<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SYKES HEALTHPLAN SERVICES, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 7389 59-3484556
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
11405 BLUEGRASS PARKWAY
LOUISVILLE, KENTUCKY 40299
(502) 267-4900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID E. GARNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYKES HEALTHPLAN SERVICES, INC.
11405 BLUEGRASS PARKWAY
LOUISVILLE, KENTUCKY 40299
(502) 267-4900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ROBERT J. GRAMMIG, ESQ. MICHAEL A. CAMPBELL, ESQ.
HOLLAND & KNIGHT LLP MAYER, BROWN & PLATT
400 NORTH ASHLEY DRIVE, SUITE 2300 190 SOUTH LASALLE STREET
TAMPA, FLORIDA 33602 CHICAGO, ILLINOIS 60603
(813) 227-8500 (312) 701-7178
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $.01 par value per share............. $115,115,000 $33,959
==========================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The complete U.S.
Prospectus follows immediately. Following the U.S. Prospectus are certain pages
of the International Prospectus, which include an alternate front cover page, an
alternate underwriting section and an alternate back cover page. All other pages
of the U.S. Prospectus and the International Prospectus are identical.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE OR JURISDICTION.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED APRIL 24, 1998
PROSPECTUS
SHARES
[SHPS LOGO]
SYKES HEALTHPLAN SERVICES, INC.
COMMON STOCK
------------------------
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), of Sykes HealthPlan Services, Inc. (the "Company"), offered hereby,
shares are being offered by the Company and shares are being offered
by certain selling shareholders (the "Selling Shareholders"). The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders. See "Principal and Selling Shareholders."
Of the shares of Common Stock offered hereby, shares are being
offered initially in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and shares are being offered initially in a concurrent
international offering outside the United States and Canada by the International
Managers (the "International Offering," and together with the U.S. Offering, the
"Offerings"). The initial public offering price and the underwriting discount
per share are identical for each of the Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of certain factors to be considered
in determining the initial public offering price. It is currently expected that
the initial public offering price will be between $ and $ per
share.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market System under the symbol "SHPS."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS SELLING
TO PUBLIC DISCOUNT(1) TO COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $ $
====================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3) The Company and the Selling Shareholders have granted to the U.S.
Underwriters and the International Managers options, exercisable within 30
days after the date hereof, to purchase up to and additional
shares of Common Stock, respectively, solely to cover over-allotments, if
any. If such options are exercised in full, the Company and the Selling
Shareholders will sell and shares of Common Stock, respectively,
and the total Price to Public, Underwriting Discount, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------------------
MERRILL LYNCH & CO.
FURMAN SELZ
NATIONSBANC MONTGOMERY SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 4
[PHOTOGRAPHS OR GRAPHICS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Financial Statements and
related notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment options will not be exercised. Unless the context otherwise
requires, references in this Prospectus to the "Company" or "SHPS" are to Sykes
HealthPlan Services, Inc., and its subsidiaries. All references herein to
industry financial and statistical information are based on trade articles and
industry reports that the Company believes to be reliable, although there can be
no assurance to that effect. This Prospectus contains forward-looking statements
that involve risks and uncertainties. Future events and the Company's actual
results could differ materially from the results in these forward-looking
statements as a result of certain of the factors set forth in "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
The Company is a provider of outsourced care management ("Care Management")
services and products and employee benefits administration and support services
("Employee Benefit Services"). The Company's customers include large
corporations and healthcare providers and payors. The Company's Care Management
services are designed to enhance the quality of an individual's overall
healthcare by carefully evaluating clinically-based solutions to help patients,
physicians and healthcare providers and payors select appropriate and efficient
medical treatment while providing the opportunity to reduce overall medical
expenditures. The Company's Employee Benefit Services enable customers to
outsource the administration of their employee benefit programs. By providing
its customers with a single-source for Care Management and Employee Benefit
Services, the Company believes it has a unique competitive advantage. Further,
the Company believes the integration of such services will enhance the Company's
customers' ability to determine in a timely fashion an individual's eligibility
to receive services under a customer's benefit plans. The Company currently
provides its services to over 50 of the Fortune 500 companies including AT&T,
American Airlines, Bank of America, IBM, Kmart, Kroger, Lucent Technologies and
Procter & Gamble.
Care Management. The Company's Care Management services and products
assist customers in improving the quality of healthcare services provided to
plan participants and monitor patients' compliance with their prescribed course
of treatment, while simultaneously reducing inappropriate medical costs. The
Company's Care Management services are designed to prospectively assist in
determining an individual's healthcare needs and monitor and evaluate the
delivery of clinical care provided. The Company's clinical staff, comprised of
registered nurses and physicians, interacts with patients, providers and payors
to assist in determining, implementing and monitoring an effective and efficient
customized care management program based on each patient's medical profile. The
Company's Care Management services include demand, utilization, case, disease
and disability management. In addition, for providers and payors that wish to
perform their own quality assurance or utilization management functions, the
Company provides quality and utilization managed care software solutions through
its OPTIMED(R) ("Optimed") software products and related services. These
products are based on clinical protocols and criteria ("Optimed Protocols")
developed and reviewed by the Company's medical panel of approximately 250 board
certified physicians.
Employee Benefit Services. The Company's Employee Benefit Services allow
its customers to outsource the administration of their employee benefit plans,
including enrolling new plan participants, developing and maintaining records,
verifying or paying claims and producing management reports. The Company
provides a broad range of Employee Benefit Services, including benefit plan
administration ("BPA"), flexible spending account ("FSA") administration, COBRA
administration, retiree benefits services and other ancillary services. In 1995,
the costs of employee benefits administration in the United States were
estimated to be approximately $5.6 billion, of which approximately $1.4 billion
were estimated to be outsourced. The portion of employee benefits spending to be
outsourced is expected to increase to approximately $2.0 billion by the year
2000.
The Company was formed in December 1997 as a joint venture between
HealthPlan Services Corporation ("HPS"), a provider of marketing, administration
and risk management services for health
3
<PAGE> 6
insurance programs, and Sykes Enterprises, Incorporated ("Sykes"), a provider of
integrated outsourcing services to the information technology industry. Since
its formation, the Company has acquired Health International, Inc. ("HI"), OMS,
Incorporated ("OMS") and Sykes HealthPlan Service Bureau, Inc. ("SHSB," formerly
Prudential Service Bureau, Inc.). The formation of the joint venture and the
aforementioned acquisitions were consummated to take advantage of the
substantial perceived market opportunity to provide single-source Care
Management and Employee Benefit Services. Further, to capitalize upon each
partner's competitive strengths, members of senior management from each of HPS
and Sykes joined the Company.
The Company believes that the combination of these three companies creates
significant opportunities for cross-selling, cost savings and increased sales
and marketing efforts. The Company intends to leverage the strong customer
relationships of each of these companies to cross-sell its services. For
instance, the Company intends to cross-sell its Care Management services to
users of its Optimed software products and related services. Customers currently
using the Company's Optimed software products and related services include over
40 managed care plans covering approximately 20 million individuals, none of
which are currently utilizing the Company's Care Management services.
Healthcare spending in the United States has increased to an estimated $1.1
trillion in 1997, or 13.7% of gross national product ("GNP"), from $249 billion,
or 9.0% of GNP in 1980. As a result of the increase, payors, providers and users
of healthcare services have sought ways to reduce such expenditures. Medical
costs are divided into two principal components, the costs of clinical delivery
of healthcare (i.e., the costs directly associated with medical treatment) and
administrative costs. Approximately 79% of healthcare costs have been directly
related to the clinical delivery of healthcare. In addition, efforts to reduce
unnecessary clinical costs have been hindered by the inability to
comprehensively and cost effectively manage the complex task of effectively
guiding a patient through the healthcare process from eligibility determination
to diagnosis, treatment and ultimate claim payment. The Company assists its
customers and their healthcare plan participants to better manage this process.
The Company's strategy is to become the leading single-source provider of
outsourced Care Management and Employee Benefit Services by leveraging its core
strengths and capitalizing on the trends in the healthcare and benefits
administration industries towards improving service and reducing costs. Key
elements of the Company's strategy include: (i) delivering comprehensive and
clinically sophisticated services and products; (ii) cross-selling services to
the Company's existing customer base; (iii) expanding sales and marketing
efforts; (iv) broadening service offerings; and (v) pursuing strategic
acquisitions.
The Company's principal executive offices are located at 11405 Bluegrass
Parkway, Louisville, Kentucky 40299, and its telephone number is (502) 267-4900.
The Company possesses common law trademark rights in "Sykes HealthPlan Services,
Inc.," "SHPS" and its logo, and has applied to register the marks and logo with
the United States Patent and Trademark Office. The Company has registered the
trademark OPTIMED(R) with the United States Patent and Trademark Office.
4
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Common Stock in the Offerings should
carefully consider the factors set forth under the caption "Risk Factors" and
other information included in this Prospectus prior to making an investment
decision. In particular, such factors include the Company's absence of a
combined operating history, risks related to integration and unprofitable
operating performance, the Company's ability to manage growth and related risks,
the Company's reliance on its information processing systems and proprietary
technology, Year 2000 compliance, dependence on the trend toward outsourcing,
dependence on key customers, contract provisions, dependence on senior
management, potential risks of Care Management contracts, potential legal
liability for Care Management, potential legal liability as a benefits
administrator, rapid technological changes, governmental regulation, possible
adverse effect of national and state healthcare reform proposals, competition,
the Company's broad discretion in its use of the proceeds of the Offerings,
control by management and principal shareholders, anti-takeover considerations,
risks related to goodwill, no prior public market, potential volatility of the
Company's stock price, shares eligible for future sale, dilution and dividend
policy.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company......................... shares
Common Stock offered by the Selling Shareholders............ shares
Common Stock to be outstanding after the Offerings(1)....... shares
Use of Proceeds............................................. Repay certain existing
indebtedness (including
accrued interest), fund
working capital and for other
general corporate purposes,
including possible
acquisitions. The Company will
not receive any of the
proceeds from the sale of
shares by the Selling
Shareholders.
Proposed Nasdaq National Market System ("Nasdaq") Symbol.... "SHPS"
</TABLE>
- ---------------
(1) Does not include 1,950,000 shares of Common Stock subject to outstanding
options under the Company's stock option plan. See "Management -- Stock
Option Plan."
5
<PAGE> 8
SYKES HEALTHPLAN SERVICES, INC.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
ACTUAL PRO FORMA COMPANY(1)(2)
---------------------------------- ----------------------------------
THREE MONTHS THREE MONTHS
PERIOD ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998
----------------- -------------- ----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ 2,431 $59,730 $17,132
Operating expenses...................... 5,847 25,957 69,010 21,294
------- -------- ------- -------
Loss from operations.................... (5,847) (23,526) (9,280) (4,162)
Net loss................................ $(5,847) $(23,588) $(5,252) $(3,095)
======= ======== ======= =======
Net loss per share -- basic and
diluted............................... $ $ $ $
Weighted average number of shares(3)....
</TABLE>
<TABLE>
<CAPTION>
ACTUAL
---------------------------------- AS ADJUSTED
DECEMBER 31, 1997 MARCH 31, 1998 MARCH 31, 1998
----------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $1,714 $ 6,554
Total assets....................................... 7,042 81,704
Long-term debt and capital lease obligations,
including current portion........................ 4,082 51,638
Shareholders' equity............................... 72 4,565
</TABLE>
- ---------------
(1) Gives effect to the acquisitions of HI, OMS and SHSB accounted for using the
purchase method for business combinations as if such acquisitions had
occurred on January 1, 1997 adjusted for (i) the elimination of $21.7
million of revenues and associated expenses for the year ended December 31,
1997, and $2.3 million of revenues and associated expenses for the three
months ended March 31, 1998, related to certain services provided to PHC (an
affiliate of SHSB prior to SHSB's acquisition) which will not be part of the
Company's ongoing operations, (ii) application of a portion of the net
proceeds to be received by the Company in the Offerings to repay
approximately $ million of existing debt and (iii) other adjustments
related to such acquisitions. See "Sykes HealthPlan Services, Inc. Selected
Historical and Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisitions."
The pro forma condensed combined financial information contained in these
statements is based on preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(2) Pro forma results have not been adjusted for certain non-recurring expenses
as well as other costs which management believes could have been eliminated
had the Company, as of January 1, 1997, consummated its acquisitions of HI,
OMS and SHSB and completed the cost-reduction actions that it has
subsequently taken. These expenses and costs totalled approximately $10.9
million and approximately $4.4 million for the year ended December 31, 1997
and the three months ended March 31, 1998, respectively. Adjusted for such
non-recurring expenses and cost reductions, the Company's pro forma
operating income would have been $1.6 million and $0.2 million and pro forma
net income would have been $1.3 million and $0.1 million, while pro forma
earnings per share would have been $ and $ for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively. See "Sykes
HealthPlan Services, Inc. Selected Historical and Pro Forma Financial Data."
(3) Weighted average number of shares of Common Stock outstanding: (i) includes
primary shares of Common Stock being sold in the Offerings; and
(ii) excludes options to purchase 1,950,000 shares of Common Stock with a
weighted average exercise price of $4.19.
6
<PAGE> 9
ACQUIRED COMPANIES SUMMARY FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------- ----------------
HEALTH INTERNATIONAL, INC. 1993 1994 1995 1996 1997 1997 1998(1)
- -------------------------- ------ ------ ------ ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $4,756 $7,244 $7,783 $11,690 $12,059 $6,015 $ 6,559
Operating expenses.................. 4,619 6,484 7,553 10,441 10,859 5,383 9,260
------ ------ ------ ------- ------- ------ -------
Income (loss) from operations....... 137 760 230 1,249 1,200 632 (2,701)
Net income (loss)................... $ 106 $ 652 $ 227 $ 1,021 $ 755 $ 382 $(2,104)
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ------------------
OMS, INCORPORATED 1993 1994 1995 1996 1997 1997 1998(2)
- ----------------- ------ ------ ------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $3,599 $3,879 $4,248 $4,710 $5,013 $1,132 $1,137
Operating expenses................... 3,190 3,263 3,569 3,944 4,406 1,011 870
------ ------ ------ ------ ------ ------ ------
Income from operations............... 409 616 679 766 607 121 267
Net income........................... $ 224 $ 353 $ 425 $ 453 $ 334 $ 71 $ 267
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
SYKES HEALTHPLAN ----------------------------------------------- -------------------
SERVICE BUREAU, INC. 1993 1994 1995 1996 1997 1997 1998
- -------------------- ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $47,602 $60,467 $53,401 $51,637 $64,381 $12,324 $13,811
Operating expenses.............. 45,764 58,941 50,984 56,999 72,555 14,002 17,722
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations... 1,838 1,526 2,417 (5,362) (8,174) (1,678) (3,911)
Net income (loss)............... $ 1,386 $ 762 $ 2,277 $(2,351) $(4,089) $ (740) $(2,306)
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes a non-recurring charge during the six months ended March 31, 1998,
of $3.4 million relating to a cash settlement of outstanding stock options
and acquisition-related legal, consulting and financial advisory fees.
(2) Includes post-acquisition results of operations, which reflect
administrative personnel reduction costs and increased software
capitalization costs.
7
<PAGE> 10
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------
HEALTH INTERNATIONAL, INC. 1993 1994 1995 1996 1997
- -------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ 199 $ 806 $ 671 $ 1,753 $ 2,323
Total assets..................................... 1,691 2,445 3,467 4,412 5,191
Long-term obligations, including capitalized
leases......................................... 361 312 616 578 449
Stockholders' equity............................. 815 1,469 1,702 2,724 3,479
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
OMS, INCORPORATED 1993 1994 1995 1996 1997
- ----------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ (84) $ 527 $ 1,310 $ 1,647 $ 1,970
Total assets..................................... 3,246 3,949 4,344 4,870 6,942
Long-term obligations, including redeemable
preferred stock................................ 1,460 1,301 1,301 1,301 --
Stockholders' equity............................. 299 652 1,078 1,286 4,331
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
SYKES HEALTHPLAN SERVICE BUREAU, INC. 1993 1994 1995 1996 1997
- ------------------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ (768) $ (371) $ 999 $ (979) $(3,140)
Total assets..................................... 42,894 40,711 42,599 46,355 41,604
Total long-term obligations, including
capitalized leases and redeemable preferred
stock.......................................... 171 955 716 779 11
Stockholders' equity............................. 4,753 5,504 7,781 5,430 1,342
</TABLE>
8
<PAGE> 11
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the risk factors, in
addition to the other information contained in this Prospectus, before
purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements within the meaning of the federal securities laws.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Sykes HealthPlan
Services, Inc. Summary Historical and Pro Forma Financial Data" and "Sykes
HealthPlan Services, Inc. Selected Historical and Pro Forma Financial Data" as
well as in the Prospectus generally. The words "believe," "estimate," "expect,"
"intend," "anticipate," "plan," and similar expressions and variations of such
expressions identify certain of such forward-looking statements which speak only
as of the dates on which they were made. Prospective investors are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may
differ materially from those discussed in the forward-looking statements as a
result of various factors, including, without limitation, the risk factors set
forth below and the matters set forth in this Prospectus generally.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION AND UNPROFITABLE
OPERATING PERFORMANCE
The Company has made three acquisitions since its inception in December
1997. These acquisitions involved companies headquartered in Arizona, Kentucky
and Massachusetts which collectively employed at the time of acquisition
approximately 1,000 individuals. The Company conducted limited operations and
generated limited revenues prior to these acquisitions. Each of the companies
acquired has been operating as a separate independent entity. The success of the
Company will depend, to a large extent, on the synergies expected to be
developed by integrating and cross-selling the services and products of these
previously independent companies and the retention of key employees and
customers of these companies. There can be no assurance that such integration
and cross-selling will successfully occur, that synergies will be realized or
that such key employees or customers will be retained by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SHSB has experienced losses in the past two years. The Company has
developed a business strategy intended to create growth and improve
profitability. This strategy involves initiatives to increase sales of its core
services and achieve substantial cost reductions. The implementation of this new
business strategy involves substantial risks, and there can be no assurance that
this strategy will be fully implemented or that it will achieve its goal of
reversing the trend of unprofitable operations at SHSB. Shortly after its
acquisition of SHSB, the Company terminated approximately 100 staff and
consultant positions, including the majority of SHSB's senior management. There
can be no assurance that this reduction will not adversely affect the Company's
ability to deliver its services or products, maintain customer relationships or
develop new services or products. See "Business -- General."
ABILITY TO MANAGE GROWTH AND RELATED RISKS
Due to the Company's recent acquisitions, the Company has experienced a
period of rapid growth. This growth has placed, and will continue to place,
significant strains on the Company's operations and systems. Additionally, the
Company's management team has been assembled only recently and there can be no
assurance that the management team will effectively be able to direct the
Company through this period of significant growth. The Company's growth strategy
includes the expansion of its service offerings in response to changing
regulatory requirements and customer needs. While the Company believes a
substantial market exists for additional service offerings, there can be no
assurance that the Company will have sufficient financial and managerial
resources or otherwise be able to make the necessary investments to maintain and
expand its services in response to changing regulatory requirements or customer
needs. Another key element of the Company's growth strategy is the generation of
internal growth by capitalizing on cross-selling opportunities. Internal growth
will depend upon several factors, including the effective initiation,
development and maintenance of customer relationships, the expansion of
marketing operations, the Company's ability to maintain the high quality of the
services and products it offers and to expand such services and products and
9
<PAGE> 12
the recruitment, motivation and retention of qualified management and other
personnel. The Company's growth strategy also includes making acquisitions.
Growth through acquisition involves substantial risks, including the risk of
improper valuation of the acquired business, diversion of management's attention
to the assimilation of the business acquired and the potential liabilities of
the acquired business. The Company may compete for acquisition and expansion
opportunities with entities that possess significantly greater resources than
the Company. Additionally, there can be no assurance that suitable acquisition
candidates will be available, that financing for acquisitions will be obtained
upon terms acceptable to the Company, that such acquisitions can be consummated,
or that acquired companies can be successfully and profitably integrated into
the Company's business. If the Company were to encounter difficulties in
implementing the expansion or development of its service offerings, in
cross-selling its services and products, in managing growth effectively, or in
integrating acquisitions, such difficulties could have a material adverse effect
on the Company. See "Business -- Services and Products," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Acquisitions."
RELIANCE ON INFORMATION PROCESSING SYSTEMS AND PROPRIETARY TECHNOLOGY; YEAR 2000
COMPLIANCE
The Company's business is dependent on its ability to store, retrieve,
process and manage significant databases, and to periodically expand and upgrade
its information processing capabilities. To facilitate the planned expansion of
the Company's existing services to accommodate its customers' needs and future
regulatory requirements, the Company intends to develop additional proprietary
applications software and databases and to use commercially available database
management software and computer hardware that are not currently being used by
the Company. Currently, the information processing systems and services of SHSB
are provided to the Company by The Prudential Insurance Company of America
("Prudential") pursuant to a transitional systems support services agreement.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." Pursuant to this agreement, Prudential is to provide
such services through March 31, 1999. The Company currently is in the process of
migrating its information systems from the mainframe platform provided under
this agreement to a proprietary, client server platform. The Company expects
that this migration will be completed prior to March 31, 1999.
In addition, both the Company's internal operations and its service
offerings use a significant number of computer software programs and operating
systems. To the extent that these software applications contain source code that
is unable to properly interpret the upcoming calendar year 2000, some level of
modification or replacement of such source code or application will be
necessary. The Company has identified the software applications used by HI, OMS
and SHSB that are not "Year 2000" compliant.
The Company currently estimates that the cost to migrate from a mainframe
platform to a client server platform and to make its computer systems Year 2000
compliant will be approximately $5.5 million. However, any additional costs
incurred in connection with such migration, delay in such migration or in
becoming Year 2000 compliant or inability of the new systems to adequately
support the Company's operations, could materially adversely affect the
Company's business and financial results. The Company's business could also be
adversely effected by the inability of its significant customers to make their
computer systems Year 2000 compliant. In addition, there can be no assurance
that the Company will be able to incorporate new technology to enhance and
develop its existing services.
The Company's computer equipment and software systems are maintained at the
Company's Arizona, Kentucky, Massachusetts, Nevada and Ohio locations.
Interruption or loss of the Company's information processing capabilities
through loss of stored data, breakdown or malfunction of computer equipment and
software systems, telecommunications failure or damage to the Company's systems
or the Arizona, Kentucky, Massachusetts, Nevada or Ohio locations caused by
fire, hurricane, tornado, flood, lightning, electrical power outage or other
disruption could have a material adverse effect on the Company.
The Company's business is dependent on its continued use of proprietary
software, databases and processing techniques. The Company attempts to protect
its trade secrets and other proprietary information through agreements with
customers, employees and consultants. There can be no assurance that these
10
<PAGE> 13
precautions will be adequate to deter misappropriation of the Company's
proprietary software and healthcare information processing techniques.
DEPENDENCE ON TREND TOWARD OUTSOURCING
The Company's business and growth depend in large part upon the trend
toward outsourcing support services. There can be no assurance that this trend
will continue, as organizations may elect to perform such services in-house. A
significant change in the direction of this trend could have a material adverse
effect upon the Company. Additionally, to date, the Company believes that no
other business is a single-source provider of outsourcing services similar to
the Company. There can be no assurance that the Company's cross-selling efforts
will cause its customers to purchase additional services from the Company or
adopt a single-source outsourcing approach. See "Business -- Growth Strategy."
DEPENDENCE ON KEY CUSTOMERS; CONTRACT PROVISIONS
The Company's top ten customers accounted for approximately 48.6% of the
Company's pro forma revenues in 1997, of which Prudential Healthcare Pharmacy
Services ("PHC") (an affiliate of SHSB prior to SHSB's acquisition) and Hughes
Electronics represented approximately 16.3% and 11.0%, respectively. The Company
expects to discontinue providing fulfillment and dental maintenance organization
("DMO") services to PHC in 1998. Prior to the acquisition of SHSB, the
predecessor of SHSB was notified that its contract with Hughes Electronics would
not continue after 1998. PHC and HPS are expected to be the Company's largest
customers in 1998. The Company anticipates that in the future a significant
portion of its revenues will continue to be derived from a limited number of
customers. See "Business -- Customers," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Acquisitions" and "Certain
Transactions."
When the Company obtains a new customer, the Company hires and trains
additional personnel prior to receipt of revenues from the new customer and
charges a start-up fee to cover part of the initial costs incurred by the
Company. Consequently, the gain or loss of any single customer or the insolvency
or other inability or unwillingness of the Company's customers to pay for its
services could cause quarterly and annual operating results to vary
substantially. The Company's loss of more of its business from PHC than
anticipated or the loss of its business from HPS or any of its other significant
customers, could have a material adverse effect on the Company's results of
operations.
The Company's contracts are generally cancellable by each customer at any
time or on short-term notice, and customers may unilaterally reduce their use of
the Company's services under such contracts without penalty. In addition,
certain of the Company's contracts contain performance-based criteria which
could result in a reduction in revenues in the event that such criteria are not
met.
DEPENDENCE ON SENIOR MANAGEMENT
The future success of the Company is largely dependent upon the efforts,
direction and guidance of its senior management. The Company's continued growth
and success also depend in part on its ability to attract and retain skilled
employees and managers, and on the ability of its executive officers and key
employees to manage its operations successfully. The loss of any of the
Company's senior management or key personnel, and in particular, David E.
Garner, President and Chief Executive Officer, and James K. Murray, III,
Executive Vice President, Treasurer and Chief Financial Officer, or senior
executives of HI or OMS, or its inability to attract and retain key employees in
the future, could have a material adverse effect on the Company. See
"Management."
POTENTIAL RISKS OF CARE MANAGEMENT CONTRACTS
In the future, certain of the Company's Care Management contracts may
contain "shared risk" provisions under which the Company may be required to bear
a portion of any loss in connection with such provisions. To the extent
healthcare participants covered by such contracts require more frequent or
extensive care than anticipated, the Company would incur unexpected costs not
offset by additional revenue, which would reduce
11
<PAGE> 14
operating margins. In the worst case, the revenue derived from such contracts
may be insufficient to cover the cost of the services provided. Any such
reduction or elimination of earnings could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Revenue Recognition".
POTENTIAL LEGAL LIABILITY FOR CARE MANAGEMENT
Participants in the healthcare industry have become subject to an
increasing number of lawsuits alleging malpractice, product liability, bad
faith, ERISA liability and other legal theories, including negligence in
credentialing and utilization management, many of which involve large claims and
significant legal costs. Due to the nature of its business, the Company could
become involved in litigation regarding the telephone information provided by
its clinical service staff, particularly in light of the emerging telemedicine
laws. In addition, in at least one state, a court has ruled that the denial of
requested healthcare services by a physician who was an employee of a health
insurance plan constitutes the practice of medicine. While the Company does not
directly authorize or deny the provision of healthcare, as a provider of Care
Management, the Company is subject to the risk of being named as a party in
similar lawsuits. Additionally, the Company's clinical service staff could be
subject to claims of licensure violations, which could result in the loss of the
right to do business in a particular state. The Company could also incur
liability as a fiduciary in respect of certain of the disability management
services it provides. The Company maintains professional liability insurance and
such other coverages as the Company believes are reasonable. There can be no
assurance, however, that such insurance will be sufficient or available at a
reasonable cost to protect the Company from liability. To the extent that such
insurance is insufficient or unavailable to cover the costs associated with
these potential liabilities, the Company's business or results of operations
could be materially adversely affected. See "Business -- Services and Products"
and "-- Insurance."
POTENTIAL LEGAL LIABILITY AS A BENEFITS ADMINISTRATOR
As an administrator of benefits, the Company provides services to employers
that are subject to the requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), which may prevent the imposition of liability
in state law claims such as malpractice or bad faith. The possibility exists
that the Company could be subject to state law claims for services provided to
plans not covered by ERISA and liability for these claims could be substantial.
Additionally, there can be no assurance that ERISA will not be further eroded by
legal precedent or amended to modify or repeal the current limitations on
liability.
As a provider of COBRA compliance and administration services, the Company
is subject to excise taxes for noncompliance with certain provisions of COBRA.
Under current federal laws, the maximum amount of such taxes that may be imposed
on the Company in any year for unintentional violations of COBRA is $2.0
million. In addition to the excise tax liability that may be imposed on the
Company, substantial excise taxes may be imposed on the Company's customers
under COBRA. Under many of the Company's service agreements, the Company assumes
financial responsibility for the payment of such taxes or penalties assessed
against a customer arising out of the Company's failure to comply with COBRA,
unless such taxes or penalties are attributable to the customer's failure to
comply with the terms of its agreement with the Company. In addition to
liability for excise taxes for noncompliance with COBRA, the Company accepts
financial responsibility for certain civil and other liabilities incurred by its
customers that are attributable to the Company's failure to fulfill its
obligations to its customers under its agreements. These liabilities could, in
certain cases, be substantial. There can be no assurance that the Company will
not incur material liability for noncompliance with COBRA or for its failure to
comply with its agreement with any customer in the future. The imposition of
such liability on the Company in excess of any available insurance coverage
could have a material adverse effect on the Company. See "Business -- Services
and Products" and "-- Insurance."
RAPID TECHNOLOGICAL CHANGES
The market for the Company's services is characterized by rapid
technological advances, new product introductions and enhancements, and changes
in customer and regulatory requirements. These factors will require the Company
to provide adequately trained personnel to address the increasingly
sophisticated,
12
<PAGE> 15
complex and evolving needs of its customers and relevant regulatory
requirements. The Company's ability to capitalize on the acquisition of OMS will
depend upon its ability to continually enhance OMS's software, to adapt such
software to new hardware and operating system requirements and to develop new
software products. Any failure by the Company to anticipate or respond rapidly
to technological advancements, new products and enhancements, or changes in
customer or regulatory requirements could have a material adverse effect upon
the Company. See "Business -- Services and Products -- Care
Management -- Protocol Products and Services."
GOVERNMENTAL REGULATION
The healthcare and employee benefit industries are subject to extensive and
evolving regulation, both at the federal and state levels. The benefit plans
administered by the Company and its Care Management programs are subject to a
variety of laws and regulations, including ERISA, COBRA, the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA"), federal and state
confidentiality laws, Medicare as secondary payor laws and regulations,
telemedicine laws, the Public Health Service Act, a number of state third party
administrative laws, and state laws involving the provision of healthcare
services. These laws and regulations are administered by numerous agencies,
including the Department of Labor, the Department of Commerce, the Department of
Health and Human Services, the Internal Revenue Service (the "IRS") and state
insurance and health regulation departments. The failure of the Company to
comply with such legal requirements, or material changes in such requirements,
could result in the loss of licenses or substantial penalties to the Company,
which could have a material adverse effect on the Company.
In addition, if the Company were to pursue opportunities outside the United
States, it may become subject to the regulatory requirements of such foreign
jurisdictions and there can be no assurance that the Company would be able to
adapt its operations to, or comply with, such regulatory requirements.
Many of these statutes and regulations impact the development of healthcare
information services and interstate transmission of medical information and
services. Some of these statutes and regulations governing the provision of
healthcare services as well as telemedicine laws and state corporate practice of
medicine doctrines could be construed by regulatory authorities to apply to
certain of the Company's activities. Enforcement of any of the above statutory
or regulatory requirements, as has occurred in at least one state, may cause the
Company and its employees to be required to obtain additional licenses or
registrations or to modify or curtail the Company's activities, which could have
a material adverse effect on the Company. See "Business -- Regulation".
POSSIBLE ADVERSE EFFECT OF NATIONAL AND STATE HEALTHCARE REFORM PROPOSALS
The extent and type of government support for and oversight of the delivery
of healthcare services, as well as the extent and type of health insurance
benefits that employers are required to provide employees, have been the subject
of close scrutiny and debate in recent years, both at the national and state
levels, resulting in such legislation as HIPAA. Additional changes in the
government programs and regulations, including requirements governing the manner
by which services are delivered, and the premiums for services, the
reimbursement of fees, benefits packages, parity for particular health
conditions, access to particular types of healthcare providers, or the
development of a modified healthcare purchasing system could have a material
adverse effect on the Company. See "Business -- Regulation."
COMPETITION
The Company's business is highly competitive and fragmented. The Company's
competitors include data processing affiliates of financial institutions,
insurance companies, third party administrators, providers of healthcare
protocols and software solutions and other outsourcing service companies.
Certain of these existing competitors and a number of potential competitors
possess substantially greater resources and name recognition than the Company.
Potential competitors include the Selling Shareholders. In addition, many of the
services offered by the Company are often provided in-house. This may require
potential customers to reduce, reassign or eliminate in-house benefits
administration or human resource personnel, who often have an
13
<PAGE> 16
interest in maintaining these responsibilities in-house. There can be no
assurance that the Company will be able to compete effectively in the future.
See "Business -- Competition" and "Certain Transactions."
BROAD DISCRETION IN USE OF PROCEEDS
Although the Company has indicated the intended utilization of
approximately $ million of the net proceeds of the Offerings, approximately
$ million of the net proceeds (approximately $ million of the net
proceeds if the Underwriters' over-allotment options are exercised in full) is
to be utilized for working capital and other general corporate purposes
including possible acquisitions. Accordingly, the Company will have broad
discretion as to the application of such proceeds. An investor will not have the
opportunity to investigate the relevant economic, financial and other
information which will be utilized by the Company in determining the application
of such proceeds. See "Use of Proceeds."
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER CONSIDERATIONS
Upon the conclusion of the Offerings, directors and executive officers of
the Company and the Selling Shareholders, as a group, will beneficially own
approximately % of the outstanding Common Stock (approximately % if
the Underwriters' over-allotment options are exercised in full). As a result,
these shareholders will be able to exert control over the election of the
Company's directors and the outcome of other matters requiring shareholder
approval. The voting power of these shareholders, together with the anti-
takeover effects of certain provisions in the Florida Business Corporation Act
(the "FBCA") and in the Company's Articles of Incorporation and Bylaws,
including a "fair price" provision and the ability of the Board of Directors of
the Company to issue shares of Preferred Stock and fix the rights and
preferences thereof, may have the effect of delaying, deferring or preventing an
unsolicited change in control of the Company, which may adversely affect the
market price of the Common Stock. See "Principal and Selling Shareholders" and
"Description of Capital Stock."
RISKS RELATED TO GOODWILL
At March 31, 1998, the Company's total assets were approximately $81.7
million, of which approximately $37.5 million, or approximately 45.9% of total
assets, was goodwill. Goodwill is the excess of cost over fair value of net
assets acquired. There can be no assurance that the value of such goodwill will
ever be realized by the Company. This goodwill is being amortized on a
straight-line basis over periods of 15 to 20 years, which will produce an annual
charge to operations of approximately $2.2 million, which will adversely impact
the Company's earnings. The Company will evaluate on a regular basis whether
events and circumstances have occurred that indicate that the carrying amount of
goodwill may warrant revision or may not be recoverable. Although at March 31,
1998, the net unamortized balance of goodwill is not considered to be impaired,
any such future determination requiring the write-off of a significant portion
of unamortized goodwill could adversely affect the Company's financial position.
In connection with the acquisitions of HI, OMS and SHSB, the Company recorded a
charge to earnings of $29.3 million for acquired in-process research and
development, $14.1 million of which is not deductible for income tax purposes.
The identified in-process research and development efforts include significant
product enhancements, systems migration efforts and new customized applications
which have not yet reached the stage of technological feasibility. Therefore the
ultimate revenue generating capability of these items is uncertain. The research
and development acquired will require additional development efforts, estimated
to cost on an average of $5.0 million per year for the next three years.
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or continue following the Offerings, or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price for the Common Stock will be determined by negotiations
among the Company, the Selling Shareholders and the Underwriters based on
several factors, and may not be indicative of the market price for the Common
Stock after the Offerings. See "Underwriting."
14
<PAGE> 17
The Company believes that various factors, such as general economic
conditions and changes or volatility in the financial markets, announcements or
significant developments with respect to healthcare reform or employee benefits
issues, actual or anticipated variations in the Company's quarterly or annual
financial results, the introduction of new services or technologies by the
Company or its competitors, changes in other conditions or trends in the
Company's industry or in the industries of any of the Company's significant
customers, changes in governmental regulation or changes in securities analysts'
estimates of the Company's future performance or that of its competitors or its
industry, could cause the market price of the Common Stock to fluctuate
substantially.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market after the Offerings
under Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act") or otherwise, or the perception that such sales could occur, may adversely
affect prevailing market prices of the Common Stock and could impair the future
ability of the Company to raise capital through an offering of its equity
securities or to consummate acquisitions using Common Stock as consideration.
The Company, its executive officers and directors, and the Selling Shareholders
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), except, in the case of the Company, for
shares of Common Stock offered hereby and shares issued and options granted
pursuant to the Company's stock option plan. See "Management -- Stock Option
Plan" "Shares Eligible for Future Sale" and "Underwriting."
DILUTION
Investors purchasing Common Stock in the Offerings will incur immediate
dilution in net tangible book value of $ per share. See "Dilution."
DIVIDEND POLICY
The Company has never declared, and does not intend, for the foreseeable
future to declare or pay any cash dividends, and intends to retain earnings, if
any, for the future operation and expansion of the Company's business. Any
determination to declare or pay dividends in the future will be at the
discretion of the Company's Board of Directors and will depend on the Company's
results of operations, financial condition, contractual or legal restrictions
and other factors deemed relevant by the Board of Directors. The Company's
Revolving Line of Credit Loan Agreement with NationsBank N.A. (the "Line of
Credit") currently prohibits the Company from paying any dividends. See
"Dividend Policy."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of shares of
Common Stock in the Offerings (after deducting Underwriters' discount and
estimated expenses of the Offerings payable by the Company), are approximately
$ ($ if the Underwriters' over-allotment options are
exercised in full).
The Company intends to use approximately $ million of such net
proceeds from the Offerings for repayment of indebtedness outstanding under the
Company's Line of Credit. The Line of Credit expires March 27, 2001, and at
, 1998, had an outstanding principal balance of approximately
$ million. Amounts outstanding under the Line of Credit accrue interest
at an annual rate equal to either (i) the lender's prime rate plus a margin
ranging from 0% to 0.50% or (ii) the 90-day London Interbank Offering Rate
("LIBOR") plus a margin ranging from 0.75% to 1.75% at the Company's election.
As of March 31, 1998, the interest rate was approximately 7.19%. The borrowings
under the Line of Credit were primarily used to fund the acquisition of SHSB.
The Company intends to use the remaining approximately $ of net
proceeds from the Offerings to be received by the Company for working capital
and other general corporate purposes, including possible acquisitions. Pending
such uses, the Company intends to invest the net proceeds
15
<PAGE> 18
of the Offerings in short-term, investment grade, interest bearing securities or
money market instruments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Strategy."
The Company will not receive any proceeds from the sale of the shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company does not intend, for the foreseeable future, to declare or pay
any cash dividends and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to declare
or pay dividends in the future will be at the discretion of the Company's Board
of Directors and will depend on the Company's results of operations, financial
condition and any contractual restrictions, considerations imposed by applicable
law and other factors deemed relevant by the Board of Directors. The Company's
Line of Credit currently prohibits the Company from paying any dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
16
<PAGE> 19
CAPITALIZATION
The table below sets forth the consolidated capitalization of the Company
at March 31, 1998, and as adjusted at that date to give effect to the sale of
the shares of Common Stock offered by the Company hereby and the
application of the estimated net proceeds therefrom. See "Use of Proceeds." This
table should be read in conjunction with the Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Current portion of long-term debt........................... $ 216 $ 216
======== ========
Long-term debt and capital lease obligations................ $ 51,422 $
Shareholders' equity:
Preferred Stock, $.01 par value; no shares authorized,
issued or outstanding, actual; 15,000,000 shares
authorized, no shares issued or outstanding, as
adjusted............................................... -- --
Class A Voting Common Stock, $.01 par value; 10,000,000
shares authorized, issued and outstanding, actual; no
shares authorized, issued or outstanding, as
adjusted............................................... 100 --
Class B Non-Voting Common Stock, $.01 par value; 2,000,000
shares authorized, actual; no shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, as adjusted............................... -- --
Common Stock, $.01 par value; no shares authorized, issued
or outstanding, actual; 100,000,000 authorized,
shares issued and outstanding, as
adjusted(1)............................................ --
Capital in excess of par value............................ 33,901
Accumulated deficit....................................... (29,436) (29,436)
-------- --------
Total shareholders' equity........................ 4,565
-------- --------
Total capitalization.............................. $ 55,987 $
======== ========
</TABLE>
- ---------------
(1) Excludes: (i) 1,950,000 shares of Common Stock issuable upon the exercise of
outstanding stock options and (ii) 550,000 shares of Common Stock available
for future grants under the Company's Stock Option Plan upon completion of
the Offerings. See "Management -- Stock Option Plan."
17
<PAGE> 20
DILUTION
As of March 31, 1998, the Company had a pro forma net tangible book value
of approximately $
million or $ per share of Common Stock. Without taking into account any
other changes in the pro forma net tangible book value after March 31, 1998,
other than to give effect to the receipt by the Company of the net proceeds from
the sale of shares of Common Stock offered by the Company hereby
(assuming an initial public offering price of $ per share), the pro
forma net tangible book value of the Company as of March 31, 1998 would have
been approximately $ million or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing shareholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
------
Pro forma net tangible book value per share at March 31,
1998................................................... $
------
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
Offerings.................................................
------
Pro forma net tangible book value dilution per share to new
investors................................................. $
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing shareholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid (assuming an initial public offering price of $ per
share) and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 10,000,000(2) % $34,000,000 % $3.40
New investors................
---------- ---- ----------- ----
Total.............. 100% $ 100%
========== ==== =========== ====
</TABLE>
- ---------------
(1) These computations assume no exercise of any outstanding stock options after
March 31, 1998 or of the Underwriters' over-allotment options. As of April
1, 1998, options to purchase 1,950,000 shares of Common Stock were
outstanding. See "Management -- Stock Option Plan." To the extent these
options or the Underwriters' over-allotment options are exercised, there
will be further dilution to new investors. See "Underwriting" for
information concerning the Underwriters' over-allotment options.
(2) Does not reflect the sale of shares by the Selling Shareholders in the
Offerings.
18
<PAGE> 21
SYKES HEALTHPLAN SERVICES, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the
end of, the period ended December 31, 1997, are derived from and should be read
in conjunction with the consolidated audited financial statements of the
Company. The selected consolidated financial data as of, and for the three
months ended March 31, 1998, are derived from the consolidated unaudited interim
financial statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the data for such periods. The results of operations for the period ended
December 31, 1997, and the three months ended March 31, 1998, are not
necessarily indicative of the results for a full year.
The Company was incorporated on December 18, 1997. On December 31, 1997,
the Company acquired OMS and on March 31, 1998, the Company acquired HI and
SHSB. The pro forma information gives effect to (i) the acquisitions of HI, OMS,
and SHSB accounted for using the purchase method for business combinations, and
the associated costs which are directly attributable to the acquisitions, (ii)
the Offerings and the application of a portion of the net proceeds to be
received by the Company to repay $ million of existing debt, as if each had
occurred on January 1, 1997, and (iii) the elimination of $21.7 million and $2.3
million of revenues and associated expenses for the year ended December 31, 1997
and for the three months ended March 31, 1998, respectively, related to certain
services provided to PHC which will not be part of the Company's ongoing
operations. The pro forma condensed combined financial information contained in
these statements is based on preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
19
<PAGE> 22
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1997 and for the three months ended
March 31, 1998, give effect to (i) the acquisitions of HI, OMS and SHSB
accounted for using the purchase method for business combinations, and the
associated costs which are directly attributable to the acquisitions and (ii)
the Offerings and the application of a portion of the net proceeds to be
received by the Company to repay $ million of existing debt, as if each had
occurred on January 1, 1997.
The historical financial statements reflect the results of operations of
the Company and were derived from the respective consolidated financial
statements of the Company, HI, OMS and SHSB where indicated. The periods
included in the fiscal 1997 financial statements for the individual entities are
as follows: the Company for the period from its incorporation on December 18,
1997 through December 31, 1997; OMS for the twelve months ended December 31,
1997; HI for the twelve months ended September 30, 1997; and SHSB for the twelve
months ended December 31, 1997.
The following unaudited pro forma condensed combined statements of
operations have been prepared utilizing a preliminary purchase price allocation.
The unaudited pro forma condensed combined statements of operations do not
reflect adjustments for certain non-recurring expenses and cost reductions which
are presented in the notes thereto as supplemental financial information. The
preliminary purchase price allocation is subject to refinement until all
pertinent information regarding the acquired companies is obtained and,
accordingly, the amounts presented herein are subject to change.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The unaudited pro forma condensed combined statements of
operations do not purport to represent what the Company's results of operations
would actually have been if such transactions in fact had occurred on those
dates or to project the Company's results of operations for any future period.
Because the Company was not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
The unaudited pro forma condensed combined statements of operations should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See "Risk Factors."
20
<PAGE> 23
PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
HISTORICAL ADJUSTMENTS PRO FORMA RELATED
------------------------------------ FOR THE FOR THE TO THE PRO FORMA
COMPANY HI OMS SHSB ACQUISITIONS ACQUISITIONS OFFERINGS COMPANY(8)
------- ------- ------ ------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ -- $12,059 $5,013 $64,381 $(21,723)(1) $ 59,730 $ -- $59,730
Operating expenses.......... 5,847(2) 10,859 4,406 72,555 (24,657)(1)(3) 69,010 -- 69,010
------- ------- ------ ------- -------- -------- ------- -------
Income (loss) from
operations................ (5,847) 1,200 607 (8,174) 2,934 (9,280) -- (9,280)
Interest (income)/expense,
net....................... -- (42) (78) (997) 4,595(4) 3,478 (4,322)(6) (845)
------- ------- ------ ------- -------- -------- ------- -------
Income (loss) before
taxes..................... (5,847) 1,242 685 (7,177) (1,661) (12,758) 4,322 (8,436)
Provision for (benefit from)
income taxes.............. -- 487 351 (3,088) (2,677)(5) (4,927) 1,743(7) (3,184)
------- ------- ------ ------- -------- -------- ------- -------
Net income (loss)... $(5,847) $ 755 $ 334 $(4,089) $ 1,016 $ (7,831) $ 2,579 $(5,252)
======= ======= ====== ======= ======== ======== ======= =======
Net income (loss) per common
share:
Basic and Diluted......... $ $ $
Weighted average number of
shares of Common Stock:
Basic and diluted.......
</TABLE>
- ---------------
(1) Represents elimination of revenues and associated expenses related to
certain services provided to PHC which will not be part of the Company's
ongoing operations. See "Management Discussion and Analysis of Financial
Condition and Results of Operations -- Acquisitions."
(2) Includes a $5.6 million non-recurring charge for acquired in-process
research and development.
(3) Increase in amortization expense relating to existing technology,
capitalized software costs (over five year useful lives) and goodwill (over
fifteen to twenty year useful lives) related to the acquired companies. Also
includes a reversal of the non-recurring charge of $5.6 million for acquired
in-process research and development for OMS referred to in Note (2) and
certain acquisition related expenses.
(4) Reflects the increase in interest expense and fees attributable to the
Company's Line of Credit.
(5) Represents a tax benefit attributable to the increase in goodwill
amortization (deductible only for SHSB), existing technology and capitalized
software cost amortization and Line of Credit-related expenses and fees.
(6) Reflects the net reduction in interest expense and fees attributable to
obligations retired with proceeds from the Offerings. See "Use of Proceeds."
(7) Increase in tax expense attributable to the net decrease in interest expense
and fees referred to in Note (6).
21
<PAGE> 24
(8) Pro forma results have not been adjusted for certain non-recurring expenses
as well as other costs which the Company believes could have been eliminated
had the Company, as of January 1, 1997, consummated its acquisitions of HI,
OMS and SHSB and completed the cost-reduction actions that it has
subsequently taken. These expenses and costs, totalling approximately $10.9
million for the period ended December 31, 1997, are presented below as
supplemental financial information:
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------------------- ADJUSTED
PRO FORMA NON-RECURRING COST PRO FORMA
COMPANY EXPENSES(A) REDUCTIONS(B) COMPANY
--------- ------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................. $59,730 $59,730
Operating expenses....................... 69,010 $(4,036) $(6,864) 58,110
------- -------
Income (loss) from operations............ (9,280) 4,036 6,864 1,620
Provision for (benefit from) income
taxes.................................. (3,184) 1,628 2,768 1,212
Net income (loss)........................ $(5,252) $ 1,252
======= =======
Net income (loss) per share:
Basic.................................. $ $
Diluted................................
Weighted average number of shares of
Common Stock:
Basic..................................
Diluted................................
</TABLE>
- ---------------
(a) Non-recurring expenses consist of (i) intercompany charges from the
predecessor owner of SHSB for, among other things, industry and compliance
studies and cost allocations related to the predecessor owner's mainframe
computer systems and (ii) one-time recruiting fees, offset by (iii) the
Company's estimated annual costs to operate a client-server system. See
"Risk Factors -- Reliance on Information Processing Systems and Proprietary
Technology; Year 2000 Compliance."
(b) Cost reductions consist of reductions in the use of outside consultant
services, reduced employee levels and associated benefits, a restructured
incentive bonus program, lower phone service costs and lower professional
fees.
22
<PAGE> 25
PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
-------------------------------- FOR THE FOR THE RELATED TO PRO FORMA
COMPANY(1) HI SHSB ACQUISITIONS ACQUISITIONS THE OFFERING COMPANY(10)
---------- ------- ------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 2,431 $ 3,173 $13,811 $ (2,283)(2) $17,132 $ -- $17,132
Operating expenses...... 25,957(3) 6,372 17,722 (28,757)(2)(4)(5) 21,294 -- 21,294
-------- ------- ------- -------- ------- ------ -------
Income (loss) from
operations............ (23,526) (3,199) (3,911) 26,474 (4,162) -- (4,162)
Interest
(income)/expense,
net................... 62 (13) (76) 1,164(6) 1,137 (1,081)(8) 56
-------- ------- ------- -------- ------- ------ -------
Income (loss) before
taxes................. (23,588) (3,186) (3,835) 25,310 (5,299) 1,081 (4,218)
Provision for (benefit
from) income taxes.... -- (575) (1,529) 545(7) (1,559) 436(9) (1,123)
-------- ------- ------- -------- ------- ------ -------
Net income
(loss)........ $(23,588) $(2,611) $(2,306) $ 24,765 $(3,740) $ 645 $(3,095)
======== ======= ======= ======== ======= ====== =======
Net income (loss) per
common share:
Basic and Diluted..... $ $ $
Weighted average number
of shares of Common
Stock:
Basic and diluted.....
</TABLE>
- ---------------
(1) Reflects the consolidation of OMS, which was acquired on December 31, 1997,
for the three months ended March 31, 1998.
(2) Represents elimination of revenues and associated expenses related to
certain services provided to PHC which will not be part of the Company's
ongoing operations. See "Management Discussion and Analysis of Financial
Condition and Results of Operations -- Acquisitions".
(3) Includes a $23.7 million non-recurring charge for acquired in-process
research and development.
(4) Increase in amortization expense relating to existing technology,
capitalized software costs (over five year useful lives) and goodwill (over
fifteen to twenty year useful lives) related to the acquired companies.
(5) Reversal of the non-recurring charges of $8.5 million and $15.2 million for
HI and SHSB, respectively, representing acquired in-process research and
development referred to in Note (3) and certain acquisition related
expenses. Also reflects the reduction of $2.7 million in compensation
expense attributable to the cash settlement of HI stock options and certain
acquisition related expenses.
(6) Reflects the increase in interest expense and fees attributable to the
Company's Line of Credit.
(7) Represents a net tax provision attributable to the reversal of a
non-recurring charge of $2.7 million relating to cash settlement of HI
stock options, offset by the increase in goodwill amortization (deductible
only for SHSB), existing technology and capitalized software cost
amortization and Line of Credit -- related expenses and fees.
(8) Reflects the net reduction in interest expense and fees attributable to
obligations retired with proceeds from the Offerings. See "Use of
Proceeds."
(9) Increase in tax expense attributable to the net decrease in interest
expense and fees referred to in Note (8).
(10) Pro forma results have not been adjusted for certain non-recurring expenses
as well as other costs which the Company believes could have been
eliminated had the Company, as of January 1, 1997, consummated its
acquisitions of HI, OMS and SHSB and completed the cost-reduction actions
that it
23
<PAGE> 26
has subsequently taken. These expenses and costs, totalling approximately $4.4
million for the three months ended March 31, 1998, are presented below as
supplemental financial information:
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------
PRO NON- ADJUSTED
FORMA RECURRING COST PRO FORMA
COMPANY EXPENSES(A) REDUCTIONS(B) COMPANY
------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................... $17,132 $17,132
Operating expenses......................... 21,294 $(428) $(3,972) 16,894
------- ----- ------- -------
Income (loss) from operations.............. (4,162) 428 3,972 238
Provision for (benefit from) income
taxes.................................... (1,123) 126 1,127 130
Net income (loss).......................... $(3,095) $ 108
======= =======
Net income (loss) per share:
Basic.................................... $ $
Diluted..................................
Weighted average number of shares of Common
Stock:
Basic....................................
Diluted..................................
</TABLE>
- ---------------
(a) Non-recurring expenses consist of intercompany expense allocations related
to the mainframe computer system of the predecessor owner of SHSB, offset by
the Company's estimated quarterly costs to operate a client-server system.
See "Risk Factors -- Reliance on Information Processing Systems and
Proprietary Technology; Year 2000 Compliance."
(b) Cost reductions consist of reduction in the use of outside consultant
services, reduced employee costs and associated benefits, a restructured
incentive bonus program, lower phone service costs and lower professional
fees.
24
<PAGE> 27
SELECTED CONSOLIDATED BALANCE SHEET DATA
The selected consolidated balance sheet data of the Company presented below
as of December 31, 1997, is derived from and should be read in conjunction with
the consolidated audited financial statements of the Company. The selected
consolidated balance sheet data of the Company as of March 31, 1998, is derived
from the consolidated unaudited interim financial statements and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data as of such date.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Working capital............................................. $1,714 $ 6,554
Total assets................................................ 7,042 81,704
Total long-term debt and capital lease obligations,
including current portion................................. 4,082 51,638
Shareholders' equity........................................ 72 4,565
</TABLE>
25
<PAGE> 28
ACQUIRED COMPANIES
SELECTED FINANCIAL DATA
The selected financial data for HI as of September 30, 1996 and 1997, and
for the three years ended September 30, 1997 are derived from the audited
financial statements of HI included elsewhere herein. The OMS and SHSB selected
financial data as of December 31, 1996 and 1997, and the three years ended
December 31, 1997 are derived from the respective audited financial statements
of OMS and SHSB included elsewhere herein. The selected financial data for HI as
of September 30, 1993, 1994 and 1995 and for the two years ended September 30,
1994 are derived from unaudited compiled financial information and, in the
opinion of management, include all adjustments (consisting of normal recurring
entries) necessary for a fair presentation of such data. The selected financial
data for OMS and SHSB as of December 31, 1993, 1994 and 1995 and for the two
years ended December 31, 1994 are derived from unaudited compiled financial
information and, in the opinion of management, include all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
such data. The selected financial data for HI as of and for the six months ended
March 31, 1997 and 1998, is derived from unaudited financial statements as of
such dates and for such periods, and in the opinion of management, include all
adjustments (consisting of normal recurring entries) necessary for a fair
presentation of such data. The selected financial data for OMS and SHSB as of
and for the three months ended March 31, 1997 and 1998, is derived from
unaudited financial statements as of such dates and for such periods, and in the
opinion of management, include all adjustments (consisting of normal recurring
entries) necessary for a fair presentation of such data. The following
information is qualified by reference to, and should be read in conjunction
with, the audited financial statements and notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------- ----------------
HEALTH INTERNATIONAL, INC. 1993 1994 1995 1996 1997 1997 1998(1)
-------------------------- ------ ------ ------ ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $4,756 $7,244 $7,783 $11,690 $12,059 $6,015 $ 6,559
Operating expenses.................. 4,619 6,484 7,553 10,441 10,859 5,383 9,260
------ ------ ------ ------- ------- ------ -------
Income (loss) from operations....... 137 760 230 1,249 1,200 632 (2,701)
Net income(loss).................... $ 106 $ 652 $ 227 $ 1,021 $ 755 $ 382 $(2,104)
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ----------------
OMS, INCORPORATED 1993 1994 1995 1996 1997 1997 1998(2)
----------------- ------ ------ ------ ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $3,599 $3,879 $4,248 $4,710 $5,013 $1,132 $1,137
Operating expenses..................... 3,190 3,263 3,569 3,944 4,406 1,011 870
------ ------ ------ ------ ------ ------ ------
Income from operations................. 409 616 679 766 607 121 267
Net income............................. $ 224 $ 353 $ 425 $ 453 $ 334 $ 71 $ 267
====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
SYKES HEALTHPLAN SERVICE BUREAU, INC. 1993 1994 1995 1996 1997 1997 1998
- ------------------------------------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $47,602 $60,467 $53,401 $51,637 $64,381 $12,324 $13,811
------- ------- ------- ------- ------- ------- -------
Operating expenses........................ 45,764 58,941 50,984 56,999 72,555 14,002 17,722
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations............. 1,838 1,526 2,417 (5,362) (8,174) (1,678) (3,911)
------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... $ 1,386 $ 762 $ 2,277 $(2,351) $(4,089) $ (740) $(2,306)
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes a non-recurring charge during the six months ended March 31, 1998,
of $3.4 million relating to a cash settlement of outstanding stock options
and acquisition-related legal, consulting and financial advisory fees.
(2) Includes post-acquisition results of operations which reflect administrative
personnel reduction costs and increased software capitalization costs.
27
<PAGE> 30
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------
HEALTH INTERNATIONAL, INC. 1993 1994 1995 1996 1997
-------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ 199 $ 806 $ 671 $ 1,753 $ 2,323
Total assets..................................... 1,691 2,445 3,467 4,412 5,191
Total long-term obligations, including
capitalized leases............................. 361 312 616 578 449
Stockholders' equity............................. 815 1,469 1,702 2,724 3,479
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
OMS, INCORPORATED 1993 1994 1995 1996 1997
----------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ (84) $ 527 $ 1,310 $ 1,647 $ 1,970
Total assets..................................... 3,246 3,949 4,344 4,870 6,942
Long-term obligations, including redeemable
preferred stock................................ 1,460 1,301 1,301 1,301 --
Stockholders' equity............................. 299 652 1,078 1,286 4,331
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
SYKES HEALTHPLAN SERVICE BUREAU, INC. 1993 1994 1995 1996 1997
- ------------------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ (768) $ (371) $ 999 $ (979) $(3,410)
Total assets..................................... 42,894 40,711 42,599 46,355 41,604
Total long-term obligations, including
capitalized leases and redeemable preferred
stock.......................................... 171 955 716 779 11
Stockholders' equity............................. 4,753 5,504 7,781 5,430 1,342
</TABLE>
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements of the Company and of HI, OMS and SHSB (the Company's
three wholly-owned subsidiaries) and related notes thereto appearing elsewhere
in this Prospectus.
OVERVIEW
Since the Company's inception in December 1997, it has acquired three
operating companies: HI (effective March 31, 1998), OMS (effective December 31,
1997) and SHSB (effective March 31, 1998). Each of these acquisitions has been
accounted for using the purchase method (the "Purchase Method") for business
combinations, under which purchase price is allocated to assets and liabilities
based on fair values at the acquisition date. The following discussion and
results of operations pertain to these three operating companies. The Company
intends to report its financial results on a consolidated basis in the future.
ACQUISITIONS
<TABLE>
<CAPTION>
Year
Company Date of Acquisition Business Founded
- ------- ------------------- --------------------------------------------- -------
<S> <C> <C> <C>
HI................... March 31, 1998 Care Management services 1987
OMS.................. December 31, 1997 Care Management products and related services 1990
SHSB................. March 31, 1998 Employee Benefit Services 1989
</TABLE>
On March 31, 1998, the Company acquired all the outstanding stock of HI for
approximately $25.2 million. HI provides Care Management services that are
designed to enhance the quality of an individual's overall healthcare by
carefully evaluating clinically-based solutions to help patients, physicians,
and health care providers and payors select appropriate and efficient medical
treatment while providing the opportunity to reduce overall medical
expenditures. As part of the transaction, the Company recorded approximately
$1.7 million for existing technology systems and applications, which will be
amortized over five years, and $13.1 million in goodwill which will be amortized
over 15 years. Additionally, on the acquisition date, the Company recorded a
non-recurring charge of $8.5 million related to the write-off of acquired
in-process research and development.
On December 31, 1997, the Company acquired all of the outstanding stock of
OMS for approximately $10.0 million. OMS provides quality and utilization
managed care software solutions through its Optimed software products and
related services. As part of the transaction, the Company recorded approximately
$1.7 million in capitalized software costs and rights, which will be amortized
over five years, and $1.3 million in goodwill, which will be amortized over 15
years. Additionally, on the acquisition date, the Company recorded a
non-recurring charge of $5.6 million related to the write-off of acquired
in-process research and development.
On March 31, 1998, the Company acquired all of the outstanding stock of
SHSB for approximately $50.0 million. SHSB provides Employee Benefit Services
that enable its customers to outsource the administration of their employee
benefits plans, including enrolling new plan participants, developing and
maintaining records, verifying or paying claims and producing management
reports. As part of the transaction, the Company recorded approximately $2.6
million for existing technology systems and applications, which will be
amortized over five years, and $23.0 million in goodwill, which will be
amortized over 20 years. Additionally, on the acquisition date, the Company
recorded a non-recurring charge of $15.2 million related to the write-off of
acquired in-process research and development. Shortly after the SHSB
acquisition, the Company terminated approximately 100 staff and consultant
positions, including the majority of SHSB's senior management. The Company has
recorded a reserve of $1.9 million in connection with this acquisition to cover
expected involuntary termination costs as well as other consolidation-related
charges to be incurred during the first twelve months of operation. Also in
connection with the SHSB acquisition, the Company expects to make an election
under Section 338(h)(10) of the Internal Revenue Code (the "Code") which will
allow the
29
<PAGE> 32
Company to deduct for income tax purposes the value of the goodwill, which the
Company intends to deduct over 15 years.
SHSB initially performed fulfillment services to support PHC, a
wholly-owned subsidiary of SHSB's former owner, Prudential. Fulfillment services
include the production and assembly of employee benefits enrollment kits and
related materials and their distribution to the employees of SHSB's customers.
In the early 1990's, SHSB expanded its service offerings to unaffiliated
companies on a direct basis through its own sales efforts. In addition, SHSB
expanded its capabilities beyond fulfillment services to provide additional
services, including BPA, FSA and ancillary services targeted to new customers.
By fiscal 1997, revenue from unaffiliated parties constituted over 50% of
revenues. In fiscal 1997, SHSB derived approximately $31.5 million in revenue
from PHC. Of this revenue, approximately $17.6 million was related to
fulfillment services and approximately $4.1 million was related to DMO services.
SHSB expects the fulfillment and DMO services to PHC will be discontinued in
1998. The Company intends to cross-sell its fulfillment services to its other
customers in connection with its Employee Benefit Services. See "Risk Factors --
Dependence on Key Customers; Contract Provisions"
In connection with the SHSB acquisition, the Company entered into a
transitional systems support service agreement with Prudential regarding the
provision of certain systems-related services to the Company through March 31,
1999. Specifically, Prudential is to provide processing services for various
applications including, but not limited to, BPA, COBRA administration, FSA
administration and retiree benefits services. The Company is currently in the
process of migrating from a mainframe platform to a client server platform,
which is expected to be completed before March 31, 1999. The Company currently
estimates that the cost of migration and to make its computer systems Year 2000
compliant will be $5.5 million. See "Risk Factors -- Reliance on Information
Processing Systems and Proprietory Technology; Year 2000 Compliance."
During fiscal 1997, SHSB performed approximately $6.5 million of services
(representing approximately 10.0% of the Company's pro forma revenue for fiscal
1997) for Hughes Electronics. Projected fiscal 1998 revenue from this customer
is approximately $5.0 million. Prior to the acquisition of SHSB, the predecessor
of SHSB was notified that its contract with Hughes Electronics would not
continue after 1998. See "Risk Factors -- Dependence on Key Customers; Contract
Provisions."
REVENUE RECOGNITION
HI. Revenues are generated on a per participant per month rate basis. The
Company also makes payments to physicians, laboratories and x-ray facilities in
connection with second opinion services and is reimbursed for such payments at
its cost. Expense reimbursements are recorded in revenues and cost of revenue.
HI's results of operations historically have been affected by the addition or
loss of major customers. When a major customer is added, the Company hires and
trains additional personnel to service the projected new business prior to
receipt of revenues from the customer. A startup fee, ranging from $2-$3 per
participant is initially charged to cover part of the costs incurred by the
Company. Consequently, results of operations for a given quarter may be subject
to significant variations. In the future, certain of the Company's Care
Management contracts may contain "shared risk" provisions under which the
Company may be required to bear a portion of any loss in connection with such
provisions. See "Risk Factors -- Potential Risks of Care Management Contracts."
OMS. In fiscal 1997, approximately 85% of OMS's revenues was derived from
licensing its Optimed software products, with the remainder derived from support
and consulting services related to installing, maintaining and utilizing such
software. In the future, the Company expects to expand its consulting and
physician review services. OMS licenses its products primarily through
multi-year agreements that typically provide for payment of equal monthly
license fees over the agreements' terms. OMS's licensing revenues are recognized
ratably over the life of the contracts, except that when OMS has no continuing
support service or consulting obligations, such revenue is recognized upon
shipment. Revenue recognized upon shipment is primarily related to the sale of
OMS's Portable Optimed Protocol product, which accounted for approximately 11%
of OMS's licensing revenues in 1997. Revenues from support and consulting
services are recognized ratably over the contract period or as specific services
are performed.
30
<PAGE> 33
SHSB. Revenues are primarily derived from: (i) a recurring monthly fee per
eligible employee or participant; (ii) a one-time implementation fee to cover
programming costs associated with customizing SHSB's systems to meet each
customer's specific needs and the data entry costs associated with a startup;
(iii) a COBRA administration fee of 2% of the participant's premium, as allowed
under COBRA regulations; and (iv) fees for fulfillment services, interactive
voice response services, optical character recognition services ("OCR") and
other ancillary services on a per job or per item basis. Interest
(income)/expense, net represents the interest income earned on retiree benefits
services and COBRA payments from the time they are received from participants
until they are remitted to the employer or carrier and the investment of
available cash on hand, offset by interest expense relating to capital lease
obligations and other borrowings.
The Company, OMS and SHSB have, for all historical periods presented,
operated on a December 31 fiscal year end. HI, until its acquisition by the
Company, operated on a September 30 fiscal year end and currently operates on a
December 31 fiscal year end. As used herein, with respect to the Company, OMS
and SHSB, fiscal 1995 means the year ended December 31, 1995; fiscal 1996 means
the year ended December 31, 1996, and fiscal 1997 means the year ended December
31, 1997, and with respect to HI, means the year ended September 30, 1995, 1996
and 1997, respectively. OMS's financial statements for the three months ended
March 31, 1998, are consolidated into the Company's consolidated financial
statements for the three months ended March 31, 1998, presented herein.
