-up costs was $1,973,000.
(H) FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's Canadian offices are translated
at the year-end exchange rate while revenues and expenses are translated at
the average exchange rate for the year.
14
<PAGE>
(I) USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(J) RECLASSIFICATIONS
Certain amounts in 1995 and 1996 previously reported in CRA's and
OccuSystems' financial statements have been reclassified to conform to the
presentation in the 1997 financial statements.
(4) EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
supersedes Accounting Principles Board Opinion No. 15. SFAS 128, establishes
new accounting standards for the presentation of earnings per share whereby
primary earnings per share is replaced with "Basic Earnings Per Share" and
fully diluted earnings per share is now called "Diluted Earnings Per Share".
Under SFAS 128, Basic Earnings Per Share is computed by dividing reported net
income by weighted average common shares outstanding and Diluted Earnings Per
Share has been computed assuming the conversion of the Company's convertible
notes and the elimination of the related interest expense, and the exercise
of stock options, net of their related income tax effect.
(5) REVOLVING CREDIT FACILITIES
On September 17, 1997, the Company entered into the $100,000,000 Senior
Credit Facility, ("Senior Credit Facility"), replacing the $60,000,000
Managed Care Services Credit Facility, ("MCS Credit Facility") and the
$60,000,000 Health Services Credit Facility, ("HS Credit Facility").
Interest on borrowings under the Senior Credit Facility is payable, at the
Company's option, at the higher of the bank's prime rate of interest or the
federal funds rate plus an additional percentage of 0.5%, or LIBOR plus an
additional percentage of up to 1.25%, depending on certain financial
criteria. At December 31, 1996 and 1997, the Company had borrowings under
the MCS Credit Facility of $5,700,000 and borrowings under the Senior Credit
Facility of $49,000,000, respectively, at an average rate of interest of
7.61% and 6.94%, respectively.
The Senior Credit Facility contains customary covenants, including, without
limitation, restrictions on the incurrence of indebtedness, the sale of
assets, certain mergers and acquisitions, the payment of dividends on the
Company's capital stock, the repurchase or redemption of capital stock,
transactions with affiliates, investments, capital expenditures and changes
in control of the Company. Under the Senior Credit Facility, the Company is
also required to satisfy certain financial covenants, such as cash flow,
capital expenditures and other financial ratio tests including current ratios
and interest expense coverage ratios. The Company was in compliance with all
such covenants during 1997. The Company's obligations under the Senior Credit
Facility are secured by a first priority security interest in substantially
all of the Company's properties and assets.
The Company is required to pay a commitment fee of 0.125% to 0.25% per annum,
depending on certain financial criteria, on the unused portion of the Senior
Credit Facility.
On February 23, 1998, the Company signed an amendment to expand the Company's
borrowing capacity under the Senior Credit Facility to $200,000,000 under
similar terms and conditions in order to finance the repayment of debt
associated with its acquisition of Preferred Payment Systems on February 24,
1998. On March 11, 1998, the Senior Credit Facility borrowing capacity was
reduced back to the original $100,000,000 amount (see Footnote 14 -
Subsequent Events).
For the years ended December 31, 1995, 1996 and 1997, the weighted average
borrowings under these revolving credit facilities were $4,903,000,
$8,184,000 and $9,615,000, respectively, and the weighted average interest
rates were 8.55%, 6.94% and 7.31%, respectively.
15
<PAGE>
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
1996 1997
------------ ------------
<S> <C> <C>
6% Convertible Subordinated Notes, interest at 6%, due December 2001 $ 97,750,000 $ 97,750,000
Convertible notes payable, interest at 6%; payable through September 1999 785,000 -
Notes payable to various holders, interest ranging from 5.5% to 10%,
payable in installments through 2005 304,000 308,000
Obligations under capital leases 1,190,000 542,000
------------ ------------
100,029,000 98,600,000
Less: Current maturities (940,000) (497,000)
------------ ------------
Long-term debt, net of current maturities $ 99,089,000 $ 98,103,000
------------ ------------
------------ ------------
</TABLE>
In December 1996, Health Services issued an aggregate of up to $97,750,000 in
principal amount of 6% Convertible Subordinated Notes ("6% Convertible
Subordinated Notes"). The 6% Convertible Subordinated Notes will be convertible
into 3,291,243 shares of Common Stock at the initial conversion price of $29.70
per share (equivalent to a conversion rate of 33.67 shares per $1,000 principal
amount of 6% Convertible Subordinated Notes), subject to adjustment in certain
events. The notes are convertible into Common Stock at the option of the
holder on or after February through December 2001. The 6% Convertible
Subordinated Notes will mature on December 15, 2001 with interest being
payable semi-annually on June 15 and December 15 of each year, commencing on
June 15, 1997.