RESULTS OF OPERATIONS
The following table sets forth a summary of the results of operations for
the acquired companies for the periods indicated and their percentage of
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
HI YEAR ENDED SEPTEMBER 30, MARCH 31,
- -- ---------------------------------------------------- ----------------------------------
1995 % 1996 % 1997 % 1997 % 1998 %
------ ----- ------- ----- ------- ----- ------ ----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $7,783 100.0% $11,690 100.0% $12,059 100.0% $2,990 100.0% $ 3,173 100.0%
Operating expenses.............. 7,553 97.0 10,441 89.3 10,859 90.0 2,748 91.9 6,372 200.8
------ ----- ------- ----- ------- ----- ------ ----- ------- ------
Income (loss) from operations... 230 3.0 1,249 10.7 1,200 10.0 242 8.1 (3,199) (100.8)
Interest (income)/expense,
net........................... (27) (0.3) 16 0.1 (42) (0.3) (5) (0.2) (13) (0.4)
------ ----- ------- ----- ------- ----- ------ ----- ------- ------
Income (loss) before taxes...... 257 3.3 1,233 10.6 1,242 10.3 247 8.3 (3,186) (100.4)
Provision for (benefit from)
income taxes.................. 30 0.4 212 1.8 487 4.0 99 3.3 (575) (18.1)
------ ----- ------- ----- ------- ----- ------ ----- ------- ------
Net income (loss)....... $ 227 2.9% $ 1,021 8.8% $ 755 6.3% $ 148 5.0% $(2,611) (82.3)%
====== ===== ======= ===== ======= ===== ====== ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OMS YEAR ENDED DECEMBER 31, MARCH 31,
- --- -------------------------------------------------- ---------------------------------
1995 % 1996 % 1997 % 1997 % 1998 %
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $4,248 100.0% $4,710 100.0% $5,013 100.0% $1,132 100.0% $1,137 100.0%
Operating expenses................. 3,569 84.0 3,945 83.8 4,406 87.9 1,011 89.3 870 76.5
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
Income from operations............. 679 16.0 765 16.2 607 12.1 121 10.7 267 23.5
Interest (income)/expense, net..... (40) (0.9) (63) (1.3) (79) (1.6) (25) (2.2) -- 0.0
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
Income (loss) before taxes......... 719 16.9 828 17.5 686 13.7 146 12.9 267 23.5
Provision for income taxes......... 294 6.9 376 8.0 351 7.0 75 6.6 -- 0.0
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
Net income................. $ 425 10.0% $ 452 9.5% $ 335 6.7% $ 71 6.3% $ 267 23.5%
====== ===== ====== ===== ====== ===== ====== ===== ====== ======
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SHSB YEAR ENDED DECEMBER 31, MARCH 31,
- ---- -------------------------------------------------------- ------------------------------------
1995 % 1996 % 1997 % 1997 % 1998 %
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $53,401 100.0% $51,637 100.0% $64,381 100.0% $12,325 100.0% $13,811 100.0%
Operating expenses...... 50,984 95.5 56,999 110.4 72,555 112.7 14,002 113.6 17,722 128.3
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Income (loss) from
operations............ 2,417 4.5 (5,362) (10.4) (8,174) (12.7) (1,677) (13.6) (3,911) (28.3)
Interest
(income)/expense,
net................... (1,408) 2.7 (1,524) (3.0) (997) (1.5) (446) (3.6) (76) .5
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Income (loss) before
taxes................. 3,825 7.2 (3,838) (7.4) (7,177) (11.1) (1,231) (10.0) (3,835) (27.8)
Provision for (benefit
from) income taxes.... 1,548 2.9 (1,488) (2.9) (3,088) (4.8) (491) (4.0) (1,529) (11.1)
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net income
(loss)........ $ 2,277 4.3% $(2,350) (4.6)% $(4,089) (6.4)% $ (740) (6.0)% $(2,306) (16.7)%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues
HI. Revenues increased $0.2 million or 6.6% to $3.2 million in the three
months ended March 31, 1998 from $3.0 million in the three months ended March
31, 1997. Revenues increased primarily as a result of the addition of PepsiCo as
a new customer in October 1997. This increase was partially offset by the loss
of a merged aerospace customer and a lower service charge per person charged to
a customer resulting from an agreed to change in the scope of services provided.
In addition, as of January 1, 1998, the Company entered into an outsourcing
agreement with HPS pursuant to which HPS has outsourced to the Company certain
care management services for current HPS customers. This agreement is expected
to generate approximately $5.0 million in annual revenue for the Company in
fiscal 1998. See "Certain Transactions."
OMS. Revenues of $1.1 million remained unchanged from the three months
ended March 31, 1998 compared to the three months ended March 31, 1997. During
the first three months of 1998, revenues decreased as a result of the loss of
two license fee contracts. This decrease in revenue was offset by a new
consulting contract with Blue Cross/Blue Shield of Michigan and the revenues
from the new Optimed physician review services.
SHSB. Revenues increased $1.5 million or 12.1% to $13.8 million in the
three months ended March 31, 1998 from $12.3 million in the three months ended
March 31, 1997. Revenues increased primarily as a result of an increase in
services offered to SHSB's existing customer base as well as an increase in the
number of participants within such customer base.
Operating Expenses
HI. Operating expenses increased $3.6 million to $6.4 million in the three
months ended March 31, 1998 from $2.7 million in the three months ended March
31, 1997. Of such increase, $2.6 million related to a cash settlement of
outstanding stock options held by certain personnel. On the date of acquisition,
the Company provided a capital contribution of $2.6 million to replenish capital
used by HI in terminating various stock options. The increase was also partially
due to non-recurring pre-tax acquisition-related costs of $0.8 million for
legal, consulting, and financial advisory fees and $0.4 million of recurring
expenses such as increased salary, depreciation, phone usage and travel expenses
resulting from the addition of PepsiCo as a new customer.
OMS. Operating expenses decreased $0.2 million to $0.9 million in the
three months ended March 31, 1998 from $1.1 million in the three months ended
March 31, 1997. As a percentage of revenues, operating expenses decreased to
76.5% in the three months ended March 31, 1998 from 89.3% in the three months
ended March 31, 1997.
32
<PAGE> 35
Operating expenses decreased primarily due to personnel reductions and
increased software capitalization costs due to new software releases reaching
technological feasibility during fiscal 1997.
SHSB. Operating expenses increased to $17.7 million in the three months
ended March 31, 1998 from $14.0 million in the three months ended March 31,
1997. The increase in operating expenses was primarily due to annual increases
in salaries and benefit levels for 1998, additional employees, one-time
consulting expenses incurred for systems analysis and risk assessment, including
Year 2000 consulting expenses and a change in the capitalization policy for
certain software and hardware items. This increase was partially offset by
reduced printing and distribution costs, which were sourced internally during
the three months ended March 31, 1998.
Income (Loss) from Operations
HI. The loss from operations increased $3.4 million to $3.2 million in the
three months ended March 31, 1998 compared to income from operations of $0.2
million in the three months ended March 31, 1997. This loss was primarily due to
non-recurring pre-tax expenses of $3.4 million for the cash settlement of
outstanding stock options held by staff nurses and physicians and
acquisition-related legal, consulting, and financial advisory fees incurred by
HI in the three months ended March 31, 1998, as discussed above.
OMS. Income from operations increased $0.2 million to $0.3 million in the
three months ended March 31, 1998 from $0.1 million in the three months ended
March 31, 1997. This increase was primarily due to a modest increase in revenues
from the new Optimed physician review services and a slight decrease in the cost
of revenues and operating expenses, as discussed above.
SHSB. The loss from operations increased to $3.9 million in the three
months ended March 31, 1998. This loss was primarily due to increases in salary
and benefits, one-time consulting expenses and increases in other operating
costs, as discussed above.
Interest (Income)/Expense, Net
SHSB. Interest (income)/expense, net decreased to $0.1 million in the
three months ended March 31, 1998 from $0.4 million in the three months ended
March 31, 1997 due to costs of external borrowings for working capital purposes.
Provision for (Benefit from) Income Taxes
HI. The effective tax rates were (18.0)% and 40.0% in the three months
ended March 31, 1998 and 1997, respectively. The effective tax rates varied from
the statutory tax rate primarily due to utilization of net operating losses.
OMS. The effective tax rate was 51.2% for the three months ended March 31,
1997. The effective tax rates for the three months ended March 31, 1997 varied
from the statutory tax rate due to state and local taxes and nondeductible
goodwill. Since OMS's results are included in the Company's consolidated tax
return for the three months ended March 31, 1998, the income taxes related to
its results are provided for at the consolidated level.
SHSB. The effective tax rates were 39.9% in the three months ended March
31, 1998 and 1997, respectively. The effective tax rates for these periods
approximate the statutory tax rate.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues
HI. Revenues increased $0.4 million or 3.2% to $12.1 million in fiscal
1997 from $11.7 million in fiscal 1996. Approximately $0.3 million of this
increase was due to the increase in expense reimbursement from HI's customers.
The balance of the increase in revenues was primarily the result of an increase
in the number of participants covered by HI's Care Management services.
33
<PAGE> 36
OMS. Revenues increased $0.3 million or 6.4% to $5.0 million in fiscal
1997 from $4.7 million in fiscal 1996. Revenues increased primarily as a result
of new customers in 1997, and due to higher license fees from existing
customers. This increase was partially offset by a $0.4 million decrease due to
the expiration of certain license agreements with existing customers. Operating
expenses increased to $4.4 million in fiscal 1997 from $3.9 million in fiscal
1996. As a percentage of revenues, operating expenses increased to 87.9% in
fiscal 1997 from 83.8% in fiscal 1996.
SHSB. Revenues increased $12.8 million or 24.7% to $64.4 million in fiscal
1997 from $51.6 million in fiscal 1996. The increase of $12.8 million was
primarily the result of an increase of $4.9 million in revenue from new
customers, including the City of Los Angeles, Textron, IBM and Xerox, a $4.8
million increase in revenues from PHC and a $1.8 million increase in revenues to
other existing customers. The $4.8 million increase in revenues from PHC was
comprised of an $8.6 million increase in sales of fulfillment services to PHC
offset by a $2.4 million decrease and a $1.4 million decrease, respectively, in
revenues generated in the earlier period by services provided to PHC's legal
service and life insurance businesses, which service arrangements were not
purchased by the Company in connection with its acquisition of SHSB. In
addition, the Company expects to discontinue fulfillment services to PHC during
1998.
Operating Expenses
HI. Operating expenses increased to $10.9 million in fiscal 1997 from
$10.4 million in fiscal 1996. These costs increased due to higher salary costs
from the addition of supervisory personnel and from a general payroll raise to
existing employees.
OMS. Operating expenses increased to $4.4 million in fiscal 1997 from $3.9
million in fiscal 1996. As a percentage of revenues, operating expenses
increased to 87.9% in fiscal 1997 from 83.8% in fiscal 1996. This increase was
primarily due to compensation expenses related to providing additional
consulting and new physician review services to customers. This increase was
also the result of non-recurring pre-tax acquisition-related costs of $0.4
million for advisory fees in fiscal 1997, which were partially offset by a $0.2
million decrease in research and development expenses due to new software
releases reaching technological feasibility during fiscal 1997.
SHSB. Operating expenses increased to $72.6 million in fiscal 1997 from
$57.0 million in fiscal 1996. As a percentage of revenues, operating expenses
increased 2.3% in fiscal 1997. The increase was as a result of increased
supplies and postage costs of $8.4 million, primarily due to the increase in
fulfillment services provided to PHC. Additionally, the increase was due to
higher salary and benefit costs of approximately $4.0 million resulting from the
addition of over 200 staff positions to service new customers and a pay
adjustment of $1.5 million. Additionally, the increase included $2.9 million of
one-time consulting expenses incurred for systems analysis and risk assessment,
including Year 2000 consulting, and efforts to re-engineer and improve certain
operational procedures. Finally, depreciation expense increased by $2.1 million
from a change in the estimated remaining useful lives of fixed assets, which was
lowered from five years to three years.
Income (Loss) from Operations
HI. Income from operations was relatively unchanged between fiscal 1997
and fiscal 1996. The decrease in operating income in fiscal 1997 as a percentage
of revenues was due to higher salary costs from the addition of supervisory
personnel and from a pay adjustment of $1.5 million, as discussed above.
OMS. Income from operations decreased by 20.7% to $0.6 million for fiscal
1997, while operating margins decreased to 12.1% in fiscal 1997. The decrease
was primarily due to compensation expenses incurred in connection with providing
additional consulting and new physician review services to customers, and due to
non-recurring pre-tax acquisition-related advisory fees in fiscal 1997, as
discussed above.
SHSB. Loss from operations increased by 64.8% to $8.2 million for fiscal
1997 from a loss from operations of $5.4 million for fiscal 1996. The operating
margin decreased to 12.7% in fiscal 1997 from 10.4% in fiscal 1996. The increase
in the operating loss was due primarily to the increases in expenses related to
the addition of over 200 staff positions and consultants to service new
customers, one-time consulting expenses
34
<PAGE> 37
incurred for systems analysis and risk assessment, including Year 2000
consulting, and efforts to re-engineer and improve certain operational
procedures, and depreciation expense, as discussed above.
Interest (Income)/Expense, Net
OMS. Non-operating income was comprised of interest income derived from
short-term investments of cash generated from operations. Interest income was
relatively unchanged between fiscal 1997 and fiscal 1996.
SHSB. The $0.5 million decrease in other income is due to an increase of
interest expense on borrowings made for working capital purposes in fiscal 1997.
Provision for (Benefit from) Income Taxes
HI. The effective tax rates of 39.2% for fiscal 1997 and 17.2% for fiscal
1996 were different from the statutory rate of 35% primarily due to utilization
of net operating loss carryforwards, which expired in fiscal 1996.
OMS. The effective tax rates of 51.2% for fiscal 1997 and 45.4% for fiscal
1996 were different from the statutory rate of 35% due to state and local taxes,
deductible tax credits, and certain expenses, including a portion of meals,
entertainment, and premiums on key man life insurance policies, which are not
deductible for income tax purposes. The increase in the fiscal 1997 effective
tax rate was due to the incurrence of non-deductible acquisition-related
advisory fees.
SHSB. SHSB was a member of a group of affiliated companies, which joined
in filing a consolidated federal income tax return, yet filed a separate return
for state and local tax purposes. Federal taxes were determined pursuant to a
tax allocation arrangement with Prudential and state and local taxes were
determined on a stand-alone basis. The effective tax rate of 43.0% and 38.8% in
fiscal 1997 and 1996, respectively, was different from the statutory rate of 35%
due to state income taxes.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues
HI. Revenues increased $3.9 million or 50.2% to $11.7 million in fiscal
1996 from $7.8 million in fiscal 1995. Revenues increased primarily due to the
addition of Kmart as a new customer in September 1995, per participant per month
rate increases, and an increase in the number of participants covered under HI's
Care Management services provided to existing customers.
OMS. Revenues increased $0.5 million or 11.9% to $4.7 million in fiscal
1996 from $4.2 million in fiscal 1995. Revenues increased primarily as a result
of new customers.
SHSB. Revenues decreased $1.8 million or 3.4% to $51.6 million in fiscal
1996 from $53.4 million in fiscal 1995. Revenues decreased primarily as a result
of the loss of an $8.8 million contract with IBM. This decrease was offset by
new customer revenues of $5.9 million, due primarily to the addition of a large
telecommunications company for FSA services and an increase in existing business
of $1.3 million resulting from increases in the number of participants in
several existing customers' plans. The remaining $0.2 million decrease in
revenues relates primarily to a decrease in PHC revenues as a result of a change
in the mix of services provided.
Operating Expenses
HI. Operating expenses increased $2.9 million or 38.2% to $10.4 million in
fiscal 1996 from $7.6 million in fiscal 1995. As a percentage of revenues,
operating expenses decreased to 89.3% for fiscal 1996 from 97.0% for fiscal
1995. The increase was due to increased nurse and physician staffing, marketing
personnel, rental space, telephone usage, recruiting and travel expenses and
administrative personnel to accommodate Kmart as a new customer commencing
September 1995.
35
<PAGE> 38
OMS. Operating expenses increased to $3.9 million in fiscal 1996 from $3.6
million in fiscal 1995. As a percentage of revenues, operating expenses remained
relatively unchanged between fiscal 1996 and fiscal 1995. The increase was
primarily the result of higher marketing and research and development expenses
incurred in fiscal 1996 due to new software releases that were in their initial
stages of development and had not yet reached technological feasibility during
1996.
SHSB. Operating expenses increased 11.8% to $57.0 million in fiscal 1996
from $51.0 million in fiscal 1995. The increase was primarily due to an increase
in salaries, higher communications, supplies and postage expenses resulting
primarily from a change in the mix of revenues from BPA services to more labor
intensive FSA services. Additionally, the increase was the result of a $2.0
million reserve set up in fiscal 1996 for a potential COBRA liability. Other
items contributing to the overall increase in operating expenses included $1.1
million for severance costs associated with employee terminations made in
September 1996 of approximately 150 people relating to an overall down-sizing by
PHC; $0.7 million for personnel costs resulting from overtime and temporary
employment; $0.9 million for an increase in the bad debt and escheatment
reserves; and $0.3 million to improve customer service.
Income (Loss) from Operations
HI. Income from operations increased $1.0 million to $1.2 million, or
10.7% of revenues, from $0.2 million, or 3.0% of revenues, primarily due to the
addition of Kmart as a customer.
OMS. Income from operations increased by 12.7% to $0.8 million for fiscal
1996, while the operating margin increased to 16.2% in fiscal 1996 from 16.0% in
fiscal 1995. The increase in income from operations was due to a slight increase
in gross profit, which was partially offset by higher marketing and research and
development expenses in fiscal 1996, as discussed above.
SHSB. A $5.4 million loss from operations was incurred for fiscal 1996
compared to $2.4 million in income from operations for fiscal 1995. The decrease
in operating income was due primarily to the decrease in revenues, the one-time
charges related to severance, transition costs and the accrual for a potential
COBRA liability, and the increase of costs of services, as discussed above.
Interest (Income)/Expense, Net
SHSB. Other income amounts remained relatively unchanged between fiscal
1996 and fiscal 1995.
Provision for (Benefit from) Income Taxes
HI. The effective tax rates of 11.7% for fiscal 1996 and 17.2% for fiscal
1995 were different from the statutory rate of 35% primarily due to the
utilization of net operating loss carryforwards.
OMS. The effective tax rates of 45.4% for fiscal 1996 and 40.9% for fiscal
1995 were different from the statutory rate of 35% due to state and local taxes,
deductible tax credits, and certain expenses, including a portion of meals,
entertainment, and premiums on key man life insurance policies, which were not
deductible for income tax purposes. The increase in the fiscal 1996 effective
tax rate was due to non-deductible compensation expenses for income tax
purposes.
SHSB. SHSB was a member of a group of affiliated companies, which joined
in filing a consolidated federal income tax return, yet filed a separate return
for state and local tax purposes. Federal taxes were determined pursuant to a
tax allocation arrangement with Prudential and state and local taxes were
determined on a stand-alone basis. The effective tax rates of 38.8% and 40.5%
for fiscal 1996 and fiscal 1995, respectively, were different from the statutory
rate of 35% due to state income tax and tax return to book provision
adjustments.
36
<PAGE> 39
HI -- SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31,
1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------------
1997 1998
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................................. $6,015 100.0% $ 6,559 100.0 %
Operating expenses....................................... 5,383 89.5 9,260 141.2
------ ----- ------- -----
Income (loss) from operations............................ 632 10.5 (2,701) (41.2)
Interest (income)/expense, net........................... (9) (0.1) (22) (0.3)
------ ----- ------- -----
Income before taxes...................................... 641 10.6 (2,679) (40.9)
Provision for (benefit from) income taxes................ 259 4.3 (575) (8.8)
------ ----- ------- -----
Net income..................................... $ 382 6.3% $(2,104) (32.1)%
====== ===== ======= =====
</TABLE>
Revenues
Revenues increased $0.5 million, or 9.0%, to $6.6 million in the six months
ended March 31, 1998 from $6.0 million in the six months ended March 31, 1997.
Revenues increased primarily as a result of the addition of PepsiCo as a new
customer in October 1997.
Operating Expenses
Operating expenses increased $3.9 million to $9.3 million, or 141.2% of
revenues in the six months ended March 31, 1998 from $5.4 million or 89.5% in
the six months ended March 31, 1997. Of such increase, $2.6 million related to a
cash settlement of outstanding stock options held by certain personnel. On the
date of acquisition, the Company provided a capital contribution of $2.6 million
to replenish capital used by HI in terminating various stock options. The
remaining increase was due primarily to non-recurring pre-tax
acquisition-related costs of $0.8 million for legal, consulting, and financial
advisory fees and $0.4 million of recurring expenses such as increased salary,
depreciation, phone usage and travel expenses resulting from the addition of
PepsiCo as a new customer.
Income (Loss) from Operations
Loss from operations increased $3.3 million to $2.7 million loss in the six
months ended March 31, 1998 from $0.6 million of operating income in the six
months ended March 31, 1997. This increase was primarily due to non-recurring
pre-tax expenses of $3.4 million for the cash settlement of outstanding stock
options and acquisition-related legal, consulting, and financial advisory fees,
partially offset by the increase in operating income due to addition of PepsiCo
as a new customer, as discussed above.
Provision for (Benefit from) Income Taxes
The effective tax rates were (21.5)% and 40.4% in the six months ended
March 1998 and 1997, respectively. The effective tax rate for the six months
ended March 31, 1998 varied from the statutory tax rate primarily due to
utilization of net operating losses resulting from the acquisition of HI by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations
and available borrowings under its Line of Credit.
In March 1998, the Company entered into a $75.0 million Line of Credit.
This Line of Credit consists of a revolving credit facility of up to $75.0
million which includes a letter of credit facility of up to $10.0 million and
matures in March 2001. The Line of Credit is collateralized by all of the stock
of the Company's subsidiaries. Interest on borrowings under the Line of Credit
accrues at an annual rate equal to either (i) the lender's prime rate plus a
margin ranging from 0.00% to 0.50%, or (ii) LIBOR plus a margin ranging from
0.75% to 1.75% at the Company's election. As of March 31, 1998, the interest
rate was 7.19%.
37
<PAGE> 40
As of March 31, 1998, the Company had approximately $51.0 million of
indebtedness outstanding under the Line of Credit. The Company intends to use
approximately $ million of the net proceeds of the Offerings to repay the
amount outstanding under the Line of Credit. The balance of the net proceeds
will be used for general corporate purposes. See "Use of Proceeds."
The Company believes that the net proceeds from the Offerings, combined
with available funds under its Line of Credit and cash flows from operations,
will be adequate for the Company's capital needs, excluding acquisitions, for
the foreseeable future, as its operations are presently being conducted.
However, the net proceeds of the Offerings, together with cash generated from
the Company's operations and availability under the Line of Credit, may not be
sufficient to finance acquisitions and the Company may be required to seek
additional financing. There can be no assurance that such additional financing
will be available in amounts and upon terms acceptable to the Company, if at
all. See "Risk Factors -- Ability to Manage Growth and Related Risks."
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, Statement of Position 97-2 ("SOP 97-2"), "Software Revenue
Recognition," was issued, providing guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. The
Company will adopt this pronouncement in 1998 in accordance with the
implementation requirements.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," was issued, establishing standards for public
enterprises to disclose certain information about operating segments and related
disclosures about products and services, geographic areas and significant
customers. The Company will adopt this pronouncement in 1998 in accordance with
the implementation requirements.
Management believes the adoption of SFAS No. 131 and SOP 97-2 will not have
a material impact on the Company's financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." The Company adopted SFAS No. 128 for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("Earnings per share") and diluted earnings per share
("Earnings per share -- diluted"). Earnings per share excludes dilution and is
determined by dividing income available to common shareholders by the weighted
average number of shares of Common Stock outstanding during the period. Earnings
per share -- diluted reflects the potential dilution that could occur if
securities and other contracts to issue Common Stock were exercised or converted
into Common Stock. Earnings per share -- diluted is computed similarly to fully
diluted earnings per share under previous accounting.
38
<PAGE> 41
BUSINESS
GENERAL
The Company is a provider of outsourced Care Management services and
products and Employee Benefit Services. The Company's customers include large
corporations and healthcare providers and payors. The Company's Care Management
services are designed to enhance the quality of an individual's overall
healthcare by carefully evaluating clinically-based solutions to help patients,
physicians and healthcare providers and payors select appropriate and efficient
medical treatment while providing the opportunity to reduce overall medical
expenditures. The Company's Employee Benefit Services enable customers to
outsource the administration of their employee benefit programs. By providing
its customers with a single-source for Care Management and Employee Benefit
Services, the Company believes it has a unique competitive advantage. Further,
the Company believes the integration of such services will enhance the Company's
customers' ability to determine in a timely fashion an individual's eligibility
to receive services under a customer's benefit plans. The Company currently
provides its services to over 50 of the Fortune 500 companies including AT&T,
American Airlines, Bank of America, IBM, Kmart, Kroger, Lucent Technologies and
Procter & Gamble.
Care Management. The Company's Care Management services and products
assist customers in improving the quality of healthcare services provided to
plan participants and monitor patients' compliance with their prescribed course
of treatment, while simultaneously reducing inappropriate medical costs. The
Company's Care Management services are designed to prospectively assist in
determining an individual's healthcare needs and monitor and evaluate the
delivery of clinical care provided. The Company's clinical staff, comprised of
registered nurses and physicians, interacts with patients, providers and payors
to assist in determining, implementing and monitoring an effective and efficient
customized care management program based on each patient's medical profile. The
Company's Care Management services include demand, utilization, case, disease
and disability management. In addition, for providers and payors that wish to
perform their own utilization management or quality assurance functions, the
Company provides quality and utilization managed care software solutions through
its Optimed software products and related services. These products are based on
Optimed Protocols developed and reviewed by the Company's medical panel of
approximately 250 board certified physicians.
Employee Benefit Services. The Company's Employee Benefit Services allow
its customers to outsource the administration of their employee benefit plans,
including enrolling new plan participants, developing and maintaining records,
verifying or paying claims and producing management reports. The Company
provides a broad range of Employee Benefit Services, including BPA, FSA
administration, COBRA administration, retiree benefits services and other
ancillary services. In 1995, the costs of employee benefits administration in
the United States were estimated to be approximately $5.6 billion, of which
approximately $1.4 billion were estimated to be outsourced. The portion of
employee benefits spending to be outsourced is expected to increase to
approximately $2.0 billion by the year 2000.
The Company was formed in December 1997 as a joint venture between HPS, a
provider of marketing, administration and risk management services for health
insurance programs, and Sykes, a provider of integrated outsourcing services to
the information technology industry. Since its formation, the Company has
acquired HI, OMS and SHSB. The formation of the joint venture and the
aforementioned acquisitions were consummated to take advantage of the
substantial perceived market opportunity to provide single-source Care
Management and Employee Benefit Services. Further, to capitalize upon each
partner's competitive strengths, members of senior management from each of HPS
and Sykes joined the Company.
The Company believes that the combination of these three companies creates
significant opportunities for cross-selling, cost savings and increased sales
and marketing efforts. The Company intends to leverage the strong customer
relationships of each of these companies to cross-sell its services. For
instance, the Company intends to cross-sell its Care Management services to
users of its Optimed software products and related services. Customers currently
using the Company's Optimed software products and related services include
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over 40 managed care plans covering approximately 20 million individuals, none
of which are currently utilizing the Company's Care Management Services.
INDUSTRY OVERVIEW
Healthcare spending in the United States has increased to an estimated $1.1
trillion in 1997, or 13.7% of GNP, from $249 billion, or 9.0% of GNP in 1980. As
a result of the increase, payors, providers and users of healthcare services
have sought to reduce such expenditures. Medical costs are divided into two
principal components, the costs of clinical delivery of healthcare (i.e., the
costs directly associated with medical treatment) and administrative costs.
Approximately 79% of healthcare costs have been directly related to the clinical
delivery of healthcare. In addition, efforts to reduce unnecessary clinical
costs have been hindered by the inability to comprehensively and cost
effectively manage the complex task of effectively guiding a patient through the
healthcare process from eligibility determination to diagnosis, treatment and
ultimate claim payment. The Company assists its customers and their healthcare
plan participants to better manage this process. Opportunities to improve the
delivery of healthcare include:
Improve Prospective Care and Early Treatment. The Company believes that
timely and convenient access by healthcare plan participants to useful
healthcare related information and subsequent appropriate preventative care and
early intervention can improve an individual's overall healthcare and wellness
while reducing inappropriate healthcare costs. The Company's Care Management
services are designed to enhance an individual's healthcare by prospectively
evaluating an individual's medical profile and potential healthcare needs,
providing information and educational assistance and improving patient
compliance with prescribed courses of treatment.
Improve Chronic Care Management. The Company believes that
chronic-condition healthcare costs represent a disproportionate share of
healthcare expenditures, and in managing such conditions, there often is a
significant difference between the clinically appropriate and documented disease
management guidelines and actual day-to-day treatment practices. Such
differences can result in lower quality care and unnecessary medical costs. The
Company's HI CARES program can promote higher quality individual medical
treatment while also reducing unnecessary costs associated with high-cost
chronic patient conditions.
Efficient Utilization of Healthcare Resources by Individuals. Healthcare
plan participants have not historically had convenient access to qualified
clinical personnel to answer healthcare questions and provide guidance on
healthcare treatment alternatives, often resulting in inappropriate consumption
of medical resources, inappropriate utilization or clinical inefficiency.
Individuals without such assistance can delay needed treatment, treat themselves
inappropriately or seek unnecessary care, all of which can lead to poor health
outcomes and higher costs. For example, industry studies indicate that up to 55%
of all emergency room visits are unnecessary. The Company provides a toll-free
helpline that allows participants and their families to contact the Company's
registered nurses with any questions or concerns they may have regarding their
treatment alternatives. The Company's toll-free helpline is staffed 24 hours a
day, 365 days a year, by qualified clinical personnel that can assist
individuals with any questions or concerns they may have regarding their health
or medical treatment.
Outsourcing of care management and employee benefits administration has
shown significant growth over the last several years due to: (i) significant
increases in the cost of healthcare and loss claim ratios; (ii) the desire to
improve the quality of healthcare; (iii) the need for extensive staff training
to effectively monitor, adapt and manage benefit programs to incorporate complex
and frequently changing governmental regulations; (iv) substantial potential
legal exposure for non-compliance with federally mandated healthcare
requirements; (v) the need for technologically sophisticated data processing
systems that require periodic maintenance, updates and reinvestment; and (vi)
increased employee awareness of healthcare benefits and employer concern for
potential litigation due to inadequate benefits administration. In 1995, the
costs of employee benefits administration in the United States were estimated to
be approximately $5.6 billion, of which approximately $1.4 billion were
estimated to be outsourced. The portion of employee benefits spending to be
outsourced is expected to increase to approximately $2.0 billion by the year
2000.
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STRATEGY
The Company's strategy is to become the leading single-source provider of
outsourced Care Management and Employee Benefit Services to corporations and
healthcare providers and payors. This strategy includes the following key
elements:
- Deliver Comprehensive and Clinically Sophisticated Services. The Company
intends to aggressively market itself to new and existing customers as a
single-source provider of comprehensive and clinically sophisticated Care
Management and Employee Benefit Services. The Company believes it is
currently the only single-source provider of such comprehensive services.
In addition, the Company believes that by integrating such services the
Company's customers will have the ability to determine a potential
patient's healthcare benefits eligibility status on a real time basis,
thereby reducing overall healthcare costs. The Company believes that its
strong customer relationships, knowledge of its customers' needs and
ability to address those needs, along with its broad range of service
offerings will enable the Company to become the preferred single-source
provider of Care Management and Employee Benefit Services.
- Cross-Sell Services to Existing Customer Base. The Company currently has
a significant customer base, including over 50 of the Fortune 500
companies. However, only a limited number of these customers utilize more
than one of the Company's services. The Company intends to leverage the
existing customer base of each of its Care Management and Employee
Benefit Services operations by cross-selling the Company's comprehensive
suite of services to those customers currently utilizing less than all of
its services. For instance, the Company intends to aggressively
cross-sell its Care Management services to users of its Optimed software
products. Customers currently using Optimed's software products and
services include over 40 managed care plans covering approximately 20
million individuals, none of which currently utilize the Company's Care
Management services.
- Expand Sales and Marketing Efforts. Prior to the acquisition of HI, OMS
and SHSB, those companies collectively employed only five sales and
marketing personnel and did not aggressively market their services and
products. The Company is in the process of developing a comprehensive
marketing program and hiring additional sales and marketing personnel to
complete the development of its integrated sales and marketing team. The
Company believes that through its expanded sales and marketing team, it
will be able to effectively market itself to both new and existing
customers as a provider of comprehensive Care Management and Employee
Benefit Services.
- Broaden Service Offerings. The Company continually evaluates regulatory
developments and emerging trends and innovations in the healthcare,
employee benefits and information technology industries and their
potential impact on the Company's existing and future customers. The
Company intends to continue to expand its service offerings to meet its
customers' existing needs as well as future needs created by regulatory
and other changes. The Company believes it has substantial capacity in
its existing facilities and systems to accommodate such expansion.
- Pursue Strategic Acquisitions. Since its inception in December 1997, the
Company has acquired three companies. The Company intends to continue to
evaluate acquisition opportunities to expand its service and product
offerings, geographic presence, customer base, industry expertise and
technical abilities.
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SERVICES AND PRODUCTS
<TABLE>
<CAPTION>
SERVICES AND PRODUCTS DESCRIPTION
- --------------------- -----------
<S> <C>
CARE MANAGEMENT
Demand Management.................................... 24-hour patient information services
Utilization Management............................... Pre-certification and concurrent
utilization review services
Case Management...................................... Management of complex catastrophic or
prolonged cases
Disease Management................................... Identification and management of at-risk
patients
Disability Management................................ Workers' compensation and disability case
management services
Protocol Products & Services......................... Quality and utilization management
software solutions
EMPLOYEE BENEFIT SERVICES
Benefits Plan Administration......................... Administration of employer's customized
benefits
Flexible Spending Account Administration............. Administration of FSA processing and
communications
COBRA Administration................................. Management of COBRA notification and
administration
Retiree Benefits Services............................ Administration of billing and collection
of premiums to retirees
Fulfillment Services................................. Production, assembly and distribution of
employee benefits materials
</TABLE>
CARE MANAGEMENT. The Company's Care Management services and products
assist customers in improving the quality of healthcare services provided to
plan participants and monitor patients' compliance with their prescribed course
of treatment while simultaneously reducing inappropriate medical costs. The
Company's Care Management services include demand, utilization, case, disease
and disability management. In addition, for providers and payors that wish to
perform their own quality assurance or utilization management functions, the
Company provides quality and utilization management software solutions through
its Optimed software products and related services.
Demand Management. The Company provides a toll-free telephone number that
allows participants and their families to contact the Company's registered
nurses with any questions or concerns they may have regarding their health or
medical treatment. The toll-free telephone number is operational and available
to subscribers 24 hours a day, seven days a week. The Company's registered
nurses and physicians assist in: (i) locating appropriate providers of
healthcare services throughout the United States; (ii) identifying the types of
alternative treatments that may be available for the patient's condition; (iii)
providing a plain language description of the patient's medical condition, along
with valuable information about conditions; and, if appropriate, (iv) answering
other questions the patient may raise. To accomplish these objectives, the
Company provides:
- Assessment of patient needs;
- Review of options and choices for care;
- Education concerning home care techniques;
- 24-hour follow-up calls;
- Access to poison control information;
- Printed educational material;
- Referrals to physicians and consultants; and
- Access to toll-free numbers of healthcare organizations across the United
States.
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Through its toll-free telephone number, the Company is able to offer a
valuable employee benefit that enables patients and their families to deal more
effectively with important health issues. In addition, the toll-free number
provides cost savings that result from patients accessing the medical system at
the appropriate entry point for their medical conditions.
Utilization Management. The Company offers pre-certification and
concurrent utilization review services. The Company's pre-certification service
is designed for use prior to the employee's non-emergency admission to the
hospital and prior to the employee undergoing certain surgical procedures and
diagnostic tests on an outpatient basis. This program is designed to review all
appropriate care options available to the patient and the patient's treating
physician to ensure appropriate treatment and prevent the over- and under-
utilization of healthcare services. Upon notification of a request for
pre-certification, usually through its toll-free telephone line, a registered
nurse reviews the proposed treatment and compares it to clinical protocols which
have been developed by the Company in consultation with a network of board
certified physicians. As part of its pre-certification reviews, the Company may
arrange for second and, in certain circumstances, third surgical opinions for
non-emergency procedures through its database of more than 25,000 board
certified physicians. This surgical opinion review program offers cost savings
to the Company's customers and informed choices to their insureds. Obtaining a
second or third opinion for many types of surgery often results in the patient
choosing an appropriate alternative treatment plan, thereby resulting in reduced
medical plan costs, and, possibly, substantial savings on disability income
payments and lost days on the job. If a nurse is unable to certify the proposed
treatment plan as appropriate, the case is referred to a medical director
trained in the applicable medical specialty for direct consultation with the
patient's attending physician. If the approved treatment plan involves a
hospital admission, a nurse certifies an optimal discharge target based on
guidelines established by the Company. During the course of the hospitalization,
a nurse telephonically monitors (concurrent review) the patient's progress until
discharge. For certain diagnoses the Company initiates discharge planning. After
discharge from the hospital, the patient may require additional services such as
home healthcare. A nurse identifies any necessary additional services and
coordinates the provision of such care. The Company also offers specialty
programs for behavioral health and substance abuse review, as well as high-risk
maternity screening via its Special Delivery Program for expectant mothers. The
focus of its Special Delivery Program is the identification and prevention of
pre-term labor and pre-term birth.
Case Management. The Company offers medical case management services for
conditions and injuries deemed catastrophic or complex in nature, or where
prolonged recovery is expected. For these cases, the Company maintains a
physician database to provide knowledgeable consultants for the benefit of the
patients. The Company has established a medical advisory committee consisting of
nationally-recognized physicians in various medical specialties. These committee
members have identified physicians and facilities throughout the United States
that are recognized experts in various types of complex and unusual procedures.
The advantages to the patients are the review of their cases by some of the most
qualified physicians in the United States and the assurance that any necessary
medical procedure will be performed by qualified medical personnel in an
appropriate facility.
Disease Management. Through its HI CARES program, the Company provides
disease management, which seeks to promote wellness and avoid unnecessary or
prolonged hospitalizations, reduce lengths of stay, and otherwise reduce costs
associated with high-frequency and high-cost chronic medical conditions. The
Company attempts to identify patients through claims history that are at risk
for particular diseases or suffering from a high-cost chronic medical condition.
Specific programs are in place for the following diseases and conditions:
- Endocrinological diseases;
- Respiratory diseases;
- Cardiac diseases;
- Cancer;
- Musculoskeletal conditions;
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<PAGE> 46
- Neurological conditions;
- Immune System disorders; and
- Transplants.
The Company's HI CARES program is a voluntary, confidential program,
administered by qualified clinical personnel who are registered nurses and
consists of the following four stages:
- Patient Identification. The Company receives monthly paid claims data,
including prescription drug data, via computer from the claims payor.
This data is entered into the Company's Care Management database on an
ongoing basis. A review of this combined database is utilized to identify
patients who have, among other criteria: (i) high risk diagnoses; (ii)
multiple hospital admissions; (iii) high dollar claims; (iv) conditions
requiring health education; or (v) family claims considerations or other
indicators of potential high healthcare usage.
- Patient Contact. In the second stage, the patient or parent is contacted
by a registered nurse who specializes in a specific disease
classification. The nurse inquires as to the status of the patient's
health and explains the confidential nature of the program and the
Company's goals for the patient and the patient's family. Undocumented
conditions such as weight problems, smoking or family problems may also
be identified and discussed. If the patient agrees to participate in the
HI CARES program, the registered nurse will forward a patient release
form along with a letter that further explains the program. If the
patient does not wish to participate, a notation is made in the system.
The claims data, however, is continually reviewed and if the patient's
condition does not improve, further contact is initiated when
appropriate.
- Intervention. Once the patient agrees to participate in the HI CARES
program, a registered nurse and, in certain circumstances a medical
doctor, will conduct further medical interviews with the patient over the
phone, and possibly a medical record review. Based upon the patient's
condition, the registered nurse will contact the patient's physician to
explain the Company's role and develop, in conjunction with the patient's
physician, a suggested plan of treatment. Patients participating in the
HI CARES program are continuously monitored through follow-up phone calls
and other communications with the patient and providers at intervals
determined by the patient's needs. The plan of treatment is frequently
monitored and altered to meet the patient's changing healthcare needs.
Specific interventions often include: (i) reviewing the patient's current
treatment plan; (ii) referring the patient to medical specialists with
appointments made by a registered nurse; (iii) referring the patient to
community services and support groups; (iv) arranging for and monitoring
home healthcare services and therapies; (v) arranging for discounts for
specialized services; (vi) providing directories of healthcare providers
in the patient's community; (vii) facilitating communications between the
patient and their healthcare providers; (viii) assisting the patient
during medical situations and giving support during medical intervention;
and (ix) educating the patient to assist in controlling their own
disease.
- Outcomes. Participants in the HI CARES program become part of the
Company's national database, designed to measure the effectiveness of
various treatments of specific diseases. The Company participates in and
monitors outcomes research on a continuous basis. Patient surveys are
also utilized to determine patient satisfaction and various
quality-of-life indicators.
Disability Management. The Company provides a range of services designed
to monitor the medical necessity and appropriateness of healthcare services
provided to workers' compensation and disability claimants. The Company also
provides services that may expedite claimants' return to work. A registered
nurse manages both workers' compensation and disability patients by interacting
with both the patient and the patient's attending physician to establish the
shortest duration of disability consistent with the medical information and the
customer's benefit plan. This interface is customized to fit each customer's
needs. As part of its case initiation, a registered nurse assigned to the case
works with the employee and the employer to assess the appropriate job
classification for the employee. On-line disability duration guidelines are
utilized as a component of each specific case evaluation. The Company is able to
customize the guidelines on an employer specific basis through the review of
historical disability data from the employer. Disability days
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requested and authorized are collected by diagnosis codes with indications
whether the patient was hospitalized or had surgery. Reports comparing the
outcome of each disability case to the above norms are produced for tracking and
monitoring purposes.
Protocol Products and Services. The Company provides quality and
utilization management solutions that allow managed care payors and providers to
concurrently and prospectively control healthcare utilization and costs, while
simultaneously seeking to optimize the quality of their patients' healthcare.
The software solutions provided by the Company have been in continuous operation
for more than 12 years and are currently being used in the management of the
insured population of more than 40 managed care plans covering approximately 20
million people throughout the United States and Puerto Rico. The Company
provides software solutions to its customers through its Optimed products and
services, which are based on the Optimed Protocols.
Optimed Protocols. The Optimed Protocols are developed and maintained
by the Company's clinical staff, as well as its national panel of over 250
board certified physicians, and represent more than 52,000 diagnosis and
procedure-specific criteria that establish medical practice parameters to
provide an objective, substantiated clinical basis for the evaluation of
high cost/high volume treatments and procedures. Optimed Protocols enable
managed care personnel to (i) assess the appropriateness of care, and (ii)
manage the location and duration of the medical services provided. The
Company uses a process employing healthcare data analysis, scientific
literature review and clinical consensus to substantiate the validity of
the Optimed Protocols.
The clinical development and ongoing maintenance of each Optimed
Protocol relating to appropriateness or location of care and duration of
stay include: (i) analyzing the Company's national database of healthcare
data; (ii) reviewing current scientific and medical literature; (iii)
compiling a comprehensive list of indications for surgical intervention or
inpatient admission; (iv) consulting with over 250 board certified
practicing physicians and clinicians, representing a broad range of medical
and surgical specialties, subspecialties and practice models; (v)
constructing automated step-by-step procedures; and (vi) involving
practicing clinicians in all stages of the development of Optimed
appropriateness review criteria.
OMS Software. Optimed has been engineered into three fully-featured
software packages that use Microsoft Windows 95/NT(R), Unix and IBM
Mainframe technologies. Both the Unix and IBM systems include the ability
to manage member eligibility, provider networks and specialty referrals.
Both systems automatically generate notification letters for physicians,
facilities and patients; provide sophisticated management reporting; and
can be interfaced to claims processing, eligibility and provider systems.
The Windows-based portable Optimed product is a graphic user interface and
client server-based software system designed to interface with third party
and legacy utilization management software systems.
OMS Services. The Company provides a broad range of standard support
and optional services to assist its customers in maximizing the benefits of
the Optimed Protocols, including: (i) initial implementation planning and
project management; (ii) training and educational programs; (iii) technical
consulting and support; (iv) medical management consulting, including
auditing and analyzing the customer's medical management data and
operation; and (v) physician peer review services.
EMPLOYEE BENEFIT SERVICES. The Company provides a broad range of Employee
Benefit Services, including BPA, FSA administration, COBRA administration,
retiree benefits services and other ancillary services. The Company currently
provides these services to over 600 companies, collectively serving over 4
million employees, either as a comprehensive package or on an individual basis.
Benefits Plan Administration. The Company assumes primary responsibility
for administering the complete benefits package offered by an employer, which
permits employees to structure a benefit package to meet their personal needs.
Under a flexible benefits plan, the employer generally provides employees with a
minimum of core benefits coverages, such as basic health and life insurance.
Employees can then select additional benefits from a list of available options
or choose higher levels of coverage. Depending upon the benefit plan design
offered by an employer, an employee can either purchase additional benefits
through
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<PAGE> 48
higher payroll deductions or use credits funded by the employer, which are
allotted to them based upon salary, years of service or some other criteria.
The Company provides the following BPA services:
- Creating an employee election database and eligibility tables;
- Compiling and maintaining employee and dependent demographics and benefit
elections;
- Calculating, reporting and disbursing premiums to payors;
- Reporting eligibility to payors;
- Updating customer payroll systems on a scheduled basis;
- Providing toll-free benefits inquiry services;
- Producing COBRA initial notification of rights letters, qualifying events
notices and certificates of coverage under HIPAA; and
- Providing standard monthly management reports for the customer's benefits
department.
Additionally, the Company offers its customers carrier administration
services, which offers a single point of contact for all insurance
carrier-related activities, and provides the ongoing change processing
associated with plan changes, new enrollments, terminations and dependent
changes.
Flexible Spending Account Administration. The Company's FSA administration
system is structured to provide the employer with flexible and efficient
processing and timely communications. An FSA provides a means for employees to
pay for out-of-pocket healthcare and dependent expenses on a pre-tax basis.
Employees who choose to establish an FSA deposit pre-tax dollars into either a
healthcare or dependent care account, or both. Healthcare reimbursement accounts
are designed to help employees pay for certain eligible healthcare expenses that
may not be 100% covered or are ineligible for payment by their healthcare plans.
Dependent care reimbursement accounts are designed to help employees pay for
child care services or care for a disabled spouse or dependent.
To establish an FSA plan, an implementation manager meets with the customer
to collect information about its FSA administration needs and its employee
demographic information. Through its FSA administration system, the Company
processes FSA enrollments, maintains and updates all FSA records, processes
claims and produces reports. Changes in eligibility and deposit and withdrawal
information are recorded on a monthly basis through an integrated reporting
system. The Company currently provides FSA administration services for more than
339,000 individuals. The Company can design an FSA program to meet customer
specifications, as well as provide all record keeping and administrative
functions in accordance with IRS regulations.
The Company's FSA administration system contains the following core
components:
- AccountLINK. The Company's interactive customer assistance system allows
participants to use a touch-tone phone to access their accounts daily for
balance, date the last claim check was mailed and date of payment of the
last claim.
- Electronic Funds Transfer. Electronic funds transfer offers employees
the convenience of direct deposit into their individual bank accounts
from their FSA. Employees can call AccountLINK to verify the status of
their payment. Deposits will be recorded on their monthly banking
statements.
- Employee Communications. The Company provides FSA-related brochures,
other communications in electronic format and a video for educating
employees on the advantages related to an FSA.
- Enrollment Support. The Company can provide enrollment support through
enrollment meetings, instructional videos and brochures, presentations,
and preparation of plan documents.
COBRA Administration. The Company manages all COBRA notification and
administration procedures on behalf of its employers. Enacted in 1986, COBRA
requires virtually all employers with 20 or more
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employees that maintain group health insurance plans to offer continued
healthcare coverage for employees and their dependents following "qualifying
events," such as changes in employment status. In August 1996, Congress passed
HIPAA in an effort to provide "guaranteed" group health plan coverage to
individuals with pre-existing conditions. This effort includes placing limits on
group health plan pre-existing limitation periods. HIPAA also imposed new ERISA
rules on group health plans, including prohibitions on provisions that
discriminate against plan participants based on health status-related factors.
The HIPAA legislation has had a significant impact on the COBRA administration
business because it requires employers to provide a certificate of insurance for
each employee who ceases to be employed. The HIPAA legislation has also resulted
in further complexity in determining the period of eligibility for COBRA
participation, and redefined qualified beneficiaries.
The Company's COBRA administrative services include:
- Distributing notification letters to employees when initially hired and
when a "qualifying event" occurs;
- Enrolling an employee into a health insurance plan sponsored by the
employer, consistent with COBRA regulations;
- Receiving and disbursing employee premium payments; and
- Maintaining a record of all related documentation and transactions.
Throughout the COBRA continuation period, the Company monitors:
- A qualified beneficiary's continued eligibility;
- Second qualifying events (e.g., death, divorce and dependents'
eligibility status) for any extension of benefits for which a participant
might be eligible;
- The payment record of each qualified employee (if a payment is not
received before the 30-day grace period expires, a participant's account
will automatically terminate and a termination notice will be issued);
- If the employer has established a conversion provision (60 days before
termination, the Company will generate an automated conversion reminder
letter informing COBRA beneficiaries of the option to convert to an
individual policy after COBRA coverage expires); and
- Any end of coverage event (the Company is required to send the employee a
notice indicating that coverage will cease to be in effect on a
particular date).
Retiree Benefits Services. Retiree benefits services consist of the
billing and collection of premiums from retirees and employees on a
leave-of-absence. Participant demographic and accounting records are established
in a database, premium bills are sent and premiums are collected and disbursed
either back to the employer or directly to the appropriate carrier. Eligibility
and accounting reports are produced monthly for the carriers, and management
reports are produced monthly for the employer. Additionally, a toll-free
employee benefit support line, including an automated inquiry facility and an
on-line call documentation system, provides responsive handling of participant
inquiries.
Fulfillment Services. The Company operates a 78,750 square foot
fulfillment center in Louisville, Kentucky. The Company's fulfillment services
include the production and assembly of employee benefits enrollment kits and
related materials and their distribution to customers and their employees.
Other Services. In addition to Care Management and Employee Benefit
Services, the Company offers the following ancillary services to its customers:
Optical Character Recognition. OCR is a system by which a device
scans and recognizes hand-printed or typed data and then encodes the data
into alphanumeric characters for processing. The OCR system "photographs"
data within a document, then captures and transfers the data into a
software-based program, where it is processed with a minimal amount of
human intervention. OCR technology is an attractive alternative to manual
data entry systems. This can expedite the set-up process by reducing the
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manual intervention required to get new customers on the Company's system.
In the case of a large organization, an OCR scanning application is ideal
for benefit enrollment needs. The Company's facility is capable of
processing 12,600 documents per hour.
Interactive Voice Response System. The Company operates an
interactive voice response system service that gathers and provides
information through the use of a touch tone telephone. This system allows
callers to enter a request, answer questions, or place an order directly by
telephone, which saves the expense of manual data entry and reduces or
eliminates the need to staff for these calls. This system can save the
customer significant man hours and labor costs.
CUSTOMERS
The Company has customers in the United States and Puerto Rico, including
in excess of 50 Fortune 500 corporations. The Company believes its base of
nationally recognized customers presents important opportunities for further
marketing of its services.
Approximately 59.7%, 53.7%, 48.6% and 46.7% of the Company's pro forma
revenues in fiscal 1995, 1996, 1997 and the three months ended March 31, 1998,
respectively, were attributable to the Company's top ten customers. Of the
Company's pro forma revenues in 1997, PHC and Hughes Electronics represented
approximately 16.3% and 11.0%, respectively. The Company expects to discontinue
providing fulfillment services to PHC in 1998. Prior to the acquisition of SHSB,
the predecessor of SHSB was notified that its contract with Hughes Electronics
would not continue after 1998. PHC and HPS are expected to be the Company's
largest customers in 1998. The Company anticipates that in the future a
significant portion of its revenues will continue to be derived from a limited
number of customers. When the Company obtains a new customer, the Company hires
and trains additional personnel prior to receipt of revenues from the new
customer and charges a start-up fee to cover part of the initial costs incurred
by the Company. Consequently, the gain or loss of any single such customer or
the insolvency or other inability or unwillingness of the Company's customers to
pay for its services could cause quarterly and annual operating results to vary
substantially. The Company's loss of more of its business from PHC than
anticipated, or the loss of its business from HPS or any of its other
significant customers could have a material adverse effect on the Company's
results of operations. See "Risk Factors -- Dependence on Key Customers,"
"Management's
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<PAGE> 51
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions." The following is a representative list of the Company's
customers, segregated by service offerings:
Care Management
<TABLE>
<S> <C>
Care Management Services Protocol Products and Services
American Airlines Alliance Blue Cross/Blue Shield
Bank of America Anthem Blue Cross/Blue Shield of
Best Life Assurance Connecticut
Fox Television Blue Cross/Blue Shield of Michigan
Kmart Blue Cross/Blue Shield of Oklahoma
Kerr-McGee Blue Cross/Blue Shield of South Carolina
McKesson Blue Cross/Blue Shield of Texas
Nestle USA Great-West Life
PepsiCo Independence Blue Cross
Warner Bros.
Xerox
</TABLE>
Employee Benefit Services
<TABLE>
<S> <C>
ADP Lucent Technologies
AT&T NationsBank
Banc One Corporation Northwest Airlines
City of Los Angeles Procter & Gamble
Coopers & Lybrand Saint-Gobain
IBM
Kroger
</TABLE>
COMPETITION
The business of providing outsourced Care Management and Employee Benefit
Services is highly competitive and fragmented. The Company's principal
competitors include data processing affiliates of financial institutions,
insurance companies, third party administrators, providers of healthcare
protocols and software solutions and other outsourcing service companies. Many
of these existing competitors, as well as a number of potential competitors,
possess substantially greater resources and name recognition than the Company.
There are numerous providers of the Company's outsourcing services and products.
The Company believes that it is currently the only single-source provider of its
comprehensive and clinically sophisticated Care Management and Employee Benefit
Services. Potential competitors include the Selling Shareholders, See "Certain
Transactions." In addition to the Company's competitors, many of the Company's
services, including COBRA compliance and other employee benefits administration,
are often provided in-house. The Company believes that the most significant
competitive factors in the sale of its outsourcing services and products include
quality, reliability of services and data provided, flexibility in tailoring
services to customer needs, assumption of certain responsibilities for
compliance with complex laws and regulations, experience, reputation,
comprehensive services, integrated services and price. See "Risk
Factors -- Competition."
SALES AND MARKETING
Prior to the Company's acquisition of HI, OMS and SHSB, those companies
collectively employed only five sales and marketing personnel and did not
aggressively market their services and products. The Company is in the process
of developing a comprehensive marketing program and hiring additional sales and
marketing personnel to complete the development of its integrated sales and
marketing team. Although each of the Company's broad range of services may
target different industry segments, the Company has the ability to provide a
comprehensive suite of outsourcing services to any individual customer. The
Company plans to market its Care Management services and products and Employee
Benefit Services through a variety of
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<PAGE> 52
methods, including cross-selling additional services to existing customers,
customer referrals, personal sales calls, advertising in industry publications,
direct mailings to targeted customers and participating in industry trade shows.
The Company also intends to strengthen its relationships with its existing
customers. Sales representatives and account executives will be assigned to a
limited number of accounts in order to develop a complete understanding of each
customer's particular needs, to form strong customer relationships and to
encourage cross-selling of other services offered by the Company. Account
executives will also receive incentives for cross-selling the Company's
services.
INSURANCE
The Company maintains insurance policies, including liability insurance in
the aggregate amount of $10.0 million, which it believes to be adequate in
amount and coverage for the current size and scope of its operations. There can
be no assurance, however, that the coverage maintained by the Company will be
sufficient to cover all future claims or will continue to be available in
adequate amounts or at a reasonable cost. Although the Company has not
experienced difficulty in obtaining insurance coverage in the past, there can be
no assurance that it will be able to obtain continued insurance coverage on
acceptable terms or at all. In addition, although the Company's contracts with
its customers sometimes require the customer to indemnify the Company for the
customer's negligent conduct, the contracts do not provide for adequate
indemnification against many of the potential litigation risks facing the
Company and often require the Company to indemnify its customer for the
Company's negligence. The Company, therefore, could be held responsible for
losses incurred in connection with the performance of its services under the
terms of these contracts or otherwise and could incur substantial costs in
connection with legal proceedings associated with its services.
EMPLOYEES
As of April 17, 1998, the Company had approximately 975 full-time
employees, including approximately 700 employees providing Employee Benefit
Services and approximately 275 employees providing Care Management services and
products. The technical and service nature of the Company's business makes its
employees an important corporate asset, and the identification and retention of
qualified personnel is an important corporate goal. It is particularly important
for the Company to retain qualified healthcare, technical and employee support
personnel to continually enhance the Company's services and related products.
While the market for qualified personnel is very competitive, the Company
believes its relationship with its employees is good.
INTELLECTUAL PROPERTY
The Company relies upon a combination of contract provisions and trade
secret laws to protect the proprietary technology it uses at its facilities and
relies on a combination of copyright, trademark and trade secret laws to protect
the Company's proprietary software. The Company attempts to further protect its
trade secrets and other proprietary information through agreements with
employees and consultants. The Company does not hold any patents and does not
have any patent applications pending. There can be no assurance that the steps
taken by the Company to protect its proprietary technology will be adequate to
deter misappropriation of its proprietary rights or third party development of
similar proprietary software. The Company possesses common law trademarks in
"Sykes HealthPlan Services, Inc.," "SHPS" and its logo, and has applied to
register the marks and logo with the United States Patent and Trademark Office.
The Company has registered the trademark OPTIMED(R) with the United States
Patent and Trademark Office. The Company owns all copyrights to HI CARES.
LEGAL PROCEEDINGS
The Company is not a party to any litigation, nor is it aware of any
threatened litigation, that is expected to have a material adverse effect on the
Company or its business.
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<PAGE> 53
REGULATION
The healthcare industry is subject to federal and state governmental
regulation. Certain of these statutes and regulations governing the provision of
healthcare services could be construed by regulatory authorities to apply to
certain of the Company's products and services. This is particularly true with
regard to the provision of healthcare-related services by nurses and physicians
located in and licensed in one state that provide services to patients located
in another jurisdiction. There is currently no clear and consistent judicial or
statutory guidance regarding whether or not the activities performed by the
Company constitute the practice of nursing or medicine. However, one state court
has upheld the discipline imposed on a physician by the state's medical
licensure board for the denial of health benefits under a managed care plan. If
a court determines that the Company's healthcare-related activities constitute
the practice of nursing or medicine, the employees of the Company will be
governed by the state's boards of nursing and medicine or the Company may be
found to be in violation of a state's corporate practice of medicine statute.
Several states require that physicians licensed in one state who provide
services across state lines also maintain licensure in the state in which the
patient is located. In addition, some states have begun to enact telemedicine
laws which, in the future, could be deemed to curtail, modify or prohibit
physicians and nurses from providing "medical advice" via the telephone.
Enforcement of such statutory and regulatory requirements could require the
Company to obtain additional licenses or registrations, modify current
operations, pay fines or incur other penalties such as the loss of the right to
do business in a particular state.
Many states in which the Company provides Care Management require the
Company or its employees to receive regulatory approval or licensure to conduct
such business. The Company's operations are dependent upon its continued good
standing under applicable licensing laws and regulations. Such laws and
regulations are subject to amendment or interpretation by regulatory authorities
in each jurisdiction. Generally, such authorities have relatively broad
discretion when granting, renewing or revoking licenses or granting approvals
and may rely on certain accreditations from nationally recognized entities in
granting, renewing or revoking such licenses and approvals. These laws and
regulations are intended to protect insured parties rather than shareholders,
and differ in content, interpretation and enforcement practices from state to
state. Moreover, with respect to many issues affecting the Company, there is a
lack of guiding judicial or administrative precedent. Certain of these laws
could be construed by state regulators to prohibit or restrict certain of the
Company's service offerings. The Company could also incur liability as a
fiduciary in respect of certain of the disability management services it
provides.
The American Accreditation HealthCare Commission, also known as the
Utilization Review Accreditation Commission ("URAC"), is an organization which
accredits a wide range of managed care activities and organizations including
utilization review services. Currently, thirty-two of the fifty states require
licensure for utilization review. As of April 1998, eighteen states and the
District of Columbia have incorporated URAC accreditation into their utilization
review regulatory schemes as part or in lieu of their process to obtain a
license.
URAC's governing structure currently consists of sixteen member
organizations, each of which may appoint one individual to a seat on the URAC
Board of Directors. Four directors also serve as corporate officers. The URAC
Board of Directors forms various committees, including the committee to review
accreditation applications and committees to develop new accreditation modules
and review standards. As part of the accreditation and review process, URAC has
conflict of interest procedures to prevent its reviewers from participating in
the review of applications of entities in which they have a pecuniary or
personal interest. URAC also has a "blinded" accreditation committee process
where all identifying information is removed by its reviewers before submission
to the committee. Suzanne D. Kelly, Vice-Chairperson and Co-Chief Executive
Officer of HI, is a board member and currently serves as URAC's Chairperson. See
"Management -- Directors and Executive Officers."
ERISA governs the relationships between certain health benefit plans and
the fiduciaries of those plans. In general, ERISA is designed to protect the
ultimate beneficiaries of the plans from wrongdoing by the fiduciaries and
applies to employer-based welfare plans. Excluded from ERISA are government
plans, church plans, plans established solely for the purpose of workers'
compensation, unemployment benefits or disability,
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<PAGE> 54
plans maintained outside the United States for the nearly exclusive benefit of
non-resident aliens and unfunded excess benefit plans. ERISA generally provides
that a person is a fiduciary of a plan to the extent that such person has
discretionary authority in administration of the plan or with respect to the
plans' assets. Each employer is a fiduciary of the plan it sponsors, but there
can also be other fiduciaries of a plan and ERISA imposes various express
obligations on fiduciaries. These obligations include barring a fiduciary from
permitting a plan to engage in certain prohibited transactions with parties in
interest or from acting under an impermissible conflict of interest with a plan.
Generally, a party in interest with respect to a plan includes a fiduciary of
the plan and persons that provide services to the plan. The application of ERISA
to the operations of the Company and its customers is an evolving area of law
and is subject to ongoing regulatory and judicial interpretations of ERISA.
Although the Company strives to minimize the applicability of ERISA to its
business and to ensure that the Company's practices are not inconsistent with
ERISA, there can be no assurance that courts or the Department of Labor will not
in the future take positions contrary to the current or future practices of the
Company. Any such contrary positions could require changes to the Company's
business practices (as well as industry practices generally) or result in
liabilities of the type referred to above. Similarly, there can be no assurance
that future statutory changes to ERISA will not significantly affect the Company
and its industry.
Enacted in 1986, COBRA is subject to interpretation by the federal courts
and is administered jointly by several federal agencies, including the Internal
Revenue Service, the Department of Labor and the Department of Health and Human
Services. In addition, COBRA is affected by other federal legislation and
entitlement programs, such as Medicaid, Medicare and the Family and Medical
Leave Act of 1993. COBRA applies to virtually all employers with 20 or more
employees that maintain group health insurance plans, including fully insured,
self-insured or partially-insured plans and union or non-union plans. Church
groups and the District of Columbia government are exempt from compliance with
COBRA.
The penalties for noncompliance with COBRA are substantial. As a provider
of COBRA compliance and administration services, the Company's exposure under
the Internal Revenue Code (the "Code") for excise taxes imposed for
unintentional violations of certain provisions of COBRA is limited to an
aggregate of $2.0 million per year. Under the Code, employers that are subject
to COBRA are liable for excise taxes at the rate of $100 per "qualified
beneficiary" ($200 if the qualified beneficiary has covered dependents) for each
day during which the group healthcare plan is in noncompliance, subject to an
annual maximum for unintentional violations. When such noncompliance is not
corrected before an IRS audit, this excise tax obligation increases, depending
on whether or not the violations are "de minimis." ERISA also imposes personal
liability on the plan administrator for the benefit of plan participants for
COBRA violations in the form of a penalty of up to $100 for each day the
violation continues. In addition to liability for COBRA violations under the
Code and ERISA, improper denial of coverage under COBRA or failure to comply
with COBRA's notification requirements may result in an employer's liability for
healthcare coverage to a former employee or dependent that is retroactive to the
date of the qualifying event which triggered the notification requirement.
Depending on the terms of the employer's group healthcare plan, such an employer
may be required to provide this type of retroactive coverage without
reimbursement from its insurance carrier.
The Company follows changes in federal laws and regulations related to and
judicial interpretations of COBRA, and promptly implements required changes to
its data processing operations. The Company's internal compliance department
periodically reviews the Company's operations to monitor compliance with the
Company's internal systems of controls and applicable federal laws and
regulations.
HIPAA requires employers with two or more employees and a group health plan
to issue "Certificates of Creditable Coverage" to all persons who were covered
by their group health plan but lost coverage for any reason since October 1,
1996. The requirement also applies to anyone losing coverage after June 1, 1997.
The certificate will serve as proof of coverage which the individual can use to
obtain waivers of pre-existing condition limitations when seeking coverage under
another employer's plan.
HIPAA requires employers to capture information reflecting type of coverage
and coverage periods for individuals (employees and dependents) on their plan.
Data must be captured as far back as July 1, 1996. The employers then must issue
certificates to these individuals documenting the coverage periods for future
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<PAGE> 55
insurers. Employees, covered dependents, employers and carriers may request
certificates at any time up to 24 months after the loss-of-coverage event. The
HIPAA compliance process begins when the Company sends each employee and his or
her dependents a HIPAA certificate following any qualifying event.
As a provider of HIPAA compliance and administration services, the Company
is subject to excise taxes for noncompliance with certain provisions of HIPAA.
Under the Company's service agreements with its customers, the Company assumes
financial responsibility for the payment of such taxes assessed against its
customers arising out of the Company's failure to comply with HIPAA, unless such
taxes are attributable to the customer's failure to comply with HIPAA or with
the terms of its agreement with the Company. Under the Internal Revenue Code,
employers that are subject to HIPAA are liable to excise taxes at the rate of
$100 per "qualified beneficiary" for each day during which the group healthcare
is in noncompliance. These liabilities could, in certain cases, be substantial.
Although there can be no assurance that the Company will not incur any material
liability for noncompliance with HIPAA or for its failure to comply with its
agreement with any customer, to date the Company has not incurred any such
material liability. The imposition of such liability on the Company could have a
material adverse effect on the Company.
Several of the products and services offered by the Company require the
Company to view, maintain and transport the confidential medical records of
health plan beneficiaries. The maintenance and transmission of medical records
is governed by a wide variety of state and federal laws, including HIPAA. There
are also several federal bills pending which would further restrict access to
and provide protection for confidential medical records. The state laws
governing medical records vary significantly from state to state. The failure of
the Company to comply with these requirements or material changes in such
requirements could result in significant liability as well as possible civil and
criminal penalties.
The Company also offers services to health plan participants, the payment
of which may be approved by Medicare as a federal Medicare secondary payor,
which may require the Company in some instances to take appropriate
administrative action.
From time to time, Congress has also considered federal regulation of the
health insurance industry. No such legislation has been adopted. Any legislation
relating to a comprehensive healthcare program could adversely affect the
Company. See "Risk Factors -- Regulation."
If the Company were to pursue opportunities outside the United States, it
may become subject to the regulatory requirements of such foreign jurisdictions
and there can be no assurance that the Company would be able to adapt its
operations to, or comply with, such regulatory requirements.
FACILITIES
The Company's principal executive offices are located in Louisville,
Kentucky. The following table sets forth information concerning the Company's
facilities:
<TABLE>
<CAPTION>
PROPERTIES(1) SQUARE FEET GENERAL USAGE LEASE EXPIRATION
- ------------- ----------- ------------- ----------------
<S> <C> <C> <C>
Louisville, Kentucky............... 160,689 Corporate headquarters July 31, 2005
Louisville, Kentucky............... 78,750 Operating facility June 30, 2001
Scottsdale, Arizona(2)............. 39,140 Operating facility June 30, 2002
Lexington, Massachusetts........... 12,182 Operating facility October 31, 2002
</TABLE>
- ---------------
(1) The Company has also subleased space in two customers' facilities located in
Columbus, Ohio and Las Vegas, Nevada on a month-to-month basis.
(2) The Company's facilities in Scottsdale, Arizona consist of five separate
facilities within the same office complex.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company:
<TABLE>
<CAPTION>
YEAR
FIRST DIRECTOR'S
BECAME A TERM
NAME POSITION(S) AGE DIRECTOR EXPIRES
- ---- ----------- --- -------- ----------
<S> <C> <C> <C> <C>
David E. Garner............... President, Chief Executive 40 1998 2001
Officer and Director
James K. Murray, III.......... Executive Vice President, 35 -- --
Treasurer, Chief Financial
Officer
John D. Gannett, Jr. ......... Senior Vice President, 42 -- --
Customer and Employee Services
Owen McKenna.................. President and Chief Executive 49 -- --
Officer of OMS
Stephen K. Holland, M.D. ..... Senior Medical Director of OMS 47 -- --
Donald K. Kelly, M.D.......... Chairman and Co-Chief 65 -- --
Executive Officer of HI
Suzanne D. Kelly.............. Vice-Chairperson and Co-Chief 47 -- --
Executive Officer of HI
Michael C. Peerboom........... President and Chief Operating 47 -- --
Officer of HI
Christine L. Beckler.......... Controller and Secretary 28 -- --
William L. Bennett............ Director 48 1998 2000
Linda McClintock-Greco,
M.D. ....................... Director 43 1998 2000
James K. Murray, Jr........... Chairman of the Board of 63 1997 2001
Directors
John H. Sykes................. Director 61 1997 1999
</TABLE>
David E. Garner has served as President and Chief Executive Officer of the
Company since its inception in December 1997 and as a director of the Company
since March 1998. From May 1994 until December 1997, Mr. Garner served as Senior
Vice President of Sykes with responsibility for information technology support
services for both national and international operations. Mr. Garner joined Sykes
in 1984 and, prior to becoming Senior Vice President of Sykes, held various
technical and managerial positions within Sykes.
James K. Murray, III, has served as Executive Vice President, Treasurer and
Chief Financial Officer of the Company since December 1997. Prior to joining the
Company, Mr. Murray served as Executive Vice President and Chief Financial
Officer of HPS from December 1995 to December 1997. Mr. Murray was President and
Chief Executive Officer and a director of a federally insured commercial bank in
Hillsborough County, Florida, from August 1993 to December 1995, as well as
Executive Vice President and Chief Financial Officer from 1990 until 1993. From
1985 to 1990, Mr. Murray was employed by Arthur Andersen & Co. in Atlanta,
Georgia. Mr. Murray is a director of Medirisk, Inc., a company engaged in the
healthcare information business. James K. Murray, Jr. is the father of Mr.
Murray, III.
John D. Gannett, Jr., has served as Senior Vice President, Customer and
Employee Services of the Company since its inception in December 1997. From July
1995 until December 1997, Mr. Gannett served as Senior Vice President of Sykes
with responsibility for information technology development services and
solutions. Prior to July 1995, he provided consulting services to Sykes under an
agreement entered into in
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<PAGE> 57
1991. From 1979 to 1991, Mr. Gannett held various management positions within
the technical and documentation services areas of Sykes.
Owen McKenna has served as President and Chief Executive Officer of OMS
since 1990. Prior to joining OMS, from 1988 to 1990, Mr. McKenna served as the
General Manager of the Health Data Institute ("HDI"), a data analytic and
managed care consulting company, where he was responsible for all managed care
consulting, data analytic and software business units. From 1984 to 1989, Mr.
McKenna served as a Division Vice President of Baxter International, a
biotechnology company, where he was responsible for the development and
management of its Hospital Systems and Management Services Division.
Stephen K. Holland, M.D., has served as Senior Medical Director of OMS
since 1990. Prior to joining OMS, from 1985 to 1988 Dr. Holland served as a Vice
President and Medical Director of HDI where he was responsible for the
development of managed care products (such as Optioned and HDI care management
services) and one of the first clinically-based prepayment claims editing
systems, the Advanced MedLogic System. From 1988 to 1990, Dr. Holland was an
independent consultant in the managed care industry for both U.S.-based
companies (such as Private HealthCare Systems and Adjust International) and
international companies (such as British United Provident Association and
Private Patient Plan).
Donald K. Kelly, M.D., has served as the Chairman and Co-Chief Executive
Officer of HI since he founded HI in 1985. Prior to founding HI, Dr. Kelly
founded and served as Chairman and Chief Executive Officer of Healthgroup
International, an HMO located in Southern California, which was purchased by
Hospital Corporation of America in July 1985. He also developed Ambulatory
Medical Systems, an emergency room services company, and Manhattan Health Plan,
an HMO located in New York. Dr. Kelly began his career in healthcare cost
containment when he founded HMO International, an HMO located in Southern
California, in 1964, which he developed into the largest for-profit HMO in
Southern California before its sale to INA Corporation (now CIGNA Healthplans)
in 1978. Dr. Kelly is the husband of Suzanne D. Kelly.
Suzanne D. Kelly has served as the Co-Chief Executive Officer of HI since
October 1997 and as the Vice-Chairperson and Secretary of HI since 1985. Prior
to joining HI, Ms. Kelly served as the Vice President of Personnel and Legal
Compliance and Corporate Secretary of Healthgroup International from 1979 to
1985. Ms. Kelly served as the Administrative Assistant to the Chairman of the
Board of HMO International and as the Director of Personnel and Corporate
Secretary of Manhattan Healthplan, Inc., a New York-based HMO, from 1975 to
1977. She is currently the Chairperson of the Board of Directors and of the
Executive Committee of the American Accreditation HealthCare Commission/URAC.
Donald K. Kelly, M.D. is the husband of Ms. Kelly.
Michael C. Peerboom has served as the President and Chief Operating Officer
of HI since its inception in 1985. Prior to joining HI, Mr. Peerboom held a
variety of positions with several companies in the healthcare industry,
including National Medical Enterprises, American Medical International, CIGNA
Healthplans and Healthgroup International, specializing in the area of
healthcare management information systems.
Christine L. Beckler has served as Controller and Secretary of the Company
since March 1998. From September 1996 through March 1998, Ms. Beckler served as
Controller of the Small Group Division at HPS. Prior to this period, Ms. Beckler
was employed by Price Waterhouse, L.L.P. in Tampa, Florida from October 1995 to
September 1996 and by Arthur Andersen L.L.P. in Chicago, Illinois from September
1991 to October 1995. Ms. Beckler is a Certified Public Accountant.
William L. Bennett has served as a director of the Company since March
1998. Mr. Bennett has served as Vice Chairman of the Board of HPS since January
1998 and served as Chairman of the Board of HPS between March 1995 and December
1997. He has served as a director of HPS since August 1994. Previously, Mr.
Bennett was Co-Chairman and Chief Executive Officer of Noel Group, Inc. from
November 1987 to March 1995. He is a director of Allegheny Energy, Inc., an
electric utility holding company, and Sylvan, Inc., a company that produces
mushroom spawn and fresh mushrooms.
Linda McClintock-Greco, M.D. has served as a director of the Company since
March 1998. Dr. McClintock-Greco has served as Chief Executive Officer since
July 1996, and previously as Chief Medical
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<PAGE> 58
Officer from October 1994 to July 1996, of Tampa General HealthPlan, Inc. She
has spent the past 10 years in the healthcare industry as both a private
practitioner in Texas and a managed care executive serving as the Assistant
Regional Medical Director with Humana HealthCare Plan. Dr. McClintock-Greco
serves on the Board of Directors of the Florida Association of Managed Care
Organizations and currently serves as Treasurer. Dr. McClintock-Greco is a
director of Sykes.
James K. Murray, Jr. has served as Chairman of the Board of Directors of
the Company since its inception in December 1997. Mr. Murray has served as
Chairman and Chief Executive Officer of HPS since December 1997 and as a
director of HPS since October 1994. From October 1994 until December 1997, he
served as President and Chief Executive Officer of HPS. He co-founded the
predecessor of HPS in 1970. Mr. Murray held the position of Corporate Senior
Vice President of the Dun & Bradstreet Corporation ("D&B") from March 1990 until
his retirement from D&B in December 1993. Mr. Murray also served as Chairman of
the Board of the Reuben H. Donnelley Corp., a publisher of telephone yellow
pages, from August 1991 until December 1993. He is also a director of Noel
Group, Inc. Mr. Murray, Jr. is the father of James K. Murray, III.
John H. Sykes has served as a director of the Company since its inception
in December 1997. Mr. Sykes has served as Chairman of the Board, President and
Chief Executive Officer of Sykes, since its inception in 1977. Prior to 1977, he
was Senior Vice President of CDI Corporation, a publicly-held technical services
firm.
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Articles of Incorporation and
Bylaws, which will be effective upon completion of the Offerings, the Board of
Directors has the power to set the number of directors (but not more than 12
members) by resolution adopted by the directors of the Company. The directors
are divided into three classes, as nearly equal in number as possible. Each
director in a particular class is elected to serve a three-year term or until
his or her successor is duly elected and qualified. Because the classes are
staggered their terms expire in successive years. Currently, the number of
directors is set at seven. The Company intends to maintain at all times at least
two independent directors on its Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company has established an Audit Committee composed
of Mr. Bennett and Dr. McClintock-Greco. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the accountants,
reviews the independence of the accountants, considers the range of audit and
non-audit fees, and reviews the adequacy of the Company's internal accounting
controls. The Audit Committee is also responsible for the review of transactions
between the Company and any affiliate or entity in which a Company affiliate has
a material interest.
Compensation Committee. The Company has established a Compensation
Committee, consisting of Messrs. Bennett and Sykes. The Compensation Committee
establishes the compensation of the Company's executive officers and sets
financial targets to be used in determining executive bonuses. The Compensation
Committee also administers the Company's Stock Option Plan and determines the
amount, exercise price and vesting schedules of stock options awarded
thereunder.
Executive Committee. The Company has established an Executive Committee
consisting of Messrs. Murray, Jr. and Sykes. The Executive Committee has the
authority to act in place of the Board of Directors on all matters which would
otherwise come before the Board, except for such matters which are required by
law or by the Company's Articles of Incorporation or Bylaws to be acted upon
exclusively by the Board.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time.
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<PAGE> 59
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fee in
addition to their regular salary for serving on the Board of Directors.
Non-employee directors will be eligible to participate in the Company's Stock
Option Plan. Upon his or her election to the Board of Directors, each
non-employee director will receive a nonqualified stock option to purchase
15,000 shares of Common Stock. This option will become vested and exercisable in
three equal annual installments beginning on the first anniversary of the date
of grant. Each non-employee director will also receive $500 per board or
committee meeting attended. All directors receive reimbursement for reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors.
EXECUTIVE OFFICER COMPENSATION
The Company was formed in December 1997 and, therefore, no executive
officer of the Company received compensation in excess of $100,000 during the
fiscal period from the date of incorporation to the date of this Prospectus.
Pursuant to the terms of their respective employment agreements with the
Company, David E. Garner, President and Chief Executive Officer, Donald K.
Kelly, M.D., Chairman and Co-Chief Executive Officer of HI, Suzanne D. Kelly,
Co-Chief Executive Officer of HI, Michael C. Peerboom, President and Chief
Operating Officer of HI, James K. Murray, III, Executive Vice President, Chief
Financial Officer and Treasurer, and Stephen K. Holland, M.D., Senior Medical
Director of OMS, are to receive annual base salaries of $225,000, $200,000,
$200,000, $200,000, $165,000 and $165,000, respectively. In addition, Dr. Kelly,
Ms. Kelly and Mr. Peerboom will each receive additional annual payments of
$175,000 over the terms of their respective employment agreements. See
"Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with David E. Garner dated
as of December 31, 1997, for Mr. Garner's full-time employment. The agreement,
which expires on December 31, 2000, provides for an annual base salary of
$225,000, payable weekly, which may be changed during the term by the Company,
and for a performance bonus of up to $175,000 if the Company meets certain
strategic objectives set forth from time to time by the Board of Directors. Mr.
Garner is also entitled to participate in such other incentive compensation
plans as may be available to the other executive officers of the Company. The
agreement prohibits Mr. Garner from competing with the Company during the term
of the agreement and for a period of three years after termination of his
employment. In the event that Mr. Garner's employment is terminated other than
for death, disability or cause, Mr. Garner shall be entitled to receive
severance payments of $225,000 for each year of his noncompetition period,
provided that if in such circumstances the Company elects to release Mr. Garner
from his covenant not to compete, the Company shall have no obligation to make
such severance payments (but Sykes, Mr. Garner's prior employer, shall continue
to have an obligation to make a portion of such severance payments).
The Company entered into employment agreements with Donald K. Kelly, M.D.,
Suzanne D. Kelly and Michael C. Peerboom dated as of March 31, 1998, for their
full-time employment. The agreements, which expire on March 31, 2003, provide
for an annual base salary of $200,000, payable weekly, which may be increased
but not decreased during the term by the Company. Dr. Kelly, Ms. Kelly and Mr.
Peerboom are also entitled to participate in such other incentive compensation
plans as may be available to the other executive officers of the Company. The
agreements prohibit Dr. Kelly, Ms. Kelly and Mr. Peerboom from competing with
the Company during the terms of their employment and for a period thereafter
equal to the greater of the remaining unexpired terms of the agreements or
twenty-four months. In the event that Dr. Kelly's, Ms. Kelly's or Mr. Peerboom's
employment terminates other than for death, disability or cause, such officer
shall be entitled to receive severance payments of $21,875 for each month of the
noncompetition period, provided that if following the end of the remaining
unexpired term of the agreement the Company elects to release such officer from
the covenant not to compete, the Company shall have no obligation to continue to
make such severance payments. In addition, Dr. Kelly, Ms. Kelly and Mr. Peerboom
will each receive additional annual payments of $175,000 over the terms of their
respective employment agreements.
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The Company and Mr. Murray, III entered into an employment agreement dated
as of December 31, 1997, for Mr. Murray's full-time employment. Mr. Murray's
agreement, which expires on December 31, 2000, provides for an annual base
salary of $165,000, payable weekly, which may be increased but not decreased
during the term by the Company, and for a performance bonus of up to his base
salary upon obtaining certain performance targets set annually by the
Compensation Committee of the Board of Directors. Mr. Murray is also entitled to
participate in such other incentive compensation plans as may be available to
the other executive officers of the Company. The agreement prohibits Mr. Murray
from competing with the Company during the term of his agreement and for a
period of two years after termination of his employment. In the event that Mr.
Murray's employment is terminated other than for death, disability or cause, Mr.
Murray shall be entitled to receive severance payments equal to his base salary
for each year of his noncompetition period, provided that if in such
circumstances the Company elects to release Mr. Murray from his covenant not to
compete, the Company shall have no obligation to make such severance payments
(but HPS, Mr. Murray's prior employer, shall continue to have an obligation to
make such severance payments).
OMS entered into an employment agreement with Stephen K. Holland, M.D.,
dated as of December 31, 1997, for his full-time employment, the performance of
which was guaranteed by the Company. The agreement, which expire on December 31,
2000, provides for an annual base salary of $165,000, payable weekly, which may
be increased but not decreased during the term by OMS, and for a performance
bonus of up to $75,000 upon obtaining certain performance targets. Dr. Holland
is also entitled to participate in such other incentive compensation plans as
may be available to the other executive officers of the Company and OMS. The
agreement prohibits Dr. Holland from competing with OMS during the term of his
employment and for a period of twenty-four months thereafter. In the event that
Dr. Holland's employment terminates other than for death, disability or cause,
he shall be entitled to receive severance payments equal to his base salary for
each year of his noncompetition period, provided that if after six months
following the termination of his employment OMS elects to release Dr. Holland
from his covenant not to compete, OMS shall have no obligation to continue to
make such severance payments.
STOCK OPTION PLAN
The Sykes HealthPlan Services, Inc. 1997 Stock Option Plan (the "Stock
Option Plan") provides for the grant of both nonqualified stock options and
stock options intended to be treated as incentive stock options within the
meaning of Section 422 of the Code. The Stock Option Plan is intended to promote
the best interests of the Company, its subsidiaries and its shareholders by
providing incentives and rewards for key employees of the Company who have
contributed and will continue to contribute to the success of the Company. In
addition, the Plan provides for stock option grants to non-employee directors of
the Company. The Stock Option Plan was adopted in December 1997 by the Board of
Directors of the Company and was approved in December 1997 by the shareholders
of the Company.
During the period from December 1997 to April 1, 1998, the Board granted to
employees incentive stock options to purchase 625,000 shares of Common Stock, of
which an aggregate of 360,000 shares were options granted to executive officers,
and also granted nonqualified stock options to purchase 1,325,000 shares of
Common Stock, of which an aggregate of 1,075,000 shares were options granted to
executive officers. Between December 18, 1997, and March 25, 1998, the Board
granted to non-employee directors nonqualified stock options to purchase 130,000
shares of Common Stock. The exercise price of the options granted between
December 1997 and April 1, 1998 ranges between $2.40 and $10.00 per share based
on the fair market value of Common Stock as of the date of the grant of each
option.
The incentive stock options granted to employees vest and become
exercisable in three equal annual installments commencing on the first
anniversary of the date of grant. The nonqualified stock options granted to
employees vest and become exercisable nine years after the date of grant. The
nonqualified stock options granted to nonemployee directors vest and become
exercisable in three equal annual installments commencing on the first
anniversary of the date of grant. The Company may establish performance
objectives which, if met, shall cause to accelerate the vesting and exercise
ability of the nonqualified options. The total number of shares of Common Stock
reserved for issuance under the Stock Option Plan will be 2,500,000, effective
upon completion of the Offerings, of which options to purchase 1,950,000 shares
have been granted.
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The Compensation Committee is authorized to administer the Stock Option
Plan, including the selection of employees of the Company to whom options may be
granted and the terms of each option grant. The duration of an option granted
under the Stock Option Plan is determined by the Compensation Committee;
provided, however, that the duration of an incentive stock option may not exceed
ten years from the date of grant.
Incentive stock options granted under the Stock Option Plan are
non-transferable other than by will or by the laws of descent and distribution.
Nonqualified stock options granted under the Stock Option Plan are non-
transferable except to the extent and in the manner allowed by the Compensation
Committee. The Stock Option Plan may be amended at any time by the Board or the
Compensation Committee, although the Board and the Compensation Committee shall
obtain shareholder approval for an amendment if such approval is necessary or
advisable with respect to applicable tax laws or securities exchange or market
requirements. The Stock Option Plan terminates in 2007.
Pursuant to the terms of certain stock option agreements, the Company has
granted options to purchase Common Stock under the Stock Option Plan to certain
of its executive officers. Mr. Garner was granted incentive stock options to
purchase 120,000 shares of Common Stock and nonqualified stock options to
purchase 380,000 shares of Common Stock. Mr. Murray, III was granted incentive
stock options to purchase 120,000 shares of Common Stock and nonqualified stock
options to purchase 180,000 shares of Common Stock. The grant date of these
options was December 18, 1997. The exercise price of these options is $2.40 per
share. The incentive stock options vest and become exercisable in three equal
annual installments commencing on the first anniversary of the date of grant.
The nonqualified stock options vest and become exercisable nine years after the
date of grant and will automatically vest and become immediately exercisable
upon the completion of the Offerings.
On December 31, 1997, Dr. Holland was granted incentive stock options to
purchase 20,000 shares of Common Stock and nonqualified stock options to
purchase 20,000 shares of Common Stock. The exercise price of these options is
$2.40 per share. The incentive stock options vest and become exercisable in
three equal annual installments commencing on the first anniversary of the date
of grant. The nonqualified stock options vest and become exercisable nine years
after the date of grant, subject to acceleration for achievement of certain
performance targets, and will automatically vest and become immediately
exercisable upon completion of the Offerings.
In December 1997, Messrs. Murray, Jr. and Sykes were each granted
nonqualified stock options to purchase 50,000 shares of Common Stock. The
exercise price of these options is $2.40 per share. These nonqualified stock
options vest and become exercisable nine years after the date of grant and will
automatically vest and become immediately exercisable upon the completion of the
Offerings or upon the sale or disposition of all or substantially all of the
assets of the Company.
On January 22, 1998, Dr. Kelly, Ms. Kelly and Mr. Peerboom were each
granted nonqualified stock options to purchase 50,000 shares of Common Stock.
These options have an exercise price of $3.40 per share. These nonqualified
stock options vest and become exercisable nine years after the date of grant and
will automatically vest and become immediately exercisable upon the completion
of the Offerings. On April 1, 1998, Dr. Kelly, Ms. Kelly and Mr. Peerboom were
granted nonqualified stock options to purchase 83,334, 83,333 and 83,333 shares
of Common Stock, respectively. These options have an exercise price of $10.00
per share. These nonqualified stock options vest and become exercisable upon the
achievement of certain performance targets. If such targets are not met within
five years of the date of grant, these options expire.
In March 1998, Mr. Bennett and Dr. McClintock-Greco were each granted
nonqualified stock options to purchase 15,000 shares of Common Stock. The
exercise price of Mr. Bennett's options is $5.50 per share and of Dr.
McClintock-Greco's options is $6.50 per share. These nonqualified stock options
vest and become exercisable in three equal annual installments commencing on the
first anniversary of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in March 1998 and consists of Messrs.
Bennett and Sykes. Prior to the creation of the Compensation Committee, the
Board of Directors determined the compensation of executive officers and
administered the Stock Option Plan. Mr. Sykes is President and Chief Executive
Officer
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of Sykes, and Mr. Garner, the President and Chief Executive Officer of the
Company, served as a director of Sykes until March 1998. Mr. Sykes participated
in the Board of Director's deliberations regarding executive compensation while
Mr. Garner was a director of Sykes.
CERTAIN TRANSACTIONS
As of January 1, 1998, the Company entered into an outsourcing agreement
with HPS pursuant to which HPS has outsourced to the Company certain care
management services for current HPS customers. The Company has agreed to pay HPS
5% of any revenues derived from customers obtained by HPS after January 1, 1998.
HPS is to pay the Company a fee equal to 82.5% of the first $500,000 of monthly
revenues HPS derives from its pre-January 1, 1998 customers for certain care
management services plus 80% of such revenues in excess of $500,000. The
agreement has a term of one year and automatically renews unless otherwise
terminated by HPS or the Company. The Company believes that the terms of the
outsourcing agreement are no less favorable to the Company than would have been
obtained from an unrelated third party.
On December 18, 1997, Sykes and HPS, the sole shareholders of the Company,
executed a Shareholder Agreement outlining the relationship between such
shareholders and the Company. The Shareholder Agreement prohibits, during the
term of such agreement and for a period of five years following termination of
such agreement, the Company from competing, either directly or indirectly, with
the core businesses of Sykes or HPS (as defined). Both Sykes and HPS likewise
agreed not to compete in such other shareholder's core business or in the core
business of the Company which is defined in such agreement as the operation of
call centers to provide utilization, catastrophic case, disease and demand
management services to benefits payors and healthcare providers, third party
administrators, provider organizations and provider management companies. The
Shareholder Agreement will terminate upon completion of the Offerings.
Accordingly, the covenant not to compete between the Company, Sykes and HPS will
remain in effect for five years following the completion of the Offerings. See
"Risk Factors -- Competition."
On December 30, 1997, the Company issued promissory notes to the Selling
Shareholders in exchange for loans from each of up to approximately $9.0
million. Interest on the notes was at LIBOR plus one percent (6.72% at December
31, 1997). At December 31, 1997, there was approximately $14 million available
for borrowings under the notes. The outstanding balance of these notes was
converted by the Selling Shareholders into equity of the Company, by amending
the Shareholder Agreement to reflect such conversion.
On December 31, 1997, the Company acquired all of the outstanding stock of
OMS for approximately $10.0 million. The purchase price was determined through
arm's-length negotiations between the Company and the shareholders of OMS,
including Dr. Holland and Mr. McKenna, who are now executive officers of the
Company. The factors considered by the parties in determining the purchase price
included, among others, the historical operating results, the net worth and the
future prospects of OMS. Dr. Holland and Mr. McKenna each received $1,421,675
from the Company for the sale of their shares of stock of OMS to the Company.
On March 31, 1998, the Company acquired all of the outstanding stock of HI
for approximately $25.2 million. The purchase price was determined through
arm's-length negotiations between the Company, and the shareholders of HI,
including Dr. Kelly, Ms. Kelly and Mr. Peerboom, who are now executive officers
of the Company. The factors considered by the parties in determining the
purchase price included, among others, the historical operating results, net
worth and the future prospects of HI. Dr. Kelly and Ms. Kelly, husband and wife,
received $10,201,652 in the aggregate from the Company for the sale of their
shares of stock of HI to the Company, and Mr. Peerboom received $762,000 from
the Company for the sale of his shares of stock of HI to the Company.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted to
reflect consummation of the Offerings by: (i) each of the Company's directors
and executive officers; (ii) all executive officers and directors of the Company
as a group; and (iii) each person known by the Company to beneficially own more
than 5% of the outstanding Common Stock. Except as set forth below, the
shareholders named below have sole voting and investment power with respect to
all shares of Common Stock shown as being beneficially owned by them:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE SHARES TO OWNED AFTER THE
OFFERINGS(1) BE OFFERED OFFERINGS
-------------------- ---------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
David E. Garner(4)..................... -- * -- 380,000 %
James K. Murray, III(5)................ -- * -- 180,000 %
John D. Gannett, Jr.(6)................ -- * -- 75,000 *
Owen McKenna(7)........................ -- * -- 15,000 *
Stephen K. Holland, M.D.(8)............ -- * -- 20,000 *
Donald K. Kelly, M.D.(9)............... -- * -- 50,000 *
Suzanne D. Kelly(10)................... -- * -- 50,000 *
Michael C. Peerboom(11)................ -- * -- 50,000 *
Christine L. Beckler(12)............... -- * -- 5,000 *
John H. Sykes(2)(13)................... 5,000,000 50% %
James K. Murray, Jr.(3)(14)............ 5,000,000 50% %
William L. Bennett(15)................. -- * -- -- *
Linda McClintock-Greco, M.D.(16)....... -- * -- -- *
All Directors and Executive Officers as
a Group (13 persons)(13)(14)........ 10,000,000 * (17) %
SELLING SHAREHOLDERS
Sykes Enterprises, Incorporated(2)..... 5,000,000 50% %
HealthPlan Services Corporation(3)..... 5,000,000 50% %
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with applicable
Securities and Exchange Commission rules, includes shares as to which a
person shares voting power and/or investment power.
(2) The business address for Mr. Sykes at Sykes is 100 North Tampa St., Suite
3900, Tampa, Florida 33602.
(3) The business address for Mr. Murray, Jr. at HPS is 3501 Frontage Road,
Tampa, Florida 33607.
(4) Mr. Garner has been granted incentive stock options to purchase 120,000
shares of Common Stock and nonqualified stock options to purchase 380,000
shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
(5) Mr. Murray, III has been granted incentive stock options to purchase
120,000 shares of Common Stock and nonqualified stock options to purchase
180,000 shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
(6) Mr. Gannett has been granted incentive stock options to purchase 75,000
shares of Common Stock and nonqualified stock options to purchase 75,000
shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
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(7) Mr. McKenna has been granted incentive stock options to purchase 15,000
shares of Common Stock and nonqualified stock options to purchase 15,000
shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
(8) Dr. Holland has been granted incentive stock options to purchase 20,000
shares of Common Stock and nonqualified stock options to purchase 20,000
shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
(9) Dr. Kelly has been granted nonqualified stock options to purchase 50,000
shares of Common Stock which will become immediately exercisable upon
completion of the Offerings and nonqualified stock options to purchase
83,334 shares of Common Stock which will vest upon the achievement of
certain performance targets. If such targets are not met within five years
of the date of grant, these non-qualified options will expire. See
"Management -- Stock Option Plan."
(10) Ms. Kelly has been granted nonqualified stock options to purchase 50,000
shares of Common Stock which will become immediately exercisable upon
completion of the Offerings and nonqualified stock options to purchase
83,333 shares of Common Stock which will vest upon the achievement of
certain performance targets. If such targets are not met within five years
of the date of grant, these non-qualified options will expire. See
"Management -- Stock Option Plan."
(11) Mr. Peerboom has been granted nonqualified stock options to purchase 50,000
shares of Common Stock which will become immediately exercisable upon
completion of the Offerings and nonqualified stock options to purchase
83,333 shares of Common Stock which will vest upon the achievement of
certain performance targets. If such targets are not met within five years
of the date of grant, these non-qualified options will expire. See
"Management -- Stock Option Plan."
(12) Ms. Beckler has been granted incentive stock options to purchase 10,000
shares of Common Stock and nonqualified stock options to purchase 5,000
shares of Common Stock. The nonqualified stock options will become
immediately exercisable upon completion of the Offerings and the incentive
stock options will vest in three equal annual installments beginning on the
first anniversary of the date of grant.
(13) Mr. Sykes has been granted nonqualified stock options to purchase 50,000
shares of Common Stock. These nonqualified stock options will become
immediately exercisable upon completion of the Offerings. See
"Management -- Stock Option Plan." These totals also include all shares of
Common Stock beneficially owned by Sykes of which Mr. Sykes may be deemed
the indirect beneficial owner under Rule 13d-3 by reason of his position as
a shareholder, President and Chief Executive Officer of Sykes.
(14) Mr. Murray, Jr. has been granted nonqualified stock options to purchase
50,000 shares of Common Stock. These nonqualified stock options will become
immediately exercisable upon completion of the Offerings. See
"Management -- Stock Option Plan." These totals also include all shares of
Common Stock beneficially owned by HPS of which Mr. Murray, Jr. may be
deemed the indirect beneficial owner under Rule 13d-3 by reason of his
position as a shareholder, Chairman and Chief Executive Officer of HPS.
(15) Mr. Bennett has been granted nonqualified stock options to purchase 15,000
shares of Common Stock. These nonqualified stock options will become
exercisable in three equal annual installments beginning on the first
anniversary of the date of grant. See "Management -- Stock Option Plan."
(16) Dr. McClintock-Greco has been granted nonqualified stock options to
purchase 15,000 shares of Common Stock. These nonqualified stock options
will become exercisable in three equal annual installments beginning on the
first anniversary of the date of grant. See "Management -- Stock Option
Plan."
(17) Includes 825,000 shares of Common Stock purchasable under options issued to
various directors and executive officers of the Company that will become
exercisable upon completion of the Offerings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of the Offerings, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, of which
shares will be issued and outstanding, and 15,000,000 shares of
preferred stock issuable in one or more series by the Board of Directors (the
"Preferred Stock"), of which no shares will be issued and outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect all the Company's directors and
otherwise control the affairs of the Company, subject to any voting rights of
the then outstanding Preferred Stock. See "Risk Factors -- Control by Management
and Principal Shareholders; Anti-Takeover Considerations."
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of unreserved and unrestricted surplus that is legally available for the
payment of dividends. Any determination to declare or pay dividends in the
future will be at the discretion of the Company's Board of Directors and will
depend on the Company's results of operations, financial condition, contractual
or legal restrictions, and other factors deemed relevant by the Board of
Directors. The Company's Line of Credit currently prohibits the Company from
paying any dividends. See "Dividend Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after payment
of all amounts owed to the Company's creditors, and subject to any preferential
amount payable to holders of preferred stock of the Company, if any.
PREFERRED STOCK
The Company's Articles of Incorporation permit the Company's Board of
Directors to issue shares of Preferred Stock in one or more series, and to fix
the relative rights, preferences, and limitations of each series. Among such
rights, preferences, and limitations are dividend rights and rates, provisions
for redemption, rights upon liquidation, conversion privileges, and voting
powers. Any issuance of Preferred Stock with a dividend preference over Common
Stock could adversely affect the dividend rights of holders of Common Stock. The
Board of Directors of the Company currently has no plans to issue any shares of
Preferred Stock.
The issuance of Preferred Stock, for example in connection with a
shareholder rights plan, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding existing stock of the Company. See "Risk
Factors -- Control by Management and Principal Shareholder; Anti-Takeover
Considerations."
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Articles of Incorporation, which will be effective upon
completion of the Offerings, provide for a classified Board of Directors. The
directors are divided into three classes, as nearly equal in number as possible.
The directors are elected for three-year terms, which are staggered so that the
terms of one-third of the directors expire each year. The Articles of
Incorporation permit removal of directors only for cause by the shareholders of
the Company at a meeting by the affirmative vote of at least two-thirds of the
outstanding shares of Common Stock. The Articles of Incorporation establish an
advance notice procedure for the nomination of candidates for election as
directors, as well as for other shareholder proposals to be considered at
shareholders' meetings.
The Articles of Incorporation also contain a "fair price" provision which
is intended to ensure that the consideration paid by an acquiror in certain
transactions involving the Company that follow a successful tender offer must be
no less than the highest consideration offered pursuant to the tender offer.
Among other things,
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such transactions must be approved by: (i) the holders of at least 80% of the
outstanding Common Stock, and (ii) the holders of a majority of the outstanding
Common Stock other than the interested shareholder.
The above-described provisions may have certain anti-takeover effects. Such
provisions, in addition to the provisions described below and the possible
issuance of preferred stock discussed above, may make it more difficult for
other persons, without the approval of the Company's Board of Directors, to make
a tender offer or acquisitions of substantial amounts of the Common Stock or to
launch other takeover attempts that a shareholder might consider in such
shareholder's best interests, including attempts that might result in the
payment of a premium over the market price for the Common Stock held by such
shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several antitakeover provisions under Florida law
that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors, or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the election
of directors within each of the following ranges of voting power: (i) one-fifth
or more but less than one-third of such voting power; (ii) one-third or more but
less than a majority of such voting power; and (iii) more than a majority of
such voting power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
TRANSFER AGENT AND REGISTRAR
The Company has selected AmSouth Bank, Birmingham, Alabama, as the transfer
agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have a total of
shares of Common Stock outstanding ( shares if the
Underwriters' over-allotment options are exercised in full). Of these shares,
the shares ( shares if the Underwriters' over-allotment
options are exercised in full) of Common Stock offered hereby will be freely
tradeable without restriction or registration under the Securities Act by
persons other than "affiliates" of the Company, as defined in the Securities
Act, who would otherwise be required to sell such shares pursuant to Rule 144
under the Securities Act. The remaining shares of Common Stock
outstanding will be "restricted securities" as that term is defined by Rule 144
(the "Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act.
In general, pursuant to Rule 144 under the Securities Act as currently in
effect, a person (or persons whose shares are aggregated) who has beneficially
owned restricted securities for at least one year (including the holding period
of any prior owner except an affiliate), including persons who may be deemed
"affiliates" of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of the
number of shares of Common Stock then outstanding (approximately
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shares upon completion of the Offerings) or the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 under the Securities Act are
also subject to certain manner of sale provisions and notice requirements, and
to the availability of current public information about the Company. In
addition, a person who is not deemed to have been an affiliate of the Company at
the time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner except an affiliate), would be entitled to sell such shares
under Rule 144(k) under the Securities Act without regard to the requirements
described above. Rule 144 under the Securities Act also provides that affiliates
who are selling shares that are not restricted securities must nonetheless
comply with the same restrictions applicable to restricted securities with the
exception of the holding period requirement.
Rule 701 promulgated under the Securities Act provides that shares of
Common Stock acquired pursuant to the exercise of outstanding options or the
grant of Common Stock pursuant to written compensation plan or contracts prior
to the Offerings may be resold by persons other than affiliates beginning 90
days after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144 under the Securities Act, and by affiliates, beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
under the Securities Act except its one-year minimum holding period requirement.
The shareholders of the Company (who in the aggregate will hold
Restricted Shares upon completion of the Offerings) have agreed
pursuant to lock-up agreements not to sell or offer to sell or otherwise dispose
of any shares of Common Stock currently held by them, any right to acquire any
shares of Common Stock or any securities exercisable for or convertible into any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch. In addition, the
Company and its executive officers and directors have agreed that for a period
of 180 days after the date of this Prospectus it will not, without the prior
written consent of Merrill Lynch, offer, sell or otherwise dispose of any shares
of Common Stock except, in the case of the Company, for shares of Common Stock
offered hereby and shares issued and options granted pursuant to the Stock
Option Plan.
As of April 1, 1998, there were 1,950,000 outstanding options to purchase
shares of Common Stock under the Stock Option Plan. An additional 550,000 shares
of Common Stock are reserved for issuance under the Stock Option Plan. The
Company currently intends to file a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock issuable pursuant to the
Stock Option Plan. The Company expects to file this registration statement
within 90 days following the date of this Prospectus, and such registration
statement will become effective upon filing. Shares covered by this registration
statement will thereupon be eligible for sale in the public markets, subject to
Rule 144 under the Securities Act limitations applicable to affiliates.
Prior to the Offerings, there has been no public market for the Common
Stock, and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities or to consummate acquisitions using Common Stock as
consideration.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States; a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof; an estate
whose income is includible in gross income for United States Federal income tax
purposes regardless of its source; or a "United States Trust." A United States
Trust is any
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<PAGE> 68
trust if, and only if, (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or more
United States trustees have the authority to control all substantial decisions
of the trust. This discussion does not consider any specific facts or
circumstances that may apply to a particular Non-United States Holder.
Prospective investors are urged to consult their tax advisors regarding the
United States Federal tax consequences of acquiring, holding, and disposing of
Common Stock, as well as any tax consequences that may arise under the laws of
any foreign, state, local, or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder (or if certain tax treaties
apply, is attributable to a United States permanent establishment maintained by
such Non-United States Holder), in which case the dividend will be subject to
the United States Federal income tax on net income on the same basis that
applies to United States persons generally. In the case of a Non-United States
Holder which is a corporation, such effectively connected income also may be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively connected
earnings and profits). Non-United States Holders should consult any applicable
income tax treaties that may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim treaty
benefits or otherwise claim a reduction of or exemption from withholding under
the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder or, if tax
treaties apply, is attributable to a United States permanent establishment
maintained by the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is a nonresident alien individual and holds the Common Stock
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of disposition or either such individual has a "tax
home" in the United States or the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States,
(iii) the Company is or has been a "United States real property holding
corporation" for United States Federal income tax purposes (which the Company
does not believe that it is or likely to become) and the Non-United States
Holder holds or has held, directly or indirectly, at any time during the
five-year period ending on the date of disposition, more that 5% of the Common
Stock or (iv) the Non-United States Holder is subject to tax pursuant to the
Internal Revenue Code of 1986, as amended, provisions applicable to certain
United States expatriates. Gain that is effectively connected with the conduct
of a trade or business within the United States by the Non-United States Holder
will be subject to the United States Federal Income tax on net income on the
same basis that applies to United States persons generally (and, with respect to
corporate holders, under certain circumstances, the branch profits tax) but will
not be subject to withholding. Non-United States Holders should consult any
applicable treaties that may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a
citizen or resident of the United States at the date of death will be included
in such individual's estate for United States Federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to
each Non-United States Holder the amount of dividends paid to, and the tax
withheld with respect to, such holder, regardless of
66
<PAGE> 69
whether any tax was actually withheld. This information may also be made
available to the tax authorities of a country in which the Non-United States
Holder resides.
Under the temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax at a rate of 31%
will generally apply to dividends paid on the Common Stock to a Non-United
States Holder and to payments by a United States office of a broker of the
proceeds of a sale of Common Stock to a Non-United States Holder unless the
holder certifies its Non-United States Holder status under penalties of perjury
or otherwise establishes an exemption. Information reporting requirements (but
not backup withholding) will also apply to payments of the proceeds of sales of
Common Stock by foreign offices of United States brokers, or foreign brokers
with certain types of relationships to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the United States Treasury, and their application to the Common Stock could
be changed by future regulations. On October 14, 1997, final Treasury
Regulations were published in the Federal Register concerning the withholding of
tax and reporting for certain amounts paid to nonresident individuals and
foreign corporations. The Treasury Regulations will be effective for payments
made after December 31, 1999. After such date, Non-United States Holders
claiming treaty benefits or claiming that income is effectively connected will
be required to submit an appropriate version of IRS Form W-8 to the United
States withholding agent. New rules will apply to Non-United States Holders who
invest through intermediaries. Prospective investors should consult their tax
advisors concerning these Treasury Regulations and the potential effect on their
ownership of Common Stock.
67
<PAGE> 70
UNDERWRITING
Merrill Lynch, Furman Selz LLC, NationsBanc Montgomery Securities LLC and
Raymond James Associates, Inc. are acting as the U.S. Underwriters. Subject to
the terms and conditions set forth in the U.S. purchase agreement (the "U.S.
Purchase Agreement") among the Company, the Selling Shareholders and the U.S.
Underwriters, and concurrently with the sale of shares of Common
Stock to the International Managers (as defined below), the Company and the
Selling Shareholders have agreed to sell to the U.S. Underwriters, and each of
the U.S. Underwriters severally has agreed to purchase from the Company and the
Selling Shareholders, the number of shares of Common Stock set forth opposite
its name below at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Furman Selz LLC.............................................
NationsBanc Montgomery Securities LLC.......................
Raymond James & Associates, Inc.............................
----------
Total.........................................
==========
</TABLE>
The Company and the Selling Shareholders have also entered into the
international purchase agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom
Merrill Lynch International, Furman Selz LLC, NationsBanc Montgomery Securities
LLC and Raymond James & Associates, Inc. are acting as lead managers. Subject to
the terms and conditions set forth in the International Purchase Agreement, and
concurrently with the sale of shares of Common Stock to the U.S.
Underwriters pursuant to the U.S. Purchase Agreement, the Company and the
Selling Shareholders have agreed to sell to the International Managers, and the
International Managers severally have agreed to purchase from the Company and
the Selling Shareholders, an aggregate of shares of Common Stock.
The initial public offering price per share and the total underwriting discount
per share of Common Stock are identical under the U.S. Purchase Agreement and
the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
such agreement are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers, as the case may be,
may be increased. The closings with respect to the sale of shares of Common
Stock to be purchased by the U.S. Underwriters and the International Managers
are conditioned upon one another.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-United States or non-Canadian persons or to persons
they believe intend to resell to persons who are non-United States or
non-Canadian persons, and the International Managers and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are United States or Canadian persons or to persons they
believe intend to resell to persons who are United States or Canadian persons,
except in each case for transactions pursuant to the Intersyndicate Agreement.
68
<PAGE> 71
The U.S. Underwriters have advised the Company and the Selling Shareholders
that the U.S. Underwriters propose initially to offer the shares of Common Stock
offered hereby to the public at the initial public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share of Common Stock. The U.S.
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Common Stock on sales to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.
The Company and the Selling Shareholders have granted an option to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional shares of Common Stock at
the initial public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. The U.S. Underwriters may exercise
this option only to cover over-allotments, if any, made on the sale of the
Common Stock offered hereby. To the extent that the U.S. Underwriters exercise
this option, each U.S. Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriter's initial amount reflected in the
foregoing table. The Company and the Selling Shareholders also have granted an
option to the International Managers, exercisable for 30 days after the date of
this Prospectus, to purchase up to an aggregate of additional shares
of Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
The Selling Shareholders have agreed not to sell or offer to sell or
otherwise dispose of any shares of Common Stock currently held by them (except
pursuant to the Offerings), any right to acquire any shares of Common Stock or
any securities exercisable for or convertible into any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch.
In addition, the Company and its executive officers and directors have
agreed that for a period of 180 days after the date of this Prospectus they will
not, without the prior written consent of Merrill Lynch, offer, sell or
otherwise dispose of any shares of Common Stock except, in the case of the
Company, for shares of Common Stock offered hereby and shares issued and options
granted pursuant to its Stock Option Plan.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial offering price for the Common Stock will be
determined by negotiations between the Company, the Selling Shareholders, and
the U.S. Underwriters and the International Managers. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be price earnings ratios of publicly traded
companies that the U.S. Underwriters believe to be comparable to the Company,
certain financial information of the Company, the history of and the prospects
for the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for and
timing of future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of securities of other companies engaged in businesses
similar to the Company. There can be no assurance, however, that an active or
orderly trading market will develop for the Common Stock or that the Common
Stock will trade in the public markets subsequent to the Offerings at or above
the initial offering price.
The Company has applied for the listing of its Common Stock on the Nasdaq
National Market System under the symbol "SHPS." The Underwriters do not intend
to confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
Until the distribution of the Common Stock is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Underwriters are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S. Underwriters
may reduce that short position by purchasing Common Stock in the open market.
The U.S.
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<PAGE> 72
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment options described above.
The U.S. Underwriters may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the U.S. Underwriters purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of Common Stock, they may reclaim the amount
of the selling concession from the Underwriters and selling group members who
sold these shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it may
discourage resales of the security.
Neither the Company, the Selling Shareholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Shareholders nor any of the
Underwriters makes any representation that the U.S. Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Because the Company intends to use approximately $ million of net
proceeds from the Offerings for repayment of indebtedness outstanding under the
Company's Line of Credit with respect of which an affiliate of NationsBanc
Montgomery Securities LLC is a lender, the underwriting arrangements for the
Offerings must comply with the requirements of Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. (the "NASD"). The Offerings are being
conducted in accordance with Rule 2720(c)(3), which provides that, among other
things, when an NASD member participates in a public offering where more than
10% of the net offering proceeds, not including underwriting compensation, are
intended to be paid to members participating in the distribution of the
Offerings or associated or affiliated persons of such members, the price at
which the issue is to be distributed to the public must be no higher than that
recommended by a "qualified independent underwriter." Accordingly, Merrill Lynch
is acting as a qualified independent underwriter for purposes of determining the
price of the Common Stock offered hereby and has conducted due diligence
investigations and has reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
The price at which the Common Stock is being sold to the public will be no
higher than the price recommended by Merrill Lynch.
The Company and the Selling Shareholders have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Holland & Knight
LLP, Tampa, Florida, and certain legal matters will be passed upon for the
Underwriters by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The Financial Statements and schedules of the Company and OMS for fiscal
1997, and the Financial Statements and schedules of HI for fiscal 1995, 1996 and
1997, included in this Prospectus and elsewhere in this Registration Statement
have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The Financial Statements of SHSB (formerly Prudential Service Bureau,
Incorporated) for fiscal 1995 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors as stated in their report appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in auditing and accounting. The Financial Statements
of SHSB as of December 31, 1997
70
<PAGE> 73
and 1996 and for the years then ended included in this Prospectus have been so
included in reliance on the report (which contains explanatory paragraphs
relating to SHSB's relationship with affiliated companies as described in notes
1 and 2 to the Financial Statements and relating to the sale of shares held in
the Company pursuant to a stock purchase agreement as described in note 9 to the
Financial Statements) of Price Waterhouse LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The Financial Statements of OMS at December 31, 1995 and 1996, and for each
of the two years in the period ended December 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
(the "Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act with respect to
the Common Stock in the Offerings. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits and schedules for
further information with respect to the Company and the Common Stock in the
Offerings. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each such instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference. A
copy of the Registration Statement may be inspected without charge at the
Commission's principal office in Washington D.C. and copies of all or any part
thereof may be obtained from the Commission's Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, the New York Regional office located
at Seven World Trade Center, 13th Floor, New York, New York 10048, and the
Chicago regional office located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, upon payment of certain fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's World Wide Web site is http://www.sec.gov.
Following the Offerings, the Company will be subject to the information
reporting requirements of the Exchange Act. The Company intends to furnish its
shareholders with annual reports, containing audited financial statements and a
report thereon expressed by independent certified public accountants, and
quarterly reports containing unaudited information for the first three quarters
of each fiscal year.
71
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
SYKES HEALTHPLAN SERVICES, INC.
Report of Independent Certified Public Accountants..... F-2
Balance Sheet at December 31, 1997..................... F-3
Statement of Operations for the period ended December
31, 1997.............................................. F-4
Statement of Shareholders' Equity for the period ended
December 31, 1997..................................... F-5
Statement of Cash Flows for the period ended December
31, 1997.............................................. F-6
Notes to Financial Statements.......................... F-7
HEALTH INTERNATIONAL, INC.
Report of Independent Public Accountants............... F-16
Balance Sheets at September 30, 1997 and 1996.......... F-17
Statements of Income for the years ended September 30,
1997, 1996 and 1995................................... F-18
Statements of Shareholders' Equity for the years ended
September 30, 1997, 1996 and 1995..................... F-19
Statements of Cash Flows for the years ended September
30, 1997, 1996 and 1995............................... F-20
Notes to Financial Statements.......................... F-21
OMS, INC.
Report of Independent Certified Public Accountants..... F-28
Statement of Operations for the year ended December 31,
1997.................................................. F-29
Statement of Stockholders' Equity for the year ended
December 31, 1997..................................... F-30
Statement of Cash Flows for the year ended December 31,
1997.................................................. F-31
Notes to Financial Statements.......................... F-32
Report of Independent Auditors......................... F-37
Balance Sheets at December 31, 1996 and 1995........... F-38
Statements of Income for the years ended December 31,
1996 and 1995......................................... F-39
Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995............................ F-40
Statements of Cash Flows for the years ended December
31, 1996 and 1995..................................... F-41
Notes to Financial Statements.......................... F-42
PRUDENTIAL SERVICE BUREAU, INCORPORATED
Unaudited Three Months Ended March 31, 1998 and 1997... F-48
Report of Independent Accountants...................... F-51
Balance Sheets at December 31, 1997 and 1996........... F-52
Statements of Operations and Retained Earnings for the
years ended December 31, 1997 and 1996................ F-53
Statements of Cash Flows for the years ended December
31, 1997 and 1996..................................... F-54
Notes to Financial Statements.......................... F-55
Independent Auditor's Report........................... F-60
Statement of Operations and Retained Earnings for the
year ended December 31, 1995.......................... F-62
Statement of Cash Flows for the year ended December 31,
1995.................................................. F-63
Notes to Financial Statements.......................... F-64
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Sykes HealthPlan Services, Inc.:
We have audited the accompanying consolidated balance sheet of Sykes
HealthPlan Services, Inc. (a Florida corporation) and subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the period from December 18, 1997,
through December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sykes
HealthPlan Services, Inc. and subsidiaries as of December 31, 1997, and the
results of its operations and its cash flows for the period from December 18,
1997, through December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
February 27, 1998
F-2
<PAGE> 76
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED), AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,918,091 $ 845,977
Short-term investments.................................... -- 1,585,796
Trade accounts receivable................................. 8,845,791 1,145,696
Prepaid expenses and other current assets................. 927,861 67,988
Income tax receivable..................................... 925,393 --
Cash surrender value of insurance......................... 256,122 266,853
------------ ----------
Total current assets............................... 30,873,258 3,912,310
------------ ----------
Property and equipment:
Computer and office equipment............................. 3,508,417 178,925
Furniture and fixtures.................................... 1,880,849 --
Software.................................................. 41,485 --
Leasehold improvements.................................... 298,030 --
------------ ----------
5,728,781 178,925
------------ ----------
Deferred income taxes..................................... 1,413,850 --
Deposits.................................................. 56,935 --
Intangible assets......................................... 43,631,650 2,951,219
------------ ----------
Total assets....................................... $ 81,704,474 $7,042,454
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 13,787,225 $ 784,876
Accrued expenses.......................................... 9,027,316 224,927
Capital lease obligation.................................. 216,234 --
Deferred compensation..................................... -- 266,853
Due to related parties.................................... 505,614 228,852
Income taxes payable...................................... 196,445 187,470
Deferred revenue.......................................... 586,263 505,466
------------ ----------
Total current liabilities.......................... 24,319,097 2,198,444
Deferred rent............................................... 53,616 53,616
Capital lease obligation, less current portion.............. 422,320 --
Related-party notes payable................................. -- 4,081,600
Subordinated debt........................................... 51,000,000 --
Deferred income taxes....................................... 1,344,864 637,204
------------ ----------
Total liabilities.................................. 77,139,897 6,970,864
------------ ----------
Commitments
Shareholders' equity:
Class A voting common stock, $.01 par value; 10,000,000
shares authorized, issued and outstanding............... 100,000 100,000
Capital in excess of par value............................ 33,900,000 5,818,400
Accumulated deficit....................................... (29,435,423) (5,846,810)
------------ ----------
Net shareholders' equity........................... 4,564,577 71,590
------------ ----------
Total liabilities and shareholders' equity......... $ 81,704,474 $7,042,454
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 77
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
AND THE PERIOD FROM DECEMBER 18, 1997, THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 18,
THREE-MONTH PERIOD ENDED THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
------------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................... $ 2,430,610 $ --
Cost of revenues, exclusive of items shown separately
below................................................ 980,206 --
------------ -----------
Gross profit................................. 1,450,404 --
------------ -----------
Expenses:
General and administrative costs..................... 1,003,047 255,575
Research and development............................. 145,354 --
Depreciation......................................... 20,325 1,235
Amortization......................................... 103,467 --
Acquired in-process research and development......... 23,705,000 5,590,000
------------ -----------
Total expenses............................... 24,977,193 5,846,810
------------ -----------
Loss from operations................................... (23,526,789) (5,846,810)
Other expense, net..................................... 61,824 --
------------ -----------
Loss before provision for income taxes................. (23,588,613) (5,846,810)
Provision for income taxes............................. -- --
------------ -----------
Net loss............................................... $(23,588,613) $(5,846,810)
============ ===========
Loss per share -- basic and diluted.................... $ (2.36) $ (0.58)
Weighted average outstanding shares -- basic and
diluted.............................................. 10,000,000 10,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 78
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED),
AND THE PERIOD FROM DECEMBER 18, 1997, THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASS A VOTING
COMMON STOCK
--------------------- CAPITAL IN
NUMBER OF EXCESS OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 18, 1997....... -- $ -- $ -- $ -- $ --
Issuance of Class A voting common
stock on December 18, 1997..... 10,000,000 100,000 5,818,400 -- 5,918,400
Net loss............... -- -- -- (5,846,810) (5,846,810)
---------- -------- ----------- ------------ ------------
Balance, December 31, 1997....... 10,000,000 100,000 5,818,400 (5,846,810) 71,590
Unaudited:
Conversion of related-party
notes payable............... -- -- 5,117,896 -- 5,117,896
Capital contributions.......... -- -- 22,963,704 22,963,704
Net loss............... -- -- -- (23,588,613) (23,588,613)
---------- -------- ----------- ------------ ------------
Balance, March 31, 1998
(Unaudited).................... 10,000,000 $100,000 $33,900,000 $(29,435,423) $ 4,564,577
========== ======== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 79
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED),
AND FOR THE PERIOD FROM DECEMBER 18, 1997, THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTH PERIOD DECEMBER 18,
ENDED 1997, THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(23,588,613) $ (5,846,810)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Acquired in-process research and development.............. 23,705,000 5,590,000
Interest on related-party notes payable converted to
capital................................................ 36,296 --
Depreciation and amortization............................. 123,792 --
Change in operating assets and liabilities -- net of
business acquisitions..................................
Short-term investments................................. 1,585,796 --
Trade accounts receivables............................. (25,105) --
Prepaid expenses and other current assets.............. (97,057) (21,969)
Cash surrender value of insurance...................... 10,731 --
Accounts payable and accrued expenses.................. (609,824) 49,927
Deferred compensation.................................. (266,853) --
Due to related parties................................. 276,762 228,852
Deferred revenue....................................... (177,051) --
------------ ------------
Net cash provided by operating activities......... 973,874 --
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets and assumption of liabilities of OMS,
Inc., net of cash......................................... -- (9,154,023)
Purchase of assets and assumption of liabilities of Health
International, Inc., net of cash.......................... (22,576,007) --
Purchase of assets and assumption of liabilities of
Prudential Service Bureau, Inc., net of cash.............. (33,974,017) --
Increase in intangibles..................................... (309,189) --
Purchases of property and equipment......................... (6,251) --
------------ ------------
Net cash used in investing activities............. (56,865,464) (9,154,023)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... -- 5,918,400
Issuance of related-party notes payable..................... 1,000,000 4,081,600
Capital contributions....................................... 22,963,704 --
Proceeds from subordinated debt............................. 51,000,000 --
------------ ------------
Net cash provided by financing activities......... 74,963,704 10,000,000
------------ ------------
Change in cash and cash equivalents......................... 19,072,114 845,977
Cash and cash equivalents, beginning of period.............. 845,977 --
------------ ------------
Cash and cash equivalents, end-of period.................... $ 19,918,091 $ 845,977
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of related-party notes payable to capital
contribution........................................... $ 5,081,600 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 80
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FORM OF ORGANIZATION AND SUMMARY OF OPERATIONS
Sykes HealthPlan Services, Inc. and subsidiaries (SHPS or the Company) was
incorporated in the State of Florida on December 18, 1997. The Company is a
provider of outsourced care management services and products and employee
benefits administration services. The Company was incorporated through the
issuance of 10,000,000 shares of Class A voting common stock (the "Class A
Common Stock") having a par value $.01 per share. Additionally, the Company is
authorized to issue 2,000,000 shares of Class B non-voting Common Stock having a
par value of $.01 per share.
In connection with the organization, Sykes Enterprises, Inc. (Sykes), a
Florida corporation, and HealthPlan Services Corporation (HPS), a Delaware
corporation, entered into a Shareholder Agreement (the Shareholder Agreement).
Under the terms of the Shareholder Agreement, Sykes and HPS each provided
$2,959,200 in cash, resulting in a 50% ownership interest each, in exchange for
all of the shares of the Common Stock. Additionally, under the terms of the
Shareholder Agreement, Sykes and HPS each committed to make available to the
Company a term loan in the amount up to $9,040,800. (See Note 5)
2. BUSINESS COMBINATION
Effective December 31, 1997, pursuant to a Stock Purchase Agreement (the
Purchase Agreement), SHPS Acquisition Corp., a wholly owned subsidiary of the
Company, purchased all of OMS, Inc.'s (OMS) outstanding Common Stock (the OMS
Acquisition) for $10,000,000 (the Purchase Price) in cash, less $500,000 held in
escrow pending adjustments to the Purchase Price, as defined in the Purchase
Agreement. OMS develops and markets health care clinical criteria and software
systems for the managed health care insurance industry and provides
installation, customization and training for its products.
The Acquisition was accounted for using the purchase method of accounting,
under which the purchase price is allocated to the assets and liabilities, based
on fair values at the date of the acquisition. Direct acquisition costs of
$150,000 have been recorded by the Company at the date of acquisition.
The allocations resulted in goodwill recognized of $1,341,219, representing
the excess of purchase price over the fair value of net assets acquired, as
follows:
<TABLE>
<S> <C>
Goodwill.................................................... $ 1,341,219
Fair value of assets acquired............................... 4,833,289
Acquired research and development........................... 5,590,000
Liabilities assumed......................................... (2,610,485)
-----------
Cash paid, net of cash acquired............................. $ 9,154,023
===========
</TABLE>
On the acquisition date, a $5,590,000 charge for acquired in-process
research and development was recorded and is reflected in the accompanying
consolidated statement of operations for the period ended December 31, 1997.
As consideration for termination of the OMS Deferred Compensation Plan, the
Company agreed to pay OMS officers proceeds from the cash surrender value of
insurance of approximately $267,000, which was paid subsequent to year-end.
F-7
<PAGE> 81
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth unaudited pro forma statement of operations
data of the Company, which reflects adjustments to the consolidated financial
statements to present the effect of the Acquisition as if it was effective
January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Revenues.................................................... $ 5,013,423
===========
Net loss.................................................... $(5,266,019)
===========
Loss per share -- Basic and diluted......................... $ (0.53)
===========
</TABLE>
Pro forma adjustments included in the amounts above primarily relate to
adjustments for acquisition-related expenses, additional amortization of
intangibles, and adjustments to the federal and state income tax provisions
based on pro forma operating results. Loss per share assumes all shares had been
outstanding for the period presented. The unaudited pro forma data presented
above is not necessarily indicative of actual results that might have occurred
had the Acquisition occurred on January 1, 1997.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Sykes
HealthPlans Services, Inc. and all majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Interim Information
The interim financial statements are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all normal recurring adjustments necessary to fairly
present the financial position, results of operations and cash flows with
respect to consolidated interim financial statements, have been included. The
consolidated results of operations for the interim period are not necessarily
indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Earnings Per Share
Earnings per share data presented has been computed pursuant to Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share (EPS),"
that requires a dual presentation of basic earnings per share (basic EPS) and
diluted earnings per share (diluted EPS). Basic EPS excludes dilution and is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if common stock equivalents
were converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company.
F-8
<PAGE> 82
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, 1,305,000 stock options were outstanding but were not included
in the computation of diluted EPS because conversion of such stock options to
common stock would have an antidilutive effect on EPS.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value Of Financial Instruments",
requires disclosure of the estimated fair values of certain financial
instruments. As the related party notes payable have not been registered or
traded in an established trading market, and the notes were entered into during
the current period, the Company has estimated the fair value of the debt to be
the carrying value. The carrying amount of the Company's financial instruments
included in current assets and current liabilities approximates their fair value
due to their short-term nature.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and other investments with
original maturities of three months or less at the date of purchase.
Short-Term Investments
The Company's short-term investments consist of U.S treasury bills with
original maturities of less than one year.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation,
provisions for which have been determined using the straight-line method over
the estimated useful lives ranging from three to five years.
Expenditures for maintenance and repairs are charged in expenses as
incurred. Additions and major replacements or betterments that increase capacity
or extend useful lives are capitalized. Upon sales or retirement of equipment,
the cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in other expense, net, in
the accompanying consolidated statement of operations.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 establishes the recognition and
measurement standards related to the impairment of long lived assets. The
Company periodically assesses the realizability of its long-term assets pursuant
to the provisions of SFAS No. 121. Based on the Company's analysis of the
undiscounted future cash flows for its long-term assets, no impairments would be
recognized under SFAS No. 121.
Income Taxes
The Company accounts for income taxes under the liability method as
required by SFAS No. 109, "Accounting for Income Taxes." The liability method
requires income taxes to be recognized based on income taxes currently payable
and the change in deferred taxes. Deferred taxes are recognized based on the
temporary differences between the financial statement and tax bases of assets
and liabilities at enacted tax rates as of the dates the differences are
expected to reverse.
F-9
<PAGE> 83
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition and Deferred Revenue
Revenues are derived from licensing the Company's software (Optimed) and
for support and consulting services related to installing, maintaining and
utilizing the software. The Company generally recognizes revenue from the
licensing, installation and maintenance of the software ratably over the life of
the contracts (one to six years) beginning at the date of acceptance in
accordance with the provisions of Statement of Position 97-2, "Software Revenue
Recognition." Revenue from software licensing, when the Company has no
significant obligations is recognized upon shipment. Revenues from support and
consulting services are recognized ratably over the contract period or as
services are performed.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130),
was issued, establishing standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The Company will adopt this
pronouncement in 1998 in accordance with the implementation requirements.
In June 1997, SFAS No. 131, "Disclosures About Segments Of An Enterprise
and Related Information" (SFAS 131), was issued, establishing standards for
public enterprises to disclose certain information about operating segments. It
also requires that public enterprises report certain information about their
products and services, the geographic areas in which they operate, and their
major customers. The Company will adopt this pronouncement in 1998 in accordance
with the implementation requirements.
Management does not believe that adoption of SFAS 130 and SFAS 131 will
have a material impact on the Company's consolidated financial statements.
4. INTANGIBLE ASSETS
Intangible assets are stated at cost and are being amortized on a
straight-line basis over their useful lives. The balance at December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIVES
AMOUNT IN YEARS
---------- ------------
<S> <C> <C>
Excess of cost over net assets of acquired companies........ $1,341,219 15
Existing technologies....................................... 1,610,000 5
----------
$2,951,219
</TABLE>
5. RELATED PARTY NOTES PAYABLE
As discussed in Note 1, on December 30, 1997, the Company entered into
separate unsecured promissory notes (the Notes) under term loan (See Note 1)
with Sykes and HPS, providing for loans from each of up to $9,040,800, with
interest at one percent in excess of the London Interbank Offering Rate (LIBOR)
(6.72 percent at December 31, 1997), accruing daily and payable on a calendar
quarter basis each year. The principal balance advanced, together with accrued
but unpaid interest, was due on December 11, 2000. The approximate available
level of borrowings under the Notes at December 31, 1997 was $14,000,000.
On February 28, 1998, Sykes and HPS amended the Shareholder Agreement to
convert the term loan and the Notes, plus accrued interest, to contributed
capital ($2,559,316 each for Sykes and HPS.) In addition, the amendment required
that Sykes and HPS contribute additional capital to SHPS that would increase
their capital contributions to $34,000,000 in total ($17,000,000 each).
Accordingly, Sykes and HPS each contributed an additional $11,481,852 in cash.
F-10
<PAGE> 84
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The tax effects of significant items comprising the Company's total
deferred tax assets and total deferred tax liabilities as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
Deferred tax assets:
Net operating loss (NOL) carryforward..................... $ 44,000
Origination costs......................................... 59,000
Research and development credits.......................... 195,796
Valuation allowance....................................... (298,796)
---------
Total deferred tax asset.......................... $ --
---------
Deferred tax liabilities:
Capitalized software...................................... $(599,852)
Other..................................................... (37,352)
---------
Total deferred tax liability...................... $(637,204)
=========
</TABLE>
At December 31, 1997, the Company had approximately $110,000 of a NOL
carryforward for federal and state tax purposes. The carryforward expires in
2017. Also, the company has approximately $196,000 in research and development
credits for federal and state tax purposes. The credits expire in varying
amounts in 2012. The ability of the Company to utilize the carryforward and
credits is dependent on the ability of the Company to generate future income to
utilize the carryforward and credits. As a result, the potential tax benefit of
the NOL carryforward and research and development credits have been fully
reserved with a valuation allowance at December 31, 1997.
7. RELATED PARTY TRANSACTIONS
All officers have entered into agreements with the Company which provide
for base salaries, annual bonuses, and certain severance benefits in the event
that their employment is terminated by the Company.
In 1997, Sykes and HPS allocated operating costs representing executive
salaries, rent, and legal, incurred on the Company's behalf. Management believes
that the amounts were allocated at the prevailing market rates for the services
provided. At December 31, 1997, the Company owed Sykes and HPS $228,852 related
to these allocated expenses and such amount was recorded as due to related
parties in the accompanying consolidated balance sheet.
Effective January 1, 1998, SHPS entered into an outsourcing agreement with
HPS. Under the agreement, HPS will outsource its care management business to
SHPS.
8. COMMITMENTS
Employment Agreements
The Company entered into employment agreements with four officers (the SHPS
Employment Agreements). The SHPS Employment Agreements are for periods ranging
from two to three years, beginning from December 1, 1997 to January 1, 1998, and
include annual base salaries ranging from $150,000 to $225,000 for each officer.
In connection with the OMS Acquisition, the Company entered into employment
agreements with three officers of OMS (the OMS Employment Agreements). The OMS
Employment Agreements are for a period of three years, beginning January 1,
1998, and include annual base salaries ranging from $140,000 to $165,000 for
each officer.