(7) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments". This statement requires entities to disclose the fair value of
their financial instruments, both assets and liabilities, on and off balance
sheet, for which it is practicable to estimate fair value. The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value. The
Company's short-term investments are held as available for sale per Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities".
The carrying amounts of cash and cash equivalents, short term investments,
accounts receivable, other current assets, accounts payable, and accrued
expenses approximate fair value because of the short maturity of those
instruments.
The fair value of the Company's 6% Convertible Subordinated Notes was estimated
based on the closing price of the notes was approximately $97,750,000 and
$125,120,000 as of December 31, 1996 and 1997, respectively.
(8) INCOME TAXES
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $6,529,000 $11,429,000 $15,112,000
State 1,182,000 2,302,000 3,755,000
---------- ----------- -----------
7,711,000 13,731,000 18,867,000
Deferred:
Federal (120,000) (214,000) (6,873,000)
State 42,000 (251,000) (1,145,000)
---------- ----------- -----------
(78,000) (465,000) (8,018,000)
---------- ----------- -----------
Total $7,633,000 $13,266,000 $10,849,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
16
<PAGE>
Significant items making up deferred tax liabilities and deferred tax assets
were as follows at December 31:
<TABLE>
1996 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $2,957,000 $ 4,624,000
Accrued vacation - 1,760,000
Accrued self insurance 783,000 580,000
Acquired goodwill 771,000 1,678,000
Restructuring accruals and reserves 225,000 5,107,000
Net operating losses - 506,000
Other 52,000 109,000
---------- -----------
Deferred tax assets $4,788,000 $14,364,000
---------- -----------
---------- -----------
Deferred tax liabilities:
Book to tax depreciation $930,000 $ 1,716,000
SEC. 481 (a) adjustments 1,278,000 34,000
Goodwill, principally due to differences in
amortization periods 2,274,000 4,400,000
Pre-opening costs 499,000 -
Research and development expense 1,178,000 1,520,000
Other 144,000 43,000
---------- -----------
$6,303,000 $ 7,713,000
---------- -----------
---------- -----------
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective tax
rate were as follows for the years ended December 31:
<TABLE>
1995 % 1996 % 1997 %
---------- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Tax provision at federal statutory rate $5,948,000 34.0% $11,869,000 34.5% $ 4,789,000 35.0%
State taxes, net of federal income tax benefit 884,000 5.0 1,317,000 3.8 712,000 5.2
Pooled entities tax benefit attributed to individual
stockholders of the respective companies 984,000 5.6 101,000 0.3 - -
Non-deductible goodwill 129,000 0.7 367,000 1.1 1,003,000 7.3
Non-deductible restructuring and acquisition costs - - - - 4,064,000 29.7
Change in valuation allowance (638,000) (3.6) - - - -
Other items, net 326,000 1.9 (388,000) (1.1) 281,000 2.1
---------- ---- ----------- ---- ----------- ----
$7,633,000 43.6% $13,266,000 38.6% $10,849,000 79.3%
---------- ---- ----------- ---- ----------- ----
---------- ---- ----------- ---- ----------- ----
</TABLE>
(9) STOCKHOLDERS' EQUITY
(A) PREFERRED STOCK
The Board of Directors is authorized to issue shares of Preferred Stock, in
one or more series, and to fix for each such series the number of shares
thereof and voting powers and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions as are permitted by the Delaware General Corporation Law. The
Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that could discourage a takeover or other
transaction that holders of some or a majority of shares of Common Stock
might believe to be in their best interests or in which such holders might
receive a premium for their shares of stock over the then market price of
such shares. As of the date hereof, no shares of Preferred Stock are
outstanding and the Board of Directors has no present intention to issue any
shares of Preferred Stock.