F-11
<PAGE> 85
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lease Commitments
The Company rents its office space and certain office equipment under
various operating leases. Future minimum lease payments under all non-cancelable
operating leases having an initial or remaining term in excess of one year are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1998........................................................ $ 262,119
1999........................................................ 260,020
2000........................................................ 259,883
2001........................................................ 280,186
2002........................................................ 233,488
Thereafter.................................................. --
----------
$1,295,696
==========
</TABLE>
9. STOCK OPTION PLAN
Stock Option Plan
On December 18, 1997, the Company adopted a stock option plan (the Plan)
which reserved the 2,000,000 of Class B non-voting common stock (see Note 1) for
future issuance under the Plan to eligible employees and non-employee directors
of the Company. The per share exercise price of each stock option issued was not
less than the fair market value of the stock on the date of grant or, in the
case of an employee or non-employee director owning more than ten percent of
outstanding stock of the Company and to the extent Incentive Stock Options
(ISOs) are issued, the price is not less than one hundred and ten percent of
such fair market value. Also, the aggregate fair market value of the stock with
respect to which ISOs are exercisable for the first time by an officer in any
calendar year may not exceed $100,000.
Aggregate Stock Option Activity
As of December 31, 1997, 1,305,000 options were outstanding at a weighted
average exercise price of $2.40 per share, and 695,000 remained available for
future grants. Of the options outstanding, none were immediately exercisable.
Stock option activity for the period ended December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, beginning of period............................ -- $ --
Granted................................................... 1,305,000 2.40
Exercised................................................. -- --
Canceled or expired....................................... -- --
--------- -----
Outstanding, end of period.................................. 1,305,000 $2.40
Options vested at year-end.................................. -- $ --
</TABLE>
The weighted-average remaining contractual lives for the options
outstanding at December 31, 1997 was 2.7 years.
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), under which no compensation expense has been recognized. In October 1995,
the Financial Accounting Standards Board issued SFAS
F-12
<PAGE> 86
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, "Accounting for Stock-Based Compensation," (SFAS 123), which allows
companies to continue following the accounting guidance of APB 25, but requires
pro forma disclosure of net income and earnings per share for the effects on
compensation expense had the accounting guidance of SFAS 123 been adopted.
The Company has elected SFAS 123 for disclosure purposes. For SFAS 123
purposes, the fair value of each option granted has been estimated as of the
grant date using the minimum value method, which is equivalent to using the
Black-Scholes valuation method for a non-public company, with the following
weighted average assumptions: risk-free interest rate of 5.5 percent, expected
life of 2.7 years and no expected dividends. The weighted average fair value of
options granted during the period ended December 31, 1997, was $0.33. ISOs vest
ratably over a three-year period beginning at the date of grant. Non-qualified
stock options vest upon attainment of specified performance-based objectives
over a nine-year period, or immediate vesting if the Company were to complete an
initial public offering. The term of all options granted is ten years. The
effect of recording compensation expense consistent with SFAS 123 would not have
had a material effect for the period ended December 31, 1997.
10. UNAUDITED INTERIM INFORMATION
The following represents the condensed statement of operations for OMS for
the three-month period ended March 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
-----------
(UNAUDITED)
<S> <C>
Revenues.................................................... $1,131,700
----------
Income before provision for income taxes.................... $ 145,627
==========
Net income.................................................. $ 71,066
==========
</TABLE>
The following represents the condensed balance sheet of OMS as of March 31,
1997:
<TABLE>
<CAPTION>
AMOUNT
-----------
(UNAUDITED)
<S> <C>
Current assets.............................................. $2,539,854
Property and equipment, net................................. 191,821
Other assets................................................ 1,392,931
----------
Total assets...................................... $4,124,606
==========
Current liabilities......................................... $ 803,285
Long-term liabilities....................................... 663,547
Stockholders' equity........................................ 2,657,774
----------
Total liabilities and stockholders' equity........ $4,124,606
==========
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED)
Business Combinations
On February 11, 1998, the Company entered into an agreement to acquire all
outstanding common stock of Health International (HI) for approximately
$22,615,000. The purchase price is contingent on the stockholders acceptance of
the tender offer. Alternatively, the stockholders have the option of receiving
fair value per share, as determined by an independent valuation. In addition,
the Company contributed $2,606,000 in cash to HI for the retirement of 511,000
HI stock options. HI is a disease management company that provides a
comprehensive managed medical care program for employers and plan administrators
to assist employees and their dependants in improving the quality of their
healthcare and reducing unnecessary medical costs. HI provides care management
services that can enhance the quality of an individual overall healthcare
F-13
<PAGE> 87
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by carefully evaluating clinically-based solutions to help individual
physicians, providers and payors select appropriate and efficient medical
treatment options, while providing the opportunity to reduce overall medical
expenditures.
On March 9, 1998, the Company entered into an agreement with Prudential
Insurance Company of America (Prudential) to acquire all of the outstanding
shares of Prudential Service Bureau, Inc. (referred to as "SHSB",
prospectively), a wholly-owned subsidiary of Prudential, for approximately
$50,000,000 in cash, subject to purchase price adjustments as defined in the
agreement. SHSB provides employee benefit services that enable its customers to
outsource the administration of their employee benefit plans, including
enrolling new plan participants, developing and maintaining records, verifying
or paying claims and producing management reports.
The acquisitions of HI and PSBI will be accounted for using the purchase
method. It is expected that the Company will record a charge to earnings of
$23,705,000 for acquired in-process research and development which will be
reflected as a charge in the unaudited consolidated statement of operations of
the company for the three-month period ended March 31, 1998.
In March, 1998, the Company entered into a $75 million line of credit (Line
of Credit) with a bank. This Line of Credit consists of a revolving credit
facility of up to $75,000,000, which includes a letter of credit facility of up
to $10,000,000 and matures in March 2001. The Line of Credit is collateralized
by all of the stock of the Company's subsidiaries. Interest on borrowings under
the Line of Credit accrues at an annual rate equal to either (i) the lender's
prime rate plus a margin ranging from 0% to 0.50% or (ii) the 90-day London
Interbank Offering interest rate plus a margin ranging from 0.75% to 1.75% at
the Company's election. The Line of Credit, which matures in 2001, contains
certain covenants, the most restrictive of which include, a minimum consolidated
stockholders' equity, and leverage and fixed charge ratio requirements, among
others (as defined in the Line of Credit).
The following unaudited pro forma results of operations of the Company give
effect to the acquisitions as though the transactions had occurred on January 1,
1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(UNAUDITED)
<S> <C>
Revenues................................................. $ 21,136,780
============
Net income............................................... $ (3,721,693)
============
Net income per share..................................... $ (0.37)
</TABLE>
In connection with the acquisition of HI, the Company entered into
employment agreements with three HI officers (the HI Employment Agreements). The
HI Employment Agreements are for a period of five years, beginning March 31,
1998, and include annual base salaries of $200,000 for each officer.
Initial Public Offering
The Company's Board of Directors authorized management to prepare and file
a Registration Statement on Form S-1 with the U.S. Securities and Exchange
Commission in connection with the contemplated initial public offering of its
Common Stock (the "Offering").
Upon the completion of the Offering, the Company intends to use a portion
of the proceeds for repayment of indebtedness outstanding under the Company's
credit facility. (See Note 5).
F-14
<PAGE> 88
SYKES HEALTHPLAN SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Activity
From January 1, 1998 to March 31, 1998 (the "Interim Period"), the Company
granted 225,000 options to employees and non-employee directors at exercise
prices ranging from $3.40 to $6.50. Utilizing the assumptions detailed in Note
8, the weighted-average fair value of options granted during the Interim Period
was $0.48. The effect of recording compensation expense consistent with SFAS 123
would not have had a material effect for the three-month period ended March 31,
1998.
On April 1, 1998, the Company granted an additional 420,000 options to
employees at an exercise price of $10.00.
As the Company had a net loss at December 31, 1997, the options issued
subsequent to year-end would not have had an effect on the computation of
earnings per share had they been issued prior to year-end, as their effect would
have been antidilutive.
F-15
<PAGE> 89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Health International, Inc.:
We have audited the accompanying balance sheets of HEALTH INTERNATIONAL,
INC. (a Delaware corporation) as of September 30, 1997 and 1996, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 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 Health International, Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
Los Angeles, California
October 17, 1997
(Except for Note 14
as to which the date is
April 10, 1998)
F-16
<PAGE> 90
HEALTH INTERNATIONAL, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $3,220,000 $2,474,000
Accounts receivable....................................... 226,000 247,000
Prepaid expenses.......................................... 140,000 132,000
---------- ----------
Total current assets.............................. 3,586,000 2,853,000
---------- ----------
Equipment
Furniture and fixtures.................................... 2,502,000 1,654,000
Capitalized equipment leases.............................. 1,087,000 1,676,000
---------- ----------
3,589,000 3,330,000
Less-Accumulated depreciation............................. (2,089,000) (1,827,000)
---------- ----------
1,500,000 1,503,000
---------- ----------
Other Assets:
Refundable deposits....................................... 41,000 56,000
Deferred tax asset........................................ 64,000 --
---------- ----------
105,000 56,000
---------- ----------
Total assets...................................... $5,191,000 $4,412,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 68,000 $ 45,000
Taxes payable............................................. 53,000 125,000
Accrued liabilities....................................... 609,000 523,000
Current portion of capital lease obligations.............. 213,000 297,000
Unearned revenue.......................................... 320,000 110,000
---------- ----------
Total current liabilities......................... 1,263,000 1,100,000
---------- ----------
Long-term obligations:
Long term of capital lease obligations.................... 449,000 578,000
Deferred tax liability.................................... -- 10,000
---------- ----------
Total liabilities................................. 1,712,000 1,688,000
---------- ----------
Commitments and contingencies...............................
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, 31 and 33 shares outstanding on September
30, 1997 and 1996, respectively........................ 284,000 302,000
Common stock, $0.10 par value, 5,000,000 shares
authorized, 2,760,867 and 2,756,867 shares issued and
outstanding on September 30, 1997 and 1996,
respectively........................................... 276,000 276,000
Paid-in-capital........................................... 2,312,000 2,294,000
Retain earnings (deficit)................................. 607,000 (148,000)
---------- ----------
Total stockholders' equity........................ 3,479,000 2,724,000
---------- ----------
Total liabilities and stockholders' equity........ $5,191,000 $4,412,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE> 91
HEALTH INTERNATIONAL, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31, FOR THE YEARS ENDED SEPTEMBER 30,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
----------- ---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Fee income...................... $ 6,353,000 $5,833,000 $11,661,000 $11,461,000 $7,569,000
Reimbursed medical expenses..... 206,000 182,000 398,000 229,000 214,000
----------- ---------- ----------- ----------- ----------
6,559,000 6,015,000 12,059,000 11,690,000 7,783,000
Cost of revenue:
Direct payroll expenses......... 4,499,000 4,227,000 2,752,000
Direct medical expenses......... 398,000 229,000 214,000
----------- ---------- ----------- ----------- ----------
2,968,000 2,362,000 4,897,000 4,456,000 2,966,000
----------- ---------- ----------- ----------- ----------
Gross profit.................... 3,591,000 3,653,000 7,162,000 7,234,000 4,817,000
Costs and expenses:
General and administrative...... 5,988,000 2,739,000 5,386,000 5,470,000 4,281,000
Depreciation.................... 304,000 282,000 576,000 515,000 306,000
----------- ---------- ----------- ----------- ----------
Operating income (loss)........... (2,701,000) 632,000 1,200,000 1,249,000 230,000
Interest income................... (59,000) (55,000) (128,000) (77,000) (71,000)
Interest expense.................. 37,000 46,000 86,000 93,000 44,000
----------- ---------- ----------- ----------- ----------
Income (loss) before provision for
income taxes.................... (2,679,000) 641,000 1,242,000 1,233,000 257,000
Provision for (benefit from)
income taxes.................... (575,000) 259,000 487,000 212,000 30,000
----------- ---------- ----------- ----------- ----------
Net income (loss)....... $(2,104,000) $ 382,000 $ 755,000 $ 1,021,000 $ 227,000
=========== ========== =========== =========== ==========
Basic earnings per common share... $ (0.76) $ 0.14 $ 0.27 $ 0.37 $ 0.08
=========== ========== =========== =========== ==========
Diluted earnings per common
share........................... $ (0.76) $ 0.13 $ 0.26 $ 0.34 $ 0.08
=========== ========== =========== =========== ==========
Shares used for computing basic
earnings per common share....... 2,765,445 2,759,600 2,760,867 2,756,467 2,753,267
=========== ========== =========== =========== ==========
Shares used for computing diluted
earnings per common share....... 2,765,445 2,918,157 2,893,768 2,959,607 2,898,346
=========== ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 92
HEALTH INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
----------------- -------------------- PAID-IN EARNINGS TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ -------- --------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1994.......................... 38 $348,000 2,744,267 $275,000 $2,242,000 $(1,396,000) $1,469,000
Exercise of common stock
warrants.................... (5) (46,000) 10,000 1,000 45,000 -- --
Exercise or options........... -- -- 2,000 -- 6,000 -- 6,000
Net income............. -- -- -- -- -- 227,000 227,000
-- -------- --------- -------- ---------- ----------- ----------
Balances at September 30,
1995.......................... 33 302,000 2,756,267 276,000 2,293,000 (1,169,000) 1,702,000
Exercise of options........... -- -- 600 -- 1,000 -- 1,000
Net income............. -- -- -- -- -- 1,021,000 1,021,000
-- -------- --------- -------- ---------- ----------- ----------
Balances at September 30,
1996.......................... 33 302,000 2,756,867 276,000 2,294,000 (148,000) 2,724,000
Conversion of preferred
stock....................... (2) (18,000) 4,000 -- 18,000 -- --
Net Income............. -- -- -- -- -- 755,000 755,000
-- -------- --------- -------- ---------- ----------- ----------
Balances at September 30,
1997.......................... 31 284,000 2,760,867 276,000 2,312,000 607,000 3,479,000
Conversion of preferred stock... (6) (55,000) 12,000 1,000 54,000 -- --
Exercise of common stock
warrants...................... -- -- 4,000 -- 8,000 -- 8,000
Sykes capital contribution...... -- -- -- -- 2,606,000 -- 2,606,000
Net loss............... -- -- -- -- -- (2,104,000) (2,104,000)
-- -------- --------- -------- ---------- ----------- ----------
Balances at March 31, 1998
(Unaudited)................... 25 $229,000 2,776,867 $277,000 $4,980,000 $(1,497,000) $3,989,000
== ======== ========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 93
HEALTH INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31 FOR THE YEARS ENDED SEPTEMBER 30,
------------------------ ------------------------------------
1998 1997 1997 1996 1995
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.......................... $(2,104,000) $ 382,000 $ 755,000 $1,021,000 $ 227,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation...................... 304,000 282,000 576,000 515,000 306,000
Decrease (increase) in:
Accounts receivable............ (146,000) (54,000) 21,000 (96,000) 366,000
Prepaid expenses............... (45,000) (61,000) (8,000) (49,000) (8,000)
Other assets................... (14,000) 14,000 (3,000) (13,000)
Deferred tax asset............. -- (64,000) --
Income taxes receivable........ (925,000)
Increase (decrease) in:
Accounts payable, taxes
payable, accrued liabilities
and unearned revenue......... 247,000 (89,000) 375,000
Accounts payable............... 9,000 70,000
Taxes payable.................. (44,000) (129,000)
Accrued liabilities............ 139,000 131,000
Unearned revenue............... (62,000) 254,000
Deferred tax liability......... (10,000) 10,000 --
----------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities.... (2,888,000) 875,000 1,531,000 1,309,000 1,253,000
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Marketable securities acquired...... (205,000)
Capital expenditures for
equipment......................... (187,000) (297,000) (467,000) (133,000) (392,000)
----------- ---------- ---------- ---------- ----------
Net cash used in investing
activities.............. (392,000) (297,000) (467,000) (133,000) (392,000)
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments under capital lease
obligations....................... (113,000) (177,000) (318,000) (288,000) (160,000)
Proceeds from exercise of options... 8,000 -- 1,000 6,000
Sykes capital contribution.......... 2,606,000
----------- ---------- ---------- ---------- ----------
Net cash used in financing
activities.............. 2,501,000 (177,000) (318,000) (287,000) (154,000)
----------- ---------- ---------- ---------- ----------
Net increase in cash................ (779,000) 401,000 746,000 889,000 707,000
Cash at beginning of year........... 3,220,000 2,474,000 2,474,000 1,585,000 878,000
----------- ---------- ---------- ---------- ----------
Cash at end of year................. $ 2,441,000 $2,875,000 $3,220,000 $2,474,000 $1,585,000
=========== ========== ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Capital lease obligation incurred as
a result of new lease
agreements........................ $ 89,000 $ 105,000 $ 108,000 $ 290,000 $ 569,000
=========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Income taxes paid................... $ 394,000 $ 389,000 $ 637,000 $ 117,000 $ 27,000
=========== ========== ========== ========== ==========
Interest paid....................... $ 37,000 $ 46,000 $ 86,000 $ 93,000 $ 44,000
=========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 94
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND BUSINESS OF THE COMPANY
Health International, Inc. (HI or the Company), a Delaware Corporation, is
a national health advisory service company which provides utilization review
services, including a second surgical opinion program, a hospital case
management program and a disease management program, to employers throughout the
United States. Utilization review is comprised of several areas, including
second surgical opinion plans, hospital review and prolonged rehabilitation
review. The basis of sound utilization review is to secure appropriate medical
treatment for the patient. The Company's trained medical staff assist the
attending physician in reviewing the alternatives for the patient, especially
when the patient needs acute care or prolonged medical attention. HI primarily
focuses its efforts upon a review of those procedures which are the most
expensive, namely, hospitalization, surgical procedures and long-term inpatient
therapy.
The Company's second surgical opinion and hospital case management programs
include the following services: second surgical opinions, pre-admission
certification, concurrent review, discharge planning, national tertiary level
physician network, audits, catastrophic case management, case management of
alcohol and substance abuse, inpatient psychiatric and extended care case
management, workers' compensation case management and short-term disability case
management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid debt instruments
with an original maturity of three months or less.
Fee Income
Fee income represents revenue derived from the Company's health advisory
services. Such revenues are generated on a rate per employee per month. Cash
received in advance of the service period is classified as unearned revenue. The
Company does not participate in any contingency arrangements with respect to
savings generated through its health advisory services.
Equipment
Equipment is recorded at cost. Routine maintenance, repairs and minor
replacements are charged to expense when incurred, while improvements and
renewals are capitalized. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, generally five years.
Reimbursed Medical Expenses and Direct Medical Expenses
The Company makes payments to physicians, laboratories and x-ray facilities
in connection with second opinion services and is reimbursed for such payments
at its cost. Expense reimbursements are recorded as revenues.
F-21
<PAGE> 95
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of such assets and liabilities
using enacted tax rates and laws in effect in the years in which the differences
are expected to reverse.
Fair Value of Financial Instruments
As of September 30, 1997, the carrying amounts of the Company's financial
instruments, which include cash and cash equivalents, accounts payable, accrued
liabilities and capital lease obligations are recorded at amounts, which
approximate fair value.
New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 revises and simplifies the computation for earnings per share
and requires certain additional disclosures. The adoption of SFAS 128 had the
following effect on previously reported earnings per share data for 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Primary EPS as reported..................................... $ 0.35 $0.08
Effect of SFAS 128.......................................... 0.02 --
------ -----
Basic EPS as restated....................................... $ 0.37 $0.08
====== =====
Fully diluted EPS as reported............................... $ 0.35 $0.08
Effect of SFAS 128.......................................... (0.01) --
------ -----
Diluted EPS as restated..................................... $ 0.34 $0.08
====== =====
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of September 30:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accrued health plan......................................... $521,000 $373,000
Other accrued liabilities................................... 88,000 150,000
-------- --------
$609,000 $523,000
======== ========
</TABLE>
4. WARRANTS
In the past the Company sold warrants to purchase shares of its common
stock. Each warrant entitles the holder to purchase 1000 shares of common stock.
As of September 30, 1997, there were warrants outstanding to purchase 4000
shares of common stock, at $2.00 per share. The warrants originally had an
exercise period of five years which may be extended from time to time by HI. As
of September 30, 1997, the exercise period for these warrants was extended to
September 30, 1998. See Note 14.
F-22
<PAGE> 96
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PREFERRED STOCK
Preferred stock consists of Series A convertible preferred stock. Each
share is convertible into 2,000 shares of common stock.
The Series A convertible preferred stock has a liquidation preference equal
to 100 percent of the original $10,000 purchase price. After satisfaction or the
full preferential liquidation amounts, the holders of the Series A convertible
preferred stock are entitled to share ratably on a share-for-share basis with
holders of shares of common stock in the remaining assets of the Company. The
Series A convertible preferred stock has no voting rights except as required by
the California Corporations Code.
During 1997, Series A holders converted 2 units of their Series A
convertible preferred stock into 4,000 shares of common stock. There were no
conversions during 1996. See Note 14.
6. COMMITMENTS AND CONTINGENCIES
The Company may in the normal course of business become a defendant or
plaintiff in various lawsuits. Although a successful claim for which the Company
is not fully insured could have a material effect on the Company's financial
condition, management is not of the opinion that it maintains adequate insurance
to mitigate against the normal risk of operations.
7. STOCK OPTIONS
The Company has a non-qualified stock option plan ("Plan"). Options may be
granted as nonqualified stock options. The Company accounts for the plan under
APB Opinion No. 25, under which no cost has been recognized.
The Company may grant options to purchase up to 300,000 shares of common
stock under the Plan. The options are issued with exercise prices ranging
between 85% and 110% of the Company's stock price at the date of grant. Options
granted under the Plan vest over a period of up to five years, are exercisable
in whole or in installments, and expire five years from date of grant. Upon
termination of employment, stock options must be exercised within 90 days.
In accordance with Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the fair value of
options grants is estimated using the Black Scholes option pricing model for pro
forma footnote purposes. The following assumptions were used in 1997 dividend
yield -- 0%; risk free interest rate -- 5.2% to 6.8%; expected option life -- 5
years; weighted average expected volatility -- 56.2%.
As permitted by SFAS 123, the company has chosen to continue accounting for
stock options at their intrinsic value. Accordingly, no compensation expense has
been recognized for its stock option compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, the tax-
effected impact would be as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Net income:
As reported............................................... $755,000 $1,021,000
Pro forma................................................. 694,000 1,004,000
Basic EPS:
As reported............................................... $ 0.27 $ 0.37
Pro forma................................................. $ 0.25 $ 0.36
</TABLE>
F-23
<PAGE> 97
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Because the SFAS 123 method of accounting 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.
The table below summarizes the transactions in the Company's stock options
during 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year............... 406,900 302,500 210,500
Options granted........................................ 171,000 115,000 103,500
Options exercised...................................... -- (600) (2,000)
Options canceled....................................... (138,400) (10,000) (9,500)
-------- -------- --------
Options outstanding at end of year..................... 439,500 406,900 302,500
======== ======== ========
Exercise price of options granted...................... $2.00 to $2.50 to $1.75 to
$ 3.75 $ 4.75 $ 4.50
</TABLE>
8. LEASE OBLIGATIONS
The Company leases 39,140 square feet of office space in Scottsdale,
Arizona. Rent expense is approximately $31,214 per month. The leases have
current expiration terms at various dates through June 30, 2000 and have renewal
options for unspecified periods subsequent to their current terms.
In addition, the Company leases certain equipment at interest rates ranging
from 8.50 percent to 13.03 percent. Amortization of equipment held under capital
leases is included in depreciation expense.
Future minimum lease payments under the capital and operating leases with
initial or remaining terms of one year or more as follows:
<TABLE>
<CAPTION>
CAPITAL MINIMUM
YEAR ENDING SEPTEMBER 30, LEASE RENTALS
- ------------------------- -------- --------
<S> <C> <C>
1998.............................................. $270,000 $341,000
1999.............................................. 260,000 346,000
2000.............................................. 234,000 149,000
2001.............................................. -- 70,000
2002.............................................. -- 52,000
-------- --------
765,000 $958,000
========
Less -- amount representing interest........................ 103,000
--------
Value of minimum lease payments............................. 662,000
Less -- current installments................................ 213,000
--------
Long-term capital lease obligations......................... $449,000
========
</TABLE>
F-24
<PAGE> 98
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Federal:
Current............................................... $458,000 $137,000 $12,000
Deferred.............................................. (54,000) 24,000 --
-------- -------- -------
404,000 161,000 12,000
-------- -------- -------
State:
Current............................................... 100,000 65,000 18,000
Deferred.............................................. (17,000) (14,000) --
-------- -------- -------
83,000 51,000 18,000
-------- -------- -------
$487,000 $212,000 $30,000
======== ======== =======
</TABLE>
The components of the net deferred tax asset (liability) as of September
30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Other liabilities and reserves............................ $ 166,000 $ 140,000
Net operating loss carryforwards.......................... -- 14,000
--------- ---------
Total deferred tax assets......................... 166,000 154,000
--------- ---------
Deferred tax liabilities:
Equipment -- accumulated depreciation..................... (71,000) (90,000)
Other liabilities......................................... (31,000) (74,000)
--------- ---------
Total deferred tax liability...................... (102,000) (164,000)
--------- ---------
Net deferred tax asset (liability)................ $ 64,000 $ (10,000)
========= =========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
at the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Federal income tax at statutory rate........................ 34.0% 34.0% 34.0%
State taxes, net of Federal benefit......................... 2.0 3.0 7.0
Non-operating loss utilization.............................. -- -- (17.0)
Other....................................................... 3.0 -- --
Reversal of Federal and State reserves no longer needed..... -- (20.0) (11.0)
---- ----- -----
39.0% 17.0% 13.0%
==== ===== =====
</TABLE>
10. EMPLOYEE MEDICAL BENEFITS
On January 1, 1991, the Company elected to self-insure employee medical
benefits with stop-loss insurance coverage. The accrual for payment of future
claims is $520,899 and $373,025 as of September 30, 1997 and 1996, respectively,
and is reflected in accrued liabilities in the accompanying financial
statements. The Company had stop-loss coverage of $15,000 per employee in 1997
and 1996, and approximately $240,000 in 1997 and 1996 in the aggregate.
F-25
<PAGE> 99
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. EARNINGS PER SHARE
A reconciliation of the net income and shares used in the computations of
the basic and diluted earnings per share ("EPS") for each of the three years in
the period ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
-------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Net Income....................................... $755,000 2,760,867 $0.27
Effect of Dilutive Securities:
Convertible Preferred Stock...................... -- 62,000
Stock Options and Warrants......................... -- 70,901
-------- --------- -----
Diluted EPS........................................ $755,000 2,893,768 $0.26
======== ========= =====
</TABLE>
During 1997, 50,000 stock options, convertible into 50,000 shares of common
stock were outstanding but were not included in the computation of diluted EPS
because conversion would have an antidilutive effect on EPS.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1996
---------------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Net Income...................................... $1,021,000 2,756,467 $0.37
=====
Effect of Dilutive Securities:
Convertible Preferred Stock..................... -- 66,000
Stock Options and Warrants........................ -- 137,140
---------- ---------
Diluted EPS....................................... $1,021,000 2,959,607 $0.34
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1995
-------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Net income....................................... $227,000 2,753,267 $0.08
=====
Effect of Dilutive Securities:
Convertible Preferred Stock...................... -- 66,000
Stock Options and Warrants......................... -- 79,079
-------- --------- -----
Diluted EPS........................................ $227,000 2,898,346 $0.08
======== ========= =====
</TABLE>
During 1995, 86,375 stock options, convertible into 86,375 shares of common
stock were outstanding but were not included in the computation of diluted EPS
because conversion would have an antidilutive effect on EPS.
F-26
<PAGE> 100
HEALTH INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. MAJOR CUSTOMERS
American Airlines Corporation and Kmart Corporation are the company's two
major customers. They accounted for the following revenues:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
American Airlines Corporation...................... $2,228,000 $2,129,000 $2,029,000
19% 19% 27%
Kmart Corporation.................................. 2,299,000 2,837,000 --
20% 25% --
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended September
30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues................................ $3,025,000 $2,990,000 $2,987,000 $3,057,000
Income before provision for income
taxes................................. 395,000 246,000 291,000 310,000
Net income.............................. 234,000 148,000 175,000 198,000
Basic EPS............................... $ 0.08 $ 0.05 $ 0.06 $ 0.08
Diluted EPS............................. $ 0.08 $ 0.05 $ 0.06 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue................................. $2,957,000 $2,942,000 $2,785,000 $3,006,000
Income before provision for income
taxes................................. 401,000 307,000 153,000 372,000
Net income.............................. 353,000 270,000 135,000 263,000
Basic EPS............................... $ 0.13 $ 0.10 $ 0.05 $ 0.09
Diluted EPS............................. $ 0.12 $ 0.09 $ 0.05 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues................................ $1,817,000 $1,872,000 $1,864,000 $2,228,000
Income before provision for income
taxes................................. 128,000 57,000 51,000 21,000
Net income.............................. 133,000 50,000 44,000 --
Basic EPS............................... $ 0.04 $ 0.02 $ 0.02 --
Diluted EPS............................. $ 0.04 $ 0.02 $ 0.02 --
</TABLE>
14. SUBSEQUENT EVENT
Effective March 31, 1998 HI entered into an Acquisition Agreement whereby
Sykes Healthplan Services, Inc. (SHPS) has tendered an offer to purchase all of
the issued and outstanding preferred and common stock of HI. Prior to closing,
the outstanding shares of preferred stock will be converted into common stock.
SHPS will pay $8.00 per share in cash consideration for each common stock share
acquired. Additionally, all outstanding stock options will be cancelled in
exchange for cash consideration and any remaining treasury stock owned by HI
will be canceled and will cease to exist. As a result of the agreement, HI will
be merged with a subsidiary entity of SHPS and the merged entities will operate
as one new entity under the current HI corporate name. HI is obligated to comply
with certain conditions under such agreement which limits capitalized lease
obligations, provides for a minimum working capital balance and places
restrictions on negative changes in certain account balances.
F-27
<PAGE> 101
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
OMS, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of OMS, Inc., a Massachusetts corporation, for the year
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of OMS, Inc.'s operations and its cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
February 27, 1998
F-28
<PAGE> 102
OMS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
License fees.............................................. $4,393,811
Consulting, support and other services.................... 619,612
----------
Total revenues............................................ 5,013,423
Cost of revenues, exclusive of items shown separately
below..................................................... 1,407,231
----------
Gross profit.............................................. 3,606,192
Operating expenses:
Selling, general and administrative....................... 1,991,454
Research and development.................................. 534,525
Capitalized software cost amortization.................... 389,718
Depreciation.............................................. 83,042
----------
Total operating expenses.................................. 2,998,739
----------
Income from operations...................................... 607,453
Interest income............................................. (78,331)
----------
Income before provision for income taxes.................... 685,784
Provision for income taxes.................................. 351,113
----------
Net income........................................ $ 334,671
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-29
<PAGE> 103
OMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996............... 439,998 $4,400 $ 70,630 $1,211,178 $1,286,208
Net income............................. -- -- -- 334,671 334,671
Common stock options exercised......... 30,000 300 224,700 -- 225,000
Conversion of Series A preferred stock
to common stock..................... 510,000 5,100 1,295,400 -- 1,300,500
------- ------ ---------- ---------- ----------
BALANCE, December 31, 1997............... 979,998 $9,800 $1,590,730 $1,545,849 $3,146,379
======= ====== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-30
<PAGE> 104
OMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 334,671
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation.............................................. 83,042
Capitalized software cost amortization.................... 389,718
Deferred income taxes..................................... 12,884
Deferred rent............................................. 53,616
Changes in operating assets and liabilities-
Accounts receivable....................................... 55,746
Prepaid expenses and other current assets................. 55,312
Cash surrender value of insurance......................... (133,719)
Accounts payable and accrued expenses..................... (229,558)
Income taxes payable...................................... (28,937)
Deferred revenue.......................................... 124,982
Deferred compensation..................................... 195,446
-----------
Net cash provided by operating activities................. 913,203
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (1,585,796)
Payments for capitalized software......................... (563,082)
Purchases of equipment.................................... (123,840)
-----------
Net cash used in investing activities..................... (2,272,718)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised............................ 225,000
-----------
Net cash provided by financing activities................. 225,000
-----------
DECREASE IN CASH AND CASH EQUIVALENTS....................... (1,134,515)
CASH AND CASH EQUIVALENTS, beginning of year................ 1,980,492
-----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 845,977
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for taxes....................................... $ 367,166
-----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of 510,000 shares of Series A preferred stock
to common stock........................................ $ 1,300,500
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-31
<PAGE> 105
OMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
Effective December 31, 1997, pursuant to a Stock Purchase Agreement (the
Agreement), SHPS Acquisition Corp., a wholly-owned subsidiary of Sykes
HealthPlan Services, Inc. (SHPS), purchased all of the outstanding common stock
of OMS, Inc. (the Company) for $10,000,000 (the Purchase Price) in cash,
$500,000 of which was held in escrow, pending adjustments to the Purchase Price,
as defined in the Agreement.
SHPS Acquisition Corp. accounted for the acquisition using the purchase
method of accounting, under which the purchase price was allocated to the assets
and liabilities, based on fair values at the date of the acquisition. The
allocations were based on appraisals, evaluations, estimations and other
studies. The excess of the purchase price over the fair value of net assets
acquired resulted in goodwill of $1,341,219 as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Goodwill.................................................... $ 1,341,219
Fair value of assets acquired............................... 5,679,266
Acquired in-process research and development................ 5,590,000
Liabilities assumed......................................... (2,610,485)
-----------
Cash paid......................................... $10,000,000
===========
</TABLE>
The accompanying financial statements present the results of the Company's
operations and its cash flows for the year ended December 31, 1997, on a
pre-acquisition basis.
2. FORM OF ORGANIZATION AND SUMMARY OF OPERATIONS:
The Company was organized under Massachusetts Law on January 18, 1990, for
the purpose of acquiring certain assets of Health Data Institute, Inc., a
division of Baxter Healthcare Corp. (Baxter). The original stockholders of the
Company were Blue Cross Blue Shield of Connecticut, Inc. (Blue Cross) and two
former executives of Baxter and a former independent consultant (the
Principals). The Company was incorporated through the issuance of 510,000 shares
of Series A convertible redeemable preferred stock (the Preferred Stock), par
value $2.55 per share, and 439,998 shares of common stock (the Common Stock),
par value $.01 per share. Holders of the Preferred Stock had the number of votes
per share equal to the number of shares of Common Stock into which each share of
Preferred Stock held by such holder was convertible at the time of such vote.
In connection with the organization, Blue Cross provided $1,300,500 in cash
in exchange for all of the issued shares of the Preferred Stock. Each of the
three Principals acquired 146,666 shares of Common Stock for cash of $10,010 and
notes payable to the Company of $15,000, which were repaid by the Principals
during 1991 and 1992.
The Company develops and markets health care clinical criteria and software
systems for the managed health care insurance industry and provides
installation, customization and training for its products.
3. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-32
<PAGE> 106
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company develops and markets health care clinical software systems to
companies in the health care insurance industry. The Company may perform
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Credit losses have not been material historically.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and other investments with
original maturities of three months or less at the date of purchase.
Equipment
Equipment was recorded at historical cost. Depreciation expense has been
determined using the straight-line method over the estimated useful lives of
three to five years.
Income Taxes
The Company accounts for income taxes under the liability method as
required by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." The liability method requires income taxes to be
recognized based on income taxes currently payable and the change in deferred
taxes. Deferred taxes are recognized based on the temporary differences between
the financial statement and tax bases of assets and liabilities at enacted tax
rates as of the dates the differences are expected to reverse.
Capitalized Software Costs
All costs incurred to establish the technological feasibility of a computer
software product to be marketed are charged to research and development as
incurred. Technological feasibility of a computer software product is
established when the Company has completed all planning, designing, coding and
testing activities that are necessary to establish that the product can be
produced to meet its design specifications including functions, features and
technical performance requirements.
The Company capitalizes software costs incurred in developing a product
from the time when detail program specifications are completed and coding has
begun until the production of master copies for general release. Capitalized
software costs are amortized over the product's estimated economic life,
generally five to seven years, commencing at the point that the product is
available to the market. Research and development activity for the year ended
December 31, 1997, was as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Total research and development.............................. $1,097,607
Amount capitalized.......................................... (563,082)
----------
Research and development expense.................. $ 534,525
==========
</TABLE>
Amortization expense of $389,718 is included in capitalized software cost
amortization in the accompanying statement of operations.
Revenue Recognition and Deferred Revenue
Revenues are derived from licensing the Company's software (Optimed(R)) and
for support and consulting services related to installing and maintaining the
software. The Company generally recognizes revenue from the licensing,
installation and maintenance of the software and ratably over the life of the
contracts (one to six years) beginning at the date of acceptance in accordance
with the provisions of the Statement of Position 97-2, "Software Revenue
Recognition." Revenues from support and consulting services are recognized
ratably
F-33
<PAGE> 107
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
over the contract period or as services are performed. Revenue from software
licensing, when the Company has no significant obligations, is recognized upon
acceptance.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130),
was issued, establishing standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The Company will adopt this
pronouncement in 1998 in accordance with the implementation requirements.
In June 1997, SFAS No. 131, "Disclosures About Segments Of An Enterprise
and Related Information" (SFAS 131), was issued, establishing standards for
public enterprises to disclose certain information about operating segments. It
also requires that public enterprises report certain information about their
products and services, the geographic areas in which they operate, and their
major customers. The Company will adopt this pronouncement in 1999 in accordance
with the implementation requirements.
Management does not believe that adoption of SFAS 130 and SFAS 131 will
have a material impact on the Company's financial statements.
4. LINE OF CREDIT:
The Company had a line of credit agreement with Blue Cross under which it
could borrow up to $1,000,000. During 1997, there were no borrowings on the line
of credit. Borrowings under the agreement bore interest at Blue Cross' cost of
funds plus 5 percent.
5. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Current:
Federal................................................... $288,462
State..................................................... 49,767
--------
338,229
--------
Deferred:
Federal................................................... 9,019
State..................................................... 3,865
--------
12,884
--------
$351,113
========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal tax rate of 34 percent to income before provision for income taxes
as follows:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
Statutory federal income tax rate........................... 34.0%
Acquisition fees............................................ 20.6
State taxes, net of federal benefit......................... 6.3
Common stock options exercised.............................. (3.9)
Research and development credits used....................... (3.2)
Other....................................................... (2.6)
----
Effective tax rate.......................................... 51.2%
====
</TABLE>
F-34
<PAGE> 108
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax reporting purposes.
6. SIGNIFICANT CUSTOMERS:
For the year ended December 31, 1997, the Company earned revenue comprising
approximately 20 percent of total revenues from two unaffiliated customers.
Revenue earned from Blue Cross (see Note 2) was approximately $483,000 for
the year ended December 31, 1997.
7. 401(K) PLAN:
All employees of the Company who were over the age of 21 were eligible to
participate in the Company's defined contribution plan (the 401(k) Plan).
Participants in the 401(k) Plan could not contribute more than the greater of a
specified statutory amount or 15 percent of his or her pre-tax total
compensation. Eligible employees were 100 percent vested in their own
contributions. The 401(k) Plan permits, but did not require, additional
contributions to the 401(k) Plan by the Company. The Company recorded an
additional contribution in 1997 of approximately $53,000, which is included in
the accompanying statement of operations.
8. DEFERRED COMPENSATION PLANS:
Under deferred compensation arrangements (the Deferred Compensation Plans),
the Company had agreed to pay certain key employees a certain sum annually for
15 years upon their retirement or, in the event of their death, to their
designated beneficiary. A benefit equal to the current cash surrender value of
insurance was payable if the employee was terminated (other than by his
voluntary action or discharge for cause) before they attained age 60. The
Company had purchased individual life insurance contracts with respect to each
employee covered by this program, with the Company as the owner and beneficiary
of the contracts. Prior to the acquisition, the Company and the key employees
agreed to terminate the Deferred Compensation Plans. As consideration for
termination of the Deferred Compensation Plans, the Company agreed to pay the
key employees proceeds from the cash surrender value of insurance of
approximately $267,000, which was paid subsequent to year-end.
During 1997, insurance expense, net of the increase in the cash surrender
value of insurance, was approximately $26,000. The expense associated with the
Deferred Compensation Plans was approximately $195,000 for 1997.
9. STOCK OPTIONS:
During 1996 and 1997, the Company granted non-qualified stock options (the
Option Shares) to two employees (the Option Holders) for the purchase of up to
20,000 and 10,000 shares, respectively, of the Company's Common Stock, with an
exercise price of $7.50 per share (the Exercise Price).
Immediately prior to the acquisition, the Option Holders exercised all of
the Option Shares at the Exercise Price and Blue Cross converted the 510,000 of
Preferred Stock on a one-to-one basis into Common Stock.
F-35
<PAGE> 109
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applied Accounting Principles Board Opinion No. 25 in
accounting for its stock options and, accordingly, no compensation cost has been
recognized for stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock option under SFAS No. 123, the Company's net earnings would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Net income:
As reported............................................... $334,671
Pro forma................................................. 259,671
</TABLE>
10. COMMITMENTS:
Lease Commitments
The Company rented its office space and certain office equipment under
various operating leases. Future minimum lease payments under all non-cancelable
operating leases having an initial or remaining term in excess of one year were
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
1998........................................................ $ 262,119
1999........................................................ 260,020
2000........................................................ 259,883
2001........................................................ 280,186
2002........................................................ 233,488
----------
$1,295,696
==========
</TABLE>
Total rent expense was approximately $262,000 during the year ended
December 31, 1997.
F-36
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
OMS, Inc.
We have audited the accompanying balance sheets of OMS, Inc. as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for the years then ended. 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 OMS, Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 21, 1997
F-37
<PAGE> 111
OMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,980,492 $ 1,499,591
Accounts receivable, less allowances of $0 in 1996 and
$18,000 in 1995)....................................... 1,201,442 1,148,175
Deferred income taxes..................................... -- 7,830
Prepaid expenses and other current assets................. 101,331 108,898
----------- -----------
Total current assets.............................. 3,283,265 2,764,494
----------- -----------
Equipment:
Computer and office equipment............................. 548,072 537,847
Less accumulated depreciation............................. 409,945 424,331
----------- -----------
138,127 113,516
----------- -----------
Cash surrender value of insurance........................... 133,134 --
Intangible assets:
Capitalized software costs................................ 2,390,891 2,183,217
Rights to the Optimed software............................ 388,868 388,868
Other..................................................... 54,029 54,029
----------- -----------
2,833,788 2,626,114
Less accumulated amortization............................. 1,518,367 1,159,801
----------- -----------
1,315,421 1,466,313
----------- -----------
$ 4,869,947 $ 4,344,323
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,039,434 $ 809,081
Income taxes payable...................................... 216,407 170,611
Deferred revenue.......................................... 380,484 475,000
----------- -----------
Total current liabilities......................... 1,636,325 1,454,692
----------- -----------
Deferred income taxes....................................... 575,507 510,337
Deferred compensation....................................... 71,407 --
Commitments and contingencies...............................
Redeemable preferred stock..................................
Convertible Redeemable Preferred stock, Series A; $2.55 par
value; 510,000 shares authorized, issued and outstanding,
redemption value $2.55.................................... 1,300,500 1,300,500
Stockholders' equity:
Common stock, $.01 par value; 1,100,000 shares authorized;
439,998 shares issued and outstanding.................. 4,400 4,400
Capital in excess of par value............................ 70,630 70,630
Retained earnings......................................... 1,211,178 1,003,764
----------- -----------
1,286,208 1,078,794
----------- -----------
$ 4,869,947 $ 4,344,323
=========== ===========
</TABLE>
See accompanying notes.
F-38
<PAGE> 112
OMS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
License fees.............................................. $4,102,340 $3,847,147
Consulting services....................................... 286,200 181,740
Support and other services................................ 321,414 219,355
---------- ----------
Total revenues............................................ 4,709,954 4,248,242
Cost of sales............................................. 1,167,382 1,055,877
---------- ----------
Gross profit........................................... 3,542,572 3,192,365
---------- ----------
Operating expenses:
General and administrative................................ 1,108,488 1,074,998
Research and development.................................. 821,886 695,034
Selling................................................... 437,707 338,000
Amortization.............................................. 358,566 328,990
Depreciation.............................................. 50,603 75,820
---------- ----------
2,777,250 2,512,842
---------- ----------
Income from operations.................................... 765,322 679,523
Interest income, net...................................... 62,892 40,317
---------- ----------
Income before income taxes................................ 828,214 719,840
Provision for income taxes................................ 376,000 294,000
---------- ----------
Net income........................................ $ 452,214 $ 425,840
========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE> 113
OMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ---------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994....................... 439,998 $ 4,400 $70,630 $ 577,924 $ 652,954
Net income for the year ended December 31,
1995........................................... 425,840 425,840
------- ---------- ------- ---------- ----------
Balance at December 31, 1995....................... 439,998 4,400 70,630 1,003,764 1,078,794
Net income for the year ended December 31,
1996........................................... 452,214 452,214
Dividends declared................................. (244,800) (244,800)
------- ---------- ------- ---------- ----------
Balance at December 31, 1996....................... 439,998 $ 4,400 $70,630 $1,211,178 $1,286,208
======= ========== ======= ========== ==========
</TABLE>
See accompanying notes.
F-40
<PAGE> 114
OMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 452,214 $ 425,840
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 50,603 75,820
Amortization.............................................. 358,566 328,990
Deferred income taxes..................................... 73,000 152,000
Deferred compensation..................................... 71,407 --
Change in operating assets and liabilities:
Accounts receivable....................................... (53,267) 95,300
Prepaid expenses and other current assets................. 7,567 (22,204)
Accounts payable and accrued expenses..................... 230,353 (19,329)
Income taxes payable...................................... 45,796 129,100
Deferred revenue.......................................... (94,516) (133,199)
---------- ----------
Net cash provided by operating activities................... 1,141,723 1,032,318
---------- ----------
INVESTING ACTIVITIES
Payments for capitalized software........................... (207,673) (164,116)
Purchases of equipment...................................... (75,215) (35,462)
Cash surrender value...................................... (133,134) --
---------- ----------
Net cash used for investing activities...................... (416,022) (199,578)
---------- ----------
FINANCING ACTIVITIES
Reduction in software development obligation................ -- (159,194)
Dividends paid.............................................. (244,800) --
---------- ----------
Net cash used for financing activities...................... (244,800) (159,194)
---------- ----------
Increase in cash and cash equivalents....................... 480,901 673,546
Cash and cash equivalents at beginning of year.............. 1,499,591 826,045
---------- ----------
Cash and cash equivalents at end of year.................... $1,980,492 $1,499,591
========== ==========
Supplemental disclosure:
Interest paid............................................. $ -- $ 3,261
========== ==========
Taxes paid................................................ $ 257,204 $ 12,900
========== ==========
</TABLE>
See accompanying notes.
F-41
<PAGE> 115
OMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Business Activity
OMS, Inc. (the Company) develops and markets health care clinical criteria
and software systems for the managed health care insurance industry and provides
installation, customization and training for its products.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company develops and markets health care clinical software systems to
companies in the health care insurance industry. The Company may perform
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. At December 31, 1996 and 1995, all of its accounts
receivable were from customers in the health care insurance industry. Credit
losses have not been material historically.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and other investments with
maturities of three months or less at the date of purchase.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates carrying
value as of December 31, 1996 and 1995.
Equipment
Equipment is stated at cost less accumulated depreciation, provisions for
which have been determined by use of the straight-line method over the estimated
useful lives of three to five years.
Income Taxes
The Company accounts for income taxes under the liability method as
required by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The liability method requires income taxes to be recognized based
on income taxes currently payable and the change in deferred taxes. Deferred
taxes are recognized based on the temporary differences between the financial
statement and tax bases of assets and liabilities at enacted tax rates as of the
dates the differences are expected to reverse.
Intangible Assets
Intangible assets, other than capitalized software costs, represent
principally the cost of acquisition in 1990 of certain rights, titles and assets
of Health Data Institute, Inc., a division of Baxter Healthcare Corp., and are
amortized on a straight-line basis over periods ranging from two to seven years.
F-42
<PAGE> 116
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized Software Costs
Pursuant to Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
issued by the Financial Accounting Standards Board, the Company is required to
capitalize certain software development and production costs related to products
to be sold or licensed to customers once technological feasibility has been
achieved. Software development costs incurred prior to achieving technological
feasibility are charged to operating expense as incurred.
Capitalized software development costs are reported at the lower of
unamortized cost or net realizable value. Commencing upon initial product
availability, these costs are amortized using the straight-line method over the
estimated life, generally five to seven years.
Accounting for the Impairment of Long-Lived Assets
The Company has adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to be Disposed of, effective in 1996. The Statement requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets carrying amount. The adoption of FAS 121 had no
impact on the Company's financial statements.
Revenue Recognition and Related Costs
Revenues are derived from licensing the Company's software (Optimed(R)) and
for support and consulting services related to installing and maintaining the
software. The Company generally recognizes revenue from the licensing of the
software ratably over the life of the contracts (one to six years). Revenues
from support and consulting services are recognized ratably over the contract
period or as services are performed. Revenue from software licensing when the
Company no longer has any significant obligations is recognized upon shipment.
Research and Development Costs
Research and development costs (principally salaries and related costs) are
charged to expense as incurred.
2. FORM OF ORGANIZATION
The Company was organized under Massachusetts Law on January 18, 1990 for
the purpose of acquiring certain assets of Health Data Institute, Inc., a
division of Baxter Healthcare Corp. (Baxter). The stockholders of the Company
are Blue Cross Blue Shield of Connecticut, Inc. (Blue Cross) and two former
executives of Baxter and a former independent consultant (principals). The
Company was incorporated through the issuance of 510,000 shares of Series A
convertible redeemable preferred stock (Preferred Stock), par value $2.55 per
share and 439,998 shares of common stock, par value $.01 per share.
In connection with the organization, Blue Cross provided $1,300,500 in cash
in exchange for all of the issued shares of the Preferred Stock. Each of the
three principals acquired 146,666 shares of common stock for cash of $10,010 and
9% nonrecourse notes payable to the Company of $15,000 which were repaid by the
principals during 1991 and 1992.
During 1996 the Company granted a non-qualified stock option to one
employee for the purchase of up to an aggregate amount of 20,000 shares of $.01
par value common stock at a price of $7.50 per share. The option vests 50% on
January 1, 1997 and 50% on January 1, 1998 and expires 10 years from the date of
grant.
F-43
<PAGE> 117
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LINE OF CREDIT
The Company has a line of credit agreement with Blue Cross under which it
may borrow up to $1,000,000. At December 31, 1996 and 1995, there were no
borrowings outstanding. Borrowings under the agreement bear interest at Blue
Cross' cost of funds plus 1/2% (7.8% at December 31, 1996).
4. CAPITALIZED SOFTWARE COSTS AND SOFTWARE DEVELOPMENT OBLIGATION
Net capitalized software costs consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Costs capitalized........................................... $2,390,891 $2,183,217
Accumulated amortization.................................... 1,097,348 794,335
---------- ----------
$1,293,543 $1,388,882
========== ==========
</TABLE>
In September 1991, the Company entered into an agreement with a significant
customer whereby the customer agreed to develop a version of Optimed software
that operates in a mainframe environment. Title to this new version of Optimed
software remains with the Company. The Company funded development costs totaling
$895,468 incurred by the customer by a reduction of $18,655 in the customer's
monthly license fee through September 1995, plus interest payable monthly at an
annual rate of 6.5% on the unamortized balance. In connection with this
agreement, development costs totaling $895,468 were capitalized and are included
in the amounts presented above. This software product became available for
general release in July 1992. Amortization of capitalized software costs is
included in operating expenses in the accompanying statements of income and
totaled $303,013 and $266,935 for the years ended December 31, 1996 and 1995,
respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------- --------
<S> <C> <C>
Salaries and benefits....................................... $ 271,600 $280,000
Consulting service contractors.............................. 316,459 337,689
Insurance payable........................................... 159,703 --
Other....................................................... 291,672 191,392
---------- --------
$1,039,434 $809,081
========== ========
</TABLE>
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK
The preferred stock is convertible into the Company's common stock at a
conversion price of $2.55 per share. The preferred stock is redeemable
subsequent to July 1, 1995 at a price of $2.55 per share plus an amount equal to
all unpaid dividends payable provided that such redeeming holder shall have
given written notice to the Company at least 45 days prior to the requested date
of redemption. Each share of preferred stock shall automatically be converted
into shares of common stock at the effective conversion price if the Company
offers and sells common stock to the public at an aggregate offering price
resulting in gross proceeds to the Company as seller of at least $5,000,000,
provided that the offering price per share is not less than $5.50 per share.
Dividends of $244,800 were declared and paid on preferred stock during
1996. The dividends declared and paid during 1996 included dividends in arrears
from January 1, 1993 through December 31, 1995 and current dividends payable
through September 30, 1996. Undeclared and unpaid dividends at December 31, 1996
totaled $16,320.
F-44
<PAGE> 118
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Holders of the preferred stock shall have the number of votes per share
equal to the number of shares of common stock into which each share of preferred
stock held by such holder is convertible at the time of such vote. In the event
of any liquidation, dissolution or winding up of affairs of the Company, each
holder of preferred stock shall be entitled to receive $2.55 per share plus any
unpaid dividends prior to any type of distribution to the holders of common
stock.
7. INCOME TAXES
The provision for income taxes for the year ended December 31 consisted of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current:
Federal................................................... $250,000 $142,000
State..................................................... 53,000 --
-------- --------
Total current............................................. 303,000 142,000
Deferred:
Federal................................................... 58,000 91,000
State..................................................... 15,000 61,000
-------- --------
Total deferred............................................ 73,000 152,000
-------- --------
Provision for income taxes.................................. $376,000 $294,000
======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax reporting purposes.
The provision for income taxes for the year ended December 31 differs from
the amount computed by applying the federal tax rate of 34 percent to income
before provision for income taxes as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
(PERCENTAGE)
<S> <C> <C>
Statutory federal income tax rate........................... 34.0% 34.0%
State taxes, net of federal benefit....................... 5.7 5.5
Officers life insurance................................... 16.9 .6
NOL and Research and development credits used............. (14.2) (7.9)
Other..................................................... (3.0) (8.6)
----- -----
Effective tax rate........................................ 45.4 40.8
===== =====
</TABLE>
Net deferred tax liabilities are attributable to the following temporary
differences at December 31.
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Capitalized Software development............................ $562,691 $ 604,164
Research and development tax credit carryforward............ (108,835)
Other, net.................................................. 12,816 15,008
-------- ---------
$575,507 $ 510,337
======== =========
</TABLE>
At December 31, 1996 for tax purposes the Company has approximately
$183,400 and $90,100, respectively, of federal and state research and
development tax credit carryforwards. These credits are available, subject to
limitations, to offset future tax liabilities of the Company and expire through
2011.
F-45
<PAGE> 119
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, the Company earned revenue
constituting approximately 12% and 11% of total revenues from each of two
unaffiliated customers. The Company earned revenue of approximately 10% and 13%
of total revenues from these same two customers for the year ended December 31,
1995.
Revenue earned from Blue Cross (see Note 2) approximated $525,000 and
$406,000 for the years ended December 31, 1996 and 1995, respectively. At
December 31, 1996 and 1995, accounts receivable included amounts due from Blue
Cross of $71,127 and $148,804, respectively.
9. 401(K) PLAN
On January 1, 1996, the Company converted its Simplified Employee Pension
Plan to a defined contribution plan (the 401(k) Plan). All current and future
employees who are over the age of 21, are eligible to participate in the 401(k)
Plan. Participants in the 401(k) Plan may not contribute more than the greater
of a specified statutory amount or 15% of his or her pre-tax total compensation.
Eligible employees are 100% vested in their own contributions. The 401(k) Plan
permits, but does not require, additional contributions to the 401(k) Plan by
the Company. The Company recorded an additional contribution in 1996 of $43,000.
This amount is included in accounts payable and accrued expenses as of December
31, 1996.
10. DEFERRED COMPENSATION PLAN
During 1996, the Company entered into a deferred compensation arrangement
with certain key employees. Under this program, the Company has agreed to pay
each covered employee a certain sum annually for 15 years upon their retirement
or, in the event of their death, to their designated beneficiary. A benefit
equal to the current cash surrender value is payable if the employee is
terminated (other than by his voluntary action or discharge for cause) before
they attain age 60. The Company has purchased individual life insurance
contracts with respect to each employee covered by this program. The Company is
the owner and beneficiary of the insurance contracts. The insurance expense, net
of the increase in the cash surrender value, was $26,569 for 1996. The expense
associated with the deferred compensation plan was $71,407 for 1996.
11. COMMITMENTS
In connection with its relocation to new office facilities, the Company
entered into a new lease agreement as of December 1, 1996 with a five year term.
Under the lease agreement, the landlord has agreed to reimburse the Company for
certain relocation costs totalling $45,270. The Company, at the end of October
31, 2002, has the option to extend the term of the lease for an additional three
year period.
Annual lease payments under the amended lease are approximately $256,000
and the Company is also responsible for the payment of certain operating costs.
Total rent expense was $186,000 and $183,000, during the years ended December
31, 1996 and 1995, respectively.
F-46
<PAGE> 120
OMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also rents certain office equipment under various operating
leases. Future minimum lease payments under all noncancelable operating leases
(office space and equipment) having an initial or remaining term in excess of
one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997...................................................... $ 222,833
1998...................................................... 262,119
1999...................................................... 260,020
2000...................................................... 259,883
2001...................................................... 280,186
Thereafter................................................ 233,488
----------
$1,518,529
==========
</TABLE>
F-47
<PAGE> 121
SYKES HEALTHPLAN SERVICE BUREAU, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Services provided -- related parties...................... $ 5,435,557 $ 5,448,087
Others.................................................... 10,097,613 6,876,691
----------- -----------
Total revenues.................................... 15,533,170 12,324,778
COST OF SERVICES PROVIDED................................... 19,444,120 14,001,674
----------- -----------
Loss from operations.............................. (3,910,950) (1,676,896)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income........................................... 325,398 459,546
Related party interest expense............................ (249,008) (13,347)
----------- -----------
Total other income (expense)...................... 76,390 446,199
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES...................... (3,834,560) (1,230,697)
INCOME TAX BENEFIT, (NET)................................... (1,529,031) (490,740)
----------- -----------
NET LOSS.................................................... (2,305,529) (739,957)
RETAINED EARNINGS, BEGINNING OF YEAR........................ (658,355) 3,430,462
----------- -----------
RETAINED EARNINGS, END OF YEAR.............................. $(2,963,884) $ 2,690,505
=========== ===========
</TABLE>
See notes to unaudited financial statements.
F-48
<PAGE> 122
SYKES HEALTHPLAN SERVICE BUREAU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,305,529) $ (739,957)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 689,848 839,465
Deferred income taxes.................................. 431,138 (103,044)
Change in assets and liabilities:
Accounts receivable, net............................. 1,091,532 (7,893,982)
Prepaids............................................. 326,398 177,800
Accounts payable and accrued expenses................ (375,312) 6,915,898
Income taxes payable................................. 293 248
Receivable from Prudential........................... 1,696,258 (475,039)
Payable to Prudential................................ (1,240,671) (6,035,578)
Restricted cash and other............................ (503,960) (3,192,771)
----------- ------------
Net cash used in operating activities............. (190,005) (10,506,960)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of equipment and leasehold improvements......... (791,719) (685,088)
----------- ------------
Net cash used in investing activities............. (791,719) (685,088)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................... (906) --
Principal payments on capital leases...................... -- (1,068,424)
----------- ------------
Net cash used in financing activities............. (906) (1,068,424)
----------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS......................... (982,630) (10,890,296)
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,763,152 14,368,115
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,780,522 $ 3,477,819
=========== ============
</TABLE>
See notes to unaudited financial statements.
F-49
<PAGE> 123
SYKES HEALTHPLAN SERVICE BUREAU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying financial statements of Sykes HealthPlan Service Bureau,
Inc. (the Company) (formerly Prudential Service Bureau, Inc.), as of and for the
three months then ended March 31, 1998 and 1997, are unaudited. In the opinion
of management, all adjustments necessary for the fair presentation of such
financial information have been included. These adjustments are of a normal
recurring nature. There have been no changes in accounting policies since the
years ending December 31, 1997 and 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements, footnotes and discussions should
be read in conjunction with the December 31, 1997 and 1996 financial statements
and related footnotes contained elsewhere in the Registration Statement.
2. SUBSEQUENT EVENT
Effective March 31, 1998, pursuant to a Stock Purchase Agreement (the
Agreement) Sykes HealthPlan Services, Inc. (SHPS) purchased all of the
outstanding stock of the Company for $50,000,000 (the Purchase Price) in cash.
SHPS accounted for the acquisition using the purchase method of accounting,
under which the purchase price was allocated to the assets and liabilities,
based on fair values at the date of the acquisition. The allocations were based
on appraisals, evaluations, estimations and other studies. The excess of the
purchase price over the fair value of the assets acquired resulted in goodwill
of $23,039,706 as follows:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Goodwill................................................... $ 23,039,706
Fair value of assets acquired.............................. 15,982,180
Acquired in-process research and development............... 15,240,000
Fair value of liabilities assumed.......................... (20,287,869)
------------
Cash paid........................................ $ 33,974,017
============
</TABLE>
The accompanying financial statements present the results of the Company's
operations and its cash flows for the period ended March 31, 1998 on a
pre-acquisition basis.
F-50
<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANTS
April 16, 1998
To the Prudential Insurance Company of
America as the Sole Shareholder of
Prudential Service Bureau, Incorporated
In our opinion, the accompanying balance sheet and the related statements of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Prudential Service Bureau,
Incorporated (the "Company") at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that out
audits provide a reasonable basis for the opinion expressed above.
The Company is a member of a group of affiliated companies and, as disclosed in
Notes 1 and 2 to the financial statements, has extensive transactions and
relationships with members of the group. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.
As explained in Note 9 to the financial statements, The Prudential Insurance
Company of America, the sole beneficial owner of the shares of the Company, sold
all shares held in the Company pursuant to a Stock Purchase Agreement dated
March 8, 1998.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
F-51
<PAGE> 125
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY-OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
BALANCE SHEET
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,763,152 $14,368,115
Restricted cash........................................... 14,414,906 9,729,962
Accounts receivable --
Prudential affiliates.................................. 8,417,088 3,738,229
Others (net of allowance of $103,088; 1996;
$104,674)............................................. 7,642,895 7,269,049
Other accounts receivable................................. -- 600,505
Receivable from Prudential................................ -- 756,442
State income tax receivable............................... 400,303 61,279
Prepaids and other current assets......................... 992,780 761,832
Deferred income tax....................................... 1,209,714 1,307,904
----------- -----------
Total current assets.............................. 36,840,838 38,593,317
Deferred income tax......................................... 571,414 --
Equipment and leasehold improvements (net).................. 4,191,371 7,761,961
----------- -----------
Total assets...................................... $41,603,623 $46,355,278
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 5,904,579 $ 4,834,676
Payable to Prudential and affiliates...................... 18,284,023 21,622,737
Product payable........................................... 14,325,005 9,729,962
Current portion of capital lease obligation............... -- 289,889
Other current liabilities................................. 1,737,547 3,094,739
----------- -----------
Total current liabilities......................... 40,251,154 39,572,003
Deferred income tax liability............................... -- 574,278
Notes payable............................................... 10,824 --
Long term capital lease obligation.......................... -- 778,535
----------- -----------
Total liabilities................................. 40,261,978 40,924,816
=========== ===========
Stockholder's equity:
Capital stock -- common, $10 par value, 100 shares
authorized, issued and outstanding..................... 1,000 1,000
Additional paid-in capital................................ 1,999,000 1,999,000
Retained earnings/(accumulated deficit)................... (658,355) 3,430,462
----------- -----------
Total stockholder's equity........................ 1,341,645 5,430,462
----------- -----------
Total liabilities and stockholder's equity........ $41,603,623 $46,355,278
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 126
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY-OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Services provided -- Prudential and affiliates............ $ 31,488,950 $ 23,572,537
Others.............................. 32,892,249 28,064,056
------------ ------------
64,381,199 51,636,593
Costs of services provided.................................. (72,554,592) (56,998,855)
------------ ------------
(8,173,393) (5,362,262)
Gain on sale of fixed assets.............................. 200,872 --
------------ ------------
Loss from operations........................................ (7,972,521) (5,362,262)
Other income (expense):
Interest income........................................... 1,435,115 1,586,567
Interest expense.......................................... (71,588) (62,872)
Other.................................................. (567,870) --
------------ ------------
Loss before income taxes.................................... (7,176,864) (3,838,567)
Income tax benefit.......................................... 3,088,047 1,487,982
------------ ------------
Net loss.................................................... (4,088,817) (2,350,585)
Retained earnings, beginning of year........................ 3,430,462 5,781,047
------------ ------------
Retained earnings/(accumulated deficit), end of year........ $ (658,355) $ 3,430,462
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 127
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY-OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,088,817) $(2,350,585)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization expense................... 4,942,213 3,057,694
Deferred income tax benefit............................. (1,047,481) (1,752,589)
Gain on sale of fixed assets............................ (200,872) --
Change in current assets and liabilities:
Accounts receivable, net (including Prudential)....... (5,052,705) (4,237,283)
Prepaids and other current assets..................... (230,948) 284,382
Accounts payable and accrued expenses................. 1,069,903 2,718,077
Income taxes payable.................................. -- 849,248
Receivable from Prudential............................ 756,442 (436,097)
Payable to Prudential and affiliate................... (3,338,714) (2,724,510)
Other................................................. (1,475,502) 2,797,689
------------ -----------
Net cash used in operating activities.............. (8,666,481) (1,793,974)
------------ -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets........................ 838,675 --
Additions to equipment and leasehold improvements......... (2,787,981) (2,200,383)
------------ -----------
Net cash used in investing activities.............. (1,949,306) (2,200,383)
------------ -----------
Cash flows from financing activities:
Principal payments on capital leases...................... -- (318,775)
Note Payable.............................................. 10,824 --
------------ -----------
Net cash from (used in) financing activities....... 10,824 (318,775)
------------ -----------
Net decrease in cash and cash equivalents................... (10,604,963) (4,313,132)
Cash and cash equivalents, beginning of year................ 14,368,115 18,681,247
------------ -----------
Cash and cash equivalents, end of year...................... $ 3,763,152 $14,368,115
============ ===========
Supplemental disclosures:
Interest paid............................................. $ 639,458 $ 62,872
============ ===========
Income tax refund received (paid)......................... $ (1,110,514) $ 636,356
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 128
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
NOTES TO THE FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Ownership. Prudential Service Bureau, Incorporated (the
"Company") is a wholly owned subsidiary of The Prudential Insurance Company of
America ("Prudential"). The Company was incorporated in October 1989 under the
laws of Kentucky. The Company is a third-party administrator, engaged in
providing benefit outsourcing services, which includes benefit plan management
and administration services and cost containment services. As more fully
described in Note 2, the Company is a member of a group of affiliated companies
and has various agreements and extensive transactions with affiliates relating
to fees, reimbursement of expenses and services of officers and employees. The
accompanying financial statements, including the results of operation, have been
prepared from the separate records maintained by the Company and may not
necessarily be indicative of the conditions that would have existed if the
Company had been operating as an unaffiliated entity.
Cash and Cash Equivalents. All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents. In
connection with investment transactions, the Company enters into repurchase
agreements, a bank as custodian for Company takes possession of the underlying
security as collateral, with a market value at equal to the amount of the
repurchase transaction, including principal and accrued interest. In the event
of default on the obligation to repurchase, the Company has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or collateral or proceeds may be subject to legal
proceedings.
The cash balance at December 31, 1997 and 1996 included securities
purchased under repurchase agreements of $2,212,000 and $38,415,000
respectively.
Trust Assets and Liabilities. The financial statements include restricted
cash, which is held in trust for clients, and the related product payable at
December 31, 1997 and 1996.