(B) STOCKHOLDER RIGHTS PLAN
Shortly after the Merger, on September 17, 1997, the Board of Directors
declared, pursuant to a rights agreement (the "Rights Agreement"), a dividend
distribution of one common share purchase right ("Right") for each
outstanding share of Common Stock. Each Right will entitle the registered
holder to purchase from CONCENTRA one thousandth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Junior
Preferred Shares"), of
17
<PAGE>
CONCENTRA at a price per share to be determined by the Board of Directors
with the advice of its financial advisor about the long-term prospects for
Company's value (the "Purchase Price"), subject to adjustment. Each
thousandth of a Junior Preferred Share will be economically equivalent to one
share of CONCENTRA Common Stock. The Purchase Price is expected to be
significantly higher than the trading price of the Common Stock. Therefore,
the dividend will have no initial value and no impact on the financial
statements of Company.
(C) COMMON STOCK
At December 31, 1997, the Company has reserved approximately 11,043,000
unissued shares of its Common Stock for possible issuance under the Company's
stock option plan, stock purchase plans and for the issuance upon possible
conversion of the Company's 6% Convertible Notes.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases certain corporate office space, operating and medical
facilities, and office and medical equipment under various non-cancelable
operating and capital lease agreements. Certain facility leases require the
Company to pay increases in operating costs and real estate taxes. In
addition, the Company leases certain office facilities from related parties
under operating lease agreements that expire on various dates to July 31,
2002. The Company made rental payments of $726,000 to Colonial Realty Trust,
a real estate company owned by two stockholders and board members of the
Company, for each of the years ended December 31, 1995, 1996 and 1997.
The following is a schedule of rent expense by major category for the years
ended December 31:
<TABLE>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Facilities $10,911,000 $12,668,000 $16,792,000
Office equipment 1,053,000 1,166,000 2,029,000
Automobiles 2,638,000 2,729,000 2,976,000
----------- ----------- -----------
Total rent expense $14,602,000 $16,563,000 $21,797,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following is a schedule of future minimum lease payments under non-
cancelable operating leases for the years ending December 31:
<TABLE>
OPERATING LEASES
---------------------------------------
CAPITAL RELATED UNRELATED
LEASES PARTIES PARTIES TOTAL
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ending December 31,
1998 $573,000 $ 726,000 $18,904,000 $19,630,000
1999 163,000 726,000 15,683,000 16,409,000
2000 22,000 726,000 12,427,000 13,153,000
2001 0 726,000 9,674,000 10,400,000
2002 0 726,000 7,941,000 8,667,000
Thereafter 0 727,000 11,213,000 11,940,000
-------- ---------- ----------- -----------
758,000 $4,357,000 $75,842,000 $80,199,000
-------- ---------- ----------- -----------
---------- ----------- -----------
Amount representing interest (216,000)
--------
$542,000
--------
--------
</TABLE>
A wholly-owned subsidiary of Health Services has committed to guarantee
$10,400,000 in senior discount notes, plus interest, issued by CONCENTRA
Development Corporation ("CDC"), a corporation organized and capitalized to
develop occupational healthcare centers in selected markets in the United
States. The stated principal amount of the notes total $28,400,000, which will
be their accreted value at their stated maturity (five years after the date of
issuance of each note). Health Services also has the right to acquire the
developed centers at fair market value in the future. Health Services has
entered into a management agreement with CDC to manage the healthcare centers'
daily operations.
18
<PAGE>
The Company is party to certain claims and litigation initiated in the ordinary
course of business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
19
<PAGE>
(11) EMPLOYEE BENEFIT PLANS
(a) CONCENTRA 401(k) PLAN
The Company has a defined contribution plan (the "CONCENTRA 401(k) Plan")
pursuant to which employees who are at least 21 years of age and who have
completed at least six months of service are eligible to participate.
Participants in the 401(k) Plan may not contribute more than the lesser of a
specified statutory amount or 15% of his or her pre-tax total compensation. The
CONCENTRA 401(k) Plan permits, but does not require, additional matching
contributions of up to 50% of participants' pretax contributions up to a
maximum of 6% of compensation by the Company. Employees are 100% vested in
their own contributions while Company contributions vest 20% after three years
and vest an additional 20% each year thereafter. The Company did not make a
matching contribution for 1997.
(b) MANAGED CARE SERVICES 401(k) PLAN
Managed Care Services has a defined contribution plan (the "MCS 401(k) Plan")
under similar terms to those of the CONCENTRA 401 (k). For the years ended
December 31, 1995, 1996 and 1997, the Company has elected to match 50% of up to
4% of compensation. The Company made net contributions to this plan of
$581,000, $855,000 and $925,000 for the years ended December 31, 1995, 1996 and
1997, respectively. It is anticipated that this plan will merge with the
CONCENTRA 401(k) Plan.
(c) HEALTH SERVICES 401(k) PLAN
Health Services has a defined benefit plan (the "HS 401(k) Plan") under similar
terms to those of the CONCENTRA 401 (k) except that their were no matching
contributions under the plan. It is anticipated that this plan will merge with
the CONCENTRA 401(k) Plan.
(12) STOCK PURCHASE PLAN AND STOCK OPTION PLANS
(a) CONCENTRA 1997 EMPLOYEE STOCK PURCHASE PLAN
The CONCENTRA 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan") for
employees of the Company authorizes the issuance of up to 500,000 shares of
Common Stock pursuant to the exercise of nontransferable options granted to
participating employees. The 1997 Purchase Plan is administered by the
Compensation Committee of the Board of Directors.
Under the terms of the 1997 Purchase Plan, an employee must authorize the
Company in writing to deduct an amount (not less than 1% nor more than 15% of a
participant's base compensation and in any event not more than $25,000) from
his or her pay during six month periods commencing on January 1 and July 1 of
each year (each a "Purchase Period"). The exercise price for shares purchased
under the 1997 Purchase Plan for each Purchase Period is the lesser of 85% of
the fair market value of the Common Stock on the first or last business day of
the Purchase Period. The fair market value will be the closing selling price of
the Common Stock as quoted.
(b) MANAGED CARE SERVICES AND HEALTH SERVICES EMPLOYEE STOCK PURCHASE PLANS
Managed Care Services and Health Services each had employee stock purchase
plans under similar terms and conditions as those under the 1997 Purchase Plan.
The Company issued the following shares of Common Stock under the employee
stock purchase plans for each of the following purchase periods:
<TABLE>
WEIGHTED
AVERAGE
NUMBER PRICE
PURCHASE PERIODS ENDED OF SHARES PER SHARE
---------------------- --------- ---------
<S> <C> <C>
December 31, 1995 32,682 $10.49
June 30, 1996 29,089 $10.59
December 31, 1996 44,606 $22.18
June 30, 1997 50,056 $21.38
December 31, 1997 47,245 $24.86
</TABLE>
20
<PAGE>
(c) CONCENTRA 1997 LONG-TERM INCENTIVE PLAN
CONCENTRA may grant awards with respect to shares under the Company's Long-term
Incentive Plan (the "CONCENTRA Incentive Plan"). The awards under the CONCENTRA
Incentive Plan include (i) incentive stock options qualified as such under U.S.
Federal income tax laws, (ii) stock options that do not qualify as incentive
stock options, (iii) stock appreciation rights ("SARs"), (iv) restricted stock
awards and (v) performance units.
The number of shares of Common Stock that may be subject to outstanding awards
under the CONCENTRA Incentive Plan at any one time is equal to ten percent of
the total number of outstanding shares of CONCENTRA Common Stock (treating as
outstanding all shares of Common Stock issuable within 60 days upon exercise of
stock options or conversion or exchange of outstanding, publicly-traded
convertible or exchangeable securities of CONCENTRA) MINUS the total number of
shares of Common Stock subject to outstanding awards under the CONCENTRA
Incentive Plan and any future stock-based plan for employees or directors of
Company. At December 31, 1997, the Company was authorized to award grants of
approximately 4,050,000 shares under the CONCENTRA Incentive Plan. The number
of shares authorized under the CONCENTRA Incentive Plan and the number of
shares subject to an award under the CONCENTRA Incentive Plan will be adjusted
for stock splits, stock dividends, recapitalizations, mergers and other changes
affecting the capital stock of CONCENTRA.