Fixed Assets and Depreciation. Fixed assets are stated at cost less
accumulated depreciation. Computer hardware and software and telecommunication
equipment is depreciated over a period of three years. Leased equipment and
leasehold improvements are stated at historical cost. Depreciation and
amortization are computed using the straight-line method based upon the shorter
of the estimated useful life of the asset or the lease term. Effective January
1, 1997, the Company changed its estimate of useful life of computer hardware
and software and telecommunication equipment acquired prior to December 31, 1995
from five years to three years. Consequently, the depreciation charged in the
current year on such assets, exceeded the amount that would have applied under
the previous estimate by approximately $2.0 million.
Accounts Receivable. Included in accounts receivable at December 31, 1997
and 1996 are earned but unbilled receivables totaling $11,998,968 and
$5,770,763, respectively.
Service Revenue. Service revenue is recorded as revenue in the month for
which the service is provided.
Income Taxes. The Company is a member of a group of affiliated companies
which join in filing a consolidated federal income tax return. The Company files
separate state and local tax returns.
Pursuant to the tax allocation arrangements, total federal tax expense is
determined on a separate company basis. Members with losses record tax benefits
to the extent such losses are recognized in the consolidated federal tax
provisions. The Internal Revenue Code limits the amount of non-life insurance
losses that may offset life insurance company taxable income.
F-55
<PAGE> 129
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are generally recognized, based on enacted rates,
when assets and liabilities have different values for financial statement and
tax reporting purposes. A valuation allowance is recorded to reduce any deferred
tax asset to that amount expected to be realized. See Note 5 for additional
information.
Management Estimates. The financial statements have been prepared in
accordance with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as at the date of the
balance sheet and income and expense for the period. Actual results could differ
from those estimates.
2. RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company had $0 (1996: $756,442) receivable from
Prudential and $18,284,023 (1996: $21,622,737) payable to Prudential and its
affiliates.
Included in accounts receivable at December 31, 1997 are $8,417,088 (1996:
$3,738,229) of receivables for services provided to affiliated companies.
The Company provides certain claims administration data processing and
other services to certain Prudential affiliates. Included in revenue at December
31, 1997 is affiliated service revenue of approximately $30,480,652 (1996:
$19,996,906). Additionally, the Company had a service agreement with an
affiliated company whereby the Company furnished the services of officers,
employees and data processing. The Company was reimbursed for these costs of
services provided by Prudential. During 1997, prior to the sale of that business
by the affiliate, approximately $1,008,000 (1996: $3,575,631) was billed under
this agreement and is included in revenues.
The Company has also entered into a service agreement with Prudential
whereby Prudential and its affiliate furnish services of officers and employees
and data processing to the Company. In 1997, the Company recognized expenses of
$10,178,157 (1996: $8,988,333) for services provided under this agreement.
The Company has obtained a portion of its working capital financing from
certain Prudential affiliates. The amount of such financing is included in the
amount payable to Prudential. During the year ended December 31, 1997 and 1996,
the interest paid on such financings, rate on which approximated 30 day LIBOR,
was $567,870 and 0, respectively. Such amounts are included in interest expense
on the Statement of Operations.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Computer equipment and software............................. $13,470,888 $12,477,832
Furniture and fixtures...................................... 1,164,961 3,054,789
Telecommunications equipment................................ 1,516,579 1,288,654
Leasehold improvements...................................... 1,001,236 794,055
Automobiles................................................. 14,827 14,827
----------- -----------
17,168,491 17,630,157
Less accumulated depreciation and amortization.............. 12,977,120 9,868,196
----------- -----------
Total............................................. $ 4,191,371 $ 7,761,961
=========== ===========
</TABLE>
The depreciation and amortization expense for the years ended December 31,
1997 and 1996 was $4,942,213 and $3,057,694, respectively.
F-56
<PAGE> 130
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING LEASES
The Company leases its facility and warehouse under a renewable,
non-cancellable operating lease agreement which requires payment of property
taxes, insurance and normal maintenance costs.
As of December 31, 1997 future annual minimum operating lease payments for
leases with remaining lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 1,755,370
1999........................................................ 1,511,110
2000........................................................ 1,462,258
2001........................................................ 1,462,260
2002........................................................ 1,462,260
Thereafter.................................................. 3,777,495
-----------
Total............................................. $11,430,753
===========
</TABLE>
Rent expenses for the year ended December 31, 1997 were $1,615,788 (1966:
$1,650,603).
5. INCOME TAXES
The components of income taxes for the years ended December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current taxes (benefit)
Federal................................................... $(1,701,542) $ 189,294
State..................................................... (339,024) 75,333
----------- -----------
Total............................................. (2,040,566) 264,627
----------- -----------
Deferred taxes (benefits)
Federal................................................... (850,463) (1,422,965)
State..................................................... (197,018) (329,644)
----------- -----------
Total............................................. (1,047,481) (1,752,609)
----------- -----------
Total taxes....................................... $(3,088,047) $(1,487,982)
=========== ===========
</TABLE>
The effective income tax rate of 43.03% as of December 31, 1997 (1996:
38.76%) is different from the expected statutory federal income tax rate of 35%
primarily due to state income tax.
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax asset:
Expenses currently not deductible......................... $ 846,473 $1,307,904
Employee benefits......................................... 363,241 --
Depreciation.............................................. 571,414
---------- ----------
1,781,128 1,307,904
Deferred tax liability:
Depreciation.............................................. -- (574,278)
---------- ----------
Net deferred tax asset...................................... $1,781,128 $ 733,626
========== ==========
</TABLE>
F-57
<PAGE> 131
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The receivable from Prudential at December 31, 1997 includes a current
income tax receivable of $1,312,369, and the payable to Prudential at December
31, 1996 includes a current income tax payable of $1,499,665.
Management believes that based on its historical pattern of taxable income,
the consolidated group will produce sufficient income in the future to realize
its deferred tax asset after valuation allowance. Adjustments to the valuation
allowance will be made if there is a change in management's assessment of the
amount of deferred tax asset that is realizable.
The Internal Revenue Service (the Service) has completed an examination of
the consolidated federal income tax return through 1989. The Service has
examined the years 1990 through 1992. Discussions are being held with the
Service with respect to proposed adjustments, however, management believes there
are adequate defenses against, or sufficient reserves to provide for, such
adjustments. The Service has begun their examination of the years 1993 through
1995.
6. RETIREMENT PLAN
The Company sponsors a defined contribution plan (the "Plan") that covers
all employees meeting certain eligibility requirements. The Company recognized
expense of $251,251 (1996: $221,973) for the year ended December 31, 1997
pertaining to the Plan.
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company believes the concentration
of credit risk in its trade receivables is substantially mitigated by the
Company's ongoing credit evaluation process, relatively short collection terms
and the nature of the Company's client base, primarily mid- and large-size
corporations with significant financial histories. The Company does not
generally require collateral from customers. The Company evaluates the need for
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information.
Historically, the Company has not incurred any significant credit related
losses.
Revenue from two unrelated customers was approximately 10% and 5% of total
revenue for the year ended December 31, 1997 (1996: 10% and 9% respectively).
The Company had two customers that represented approximately 2% and 4% of the
total accounts receivable at December 31, 1997 (1996: 13% and 15% respectively).
Revenues from the Company's Fulfillment activity represented approximately 29%
of the total revenues of the Company for the year ended December 31, 1997.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments" which requires that the Company disclose estimated fair
values for certain financial instruments. Considerable judgment is required to
interpret the effects on fair value. The carrying amounts of cash and cash
equivalents, accounts receivables, prepaids and other current assets, and
accounts payable and accrued liabilities approximate fair value because of the
short maturity of those instruments. The fair value of capital lease obligations
at December 31, 1996 was estimated by discounting projected cash flows using an
estimate of the Company's borrowing rate at December 31, 1996. The fair value of
the capital lease obligation at December 31, 1996 approximates its carrying
amount of $1,068,424.
F-58
<PAGE> 132
PRUDENTIAL SERVICE BUREAU, INCORPORATED
(A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENTS
Pursuant to a Stock Purchase Agreement (the Agreement) dated March 9, 1998
between the Prudential and Sykes Healthplan Services, Inc. (the Buyer), all
shares of beneficial interest were sold by Prudential to the Buyer on March 31,
1998.
10. RECLASSIFICATIONS
Reclassifications have been made to 1996 amounts for comparative purposes.
F-59
<PAGE> 133
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder
Prudential Service Bureau, Incorporated
Louisville, Kentucky
We have audited the accompanying balance sheet of Sykes HealthPlan Service
Bureau, Inc. (formerly Prudential Service Bureau, Incorporated) (the "Company")
as of December 31, 1995, and the related statements of operations and retained
earnings and of cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential Service Bureau, Incorporated as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
May 24, 1996
F-60
<PAGE> 134
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $18,681,247
Restricted cash........................................... 7,263,237
Accounts receivable (net of allowance of $12,038)......... 6,769,995
Receivable from Prudential................................ 320,345
Prepaids and other current assets......................... 1,046,214
-----------
Total current assets.............................. 34,081,038
Equipment and leasehold improvements........................ 8,517,509
-----------
Total assets...................................... $42,598,547
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,116,599
Payable to Prudential..................................... 22,847,580
Product payable........................................... 7,263,237
Current portion of capital lease obligation............... 265,518
Corporate income tax payable.............................. 589,140
-----------
Total current liabilities......................... 33,082,074
Long-term capital lease obligation.......................... 716,463
-----------
Deferred income tax......................................... 1,018,963
Total liabilities................................. 34,817,500
-----------
Stockholder's equity:
Capital stock -- common, $10 par value, 100 shares
authorized, issued and outstanding..................... 1,000
Additional paid-in capital................................ 1,999,000
Retained earnings......................................... 5,781,047
-----------
Total stockholder's equity........................ 7,781,047
-----------
Total liabilities and stockholder's equity........ $42,598,547
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE> 135
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Revenues:
Services provided......................................... $53,400,675
Costs of services provided................................ 50,983,750
-----------
Income from operations.................................... 2,416,925
-----------
Other income (expense):
Interest income........................................... 1,451,572
Interest expense.......................................... (43,362)
-----------
Total other income................................ 1,408,210
-----------
Income before income taxes.................................. 3,825,135
Provision for income taxes.................................. 1,548,029
-----------
Net income.................................................. 2,277,106
Retained earnings, beginning of year........................ 3,503,941
-----------
Retained earnings, end of year.............................. $ 5,781,047
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE> 136
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 2,277,106
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense..................... 2,823,914
Write-off of computer software............................ 189,734
Deferred income taxes..................................... (88,796)
Change in operating assets and liabilities:
Accounts receivable (net)................................. 2,304,190
Prepaids and other current assets......................... (264,671)
Accounts payable and accrued expenses..................... 543,452
Income taxes payable...................................... (366,038)
Receivable from Prudential................................ 2,205,274
Payable to Prudential..................................... (240,490)
-----------
Net cash provided by operating activities.............. 9,383,675
Cash flows from investing activities:
Additions to equipment and leasehold improvements......... (3,595,220)
Proceeds from sale of equipment........................... 1,421
-----------
Net cash used in investing activities.................. (3,593,799)
-----------
Cash flows from financing activities:
Principal payments on capital leases...................... (238,053)
-----------
Net cash used in financing activities.................. (238,053)
-----------
Net increase in cash and cash equivalents................... 5,551,823
Cash and cash equivalents, beginning of year................ 13,129,424
-----------
Cash and cash equivalents, end of year...................... $18,681,247
===========
Supplemental disclosures:
Interest paid............................................. $ 40,192
===========
Income taxes paid......................................... $ 2,028,863
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE> 137
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
FOR YEAR ENDED DECEMBER 31, 1995
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Ownership
Prudential Service Bureau, Incorporated (the "Company") is a wholly-owned
subsidiary of The Prudential Insurance Company of America ("Prudential"). The
Company was incorporated in October 1989 under the laws of Kentucky. The Company
is a third-party administrator, engaged in providing benefit outsourcing
services, which includes benefit plan management and administration services and
cost containment services. As more fully described in Note 2, the Company is a
member of a group of affiliated companies and has various agreements and
extensive transactions with affiliates relating to fees, reimbursement of
expenses and services of officers and employees.
The accompanying financial statements, including the results of operating,
have been prepared from the separate records maintained by the Company and may
not necessarily be indicative of the conditions that would have existed if the
Company had been operating as an unaffiliated entity.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Restricted Cash
The financial statements include restricted cash which is held in escrow
for clients at December 31, 1995. Included in current liabilities at December
31, 1995 is the related product payable.
Equipment and Leasehold Improvements; Fixed Assets and Depreciation
Equipment and leasehold improvements are stated at historical cost.
Depreciation and amortization are computed using the straight-line method based
upon the shorter of the estimated useful life of the asset or the lease term.
Accounts Receivable
Included in accounts receivable at December 31, 1995 is earned but unbilled
receivables totaling $3,065,623.
Service Revenue
Service revenue is recorded as revenue in the month for which the service
is provided.
Management Estimates
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as the date of the balance sheet and
income and expense for the period. Actual results could differ from those
estimates.
2. RELATED PARTY TRANSACTIONS
At December 31, 1995, the Company had $320,345 receivable from and
$22,847,580 payable to Prudential.
F-64
<PAGE> 138
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in accounts receivable at December 31, 1995 is $865,560 of
receivables from services provided to affiliated companies.
The Company provides certain claims administration data processing and
other services to certain Prudential affiliates. Included in revenue at December
31, 1995 is affiliated service revenue of $11,401,052.
The Company has also entered into a service agreement with Prudential
whereby Prudential furnishes services of officers and employees and data
processing to the Company. In 1995, the Company expended $12,846,248 for
services provided under this agreement.
Additionally, the Company has a service agreement with an affiliated
company whereby the Company furnishes the services of officers, employees and
data processing. The Company is reimbursed for these costs of services provided
by Prudential. During 1995, $1,425,854 was reimbursed under this agreement and
was deducted from the costs of services provided.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of the following at December
31, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Computer equipment and software............................. $11,934,372
Furniture and fixtures...................................... 2,368,151
Telecommunications equipment................................ 995,708
Leasehold improvements...................................... 701,715
Automobiles................................................. 14,827
-----------
16,014,773
Less accumulated depreciation and amortization.............. (7,497,264)
-----------
Total............................................. $ 8,517,509
===========
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
Capital lease obligations at December 31, 1995 are payable through October
2000, and are collateralized by equipment. Future minimum lease payments for
capitalized lease obligations at December 31, 1995 are as follows:
<TABLE>
<S> <C>
December 31,
1996...................................................... $ 326,295
1997...................................................... 326,295
1998...................................................... 286,163
1999...................................................... 177,728
2000...................................................... 92,727
----------
Total minimum obligations................................... 1,209,208
Less interest............................................... (227,227)
----------
Present value of net minimum obligations.................... 981,981
Less current portion........................................ (265,518)
----------
$ 716,463
==========
</TABLE>
F-65
<PAGE> 139
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. OPERATING LEASES
The Company leases its facility and warehouse under a renewable,
non-cancelable operating lease agreement which requires payment of property
taxes, insurance and normal maintenance costs. Future annual minimum operating
lease payments, for leases with remaining lease terms in excess of one year are
as follows:
<TABLE>
<S> <C>
1996........................................................ $ 1,755,370
1997........................................................ 1,755,370
1998........................................................ 1,755,370
1999........................................................ 1,511,110
2000........................................................ 1,462,258
Thereafter.................................................. 6,702,015
-----------
Total............................................. $14,941,493
===========
</TABLE>
Rent expense was $1,589,343 for the year ended December 31, 1995.
6. INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal tax return. Pursuant to a tax allocation
agreement, current tax liabilities are determined for individual companies based
upon their separate return basis taxable income. Members with taxable income
incur an amount in lieu of the separate return basis federal tax. Members with a
loss for tax purposes recognize a current benefit in proportion to the amount of
their anticipated eligible losses utilized in computing consolidated taxable
income.
For state income tax purposes, the Company files its own separate state tax
return.
The Federal and State income tax provisions for the year ended December 31,
1995 consisted of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $1,313,015
State..................................................... 323,810
----------
Total............................................. 1,636,825
----------
Deferred:
Federal................................................... (76,111)
State..................................................... (12,685)
----------
Total............................................. (88,796)
----------
Total............................................. $1,548,029
==========
</TABLE>
The deferred income tax liability at December 31, 1995 of $1,018,963
resulted from temporary differences between book and tax depreciation.
7. PENSION PLAN
The Company sponsors a defined contribution plan (the "Plan") that covers
all employees meeting certain eligibility requirements. The Company expended
$168,806 for the year ended December 31, 1995 pertaining to the Plan.
F-66
<PAGE> 140
SYKES HEALTHPLAN SERVICE BUREAU, INC.
(FORMERLY PRUDENTIAL SERVICE BUREAU, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company believes the concentration
of credit risk in its trade receivables is substantially mitigated by the
Company's ongoing credit evaluation process, relatively short collection terms
and the nature of the Company's client base, primarily mid- and large-size
corporations with significant financial histories. The Company does not
generally require collateral from customers. The Company evaluates the need for
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information.
Historically, the Company has not incurred any significant credit related
losses.
Revenue from two unrelated customers was approximately 17% and 7% of total
revenue for the year ended December 31, 1995 of which the larger customer's
contract was a one-time three year contract which was fulfilled in 1995 and not
renewed. The Company had three customers that represented approximately 16%,
13%, and 9% of the total accounts receivable at December 31, 1995.
9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments" which requires that the Company
disclose estimated fair values for certain financial instruments. Considerable
judgment is required to interpret the effects on fair value. The carrying
amounts of cash and cash equivalents, accounts receivables, prepaids and other
current assets, and accounts payable and accrued liabilities approximate fair
value because of the short maturity of those instruments. The fair value of
capital lease obligations has been estimated by discounting projected cash flows
using an estimate of the Company's borrowing rate at December 31, 1996. The fair
value of capital lease obligations has been estimated by discounting projected
cash flows using an estimate of the Company's borrowing rate at December 31,
1995.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- ----------
<S> <C> <C>
Capital Lease Obligation.................................... $981,981 $1,006,803
</TABLE>
10. SUBSEQUENT EVENT -- SALE OF THE COMPANY
On March 31, 1998, Sykes Health Plan Services, Inc. acquired all of the
outstanding stock of the Company from Prudential.
F-67
<PAGE> 141
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<PAGE> 142
======================================================
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Sykes HealthPlan Services, Inc.
Selected Historical and Pro Forma
Financial Data...................... 19
Acquired Companies Selected Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 39
Management............................ 54
Certain Transactions.................. 60
Principal and Selling Shareholders.... 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 64
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 65
Underwriting.......................... 68
Legal Matters......................... 70
Experts............................... 70
Additional Information................ 71
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVER
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
SYKES HEALTHPLAN
SERVICES, INC.
(LOGO SHPS)
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
FURMAN SELZ
NATIONSBANC MONTGOMERY
SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
======================================================
<PAGE> 143
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE OR JURISDICTION.
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED APRIL 24, 1998
PROSPECTUS
SHARES
(SHPS LOGO)
SYKES HEALTHPLAN SERVICES, INC.
COMMON STOCK
------------------------
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), of Sykes HealthPlan Services, Inc. (the "Company"), offered hereby,
shares are being offered by the Company and shares are being offered
by certain selling shareholders (the "Selling Shareholders"). The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders. See "Principal and Selling Shareholders."
Of the shares of Common Stock offered hereby, shares are being
offered initially outside the United States and Canada by the International
Managers (the "International Offering") and shares are being offered
initially in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering," and together with the International Offering,
the "Offerings"). The initial public offering price and the underwriting
discount per share are identical for each of the Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of certain factors to be considered
in determining the initial public offering price. It is currently expected that
the initial public offering price will be between $ and $ per
share.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market System under the symbol "SHPS."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS SELLING
TO PUBLIC DISCOUNT(1) TO COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $ $
====================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3) The Company and the Selling Shareholders have granted to the International
Managers and the U.S. Underwriters options, exercisable within 30 days after
the date hereof, to purchase up to and additional shares of
Common Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the Company and the Selling Shareholders will
sell and shares of Common Stock, respectively, and the total
Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------------------
MERRILL LYNCH INTERNATIONAL
FURMAN SELZ
NATIONSBANC MONTGOMERY SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 144
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
Merrill Lynch International, Furman Selz LLC, NationsBanc Montgomery
Securities LLC and Raymond James Associates, Inc. are acting as International
Managers. Subject to the terms and conditions set forth in the International
purchase agreement (the "International Purchase Agreement") among the Company,
the Selling Shareholders and the International Managers, and concurrently with
the sale of shares of Common Stock to the U.S. Underwriters (as
defined below), the Company and the Selling Shareholders have agreed to sell to
the International Managers, and each of the International Managers severally has
agreed to purchase from the Company and the Selling Shareholders, the number of
shares of Common Stock set forth opposite its name below at the initial public
offering price less the underwriting discount set forth on the cover page of
this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
--------------------- ----------
<S> <C>
Merrill Lynch International.................................
Furman Selz LLC.............................................
NationsBanc Montgomery Securities LLC.......................
Raymond James & Associates, Inc.............................
----------
Total..........................................
==========
</TABLE>
The Company and the Selling Shareholders have also entered into the U.S.
purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in
the United States and Canada (the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters") for whom Merrill Lynch, Furman Selz
LLC, NationsBanc Montgomery Securities LLC and Raymond James & Associates, Inc.
are acting as representatives. Subject to the terms and conditions set forth in
the U.S. Purchase Agreement, and concurrently with the sale of
shares of Common Stock to the International Managers pursuant to the
International Purchase Agreement, the Company and the Selling Shareholders have
agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally
have agreed to purchase from the Company and the Selling Shareholders, an
aggregate of shares of Common Stock. The initial public offering
price per share and the total underwriting discount per share of Common Stock
are identical under the International Purchase Agreement and the U.S. Purchase
Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
such agreement are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers, as the case may be,
may be increased. The closings with respect to the sale of shares of Common
Stock to be purchased by the International Managers and the U.S. Underwriters
are conditioned upon one another.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-United States or non-Canadian persons or to persons
they believe intend to resell to persons who are non-United States or
non-Canadian persons, and the International Managers and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are United States or Canadian persons or to persons they
believe intend to resell to persons who are United States or Canadian persons,
except in each case for transactions pursuant to the Intersyndicate Agreement.
58
<PAGE> 145
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
The International Managers have advised the Company and the Selling
Shareholders that the International Managers propose initially to offer the
shares of Common Stock offered hereby to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock. The International Managers may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company and the Selling Shareholders have granted an option to the
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of additional shares of
Common Stock at the initial public offering price set forth on the cover page of
this Prospectus, less the underwriting discount. The International Managers may
exercise this option only to cover over-allotments, if any, made on the sale of
the Common Stock offered hereby. To the extent that the International Managers
exercise this option, each International Manager will be obligated, subject to
certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such International Manager's initial amount reflected in the
foregoing table. The Company and the Selling Shareholders also have granted an
option to the U.S. Underwriters, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of additional shares of
Common Stock to cover over-allotments, if any, on terms similar to those granted
to the International Managers.
The Selling Shareholders have agreed not to sell or offer to sell or
otherwise dispose of any shares of Common Stock currently held by them (except
pursuant to the Offerings), any right to acquire any shares of Common Stock or
any securities exercisable for or convertible into any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch.
In addition, the Company and its executive officers and directors have
agreed that for a period of 180 days after the date of this Prospectus to not,
without the prior written consent of Merrill Lynch, offer, sell or otherwise
dispose of any shares of Common Stock except in the case of the Company, for
shares of Common Stock offered hereby and shares issued and options granted
pursuant to its Stock Option Plan.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial offering price for the Common Stock will be
determined by negotiations between the Company, the Selling Shareholders, and
the U.S. Underwriters and the International Managers. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be price earnings ratios of publicly traded
companies that the U.S. Underwriters believe to be comparable to the Company,
certain financial information of the Company, the history of and the prospects
for the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for and
timing of future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of securities of other companies engaged in businesses
similar to the Company. There can be no assurance, however, that an active or
orderly trading market will develop for the Common Stock or that the Common
Stock will trade in the public markets subsequent to the Offerings at or above
the initial offering price.
The Company has applied for the listing of its Common Stock on the Nasdaq
National Market System under the symbol "SHPS." The Underwriters do not intend
to confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
Until the distribution of the Common Stock is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Underwriters are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
59
<PAGE> 146
ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The U.S. Underwriters may also elect to reduce any short position
by exercising all or part of the over-allotment options described above.
The U.S. Underwriters may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the U.S. Underwriters purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of Common Stock, they may reclaim the amount
of the selling concession from the Underwriters and selling group members who
sold these shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it may
discourage resales of the security.
Neither the Company, the Selling Shareholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Shareholders nor any of the
Underwriters makes any representation that the U.S. Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Because the Company intends to use approximately $ million of net
proceeds from the Offerings for repayment of indebtedness outstanding under the
Company's Line of Credit with respect of which an affiliate of NationsBanc
Montgomery Securities LLC is a lender, the underwriting arrangements for the
Offerings must comply with the requirements of Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. (the "NASD"). The Offerings are being
conducted in accordance with Rule 2720(c)(3), which provides that, among other
things, when an NASD member participates in a public offering where more than
10% of the net offering proceeds, not including underwriting compensation, are
intended to be paid to members participating in the distribution of the
Offerings or associated or affiliated persons of such members, the price at
which the issue is to be distributed to the public must be no higher than that
recommended by a "qualified independent underwriter." Accordingly, Merrill Lynch
is acting as a qualified independent underwriter for purposes of determining the
price of the Common Stock offered hereby and has conducted due diligence
investigations and has reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
The price at which the Common Stock is being sold to the public will be no
higher than the price recommended by Merrill Lynch.
The Company and the Selling Shareholders have agreed to indemnify the
International Managers and the U.S. Underwriters against certain liabilities,
including liabilities under the Securities Act.
60
<PAGE> 147
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
======================================================
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Sykes HealthPlan Services, Inc.
Selected Historical and Pro Forma
Financial Data...................... 19
Acquired Companies Selected Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 39
Management............................ 54
Certain Transactions.................. 60
Principal and Selling Shareholders.... 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 64
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 65
Underwriting.......................... 68
Legal Matters......................... 70
Experts............................... 70
Additional Information................ 71
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVER
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
SYKES HEALTHPLAN
SERVICES, INC.
(LOGO SHPS)
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH INTERNATIONAL
FURMAN SELZ
NATIONSBANC MONTGOMERY
SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
======================================================
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All such
fees and expenses shall be borne by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $33,959
NASD filing fee............................................. 12,012
Nasdaq listing fee..........................................
Printing and engraving expenses.............................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Blue Sky fees and expenses..................................
Transfer Agent's fees and expenses..........................
Miscellaneous...............................................
-------
Total............................................. $
=======
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Florida corporation. The FBCA provides that, in general, a
business corporation may indemnify any person who is or was a party to any
proceeding (other than an action by, or in the right of, the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
against liability incurred in connection with such proceeding, including any
appeal thereof, provided certain standards are met, including that such officer
or director acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the corporation, and provided further
that, with respect to any criminal action or proceeding, the officer or director
had no reasonable cause to believe his conduct was unlawful. In the case of
proceedings by or in the right of the corporation, the Florida Act provides
that, in general, a corporation may indemnify any person who was or is a party
to any such proceeding by reason of the fact that he is or was a director or
officer of the corporation against expenses and amounts paid in settlement
actually and reasonably incurred in connection with the defense or settlement of
such proceeding, including any appeal thereof, provided that such person acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, except that no indemnification shall
be made in respect of any claim as to which such person is adjudged liable
unless a court of competent jurisdiction determines upon application that such
person is fairly and reasonably entitled to indemnity. To the extent that any
officers or directors are successful on the merits or otherwise in the defense
of any of the proceedings described above, the Florida Act provides that the
corporation is required to indemnify such officers or directors against expenses
actually and reasonably incurred in connection therewith. However, the Florida
Act further provides that, in general, indemnification or advancement of
expenses shall not be made to or on behalf of any officer or director if a
judgment or other final adjudication establishes that his actions, or omissions
to act, were material to the cause of action so adjudicated and constitute: (i)
a violation of the criminal law, unless the director or officer had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe it
was unlawful; (ii) a transaction from which the director or officer derived an
improper personal benefit; (iii) in the case of a director, a circumstance under
which the director has voted for or assented to a distribution made in violation
of the Florida Act or the corporation's articles of incorporation; or (iv)
willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
Article V of the Company's Bylaws provides that the Company shall indemnify any
director, officer, employee or agent or any former director, officer, employee
or agent to the full extent permitted by Florida law.
II-1
<PAGE> 149
The underwriters also will agree to indemnify the directors and officers of
the Company against certain liabilities as set forth in Section of the
Underwriting Agreement (see Exhibit 1).
The Company has purchased insurance with respect to, among other things,
any liabilities that may arise under the statutory provisions referred to above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The securities issued or sold by the Company since December 18, 1997, the
date of inception, which were not registered under the Securities Act are listed
below:
(i) On December 18, 1997, the Company issued 5,000,000 shares of
common stock, par value $.01 per share to Sykes Enterprises, Incorporated.
(ii) On December 18, 1997, the Company issued 5,000,000 shares of
common stock, par value $.01 per share to HealthPlan Services Corporation.
The shares of capital stock issued in the above transactions were offered
and sold in reliance upon the exemption from registration under Section 4(2) as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transaction. All recipients had adequate access,
through their relationship with the Company to information about the Company.
II-2
<PAGE> 150
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1.0+ -- Underwriting Agreement
3.1 -- Articles of Incorporation of the Company
3.2 -- Bylaws of the Company
3.3 -- Amended and Restated Articles of Incorporation of the
Company
3.4 -- Amended and Restated Bylaws of the Company
4.1 -- Shareholder Agreement, dated as of December 18, 1997,
between Sykes Enterprises, Incorporated and HealthPlan
Services Corporation
4.2 -- Amendment to Shareholder Agreement, dated as of January 31,
1998
5.1+ -- Opinion of Holland & Knight LLP
10.1 -- 1997 Stock Option Plan
10.2 -- Employment Agreement, dated as of December 31, 1997, between
the Company and Stephen K. Holland, M.D.
10.3 -- Employment Agreement, dated as of December 31, 1997, between
the Company and James K. Murray, III
10.4 -- Employment Agreement, dated as of December 31, 1997 between
the Company and David E. Garner
10.5 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Donald K. Kelly, M.D.
10.6 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Michael C. Peerboom
10.7 -- Employment Agreement, dated as of December 31, 1997 between
the Company and Owen McKenna
10.8 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Suzanne D. Kelly
10.9 -- Stock Purchase Agreement, dated as of March 9, 1998, between
the Company and The Prudential Insurance Company of America
10.10 -- Acquisition Agreement, dated as of December 31, 1997,
between the Company and SHPS Acquisition Corporation, OMS
Holding Corporation ("OMS") and certain selling shareholders
of OMS
10.11 -- Plan and Agreement of Merger, dated as of February 11, 1998,
between the Company, Sykes HealthPlan Services Acquisition
Corporation and Health International, Inc.
10.12 -- Amendment to Plan and Agreement of Merger, dated as of March
30, 1998 between the Company, Sykes Healthplan Services
Acquisition Corporation and Health International, Inc.
10.13 -- Credit Agreement, dated as of March , 1998, between the
Company and NationsBank, National Association -- 0176044.19
10.14 -- Outsourcing Agreement, dated as of January 1, 1998, between
the Company and HPS
21.1 -- List of Subsidiaries
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP, independent auditors
</TABLE>
II-3
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
23.3 -- Consent of Arthur Andersen LLP, independent auditors
23.4 -- Consent of Deloitte & Touche LLP, independent auditors
23.5 -- Consent of Price Waterhouse LLP independent auditors
23.6 -- Consent of Ernst & Young LLP, independent auditors
24.1 -- Power of Attorney (included on the signature page hereof)
27.1 -- Financial Data Schedule (For SEC use only)
</TABLE>
- ---------------
+ To be filed by amendment.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, State of Florida,
on the 23rd day of April, 1998.
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ DAVID E. GARNER
------------------------------------
David E. Garner
President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Sykes HealthPlan
Services, Inc., a Florida corporation, for himself and not for one another, does
hereby constitute and appoint David E. Garner and James K. Murray, III, and each
and any of them and their substitutes, a true and lawful attorney in their name,
place and stead, in any and all capacities, to sign their name to any and all
amendments to this registration statement, including post-effective amendments,
and any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) of the Securities Act, and to cause the same to be filed with the
Securities and Exchange Commission, granting unto said attorneys and each of
them full power of substitution and full power and authority to do and perform
any act and thing necessary and proper to be done in the premises, as fully to
all intents and purposes as the undersigned could do if personally present, and
each of the undersigned for himself hereby ratifies and confirms all that said
attorneys or any one of them shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID E. GARNER President, Chief Executive April 23, 1998
------------------------------------------------------ Officer and Director
David E. Garner (Principal Executive
Officer)
/s/ JAMES K. MURRAY, III Executive Vice President, April 23, 1998
------------------------------------------------------ Treasurer and Chief
James K. Murray, III Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ JAMES K. MURRAY, JR. Director April 23, 1998
------------------------------------------------------
James K. Murray, Jr.
/s/ JOHN H. SYKES Director April 23, 1998
------------------------------------------------------
John H. Sykes
/s/ WILLIAM L. BENNETT Director April 23, 1998
------------------------------------------------------
William L. Bennett
/s/ LINDA MCCLINTOCK-GRECO, M.D. Director April 23, 1998
------------------------------------------------------
Linda McClintock-Greco, M.D.
</TABLE>
<PAGE> 153
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.0+ -- Underwriting Agreement
3.1 -- Articles of Incorporation of the Company
3.2 -- Bylaws of the Company
3.3 -- Amended and Restated Articles of Incorporation of the
Company
3.4 -- Amended and Restated Bylaws of the Company
4.1 -- Shareholder Agreement, dated as of December 18, 1997,
between Sykes Enterprises, Incorporated and HealthPlan
Services Corporation
4.2 -- Amendment to Shareholder Agreement, dated as of January 31,
1998
5.1+ -- Opinion of Holland & Knight LLP
10.1 -- 1997 Stock Option Plan
10.2 -- Employment Agreement, dated as of December 31, 1997, between
the Company and Stephen K. Holland, M.D.
10.3 -- Employment Agreement, dated as of December 31, 1997, between
the Company and James K. Murray, III
10.4 -- Employment Agreement, dated as of December 31, 1997 between
the Company and David E. Garner
10.5 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Donald K. Kelly, M.D.
10.6 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Michael C. Peerboom
10.7 -- Employment Agreement, dated as of December 31, 1997 between
the Company and Owen McKenna
10.8 -- Employment Agreement, dated as of March 31, 1998 between the
Company and Suzanne D. Kelly
10.9 -- Stock Purchase Agreement, dated as of March 9, 1998, between
the Company and The Prudential Insurance Company of America
10.10 -- Acquisition Agreement, dated as of December 31, 1997,
between the Company and SHPS Acquisition Corporation, OMS
Holding Corporation ("OMS") and certain selling shareholders
of OMS
10.11 -- Plan and Agreement of Merger, dated as of February 11, 1998,
between the Company, Sykes HealthPlan Services Acquisition
Corporation and Health International, Inc.
10.12 -- Amendment to Plan and Agreement of Merger, dated as of March
30, 1998 between the Company, Sykes Healthplan Services
Acquisition Corporation and Health International, Inc.
10.13 -- Credit Agreement, dated as of March , 1998, between the
Company and NationsBank, National Association -- 0176044.19
10.14 -- Outsourcing Agreement, dated as of January 1, 1998, between
the Company and HPS
21.1 -- List of Subsidiaries
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP, independent auditors
23.3 -- Consent of Arthur Andersen LLP, independent auditors
23.4 -- Consent of Deloitte & Touche LLP, independent auditors
23.5 -- Consent of Price Waterhouse LLP independent auditors
23.6 -- Consent of Ernst & Young LLP, independent auditors
24.1 -- Power of Attorney (included on the signature page hereof)
27.1 -- Financial Data Schedule (For SEC use only)
</TABLE>
- ---------------
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SYKES HEALTHPLAN SERVICES, INC.
The undersigned, for the purpose of forming a corporation for profit
under the laws of Florida, adopts the following Articles of Incorporation.
ARTICLE 1
NAME AND ADDRESS
Section 1.1 Name. The name of the corporation is Sykes HealthPlan
Services, Inc.
Section 1.2 Address of Principal Office. The address of the principal
office of the corporation is 400 North Ashley, Suite 2300, Tampa, Florida 33602,
Attn: Robert J. Grammig, Esq.
ARTICLE 2
DURATION
Section 2.1 Duration. This corporation shall exist perpetually.
Corporate existence shall commence on the date these Articles are executed,
except that if they are not filed by the Department of State of Florida within
five business days after they are executed, corporate existence shall commence
upon filing by the Department of State.
ARTICLE 3
PURPOSES
Section 3.1 Purposes. This corporation is organized for the purposes of
building, owning and operating call centers focused on customer services related
to the insurance industry and health care management services and such other
health industry related services and such other business activities as may be
necessary and proper to conduct the foregoing enumerated services.
ARTICLE 4
CAPITAL
Section 4.1 Authorized Capital. The maximum number of shares of stock
which this corporation is authorized to have outstanding at any one time is
12,000,000 shares divided into classes as follows:
(a) 10,000,000 shares of Class A Voting Common Stock, having a par
value of $.01 per share; and
<PAGE> 2
(b) 2,000,000 shares of Class B Non-voting Common Stock having a
par value of $.01 per share.
All such shares shall be issued fully paid and nonassessable.
Section 4.2 Rights of Shareholders. Unless otherwise provided by law
only the holders of Class A Voting Common Stock shall be entitled to vote at any
meeting of shareholders of the corporation. Each outstanding share of Class A
Voting Common Stock shall be entitled to one vote on each matter submitted to a
vote. In all other respects, the rights of the Class A Voting Common Stock and
the Class B Non-Voting Common Stock shall be identical.
ARTICLE 5
ACTION BY SHAREHOLDER.S
Section 5.1 Call for Special Meeting. Special meetings of the
shareholders of the Corporation may be called at any time, but only by (a) a
majority of the directors in office, although less than a quorum, or (b) the
holders of not less than thirty-five percent (35 %) of the total number of votes
of the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors.
Section 5.2 Shareholder Action by Unanimous Written Consent. Any action
required or permitted to be taken by the shareholders of the Corporation must be
effected at a duly called annual or special meeting of the shareholders, and may
not be effected by any consent in writing by such shareholders, unless such
written consent is signed and dated by the holders of at least ninety percent
(90%) of the total number of votes of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
Section 5.3 Shareholder Quorum and Voting. Shares entitled to vote may
take action on a matter at a meeting only if a quorum of these shares exists. At
least ninety percent (90%) of the votes entitled to be cast represented in
person or by proxy, constitutes a quorum. If a quorum exists, action on a matter
(including the election of directors) may be taken only upon the affirmative
vote of at least ninety percent (90%) of the total number of votes of the then
outstanding shares of the capital stock of the Corporation entitled to vote
therein
ARTICLE 6
INITIAL REGISTERED OFFICE AND AGENT
Section 6.1 Name and Address. The street address of the initial
registered office of this corporation is 1201 Hays Street, Tallahassee, Florida
32301-2525, and
2
<PAGE> 3
the name of the initial registered agent of this corporation at that address is
Corporation Service Company.
ARTICLE 7
DIRECTORS
Section 7.1 Number. This corporation shall have two directors
initially. The number of directors may be increased or diminished from time to
time by the bylaws. but shall never be less than two.
Section 7.2 Initial Directors. The name and address of the members of
the first board of directors of the corporation are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
James K. Murray, Jr. 3501 Frontage Road
Tampa, Florida 33607
John H. Sykes 100 North Tampa Street
Suite 3900
Tampa, Florida 33602
</TABLE>
Section 7.3 Election of Directors: Vacancies. Directors shall be
elected only by the affirmative vote of at least ninety percent (90%) of the
total number of the then outstanding shares of capital stock of the Corporation
entitled to vote thereon. A vacancy on the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled
only by the requisite vote of the shareholders of the corporation.
ARTICLE 8
BYLAWS
Section 8.1 Bylaws. The initial bylaws of this corporation shall be
adopted by the board of directors. Bylaws may be amended or repealed from time
to time by either the board of directors or by vote of 90% of the shareholders,
but the board of directors shall not alter, amend or repeal any bylaw adopted by
the shareholders if the shareholders specifically provide that such bylaw is not
subject to amendment or repeal by the board of directors.
3
<PAGE> 4
ARTICLE 9
INCORPORATOR
Section 9.1 Name and Address. The name and street address of the
incorporator of this corporation is:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Julia B. Davis 200 Laura Street
Jacksonville, Florida 32202
</TABLE>
ARTICLE 10
INDEMNIFICATION
Section 10.1 Indemnification. The board of directors is hereby
specifically authorized to make provision for indemnification of directors,
officers, employees and agents to the full extent permitted by law.
ARTICLE 11
AMENDMENT
Section 11.1 Amendment. This corporation reserves the right to amend or
repeal any provision contained in these Articles of Incorporation, and any right
conferred upon the shareholders is subject to this reservation. The Articles of
Incorporation may be amended only if the proposed amendment is approved by the
affirmative vote of at least ninety percent (90%) of the total number of the
then outstanding shares of capital stock of the corporation.
IN WITNESS WHEREOF, the incorporator has executed these Articles on December 18,
1997.
/s/ Julia B. Davis
------------------------
JULIA B. DAVIS
4
<PAGE> 5
ACCEPTANCE BY REGISTERED AGENT
Having been named to accept service of process for the above stated
corporation, at the place designated in the above Articles of Incorporation, I
hereby agree to act in this capacity, and I further agree to comply with the
provisions of all statutes relative to the proper and complete performance of my
duties. I am familiar with and I accept the obligations of a registered agent.
CORPORATION SERVICE COMPANY
By /s/ Gail Shelby
-----------------------
Date: December 22, 1997
5
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SYKES HEALTHPLAN SERVICES, INC.
(a Florida corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions................................................................. 1
ARTICLE 2
OFFICES
Section 2.1 Principal and Business Offices.............................................. 1
Section 2.2 Registered Office........................................................... 1
ARTICLE 3
SHAREHOLDERS
Section 3.1 Annual Meeting.............................................................. 1
Section 3.2 Special Meetings............................................................ 2
Section 3.3 Place of Meeting............................................................ 2
Section 3.4 Notice of Meeting........................................................... 2
Section 3.5 Waiver of Notice............................................................ 3
Section 3.6 Fixing of Record Date....................................................... 3
section 3.7 Shareholders' List for Meetings............................................. 4
Section 3.8 Quorum...................................................................... 5
Section 3.9 Voting of Shares............................................................ 5
Section 3.10 Vote Required............................................................... 5
Section 3.11 Conduct of Meeting.......................................................... 5
Section 3.12 Inspectors of Election...................................................... 6
Section 3.13 Proxies..................................................................... 6
Section 3.14 Action by Shareholders Without Meeting...................................... 7
Section 3.15 Acceptance of Instruments Showing Shareholder Action........................ 7
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 General Powers and Number................................................... 8
Section 4.2 Qualifications.............................................................. 8
Section 4.3 Term of Office.............................................................. 8
Section 4.4 Removal..................................................................... 9
Section 4.5 Resignation................................................................. 9
Section 4.6 Vacancies................................................................... 9
Section 4.7 Compensation................................................................ 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.8 Regular Meetings............................................................ 9
Section 4.9 Special Meetings............................................................ 9
Section 4.10 Notice...................................................................... 10
Section 4.11 Waiver of Notice............................................................ 10
Section 4.12 Quorum and Voting........................................................... 10
Section 4.13 Conduct of Meetings......................................................... 10
Section 4.14 Committees.................................................................. 11
Section 4.15 Action Without Meeting...................................................... 11
Section 4.16 Actions by Board of Directors to Follow Shareholder Consent................. 12
Section 4.17 Actions by Board of Directors Requiring a Super Majority Vote............... 13
ARTICLE 5
OFFICERS
Section 5.1 Number...................................................................... 14
Section 5.2 Election and Term of Office................................................. 14
Section 5.3 Removal..................................................................... 15
Section 5.4 Resignation................................................................. 15
Section 5.5 Vacancies................................................................... 15
Section 5.6 President................................................................... 15
Section 5.7 Vice Presidents............................................................. 15
Section 5.8 Secretary................................................................... 16
Section 5.9 Treasurer................................................................... 16
Section 5.10 Assistant Secretaries and Assistant Treasurers.............................. 16
Section 5.11 Other Assistants and Acting Officers........................................ 16
Section 5.12 Salaries.................................................................... 17
ARTICLE 6
CONTRACTS, CHECKS AND DEPOSITS: SPECIAL CORPORATE ACTS
Section 6.1 Contracts................................................................... 17
Section 6.2 Checks, Drafts, etc......................................................... 17
Section 6.3 Deposits.................................................................... 17
Section 6.4 Voting of Securities Owned by Corporation................................... 17
ARTICLE 7
CERTIFICATES FOR SHARES: TRANSFER OF SHARES
Section 7.1 Consideration for Shares.................................................... 18
Section 7.2 Certificates for Shares..................................................... 18
Section 7.3 Transfer of Shares.......................................................... 19
Section 7.4 Restrictions on Transfer.................................................... 19
Section 7.5 Lost, Destroyed, or Stolen Certificates..................................... 19
Section 7.6 Stock Regulations........................................................... 19
</TABLE>
ii
<PAGE> 4
ARTICLE 8
SEAL
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.1 Seal........................................................................ 19
ARTICLE 9
BOOKS AND RECORDS
Section 9.1 Books and Records........................................................... 20
Section 9.2 Shareholders' Inspection Rights............................................. 20
Section 9.3 Distribution of Financial Information....................................... 20
Section 9.4 Other Reports............................................................... 20
ARTICLE 10
INDEMNIFICATION
Section 10.1 Provision of Indemnification................................................ 20
ARTICLE 11
AMENDMENTS
Section 11.1 Power to Amend.............................................................. 21
Section 11.2 Implied Amendments.......................................................... 21
ARTICLE 12
SHAREHOLDER AGREEMENT
Section 12.1 Conflict Between Shareholder Agreement and BylawS
ARTICLE 13
LIMITATION ON SCOPE OF BUSINESS
Section 13.1 Permitted Business Activities............................................... 22
</TABLE>
iii
<PAGE> 5
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the following
meanings for purposes of these bylaws:
"Act" means the Florida Business Corporation Act, as it may be amended
from time to time, or any successor legislation thereto.
"Deliver" or "delivery" includes delivery by hand; United States mail,
facsimile, telegraph, teletype or other form of electronic transmission, and
private mail carriers handling nationwide mail services.
"Distribution" means a direct or indirect transfer of money or other
property (except shares in the corporation) or an incurrence of indebtedness by
the corporation to or for the benefit of shareholders in respect of any of the
corporation's shares. A distribution may be in the form of a declaration or
payment of a dividend; a purchase, redemption, or other acquisition of shares; a
distribution of indebtedness; or otherwise.
"Principal office" means the office (within or without the State of
Florida) where the corporation's principal executive offices are located, as
designated in the articles of incorporation or other initial filing until an
annual report has been filed with the Florida Department of State, and
thereafter as designated in the annual report.
ARTICLE 2
OFFICES
Section 2.1 Principal and Business Offices. The corporation may have
such principal and other business offices, either within or without the State of
Florida, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
Section 2.2 Registered Office. The registered office of the corporation
required by the Act to be maintained in the State of Florida may but need not be
identical with the principal office if located in the State of Florida, and the
address of the registered office may be changed from time to time by the Board
of Directors or by the registered agent. The business office of the registered
agent of the corporation shall be identical to such registered office.
ARTICLE 3
SHAREHOLDERS
Section 3.1 Annual Meeting. The annual meeting of shareholders shall be
held within four months after the close of each fiscal year of the corporation
on a date and at a time and place designated by the Board of Directors, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. If the election of directors shall not be held on
the day fixed as herein provided for any annual meeting of shareholders,
<PAGE> 6
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of shareholders as soon thereafter as is
practicable.
Section 3.2 Special Meetings.
(a) Call by Directors. Special meetings of shareholders, for
any purpose or purposes, may be called by the Board of Directors.
(b) Call by Shareholders. The corporation shall call a special
meeting of shareholders in the event that the holders of at least ninety percent
of all of the votes entitled to be cast on any issue proposed to be considered
at the proposed special meeting sign, date, and deliver to the Secretary one or
more written demands for the meeting describing one or more purposes for which
it is to be held. The corporation shall give notice of such a special meeting
within sixty days after the date that the demand is delivered to the
corporation.
Section 3.3 Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Florida, as the place of meeting
for any annual or special meeting of shareholders. If no designation is made,
the place of meeting shall be the principal office of the corporation.
Section 3.4 Notice of Meeting.
(a) Content and Delivery. Written notice stating the date,
time, and place of any meeting of shareholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date of the
meeting by or at the direction of the President or the Secretary, or the officer
or persons duly calling the meeting, to each shareholder of record entitled to
vote at such meeting and to such other persons as required by the Act. Unless
the Act requires otherwise, notice of an annual meeting need not include a
description of the purpose or purposes for which the meeting is called. If
mailed, notice of a meeting of shareholders shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his or her
address as it appears on the stock record books of the corporation, with postage
thereon prepaid.
(b) Notice of Adjourned Meetings. If an annual or special
meeting of shareholders is adjourned to a different date, time, or place, the
corporation shall not be required to give notice of the new date, time, or place
if the new date, time, or place is announced at the meeting before adjournment;
provided, however, that if a new record date for an adjourned meeting is or must
be fixed, the corporation shall give notice of the adjourned meeting to persons
who are shareholders as of the new record date who are entitled to notice of the
meeting.
(c) No Notice Under Certain Circumstances. Notwithstanding the
other provisions of this Section, no notice of a meeting of shareholders need be
given to a shareholder if: (a) an annual report and proxy statement for two
consecutive annual meetings of
2
<PAGE> 7
shareholders, or (b) all, and at least two checks in payment of dividends or
interest on securities during a twelve-month period, have been sent by
first-class, United States mail, addressed to the shareholder at his or her
address as it appears on the share transfer books of the corporation, and
returned undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
Section 3.5 Waiver of Notice.
(a) Written Waiver. A shareholder may waive any notice required
by the Act or these bylaws before or after the date and time stated for the
meeting in the notice. The waiver shall be in writing and signed by the
shareholder entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or filing with the corporate records. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice.
(b) Waiver by Attendance. A shareholder's attendance at a
meeting, in person or by proxy, waives objection to all of the following: (a)
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (b) consideration of a particular matter at the meeting that
is not within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
Section 3.6 Fixing of Record Date.
(a) General. The Board of Directors may fix in advance a date
as the record date for the purpose of determining shareholders entitled to
notice of a shareholders' meeting, entitled to vote, or take any other action.
In no event may a record date fixed by the Board of Directors be a date
preceding the date upon which the resolution fixing the record date is adopted
or a date more than seventy days before the date of meeting or action requiring
a determination of shareholders.
(b) Special Meeting. The record date for determining
shareholders entitled to demand a special meeting shall be the close of business
on the date the first shareholder delivers his or her demand to the corporation.
(c) Shareholder Action by Written Consent. If no prior action
is required by the Board of Directors pursuant to the Act, the record date for
determining shareholders entitled to take action without a meeting shall be the
close of business on the date the first signed written consent with respect to
the action in question is delivered to the corporation, but if prior action is
required by the Board of Directors pursuant to the Act, such record date shall
be the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action unless the Board of Directors otherwise
fixes a record date.
3
<PAGE> 8
(d) Absence of Board Determination for Shareholders' Meeting. If
the Board of Directors does not determine the record date for determining
shareholders entitled to notice of and to vote at an annual or special
shareholders' meeting, such record date shall be the close of business on the
day before the first notice with respect thereto is delivered to shareholders.
(e) Adjourned Meeting. A record date for determining shareholders
entitled to notice of or to vote at a shareholders' meeting is effective for any
adjournment of the meeting unless the Board of Directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting.
(f) Certain Distributions. If the Board of Directors does not
determine the record date for determining shareholders entitled to a
distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares or a share dividend), such record date
shall be the close of business on the date on which the Board of Directors
authorizes the distribution.
3.7 Shareholders' List for Meetings.
(a) Preparation and Availability. After a record date for a meeting
of shareholders has been fixed, the corporation shall prepare an alphabetical
list of the names of all of the shareholders entitled to notice of the meeting.
The list shall be arranged by class or series of shares, if any, and show the
address of and number of shares held by each shareholder. Such list shall be
available for inspection by any shareholder for a period of ten days prior to
the meeting or such shorter time as exists between the record date and the
meeting date, and continuing through the meeting, at the corporation's principal
office, at a place identified in the meeting notice in the city where the
meeting will be held, or at the office of the corporation's transfer agent or
registrar, if any. A shareholder or his or her agent may, on written demand,
inspect the list, subject to the requirements of the Act, during regular
business hours and at his or her expense, during the period that it is available
for inspection pursuant to this Section. The corporation shall make the
shareholders' list available at the meeting and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof.
(b) Prima Facie Evidence. The shareholders' list is prima facie
evidence of the identity of shareholders entitled to examine the shareholders'
list or to vote at a meeting of shareholders.
(c) Failure to Comply. If the requirements of this Section have not
been substantially complied with, or if the corporation refuses to allow a
shareholder or his or her agent or attorney to inspect the shareholders' list
before or at the meeting, on the demand of any shareholder, in person or by
proxy, who failed to get such access, the meeting shall be adjourned until such
requirements are complied with. Refusal or failure to prepare or make available
the shareholders' list shall not affect the validity of any action taken at a
meeting of shareholders.
4
<PAGE> 9
(d) Sale or Distribution of Information Prohibited.
A shareholder may not sell or otherwise distribute any information or records
inspected under this Section, except to the extent permitted by the Act.
Section 3.8 Quorum.
(a) What Constitutes a Quorum. Shares entitled to vote as a
separate voting group may take action on a matter at a meeting only if a quorum
of those shares exists with respect to that matter. If the corporation has only
one class of stock outstanding, such class shall constitute a separate voting
group for purposes of this Section. Ninety percent of the votes entitled to be
cast on the matter shall constitute a quorum of the voting group for action on
that matter.
(b) Presence of Shares. Once a share is represented for any
purpose at a meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present for
purposes of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or must be
set for the adjourned meeting.
(c) Adjournment in Absence of Quorum. Where a quorum is not
present, the holders of a majority of the shares represented and who would be
entitled to vote at the meeting if a quorum were present may adjourn such
meeting from time to time.
Section 3.9 Voting of Shares. Each outstanding share, regardless of
class, is entitled to one vote on each matter voted on at a meeting of
shareholders.
Section 3.10 Vote Required.
(a) Matters Other Than Election of Directors. If a quorum
exists, including in the case of the election of directors, action on a matter
shall be approved only if ninety percent of the votes cast favor the action,
unless the Act requires a greater number of affirmative votes.
(b) Election of Directors. Each director shall be elected only
by the affirmative vote of ninety percent of the votes cast by the shares
outstanding which are entitled to vote in the election of directors at a meeting
at which a quorum is present. Each shareholder who is entitled to vote at an
election of directors has the right to vote the number of shares owned by him or
her for as many persons as there are directors to be elected. Shareholders do
not have a right to cumulate their votes for directors.
Section 3.11 Conduct of Meeting. The Chairman of the Board of
Directors, and if there be none, or in his or her absence, the President, and in
his or her absence, any Vice President in the order provided under the Section
of these bylaws titled "Vice Presidents," and in their absence, any person
chosen by the shareholders present shall call a shareholders' meeting to
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order and shall act as presiding officer of the meeting, and the Secretary of
the corporation shall act as secretary of all meetings of the shareholders, but,
in the absence of the Secretary, the presiding officer may appoint any other
person to act as secretary of the meeting. The presiding officer of the meeting
shall have broad discretion in determining the order of business at a
shareholders' meeting. The presiding officer's authority to conduct the meeting
shall include, but in no way be limited to, recognizing shareholders entitled to
speak, calling for the necessary reports, stating questions and putting them to
a vote, calling for nominations, and announcing the results of voting. The
presiding officer also shall take such actions as are necessary and appropriate
to preserve order at the meeting. The rules of parliamentary procedure need not
be observed in the conduct of shareholders' meetings; however, meetings shall be
conducted in accordance with accepted usage and common practice with fair
treatment to all who are entitled to take part.
Section 3.12 Inspectors of Election. Inspectors of election may be
appointed by the Board of Directors to act at any meeting of shareholders at
which any vote is taken. If inspectors of election are not so appointed, the
presiding officer of the meeting may, and on the request of any shareholder
shall, make such appointment. The inspectors of election shall determine the
number of shares outstanding, the voting rights with respect to each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; receive votes, ballots, consents, and waivers;
hear and determine all challenges and questions arising in connection with the
vote; count and tabulate all votes, consents, and waivers; determine and
announce the result; and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. No inspector, whether appointed by the
Board of Directors or by the person acting as presiding officer of the meeting,
need be a shareholder.
Section 3.13 Proxies.
(a) Appointment. At all meetings of shareholders, a
shareholder may vote his or her shares in person or by proxy. A shareholder may
appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by his or her attorney-in-fact. If an
appointment form expressly provides, any proxy holder may appoint, in writing, a
substitute to act in his or her place. A telegraph, telex, or a cablegram, a
facsimile transmission of a signed appointment form, or a photographic,
photostatic, or equivalent reproduction of a signed appointment form is a
sufficient appointment form.
(b) When Effective. An appointment of a proxy is effective
when received by the Secretary or other officer or agent of the corporation
authorized to tabulate votes. An appointment is valid for up to eleven months
unless a longer period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
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Section 3.14 Action by Shareholders Without Meeting.
(a) Requirements for Written Consents. Any action required or
permitted by the Act to be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote if one or more written consents describing the action taken shall be signed
and dated by the holders of at least ninety percent of all shares entitled to
vote thereon. Such consents must be delivered to the principal office of the
corporation in Florida, the corporation's principal place of business, the
Secretary, or another officer or agent of the corporation having custody of the
books in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the date of the earliest dated consent delivered in
the manner required herein, written consents signed by the number of holders
required to take action are delivered to the corporation by delivery as set
forth in this Section.
(b) Revocation of Written Consents. Any written consent may be
revoked prior to the date that the corporation receives the required number of
consents to authorize the proposed action. No revocation is effective unless in
writing and until received by the corporation at its principal office in Florida
or its principal place of business, or received by the Secretary or other
officer or agent having custody of the books in which proceedings of meetings of
shareholders are recorded
(c) Notice to Nonconsenting Shareholders. Within ten days
after obtaining such authorization by written consent, notice must be given in
writing to those shareholders who having not consented in writing or who are not
entitled to vote on the action. The notice shall fairly summarize the material
features of the authorized action and, if the action be such for which
dissenters' rights are provided under the Act, the notice shall contain a clear
statement of the right of shareholders dissenting therefrom to be paid the fair
value of their shares upon compliance with the provisions of the Act regarding
the rights of dissenting shareholders.
(d) Same Effect as Vote at Meeting. A consent signed under
this Section has the effect of a meeting vote and may be described as such in
any document. Whenever action is taken by written consent pursuant to this
Section, the written consent of the shareholders consenting thereto or the
written reports of inspectors appointed to tabulate such consents shall be filed
with the minutes of proceedings of shareholders.
Section 3.15 Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver, or proxy appointment corresponds to
the name of a shareholder, the corporation, if acting in good faith, may accept
the vote, consent, waiver, or proxy appointment and give it effect as the act of
a shareholder. If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the corporation,
if acting in good faith, may accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
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(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) The name signed purports to be that of a administrator,
executor, guardian, personal representative, or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary status
acceptable to the corporation is presented with respect to the vote, consent,
waiver, or proxy appointment;
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy. Or assignee for the benefit of creditors of the shareholder and, if
the corporation requests, evidence of this status acceptable to the corporation
is presented with respect to the vote, consent, waiver, or proxy appointment;
(d) The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder is presented with respect to the vote, consent, waiver, or proxy
appointment; or
(e) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver, or proxy appointment if the
Secretary or other officer or agent of the corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, the Board of Directors. The
corporation shall have two directors initially. The number of directors may be
increased or decreased from time to time by vote of the shareholders as provided
in Section 3.9 of these Bylaws, but shall never be less than two.
Section 4.2 Qualifications. Directors must be natural persons who are
eighteen years of age or older but need not be residents of this state or
shareholders of the corporation.
Section 4.3 Term of Office. Each director shall hold office until the
next annual meeting of shareholders and until his or her successor shall have
been elected and, if necessary, qualified, or until there is a decrease in the
number of directors which takes effect after the expiration of his or her term,
or until his or her prior death, resignation or removal.
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Section 4.4 Removal. The shareholders may remove one or more directors
with or without cause. A director may be removed by the shareholders at a
meeting of shareholders, provided that the notice of the meeting states that the
purpose, or one of the purposes, of the meeting is such removal. The
shareholders may also remove one or more directors by written consent. Any
removal of a director requires the affirmative vote of ninety percent of the
outstanding shares.
Section 4.5 Resignation. A director may resign at any time by
delivering written notice to the Board of Directors or its Chairman (if any) or
to the corporation. A director's resignation is effective when the notice is
delivered unless the notice specifies a later effective date.
Section 4.6 Vacancies.
(a) Who May Fill Vacancies. Whenever any vacancy occurs on the
Board of Directors, including a vacancy resulting from an increase in the number
of directors, it may be filled only by the shareholders. For so long as a
vacancy on the Board of Directors exists, the Board of Directors shall not take
any action unless the holders of not less than ninety percent of the outstanding
shares consent to the action.
(b) Prospective Vacancies. A vacancy that will occur at a
specific later date, because of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.
Section 4.7 Compensation. The shareholders may establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise, or may delegate such authority to the Board of Directors
or an appropriate committee. The Board of Directors also shall have authority to
provide for or delegate authority to an appropriate committee to provide for
reasonable pensions, disability or death benefits, and other benefits or
payments, to directors, officers, and employees and to their families,
dependents, estates, or beneficiaries on account of prior services rendered to
the corporation by such directors, officers, and employees.
Section 4.8 Regular Meetings. The Board of Directors shall meet on at
least a quarterly basis. A regular meeting of the Board of Directors shall be
held without other notice than this bylaw immediately after the annual meeting
of shareholders and each adjourned session thereof. The place of such regular
meeting shall be the same as the place of the meeting of shareholders which
precedes it, or such other suitable place as may be announced at such meeting of
shareholders. The Board of Directors may provide, by resolution, the date, time,
and place, either within or without the State of Florida, for the holding of
additional regular meetings of the Board of Directors without other notice than
such resolution.
Section 4.9 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any) the President or
one-third of the members of the
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Board of Directors. The person or persons calling the meeting may fix any place,
either within or without the State of Florida, as the place for holding any
special meeting of the Board of Directors, and if no other place is fixed, the
place of the meeting shall be the principal office of the corporation in the
State of Florida.
Section 4.10 Notice. Special meetings of the Board of Directors must be
preceded by at least two days' notice of the date, time, and place of the
meeting. The notice need not describe the purpose of the special meeting.
Section 4.11 Waiver of Notice. Notice of a meeting of the Board of
Directors need nor be given to any director who signs a waiver of notice either
before or after the meeting. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting and waiver of any and all
objections to the place of the meeting, the time of the meeting, or the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.
Section 4.12 Quorum and Voting. A quorum of the Board of Directors
consists of a majority of the number of directors prescribed by these bylaws.
Except as provided in Sections 4.16 and 4.17 of these Bylaws, if a quorum is
present when a vote is taken, the affirmative vote of a majority of directors
present is the act of the Board of Directors. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless:
(a) he or she objects at the beginning of the meeting (or promptly upon his or
her arrival) to holding it or transacting specified business at the meeting; or
(b) he or she votes against or abstains from the action taken.
Section 4.13 Conduct of Meetings.
(a) Presiding Officer. The Board of Directors may elect from
among its members a Chairman of the Board of Directors, who shall preside at
meetings of the Board of Directors. The Chairman, and if there be none, or in
his or her absence, the President, and in his or her absence, any Vice President
in the order provided under the Section of these bylaws titled "Vice
Presidents," and in their absence, any director chosen by the directors present,
shall call meetings of the Board of Directors to order and shall act as
presiding officer of the meeting.
(b) Minutes. The Secretary of the corporation shall act as
secretary of all meetings of the Board of Directors but in the absence of the
Secretary, the presiding officer may appoint any other person present to act as
secretary of the meeting. Minutes of any regular or special meeting of the Board
of Directors shall be prepared and distributed to each director.
(c) Adjournments. A majority of the directors present, whether
or not a quorum exists, may adjourn any meeting of the Board of Directors to
another time and place. Notice of any such adjourned meeting shall be given to
the directors who are not present at the
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time of the adjournment and, unless the time and place of the adjourned meeting
are announced at the time of the adjournment, to the other directors.
(d) Participation by Conference Call or Similar Means. The Board of
Directors may permit any or all directors to participate in a regular or a
special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
Section 4.14 Committees. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees each of which,
to the extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except that no such committee shall have
the authority to:
(a) approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders;
(b) fill vacancies on the Board of Directors or any committee
thereof;
(c) adopt, amend, or repeal these bylaws;
(d) authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board of Directors;
(e) authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a voting group except that the Board of Directors may
authorize a committee (or a senior executive officer of the corporation) to do
so within limits specifically prescribed by the Board of Directors; or
(f) take any action described in Sections 4.16 and 4.17 of these
Bylaws.
Each committee must have two or more members, who shall serve at the pleasure of
the Board of Directors. The Board of Directors, by resolution adopted in
accordance with this Section, may designate one or more directors as alternate
members of any such committee, who may act in the place and stead of any absent
member or members at any meeting of such committee. The provisions of these
bylaws which govern meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors apply to committees and their members as
well.
Section 4.15 Action Without Meeting. Any action required or permitted
by the Act to be taken at a meeting of the Board of Directors or a committee
thereof may be taken without a meeting if the action is taken by all members of
the Board or of the committee. The action
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shall be evidenced by one or more written consents describing the action taken,
signed by each director or committee member and retained by the corporation.
Such action shall be effective when the last director or committee member signs
the consent, unless the consent specifies a different effective date. A consent
signed under this Section has the effect of a vote at a meeting and may be
described as such in any document.
Section 4.16 Actions by Board of Directors to Follow Shareholder
Consent. The Board of Directors shall not take any of the following actions,
except upon the prior affirmative vote of not less than 90% of the total number
of outstanding shares, or with the written consent of such Shareholders:
(a) sale of all or substantially all of the assets of the
corporation or any of its subsidiaries;
(b) any material acquisition (including acquisition of stock or
assets) of any other company, business or enterprise;
(c) any merger or consolidation involving the corporation or any of
its subsidiaries or the dissolution or liquidation of the corporation or any of
its subsidiaries;
(d) any payment of any dividend in cash or property other than cash
by the corporation or redemption of any Shares;
(e) any recapitalization, restatement of assets, reduction of
capital or other change in the capitalization of the corporation or its
subsidiaries;
(f) any issuance or reissuance or agreement to issue or reissue any
capital stock of the corporation or any option or warrant for, or any security
convertible into, any capital stock of the corporation;
(g) any filing of any registration statement of the Securities Act
of 1933, as amended;
(h) the amendment to the Articles of Incorporation or Bylaws of the
corporation;
(i) the acquisition by the corporation of material assets unrelated
to the business described in Section 1.3 of the Shareholder Agreement (as
defined in Section 12.1 below); or
(j) engaging in a material line of business other than the business
described in Section 1.3 of the Shareholder Agreement.