During 1997, the Company granted restricted stock for 359,754 shares of common
stock under the 1997 Incentive Plan which were valued at $9,903,000, based upon
the market value of the shares at the time of issuance. The Company granted
2,754 shares to outside directors which will vest over one year. The remaining
357,000 shares will vest 20% per year beginning January 1, 2002. If the
Company's financial performance exceeds certain established performance goals,
however, the vesting of these shares could accelerate whereby 33 1/3% of the
shares could become vested on January 1, 2000 and each year thereafter. For
the year ended December 31, 1997, the Company recorded compensation expense of
$562,000 in connection with the amortization of deferred compensation
associated with the restricted stock grants.
After the Merger, no additional awards will be made under the former CRA and
OccuSystems stock option plans and only that number of shares of Common Stock
issuable upon exercise of awards granted under the former CRA and OccuSystems
stock option plans as of the Merger were reserved for issuance by the Company.
A summary of the status for all outstanding options at December 31, 1995, 1996
and 1997 and changes during the years then ended is presented in the table
below:
<TABLE>
Weighted
Number Average Price
of Shares Per Share
--------- -------------
<S> <C> <C>
Balance December 31, 1994 2,004,479 $ 4.68
Granted 939,538 14.53
Exercised (168,748) 2.69
Canceled (77,676) 6.63
--------- ------
Balance December 31, 1995 2,697,593 8.18
Granted 1,527,369 22.93
Exercised (590,520) 4.65
Canceled (158,485) 13.79
--------- ------
Balance December 31, 1996 3,475,957 15.01
Granted 2,555,840 25.33
Exercised (720,892) 9.94
Canceled (256,633) 21.59
--------- ------
Balance December 31, 1997 5,054,272 $20.62
--------- ------
--------- ------
</TABLE>
21
<PAGE>
The weighted average fair market value of options granted in 1996 and 1997 were
$22.93 and $29.20, respectively. A further breakdown of the outstanding options
at December 31, 1997 is as follows:
<TABLE>
Weighted
Weighted Average Excercisable Weighted
Range of Number of Average Contractual Number of Average
Exercise prices Options Price Life Options Price
- ---------------- --------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $12.39 1,401,669 $ 4.68 7.37 667,474 $ 6.26
$12.74 - $23.13 1,283,935 20.38 8.54 263,254 19.08
$23.17 - $27.88 990,668 26.42 9.19 96,504 25.60
$32.63 - $32.63 1,059,000 32.63 9.83 - -
$32.75 - $33.88 319,000 33.77 9.87 - -
--------- ------ ------ --------- ------
5,054,272 $20.62 8.70 1,027,232 $11.36
</TABLE>
The Company accounts for these plans under APB No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net
income and earnings per share would have been reduced to the following pro
forma amounts:
<TABLE>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income Before Extraordinary Items: As reported $9,861,000 $21,134,000 $2,837,000
Pro forma $9,304,000 $18,255,000 ($3,388,000)
Basic Earnings (Loss) Per Share: As reported $0.34 $0.59 $0.07
Pro forma $0.32 $0.51 ($0.09)
Diluted Earnings (Loss) Per Share: As reported $0.32 $0.57 $0.07
Pro forma $0.30 $0.49 ($0.09)
</TABLE>
Because the method of accounting under SFAS 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. Additionally, the
1995, 1996 and 1997 pro forma amounts include $60,000, $229,000 and $396,000,
respectively, related to purchase discounts offered on employee stock purchase
plans.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1995, 1996 and 1997, respectively:
<TABLE>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Risk-free interest rates 6.17% 6.00% 6.00%
Expected volatility 47.39% 47.39% 45.29%
Expected dividend yield - - -
Expected weighted average life of options in years 3.4 3.4 4.8
</TABLE>
22
<PAGE>
(13) SELECTED FINANCIAL DATA
<TABLE>
For the year ended December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 164,731,000 $206,797,000 $283,041,000 $349,687,000 $458,952,000
Gross profit 23,923,000 29,744,000 53,142,000 71,848,000 101,522,000
Non-recurring charges 20,573,000 - 898,000 964,000 38,625,000
Operating income (loss) (13,377,000) 10,514,000 22,741,000 37,208,000 21,424,000
Income before taxes 4,533,000 4,666,000 17,494,000 34,400,000 13,686,000