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Section 4.17 Actions by Board of Directors Requiring a Super Majority
Vote. The Board of Directors shall not take any of the following actions, except
upon the prior affirmative vote of all of the directors:
(a) approval or revision of the annual Budget in form acceptable to
the Board of Directors setting forth the estimated receipts and expenditures of,
capital expenditures of, and reasonable reserves for working capital for, the
corporation for the succeeding calendar year;
(b) capital improvements or expenditures (including capitalized
leases and interest costs) in excess of $50,000 which are not included in the
Budget approved by the Board of Directors;
(c) filing of bankruptcy;
(d) any issuance, reissuance or redemption by the corporation of
any shares of its capital stock or securities convertible into or exchangeable
for shares of such stock, including any options, warrants or other rights to
purchase or otherwise acquire any shares of such stock or securities convertible
into or exchangeable for such stock;
(e) any declaration of dividends by the corporation;
(f) the selection of corporate officers of the corporation and the
determination of the compensation and benefits payable to each such officer;
(g) any proposal for the corporation to (i) create, assume or
incur, or become liable in respect of, any indebtedness in excess of $100,000
per obligation, except for accounts payable incurred in the ordinary course of
business and indebtedness included in the Budget approved by the Board of
Directors, (ii) become a lessee of real property if the annual rentals payable
under the relevant lease would exceed $100,000, (iii) acquire the securities of,
make any other investment in, any other person, or (iv) make loans, provide
guarantees or otherwise extend or pledge credit to others with respect to any
such loan, guarantee, extension or pledge, except endorsements and extensions of
credit in the ordinary course of operations of the corporation;
(h) any proposal for the corporation to confess any judgment
against the corporation or create, assume, incur, or suffer to be created,
assumed or incurred or to exist, any mortgage, pledge, encumbrance, lien or
charge of any kind (each, a "Lien") upon any of the assets or properties of the
corporation, or to acquire or hold or agree to acquire or hold any such assets
or properties subject to any such Lien if such Lien is proposed in connection
with any proposal referred to in paragraph (g) above except in the normal course
of business and in accordance with the Budget approved by the Board of
Directors;
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(i) any proposal for the corporation to sell or transfer any assets
of the corporation valued in excess of $10,000 in one or a series of related
transactions not in the ordinary course of business;
(j) any proposal to enter into any contract, obligation,
commitment, capital investment, or any other program involving aggregate
expenditures reasonably estimated to be in excess of $200,000;
(k) any proposal for the corporation to acquire the capital stock
or assets of another entity;
(l) any proposal to select or change the corporation's independent
auditors, legal counsel or any outside consultant which shall be paid more than
$75,000 during any fiscal year;
(m) make a gift, loan, advance or political contribution to any
person, except loans and advances to employees of up to $2,500 for ordinary and
necessary business expenses;
(n) any decision whether to redeem or to purchase any Shares
pursuant to the Right of First Refusal contained in Section 4.3 of the
Shareholder Agreement or the assignment of such right to a third party. (In
deciding whether to exercise a Right of First Refusal with respect to a
disposing Investor Shareholder's Shares, any directors designated by, or who is
an officer, director, employee or agent of the disposing Investor Shareholder,
shall abstain from voting to the extent necessary to avoid a conflict of
interest and such director's affirmative vote shall not be necessary to approve
such action); and
(o) determination of the Determined Value of Shares pursuant to
Section 4.5 of the Shareholder Agreement.
ARTICLE 5
Officers
Section 5.1 Number. The principal officers of the corporation shall be
a President, the number of Vice Presidents, as authorized from time to time by
the Board of Directors, a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
The Board of Directors may also authorize any duly appointed officer to appoint
one or more officers or assistant officers. The same individual may
simultaneously hold more than one office.
Section 5.2 Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as is
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practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation, or removal.
The election of officers shall be subject to the provisions of Section 4.17 of
these Bylaws.
Section 5.3 Removal. The Board of Directors may remove any officer and,
unless restricted by the Board of Directors, an officer may remove any officer
or assistant officer appointed by that officer, at any time, with or without
cause and notwithstanding the contract rights, if any, of the officer removed.
The appointment of an officer does not of itself create contract rights.
Section 5.4 Resignation. An officer may resign at any time by
delivering notice to the corporation. The resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective date and
the corporation accepts the later effective date. If a resignation is made
effective at a later date and the corporation accepts the future effective date,
the pending vacancy may be filled before the effective date but the successor
may not take office until the effective date.
Section 5.5 Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification, or otherwise, shall be filled as
soon thereafter as practicable by the Board of Directors for the unexpected
portion of the term.
Section 5.6 President. The President shall be the chief executive
officer of the corporation and, subject to the direction of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. The President shall have authority, subject to such
rules as may be prescribed by the Board of Directors, to appoint such agents and
employees of the corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President. The
President shall have authority to sign certificates for shares of the
corporation the issuance of which shall have been authorized by resolution of
the Board of Directors, and to execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, contracts, leases, reports, and all
other documents or instruments necessary or proper to be executed in the course
of the corporation's regular business, or which shall be authorized by
resolution of the Board of Directors; and, except as otherwise provided by law
or the Board of Directors, the President may authorize any Vice President or
other officer or agent of the corporation to execute and acknowledge such
documents or instruments in his or her place and stead. In general he or she
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 5.7 Vice Presidents. In the absence of the President or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, the
Vice President, if any (or in the event there be more than one Vice President,
the Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election), shall perform
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the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice President
may sign certificates for shares of the corporation the issuance of which shall
have been authorized by resolution of the Board of Directors; and shall perform
such other duties and have such authority as from time to time may be delegated
or assigned to him or her by the President or by the Board of Directors. The
execution of any instrument of the corporation by any Vice President shall be
conclusive evidence, as to third parties, of his or her authority to act in the
stead of the President.
Section 5.8 Secretary. The Secretary shall: (a) keep, or cause to be
kept, minutes of the meetings of the shareholders and of the Board of Directors
(and of committees thereof in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) be custodian of the
corporate records and of the seal of the corporation, if any, and if the
corporation has a seal, see that it is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (c)
authenticate the records of the corporation; (d) maintain a record of the
shareholders of the corporation, in a form that permits preparation of a list of
the names and addresses of all shareholders, by class or series of shares and
showing the number and class or series of shares held by each shareholder; (e)
have general charge of the stock transfer books of the corporation; and (f) in
general perform all duties incident to the office of Secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned by the President or by the Board of Directors.
Section 5.9 Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
maintain appropriate accounting records; (c) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositaries as shall be selected in accordance with the
provisions of these bylaws; and (d) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.
Section 5.10 Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties and have such authority as
shall from time to time be delegated or assigned to them by the Secretary or the
Treasurer, respectively, or by the President of the Board of Directors.
Section 5.11 Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly appointed
officer of the corporation to appoint
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any person to act as assistant to any officer, or as agent for the corporation
in his or her stead or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors or an authorized officer shall have the power to perform all the
duties of the office to which he or she is so appointed to be an assistant, or
as to which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors or the appointing
officer.
Section 5.12 Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors as provided in Section 4.17 of
these Bylaws, and no officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a director of the corporation.
ARTICLE 6
CONTRACTS, CHECKS AND DEPOSITS: SPECIAL CORPORATE ACTS
Section 6.1 Contracts. The Board of Directors may authorize any officer
or officers, or any agent or agents to enter into any contract or execute or
deliver any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages, and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice Presidents, if any; the Secretary or an
Assistant Secretary, when necessary or required, shall attest and affix the
corporate seal, if any, thereto; and when so executed no other party to such
instrument or any third party shall be required to make any inquiry into the
authority of the signing officer or officers.
Section 6.2 Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board of Directors
Section 6.3 Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies, or other depositaries as may be selected by or
under the authority of a resolution of the Board of Directors.
Section 6.4 Voting of Securities Owned by Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he or she be present, or in
his or her absence, by any Vice President of this corporation who may be
present, and (b) whenever, in the judgment of the President, or in his or her
absence, of any Vice President, it is desirable for this corporation to execute
a proxy or written consent in respect of any such
17
<PAGE> 22
shares or other securities, such proxy or consent shall be executed in the name
of this corporation by the President or one of the Vice Presidents, if any, of
this corporation, without necessity of any authorization by the Board of
Directors, affixation of corporate seal, if any, or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power, and authority to vote the shares or other securities issued by such other
corporation and owned or controlled by this corporation the same as such shares
or other securities might be voted by this corporation.
ARTICLE 7
CERTIFICATES FOR SHARES: TRANSFER OF SHARES
Section 7.1 Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible or
intangible property or benefit to the corporation, including cash, promissory
notes, services performed, promises to perform services evidenced by a written
contract, or other securities of the corporation. Before the corporation issues
shares, the Board of Directors shall determine that the consideration received
or to be received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of consideration
for the issuance of shares relates to whether the shares are validly issued,
fully paid, and nonassessable. The corporation may place in escrow shares issued
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits are received. If the services are not
performed, the note is not paid, or the benefits are not received, the
corporation may cancel, in whole or in part, the shares escrowed or restricted
and the distributions credited.
Section 7.2 Certificates for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate representing all shares to
which he or she is entitled unless the Board of Directors authorizes the
issuance of some or all shares without certificates. Any such authorization
shall not affect shares already represented by certificates until the
certificates are surrendered to the corporation. If the Board of Directors
authorizes the issuance of any shares without certificates, within a reasonable
time after the issue or transfer of any such shares, the corporation shall send
the shareholder a written statement of the information required by the Act to be
set forth on certificates, including any restrictions on transfer. Certificates
representing shares of the corporation shall be in such form, consistent with
the Act, as shall be determined by the Board of Directors. Such certificates
shall be signed (either manually or in facsimile) by the President or any Vice
President or any other persons designated by the Board of Directors and may be
sealed with the seal of the corporation or a facsimile thereof. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. Unless the Board of Directors authorizes shares
without certificates, all certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate
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<PAGE> 23
for a like number of shares shall have been surrendered and canceled, except as
provided in these bylaws with respect to lost, destroyed, or stolen
certificates. The validity of a share certificate is not affected if a person
who signed the certificate (either manually or in facsimile) no longer holds
office when the certificate is issued.
Section 7.3 Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer, the corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications, and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
corporation with a request to register a transfer, the corporation shall not be
liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on ar with the certificate the
necessary endorsements, and (b) the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The corporation may require
reasonable assurance that such endorsements are genuine and effective and
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.
Section 7.4 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation as required by
the Act of any restriction imposed by the corporation upon the transfer of such
shares.
Section 7.5 Lost, Destroyed, or Stolen Certificates. Unless the Board
of Directors authorizes shares without certificates, where the owner claims that
certificates for shares have been lost, destroyed, or wrongfully taken, a new
certificate shall be issued in place thereof if the owner (a) so requests before
the corporation has notice that such shares have been acquired by a bona fide
purchaser, (b) files with the corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.
Section 7.6 Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with law as they may deem expedient concerning the issue, transfer,
and registration of shares of the corporation.
ARTICLE 8
SEAL
Section 8.1 Seal. The Board of Directors may provide for a corporate
seal for the corporation.
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<PAGE> 24
ARTICLE 9
BOOKS AND RECORDS
Section 9.1 Books and Records.
(a) The corporation shall keep as permanent records minutes of
all meetings of the shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the corporation.
(b) The corporation shall maintain accurate accounting records.
(c) The corporation or its agent shall maintain a record of the
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(d) The corporation shall keep a copy of all written
communications within the preceding three years to all shareholders generally or
to all shareholders of a class or series, including the financial statements
required to be furnished by the Act, and a copy of its most recent annual report
delivered to the Department of State.
Section 9.2 Shareholders' Inspection Rights. Shareholders are entitled
to inspect and copy records of the corporation as permitted by the Act.
Section 9.3 Distribution of Financial Information. The corporation
shall prepare and disseminate financial statements to shareholders as required
by the Act.
Section 9.4 Other Reports. The corporation shall disseminate such other
reports to shareholders as are required by the Act, including reports regarding
indemnification in certain circumstances and reports regarding the issuance or
authorization for issuance of shares in exchange for promises to render services
in the future.
ARTICLE 10
INDEMNIFICATION
Section 10.1 Provision of Indemnification. The corporation shall, to
the fullest extent permitted or required by the Act, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors or Officers
against any and all Liabilities, and advance any and all reasonable Expenses
incurred in any Proceeding to which any such Director or Officer is or is
threatened to be made a Party or a witness because he or she is or was a
Director or Officer of the corporation. The rights to indemnification granted
hereunder shall not be deemed exclusive of any other rights to indemnification
against Liabilities or the advancement of Expenses which a Director or Officer
20
<PAGE> 25
may be entitled under any written agreement, Board resolution, vote of
shareholders, the Act, or otherwise. The corporation may, but shall not be
required to, supplement the foregoing rights to indemnification against
Liabilities and advancement of Expenses by the purchase of insurance on behalf
of any one or more of its Directors or Officers whether or not the corporation
would be obligated to indemnify or advance Expenses to such Director or Officer
under this Article. For purposes of this Article, the terms "Directors" and
"Officers" includes former directors or officers and any directors or officers
who are or were serving at the request of the corporation as directors,
officers, employees, or agents of another corporation, partnership, joint
venture, trust, or other enterprise, including, without limitation, any employee
benefit plan (other than in the capacity as agents separately retained and
compensated for the provision of goods or services to the enterprise, including,
without limitation, attorneys-at-law, accountants, and financial consultants).
All other capitalized terms used in this Article and not otherwise defined
herein shall have the meaning set forth in Section 607.0850, Florida Statutes
(1995), as amended. The provisions of this Article are intended solely for the
benefit of the indemnified parties described herein, their heirs and personal
representatives and shall not create any rights in favor of third parties. No
amendment to or repeal of this Article shall diminish the rights of
indemnification provided for herein prior to such amendment or repeal.
ARTICLE 11
AMENDMENTS
Section 11.1 Power to Amend. These bylaws may be amended or repealed
only by the shareholders. Any amendment or repeal of the Bylaws requires the
affirmative vote of the holders of not less than ninety percent of the total
outstanding shares.
Section 11.2 Implied Amendments. Any action taken or authorized by the
shareholders which would be inconsistent with the bylaws then in effect but
which is taken or authorized by affirmative vote of not less than the number of
shares required to amend the bylaws so that the bylaws would be consistent with
such action shall be given the same effect as though the bylaws had been
temporarily amended or suspended so far, but only so far, as is necessary to
permit the specific action so taken or authorized.
ARTICLE 12
SHAREHOLDER AGREEMENT
Section 12.1 Conflict Between Shareholder Agreement and Bylaws. The
Company and its shareholders have entered into a Shareholder Agreement dated
December 10, 1997 by and among all of the shareholders of the Corporation, as
amended from time to time (the "Shareholder Agreement"). In the event of any
conflict between these Bylaws and the Shareholder Agreement, the provisions of
the Shareholder Agreement shall govern and supersede the provisions of these
Bylaws. Notwithstanding anything contained in these Bylaws to the contrary, no
officer or director of the corporation shall take any action which would violate
the Shareholder Agreement.
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<PAGE> 26
ARTICLE 13
LIMITATION ON SCOPE OF BUSINESS
Section 13.1 Permitted Business Activities. The only permitted business
activities of the corporation shall be to build, own and operate all centers
focused on customer services related to the insurance industry, health care
management services and other health industry related services and such other
business activities as may be necessary and proper to conduct the foregoing
enumerated business activities. The corporation shall not engage in the business
of providing marketing, distribution, enrollment, premium billing and collection
to medical care providers and medical benefits payors, except as expressly
permitted in the Shareholder Agreement. The corporation shall not engage in the
business of operating call centers or provide teleservicing, telemarketing or
related services or provide technology and support services relating to the
foregoing, except to health benefits payors, health care providers and the
health insurance industry.
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<PAGE> 27
AMENDMENT NO. 1 TO BYLAWS
OF
SYKES HEALTHPLAN SERVICES, INC.
The following amendment to Section 4.1 of the Bylaws of Sykes
HealthPlan Services, Inc. (the "Corporation"), effective March 2, 1998, was
approved by the shareholders of the Corporation on the 2nd day of March, 1998:
Section 4.1 General Powers and Number. All corporate powers
shall be exercised by or under the authority of, and the
business and affairs of the corporation managed under the
direction of, the Board of Directors. The corporation shall
have four directors. The number of directors may be increased
or decreased from time to time by vote of the shareholders as
provided in Section 3.9 of these Bylaws, but shall never be
less than two.
<PAGE> 28
AMENDMENT NO. 2 TO BYLAWS
OF
SYKES HEALTHPLAN SERVICES, INC.
The following amendment to Section 4.1 of the Bylaws of Sykes
HealthPlan Services, Inc. (the "Corporation"), effective March 25, 1998, was
approved by the shareholders of the Corporation on the 25th day of March, 1998:
Section 4.1 General Powers and Number. All corporate powers
shall be exercised by or under the authority of, and the
business and affairs of the corporation managed under the
direction of, the Board of Directors. The corporation shall
have seven directors. The number of directors may be increased
or decreased from time to time by vote of the shareholders as
provided in Section 3.9 of these Bylaws, but shall never be
less than two.
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SYKES HEALTHPLAN SERVICES, INC.
In accordance with Section 607.1007 of the Florida Statutes, the Board
of Directors of Sykes Healthplan Services, Inc. (the "Corporation") hereby
amends and restates in its entirety the Articles of Incorporation.
ARTICLE I. NAME
The name of the Corporation is:
SYKES HEALTHPLAN SERVICES, INC.
ARTICLE II. ADDRESS
The mailing address of the Corporation is:
11405 Bluegrass Parkway
Louisville, Kentucky 40299
ARTICLE III. COMMENCEMENT OF EXISTENCE
The existence of the Corporation began on December 18, 1997.
ARTICLE IV. PURPOSE
The Corporation is organized to engage in any activity or business
permitted under the laws of the United States and Florida.
ARTICLE V. CAPITAL STOCK
The stock of the Corporation shall be divided into two classes:
100,000,000 shares of common stock having a par value of $.01 per share, and
15,000,000 shares of preferred stock having a par value of $.01 per share.
<PAGE> 2
The preferred shares may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares in
each series, the designation thereof, and the relative rights, preferences, and
limitations of each series, and specifically the Board of Directors is
authorized to fix with respect to each series (a) the dividend rate; (b)
redeemable features, if any; (c) rights upon liquidation; (d) whether or not
the shares of such series shall be subject to a purchase, retirement, or
sinking fund provisions; (e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class and, if so, the
rate of conversion or exchange; (f) restrictions, if any, upon the payment of
dividends on common stock, (g) restrictions, if any, upon the creation of
indebtedness; (h) voting powers, if any, of the shares of each series; and (i)
such other rights, preferences, and limitations as shall not be inconsistent
with the laws of the State of Florida.
ARTICLE VI. INITIAL REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the Corporation
is 1201 Hays Street, Tallahassee, Florida 32301-2525, and the name of the
Corporation's initial registered agent at that address is Corporation Service
Company.
ARTICLE VII. BOARD OF DIRECTORS
The number of directors shall be determined by the Board of Directors
in accordance with the bylaws, but shall never be more than twelve. The
directors shall be divided into three classes, Class I, Class II and Class III,
as nearly equal in number as possible. The term of office for the Class I
directors shall expire at the first annual meeting of the shareholders in 1999;
the term of office for the Class II directors shall expire at the annual
meeting of the shareholders in 2000; and the term of office for the Class III
directors shall expire at the annual meeting of the shareholders in 2001. At
each annual meeting of the shareholders commencing in 1999, the successors to
the directors whose term is expiring shall be elected to a term expiring at the
third succeeding annual meeting of the shareholders. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional directors of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of that class, but in no case will
a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification, or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by this Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed by the
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<PAGE> 3
terms of these Articles of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article V hereof, and such
directors so elected shall not be divided into classes pursuant to this Article
VII, unless expressly provided by such terms.
Subject to the rights, if any, of the holders of shares of preferred
stock then outstanding, any or all of the directors of this Corporation may be
removed from office for cause by the shareholders of this Corporation at any
annual or special meeting of shareholders by the affirmative vote of at least
66-2/3% of the outstanding shares of common stock of this Corporation. Notice
of any such annual or special meeting of shareholders shall state that the
removal of a director or directors for cause is among the purposes of the
meeting. Directors may not be removed by the shareholders without cause.
Newly created directorships resulting from any increase in the number
of directors or any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal, or other cause shall be filled solely
by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum, or by a sole remaining director, or, if
not filled by the directors, by the shareholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Subject to the rights, if any, of the holders of shares of preferred
stock then outstanding, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors at meetings of
shareholders.
Nominations of persons for election to the Board of Directors of this
Corporation may be made at a meeting of shareholders by or at the direction of:
(a) the Board of Directors; (b) by any nominating committee or person appointed
by the board; (c) or by any shareholder of this Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article VII.
Nominations by shareholders shall be made pursuant to timely notice in
writing to the Secretary of this Corporation. To be timely, a shareholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of this Corporation not less than 60 days prior to the date of the
meeting at which the director(s) are to be elected, regardless of any
postponements, deferrals, or adjournments of that meeting to a later date.
However, if less than 70 days' notice or prior public disclosure of the date of
the scheduled meeting is given or made, notice by the shareholder, to be
timely, must be so delivered or received not later than the close of business
on the tenth day following the earlier of the day on which notice was given or
such public disclosure was made.
A shareholder's notice to the Secretary shall set forth (a) as to each
person that the shareholder proposes to nominate for election or reelection a
director, (i) the name, age,
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<PAGE> 4
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of this Corporation which are beneficially owned by the person,
and (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Schedule 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice (i) the shareholder's name and address as
they appear on this Corporation's books, and (ii) the class and number of
shares of this Corporation's stock that are beneficially owned by the
shareholder on the date of such notice from the shareholder. This Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by this Corporation to determine the eligibility of such
proposed nominee to serve as a director of this Corporation.
The presiding officer of the meeting shall determine and declare at
the meeting whether the nomination was made in accordance with the terms of
this Article VII. If the presiding officer determines that a nomination was
not made in accordance with the terms of this Article VII, he shall so declare
at the meeting and any such defective nomination shall be disregarded.
The names and street addresses of the initial directors are:
<TABLE>
<CAPTION>
Name Address Class
---- ------- -----
<S> <C> <C>
David E. Garner 11405 Bluegrass Parkway
Louisville, Kentucky 40299 III
Linda McClintock-Greco, M.D. 300 South Ashley Drive
Tampa, FL 33602 II
William L. Bennett 3501 Frontage Road
Tampa, Florida 33607 II
James K. Murray, Jr. 3501 Frontage Road
Tampa, Florida 33607 III
John H. Sykes 100 North Tampa Street
Suite 3900
Tampa, Florida 33602 I
</TABLE>
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<PAGE> 5
ARTICLE VIII. SHAREHOLDER MEETINGS
At an annual meeting of shareholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, the Board of
Directors, or (b) by any shareholder of this Corporation who complies with the
notice procedures set forth in this Article VIII and the requirements of Rule
14a-8 under the Securities Exchange Act of 1934.
For a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of this Corporation. To be timely, a shareholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of this Corporation not less than 60 days prior to the scheduled annual
meeting, regardless of any postponements, deferrals, or adjournments of that
meeting to a later date; however, if less than 70 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the shareholder, to be timely, must be so delivered or received not later
than the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was given or the
day on which such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name
and address, as they appear on this Corporation's books, of the shareholder
proposing such business and any other shareholders known by such shareholder to
be supporting such proposal, (c) the class and number of shares of this
Corporation's stock that are beneficially owned by the shareholder on the date
of such shareholder notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder
notice, and (d) any financial interest of the shareholder in such proposal.
The presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the shareholder proposal was made in
accordance with the terms of this Article VIII. If the presiding officer
determines that a shareholder proposal was not made in accordance with the
terms of this Article VIII, he shall so declare at the annual meeting and any
such proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors, and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed,
and received as herein provided.
Special meetings of the shareholders of this Corporation for any
purpose or purposes may be called at any time by (a) the Board of Directors;
(b) the Chairman of the Board of Directors (if one is so appointed); (c) the
President of this Corporation; or (d) by holders of not less than 25% of all
the votes entitled to be cast on any issue proposed to be considered at the
proposed
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<PAGE> 6
special meeting, if such shareholders sign, date and deliver to this
Corporation's Secretary one or more written demands for the meeting describing
the purpose or purposes for which it is to be held. Special meetings of the
shareholders of this Corporation may not be called by any other person or
persons.
At any special meeting of shareholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been set
forth in the notice of such special meeting.
After the date on which a Registration Statement, filed by the
Corporation with the U.S. Securities and Exchange Commission under the
Securities Act of 1993 for an initial offering of its common stock in an
underwritten public offering, becomes effective, and the shares described in
such Registration Statement are sold, any action required or permitted to be
taken at any annual or special meeting of shareholders of this Corporation may
be taken only upon the vote of such shareholders at an annual or special
meeting duly called in accordance with the terms of this Article VIII, and may
not be taken by written consent of such shareholders.
ARTICLE IX. FAIR PRICE PROVISIONS
A. Higher Vote for Certain Business Transactions. In addition to any
affirmative vote required by law or these Restated Articles of Incorporation or
the Bylaws of the Corporation, and except as otherwise expressly provided in
Section C of this Article IX:
(1) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Shareholder (as hereinafter defined) or (b) any other company (whether
or not itself an Interested Shareholder) which is or after such merger
or consolidation would be an Affiliate (as hereinafter defined) or
Associate (as hereinafter defined) of an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or its Affiliate or Associate,
involving any assets or securities of the Corporation or any
Subsidiary; or
(3) the adoption of any plan or proposal for the termination,
liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Shareholder or its Affiliate or Associate; or
(4) any reclassification of securities (including any reverse
stock split) or recapitalization of the Corporation or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Shareholder) that has the effect, directly or indirectly,
of increasing the proportionate share of any class or series of Common
Stock (as hereinafter
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<PAGE> 7
defined), or any securities convertible into Common Stock or into
equity securities of the Corporation or any Subsidiary, that is
beneficially owned by any Interested Shareholder or its Affiliate or
Associate; or
(5) any tender offer or exchange offer made by the Corporation
for shares of Common Stock which may have the effect of increasing an
Interested Shareholder's percentage beneficial ownership (as
hereinafter defined) so that following the completion of the tender
offer or exchange offer the Interested Shareholder's percentage
beneficial ownership of the outstanding Common Stock may exceed 110%
of the Interested Shareholder's percentage beneficial ownership
immediately prior to the commencement of such tender offer or exchange
offer; or
(6) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or its
Affiliate or Associate having an aggregate Fair Market Value (as
hereinafter defined) in excess of $25,000,000; or
(7) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (1)
to (6),
shall require : (a) the affirmative vote of the holders of Voting Stock (as
hereinafter defined) representing shares equal to at least eighty percent (80%)
of the then issued and outstanding Voting Stock of the Corporation; and (b) the
affirmative vote of a majority of the then issued and outstanding Voting Stock
of the Corporation, excluding any shares of Voting Stock beneficially owned by
such Interested Shareholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required by law, or that a lesser
percentage may be specified by law or any agreement with any national
securities exchange or otherwise.
B. Definition of "Business Combination." For the purposes of this
Article IX the term "Business Combination" shall mean any transaction that is
referred to in any one or more of clauses (1) through (6) of Section A of this
Article IX.
C. When Higher Vote is Not Required. The provisions of the preceding
Paragraph A shall not be applicable to any particular Business Combination, and
such Business Combination shall require only such affirmative vote, if any, as
is required by law or by any other provision of these Restated Articles of
Incorporation or the Bylaws of the Corporation or any agreement with any
national securities exchange, if all of the conditions specified in either of
the following Paragraphs (1) or (2) are met or, in the case of a Business
Combination not involving the payment of consideration to the holders of the
Corporation's outstanding Common Stock, if the condition specified in the
following Paragraph (1) is met:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined);
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(2) All of the following conditions shall have been met with
respect to the outstanding Common Stock, whether or not the Interested
Shareholder has previously acquired beneficial ownership of any shares
of the Common Stock:
(a) The aggregate amount of cash and the Fair Market Value,
as of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
the Common Stock in such Business Combination shall be at least equal
to the highest amount determined under clauses (i), (ii), (iii), and
(iv) below:
(i) the highest per share price (including any
brokerage commissions, transfer taxes, and soliciting
dealers' fees) paid by or on behalf of the Interested
Shareholder for any share of the Common Stock in connection
with the acquisition by the Interested Shareholder of
beneficial ownership of shares of the Common Stock (x)
within the two-year period immediately prior to the first
public announcement of the proposed Business Combination
(the "Announcement Date") or (y) in the transaction in which
it became an Interested Shareholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision, or reclassification with
respect to the Common Stock;
(ii) the Fair Market Value per share of the Common
Stock on the Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher, as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to the Common Stock;
(iii) the price per share equal to the Fair Market
Value per share of the Common Stock determined pursuant to
the immediately preceding clause (ii), multiplied by the
ratio of (x) the highest price per share (including any
brokerage commissions, transfer taxes, and soliciting
dealers' fees) paid by or on behalf of the Interested
Shareholder for any share of the Common Stock in connection
with the acquisition by the Interested Shareholder of
beneficial ownership of shares of the Common Stock within
the two-year period immediately prior to the Announcement
Date, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to
the Common Stock, to (y) the Fair Market Value per share of
the Common Stock on the first day in such two-year period on
which the Interested Shareholder acquired beneficial
ownership of any shares of the Common Stock, as adjusted for
any subsequent stock split, stock dividend, subdivision, or
reclassification with respect to Common Stock; and
(iv) the Corporation's net income per share of the
Common Stock for the four full consecutive fiscal quarters
immediately preceding the Announcement
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<PAGE> 9
Date, multiplied by the higher of the then price/earnings
multiple (if any) of such Interested Shareholder or the
highest price/earnings multiple of the Corporation
within the two-year period immediately preceding the
Announcement Date.
(b) The consideration to be received by holders of the
Common Stock shall be in an amount greater than or equal to the
cash or in the same form as previously has been paid by or on
behalf of the Interested Shareholder in connection with its
acquisition of beneficial ownership of shares of such Common
Stock.
(c) After the Determination Date and prior to the
consummation of such Business Combination: (i) there shall have
been no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any stock split,
stock dividend, or subdivision of the Common Stock), except as
approved by a majority of the Continuing Directors (as
hereinafter defined); (ii) there shall have been an increase in
the annual rate of dividends paid on the Common Stock as
necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization, or any similar
transaction that has the effect of reducing the number of
outstanding shares of Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Continuing Directors; and (iii) such Interested Shareholder shall
not have become the beneficial owner of any additional shares of
Common Stock except as part of the transaction that results in
such Interested Shareholder becoming an Interested Shareholder
and except in a transaction that, after giving effect thereto,
would not result in any increase in the Interested Shareholder's
percentage of beneficial ownership of Common Stock.
(d) After the Determination Date, such Interested
Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder of the
Corporation), of any loans, advances, guarantees, pledges, or
other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in anticipation
of or in connection with such Business Combination or otherwise.
(e) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Act") (or any subsequent
provisions amending or replacing such Act, rules or regulations)
shall be mailed to all shareholders of the Corporation at least
30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required
to be mailed pursuant to the Act or subsequent provisions). The
proxy or information statement shall contain on the first page
thereof, in a prominent place, any statement as to the
advisability of the Business Combination that the Continuing
Directors, or any of them, may choose to make and, if deemed
advisable by a majority of the Continuing Directors, the opinion
of
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<PAGE> 10
an investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or unfairness) of the
terms of the Business Combination to the holders of the
outstanding shares of the Common Stock other than the Interested
Shareholder and its Affiliates or Associates.
(f) Such Interested Shareholder shall not have made any
major change in the Corporation's business or equity capital
structure without the approval of a majority of the Continuing
Directors.
D. Certain Definitions. The following definitions shall apply with
respect to this Article IX:
(1) The term "Common Stock" or "Voting Stock" means all common
stock of the Corporation authorized to be issued from time to time
that may be voted on all matters submitted to shareholders of the
Corporation generally.
(2) The term "person" means any individual, firm, company, or
other entity and shall include any group comprised of any person and
any other person with whom such person or any Affiliate or Associate
of such person has any agreement, arrangement, or understanding,
directly or indirectly, for the purpose of acquiring, holding, voting,
or disposing of the Common Stock.
(3) The term "Interested Shareholder" means any person (other
than the Corporation or any Subsidiary and other than any
profit-sharing, employee stock ownership or other employee benefit or
dividend reinvestment plan of the Corporation or any Subsidiary or any
trustee of or fiduciary with respect to any such plan when acting in
such capacity) who (a) is the beneficial owner of Voting Stock
representing five percent (5%) or more of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock; or
(b) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the Announcement Date
was the beneficial owner of Voting Stock representing five percent
(5%) or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock.
(4) A person is a "beneficial owner" of any Common Stock (a)
that such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly, (b) that such person or any of its
Affiliates or Associates beneficially owns, directly or indirectly,
(i) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any
agreement, arrangement, or understanding, or upon the exercise of
conversion rights, exchange rights, warrants, or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement, or understanding; or (c) that is beneficially owned,
directly or indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement, or
understanding. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Paragraph 4 of this Section D, the
number of shares of Common
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<PAGE> 11
Stock deemed to be outstanding shall include shares deemed
beneficially owned by such person through application of Paragraph 5
of this Section D, but shall not include any other shares of Common
Stock that may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise.
(5) An "Affiliate" of a specified person is a person that
directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the person
specified. The term "Associate," used to indicate a relationship with
any person, means (a) any company (other than the Corporation or any
Subsidiary) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent (10%) or
more of any class of equity securities, (b) any trust or other estate
in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary
capacity, and (c) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who
is a director or officer of the Corporation or any of its parent
corporations or Subsidiaries.
(6) The term "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in Paragraph (3) of
this Section D, the term "Subsidiary" shall mean only a company of
which a majority of each class of equity security is beneficially
owned by the Corporation.
(7) The term "Continuing Director" means any member of the Board
of Directors of the Corporation (the "Board of Directors") who, while
such person is a member of the Board of Directors, is not an Affiliate
or Associate or representative of any Interested Shareholder and who
was a member of the Board of Directors prior to the time that any
Interested Shareholder became an Interested Shareholder, and any
successor of a Continuing Director, who, while such successor is a
member of the Board of Directors, is not an Affiliate or Associate or
representative of any Interested Shareholder and who is recommended or
elected to succeed the Continuing Director by a majority of Continuing
Directors.
(8) The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the principal United States
securities exchange registered under the Act on which such stock is
listed, or, if such stock is not listed on any such exchange, or if no
such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
Continuing Directors in good faith, and (c) in the case of property
other than cash or stock, the fair market value of such property on
the date in question as determined in good faith by a majority of the
Continuing Directors.
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<PAGE> 12
(9) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraphs 2(a) and 2(b) of Section C of this
Article IX shall include the shares of Common Stock or the shares of
any other class of Voting Stock retained by the holders of such
shares, or both.
E. Powers of the Continuing Directors. A majority of the Continuing
Directors shall have the power and duty to determine for purposes of this
Article IX, on the basis of information known to them after reasonable inquiry,
(1) whether a person is an Interested Shareholder, (2) the number of shares of
Common Stock or other securities beneficially owned by any person, (3) whether
a person is an Affiliate or Associate of another, and (4) whether the assets
that are the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has, an aggregate Fair Market Value
in excess of the amount set forth in clause (6) of Section A of this Article
IX.
Any such determination made in good faith by a majority of the
Continuing Directors shall be binding and conclusive for all the purposes of
this Article IX.
F. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article IX shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
G. No Effect on Fiduciary Obligation of Directors. The fact that
any Business Combination complies with the provisions of Section C, Paragraph 2
of this Article IX shall not be construed to impose any fiduciary duty,
obligation or responsibility on the Board of Directors, or any member thereof,
to approve such Business Combination or recommend its adoption or approval to
the shareholders of the Corporation, nor shall such compliance limit, prohibit,
or otherwise restrict in any manner the Board of Directors, or any member
thereof, with respect to evaluations of or actions and responses taken with
respect to such Business Combination.
ARTICLE X. BYLAWS
The power to adopt, alter, amend, or repeal bylaws shall be vested in
the Board of Directors and the shareholders, except that the Board of Directors
may not amend or repeal any bylaw adopted by the shareholders if the
shareholders specifically provide that the bylaw is not subject to amendment or
repeal by the directors.
ARTICLE XI. AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal
any provision in these Articles of Incorporation in the manner now or hereafter
prescribed by statute, and all
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<PAGE> 13
rights conferred upon the shareholders herein are subject to this reservation.
Notwithstanding anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of at least 66-2/3% of the outstanding shares of
common stock of this Corporation shall be required to amend or repeal Articles
VII, VIII or IX of these Articles of Incorporation or to adopt any provision
inconsistent therewith.
The foregoing Amended and Restated Articles of Incorporation were
adopted and approved by the Board of Directors and by the shareholders, in
accordance with Section 607.1003 of the Florida Statutes, on April __, 1998.
The number of votes for the amendments contained herein were sufficient for
shareholder approval of such amendments.
The undersigned officer of the Corporation has executed these Amended
and Restated Articles of Incorporation this _____ day of April, 1998.
SYKES HEALTHPLAN SERVICES, INC.
By:___________________________________
David E. Garner
President and Chief Executive Officer
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<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED
BYLAWS OF
SYKES HEALTHPLAN SERVICES, INC.
(DATED MARCH 25, 1998)
ARTICLE I. MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
shareholders of the Corporation for the election of directors and the
transaction of other business shall be held on the date and at the time and
place that the board of directors determines, in compliance with Article IX of
the Articles of Incorporation. If any annual meeting is not held, by oversight
or otherwise, a special meeting shall be held as soon as practical, and any
business transacted or election held at that meeting shall be as valid as if
transacted or held at the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders for any purpose shall be held when called in accordance with
Article IX of the Articles of Incorporation.
SECTION 3. PLACE. Meetings of shareholders may be held
either within or outside the State of Florida.
SECTION 4. NOTICE. A written notice of each meeting of
shareholders, stating the place, day, and time of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered to each shareholder of record entitled to vote at the
meeting, not less than ten nor more than sixty days before the date set for the
meeting, either personally or by first-class mail, by or at the direction of
the president, the secretary, or the officer or other persons calling the
meeting.
SECTION 5. WAIVERS OF NOTICE. Whenever any notice is
required to be given to any shareholder of the Corporation under these bylaws,
the Articles of Incorporation, or the Florida Business Corporation Act, a
written waiver of notice, signed anytime by the person entitled to notice shall
be equivalent to giving notice. Attendance by a shareholder entitled to vote
at a meeting, in person or by proxy, shall constitute a waiver of (a) notice of
the meeting, except when the shareholder attends a meeting solely for the
purpose, expressed at the beginning of the meeting, of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, and (b) an objection to consideration of a particular matter at the
meeting that is not within the purpose of the meeting unless the shareholders
object to considering the matter when it is presented.
SECTION 6. RECORD DATE. For the purpose of determining the
shareholders for any purpose, the board of directors may either require the
stock transfer books to be closed for up to seventy days or fix a record date,
which shall be not more than seventy days before the date on which the action
requiring the determination is to be taken. However, a record date shall not
precede the date upon which the resolution fixing the record date is adopted.
If the transfer books are not closed and no record date is set by the board of
directors, the record date
<PAGE> 2
shall be determined as follows: For determining shareholders entitled to
demand a special meeting, the record date is the date the first such demand is
delivered to the Corporation; For determining shareholders entitled to a share
dividend, the record date is the date the board of directors authorizes the
dividend; If no prior action is required by the board of directors pursuant to
the Florida Business Corporation Act, the record date for determining
shareholders entitled to take action without a meeting is the date the first
signed written consent is delivered to the Corporation; If prior action is
required by the board of directors pursuant to the Florida Business Corporation
Act, the record date for determining shareholders entitled to take action
without a meeting is at the close of business on the day that the board of
directors adopts a resolution taking such prior action; and for determining
shareholders entitled to notice of and to vote at an annual or special
shareholders meeting the record date is as of the close of business on the day
before the first notice is delivered to the shareholders. When a determination
of the shareholders entitled to vote at any meeting has been made, that
determination shall apply to any adjournment of the meeting, unless the board
of directors fixes a new record date. The board of directors shall fix a new
record date if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
SECTION 7. SHAREHOLDER'S LIST FOR MEETING. A complete
alphabetical list of the names of the shareholders entitled to receive notice
of and to vote at the meeting shall be prepared by the secretary or other
authorized agent having charge of the stock transfer book. The list shall be
arranged by voting group and include each shareholder's address, and the
number, series, and class of shares held. The list must be made available at
least ten days before and throughout each meeting of shareholders, or such
shorter time as exists between the record date and the meeting. The list must
be made available at the Corporation's principal office, registered agent's
office, transfer agent's office or at a place identified in the meeting notice
in the city where the meeting will be held. Any shareholder, his agent or
attorney, upon written demand and at his own expense may inspect the list
during regular business hours for any purpose germane to the meeting. The list
shall be available at the meeting and any shareholder, his agent or attorney is
entitled to inspect the list at any time during the meeting or its adjournment.
If the requirements of this section have not been
substantially complied with, the meeting, on the demand of any shareholder in
person or by proxy, shall be adjourned until the requirements of this section
are met. If no demand for adjournment is made, failure to comply with the
requirements of this section does not affect the validity of any action taken
at the meeting.
SECTION 8. PROXIES. Any shareholder entitled to vote at any
meeting of stockholders may vote either in person or by his attorney-in-fact.
Every proxy shall be in writing, subscribed by the shareholder or his duly
authorized attorney-in-fact, but need not be dated, sealed, witnessed or
acknowledged.
SECTION 9. SHAREHOLDER QUORUM AND VOTING. A majority of the
shares entitled to vote, represented in person or by proxy, constitutes a
quorum at a meeting of shareholders.
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If a quorum is present, the affirmative vote of a majority of the shares
entitled to vote on the matter is the act of the shareholders unless otherwise
provided in the Articles of Incorporation or by law. Each shareholder shall be
entitled to one vote for each share of stock standing in his name on the books
of the corporation and may vote either in person or by proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact. After a
quorum has been established at a shareholders' meeting, a withdrawal of
shareholders that reduces the number of shareholders entitled to vote at the
meeting below the number required for a quorum does not affect the validity of
an adjournment of the meeting or an action taken at the meeting prior to the
shareholders' withdrawal.
Authorized but unissued shares including those redeemed or
otherwise reacquired by the Corporation, and shares of stock of this
Corporation owned by another corporation the majority of the voting stock of
which is owned or controlled by this Corporation, directly or indirectly, at
any meeting shall not be counted in determining the total number of outstanding
shares at any time. The president, any vice president, the secretary, and the
treasurer of a corporate shareholder are presumed to possess, in that order,
authority to vote shares standing in the name of a corporate shareholder,
absent a bylaw or other instrument of the corporate shareholder designating
some other officer, agent, or proxy to vote the shares. Shares held by an
administrator, executor, guardian, or conservator may be voted by him without a
transfer of the shares into his name. A trustee may vote shares standing in
his name, but no trustee may vote shares that are not transferred into his
name. If he is authorized to do so by an appropriate order of the court by
which he was appointed, a receiver may vote shares standing in his name or held
by or under his control, without transferring the shares into his name. A
shareholder whose shares are pledged may vote the shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee or
his nominee shall be entitled to vote the shares unless the instrument creating
the pledge provides otherwise.
ARTICLE II. DIRECTORS
SECTION 1. FUNCTION. The business of this Corporation shall
be managed and its corporate powers exercised by the board of directors.
SECTION 2. NUMBER. The Corporation shall have seven
directors initially upon adoption of these bylaws. The number of directors may
be increased or diminished from time to time by action of the board of
directors or shareholders in accordance with these bylaws and the Articles of
Incorporation, but no decrease shall have the effect of shortening the term of
any incumbent director, unless the shareholders remove the director.
SECTION 3. QUALIFICATION. Each member of the board of
directors must be a natural person who is eighteen years of age or older. A
director need not be a resident of Florida or a shareholder of the Corporation.
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<PAGE> 4
SECTION 4. ELECTION AND TERM. The persons named in the
Articles of Incorporation as members of the initial board of directors shall
hold office for the term provided therein or until their earlier resignation,
removal from office, or death. In accordance with the Articles of
Incorporation, the shareholders shall elect successors to the directors at each
annual meeting to replace the class of directors whose terms are expiring. The
new class of directors shall hold office for the term expiring at the third
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor is elected and qualifies or until
his earlier resignation, removal from office, or death.
SECTION 5. COMPENSATION. The board of directors has
authority to fix the compensation of the directors, as directors and as
officers.
SECTION 6. DUTIES OF DIRECTORS. A director shall perform his
duties as a director, including his duties as a member of any committee of the
board upon which he serves, in good faith, in a manner he reasonably believes
to be in the best interests of the Corporation.
SECTION 7. PRESUMPTION OF ASSENT. A director of the
Corporation who is present at a meeting of the board of directors or a
committee of the board of directors when corporate action is taken is presumed
to have assented to the action unless he votes against it or expressly abstains
from voting on the action taken, or, he objects at the beginning of the meeting
to the holding of the meeting or transacting specific business at the meeting.
SECTION 8. VACANCIES. Any vacancy occurring in the board of
directors resulting from death, resignation, disqualification, removal or other
cause, including any vacancy created because of an increase in the number of
directors, shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even if the number of remaining directors
does not constitute a quorum of the board of directors. A director elected to
fill a vacancy shall hold office only until the next election of directors by
the shareholders.
SECTION 9. REMOVAL OR RESIGNATION OF DIRECTORS. At a meeting
of shareholders called for that purpose, the shareholders, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors, may remove any director, or the entire board of directors, with
cause, and fill any vacancy or vacancies created by the removal.
A director may resign at any time by delivering written notice
to the board of directors or its chairman or the Corporation. A resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. If a resignation is made effective at a later date, the board
of directors may fill the pending vacancy before the effective date provided
that the successor does not take office until the effective date.
SECTION 10. QUORUM AND VOTING. A majority of the board of
directors constitutes a quorum for the transaction of business. The act of the
majority of the directors at a meeting at which a quorum is present is the act
of the board of directors.
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SECTION 11. PLACE OF MEETINGS. Regular and special meetings
by the board of directors may be held within or outside the State of Florida.
SECTION 12. REGULAR MEETINGS. A regular meeting of the board
of directors shall be held without notice, other than this bylaw, immediately
after and at the same place as the annual meeting of shareholders. The board
of directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than the resolution.
SECTION 13. SPECIAL MEETINGS. Special meetings of the board
of directors may be called by or at the request of the president or any
directors.
SECTION 14. NOTICE OF MEETINGS. Written notice of the time
and place of special meetings of the board of directors shall be given to each
director by either personal delivery or by first class United States mail,
telegram, or cablegram at least two days before the meeting. Notice of a
meeting of the board of directors need not be given to any director who signs a
waiver of notice either before or after the meeting. Attendance of a director
at a meeting constitutes a waiver of notice of the meeting and all objections
to the time and place of the meeting, or the manner in which it has been called
or convened, except when the director states, at the beginning of the meeting,
or promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of the meeting.
A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting are announced at the time of the adjournment, to the
other directors.
ARTICLE III. COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted
by a majority of the full board, may designate two or more of the directors to
constitute a committee and prescribe the duties, constitution and procedures
thereof. The designation of any committee pursuant to this Article III and the
delegation of authority thereto shall not operate to relieve the board of
directors, or any director, of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. If elected, the executive committee shall have
and may exercise all of the authority of the board of directors, when the board
of directors is not in session, except to the extent, if any, that such
authority shall be limited by the resolution appointing the executive
committee. In addition, no committee shall have the authority to (a) approve
or recommend to the members actions or proposals which by law must be approved
by the
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<PAGE> 6
members or the board of directors; (b) designate candidates for the office of
director; (c) fill vacancies on the board of directors or any committee
thereof; or (d) amend the bylaws.
SECTION 3. TENURE. Subject to the provision of Section 8 of this
Article III, each member of the executive committee, or any other committee,
shall hold office until the next regular annual meeting of the board of
directors following his designation and until his successor is designated as a
member of the committee.
SECTION 4. MEETINGS. Regular meetings of any committee may be held
without notice at such times and places as the committee may fix from time to
time by resolution. Special meetings of committees may be called by any member
thereof upon not less than two day's notice stating the place, date and hour of
the meeting, which notice maybe be written or oral. Any member of a committee
may waive notice of any meeting and no notice of any meeting need by given to
any member thereof who attends in person. The notice of a meeting of a
committee need not state the business proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of a committee must be authorized by the affirmative vote of a majority
of the members present at a meeting at which a quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by any committee at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the members of that committee.
SECTION 7. VACANCIES. Any vacancy on a committee may be filled by a
resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of any committee may be
removed at any time with or without cause by resolution adopted by a majority
of the full board of directors. Any member of the any committee may resign
from the committee at any time by giving written notice to the president or
secretary of the Corporation. Unless otherwise specified therein, such
resignation shall take effect upon receipt. The acceptance of such resignation
shall not be necessary to make it effective.
ARTICLE IV. OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall
consist of a president, a secretary, and a treasurer, and may include one or
more presidents of divisions, vice presidents, one or more assistant
secretaries, and one or more assistant treasurers. The officers shall be
elected initially by the board of directors at the organizational meeting of
board of directors and thereafter at the first meeting of the board following
the annual meeting of the shareholders in each year. The board from time to
time may elect or appoint other officers,
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<PAGE> 7
assistant officers, and agents, who shall have the authority and perform the
duties prescribed by the board. An elected or duly appointed officer may, in
turn, appoint one or more officers or assistant officers, unless the board of
directors disapproves or rejects the appointment. All officers shall hold
office until their successors have been appointed and have qualified or until
their earlier resignation, removal from office, or death. One person may
simultaneously hold any two or more offices. The failure to elect a president,
secretary, or treasurer shall not affect the existence of the Corporation.
SECTION 2. PRESIDENT. The president, subject to the
directions of the board of directors, shall be the chief executive officer and
be responsible for the general and active management of the business and
affairs of the Corporation, has the power to sign certificates of stock, bonds,
deeds, and contracts for the Corporation, and shall preside as chairman at all
meetings of the shareholders.
SECTION 3. VICE PRESIDENTS. Each vice president has the
power to sign bonds, deeds, and contracts for the Corporation and shall have
the other powers and perform the other duties prescribed by the board of
directors or the president. Unless the board otherwise provides, if the
president is absent or unable to act, the vice president who has served in that
capacity for the longest time and who is present and able to act shall perform
all the duties and may exercise any of the powers of the president. Any vice
president may sign, with the secretary or assistant secretary, certificates for
stock of the Corporation.
SECTION 4. SECRETARY. The secretary shall have the power to
sign contracts and other instruments for the Corporation and shall (a) keep the
minutes of the proceedings of the shareholders and the board of directors in
one or more books provided for that purpose, (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law,
(c) maintain custody of the corporate records and the corporate seal, attest
the signatures of officers who execute documents on behalf of the Corporation,
authenticate records of the Corporation, and assure that the seal is affixed to
all documents of which execution on behalf of the Corporation under its seal is
duly authorized, (d) keep a register of the post office address of each
shareholder that shall be furnished to the secretary by the shareholder, (e)
sign with the president, or a vice president, certificates for shares of stock
of the Corporation, the issuance of which have been authorized by resolution of
the board of directors, (f) have general charge of the stock transfer books of
the Corporation, and (g) in general perform all duties incident to the office
of secretary and other duties as from time to time may be prescribed by the
president or the board of directors.
SECTION 5. TREASURER. The treasurer shall (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation, (b) receive and give receipts for monies due and payable to the
Corporation from any source whatsoever, and deposit monies in the name of the
Corporation in the banks, trust companies, or other depositaries as shall be
selected by the board of directors, and (c) in general perform all the duties
incident to the office of treasurer and other duties as from time to time may
be assigned to him by the president or the board of directors. If required by
the board of directors, the treasurer shall give a bond for
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<PAGE> 8
the faithful discharge of his duties in the sum and with the surety or sureties
that the board of directors determines.
SECTION 6. REMOVAL OF OFFICERS. An officer or agent elected
or appointed by the board of directors or appointed by another officer may be
removed by the board whenever in its judgment the removal of the officer or
agent will serve the best interests of the Corporation. Any officer or
assistant officer, if appointed by another officer, may likewise be removed by
such officer. Removal shall be without prejudice to any contract rights of the
person removed. The appointment of any person as an officer, agent, or
employee of the Corporation does not create any contract rights. The board of
directors may fill a vacancy, however occurring, in any office.
An officer may resign at any time by delivering notice to the
Corporation. A resignation is effective when the notice is delivered unless
the notice specifies a later effective date. If a resignation is made
effective at a later date, its board of directors may fill the pending vacancy
before the effective date if the board of directors provides that the successor
does not take office until the effective date. An officer's resignation does
not affect the officer's contract rights, if any, with the Corporation.
SECTION 7. SALARIES. The board of directors from time to
time shall fix the salaries of the officers, and no officer shall be prevented
from receiving his salary merely because he is also a director of the
Corporation.
ARTICLE V. INDEMNIFICATION
Any person, his heirs, or personal representative, made, or
threatened to be made, a party to any threatened, pending, or completed action
or proceeding, whether civil, criminal, administrative, or investigative,
because he is or was a director, officer, employee, or agent of this
Corporation or serves or served any other corporation or other enterprise in
any capacity at the request of this Corporation, shall be indemnified by this
Corporation, and this Corporation may advance his related expenses to the full
extent permitted by Florida law. In discharging his duty, any director,
officer, employee, or agent, when acting in good faith, may rely upon
information, opinions, reports, or statements, including financial statements
and other financial data, in each case prepared or presented by (1) one or more
officers or employees of the Corporation whom the director, officer, employee,
or agent reasonably believes to be reliable and competent in the matters
presented, (2) counsel, public accountants, or other persons as to matters that
the director, officer, employee, or agent believes to be within that person's
professional or expert competence, or (3) in the case of a director, a
committee of the board of directors upon which he does not serve, duly
designated according to law, as to matters within its designated authority, if
the director reasonably believes that the committee is competent. The
foregoing right of indemnification or reimbursement shall not be exclusive of
other rights to which the person, his heirs, or personal representatives may be
entitled. The Corporation may, upon the affirmative vote of a majority of its
board of directors, purchase insurance for the
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<PAGE> 9
purpose of indemnifying these persons. The insurance may be for the benefit of
all directors, officers, or employees.
ARTICLE VI. STOCK CERTIFICATES
SECTION 1. ISSUANCE. Shares may but need not be represented
by certificates. The board of directors may authorize the issuance of some or
all of the shares of the Corporation of any or all of its classes or series
without certificates. If certificates are to be issued, the share must first
be fully paid.
SECTION 2. FORM. Certificates evidencing shares in this
Corporation shall be signed by the president or a vice president and the
secretary, assistant secretary or any other officer authorized by the board of
directors, and may be sealed with the seal of this Corporation or a facsimile
of the seal. Unless the Corporation's stock is registered pursuant to every
applicable securities law, each certificate shall bear an appropriate legend
restricting the transfer of the shares evidenced by that certificate.
SECTION 3. LOST, STOLEN, OR DESTROYED CERTIFICATES. The
Corporation may issue a new certificate in the place of any certificate
previously issued if the shareholder of record (a) makes proof in affidavit
form that the certificate has been lost, destroyed, or wrongfully taken, (b)
requests the issue of a new certificate before the Corporation has notice that
the certificate has been acquired by the purchaser for value in good faith and
without notice of any adverse claim, (c) if requested by the Corporation, gives
bond in the form that the Corporation directs, to indemnify the Corporation,
the transfer agent, and the registrar against any claim that may be made
concerning the alleged loss, destruction, or theft of a certificate, and (d)
satisfies any other reasonable requirements imposed by the Corporation.
SECTION 4. RESTRICTIVE LEGEND. Every certificate evidencing
shares that are restricted as to sale, disposition, or other transfer shall
bear a legend summarizing the restriction or stating that the Corporation will
furnish to any shareholder, upon request and without charge, a full statement
of the restriction.
ARTICLE VII. DIVIDENDS
The board of directors from time to time may declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law.
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ARTICLE VIII. SEAL
The corporate seal shall have the name of the Corporation and
the word "seal" inscribed on it, and may be a facsimile, engraved, printed, or
an impression seal.
ARTICLE IX. AMENDMENT
These bylaws may be repealed or amended, and additional bylaws
may be adopted, by either a vote of a majority of the full board of directors
or by vote of the holders of a majority of the issued and outstanding shares
entitled to vote, but the board of directors may not amend or repeal any bylaw
adopted by the shareholders if the shareholders specifically provide that the
bylaw is not subject to amendment or repeal by the directors. In order to be
effective, any amendment approved hereby must be in writing and attached to
these bylaws.
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<PAGE> 1
Exhibit 4.1
SHAREHOLDER AGREEMENT
by and among
SYKES ENTERPRISES, INCORPORATED
and
HEALTHPLAN SERVICES CORPORATION
=============================================================================
December 18, 1997
=============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. ORGANIZATION AND PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Scope and Purpose of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5. Registered Office/Location of Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. Authorized Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. No Partnership or Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Initial Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Lending Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. VOTING OF SHARES AND GOVERNANCE OF NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2. Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5. Actions by Board of Directors to Follow Shareholder Consent . . . . . . . . . . . . . . . . . . . . 5
3.6. Actions by Board of Directors Requiring a Super Majority Vote . . . . . . . . . . . . . . . . . . . 5
3.7. Budget and Business Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.11. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12. Severance of Business Relationship Upon Deadlock of Board of Directors or Investor Shareholders
or Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. PREEMPTIVE RIGHTS, RIGHT OF FIRST REFUSAL, TAG-ALONG RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2. Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3. Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4. Sale of Shares to a Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5. Determination of Share Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6. Remedy for Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7. Endorsement on Certificates Evidencing Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
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5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1. Noncompetition; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3. Subcontract for Existing Call Center Services of HPS . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4. Support Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5. Sykes Call Center Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6. Guarantee of Acquisition Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. CONDITIONS PRECEDENT TO OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1. Representations and Warranties True on the Closing Date . . . . . . . . . . . . . . . . . . . . . . 21
7.2. Compliance With Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3. Absence of Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.1. Documents to be Delivered by Sykes and HPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.2. Organization Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1. Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3. Consequences of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4. Dissolution of Newco Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10. FURTHER ASSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11. DISCLOSURES AND ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12. ASSIGNMENT; PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.1. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.2. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.1. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.2. Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<TABLE>
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13.3. Procedures; No Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.4. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.5. Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.7. Continued Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.8. Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.9. Expenses of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14. LAW GOVERNING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15. AMENDMENT AND MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.1. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.2. Pre-Closing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.3. Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.4. Costs of Litigation or Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
18. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
19. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
20. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21. FURTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Articles of Incorporation of Newco
Exhibit B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bylaws of Newco
Exhibit C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan Agreements
Exhibit D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes
</TABLE>
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<PAGE> 5
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is made and entered into on
December 18, 1997, by and among SYKES ENTERPRISES, INCORPORATED, a Florida
corporation ("Sykes"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("HPS") (Sykes and HPS are sometimes referred to individually as an
"Investor Shareholder" and together with those persons signing from time to
time as a shareholder are referred to individually as a "Shareholder" and
collectively as the "Shareholders").
Upon the formation of Sykes HealthPlan Services, Inc. ("Newco")
pursuant to Section 1.1 below, Newco shall also become a party to this
Agreement.
WHEREAS:
A. HPS is a provider of marketing, administration and risk
management services and solutions for health and other benefit programs;
B. Sykes provides information technology outsourcing services,
including information technology support services and information technology
development services and solutions;
C. Sykes and HPS desire to establish a new business venture for
the purpose of providing information technology support services through call
centers for health insurance, managed care and other benefit programs;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. ORGANIZATION AND PURPOSE
1.1. Formation. As soon as practicable following the execution of
this Agreement and pursuant to the terms and conditions of this Agreement,
Sykes and HPS shall organize a new Florida corporation.
1.2. Name. The name of Newco shall be Sykes HealthPlan Services,
Inc. If such name is unavailable, Sykes and HPS shall promptly agree on
another name.
1.3. Scope and Purpose of Business. The purpose of Newco shall be
to build, own and operate call centers focused on customer services related to
the insurance industry, health care management services and such other health
industry related services as may be approved from time to time by the requisite
vote of the Board of Directors of Newco, and to market and sell such services
throughout the United States.
<PAGE> 6
1.4. Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of Newco shall be substantially in the form of
Exhibits A and B hereto, respectively. Each of the Shareholders shall take,
and shall cause the director or directors of Newco elected by it to take, all
actions necessary to ensure that the Articles of Incorporation and Bylaws of
Newco do not at any time conflict with the provisions of this Agreement.
1.5. Registered Office/Location of Facilities. The administrative
offices of Newco shall first be located at Tampa, Florida.
1.6. Authorized Capital. The aggregate number of shares which
Newco shall initially have authority to issue shall be Ten Million (10,000,000)
shares of Class A voting common stock having a par value of $.01 per share (the
"Shares") and Two Million (2,000,000) shares of Class B nonvoting common stock
having a par value of $.01 per share.
1.7. No Partnership or Joint Venture. The parties acknowledge that
Newco, as a newly formed Florida corporation, constitutes an independent and
distinct legal entity. Neither this Agreement nor any other document delivered
in connection herewith, nor any prior agreements, actions or omission shall in
any respect be interpreted, deemed or construed as making any Shareholder a
partner or joint venturer with Newco or any other Shareholder or any of them,
and the parties agree not to make any contrary assertion, contention, claim or
counterclaim in any action, suit or other legal proceeding.
2. CAPITAL CONTRIBUTIONS
2.1. Initial Contributions. At the Closing, Sykes and HPS shall
each subscribe for and make initial capital contributions to Newco of
$2,959,200.
2.2. Method of Payment. All payments under this Article 2 shall be
made by wire transfer of immediately available funds to an account designated
by the recipient not less than 48 hours prior to the time for payment specified
herein.
2.3. Lending Commitment.
(a) At the Closing, Sykes and HPS shall each commit to
make available to Newco a term loan in the amount of $9,040,800 which shall be
drawn upon by Newco from time to time in increments of $100,000 (the "Loans").
The Loans shall require quarterly interest only payments with all outstanding
principal and interest due three (3) years from the date hereof. Such lending
commitment and loan shall be evidenced, and described in further detail, by
Loan Agreements in the forms of each Exhibit C hereto (the "Loan Agreements"),
and the related forms of promissory notes of Newco also included in Exhibit D
hereto (the "Notes").
(b) Sykes and HPS shall each fund 50% of the total Loans.
All payments by Newco of principal and interest shall be applied pro rata to
the respective loans from Sykes and
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HPS. Sykes and HPS further covenant among themselves that in the event action
to collect the Loans becomes necessary or desirable, Sykes and HPS shall
coordinate and cooperate, in good faith, to collect the Loans and shall share
the net proceeds (after payment of all costs and expenses of collection,
including reasonable attorneys fees) ratably so that Sykes and HPS each receive
simultaneous payment of an amount that is equal to the ratio of (A) the total
amount of indebtedness of Newco owed to each of them on the Loans, respectively,
from time to time, and at each relevant time, to (B) the aggregate amount of
indebtedness of Newco to both of them on the Loans, from time to time, and at
each relevant time until the aggregate indebtedness of Newco to each of them has
been paid in full. Sykes and HPS shall promptly give written notice to the
other of the occurrence of a "default" or "event of default" or any condition or
event that, with notice or lapse of time, or both, would give such party the
right to accelerate payment of any indebtedness of Newco owed to it under any
agreement, instrument or document to which Newco is a party. Sykes and HPS also
shall promptly give written notice to the other if it demands payment of, or
takes action to collect, its Loan. Sykes and HPS covenant among themselves that
they shall not amend their respective Loan Agreements or take any collateral or
security for their Loans without the consent of the other, it being the
intention of both that their Loan Agreements should contain identical provisions
to make their Loans pari passu to the greatest extent possible. Sykes and HPS
covenant among themselves to execute and deliver such other and further
documents and instruments as may be necessary or desirable to implement fully or
evidence further the provisions of this Section 2.3.(b).
(c) The parties acknowledge that if either Investor
Shareholder defaults in its obligations to fund its share of the Loans, as
provided in subsections (a) and (b) above, and such borrowing has previously
been approved by Newco's Board of Directors pursuant to the terms of the annual
Budget adopted in accordance with Section 3.6, then the nondefaulting Investor
Shareholder shall have the right, but not the obligation, to fund the shortfall
pursuant to a senior convertible note issued by Newco and Newco shall have the
right to borrow from the nondefaulting Investor Shareholder upon the following
terms and conditions: (i) the loan shall be due and payable on demand; (ii)
Newco shall pay interest on the principal balance at five percent (5%) in
excess of the 30-day LIBOR Rate; (iii) the senior convertible note (which shall
be subordinate to Newco's senior bank credit facility) shall be senior in
payment and priority to all Loans payable to either Investor Shareholder; (iv)
at the option of the nondefaulting Investor Shareholder, the senior convertible
note shall be convertible, in whole or in part, into Shares, at a conversion
price per share equal to the original purchase price paid for Shares at Closing
(determined by dividing the initial capital contributions from the Investor
Shareholders to Newco by the total number of Shares issued to the Investor
Shareholders, with an appropriate adjustment for any stock splits) if the
defaulting Investor Shareholder does not refinance the senior convertible note
(i.e., fund its pro rata share of all Loans so that the senior convertible note
is repaid by Newco), within six months of the date funds are advanced by the
nondefaulting Investor Shareholder; and (v) if any Investor Shareholder
converts more than $5 million (in the aggregate) of senior convertible notes to
Shares, the super majority voting requirements (including Sections 3.5 and
3.6), voting agreement concerning election of directors (including Section 3.2,
3.3 and 3.4) and all other provisions of this Agreement designed to give shared
control of Newco to each
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Investor Shareholder shall no longer apply, thereby providing, among other
things, that the nondefaulting Investor Shareholder shall have control of
Newco's Board of Directors. The Shareholders and Newco shall have the right to
implement this subsection (c) and Newco shall have the right to borrow pursuant
to the senior convertible notes contemplated herein, without any further
approval or action by any Shareholder or any director nominated or designated by
the defaulting Investor Shareholder, and the Shareholders covenant among
themselves to take such further actions and to execute and deliver such other
and further documents and instruments as may be necessary or desirable to
implement fully or evidence further the provisions of the Section 2.3(c).
(d) The parties acknowledge and confirm that Sykes and
HPS are arm's length lenders with respect to the Loans. The parties
acknowledge that Sykes and HPS shall exercise their respective remedies under
the Notes and Loan Agreements to collect the Loans if Newco defaults.
2.4. Issuance of Shares. In exchange for the initial capital
contribution described in Section 2.1, Sykes and HPS each shall be issued
5,000,000 Shares at the Closing.
3. VOTING OF SHARES AND GOVERNANCE OF NEWCO
3.1. Number of Directors. Each Shareholder agrees to vote its
Shares and all Shares as to which the Shareholder is entitled to exercise
voting power at any meeting of shareholders in favor of a resolution fixing the
number of directors of Newco at two (2), or such greater number as Sykes and
HPS may mutually agree from time to time.
3.2. Voting Agreement. Each Shareholder agrees to vote its Shares
in favor of one individual (or if the number of directors is increased to more
than two, one-half of the total directors at each relevant time) who shall be
nominated as a director by Sykes (the "Sykes Directors") and in favor of one
individual (or if the number of directors is increased to more than two,
one-half of the total directors at each relevant time) who shall be nominated
as a director by HPS (the "HPS Directors").