Provision for income taxes (1) 355,000 6,528,000 7,633,000 13,266,000 10,849,000
Net income (loss) before extraordinary
items (1) (15,360,000) (1,862,000) 9,861,000 21,134,000 2,837,000
Basic earnings per share before
extraordinary items $0.34 $0.59 $0.07
Basic weighted average shares outstanding 28,960,000 35,561,000 37,924,000
Diluted earnings per share before
extraordinary items $0.32 $0.57 $0.07
Diluted weighted average shares outstanding 30,795,000 37,293,000 39,029,000
BALANCE SHEET:
Working capital $ 20,677,000 $ 17,182,000 $ 19,737,000 $115,616,000 $ 38,829,000
Total assets 72,773,000 107,995,000 182,925,000 359,602,000 436,423,000
Total debt 17,649,000 83,785,000 34,639,000 105,729,000 147,600,000
Total stockholders' equity (deficit) 35,805,000 (8,474,000) 106,246,000 209,119,000 223,923,000
</TABLE>
(1) Prior to its recapitalization in March of 1994, CRA had elected to be
taxed as an "S" corporation. In connection with its recapitalization,
CRA was required to change from an "S" to a "C" corporation. This change
resulted in CRA recording an incremental tax provision of $3,772,000 in
the first quarter of 1994. The Company's pro forma net income for 1994
would have been $3,466,000 higher had CRA had been subject to federal and
state income taxes during the entire period based upon an effective tax
rate indicative of the statutory rate in effect during the period.
(14) SUBSEQUENT EVENT:
On February 24, 1998, the Company acquired all of the outstanding common stock
of Preferred Payment Systems ("PPS") of Naperville, Illinois, in exchange for
approximately 7,100,000 shares of Common Stock, the payment of approximately
$15,050,000 in cash to dissenting shareholders and the assumption of
approximately $49,000,000 of debt which was repaid at the time of the
acquisition. The Company expanded its borrowing capacity under the Senior
Credit Facility to $200,000,000 to finance this acquisition. This acquisition
will be accounted for as a pooling of interests. PPS, founded in 1990, is a
provider of specialized cost containment and outsourcing services for
healthcare payors.
Pro forma results of operations for the Company for the years ended December
31, 1995, 1996 and 1997 assuming that the acquisition of PPS had occurred on
January 1, 1995 would have been; (i) revenues of $305,355,000, $372,683,000 and
$493,879,000, respectively, (ii) operating income, including non-recurring
charges, of $29,446,000, $45,194,000 and $33,051,000, respectively, or
operating income, excluding non-recurring charges, of $30,344,000, $46,158,000
and $71,676,000, respectively and (iii) net income of $13,191,000, $24,732,000
and $6,868,000, respectively, or basic earnings per share of $0.37, $0.58 and
$0.15, respectively and diluted earnings per share of $0.35, $0.56 and $0.15,
respectively. Pro forma net income for the year ended December 31 1995, 1996
and 1997 has been adjusted as if PPS had been subject to federal and state
income taxes for the entire year based upon an effective tax rate (41%)
indicative of the statutory rates in effect during the year. Prior to its
acquisition, PPS had elected to be taxed as an "S" corporation.
23
<PAGE>
On March 11, 1998, the Company issued a new issue of $200 million aggregate
principal amount of 4.5% Convertible Subordinated Notes due March 15, 2003 (the
"4.5% Convertible Subordinated Notes"). The 4.5% Convertible Subordinated
Notes will be convertible into the Company's common stock, at the option of the
holder, at a conversion price of $41.25 per share, representing a conversion
premium of 25% over the previous day's closing price. The 4.5% Convertible
Subordinated Notes are general unsecured obligations of the Company ranking
equal in right of payment with the 6% Convertible Subordinated Notes and all
other unsecured indebtedness of the Company. In addition, the Company is a
holding company that conducts all of its operations through subsidiaries, and
the 4.5% Convertible Subordinated Notes and the 6% Convertible Subordinated
Notes are structurally subordinate to all obligations of the Company's
subsidiaries. The 4.5% Convertible Subordinated Notes were sold through a
private placement under Rule 144A of the Securities Act of 1933, as amended and
have similar terms and conditions as the 6% Convertible Subordinated Notes.