3.3. Vacancies. In the event of a vacancy on the Board of
Directors with respect to a Sykes Director, each Shareholder agrees to vote its
Shares and all Shares as to which the Shareholder is entitled to exercise
voting power for any individual nominated in writing by Sykes; and in the event
of a vacancy on the Board of Directors with respect to a HPS Director, each
Shareholder agrees to vote its Shares and all Shares as to which the
Shareholder is entitled to exercise voting power for an individual nominated in
writing by HPS. Until any such vacancy is filled, the Board of Directors shall
not take any action unless the Shareholder with the right to fill the vacancy
consents in writing.
3.4. Removal. Newco agrees to call meetings of its Board of
Directors to be held at least quarterly. If at any time between meetings of
Shareholders of Newco, Sykes or HPS shall
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request the right to remove one or more of the Sykes Directors or one or more of
the HPS Directors, respectively, which were originally nominated by such party
or to elect or appoint to the Board of Directors a nominee to which it is
entitled pursuant to this Article 3, each party hereto shall use its best
efforts to bring about the immediate removal of such director or the election or
appointment of such nominee to the Board of Directors, as the case may be.
3.5. Actions by Board of Directors to Follow Shareholder Consent.
The Board of Directors shall not take any of the following actions, except upon
the prior affirmative vote of not less than 90% of the total number of the then
outstanding shares of the capital stock of Newco entitled to vote thereon, or
with the written consent of such Shareholders:
(a) sale of all or substantially all of the assets of
Newco or any of its subsidiaries;
(b) any material acquisition (including acquisition of
stock or assets) of any other company, business or enterprise;
(c) any merger or consolidation involving Newco or any of
its subsidiaries or the dissolution or liquidation of Newco or any of its
subsidiaries;
(d) any payment of any dividend in cash or property other
than cash by Newco or redemption of any Shares;
(e) any recapitalization, restatement of assets,
reduction of capital or other change in the capitalization of Newco or its
subsidiaries;
(f) any issuance or reissuance or agreement to issue or
reissue any capital stock of Newco or any option or warrant for, or any
security convertible into, any capital stock of Newco;
(g) any filing of any registration statement of the
Securities Act of 1933, as amended;
(h) the amendment to the Articles of Incorporation or
Bylaws of Newco;
(i) the acquisition by Newco of material assets unrelated
to the business described in Section 1.3 of this Agreement; or
(j) engaging in a material line of business other than
the business described in Section 1.3 of this Agreement.
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3.6. Actions by Board of Directors Requiring a Super Majority Vote.
The Board of Directors shall not take any of the following actions, except upon
the prior affirmative vote of all of the directors:
(a) approval or revision of the annual Budget in form
acceptable to the Board of Directors setting forth the estimated receipts and
expenditures of, capital expenditures of, and reasonable reserves for working
capital for, Newco for the succeeding calendar year;
(b) capital improvements or expenditures (including
capitalized leases and interest costs) in excess of $50,000 which are not
included in the Budget approved by the Board of Directors;
(c) filing of bankruptcy;
(d) any issuance, reissuance or redemption by Newco of
any shares of its capital stock or securities convertible into or exchangeable
for shares of such stock, including any options, warrants or other rights to
purchase or otherwise acquire any shares of such stock or securities
convertible into or exchangeable for such stock;
(e) any declaration of dividends by Newco;
(f) the selection of corporate officers of Newco and the
determination of the compensation and benefits payable to each such officer;
(g) any proposal for Newco to (i) create, assume or
incur, or become liable in respect of, any indebtedness in excess of $100,000
per obligation, except for accounts payable incurred in the ordinary course of
business and indebtedness included in the Budget approved by the Board of
Directors, (ii) become a lessee of real property if the annual rentals payable
under the relevant lease would exceed $100,000, (iii) acquire the securities
of, make any other investment in, any other person, or (iv) make loans, provide
guarantees or otherwise extend or pledge credit to others with respect to any
such loan, guarantee, extension or pledge, except endorsements and extensions
of credit in the ordinary course of operations of Newco;
(h) any proposal for Newco to confess any judgment
against Newco or create, assume, incur, or suffer to be created, assumed or
incurred or to exist, any mortgage, pledge, encumbrance, lien or charge of any
kind (each, a "Lien") upon any of the assets or properties of Newco, or to
acquire or hold or agree to acquire or hold any such assets or properties
subject to any such Lien if such Lien is proposed in connection with any
proposal referred to in paragraph (g) above except in the normal course of
business and in accordance with the Budget approved by the Board of Directors;
(i) any proposal for Newco to sell or transfer any assets
of Newco valued in excess of $10,000 in one or a series of related transactions
not in the ordinary course of business;
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(j) any proposal to enter into any contract, obligation,
commitment, capital investment, or any other program involving aggregate
expenditures reasonably estimated to be in excess of $200,000;
(k) any proposal for Newco to acquire the capital stock
or assets of another entity;
(l) any proposal to select or change Newco's independent
auditors, legal counsel or any outside consultant which shall be paid more than
$75,000 during any fiscal year;
(m) make a gift, loan, advance or political contribution
to any person, except loans and advances to employees of up to $2,500 for
ordinary and necessary business expenses;
(n) any decision whether to redeem or to purchase any
Shares pursuant to the Right of First Refusal contained in Section 4.3 of this
Agreement or the assignment of such right to a third party. (In deciding
whether to exercise a Right of First Refusal with respect to a disposing
Investor Shareholder's Shares, any directors designated by, or who is an
officer, director, employee or agent of the disposing Investor Shareholder,
shall abstain from voting to the extent necessary to avoid a conflict of
interest and such director's affirmative vote shall not be necessary to approve
such action); and
(o) determination of the Determined Value of Shares
pursuant to Section 4.5 of this Agreement.
3.7. Budget and Business Plans. Before the beginning of each
fiscal year management of Newco shall prepare and present to the Board of
Directors of Newco for its approval an annual budget and multi-year business
plans for Newco in accordance with timing, format and instructions to be
determined by the Board of Directors of Newco. Newco's management shall use
their reasonable good faith efforts to manage Newco's business pursuant to any
business plan or budget approved by the Board of Directors, as it may be
revised from time to time with approval of the Board.
3.8. Dividends. Sykes and HPS currently anticipate that all of
Newco's earnings will be retained for development and expansion of Newco's
business and acknowledge and agree that Newco does not anticipate paying any
dividends in the foreseeable future. Notwithstanding the foregoing, dividend
policy shall be vested in the Board of Directors as provided in this Agreement.
3.9. Fiscal Year. The fiscal year of Newco shall end on December
31 of each year. The first fiscal year of Newco shall commence upon completion
of the organization of Newco and shall end on the next succeeding December 31.
3.10. Books and Records. The Board of Directors of Newco, in
consultation with its auditors, shall establish such books, records and
accounts for Newco as are customary for
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corporations similarly situated and as accurately reflect the financial
condition and position of Newco in accordance with generally accepted accounting
principles. The books and records of Newco shall be subject to inspection by
any Shareholder during ordinary business hours.
3.11. Reports. Newco shall prepare and provide the Shareholders
with unaudited monthly and quarterly financial statements (including a balance
sheet and profit and loss statement), audited annual financial statements and
such other reports as the Shareholders shall reasonably request. Newco's
management shall consult regularly with the Investor Shareholders and provide
the Investor Shareholders' designated representatives reasonable access to all
books and records of Newco.
3.12. Severance of Business Relationship Upon Deadlock of Board of
Directors or Investor Shareholders. In the event that the Board of Directors
or Investor Shareholders are deadlocked on a material matter, and such deadlock
continues for the longer of (a) three (3) consecutive meetings (including
special meetings) or (b) ninety (90) days, either Sykes or HPS may institute a
severance of business relationship as provided in this Section 3.12.
(a) Notice of Intent to Pursue Severance. Sykes or HPS
may send a Deadlock Notice to Newco and the other Investor Shareholder
proposing a resolution of the deadlock and providing notice that if the
proposal is not accepted by the other Investor Shareholder within twenty (20)
days, Sykes or HPS may institute a severance of business relationship as
provided below. A "Deadlock Notice" means a written notice to be delivered to
Newco and each other Investor Shareholder by Sykes or HPS which shall state
that a deadlock exists among the Board of Directors or the Investor
Shareholders concerning a material issue, and shall describe Sykes or HPS's
proposed resolution of the deadlock, and shall provide notice that unless the
other Investor Shareholder accepts the proposal within twenty (20) days, Sykes
or HPS may institute the severance of business relationship procedures pursuant
to this Section 3.12.
(b) Initiation of Severance. If the deadlock continues
to exist for more than twenty (20) days after mailing of the Deadlock Notice
provided in Section 3.12.(a), for a period of thirty (30) days thereafter,
Sykes or HPS, if it wishes to sever its relationship in Newco with the other
Investor Shareholder, shall notify the other and Newco in writing (the
"Severance Notice") stating that it wishes the severance to take place. If,
however, neither Investor Shareholder delivers a Severance Notice within thirty
(30) days following the Investor Shareholder's failure to accept the proposed
resolution, then such severance opportunity will lapse as though the Deadlock
Notice had never been given.
(c) Valuation of Newco. Within five (5) days from the
mailing of the Severance Notice, Sykes and HPS shall mutually select an
independent investment banking firm (with whom neither Sykes nor HPS has an
existing relationship at such time) to determine the fair market value price
per share of Newco as a stand-alone entity (the "Determined Price Per Share").
If the parties cannot agree upon the selection of such independent investment
banking firm, an investment banking firm who has not previously acted as a lead
or co-lead on any offering for either of the
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parties or been retained to give investment or acquisition assistance to either
of the parties shall be selected by Newco's independent outside legal counsel.
The expenses relating to the engagement of such firm shall be shared equally by
Sykes and HPS. Sykes and HPS shall have thirty (30) days after the receipt of
the Determined Price Per Share (the "Negotiation Period") in which to negotiate
a mutually agreeable outcome in which one Investor Shareholder shall sell to the
other, all of its Shares at an agreed upon price per share (the "Severance
Price"). In the event that Sykes and HPS are not able to reach an agreeable
outcome during the Negotiation Period, Sykes and HPS shall then have five (5)
business days in which to submit a bid (a "Severance Bid") containing the price
per Share which the bidding Investor Shareholder is willing to pay for all of
the other Investor Shareholder's Shares. Such Severance Bids shall be submitted
to the outside counsel of Newco within five (5) business days from the end of
the Negotiation Period. In addition, each Severance Bid must be for a price per
share which is at least equal to ninety percent (90%) of the Determined Price
Per Share and must be an all cash, non-contingent, binding offer to purchase
all, but not less than all of the Shares of the other Investor Shareholder. If,
however, neither Investor Shareholder submits a Severance Bid within such five
(5) day period, then such severance opportunity will lapse as though the
Deadlock Notice had never been given. At the end of such five (5) day period,
Newco's outside counsel shall notify the Investor Shareholders of the highest
bid. Thirty (30) days after the submission of the Severance Bids, the Investor
Shareholder which submitted the highest Severance Bid shall purchase and the
other Investor Shareholder shall sell all of the other Investor Shareholder's
Shares at the price stated in the highest Severance Bid.
(d) Closing. The purchase and sale of Shares as
described above shall be closed in Newco's principal business office and all
appropriate documents will be executed and delivered to effect the severance of
the relationship and the sale of the Shares, free and clear of all liens,
charges and encumbrances. The Severance Price shall be paid by the purchasers
to the sellers in immediately available funds.
(e) Continued Operation. Newco shall continue to operate
during any period of deadlock or dispute and during the continuance of any
default under this Agreement (or alleged default), and in no event shall a
deadlock, dispute or allegation of default interfere with the right of the
directors and officers of Newco to operate within the scope of business
activity contemplated by Section 1.3 of this Agreement; provided, however, that
no action may be taken by the directors and officers that would prejudice the
outcome of any matter in deadlock, any dispute or any allegation of default,
except with the consent of 100% of the members of the Board of Directors;
provided, however, that the service activities (and all related marketing,
administrative, and other activities) of Newco in accordance with the Business
Plan and Budget shall not be stopped or delayed, except with the consent of
100% of the members of the Board of Directors.
(f) Only Exercise if Substantial Business Disagreement.
The parties may only exercise the Severance Provisions of this Section 3.12 if
the Investor Shareholders have a substantial disagreement regarding the
management or future direction of Newco. Examples of areas of potential
"substantial disagreements" include, without limitation, (i) whether Newco
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should go public, (ii) whether Newco should be sold, (iii) whether Newco should
make a material acquisition, (iv) termination of a senior executive, and (v)
whether to approve an annual business plan and budget. After delivery of a
Deadlock Notice, the potential Severing Shareholder shall thereafter be
available, upon reasonable prior notice, to meet with the Responding
Shareholder (and in the case of Sykes or HPS, they shall make their respective
chairmen and chief executive officers available to meet with each other) and
discuss in good faith the potential resolution to the substantial disagreement.
For a period of sixty (60) days following the expiration of such thirty (30)
days prior written notice period, either Investor Shareholder may thereafter
institute the Severance of Business Relationship as provided under subsection
(b) of this Section 3.12. Notwithstanding the foregoing, the Responding
Shareholder may prevent the Severance from occurring by accepting and agreeing
to the resolution of the substantial disagreement proposed by the Severing
Shareholder and agreeing to take such further action as the Severing Shareholder
reasonably requests to implement such resolution. (Such agreement by the
Responding Shareholder must be made by written notice delivered prior to the
time that the Responding Shareholder is otherwise required to elect to buy or
sell pursuant to subsection (c) of this Section 3.12.
(g) Applicability of Arbitration. The right to initiate
a severance of business relationship as described herein shall supersede the
agreement to arbitrate a dispute contained in Section 13 of this Agreement,
except that the parties shall arbitrate any dispute concerning whether a
particular dispute constitutes a "deadlock on a material matter" as described
herein.
(h) Repayment of Loans/Release of Guarantees. In the
event of a severance of Business Relationship under this Section 3.12, at the
Closing the purchasing Shareholder shall cause Newco to repay in full all Loans
from the selling Shareholder and shall cause the selling Shareholder to be
released from all guarantees of Newco's indebtedness.
4. PREEMPTIVE RIGHTS, RIGHT OF FIRST REFUSAL, TAG-ALONG RIGHTS
4.1. Definitions. For purposes of this Article 4, the following
terms shall have the following meanings:
(a) "Dispose of" means any transfer or assignment,
whether voluntary or involuntary to a person other than a Permitted Transferee,
whether by sale, exchange, pledge, encumbrance, judicial attachment,
contribution to a trust or other entity, or otherwise. "Dispose of" shall not
include: (i) a pledge of shares to a responsible financial institution in the
United States, as collateral security for a bona fide loan made by such
financial institution, provided that such financial institution agrees in
writing that any disposition of the pledged shares for the account of the
pledging Shareholder in the event of any default by such Shareholder shall be
subject to the obligations imposed on such Shareholder by this Agreement,
including but not limited to the right of first refusal granted to Newco and
the other Shareholders hereunder, or (ii) a disposition to a wholly owned
subsidiary of a Shareholder, so long as such transferees agree in writing to be
bound by the terms of this Agreement.
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(b) "Disposing Shareholder" means a Shareholder who
desires to Dispose of all or a part of the shares owned by that Shareholder.
(c) "First Refusal Notice" means the written notice to be
mailed to Newco and Sykes and HPS by the Disposing Shareholder which shall
describe in adequate detail the terms and conditions offered by, and the
identity of, a bona fide prospective purchaser, lender or other transferee to
whom the Disposing Shareholder is considering Disposing of all or a part of the
Disposing Shareholder's shares, which notice shall include a complete copy of
the written offer of such purchaser, lender or other transferee.
(d) "First Refusal Price" means the price agreed upon
between the Disposing Shareholder and the party or parties electing to exercise
a right of first refusal under the terms hereof. In the absence of an agreed
upon price, the term shall mean a purchase or redemption on terms and conditions
substantially the same as those described in the First Refusal Notice given to
the other parties hereto in accordance with the terms of this Agreement. In the
event such notice describes terms and conditions that are unique to a proposed
transaction and cannot readily be assumed by other parties, e.g., an exchange of
shares in return for property or services, or in the event of a proposed gift,
in the absence of an agreed upon price, the First Refusal Price shall be the
Determined Value as provided in Section 4.5.
(e) "Permitted Transferee" means a wholly owned
subsidiary of a Shareholder, provided, however, that no person shall become a
"Permitted Transferee" without first agreeing to be bound by the terms of this
Agreement in a manner satisfactory to Newco's Board of Directors.
(f) "Pro Rata" means with respect to any right to
acquire shares hereunder, pro rata based upon the number of shares owned by
those Shareholders (assuming more than two parties are Shareholders under this
Agreement) who shall duly exercise their option to acquire any shares offered
hereunder. Thus, if only two Shareholders, each owning ten percent (10%) of
Newco's shares, should elect to exercise their right of first refusal granted
in this Agreement, each of them would have the right to purchase fifty percent
(50%) of the shares available for purchase. "Pro Rata" means with respect to
Tag-along Rights, pro rata based on the ratio of the shares proposed to be sold
in the transaction to the total number of shares then outstanding.
4.2. Preemptive Rights.
(a) Right of First Refusal for Purchase of Stock Sold by
Newco. If at any time Newco shall propose to sell any additional securities
(including any stock held in the treasury and securities convertible into
additional stock), Newco shall give the Investor Shareholders a written notice
which shall describe in adequate detail the terms and conditions on which the
Company proposes to sell additional securities, including, if applicable,
conditions offered by, and the identity of, a bona fide prospective purchaser
(the "Company First Refusal Notice") respecting such securities, offering them
for disposition at the First Refusal Price.
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(b) Time for Election to Purchase. Any Investor
Shareholder electing to purchase any of the securities so offered for purchase
shall notify Newco and the other Investor Shareholder of that election within
the time period for elections set forth in the Newco First Refusal Notice,
which shall be a reasonable period of time under the circumstances after the
date of mailing of the Company First Refusal Notice. Such notice shall specify
the number of securities that the Shareholder is willing to purchase. In the
event that any electing Investor Shareholder is unwilling to purchase the
entire Pro Rata portion of securities allocable to such Investor Shareholder
for purchase, the portion rejected shall be allocated to the other electing
Investor Shareholder if and to the extent it has indicated in its notice that
it is willing to purchase more than what would be their Pro Rata portion if all
Shareholders elected to exercise in full their right of first refusal. If an
election to purchase shall not have been timely made as to the securities, or
any portion thereof, offered for purchase, the portion of such securities as to
which a right of refusal has not been exercised hereunder may, during a period
of sixty (60) days after the expiration of the first refusal period granted
herein to the Investor Shareholders, be sold upon substantially the same terms
and conditions described in the Company First Refusal Notice previously given,
provided that the purchaser executes this Agreement and agrees to be bound by
the terms hereof. If, however, such securities shall not have been so sold, in
whole or in part, within that sixty (60) day period, then a new Company First
Refusal Notice must be sent hereunder to Sykes and HPS in the event that Newco
wishes to sell such securities.
(c) Closing of Purchase. If Sykes or HPS elects to
purchase all or any portion of the securities offered by Newco for purchase,
the purchase shall be closed and the securities delivered free and clear of all
liens and encumbrances, (other than any purchase money liens taken back by
Newco at the closing, if applicable) at a closing to be held at the principal
offices of Newco within (30) days after the expiration of the first refusal
period granted herein to the Investor Shareholders.
4.3. Right of First Refusal.
(a) Right of First Refusal for Redemption or Purchase of
Shares Disposed of by Shareholders. If at any time any Shareholder shall
desire or be required to Dispose of all or any of the shares owned by such
Shareholder, the Disposing Shareholder shall give Newco, Sykes and HPS, a First
Refusal Notice respecting those shares offering them for disposition at the
First Refusal Price. If Newco, within twenty (20) days after the date of
mailing of the First Refusal Notice, does not elect to redeem all of the shares
offered for redemption or purchase in accordance with the terms of this
Agreement, then for an additional twenty-five (25) days, the Investor
Shareholders shall have the option of purchasing the remaining shares offered
for disposition, Pro Rata, at the First Refusal Price. If the Investor
Shareholders do not elect to purchase all the remaining shares, the Board of
Directors (exclusive of any Director who is designated by, or who is an
officer, director, employee or an agent of, the Disposing Shareholder or its
Affiliate), acting on behalf of Newco, may assign the right to purchase the
remaining shares at the First Refusal Price to one or more third parties
provided that such third parties pay the First Refusal Price in
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cash and agree to execute a shareholder agreement acceptable to Newco and
Non-disposing Shareholders and agree to be bound by the terms hereof.
(b) Time for Election to Redeem or to Purchase. Newco,
and/or Sykes and/or HPS, and/or any assignee of Newco who elects to redeem or
to purchase any of the Shares so offered for redemption or purchase shall
notify the Disposing Shareholder, Newco and all other Shareholders of that
election within twenty (20) days after the date of mailing of the First Refusal
Notice if the electing party is Newco, or within forty-five (45) days after
such date of mailing if any Investor Shareholder or an assignee of Newco. Such
notice shall specify the number of shares that the sender is willing to
purchase. In the event that any electing Investor Shareholder is unwilling to
purchase the entire Pro Rata portion of shares allocable to such Investor
Shareholder for purchase, the portion rejected shall be allocated among the
other electing Investor Shareholder if and to the extent it has indicated in
its notice that it is willing to purchase more than what would be its Pro Rata
portion if both Investor Shareholders elected to exercise in full their right
of first refusal. If an election to redeem or to purchase shall not have been
timely made, either by Newco, and/or by the Investor Shareholders, and/or by
any assignees of Newco, or any combination of the foregoing, as to all (and not
less than all) the shares offered for redemption or purchase, such shares may,
during a period of one hundred twenty (120) days after the expiration of the
first refusal period granted herein, be Disposed of to the purchaser or other
transferee named in, and upon substantially the same terms and conditions
described in, the First Refusal Notice previously given the other parties,
provided that the transferee executes this Agreement and agrees to be bound by
the terms hereof. If, however, such shares shall have not been so Disposed of,
in whole or in part, and the certificates therefor presented for transfer within
that one hundred twenty (120) -day period, then such shares shall again become
restricted as though they had never been offered to Newco or to the Investor
Shareholders in accordance with this Agreement. No Shareholder shall dispose of
shares without first complying with the Right of First Refusal. Shareholders
other than Investor Shareholders shall have no right to purchase shares pursuant
to this Right of First Refusal, except in the capacity as assignor of Newco.
(c) Closing of Redemption or Purchase. If Newco, and/or
Sykes and/or HPS and/or any assignee(s) of Newco elect to purchase collectively
all (and not less than all) the shares offered for redemption or purchase, the
redemption and/or purchase shall be closed and the Disposing Shareholder's
shares offered for redemption or purchase shall be delivered free and clear of
all liens and encumbrances (other than any purchase money liens taken back by
the Disposing Shareholder at the closing, if applicable), at a closing to be
held at the principal offices of Newco within thirty (30) days after the
expiration of the first offer period granted herein to the Investor
Shareholders.
4.4. Sale of Shares to a Third Party.
(a) Tag-Along Rights. If, at any time, Sykes or HPS (the
"Disposing Shareholders") propose to sell shares to any one or more third
parties who are not, and following such sale will not be, a wholly owned
subsidiary of an Investor Shareholder (a "Third Party"), the
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other Investor Shareholder shall have the right to participate (a "Tag-Along
Right") in such sale with respect to any shares, including any shares issuable
upon exercise of any vested options or warrants (if any) held by such Investor
Shareholder, on a Pro Rata basis for the same consideration per Share and
otherwise on the same terms as the Disposing Shareholders. If circumstances
occur which give rise to the Tag-Along Right, then the Disposing Shareholder
shall give written notice to Newco and the other Investor Shareholder, providing
the particulars of the proposed sale to the Third Party and advising such other
Investor Shareholder of its Tag-Along Rights. This notice shall not be given
until the expiration of all rights of First Refusal under Section 4.3. The
other Investor Shareholder may exercise its Tag-Along Right by written notice to
Newco and the Disposing Shareholder within twenty-five (25) days of the date of
mailing of the Disposing Shareholder's notice stating the number of shares that
it wishes to sell, up to the maximum number permitted herein. If any Investor
Shareholder gives written notice indicating that such Investor Shareholder
wishes to sell, such Investor Shareholder shall be obligated to sell that number
of shares specified in its written acceptance notice upon the same terms and
conditions as the Disposing Shareholder is selling to the Third Party and shall
not be subject to the requirements of Section 4.3. The Tag-Along Right provided
in this Section 4.4 shall be in addition to the Right of First Refusal provided
in Section 4.3 and shall not relieve the Disposing Shareholder of the obligation
to provide the First Refusal Notice provided herein. No Shareholder, other than
an Investor Shareholder, shall have any Tag-Along Right.
(b) Drag-Along Rights. If, at any time, any Investor
Shareholder (the "Disposing Shareholder") proposes to sell shares to a Third
Party, such Shareholder shall, upon written notice to the Company and the other
Shareholders given at least twenty-five (25) days prior to the proposed sale,
have the right to require each other Shareholder, other than an Investor
Shareholder, to participate (a "Drag-Along Right") in such sale with respect to
any shares, including any shares issuable upon exercise of any vested options,
which are held by such Shareholder, on a pro rata basis (based on the
percentage of the number of such shares held by any such Shareholder
corresponding to the relationship of the aggregate number of such shares to be
sold by the Shareholders to the total number of shares outstanding for the same
consideration per Share and otherwise on the same terms as the Disposing
Shareholder.
(c) Coordination with Options. For purposes of Section
4.4.(b), to the extent that Shares issuable upon exercise of a vested option
are to be sold pursuant to the exercise of a Drag-Along Right, the holders of
such options or securities shall not be required to exercise their options or
convert their securities, as the case may be, until all conditions to the
commitment by the Third Party to purchase the shares into which such options
are exercisable or such securities are convertible pursuant to the exercise of
a Drag-Along Right have been satisfied or waived.
4.5. Determination of Share Value. Whenever the Determined Value
of shares is required to be determined hereunder, the Determined Value shall be
agreed upon by the holder of the shares and Newco within ten (10) days
following the expiration of the applicable notice period. If the interested
Shareholders and Newco are unable to agree upon the Determined Value within
such period of time, Newco shall promptly select a firm experienced in valuing
businesses
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similar to Newco's business and shall promptly notify the interested
Shareholders of its selection. The interested Shareholders shall have ten (10)
days after the receipt of such notification to accept the firm selected by Newco
or to select another firm experienced in valuing businesses similar to Newco's.
If the interested Shareholders accept the firm selected by Newco, (i) such firm
shall promptly provide to Newco and the interested Shareholders its estimate of
the Determined Value, whereupon such estimate shall be the Determined Value, and
(ii) Newco shall pay the fees charged by such firm. If the interested
Shareholders do not accept the firm selected by Newco, such firm and the firm
selected by a majority of the interested Shareholders shall each promptly submit
to Newco, the interested Shareholders and each other its estimate of the
Determined Value. If the lower of the two estimates is greater or equal to
ninety percent (90%) of the higher of the two estimates, the average of the two
estimates shall be the Determined Value. If the lower estimate is less than
ninety percent (90%) of the higher estimate, the two firms shall select a third
firm experienced in valuing businesses similar to Newco's, which firm shall
select from the two estimates the estimate that is closest to such third firm's
estimate of the Determined Value, whereupon such selected estimate shall be the
Determined Value. In the event that a majority of the interested Shareholders
do not accept the firm selected by Newco, each of Newco and the interested
Shareholders (Pro Rata among them based on the relative number of shares owned
by each) shall pay the fees charged by the firm selected by it or them. Newco
and the interested Shareholders (Pro Rata among them based on the relative
number of shares owned by each) shall share equally the fees charged by the
third firm. The Determined Value shall be determined as of the last day of the
month preceding the date on which the right to purchase the shares arose. In no
event shall the Determined Value reflect a discount for minority interests. The
parties intend that the Determined Value per share shall be equal to the
Determined Value of Newco divided by the total number of shares outstanding
(with reasonable and appropriate adjustments for any vested stock options where
the exercise price of the option is less than the fair market value of the
shares). The Determined Value of shares issuable upon exercise of a vested
option shall be equal to the Determined Value of the underlying shares, less the
exercise price of such option.
4.6. Remedy for Violation. In the event that any person Disposes
of any shares in violation of any of the provisions of this Agreement, such
disposition shall be void. In the event any restriction on transfer herein
shall be held invalid, Newco and the other Shareholders shall have the right to
redeem or purchase, as the case may be, all or any shares disposed of in
violation of the invalidated restrictions from the then holder thereof (a) at
the price and on the terms on which such shares were acquired by such holder,
if such shares were acquired by the holder in a purchase transaction, or (b) at
the election of the redeeming or purchasing parties, or in the case of a
transaction that is unique or the terms of which cannot readily be assumed by
other parties, at the Determined Value of such shares. The rights given by
this paragraph shall accrue first to Newco and then, Pro Rata, to the Investor
Shareholders and then, Pro Rata to the other Shareholders, and then to any
assignee(s) of Newco. Newco shall notify the Shareholders promptly of the
final judgment holding the transfer restriction invalid, and shall have one
hundred twenty (120) days after the date of mailing of such notice to elect to
exercise its redemption option by mailing written notice of such election to
the holder of the shares and to the Shareholders. In the event that Newco
elects not to exercise its option hereunder as to all the shares available for
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redemption or purchase hereunder, each Shareholder shall have sixty (60) days
after the date of mailing of Newco's initial notice to notify the holder of the
shares, Newco and all other Shareholders of such Shareholder's election to
purchase all or any part of such Shareholder's Pro Rata portion of the shares.
If the other Shareholders do not elect to purchase all the remaining shares,
Newco may assign the right to purchase all or any part of the remaining shares
to one or more third parties provided that such third parties agree to execute
this Agreement and agree to be bound by the terms hereof.
4.7. Endorsement on Certificates Evidencing Shares. Each
certificate representing Shares now or hereafter held by Shareholders or their
transferees and successors, shall be stamped with a legend in substantially the
following form:
"This certificate represents Shares, the sale, disposition, pledge,
encumbrance or other transfer of which is subject to limitations and
restrictions (including without limitation, certain rights of first
refusal and mandatory purchase and sale obligations), and the voting
of which is subject to agreements and restrictions, a full statement
of which will be furnished by Newco to any Shareholder upon request
and without charge."
5. REPRESENTATIONS AND WARRANTIES
Sykes, with respect to Sykes, makes the following representations and
warranties to HPS, and HPS with respect to HPS, makes the following
representations and warranties to Sykes, each of which, in any case, is true
and correct on the date hereof, shall remain true and correct to and including
the Closing Date, shall be unaffected by any investigation heretofore or
hereafter made by Sykes or HPS, as the case may be, or any knowledge of Sykes
or HPS, as the case may be, other than as specifically disclosed in the
Schedules to this Agreement, and shall survive the Closing of the transactions
provided for herein. The term "Company" as used in this Agreement, means
either Sykes or HPS, as the case may be.
5.1. Corporate.
(a) Organization. Sykes is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
HPS is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) Corporate Power. Company has all requisite corporate
power and authority to own, operate and lease its properties, to carry on its
business as and where such is now being conducted, to enter into this Agreement
and the other documents and instruments to be executed and delivered by it
pursuant hereto and to carry out the transactions contemplated hereby and
thereby.
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5.2. Authority. The execution and delivery of this Agreement and
the other documents and instruments to be executed and delivered by Company
pursuant hereto and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of the Company.
No other or further corporate act or proceeding on the part of Company is
necessary to authorize this Agreement or the other documents and instruments to
be executed and delivered by Company pursuant hereto or the consummation of the
transactions contemplated hereby and thereby. This Agreement constitutes, and
when executed and delivered, the other documents and instruments to be executed
and delivered by Company pursuant hereto will constitute, valid binding
agreements of Company, enforceable in accordance with their respective terms,
except as such may be limited by bankruptcy, insolvency, reorganization or
other laws affecting creditors' rights generally, and by general equitable
principles.
5.3. No Violation. Neither the execution and delivery of this
Agreement or the other documents and instruments to be executed and delivered
by Company pursuant hereto, nor the consummation by Company of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any
rule, regulation, order, writ, injunction or decree of any court or
governmental authority, (b) except for applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), will
require any authorization, consent, approval, exemption or other action by or
notice to any court, administrative or governmental agency, instrumentality,
commission, authority, board or body, or (c) will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the assets of Company, under any term or provision of the Articles
of Incorporation or Bylaws of Company or of any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which Company is a party or by which Company or any of its assets or properties
may be bound or affected.
6. OTHER MATTERS
6.1. Noncompetition; Confidentiality. Subject to the Closing, and
as an inducement to execute this Agreement and complete the transactions
contemplated hereby, Sykes and HPS each hereby covenant and agree as follows:
(a) Covenant Not to Compete. During the term of this
Agreement and for a period of sixty (60) months following the termination or
expiration of this Agreement, (1) Newco agrees that it will not directly or
indirectly engage in any businesses which competes with HPS in the HPS Core
Business or which competes with Sykes in the Sykes Core Business; (2) HPS
agrees that it will not directly or indirectly engage in any business which
competes with Newco in the Newco Core Business or with Sykes in the Sykes Core
Business, provided that nothing contained herein shall prohibit HPS from
continuing to provide Care Management Services pursuant to contracts with Care
Management Services already in place as of the date hereof; and (3) Sykes
agrees that it will not directly or indirectly engage in any business which
competes with
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Newco in the Newco Core Business or with HPS in the HPS Core Business. This
covenant not to compete shall have worldwide scope.
For purposes of this Section 6.1, the following terms shall have the
following meanings:
(i) "HPS Core Business" means the business of
providing marketing, distribution, enrollment, premium billing and
collection, claims administration, and information services to medical
benefits payors and health care providers, including customer service
activities related thereto. While HPS is in the business of providing
Care Management Services to medical benefits payors and health care
providers and will continue to contract with payors and providers to
provide such services in the future, it shall outsource this business
to Newco pursuant to its Care Management Outsourcing Agreement with
Newco except to the extent that it currently has other contractual
commitments with other care management providers to provide such
services.
(ii) "Care Management Services" means the business
of providing utilization review (which includes, but is not limited
to, pre-admission certification, prior authorization, prospective
length of stay approvals, second opinions, concurrent review and
discharge planning), catastrophic medical case management, disease
management and demand (24 hours a day, 7 days a week) management
services to benefits payors and health care providers, including third
party administrators, provider organizations such as independent
professional associations and provider management companies.
(iii) "Sykes Core Business" means the business of
(A) operating stand-alone call centers to provide (1) technical
product support services to end users for computer hardware and
software companies, and (2) help desk services to major companies to
provide their employees with help in operating their equipment and
software, (B) providing information technology development services
and solutions to large corporations on a contract or temporary
staffing basis, including software design, development integration and
implementation services, systems support and maintenance (C) providing
foreign language translation and software localization services, and
(D) providing a standalone/physically dedicated call center and
related services (both inbound and outbound) to customers.
(iv) "Newco's Core Business" means the business of
operating call centers to provide Care Management Services to medical
benefits payors, health care providers and organizations comprised of
such entities and other providers of Care Management Services, such as
third party administrators, provider organizations and provider
management companies.
(v) "Compete" means, in addition to the customary
and accepted definition of compete, all of the following:
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(A) directly or indirectly engage in,
continue in or carry on any business which competes with such
business or is substantially similar thereto, including
owning or controlling any financial interest in any
corporation, partnership, firm or other form of business
organization which is so engaged; and
(B) engage in any practice the purpose
of which is to evade the provisions of this covenant not to
compete.
The term "Competes with" shall not include the ownership of securities
of corporations which are listed on a national securities exchange or traded in
the national over-the-counter market in an amount which shall not exceed 5% of
the outstanding shares of any such corporation. The parties agree that the
geographic scope of this covenant not to compete shall extend throughout the
United States and the entire world. The parties agree that the geographic
scope of this covenant not to compete is reasonable because telecommunications
is a global business and Sykes has substantial international operations. In
the event a court of competent jurisdiction determines that the provisions of
this covenant not to compete are excessively broad as to duration, geographical
scope or activity, it is expressly agreed that this covenant not to compete
shall be construed so that the remaining provisions shall not be affected, but
shall remain in full force and effect, and any such over broad provisions shall
be deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction. This covenant not to compete has
been separately bargained for and is a material inducement to the willingness
of the Investor Shareholders to invest in Newco and enter into this Agreement.
(b) Covenant of Confidentiality. Neither Sykes, HPS nor
Newco shall at any time subsequent to the Closing, except as explicitly
requested by Sykes, HPS or Newco, as the case may be, (i) use for any purpose,
(ii) disclose to any person, or (iii) keep or make copies of documents, tapes,
discs or programs containing, any confidential information concerning any other
party hereto. For purposes hereof, "confidential information" shall mean and
include, without limitation, all Trade Rights in which Sykes, HPS or Newco, as
the case may be, has an interest, all customer lists and customer information,
and all other information concerning processes, apparatus, equipment, services,
marketing and distribution methods of Sykes, HPS or Newco, as the case may be,
not previously disclosed to the public directly by Sykes, HPS or Newco, as the
case may be. (Notwithstanding the foregoing, this provision shall not limit in
any way the Investor Shareholders' rights to consult with management of Newco
and inspect the books and records of Newco.)
(c) Equitable Relief for Violations. Sykes, HPS, Newco
and the other Shareholders agree that the provisions and restrictions contained
in this Section 6.1 are necessary to protect the legitimate continuing
interests of Sykes, HPS and Newco, and that any violation or breach of these
provisions will result in irreparable injury to Sykes, HPS and Newco,
respectively, for which a remedy at law would be inadequate and that, in
addition to any relief at law which may be available to Sykes, HPS and Newco,
respectively, for such violation or breach and
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regardless of any other provision contained in this Agreement, Sykes, HPS and
Newco, respectively, shall be entitled to injunctive and other equitable relief
as a court may grant after considering the intent of this Section 6.1.
6.2. HSR Act Filings. To the extent such filings have not been
completed prior to the execution of this Agreement, Sykes and HPS shall, in
cooperation with the other, file any reports or notifications that may be
required to be filed by it under the HSR Act, with the Federal Trade Commission
and the Antitrust Division of the Department of Justice, and shall furnish to
the other all such information in its possession as may be necessary for the
completion of the reports or notifications to be filed by the other. Prior to
making any communication, written or oral, with the Federal Trade Commission,
the Antitrust Division of the federal Department of Justice or any other
governmental agency or authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated hereby, Sykes and
HPS shall consult with each other.
6.3. Subcontract for Existing Call Center Services of HPS.
Following the Closing, and to the extent HPS is not contractually prohibited
from doing such and can obtain the necessary consents, Newco and HPS shall
enter into an agreement (the "Care Management Agreement") providing for the
subcontracting of call center services provided by HPS which relate to
utilization review, medical case management special claims review and other
managed care related services. The scope of such Agreement shall be as may be
mutually agreed upon in good faith by the parties.
6.4. Support Service Contract. Following the Closing, Newco, Sykes
and HPS shall enter into a contract or contracts providing for various
administrative support services to be provided at actual cost by Sykes and HPS
to Newco (the "Support Service Contract"). The scope of such contract or
contracts shall be as may be mutually agreed upon in good faith by the parties.
6.5. Sykes Call Center Support. Following the Closing, Sykes shall
consult, if asked, with Newco regarding call center technology and shall assist
Newco in designing Newco's call center and training newco's call center staff.
The scope and terms of such support shall be as may be mutually agreed upon in
good faith.
6.6. Guarantee of Acquisition Line of Credit.
(a) Sykes and HPS anticipate that Newco may establish a
$75,000,000 line of credit with a third party lender for the purpose of
providing financing for the acquisition of companies providing services similar
to the business described in Section 1.3. Sykes and HPS shall each execute
guarantees of 50% of the indebtedness of Newco under any such line of credit in
form reasonably requested by the lender.
(b) Sykes and HPS anticipate that the line of credit will
provide for the release of Sykes and HPS from their respective guarantees upon
Newco's attainment of specified financial performance targets and ratios. The
obligations of Sykes and HPS under this Section 6.6 shall
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terminate upon the attainment by Newco of the financial performance targets and
ratios specified in such line of credit. The obligations of Sykes and HPS under
this Section 6.6 shall also terminate upon the successful completion of the
first registered offering of common stock of Newco, which offering is
underwritten on a firm commitment basis and produces gross proceeds in excess of
1.25 times the total amount of Newco's outstanding shareholder and bank debt on
the date of the offering. In addition, all guarantees executed by Sykes and HPS
shall provide that upon the completion of such initial public offering, Sykes
and HPS will be released from all guarantees of Newco's indebtedness.
7. CONDITIONS PRECEDENT TO OBLIGATIONS
Each and every obligation of Sykes and each and every obligation of
HPS to be performed on the Closing Date shall be subject to the satisfaction
prior to or at the Closing of each of the following conditions:
7.1. Representations and Warranties True on the Closing Date. Each
of the representations and warranties made by the other party in this
Agreement, and in any instrument, list, certificate or writing delivered by the
other party pursuant to this Agreement, shall be true and correct in all
material respects when made and shall be true and correct in all material
respects at and as of the Closing Date as though such representations and
warranties were made or given on and as of the Closing Date, except for any
changes permitted by the terms of this Agreement or consented to in writing by
Sykes or HPS, as the case may be.
7.2. Compliance With Agreement. The other parties shall have in
all material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 8.1.
7.3. Absence of Suit. No action, suit or proceeding before any
court or any governmental authority shall have been commenced or threatened,
and no investigation by any governmental or regulating authority shall have
been commenced, against Sykes, HPS or any of the shareholders, affiliates,
officers or directors of either of them, seeking to restrain, prevent or change
the transactions contemplated hereby, or questioning the validity or legality
of any such transactions, or seeking damages in connection with, or imposing
any condition on, any such transactions.
7.4. Consents and Approvals. All approvals, consents and waivers
with respect to the other party that are required to effect the transactions
contemplated hereby shall have been received, and executed counterparts thereof
shall have been delivered.
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8. CLOSING
The closing of this transaction ("the Closing") shall take place at
the offices of Foley & Lardner in Tampa, Florida on December 18, 1997, or at
such other time and place as the parties hereto shall agree upon. Such date is
referred to in this Agreement as the "Closing Date".
8.1. Documents to be Delivered by Sykes and HPS. At the Closing,
Sykes, HPS and Newco shall deliver all the following documents, in each case
duly executed or otherwise in proper form:
(a) Sykes and HPS shall deliver to Newco, the payment of
the initial capital contribution referred to in Section 2.1;
(b) Sykes, HPS and Newco shall deliver the Loan
Agreements;
(c) All other documents, instruments or writings required
to be delivered by Sykes, HPS or Newco at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as Sykes
or HPS may reasonably request.
8.2. Organization Meeting. At the Closing, simultaneously with the
delivery of documents referred to in Section 8.1, the Shareholders shall hold
an organization meeting of Newco. At such meeting, (a) the Shareholders shall
appoint the initial Board of Directors of Newco; (b) the newly-elected Board of
Directors shall meet for the purpose of electing officers of Newco; and (c) the
agreements and documents referred to in this Agreement to which Newco is a
party shall be authorized on behalf of Newco.
9. TERMINATION
9.1. Survival of Agreement. It is the intention of the parties
that this Agreement shall survive the formation of Newco and serve as a binding
agreement on the parties and their respective successors and assigns including,
without limitation, any future shareholders of Newco who agree to be bound by
the terms hereof.
9.2. Termination. Notwithstanding the provisions of Section 9.1
hereof, this Agreement shall terminate, and shall no longer have any force or
effect, upon the earliest of (a) its termination by mutual written consent of
Sykes and HPS, (b) the failure of any of the conditions precedent set forth in
Section 7, (c) any transfer of shares of Newco which results in Newco having no
more than one Shareholder, or (d) the dissolution and liquidation of Newco.
9.3. Consequences of Termination. Upon the termination of this
Agreement pursuant to Section 9.2 above, all rights and obligations under this
Agreement shall immediately terminate except the following which shall survive
termination of this Agreement for any reason: (a) all claims of any Party
against the other party for damages arising out of acts or omissions of such
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other Party outside the scope of this Agreement, or in breach of this
Agreement, (b) all rights and obligations of the parties accrued during the
term of this Agreement, and (c) the provisions of Section 2.3.(b) (pro rata
repayment of Loans), Section 6.1 (Non-Competition; Confidentiality), and
Article 13 (Resolution of Disputes) of this Agreement.
9.4. Dissolution of Newco Upon Termination. In the event this
Agreement is terminated as herein provided prior to Closing, but Newco shall
already have been organized and capitalized, Newco shall be promptly liquidated
and all capital contributions shall be returned to the Shareholders, less their
pro rata share of expenses incurred in connection with the negotiation and
execution of this Agreement, the formation of Newco, and the organization and
liquidation of Newco.
10. FURTHER ASSURANCE
From time to time, at the other party's request and without further
consideration, each party to this Agreement will execute and deliver to the
other party such documents and take such other action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
11. DISCLOSURES AND ANNOUNCEMENTS
Both the timing and the content of all disclosure to third parties and
public announcements concerning the transactions provided for in this Agreement
by either Sykes or HPS shall be subject to the approval of the other in all
essential respects, except that approval shall not be required as to any
statements and other information which a party may submit to the Securities and
Exchange Commission, the New York Stock Exchange or the Nasdaq National Market,
or its shareholders or be required to make pursuant to any rule or regulation
of the Securities and Exchange Commission, New York Stock Exchange, Nasdaq
National Market, or otherwise required by law.
12. ASSIGNMENT; PARTIES IN INTEREST
12.1. Assignment. Except as expressly provided herein, the rights
and obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
12.2. Parties in Interest. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successors and
permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason
of this Agreement.
13. RESOLUTION OF DISPUTES
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13.1. Arbitration. Any dispute, controversy or claim arising out of
or relating to this Agreement or any contract or agreement entered into
pursuant hereto or the performance by the parties of its or their terms shall
be settled by binding arbitration held in Tampa, Florida, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association then
in effect, except as specifically otherwise provided in this Article 13.
Notwithstanding the foregoing, Newco may, in its discretion, apply to a court
of competent jurisdiction for equitable relief from any violation or threatened
violation of the covenants of Sykes or HPS under Section 6.1 (covenant not to
compete) of this Agreement.
13.2. Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand for
arbitration, to exceed $1,500,000, then the panel to be appointed shall consist
of one neutral arbitrator to be mutually agreed upon by the parties; otherwise,
the panel shall be comprised of three neutral arbitrators of whom one shall be
selected by each party within twenty (20) days, and a third arbitrator shall be
selected by these two selected arbitrators. If one of the parties fails to
timely select an arbitrator, the arbitrator that was timely selected shall be
the sole arbitrator. If neither party timely selects an arbitrator, the first
arbitrator selected thereafter shall be the sole arbitrator, no others being
appointed. Where each of the parties timely selects an arbitrator, said
arbitrators will have ten (10) days from the end of the twenty (20) -day period
to select the third arbitrator. In the event the arbitrators are unable to
timely agree on the third arbitrator, either party may petition any official of
the American Arbitration Association for appointment of the third arbitrator
and the parties agree to accept any arbitrator appointed by such official
subject to the limitations hereof. Arbitrators must be reasonably independent
of the parties and their principals. Persons who are hereby expressly
disqualified to serve as arbitrators are principals of the parties, relatives
of said principals, employees of the parties or said principals, persons not
residing within 100 miles of Tampa, Florida, attorneys, accountants, and other
business persons have professional or business relationships with the parties
or said principals.
13.3. Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances,
provided that any party shall be entitled to reasonable production of documents
and not less than (i) 16 hours of deposition examination and 20 written
interrogatories if the matter in controversy (exclusive of attorneys fees and
costs) is $1,500,000 or less; and (ii) 24 hours of deposition examination and
40 written interrogatories if the matter in controversy (exclusive of attorneys
fees and costs) exceeds $1,500,000. The arbitrators shall resolve the dispute
as expeditiously as practicable, and if reasonably practicable, within one
hundred twenty (120) days after the selection of the arbitrator(s). The
arbitrator(s) shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have thirty (30) days thereafter to
reconsider and modify such decision if any party so requests within ten (10)
days after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons, including
(without limitation) persons who have failed or refused to participate in the
arbitration process. The privileges, including, without limitation, the
attorney-client privilege, shall apply in arbitration.
24
<PAGE> 29
13.4. Authority. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief, and to allocate responsibility for the costs of the arbitration and to
award recovery of attorneys fees and expenses in such manner as is determined
to be appropriate by the arbitrator(s).
13.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Each party hereby submits to the in personam jurisdiction of the
Federal and State courts in Hillsborough County, for the purpose of confirming
any such award and entering judgment thereon.
13.6. Confidentiality. All proceedings under this Article 13 and
all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
13.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 13 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party.
13.8. Tolling. All applicable statues of limitation shall be tolled
while the procedures specified in this Article 13 are pending. The parties
will take such action, if any, required to effectuate such tolling.
13.9. Expenses of Arbitration. Except as otherwise may be provided
in this Agreement, the expenses of arbitration will be borne equally by the
parties, provided that each party will bear the cost of its own experts,
evidence and attorneys' fees, except that, in the discretion of the
arbitrators, any award in arbitration may include attorneys' fees if the
arbitrators expressly determine that the party against whom such an award is
entered has caused the dispute to be submitted to arbitration in bad faith or
as a dilatory tactic. No arbitration will be commenced after the date when
institution of legal or equitable proceedings based upon the same subject matter
would be barred by the applicable statute of limitations.
14. LAW GOVERNING AGREEMENT
This Agreement may not be modified or terminated orally, and shall be
construed and interpreted according to the internal laws of the State of
Florida, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction.
15. AMENDMENT AND MODIFICATION
The parties may amend, modify and supplement this Agreement in such
manner as may be agreed upon by them in writing.
25
<PAGE> 30
16. NOTICE
All notices, requests, demands and other communications hereunder
shall be given in writing and shall be: (a) personally delivered; (b) sent by
telecopier, facsimile transmission or other electronic means of transmitting
written documents; or (c) sent to the parties at their respective addresses
indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
(a) If to Sykes, to:
Sykes Enterprises, Incorporated
100 North Tampa Street, Suite 3900
Tampa, FL 33602
Attention: John L. Crites, Jr.,
Vice President and General Counsel
Facsimile: 813-273-0148
(with a copy to)
Martin A. Traber, Esq.
Foley & Lardner
100 North Tampa, Suite 2700
Tampa, FL 33602
Facsimile: 813-221-4210
or to such other person or address as Sykes shall furnish to HPS in writing.
(b) If to HPS, to:
HealthPlan Services Corporation
3501 Frontage Road
Tampa, FL 33607
Attention: Phil Dingle, Esq.
Facsimile: 813-287-6629
(with a copy to)
David C. Shobe, Esq.
501 E. Kennedy Blvd., Suite 1700
Tampa, FL 33601
Facsimile: 813-229-8313
or to such other person or address as HPS shall furnish to Sykes in writing.
26
<PAGE> 31
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted pursuant to this paragraph,
such communication shall be deemed delivered the next business day after
transmission (and sender shall bear the burden of proof of delivery); if sent
by overnight courier pursuant to this paragraph, such communication shall be
deemed delivered upon receipt; and if sent by U.S. mail pursuant to this
paragraph, such communication shall be deemed delivered as of the date of
delivery indicated on the receipt issued by the relevant postal service, or, if
the addressee fails or refuses to accept delivery, as of the date of such
failure or refusal. Any party to this Agreement may change its address for the
purposes of this Agreement by giving notice thereof in accordance with this
Section.
17. EXPENSES
Regardless of whether or not the transactions contemplated hereby are
consummated:
17.1. Brokerage. Sykes and HPS each represent and warrant to each
other that there is no broker involved or in any way connected with the subject
matter of this transaction. Sykes agrees to hold HPS harmless from and against
all claims for brokerage commissions or finder's fees incurred through any act
of Sykes in connection with the execution of this Agreement or the transactions
provided for herein. HPS agrees to hold Sykes harmless from and against all
claims for brokerage commissions or finder's fees incurred through any act of
HPS in connection with the execution of this Agreement or the transactions
provided for herein.
17.2. Pre-Closing Expenses. All costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid
or reimbursed in full by Newco. Newco shall pay any filing fees (including,
without limitation, the HSR Act filing fee) and the fee of its registered
agent.
17.3. Other. Except as otherwise provided herein, each of the
parties shall bear its own expenses and the expenses of its counsel and other
agents in connection with the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE> 32
17.4. Costs of Litigation or Arbitration. The parties agree that
(subject to the discretion, in an arbitration proceeding, of the arbitrator as
set forth in Section 13) the prevailing party in any action brought with
respect to or to enforce any right or remedy under this Agreement shall be
entitled to recover from the other party or parties all reasonable costs and
expenses of any nature whatsoever incurred by the prevailing party in
connection with such action, including without limitation attorneys' fees and
prejudgment interest.
18. ENTIRE AGREEMENT
This instrument embodies the entire agreement between the parties
hereto with respect to the transactions contemplated herein, and there have
been and are no agreements, representations or warranties between the parties
other than those set forth or provided for herein. For purpose of
interpretation, no party shall be deemed the draftsperson of this Agreement or
any document delivered at Closing.
19. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
20. HEADINGS
The headings in this Agreement are inserted for convenience only and
shall not constitute a part hereof.
21. FURTHER DOCUMENTS
The parties each agree to execute all other documents and to take such
other action or corporate proceedings as may be necessary or desirable to carry
out the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
SYKES ENTERPRISES, INCORPORATED
By
------------------------------------
John H. Sykes, President
28
<PAGE> 33
HEALTH PLAN SERVICES CORPORATION
By
----------------------------------
James K. Murray, Jr., President
29
<PAGE> 34
AGREEMENT TO BE BOUND BY AGREEMENT
Effective as of December 18, 1997, Sykes HealthPlan Services, Inc., a
Florida corporation, hereby and agrees to be bound by all of the terms,
covenants, representations, warranties and other provisions of the Agreement by
and between Sykes and HPS dated December 18, 1997 ("Agreement") that are
applicable to Newco, any "Party," the "Parties" (as those terms are defined in
the Agreement) as if Newco was an original signatory of the Agreement.
SYKES HEALTHPLAN SERVICES, INC.
By
-----------------------------
David E. Garner, President
30
<PAGE> 1
Exhibit 4.2
AMENDMENT TO
SHAREHOLDER AGREEMENT
THIS AMENDMENT to that certain Shareholder Agreement (the "Shareholder
Agreement") dated December 18, 1997 by and among SYKES HEALTHPLAN SERVICES,
INC., a Florida corporation ("SHPS"), SYKES ENTERPRISES, INCORPORATED, a
Florida corporation ("Sykes"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("HPS") is made and entered into effective as of the 31st day of
January, 1998.
RECITALS:
WHEREAS, Sykes and HPS (each a "Shareholder" and collectively
the "Shareholders") together own all of the outstanding voting common stock of
SHPS;
WHEREAS, SHPS became a party to the Shareholder Agreement upon
its incorporation on December 18, 1997;
WHEREAS, the Shareholder Agreement refers to and defines SHPS
as "Newco"; accordingly, all references made herein to "Newco" shall mean SHPS;
WHEREAS, the Shareholder Agreement, and the loan agreements
and promissory notes (the "Loan Documents") contemplated therein and executed
pursuant thereto, provide that the Shareholders shall each commit to make
available to SHPS a term loan in the amount of $9,040,800 to be drawn upon by
SHPS from time to time in increments of $100,000 (the "Lending Commitment");
WHEREAS, the parties hereto wish to amend the provisions of
the Shareholder Agreement to provide for the termination of the Lending
Commitment; and
WHEREAS, the parties wish to have each Shareholder make equal
additional capital contributions to SHPS such that the total capitalization of
SHPS will be increased to $34 million within 90 days of the Closing as that
term is defined in Section 8 of the Shareholder Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree that the
Shareholder Agreement is amended as follows:
1. Section 2.3, "Lending Commitment," is deleted in its entirety and
replaced with the following provision:
<PAGE> 2
"2.3 Subsequent Capital Contributions. Each of the
Shareholders shall contribute additional capital to Newco in equal
amounts to increase Newco's capitalization to $34 million within 90
days of the Closing, at such date and time as specified by Newco."
2. Section 3.13(h) is deleted in its entirety and replaced with the
following provision:
"(h) Repayment of Loans/Release of Guarantees. In the event
of a severance of Business Relationship under this Section 3.12, at
the Closing the purchasing Shareholder shall cause Newco to repay in
full all loans from the selling Shareholder and shall cause the
selling Shareholder to be released from all guarantees of Newco's
indebtedness."
3. Section 8.1(b) of the Shareholder Agreement is deleted.
4. The reference in Section 9.3(c) of the Shareholder Agreement to
"Section 2.3(b) (pro rata repayment of Loans)" is deleted.
5. Exhibits C and D to the Shareholder Agreement are deleted.
6. All other provisions of the Shareholder Agreement are hereby
ratified and confirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
____ day of _________________, 1998, effective as of the day and year first
above written.
ATTEST: SYKES HEALTHPLAN SERVICES, INC.
______________________________ By:___________________________________
Its:__________________________________
SYKES ENTERPRISES, INCORPORATED
______________________________ By:___________________________________
Its:__________________________________
HEALTHPLAN SERVICES CORPORATION
______________________________ By:___________________________________
Its:__________________________________
<PAGE> 1
Exhibit 10.1
SYKES HEALTHPLAN SERVICES, INC.
1997 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Sykes HealthPlan
Services, Inc. 1997 Stock Option Plan (the "Plan") is to promote the best
interests of Sykes HealthPlan Services (together with any successor thereto,
the "Company"), its subsidiaries and its stockholders by providing for the
grant of stock Options to key employees and non- employee directors who perform
valuable services for the Company in order to encourage and provide for the
acquisition of an equity interest in the success of the Company by such
individuals and to enable the Company to attract and retain the services of
such individuals upon whose judgment, interest, skills, and special effort the
successful conduct of its operation is largely dependent.
2. EFFECTIVE DATE. Subject to approval by the
stockholders of the Company, the Plan shall become effective on December 18,
1997. Any and all grants made prior to the stockholders' approval of the Plan
shall be subject to such approval.
3. ADMINISTRATION. The Plan shall be administered and
interpreted by a committee ("Committee") of the Board of Directors of the
Company (the "Board"), consisting of not less than two persons selected by the
Board. On and after the date that shares of the Company's common stock are
first registered pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Committee shall consist of not less than
two persons appointed by the Board, each of whom shall qualify as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act
and as an "outside director" under Section 162(m)(4)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provisions thereto. If
at any time the Committee shall not be in existence, the Board shall administer
the Plan and all references to the Committee herein shall include the Board.
Except to the extent prohibited by applicable law or the applicable rules of a
stock exchange, the Committee may allocate all or any portion of its
responsibility and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it, other than with respect to participants who are subject to
Section 16 of the Exchange Act. To the extent that the Committee has delegated
any of its authority and responsibility, references to the Committee herein
shall include such other person or persons as appropriate.
Subject to the express provisions of the Plan, the Committee
shall have the authority to establish such rules and regulations as it deems
necessary or advisable for the proper administration of the Plan, and, in its
discretion, to determine those key employees and non-employee directors to
whom, and the price at which Options will be granted, the type of Option to be
granted, the time or times at which Options will be granted, the exercise
periods, limitations on exercise, the number of shares to be subject to each
Option and any other terms, limitations, conditions and restrictions on Options
as the Committee, in its discretion, deems appropriate. In making such
determinations, the Committee may take into account the nature of the services
<PAGE> 2
rendered by the respective employees and non-employee directors, their present
and potential contributions to the success of the Company or its subsidiaries
as defined in Section 424 (f) of the Code ("Subsidiary" or "Subsidiaries"), and
such other factors as the Committee in its discretion shall deem relevant.
Subject to the express provisions of the Plan, the Committee shall also have
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical among similarly
situated employees or non-employee directors), to waive any conditions or
restrictions with respect to any Option and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this section 3 shall be
conclusive.
4. TYPES OF OPTIONS. Options granted under the Plan may
be either incentive stock options or nonqualified stock options, as determined
in the discretion of the Committee. An incentive stock option is an option
intended to satisfy the requirements of Section 422 of the Code (which options
are hereinafter referred to collectively as "ISOs" or singularly as an "ISO").
A nonqualifed stock option is not intended to be an "incentive stock option" as
that term is described in Section 422 of the Code (which Options are
hereinafter referred to collectively as "Nonqualifed Options" or singularly as
"Nonqualifed Option"). Except where the context indicates to the contrary, the
term "Option" or "Options" manes ISOs and Nonqualifed Options.
5. STOCK SUBJECT TO PLAN.
5.1 NUMBER. Subject to adjustment as provided in
sections 5.3 and 5.4, the total number of shares of non-voting common stock of
the Company, $.01 par value per share ("Stock"), that may be issued under the
Plan shall be 2,000,000. In the event that shares of voting common stock of the
Company ("Voting Stock") are sold to the public pursuant to an effective
registration statement filed by the Company under the Securities Act of 1933,
as amended (the "Securities Act") (which event is hereinafter referred to as
the "IPO"), the total number of shares of Stock that may be issued shall
automatically increase to 2,500,000. The shares to be delivered under the Plan
may consist, in whole or in part, of authorized but unissued Stock or treasury
Stock. If any Options expire, are cancelled or terminate for any reason
without having been exercised in full, the shares subject to the unexercised
portion thereof shall again be available for the purposes of the Plan.
5.2 INDIVIDUAL LIMIT. The maximum total number
of shares of Stock that shall be subject to Options granted under the Plan to
any one employee or non-employee director in any calendar year shall be 700,000
shares of Stock. If the Company registers shares of common stock under the
Exchange Act, all determinations under this section 5.2 shall be made in a
manner that is consistent with the exemption for performance based compensation
provided by Section 162(m) of the Code (or any successor provision thereto) and
any regulations promulgated thereunder.
2
<PAGE> 3
5.3 ADJUSTMENT IN CAPITALIZATION. In the event
that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Stock, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidations, split-up, spin-off, combination, repurchase or exchange of
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Stock or other securities of the Company, or other similar
corporate transaction or event affects the Stock such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made under the
Plan, then the Committee may, in such manner as it may deem equitable, adjust
any or all of: (i) the number and type of shares of stock subject to the Plan
and which thereafter may be made the subject of Options under the Plan; (ii)
the number and type of shares of stock subject to outstanding Options; and
(iii) the grant, purchase or exercise price with respect to any Option, or if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Option; provided, however, in each case, that with respect to ISOs
no such adjustment shall be authorized to the extent that such authority would
cause such Options to cease to be treated as ISOs, and provided further,
however, that the number of shares of Stock subject to any Option payable or
denominated in Stock shall always be a whole number.
5.4 EFFECT OF IPO. When the IPO occurs, all
outstanding Options to purchase shares of Stock shall be converted into Options
to purchase the same number of shares of Voting Stock and all shares delivered
under the Plan after the IPO shall be Voting Stock. Following the IPO, all
references to Stock in the Plan shall mean Voting Stock.
6. TERM OF THE PLAN. No Option shall be granted under
the Plan after December 18, 2007. However, unless otherwise expressly provided
in the Plan or in an applicable Option agreement, any Option theretofore
granted may extend beyond such date and, to the extent set forth in the Plan,
the authority of the Committee to amend, alter, adjust, suspend, discontinue or
terminate any such Option, or to waive any conditions or restrictions with
respect to any such Option, and the authority of the Board to amend the Plan,
shall extend beyond such date.
7. STOCK OPTIONS.
7.1 GRANT OF OPTIONS. Options may be granted, in
accordance with the provision of this Section 7.1 and Sections 7.2 through 7.8
of the Plan, to any key employee of the Company and any of its present and
future Subsidiaries, including any such employee who is also an officer or
director of the Company and its Subsidiaries, as shall be determined by the
Committee. In addition, Options may be granted to non-employee directors in
accordance with the provisions of Section 7.9 of the Plan. The Committee shall
determine whether an Option granted to an employee is to be ISO or a
Nonqualified Option. Any Option granted to a non-employee director
3
<PAGE> 4
shall be a Nonqualified Option. If an Option fails at any time to meet the
requirements for ISO treatment under Section 422 of the Code, such Option shall
be treated as a Nonqualifed Option. For purposes of this Plan, a "Participant"
is an employee or a non-employee director who receives an Option under the
Plan. Except as otherwise provided under the Plan, more than one Option or one
type of Option may be granted to a Participant at any time.
7.2 EXERCISE PRICE. The exercise price for each
Option shall be established by the Committee or shall be determined by a method
established by the Committee at the time of grant, except that the exercise
price shall not be less than one hundred percent (100%) of the Fair Market
Value (as defined below) of a share of Stock on the date of grant and, in the
case of the grant of an ISO to any employee who, at the time of grant, owns
shares of Company stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder"), the exercise price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of a share of Stock on the date of
grant.
7.3 TERM OF OPTIONS. The term of each Option
shall be fixed by the Committee; provided, however, that ISOs shall not be
exercisable over more than ten (10) years after the date of grant (and five (5)
years in the case of a 10% Stockholder).
7.4 FAIR MARKET VALUE. The Fair Market Value of
a share of Stock shall be determined by such methods or procedures as shall be
established from time to time by the Committee; provided, however, that after
the IPO, the Fair Market Value of a share of Stock shall be the average of the
high and low prices of the Stock on the date in question or the principal
exchange on which the Stock is then traded or if no such sale shall have been
made on that date, then on the last preceding day on which there was such a
sale.
7.5 NONQUALIFED OPTIONS.
(a) EXERCISE. Except as otherwise
provided herein, or as determined by the Committee, Nonqualifed Options will
become exercisable nine years after the date of their grant, provided that the
Participant has not terminated employment before that time. Provided, however,
that the Committee may, in its absolute discretion, establish performance
objectives (the "Performance Objectives") which, if met, shall cause the
vesting or exercise date of certain Nonqualifed Options to accelerate. The
Committee may, in its sole discretion, adjust the Performance Objectives to
reflect extraordinary events, such as stock splits, recapitalization, mergers,
combinations, divestitures, spin-offs and the like. The Committee shall have
the ultimate authority to determine whether Performance Objectives have been
satisfied. The Committee may also determine, in its sole discretion, that
Nonqualifed Options
4
<PAGE> 5
awarded to a Participant shall become partially or fully vested upon the
Participant's termination of employment due to disability, death, retirement or
otherwise.
(b) TERMINATION. Except as otherwise
determined by the Committee, if the employment of a Participant terminates for
any reason other than Cause (as defined below), the Participant shall be
entitled to exercise the Nonqualifed Option, to the extent exercisable pursuant
to section 7.5(a), until three months after such termination; provided,
however, that the Nonqualifed Option shall not be exercisable after it has
expired pursuant to section 7.3 hereof. If the employment of a Participant
terminates for Cause, the Participant shall have no right to exercise any
portion of any Nonqualifed Option not yet exercised as of the date of such
termination for Cause. As used herein, "Cause" means, as determined by the
Board, the Participant's willful failure to perform his or her duties or
intentional dishonest or unintentional illegal conduct in connection with his
or her employment.
7.6 ISOS.
(a) EXERCISE. Except as otherwise
determined by the Committee, ISOs will become exercisable with respect to
one-third of the covered shares on the date of grant and an additional
one-third of the shares on each successive anniversary of the date of grant,
provided that the Participant has not terminated employment before the
anniversary. Exercisability under this section is cumulative.
(b) TERMINATION. If the employment of a
Participant terminates for any reason other than death or Cause, the
Participant shall be entitled to exercise the ISO, to the extent exercisable
pursuant to section 7.6(a), until three months after such termination;
provided, however, that the ISO shall not be exercisable after it has expired
pursuant to section 7.3 hereof. If the Participant should die while employed
or within three months after termination of employment, the right of the
Participant's successor in interest to exercise an ISO shall terminate not
later than twelve months after the date of death, except as otherwise provided
by the Committee. If the Participant's employment is terminated for Cause, the
Participant shall have no right to exercise any portion of any ISO not yet
exercised as of the date of such termination for Cause.