The Company intends to use the proceeds from the sale of the 4.5% Convertible
Subordinated Notes to repay existing debt under the Senior Credit Facility and
for general corporate purposes. On March 11, 1998, the Senior Credit Facility
borrowing capacity was reduced back to the original $100,000,000 amount.
(15) SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table sets forth certain unaudited quarterly results of
operations for each of the eight quarters ended December 31, 1997. In
management's opinion, this unaudited information has been prepared on the same
basis as the annual financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented, when read in
conjunction with the financial statements and notes thereto included elsewhere
in this document. The operating results for any quarter are not necessarily
indicative of results for any subsequent quarter.
<TABLE>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue $100,872,000 $113,795,000 $120,559,000 $123,726,000
Cost of services 79,961,000 87,955,000 91,684,000 97,830,000
------------ ------------ ------------ -------------
Gross profit 20,911,000 25,840,000 28,875,000 25,896,000
General and administrative expenses 8,319,000 9,233,000 9,351,000 9,321,000
Amortization 1,190,000 1,120,000 1,348,000 1,591,000
Non-recurring charge - - 38,625,000 -
------------ ------------ ------------ -------------
Operating income (loss) 11,402,000 15,487,000 (20,449,000) 14,984,000
Other expense, net 1,240,000 1,782,000 2,169,000 2,547,000
Provision (benefit) for income taxes 4,054,000 5,334,000 (3,389,000) 4,850,000
------------ ------------ ------------ -------------
Net income (loss) $ 6,108,000 $ 8,371,000 ($19,229,000) $ 7,587,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Basic earnings (loss) per share $0.16 $0.22 ($0.51) $0.20
Diluted earnings (loss) per share $0.16 $0.22 ($0.51) $0.19
</TABLE>
<TABLE>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue $77,973,000 $87,439,000 $92,965,000 $91,310,000
Cost of services 64,018,000 68,598,000 72,301,000 72,922,000
------------ ------------ ------------ -------------
Gross profit 13,955,000 18,841,000 20,664,000 18,388,000
General and administrative expenses 6,873,000 7,862,000 7,821,000 7,678,000
Amortization 654,000 850,000 877,000 1,061,000
Non-recurring charge - - - 964,000
------------ ------------ ------------ -------------
Operating income 6,428,000 10,129,000 11,966,000 8,685,000
Other expense, net 772,000 959,000 518,000 559,000
Provision for income taxes 2,334,000 3,537,000 4,312,000 3,083,000
------------ ------------ ------------ -------------
Net income $ 3,322,000 $ 5,633,000 $ 7,136,000 $ 5,043,000
Basic earnings per share $0.10 $0.16 $0.19 $0.14
Diluted earnings per share $0.10 $0.15 $0.19 $0.13
</TABLE>
24
<PAGE>
Corporate Information
- -------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at
10:00 A.M. on Wednesday, May 13, 1998 at One
Federal Street, 8th Floor, Boston, Massachusetts.
Stockholders of record on March 16, 1998 are entitled
to vote at the meeting.
FORM 10-K
A copy of the Form 10-K as filed with the Securities
and Exchange Commission may be obtained without
charge.
Requests should be directed to:
CONCENTRA Managed Care, Inc.
312 Union Wharf
Boston, MA 02109
Attention: Investor Relations
COMMON STOCK TRANSFER AGENT
AND REGISTRAR
ChaseMellon Shareholder Services, LLC
Overpeck Centre
85 Challenger Road
Richfield Park, NJ 07660
COMMON STOCK LISTING
The Company's Common Stock is listed in the
NASDAQ National Market System under the trading
symbol "CCMC." The high and low prices of
CONCENTRA'S Common Stock for the past eight
quarters are shown in the table below:
<TABLE>
HIGH LOW
- -------------------------------------------
<S> <C> <C>
1996
First Quarter $25.75 $17.75
Second Quarter $40.75 $22.25
Third Quarter $37.50 $25.00
Fourth Quarter $31.00 $23.38
1997
First Quarter $28.00 $22.00
Second Quarter $29.50 $17.25
Third Quarter $35.88 $27.50
Fourth Quarter $38.50 $31.38
</TABLE>
THE COMPANY HAS NEITHER DECLARED NOR PAID CASH
DIVIDENDS ON ITS COMMON STOCK DURING 1996 AND 1997.
The Divisions of
- -------------------------------------------------------------------------------
CONCENTRA
MANAGED CARE, INC.
- - CONCENTRA MANAGED CARE SERVICES
- - CONCENTRA HEALTH SERVICES
- - CONCENTRA PREFERRED SYSTEMS
- - FIRST NOTICE SYSTEMS
- - FOCUS HEALTHCARE MANAGEMENT
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Name State of Incorporation
- ---- ----------------------
Concentra Management Services, Inc. Nevada
Concentra Manage Care Services, Inc. Massachusetts
Concentra Health Services, Inc. Nevada
Prompt Associates, Inc. Delaware
New England Medical Claims Analysts Corp. Massachusetts
First Notice Systems, Inc. Delaware
Focus Healthcare Management, Inc. Tennessee
Hillman Consulting, Inc. Nevada
OCI Holdings, Inc. Nevada
Concentra Preferred Payment Systems, Inc. Delaware
PAI Acquisition Corporation Delaware
Concentra Acquisition Sub, Inc. Delaware
QMC3, Inc. Colorado
CRA Managed Care of Washington, Inc. Washington
Westest, Inc. Texas
Premier Analytical Laboratories, Inc. Texas
Drug Screens, Inc. Texas
Drug Free Consortium, Inc. Texas
Westest Staffing, Inc. Texas
Drug Labs of Louisiana, Inc. Louisiana
Certified Medical Examinations, Inc. Massachusetts
Certified Medical Management, Inc. Massachusetts
<PAGE>
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated January 30, 1998 (except with
respect to the matter discussed in Footnote 14, as to which the date is March
11, 1998) included in this registration statement. It should be noted that we
have not audited any financial statements of the company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
Arthur Anderson LLP
Boston, Massachusetts
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<CASH> 0 56,056,000 10,046,000
<SECURITIES> 0 12,045,000 0
<RECEIVABLES> 0 75,145,000 99,931,000
<ALLOWANCES> 0 11,228,000 17,261,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 152,126,000 135,833,000
<PP&E> 0 70,532,000 101,422,000
<DEPRECIATION> 0 25,968,000 37,237,000
<TOTAL-ASSETS> 0 359,602,000 436,423,000
<CURRENT-LIABILITIES> 0 35,655,000 97,004,000
<BONDS> 0 99,089,000 98,103,000
0 0 0
0 0 0
<COMMON> 0 373,000 388,000
<OTHER-SE> 0 208,746,000 223,535,000
<TOTAL-LIABILITY-AND-EQUITY> 0 359,602,000 436,423,000
<SALES> 0 0 0
<TOTAL-REVENUES> 283,041,000 349,687,000 458,952,000
<CGS> 0 0 0
<TOTAL-COSTS> 229,899,000 277,839,000 357,430,000
<OTHER-EXPENSES> 30,401,000 34,640,000 80,098,000
<LOSS-PROVISION> 4,499,000 6,619,000 18,121,000
<INTEREST-EXPENSE> 5,499,000 2,831,000 8,972,000
<INCOME-PRETAX> 17,494,000 34,400,000 13,686,000
<INCOME-TAX> 7,633,000 13,266,000 10,849,000
<INCOME-CONTINUING> 9,861,000 21,134,000 2,837,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 3,140,000 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,721,000 21,134,000 2,837,000
<EPS-PRIMARY> 0.23 0.59 0.07
<EPS-DILUTED> 0.22 0.57 0.07
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 0 0 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 0 0 0
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 0 0
<EPS-PRIMARY> 0.10 0.26 0.45
<EPS-DILUTED> 0.10 0.25 0.44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 0 0 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 0 0 0
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 0 0
<EPS-PRIMARY> 0.16 0.38 (.13)
<EPS-DILUTED> 0.16 0.38 (.13)
</TABLE>