(c) OTHER LIMITS ON ISOS. Each ISO
shall provide that to the extent the aggregate fair market value of the Stock
on the date of grant with respect to which ISOs are exercisable by a
Participant for the first time during any calendar year under the Plan or any
other stock option plan of the Company exceeds $100,000, then such Option as to
the excess shall be treated as a Nonqualifed Option. In all other respects,
the terms of any ISO granted under the Plan shall comply with the provision of
Section 422 of the Code (or any successor provision thereto) and any
regulations promulgated thereunder.
5
<PAGE> 6
7.7 OPTION AGREEMENT. Each Option shall be
evidenced by an Option agreement that shall specify the type of Option granted,
the date of grant, the Option price, the duration of the Option, the number of
shares of Stock to which the Option pertains and such other conditions or
provisions as the Committee shall determine.
7.8 MANNER OF EXERCISE AND PAYMENT. The
Committee shall prescribe the manner in which a Participant may exercise an
Option that is not inconsistent with the provisions of this Plan. An option
may be exercised from time to time, subject to limitations on its exercise as
provided in the Plan or the option agreement, only by (i) providing written
notice of intent to exercise the Option with respect to a specified number of
shares, and (ii) payment in full to the Company of the option price at the time
of exercise (except in the case of any exercise through a broker-dealer as
described below). The Committee shall determine the methods and the forms for
payment of the exercise price of Options, including (i) by delivery of cash or
other shares or securities of the Company having a then Fair Market Value equal
to the exercise price of such shares, or (ii) by delivery (including by fax) to
the Company or its designated agent of an executed irrevocable option exercise
form together with instructions to a broker-dealer to sell or margin a
sufficient portion of the Stock and deliver the sale or margin loan proceeds
directly to the Company to pay the purchase price.
7.9 NON-EMPLOYEE DIRECTOR OPTIONS.
(a) INITIAL OPTIONS. Each non-employee
director shall receive an Option or Options as determined under this Section
7.9. The Company shall grant to each non-employee director elected by the
Company's shareholders after January 1, 1998, an Option to purchase 15,000
Shares (the "Initial Option"). The grant date of a non-employee director's
Initial Option shall be the date of such non-employee director's election to
the Board.
(b) INITIAL OPTION REQUIREMENTS. Each
Initial Option granted to a non-employee director will satisfy the following
requirements:
(i) Option Agreement. Each Initial
Option shall be evidenced by an Option agreement that shall specify the type of
Option granted, the date of grant, the Option price, the duration of the
Option, the number of shares of Stock to which the Option pertains and such
other conditions or provisions as the Committee shall determine.
(ii) Exercise Price. The exercise
price of each Initial Option shall be 100 percent of the Fair Market Value of
the Stock on the grant date of the Initial Option.
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<PAGE> 7
(iii) Term of Option. Except as
otherwise provided in this Section 7.9(b), each Initial Option shall expire on
the tenth anniversary of the date of grant.
(iv) Exercise of Option. Each
Initial Option shall become exercisable in three equal installments. To the
extent the Option is unexercisable or unexercised, the unexercised portion
shall accumulate until the Option becomes both exercisable and is exercised,
subject to the provisions of this Section 7.9. On the first anniversary of the
grant date, the Initial Option will become exercisable with respect to 33-1/3
percent of the shares of Stock subject to the Option. On the second
anniversary of the grant date, the Option will become exercisable with respect
to an additional 33-1/3 percent of the shares subject to the Option. On the
third anniversary of the grant date, the Option will become exercisable with
respect to the remaining 33-1/3 percent of the shares of Stock subject to the
Option.
(v) Termination. If a Participant
ceases to serve as a non-employee director of the Company, the Participant
shall be entitled to exercise the Initial Option, to the extent exercisable
pursuant to section 7.9(b)(iv) of the Plan, until three months after such
termination; provided, however, that the Initial Option shall not be
exercisable after it has expired pursuant to section 7.9(b)(iii) of the Plan.
(c) DISCRETIONARY OPTIONS. The
Committee or the Board, each in its discretion, may grant an Option to any
non-employee director at any time. Each discretionary Option granted to a
non-employee director shall be evidenced by an Option agreement that shall
specify the type of Option granted, the date of grant, the Option price, the
duration of the Option, the number of shares of Stock to which the Option
pertains and such other conditions or provisions as the Committee or the Board
shall determine.
(d) MANNER OF EXERCISE AND PAYMENT. The
provisions of Section 7.8 of the Plan shall apply to Initial Options and
discretionary option grants to non-employee directors.
8. TRANSFERABILITY. Each Option granted under the Plan
shall be exercised only by the Participant during his lifetime and shall not be
transferable except to the extent allowed by the Committee and in a manner
specified by the Committee in the option agreement. An ISO shall not, in any
case, be transferable other than by will or the laws of descent and
distribution.
9. RESTRICTIONS ON TRANSFERS OF STOCK.
9.1. The shares to be acquired upon exercise of
an Option may not be sold or offered for sale except (i) pursuant to an
effective registration statement under the Securities Act or any applicable
state securities laws; (ii) in a transaction
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<PAGE> 8
satisfying the requirements of Rule 144 promulgated under the Securities Act;
or (iii) in a transaction which, in the opinion of counsel for the Company, is
exempt from the registration provisions of the Securities Act or applicable
state securities laws. Certificates representing shares acquired upon exercise
of an Option may bear a restrictive legend as determined by the Committee.
9.2. Notwithstanding section 9.1, the shares to be
acquired upon the exercise of an Option may not be sold, pledged, encumbered or
otherwise transferred or disposed of in any manner, except as permitted by the
Committee and in a manner specified by the Committee in the option agreement or
a shareholders agreement between the Company and the Participant.
10. RIGHTS OF EMPLOYEES. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment at any time nor confer upon any Participant any right
to continue in the employ of the Company.
11. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN.
11.1 AMENDMENTS AND TERMINATION. The Board may,
at any time, amend, alter, suspend, discontinue or terminate the Plan;
provided, however, that stockholder approval of any amendment of the Plan shall
be obtained if otherwise required by (i) the Code or any rules promulgated
thereunder (in order to allow for ISOs to be granted under the Plan or to
enable the Company to comply with the provisions of Section 162(m) of the Code
so that the Company can deduct compensation in excess of the limitation set
forth therein), or (ii) the listing requirements of the principal securities
exchange or market on which the Stock is then traded (in order to maintain the
listing or quotation of the Stock thereon), if applicable. To the extent
permitted by applicable law, the Committee may also amend the Plan, provided
that any such amendments shall be reported to the Board. Termination of the
Plan shall not affect the rights of Participants with respect to Options
previously granted to them, and all unexpired Options shall continue in force
and effect after termination of the Plan except as they may lapse or be
terminated by their own terms and conditions. The Committee, subject to the
same stockholder approval requirements set forth above, may amend an Option
agreement at any time; provided that any amendment that reduces the right of
any Participant must be agreed to by such Participant.
11.2 WAIVER OF CONDITIONS. The Committee may, in
whole or in part, waive any conditions or other restrictions with respect to
any Option granted under the Plan.
12. TAXES. No later than the date as of which an amount
first becomes includible in the gross income of a Participant for federal
income tax purposes with respect to any Option under the Plan, the Participant
shall pay to the Company, or
8
<PAGE> 9
make arrangements satisfactory to the Company regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. If approved by the Committee,
withholding obligations arising with respect to Options granted to Participants
under the Plan may be settled with shares of Stock previously owned by the
Participant; provided, however, that the Participant may not settle such
obligations with Stock that is received upon exercise of the Option that gives
rise to the withholding requirement. The obligations of the Company under the
Plan shall be conditioned on such payment or arrangements, and the Company and
any Subsidiary shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant. The
Committee may establish such procedures as it deems appropriate for the
settling of withholding obligations with shares of Stock.
13. MISCELLANEOUS.
13.1 OTHER PROVISIONS. The grant of any Option
under the Plan may also be subject to other provisions (whether or not
applicable to the Option granted to any other Participant) as the Committee
determines appropriate, including, without limitation, provisions for (i) the
Participant's agreement, as a condition of receiving an Option, to be bound by
a covenant not to compete and/or a confidentiality agreement with the Company
containing such terms as the Committee and/or the Board shall deem advisable;
(ii) the purchase of Stock under Options in installments; (iii) the financing
of the purchase of Stock under the Options in the form of a promissory note
issued to the Company by a Participant on such terms and conditions as the
Committee determines; (iv) the restrictions on resale or other disposition of
Stock acquired upon exercise, including a requirement that the Participant
enter into a shareholder's agreement; and (v) compliance with federal or state
securities laws and stock exchange or marketing requirements.
13.2 OPTION AGREEMENT. No person shall have any
rights under any Option granted under the Plan unless and until the Company and
the Participant to whom the Option was granted shall have executed an Option
agreement in such form as shall have been approved by the Committee.
13.3 NO FRACTIONAL SHARES. No fractional shares
or other securities shall be issued or delivered pursuant to the Plan, and the
Committee shall determine (except as otherwise provided in the Plan) whether
cash, other securities or other property shall be paid or transferred in lieu
of any fractional shares or other securities, or whether such fractional shares
or other securities or any rights thereto shall be cancelled, terminated or
otherwise eliminated.
13.4 RIGHTS AS STOCKHOLDER. A Participant shall
have no rights as a stockholder with respect to Stock covered by any Option
until the date of issuance of the Stock certificate to the Participant and only
after such Stock is fully paid. No
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<PAGE> 10
adjustment will be made for dividends or other rights for which the record date
is prior to the date such Stock is issued.
14. LEGAL CONSTRUCTION.
14.1 REQUIREMENTS OF LAW. The granting of Options
under the Plan, and the issuance of shares of Stock in connection with an
Option, shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
14.2 GOVERNING LAW. The Plan, and all agreements
hereunder, shall be construed in accordance with and governed by the laws of
the State of Florida.
14.3 SEVERABILITY. If any provision of the Plan
or any Option agreement or any Option is or becomes or is deemed to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person or Option, or
would disqualify the Plan, any Option agreement or any Option under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan, any Option agreement or the Option, such
provision shall be stricken as to such jurisdiction, person or Option, and the
remainder of the Plan, any such option agreement and any such option shall
remain in full force and effect.
Adopted by the Board of Directors on March 25, 1998
(original Plan adopted by the Board of Directors on
December 18, 1997)
Approved by the Shareholders on March 25, 1998
(original Plan approved by the Shareholders on
December 18, 1997)
10
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of December 1997 by and
between SHPS Acquisition Corp., a Florida corporation (the "Company"), and
wholly owned subsidiary of Sykes HealthPlan Services, Inc., a Florida
corporation ("SHPS"), and STEPHEN K. HOLLAND, M.D. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to assure itself of the
Executive's continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and
conditions of this Agreement, the Company shall employ the Executive during the
Term (as hereinafter defined) as an Executive Officer of the Company and in
such other management capacities, with meaningful executive management
responsibilities and requisite authority, as may be assigned, from time to
time, by the Company. The Executive accepts such employment and agrees to
devote his best efforts and entire business time, skill, labor and attention to
the performance of such duties. The Executive agrees to provide promptly a
description of any other commercial duties or pursuits engaged in by the
Executive (other than those set forth on Exhibit B hereto which are hereby
expressly permitted), to the Company's Board of Directors. If the Board of
Directors determines, in good faith, that such activities conflict with the
Executive's performance of his duties hereunder, the Executive shall promptly
cease such activities to the extent and as directed by the board of Directors.
It is acknowledged and agreed that such description shall be made regarding any
such activities in which the Executive owns more than 10% of the ownership of
the organization or which may be in violation of Section 5 hereof, and that the
failure of the Executive to provide any such description shall enable the
Company to terminate the Executive for Cause (as provided in Section 6(c)
hereof). The Company agrees to hold any such information provided by the
Executive confidential and not disclose the same to any person other than a
person to whom disclosure is reasonably necessary or appropriate in light of
the circumstances. In addition, the Executive agrees to serve (without
additional compensation unless such position results in significant additional
responsibility) if elected or appointed to any office or position, including as
a director, of the Company or any parent, subsidiary or affiliate of the
Company; provided, however, that the Executive shall be entitled to receive
such benefits and additional compensation, if any, that is paid to executive
officers of the Company, such parent, subsidiary or affiliate in connection
with such service. Executive will be eligible for consideration to become an
Executive Officer of SHPS as the business plans and prospects for SHPS clarify,
any such appointment, however, will be subject to approval by the Board of
Directors of SHPS.
<PAGE> 2
2. TERM. Subject to the terms and conditions of this
Agreement, including but not limited to the provisions for termination set
forth in Section 6 hereof, the employment of the Executive under this Agreement
shall commence on the date hereof and shall continue through and including the
close of business on the anniversary date hereof for the term which is set
forth under the caption "Term" on Exhibit A attached hereto and incorporated
herein (such term shall herein be defined as the "Term"). Upon the effective
date of this Agreement, the existing employment agreement between Executive and
OMS Incorporated shall terminate and Employee hereby completely and
unconditionally releases OMS Incorporated from any and all claims which the
Employee has or may have against OMS Incorporated under such agreement,
including any future claims to any benefits under the agreement
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for
the Executive's services under this Agreement, the Executive shall receive, and
the Company shall pay, a weekly base salary set forth on Exhibit A. Such base
salary may be increased, but not decreased, during the Term, in the Company's
discretion, based upon the Executive's performance and any other factors the
Company deems relevant. Such base salary shall be payable in accordance with
the policy then prevailing for the Company's executives. In addition to such
base salary, the Executive shall be entitled, during the Term, to a performance
bonus as set forth on Exhibit A and to participate in and receive payments from
all other bonus and other incentive compensation plans as may be adopted by the
Company on the same basis and terms as other executive officers of the Company.
(b) Payments. All amounts paid pursuant to this
Agreement shall be subject to withholding or deduction by reason of the Federal
Insurance Contribution Act, Federal income tax, state and local income tax, if
any, and comparable laws and regulations.
(c) Stock Options. Upon the execution of this
Agreement, the Executive shall receive a stock option grant for Forty Thousand
(40,000) shares of Sykes HealthPlan Services, Inc., non-voting common stock
with an exercise price per share of $2.40. Such options shall be subject to the
terms of a Stock Option Agreement to be executed by the Executive and the
Company. The Executive's right to exercise the options shall vest in accordance
with the vesting schedule set forth on the Addendum to Employment Agreement
attached hereto.
(d) Other Benefits. The Executive shall be
reimbursed by the Company for all reasonable and customary travel and other
business expenses incurred by the Executive in the performance of the
Executive's duties hereunder in accordance with the Company's standard policy
regarding expense verification practices. The Executive shall be entitled to
that number of weeks paid vacation per year that is available to other
executive officers of the Company in accordance with the Company's standard
policy regarding vacations
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<PAGE> 3
and shall be eligible to participate in such pension, life insurance, health
insurance, disability insurance and other employee benefits plans, if any,
which the Company or SHPS may from time to time make available to its executive
officers generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire non-public
information and knowledge respecting the intimate and confidential affairs of
the Company, including without limitation confidential information with respect
to the Company's customer lists, business methodology, processes, production
methods and techniques, promotional materials and information, and other
similar matters treated by the Company as confidential (the "Confidential
Information"). Accordingly, the Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise) and thereafter, the Executive shall not, without the prior written
consent of the Company, disclose to any person, other than a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties hereunder, any
non-public Confidential Information obtained by the Executive while in the
employ of the Company. Notwithstanding the foregoing, Executive may disclose
the Confidential Information pursuant to the requirement or request of a
governmental agency or pursuant to a court or administrative subpoena, order or
other such legal process or requirement of law, or in defense of any claims or
causes of action asserted against him; provided, however, that Executive shall
first notify the Company of such request or requirement, or proposal for use in
defense.
(b) The Executive agrees that all memoranda, notes,
records, papers or other documents and all copies thereof relating to the
Company's operations or business, some of which may be prepared by the
Executive, and all objects associated therewith in any way obtained by the
Executive shall be the Company's property. This shall include, but is not
limited to, documents and objects concerning any customer lists, contracts,
price lists, manuals, mailing lists, advertising materials, and all other
materials and records of any kind that may be in the Executive's possession or
under the Executive's control. The Executive shall not, except on the Company's
behalf, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the Company's facilities, nor use any information concerning
them except for the Company's benefit, either during the Executive's employment
or thereafter. The Executive covenants and agrees that the Executive will
deliver all of the aforementioned documents and objects, if any, that may be in
the Executive's possession to the Company upon termination of the Executive's
employment, or at any other time at the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise), and thereafter for the period of time set forth on Exhibit A
following the termination of the Executive's employment with the Company, the
Executive will not:
3
<PAGE> 4
(i) directly or indirectly engage in, continue
in or carry on the business of the Company, or any business substantially
similar thereto which competes with the Company, including owning or
controlling any financial interest in, any corporation, partnership, firm or
other form of business organization which competes with any aspect of such
business or any business substantially similar thereto;
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm or other
business organization which is now, or becomes a competitor of the Company in
any aspect of the Company's business during the Executive's employment with the
Company, including, but not limited to: advertising or otherwise endorsing the
products of any such competitor; soliciting customers or employing employees of
the Company or otherwise serving as an intermediary for any such competitor; or
loaning money or rendering any other form of financial assistance to or
engaging in any form of business transaction whether or not on an arms' length
basis with any such competitor; or
(iii) engage in any practice the purpose of which
is to evade the provisions of this Agreement or to commit any act which is
detrimental to the successful continuation of, or which adversely affects, the
business or the Company; provided, however, that the foregoing shall not
preclude the Executive's ownership of not more than 2% of the equity securities
of a corporation which has such securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended.
(b) The Executive agrees that the geographic scope of
this covenant not to compete shall extend to the geographic area where the
Company's customers conduct business at any time during the Term of this
Agreement. For purposes of this Agreement, "customers" means any person or
entity to which the Company provides or has provided within a period of one (1)
year prior to the Executive's termination of employment labor, materials or
services for the furtherance of such entity or person's business or any person
or entity that within such period of one (1) year the Company has pursued or
communicated with for the purposes of obtaining business for the Company.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to the Company
for such violation or breach and regardless of any other provision contained in
this Agreement, the Company shall be entitled to equitable remedies (including
an injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and
the duration of this covenant not to compete shall be extended in an amount
which equals the time period during which the Executive is or has been in
violation of this covenant not to compete. Further, the Executive acknowledges
and agrees that the Company shall be entitled
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<PAGE> 5
to liquidated damages in the amount of $100 per day for each day during which
the Executive is in violation of this covenant not to compete, and the
Executive does specifically acknowledge and agree that the liquidated damages
in such amount are fair and reasonable, in that it may be difficult for the
Company to determine the extent of the damages actually incurred in the event
of the breach of this covenant not to compete by the Executive.
(d) In the event a court of competent jurisdiction determines
that the provisions of this covenant not to compete are excessively broad as to
duration, geographic scope, prohibited activities or otherwise, the parties
agree that this covenant shall be reduced or curtailed to the extent necessary
to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder
shall terminate upon his death.
(b) Disability. If, during the Term, the
Executive becomes physically or mentally disabled in accordance with the terms
and conditions of any disability insurance policy covering the Executive or, if
due to such physical or mental disability, the Executive becomes unable for a
period of more than six (6) consecutive months to perform his duties hereunder
on substantially a full-time basis as determined by the Company in its sole
reasonable discretion, the Company may, at its option, terminate the Executive's
employment hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause effective immediately upon notice.
For purposes of this Agreement, the Company shall have "Cause" to terminate the
Executive's employment hereunder: (i) if the Executive engages in conduct which
has caused, or is reasonably likely to cause, demonstrable and serious injury to
Company; (ii) if the Executive is convicted of a felony, as evidenced by a
binding and final judgment, order or decree of a court of competent
jurisdiction; (iii) for the Executive's neglect of his duties hereunder or the
Executive's refusal to perform his duties or responsibilities hereunder, as
determined by the Company's Board of Directors in good faith; (iv) for the
Executive's violation of this Agreement, including without limitation Section 5
hereof; (v) chronic absenteeism; (vi) use of illegal drugs; (vii) insobriety by
the Executive while performing his or her duties hereunder; and (viii) any act
of dishonesty or falsification of reports, records or information submitted by
the Executive to the Company.
(d) Severance Payment. In the event of a
termination of the Executive's employment pursuant to this Section 6 or by the
Executive, all payments to the Executive hereunder shall immediately cease and
terminate. In the event of a termination by the Company of the Executive's
employment with the Company for any reason other than pursuant to this Section
6, then the Company shall have no further obligation to make payments under this
Agreement except that the Company shall pay the Executive severance pay (in
equal installments
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<PAGE> 6
in accordance with Company policy immediately prior to such termination) in the
amount set forth on Exhibit A ("Severance Payment"). Such monthly Severance
Payment, however, shall not be required to be paid by the Company for more than
six months if the Company elects, in its sole discretion, after six months to
release the Executive from the covenant not to compete set forth in Section 5
hereof. If the Company terminates the Executive's employment pursuant to Section
6(a), (b) or (c), or the Executive terminates such employment, the Executive
shall not be entitled to the Severance Payment and the covenant not to compete
set forth in Section 5 hereof shall remain in full force and effect.
Notwithstanding anything to the contrary herein contained, the Executive shall
receive all compensation and other benefits to which he was entitled under this
Agreement or otherwise as an employee of the Company through the termination
date of his employment with the Company. Among other things, this would include
the pro rata share of any bonus earned through the termination date.
(e) Transition Services. Upon a termination of
employment by the Executive, or by the Company with Cause, the Executive shall
cooperate with the Company's reasonable requests to ensure an orderly and
businesslike transfer of the Executive's duties to other personnel designated by
the Company. Additionally, the Executive shall make himself available at
reasonable times upon reasonable notice to consult with the Company and assist
the Company with respect to: (i) any matters for which the Company requests such
assistance for a period of six (6) months after such termination, and (ii) any
litigation or governmental or quasi-governmental agency investigation which may
be pending at the time of termination or implemented after termination which
relates to any period during which the Executive was employed by the Company;
provided, that, in either case, the Company shall reimburse the Executive for
any reasonable out-of-pocket expense incurred by the Executive at the Company's
request in connection with such consultation or assistance, and with respect to
(ii), the Company shall schedule such consultation at times which will not
interfere with any subsequent employment which the Executive has obtained and
such consultation shall not require more than an average of two days per month
without the Executive's consent. A breach of the foregoing provisions by the
Executive shall be deemed to be a material breach of this Agreement.
7. NOTICE. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when hand-delivered, sent by telecopier,
facsimile transmission or other electronic means of transmitting written
documents (as long as receipt is acknowledged) or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive, to the address set forth on the
signature page.
If to the Company:
--------------------------------
--------------------------------
--------------------------------
Tampa, Florida __________
Attn: Chief Executive Officer
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<PAGE> 7
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such waiver or modification is agreed to in writing
signed by the parties hereto; provided, however, Exhibit A may be amended by
the Company in its discretion without the Executive's consent to the extent
provided therein; provided, however, no amendment may be made which impairs or
adversely affects the rights of the Executive without the Executive's written
consent. No waiver by any party hereto of any breach by any other party hereto
shall be deemed a waiver of any similar or dissimilar term or condition at the
same or at any prior or subsequent time. This Agreement is the entire agreement
between the parties hereto with respect to the Executive's employment by the
Company and there are no agreements or representations, oral or otherwise,
expressed or implied, with respect to or related to the employment of the
Executive which are not set forth in this Agreement. Any prior agreement
relating to the Executive's employment with the Company is hereby superseded
and void, and is no longer in effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its respective successors and assigns, and
the Executive and his heirs, executors, administrators and legal
representatives. Except as expressly set forth herein, no party shall assign
any of his or its rights under this Agreement without the prior written consent
of the other party and any attempted assignment without such prior written
consent shall be null and void and without legal effect. The parties agree that
if any provision of this Agreement shall under any circumstances be deemed
invalid or inoperative, the Agreement shall be construed with the invalid or
inoperative provision deleted and the rights and obligations of the parties
shall be construed and enforced accordingly. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
internal laws of the State of Florida. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute but one and the same instrument. This Agreement
has been jointly drafted by the respective representatives of the parties and
no party shall be considered as being responsible for such drafting for the
purpose of applying any rule constituting ambiguities against the drafter or
otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
"COMPANY"
SHPS ACQUISITION CORP.
By:
-------------------------
David Garner, President
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<PAGE> 8
"EXECUTIVE"
-------------------------------
Stephen K. Holland, M.D.
Address:
-----------------------
-----------------------
Performance of this Agreement is unconditionally guaranteed by Sykes HealthPlan
Services, Inc.
SYKES HEALTHPLAN SERVICES, INC.
By:
----------------------------
David Garner, President
8
<PAGE> 9
EXHIBIT A TO EMPLOYMENT AGREEMENT
TERM: 3 years
BASE SALARY: $3,173.08 per week ($165,000 per year)
PERFORMANCE BONUS: $37,500 per year based upon the Company's attainment of the
Total Operating Revenue target set forth below, and $37,500 per year based upon
the Company's attainment of the EBITDA target set forth below:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total Operating Revenue(1) $6,375,800 $7,509,400 $8,831,800
EBITDA(1) $1,915,700 $2,329,600 $2,785,900
</TABLE>
---------------------
(1) As reported on the financial statements prepared in
accordance with GAAP by the Company's accountants.
The Board of Directors of the Company, acting in its sole discretion, may award
a pro rata portion of the Performance Bonus in the event that the Performance
Bonus targets are only partially achieved. In addition, from time to time, the
Executive may be asked to undertake additional and/or different duties or
responsibilities with a parent, subsidiary or affiliate of the Company. In such
event, Executive and the Company hereby agree to negotiate in good faith to
adopt new Performance Bonus targets in light of such new duties or
responsibilities.
COVENANT NOT TO COMPETE: up to 24 months, unless the Company elects a shorter
term
SEVERANCE PAYMENT: $13,750 per month during the term that the Covenant Not to
Compete is in force.
A-1
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Exhibit A
as of the 31st day of December, 1997.
SHPS ACQUISITION CORP.
By:
------------------------
David Garner, President
"EXECUTIVE"
---------------------------
Stephen K. Holland, M.D.
A-2
<PAGE> 11
EXHIBIT B TO EMPLOYMENT AGREEMENT
1) Clinical Medicine -- Stephen K. Holland, M.D. may devote up to six (6)
hours per week to clinical medicine activities and make every effort to
retain his faculty position at Harvard Medical School. Dr. Holland will
gain approval from the Company for his clinical schedule.
2) Long-Term Care Group -- On his own time, Dr. Holland may continue to
meet his obligations to the Long-Term Care Group (formerly known as
LifePlans) regarding updates to their Underwriting Manual and Software
so long as it does not interfere with the performance of his Company
duties or otherwise create a situation adverse to the interests of the
Company. Dr. Holland will gain pre-approval from the Company for any
rare instances in which these activities require him to be away from
the office during normal business hours.
IN WITNESS WHEREOF, the parties have executed this Exhibit B
as of the 31st day of December, 1997.
SHPS ACQUISITION CORP.
By:
-----------------------
David Garner, President
"EXECUTIVE"
--------------------------
Stephen K. Holland, M.D.
B-1
<PAGE> 12
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum to Employment Agreement of Stephen K. Holland, M.D.
("Employee") dated December 31, 1997 is to set forth the terms of the stock
options to be granted to Employee pursuant to the Employment Agreement.
1. Non Qualified Options - 20,000 shares Non Voting Common
vesting at end of 9 years subject to
accelerated vesting as specified
below;
2. Qualified Options - 20,000 shares Non-Voting Common
vesting 1/3 per year over 3 years
subject to continued employment;
3. Strike Price - $2.40/per share;
4. Accelerated Vesting of Non Qualified Options as follows:
(a) 6,667 per year based on attainment of Total Operating
Revenue and EBITDA Targets set forth below:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total Operating Revenue(1) $6,375,800 $7,509,400 $8,831,800
EBITDA(1) $1,915,700 $2,329,600 $2,785,900
</TABLE>
---------------------
(1) As reported on the financial statements prepared in
accordance with GAAP by the Company's accountants.
(b) All options cliff vest upon completion of an initial
public offering as defined in the Sykes HealthPlan
Services, Inc. 1997 Stock Option Plan (the "1997
Stock Option Plan") or on sale of substantially all
of the assets of the corporation.
5. Options to be evidenced by and subject to standard terms and
conditions and/or of the 1997 Stock Option Plan.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of December 1997 by and
between SYKES HEALTHPLAN SERVICES, INC., a Florida corporation (the "Company"),
HEALTHPLAN SERVICES CORPORATION, a Delaware corporation ("HealthPlan Services")
only for purposes of Section 6(f) and the severance payment guarantee footnoted
on Exhibit A hereto, and JAMES K. MURRAY, III (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to assure itself of the Executive's
continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this
Agreement, the Company shall employ the Executive during the Term (as
hereinafter defined) as an Executive Officer and the Chief Financial Officer and
Treasurer of the Company and in such other management capacities as may be
assigned, from time to time, by the Company. The Executive accepts such
employment and agrees to devote his best efforts and entire business time,
skill, labor and attention to the performance of such duties. The Executive
agrees to provide promptly a description of any other commercial duties or
pursuits engaged in by the Executive to the Company's Board of Directors. If the
Board of Directors determines, in good faith, that such activities conflict with
the Executive's performance of his duties hereunder, the Executive shall
promptly cease such activities to the extent and as directed by the board of
Directors. It is acknowledged and agreed that such description shall be made
regarding any such activities in which the Executive owns more than 10% of the
ownership of the organization or which may be in violation of Section 5 hereof,
and that the failure of the Executive to provide any such description shall
enable the Company to terminate the Executive for Cause (as provided in Section
6(c) hereof). The Company agrees to hold any such information provided by the
Executive confidential and not disclose the same to any person other than a
person to whom disclosure is reasonably necessary or appropriate in light of the
circumstances. In addition, the Executive agrees to serve without additional
compensation if elected or appointed to any office or position, including as a
director, of the Company or any subsidiary or affiliate of the Company;
provided, however, that the Executive shall be entitled to receive such benefits
and additional compensation, if any, that is paid to executive officers of the
Company in connection with such service.
<PAGE> 2
2. TERM. Subject to the terms and conditions of this Agreement,
including but not limited to the provisions for termination set forth in Section
6 hereof, the employment of the Executive under this Agreement shall commence on
the date hereof and shall continue through and including the close of business
on the anniversary date hereof as set forth on Exhibit A attached hereto and
incorporated herein (such term shall herein be defined as the "Term").
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the Executive's
services under this Agreement, the Executive shall receive, and the Company
shall pay, a weekly base salary set forth on Exhibit A. Such base salary may be
increased, but not decreased, during the Term, in the Company's discretion,
based upon the Executive's performance and any other factors the Company deems
relevant. Such base salary shall be payable in accordance with the policy then
prevailing for the Company's executives. In addition to such base salary, the
Executive shall be entitled, during the Term, to a performance bonus as set
forth on Exhibit A and to participate in and receive payments from all other
bonus and other incentive compensation plans as may be adopted by the Company on
the same basis and terms as other executive officers of the Company.
(b) Payments. All amounts paid pursuant to this Agreement
shall be subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, Federal income tax, state and local income tax, if any, and
comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by the
Company for all reasonable and customary travel and other business expenses
incurred by the Executive in the performance of the Executive's duties hereunder
in accordance with the Company's standard policy regarding expense verification
practices. The Executive shall be entitled to that number of weeks paid vacation
per year that is available to other executive officers of the Company in
accordance with the Company's standard policy regarding vacations and such other
fringe benefits as are set forth on Exhibit A, and shall be eligible to
participate in such pension, life insurance, health insurance, disability
insurance and other employee benefits plans, if any, which the Company may from
time to time make available to its executive officers generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire non-public
information and knowledge respecting the intimate and confidential affairs of
the Company, including without limitation confidential information with respect
to the Company's customer lists, business methodology, processes, production
methods and techniques, promotional materials and information, and other similar
matters treated by the Company as confidential (the "Confidential Information").
Accordingly, the Executive
2
<PAGE> 3
covenants and agrees that during the Executive's employment by the Company
(whether during the Term hereof or otherwise) and thereafter, the Executive
shall not, without the prior written consent of the Company, disclose to any
person, other than a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of the
Executive's duties hereunder, any non-public Confidential Information obtained
by the Executive while in the employ of the Company. Notwithstanding the
foregoing, Executive may disclose the Confidential Information pursuant to the
requirement or request of a governmental agency or pursuant to a court or
administrative subpoena, order or other such legal process or requirement of
law, or in defense of any claims or causes of action asserted against him;
provided, however, that Executive shall first notify the Company of such request
or requirement, or proposal for use in defense.
(b) The Executive agrees that all memoranda, notes, records,
papers or other documents and all copies thereof relating to the Company's
operations or business, some of which may be prepared by the Executive, and all
objects associated therewith in any way obtained by the Executive shall be the
Company's property. This shall include, but is not limited to, documents and
objects concerning any customer lists, contracts, price lists, manuals, mailing
lists, advertising materials, and all other materials and records of any kind
that may be in the Executive's possession or under the Executive's control. The
Executive shall not, except on the Company's behalf, copy or duplicate any of
the aforementioned documents or objects, nor remove them from the Company's
facilities, nor use any information concerning them except for the Company's
benefit, either during the Executive's employment or thereafter. The Executive
covenants and agrees that the Executive will deliver all of the aforementioned
documents and objects, if any, that may be in the Executive's possession to the
Company upon termination of the Executive's employment, or at any other time at
the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise), and thereafter for the period of time set forth on Exhibit A
following the termination of the Executive's employment with the Company, the
Executive will not:
(i) directly or indirectly engage in, continue in or carry
on the business of the Company, or any business substantially similar
thereto, including owning or controlling any financial interest in, any
corporation, partnership, firm or other form of business organization
which competes with or is engaged in or carries on any aspect of such
business or any business substantially similar thereto;
3
<PAGE> 4
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm or
other business organization which is now, becomes or may become a
competitor of the Company in any aspect of the Company's business
during the Executive's employment with the Company, including, but not
limited to: advertising or otherwise endorsing the products of any such
competitor; soliciting customers or employing employees of the Company
or otherwise serving as an intermediary for any such competitor; or
loaning money or rendering any other form of financial assistance to or
engaging in any form of business transaction whether or not on an arms'
length basis with any such competitor; or
(iii) engage in any practice the purpose of which is
to evade the provisions of this Agreement or to commit any act which is
detrimental to the successful continuation of, or which adversely
affects, the business or the Company;
provided, however, that the foregoing shall not preclude the Executive's
ownership of not more than 2% of the equity securities of a corporation which
has such securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended.
(b) The Executive agrees that the geographic scope of this
covenant not to compete shall extend to the geographic area where the Company's
customers conduct business at any time during the Term of this Agreement. For
purposes of this Agreement, "customers" means any person or entity to which the
Company provides or has provided within a period of one (1) year prior to the
Executive's termination of employment labor, materials or services for the
furtherance of such entity or person's business or any person or entity that
within such period of one (1) year the Company has pursued or communicated with
for the purposes of obtaining business for the Company.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to the Company
for such violation or breach and regardless of any other provision contained in
this Agreement, the Company shall be entitled to equitable remedies (including
an injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and the
duration of this covenant not to compete shall be extended in an amount which
equals the time period during which the Executive is or has been in violation of
this covenant not to compete. Further, the Executive acknowledges and agrees
that the Company shall be entitled to liquidated damages in the amount of $200
4
<PAGE> 5
per day for each day during which the Executive is in violation of this covenant
not to compete, and the Executive does specifically acknowledge and agree that
the liquidated damages in such amount are fair and reasonable, in that it may be
difficult for the Company to determine the extent of the damages actually
incurred in the event of the breach of this covenant not to compete by the
Executive.
(d) In the event a court of competent jurisdiction determines
that the provisions of this covenant not to compete are excessively broad as to
duration, geographic scope, prohibited activities or otherwise, the parties
agree that this covenant shall be reduced or curtailed to the extent necessary
to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, during the Term, the Executive becomes
physically or mentally disabled in accordance with the terms and conditions of
any disability insurance policy covering the Executive or, if due to such
physical or mental disability, the Executive becomes unable for a period of more
than six (6) consecutive months to perform his duties hereunder on substantially
a full-time basis as determined by the Company in its sole reasonable
discretion, the Company may, at its option, terminate the Executive's employment
hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause effective immediately upon notice. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) if the Executive engages in conduct which has caused,
or is reasonably likely to cause, demonstrable and serious injury to Company;
(ii) if the Executive is convicted of a felony, as evidenced by a binding and
final judgment, order or decree of a court of competent jurisdiction; (iii) for
the Executive's neglect of his duties hereunder or the Executive's refusal to
perform his duties or responsibilities hereunder, as determined by the Company's
Board of Directors in good faith; (iv) for the Executive's violation of this
Agreement, including without limitation Section 5 hereof, (v) chronic
absenteeism; (vi) use of illegal drugs; (vii) insobriety by the Executive while
performing his or her duties hereunder; and (viii) any act of dishonesty or
falsification of reports, records or information submitted by the Executive to
the Company.
(d) Severance Payment. In the event of a termination of the
Executive's employment pursuant to this Section 6 or by the Executive, all
payments to the Executive hereunder shall immediately cease and terminate. In
the event of a termination by the Company of the Executive's employment with the
Company for any reason other than pursuant to Section 6 then the Company shall
have no further obligation to make payments under this Agreement except that the
Company shall pay
5
<PAGE> 6
the Executive severance pay (in equal installments in accordance with Company
policy immediately prior to such termination) in the amount set forth on Exhibit
A ("Severance Payment"). Such Severance Payment, however, shall not be required
to be paid by the Company if the Company elects, in its sole discretion, to
release the Executive from the covenant not to compete set forth in Section 5
hereof. However, if the Company elects not to enforce the covenant not to
compete, HealthPlan Services shall make the severance payments called for in the
Agreement to the extent set forth on Exhibit A. If the Company terminates the
Executive's employment pursuant to Section 6(a), (b) or (c), or the Executive
terminates such employment, the Executive shall not be entitled to the Severance
Payment and the covenant not to compete set forth in Section 5 hereof shall
remain in full force and effect. Notwithstanding anything to the contrary herein
contained, the Executive shall receive all compensation and other benefits to
which he was entitled under this Agreement or otherwise as an employee of the
Company through the termination date of his employment with the Company. Among
other things, this would include the pro rata share of any bonus earned through
the termination date.
(e) Transition Services. Upon a termination of employment by
the Executive or by the Company with Cause, the Executive shall cooperate with
the Company's reasonable requests to ensure an orderly and businesslike transfer
of the Executive's duties to other personnel designated by the Company.
Additionally, the Executive shall make himself available at reasonable times
upon reasonable notice to consult with the Company and assist the Company with
respect to: (i) any matters for which the Company requests such assistance for a
period of six (6) months after such termination, and (ii) any litigation or
governmental or quasi-governmental agency investigation which may be pending at
the time of termination or implemented after termination which relates to any
period during which the Executive was employed by the Company; provided that, in
either case, the Company shall reimburse the Executive for any reasonable
out-of-pocket expense incurred by the Executive at the Company's request in
connection with such consultation at times which will not interfere with any
subsequent employment which the Executive has obtained and such consultation
shall not require more than an average of two days per month without the
Executive's consent. A breach of the foregoing provisions by the Executive shall
be deemed to be a material breach of this Agreement.
(f) HealthPlan Services Options. (i) All of Executive's
options to purchase shares of HealthPlan Services common stock shall continue to
vest in accordance with the vesting schedule set forth in the Stock Option
Agreements pursuant to which such options were granted provided that Executive
remains an employee of the Company or any of its subsidiaries, successors or
assigns.
(ii) In the event of the Company's termination of Executive's
employment without Cause and where Executive does not then become an employee of
HealthPlan Services, all of the options for the purchase of shares of HealthPlan
6
<PAGE> 7
Services shall become fully vested on such termination date; and Company and
Executive hereby agree that such options shall no longer constitute incentive
stock options. The period for the exercise of the options granted thereunder
shall be extended until the first anniversary of such termination date.
Executive may exercise such options in accordance with the terms of the Stock
Option Agreements under which they were granted, as such Stock Option Agreements
are amended by this Agreement, at any time within a period ending at 5:00 p.m.,
Tampa time, on the day preceding the expiration of one year from the termination
date, to the full extent of the HealthPlan Services shares which are purchasable
thereunder.
7. NOTICE. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when hand-delivered, sent by telecopier, facsimile
transmission or other electronic means of transmitting written documents (as
long as receipt is acknowledged) or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to the address set forth on the signature page
If to the Company:
Sykes HealthPlan Services, Inc.
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such waiver or modification is agreed to in writing signed by the
parties hereto; provided, however, Exhibit A may be amended by the Company in
its discretion without the Executive's consent to the extent provided therein;
provided, however, no amendment may be made which impairs or adversely affects
the rights of the Executive without the Executive's written consent. No waiver
by any party hereto of any breach by any other party hereto shall be deemed a
waiver of any similar or dissimilar term or condition at the same or at any
prior or subsequent time. This Agreement is the entire agreement between the
parties hereto with respect to the Executive's employment by the Company and
there are no agreements or representations, oral or otherwise, expressed or
implied, with respect to or related to the employment of the Executive which are
not set forth in this Agreement. Any prior agreement relating to the Executive's
employment with the Company is hereby superseded and void, and is
7
<PAGE> 8
no longer in effect. This Agreement shall be binding upon and inure to the
benefit of the Company, its respective successors and assigns, and the Executive
and his heirs, executors, administrators and legal representatives. Except as
expressly set forth herein, no party shall assign any of his or its rights under
this Agreement without the prior written consent of the other party and any
attempted assignment without such prior written consent shall be null and void
and without legal effect. The parties agree that if any provision of this
Agreement shall under any circumstances be deemed invalid or inoperative, the
Agreement shall be construed with the invalid or inoperative provision deleted
and the rights and obligations of the parties shall be construed and enforced
accordingly. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the State of Florida. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute but one and
the same instrument. This Agreement has been jointly drafted by the respective
representatives of the parties and no party shall be considered as being
responsible for such drafting for the purpose of applying any rule constituting
ambiguities against the drafter or otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
By:/s/ David Garner
----------------------------------------
David Garner, President
HEALTHPLAN SERVICES CORPORATION, only for
purposes of Section 6(f) and the severance
payment guarantee footnoted on Exhibit A
hereto
By:/s/ W. Bennett
----------------------------------------
Its: Vice Chairman
"EXECUTIVE"
/s/ J.K. Murray III
------------------------------------------
JAMES K. MURRAY, III
Address:
----------------------------------
----------------------------------
8
<PAGE> 9
EXHIBIT A TO EMPLOYMENT AGREEMENT
TERM: 2 years
BASE SALARY: $3,173.00 per week
PERFORMANCE BONUS: up to 100% Base Salary if performance targets are met. The
performance targets are to be established annually by the Compensation Committee
of the Board of Directors.
FRINGE BENEFITS: Same as are provided to the other executives at the same level.
COVENANT NOT TO COMPETE: up to 24 months
SEVERANCE PAYMENT: $165,000* for each 12-month period.
- --------------------------------------------
* Where a severance payment is called for by the Agreement, a severance payment
at a level of $13,750 per month for the first 12 months after the termination of
the Executive is guaranteed by HealthPlan Services. If not otherwise paid by the
Company electing to enforce the noncompete, such payment will be paid by
HealthPlan Services. In any circumstance where a severance payment is due to the
Executive and where the Company elects to enforce the noncompete, HealthPlan
Services is to be released from this obligation. The termination by Company of
Executive because of Executive's failure to relocate shall not be deemed to be a
termination for Cause.
IN WITNESS WHEREOF, the parties have executed this Exhibit A as of the
31st day of December, 1997.
SYKES HEALTHPLAN SERVICES,
INC.
By:
---------------------------
David Garner, President
<PAGE> 10
HEALTHPLAN SERVICES
CORPORATION, only for purposes of
Section 6(f) and the severance payment
guarantee footnoted above
By:
----------------------------------
Its:
"EXECUTIVE"
-------------------------------------
JAMES K. MURRAY, III
2
<PAGE> 1
EXHIBIT 10.4
MODIFICATION, RESTATEMENT
AND
CONTINUATION OF
EMPLOYMENT AGREEMENT
THIS MODIFICATION, RESTATEMENT AND CONTINUATION OF EMPLOYMENT AGREEMENT
(THE "MODIFICATION") is made as of the 31st day of December, 1997 by and between
SYKES HEALTHPLAN SERVICES, INCORPORATED, a Florida corporation (the "Company"),
SYKES ENTERPRISES, INCORPORATED, a Florida corporation ("Sykes"), and DAVID E.
GARNER (the "Executive").
WITNESSETH:
WHEREAS, Sykes and Executive entered into an Employment Agreement (the
"Agreement") as of the 1st day of March, 1996; and
WHEREAS, Sykes is a fifty percent (50%) shareholder of Company and
deems it to be in the best interest of the shareholders of Sykes that Executive
continue his employment as an executive of Company on the modified terms set
forth in this Modification; and
WHEREAS, it is the intention of Sykes, Executive and Company that the
terms of this Modification will supersede and replace the terms of the Agreement
but, that, to the extent not specifically altered, the respective rights and
obligations of Company, Executive and Sykes under the Agreement and this
Modification will be continuous from the date of the Agreement to and through
the end of the Term as defined herein; and
WHEREAS, the Company desires to assure itself of the Executive's
employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of
this Modification, the Company shall employ the Executive during the Term (as
hereinafter defined) as President of the Company in such management capacities
as may be assigned, from time to time, by the Company. The Executive accepts
such employment and agrees to devote his best efforts and entire business time,
skill, labor and attention to the performance of such duties. The Executive
agrees to provide promptly a description of any other commercial duties or
pursuits engaged in by the Executive to the Company's Board of Directors. If the
Board of Directors determines, in good faith, that such activities conflict with
the Executive's performance of his duties hereunder, the Executive shall
promptly cease such activities to the extent as
<PAGE> 2
directed by the board of Directors. It is acknowledged and agreed that such
description shall be made regarding any such activities in which the Executive
owns more than 10% of the ownership of the organization or which may be in
violation of Section 5 hereof, and that the failure of the Executive to provide
any such description shall enable the Company to terminate the Executive for
Cause (as provided in Section 6(c) hereof). The Company agrees to hold any such
information provided by the Executive confidential and not disclose the same to
any person other than a person to whom disclosure is reasonably necessary or
appropriate in light of the circumstances. In addition, the Executive agrees to
serve without additional compensation if elected or appointed to any office or
position, including as a director, of the Company or any subsidiary or affiliate
of the Company, including Sykes; provided, however, that the Executive shall be
entitled to receive such benefits and additional compensation, if any, that is
paid to executive officers of the Company in connection with such service.
2. TERM. Subject to the terms and conditions of this
Modification, including but not limited to the provisions for termination set
forth in Section 6 hereof, the employment of the Executive under the terms of
Modification shall commence on the date hereof and shall continue through and
including the close of business on the anniversary date of the Agreement as set
forth on Exhibit A attached hereto and incorporated herein (such term shall
herein be defined as the "Term"). The parties intend that Executive's employment
by Sykes pursuant to the Agreement will continue to the date of this
Modification and Executives employment will commence with the Company on the
date hereof, without interruption, to __________, 2000.
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the Executive's
services under this Modification, the Executive shall receive, and the Company
shall pay, a weekly base salary set forth on Exhibit A. Such base salary may be
changed during the Term, in the Company's discretion, based upon the
Executive's performance and any other factors the Company deems relevant. Such
base salary shall be payable in accordance with the policy then prevailing for
the Company's executives. In addition to such base salary, the Executive shall
be entitled, during the Term of this Modification to a performance bonus as set
forth on Exhibit A and to participate in all other bonus and other incentive
compensation plans as may be adopted by the Company on the same basis and terms
as other executive officers of the Company. However, from and after the date of
this Modification, Sykes' obligation will, in accordance with the terms hereof,
not to exceed $150,000 per year, as specifically set forth herein.
(b) Payments. All amounts paid pursuant to this Modification
shall be subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, Federal income tax, state and local income tax, if any, and
comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by the
Company for all reasonable and customary travel and other business expenses
incurred by the Executive in the performance of the Executive's duties
hereunder in accordance with the Company's standard policy regarding expense
verification practices. The Executive shall be entitled to that number
-2-
<PAGE> 3
of weeks paid vacation per year that is available to other executive officers
of the Company in accordance with the Company's standard policy regarding
vacations and such other fringe benefits as set forth on Exhibit A, and shall
be eligible to participate in such pension, life insurance, health insurance,
disability insurance and other employee benefits plans, if any, which the
Company may from time to time make available to its executive officers
generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire non-public
information and knowledge respecting the intimate and confidential affairs of
Sykes and the Company, including without limitation confidential information
with respect to Sykes and the Company's customer lists, business methodology,
processes, production methods and techniques, promotional materials and
information, and other similar matters treated by Sykes and the Company as
confidential (the "Confidential Information"). Accordingly, the Executive
covenants and agrees that during the Executive's employment by the Company and
his prior employment by Sykes (whether during the Term hereof or otherwise) and
thereafter, the Executive shall not, without the prior written consent of both
the Company and Sykes, disclose to any person, other than a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties hereunder, any
non-public Confidential Information obtained by the Executive while in the
employ of either Sykes or the Company. Notwithstanding the foregoing, Executive
may disclose the Confidential Information pursuant to the requirement or
request of a governmental agency or pursuant to a court or administrative
subpoena, order or other such legal process or requirement of law, or in
defense of any claims or causes of action asserted against him; provided,
however, that Executive shall first notify the Company of such request or
requirement, or proposal for use in defense.
(b) The Executive agrees that all memoranda, notes, records,
papers or other documents and all copies thereof relating to Sykes or the
Company's operations or business, some of which may be prepared by the
Executive, and all objects associated therewith in any way obtained by the
Executive shall be either Sykes or the Company's property as appropriate under
the circumstances. This shall include, but is not limited to, documents and
objects concerning any customer lists, contracts, price lists, manuals, mailing
lists, advertising materials, and all other materials and records of any kind
that may be in the Executive's possession or under the Executive's control. The
Executive shall not, except on the Company's behalf, copy or duplicate any of
the aforementioned documents or objects, nor remove them from the Company's
facilities, nor use any information concerning them except for Sykes or the
Company's benefit as appropriate under the circumstances, either during the
Executive's employment or thereafter. The Executive covenants and agrees that
the Executive will deliver all of the aforementioned documents and objects, if
any, that may be in the Executive's possession to Sykes or the Company, as
appropriate under the circumstances, upon termination of the Executive's
employment, or at any other time at the Company's or Sykes's request.
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<PAGE> 4
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by Sykes and the Company (whether during the Term hereof
or otherwise), and thereafter for a period of time set forth on Exhibit A
following the termination of the Executive's employment the Executive will not:
(i) directly or indirectly engage in, continue in or
carry on the business Sykes or of the Company, or any business
substantially similar thereto, including owning or controlling any
financial interest in, any corporation, partnership, firm or other form
of business organization which competes with or is engaged in or
carries on any aspect of such business or any business substantially
similar thereto;
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm or
other business organization which is now, becomes or may become a
competitor of Sykes or the Company in any aspect of Sykes or the
Company's business during the Executive's employment with Sykes or the
Company, including, but not limited to: advertising or otherwise
endorsing the products of any such competitor; directly or indirectly
soliciting customers or employees of Company or Sykes or otherwise
serving as an intermediary for any such competitor; or loaning money or
rendering any other form of financial assistance to or engaging in any
form of business transaction whether or not on an arms' length basis
with any such competitor; or
(iii) engage in any practice the purpose of which is
to evade the provisions of this Agreement or to commit any act which is
detrimental to the successful continuation of, or which adversely
affects, the business or either Sykes or the Company;
provided, however, that the foregoing shall not preclude the Executive's
ownership of not more than 2% of the equity securities of a corporation which
has such securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended.
(b) The Executive agrees that the geographic scope of this
covenant not to compete shall extend to the geographic area where either Sykes
or the Company's customers conduct business at any time during the term of this
Modification. For purposes of this Modification, "customers" means any person or
entity to which either Sykes or the Company provides or has provided within a
period of one (1) year prior to the Executive's termination of employment labor,
materials or services for the furtherance of such entity or person's business or
any person or entity that within such period of one (1) year either Sykes or the
Company has pursued or communicated with for the purposes of obtaining business.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to Sykes or the
Company for such violation or breach and regardless
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<PAGE> 5
of any other provision contained in this Modification or the Agreement, the
Company shall be entitled to equitable remedies (including an injunction) and
such other relief as a court may grant after considering the intent of this
Section 5. It is further acknowledged and agreed that the existence of any claim
or cause of action on the part of the Executive against either Sykes or the
Company, whether arising from this Modification or the Agreement or otherwise,
shall in no way constitute a defense to the enforcement of this covenant not to
compete, and the duration of this covenant not to compete shall be extended in
an amount which equals the time period during which the Executive is or has been
in violation of this covenant not to compete. Further, the Executive
acknowledges and agrees that either Sykes or the Company, or both, as the case
may be, shall be entitled to liquidated damages in the amount of $200 per day
for each day during which the Executive is in violation of this covenant not to
compete, and the Executive does specifically acknowledge and agree that the
liquidated damages in such amount are fair and reasonable, in that it may be
difficult to determine the extent of the damages actually incurred in the event
of the breach of this covenant not to compete by the Executive.
(d) In the event a court of competent jurisdiction determines
that the provisions of this covenant not to compete are excessively broad as to
duration, geographic scope, prohibited activities or otherwise, the parties
agree that this covenant shall be reduced or curtailed to the extent necessary
to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, during the Term, the Executive becomes
physically or mentally disabled in accordance with the terms and conditions of
any disability insurance policy covering the Executive or, if due to such
physical or mental disability, the Executive becomes unable for a period of more
than six (6) consecutive months to perform his duties hereunder on substantially
a full-time basis as determined by the Company in its sole reasonable
discretion, the Company may, at its option, terminate the Executive's employment
hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause effective immediately upon notice. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) if the Executive engages in conduct which has caused,
or is reasonably likely to cause, demonstrable and serious injury to Company;
(ii) if the Executive is convicted of a felony, as evidenced by a binding and
final judgment, order or decree of a court of competent jurisdiction; (iii) for
the Executive's neglect of his duties hereunder or the Executive's refusal to
perform his duties or responsibilities hereunder, as determined by the Company's
Board of Directors in good faith; (iv) for the Executive's violation of this
Modification or the Agreement, including without limitation Section 5 hereof;
(v) chronic absenteeism; (vi) use of illegal drugs; (vii) insobriety by the
Executive while performing his or her duties hereunder; and (viii) any act of
dishonesty or
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<PAGE> 6
falsification of reports, records or information submitted by the Executive to
the Company or Sykes.
(d) Severance Payment. In the event of a termination of the
Executive's employment pursuant to this Section 6 or by the Executive, all
payments to the Executive hereunder shall immediately cease and terminate. In
the event of a termination by the Company of the Executive's employment with the
Company for any reason other than pursuant to this Section 6 then the Company
shall have no further obligation to make payments under this Agreement except
that the Company shall pay the Executive severance pay (in equal installments in
accordance with Company policy immediately prior to such termination) in the
amount set forth on Exhibit A ("Severance Payment"). Such Severance Payment,
however, shall not be required to be paid by the Company if the Company elects,
in its sole discretion, to release the Executive from the covenant not to
compete set forth in Section 5 hereof. However, if Sykes elects to enforce the
covenant not to compete as it relates to Sykes, it shall have the right to do so
regardless of the Company's decision not to enforce the same and Sykes in that
event shall make the severance payments called for in the Agreement. If the
Company terminates the Executive's employment pursuant to Section 6(a), (b) or
(c), or the Executive terminates such employment, the Executive shall not be
entitled to the Severance Payment and the covenant not to compete set forth in
Section 5 hereof shall remain in full force and effect as to both Sykes and the
Company. Notwithstanding anything to the contrary herein contained, the
Executive shall receive all compensation and other benefits to which he was
entitled under this Modification or otherwise as an employee of the Company
through the termination date of his employment with the Company. Among other
things, this would include the pro rata share of any bonus earned through the
termination date.
(e) Transition Services. Upon a termination of employment by
the Executive or by the Company with Cause, the Executive shall cooperate with
the Company's reasonable requests to ensure an orderly and businesslike transfer
of the Executive's duties to other personnel designated by the Company.
Additionally, the Executive shall make himself available at reasonable times
upon reasonable notice to consult with the Company and assist the Company with
respect to: (i) any matters for which the Company requests such assistance for a
period of six (6) months after such termination, and (ii) any litigation or
governmental or quasi-governmental agency investigation which may be pending at
the time of termination or implemented after termination which relates to any
period during which the Executive was employed by the Company; provided that, in
either case, the Company shall reimburse the Executive for any reasonable
out-of-pocket expense incurred by the Executive at the Company's request in
connection with such consultation at times which will not interfere with any
subsequent employment which the Executive has obtained and such consultation
shall not require more than an average of two days per month without the
Executive's consent. A breach of the foregoing provisions by the Executive shall
be deemed to be a material breach of this Agreement.
7. NOTICE. For purposes of this Modification, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when
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<PAGE> 7
hand-delivered, sent by telecopier, facsimile transmission or other electronic
means of transmitting written documents (as long as receipt is acknowledged) or
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive, to the address set forth on the signature page
If to the Company:
Sykes HealthPlan Services, Inc.
100 North Tampa Street
Suite 3900
Tampa, FL 33602
If to Sykes:
Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. MISCELLANEOUS. No provision of this Modification may be modified or
waived unless such waiver or modification is agreed to in a writing signed by
the parties hereto; provided, however, Exhibit A may be amended by the Company
in its discretion, except to the extent it affects in any manner Sykes, without
the Executive's consent to the extent provided therein; provided, however, no
amendment may be made which impairs or adversely affects the rights of the
Executive without the Executive's written consent. No waiver by any party hereto
of any breach by any other party hereto shall be deemed a waiver of any similar
or dissimilar term or condition at the same or at any prior or subsequent time.
This Modification is the entire agreement between the parties hereto with
respect to the Executive's employment by the Company and there are no agreements
or representations, oral or otherwise, expressed or implied, with respect to or
related to the employment of the Executive which are not set forth in this
Modification. Any prior agreement relating to the Executive's employment with
the Company is hereby superseded. This Modification shall be binding upon and
inure to the benefit of Sykes, the Company, their respective successors and
assigns, and the Executive and his heirs, executors, administrators and legal
representatives. Except as expressly set forth herein, no party shall assign any
of his or its rights under this Modification without the prior written consent
of all parties and any attempted assignment without such prior written consent
shall be null and void and without legal effect. The parties agree that if any
provision of this Modification shall under any circumstances be deemed invalid
or inoperative, the Modification shall be construed with the invalid or
inoperative provision deleted and the rights and obligations of the parties
shall
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<PAGE> 8
be construed and enforced accordingly. The validity, interpretation,
construction and performance of this Modification shall be governed by the
internal laws of the State of Florida. This Modification may be executed in one
or more counterparts, each of which shall be deemed to be an original but all of
which together will constitute but one and the same instrument. This
Modification has been jointly drafted by the respective representatives of the
parties and no party shall be considered as being responsible for such drafting
for the purpose of applying any rule constituting ambiguities against the
drafter or otherwise.
9. SEVERAL NOT JOINT OBLIGATIONS. It is the intention of the Parties
that Sykes will retain the liability for performing its obligations under the
Agreement to the extent they accrue prior to the date of this Modification and
that it will retain the right to enforce the obligations of Executive both under
the Agreement and to the extent specifically described as a right of Sykes,
under this Modification. Company shall have the obligation to perform its duties
from and after the date of this Modification and except as specifically
described in paragraph 10., Executive shall look solely to Company for such
performance or any damages or cause of action arising from this Modification.
10. SYKES SEVERANCE OBLIGATION. To the extent that Executive is
entitled to receive severance payments either pursuant to Sykes's sole elections
set forth in paragraph 6 or pursuant to the rights to the same payable other
than pursuant to paragraph 6, then Sykes shall retain the obligation and
liability for the same as set forth in the Agreement to the maximum amount of
$150,000 per year.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SYKES ENTERPRISES, INCORPORATED
By: /s/ John H. Sykes
--------------------------------------
John H. Sykes, Chief Executive Officer
Attest: /s/ Margery Bass
--------------------------------------
Margery Bass, Secretary
"EXECUTIVE"
/s/ David E. Garner
-----------------------------------------------
DAVID E. GARNER
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ David E. Garner
--------------------------------------
David E. Garner, President
Attest: /s/ David E. Garner
--------------------------------------
David E. Garner, Secretary
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<PAGE> 9
EXHIBIT A
TERM: 3 additional years, from the date hereof.
BASE SALARY: $4,326.92 per week
DISCRETIONARY PERFORMANCE BONUS: up to $175,000:
The strategic objectives of the Company are:
a) to increase revenues within 12-15 months to $125,000,000 per year;
b) to maintain an operating margin of profit after interest
payments, depreciation and amortization of at least 15-18%; and
c) to maintain a ratio of return on invested capital (for this
purpose, including both equity and subordinated debt to the
stockholders) of at least 25%.
* This bonus is discretionary for the first fiscal year of Company's operations
and thereafter will be based upon achievement of the Company's strategic
objectives as set forth from time to time by its Board of Directors.
COVENANT NOT TO COMPETE: 36 months
SEVERANCE PAYMENT: $225,000* per year for each year of the Noncompete
- -------------------------
*A severance payment for thirty-six (36) months at a level of $150,000
per year is guaranteed by Sykes regardless of termination of employment,
including termination for cause by the Company or termination by the Executive.
If not otherwise paid by the Company electing to enforce the noncompete, such
$150,000 per year will be paid by Sykes. In any circumstance, except a
termination by the Company for other than death, disability or cause, where
Company elects to enforce the noncompete, Sykes is to be released from this
obligation but retains its rights to enforce the noncompete.
IN WITNESS WHEREOF, the parties have executed this Exhibit A as of the
31st day of December, 1997.
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ David E. Garner
---------------------------------------
David E. Garner, President
Attest:
---------------------------------------
David E. Garner, Secretary
"EXECUTIVE"
------------------------------------------------
DAVID E. GARNER
SYKES ENTERPRISES, INCORPORATED
By: /s/ John H. Sykes
---------------------------------------
John H. Sykes, Chief Executive Officer
Attest: /s/ Margery Bass
---------------------------------------
Margery Bass, Secretary
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of March, 1998 by and
between SYKES HEALTHPLAN SERVICES, INC., a Florida corporation (the "Company"),
and Donald K. Kelly, M.D. (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to assure itself of the Executive's
continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company and/or
its subsidiaries on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledge, the
parties hereto covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of
this Agreement, the Company shall employ the Executive during the Term (as
hereinafter defined) as an Officer of the Company at a senior officer level and
will retain his current position and title with Health International, Inc.
which will be a subsidiary of the Company and in such other management
capacities as may be assigned, from time to time, by the Company. The Executive
accepts such employment and agrees to devote his best efforts and entire
business time, skill, labor and attention to the performance of such duties.
The Executive agrees to provide promptly a description of any other commercial
duties or pursuits engaged in by the Executive to the Company's Board of
Directors. If the Board of Directors determines, in good faith, that such
activities conflict with the Executive's performance of his duties hereunder,
the Executive shall promptly cease such activities to the extent and as
directed by the Board of Directors. It is acknowledged and agreed that such
description shall be made regarding any such activities in which the Executive
owns more than 10% of the ownership of the organization or which may be in
violation of Section 5 hereof, and that the failure of the Executive to provide
any such description shall enable the Company to terminate the Executive for
Cause (as provided in Section 6(c) hereof). The Company agrees to hold any such
information provided by the Executive confidential and not disclose the same to
any person other than a person to whom disclosure is reasonably necessary or
appropriate in light of the circumstances. In addition, the Executive agrees to
serve without additional compensation if elected or appointed to any office or
position, including as a director of the Company or and subsidiary or affiliate
of the Company; provided, however, that the Executive shall be entitled to
receive such benefits and additional compensation, if any, that is paid to
executive officers of the Company in connection with such service.
2. TERM. Subject to the terms and conditions of this Agreement,
including but not limited to the provisions for termination set forth in
Section 6 hereof, the employment of the
<PAGE> 2
Executive under this Agreement shall commence on the date hereof and shall
continue through and including the close of business on the anniversary date
hereof as set forth on Exhibit A attached hereto and incorporated herein (such
term shall herein be defined as the "Term").
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the
Executive's services under this Agreement, the Executive shall receive, and the
Company shall pay, a weekly base salary set forth on Exhibit A. Such base
salary may be increased, but not decreased, during the Term, in the Company's
discretion, based upon the Executive's performance and any other factors the
Company deems relevant. Such base salary shall be payable in accordance with
the policy then prevailing for the Company's executives.
(b) Payments. All amounts paid pursuant to this Agreement
shall be subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, federal income tax, state and local income tax, if any, and
comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by the
Company for all reasonable and customary travel and other business expenses
incurred by the Executive in the performance of the Executive's duties
hereunder in accordance with the Company's standard policy regarding expense
verification practices. The Executive shall be entitled to that number of weeks
paid vacation per year that is available to other executive officers of the
Company in accordance with the Company's standard policy regarding vacations
and such other fringe benefits as are set forth on Exhibit A, and shall be
eligible to participate in such pension, life insurance, health insurance,
disability insurance and other employee benefits plans, if any, which the
Company may from time to time make available to its executive officers
generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire information
and knowledge respecting the intimate and confidential affairs of the Company,
including without limitation confidential information with respect to the
Company's customer lists, business methodology, processes, production methods
and techniques, promotional materials and information, and other similar
matters treated by the Company as confidential (the "Confidential
Information"). Accordingly, the Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise) and thereafter, the Executive shall not, without the prior written
consent of the Company, disclose to any person, other than a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties hereunder, any
Confidential Information obtained by the Executive while in the employ of the
company.
(b) The Executive agrees that all memoranda, notes, records,
papers or other documents and all copies thereof relating to the Company's
operations or business, some of which
2
<PAGE> 3
may be prepared by the Executive, and all objects associated therewith in any
way obtained by the Executive shall be the Company's property. This shall
include, but is not limited to, documents and objects concerning any customer
lists, contracts, price lists, manuals, mailing lists, advertising materials,
and all other materials and records of any kind that may be in the Executive's
possession or under the Executive's control. The Executive shall not, except
for the Company's use, copy or duplicate any of the aforementioned documents or
objects, nor remove them from the Company's facilities, nor use any information
concerning them except for the Company's benefit, either during the Executive's
employment or thereafter. The Executive covenants and agrees that the Executive
will deliver all of the aforementioned documents and objects, if any, that may
be in the Executive's possession to the Company upon termination of the
Executive's employment, or at any other time at the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise), and thereafter for the period of time set forth on Exhibit A
following the termination of the Executive's employment with the Company, the
Executive will not:
(i) directly or indirectly engage in, continue in or
carry on the business of the Company, including owning or controlling
any financial interest in, any corporation, partnership, firm or other
form of business organization which competes with or is engaged in or
carries on any aspect of such business or any business substantially
similar thereof;
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm
or other business organization which is now or becomes a competitor of
the Company in any aspect of the Company's business during the
Executive's employment with the Company, including, but not limited
to: advertising or otherwise endorsing the products of any such
competitor; soliciting customers or employing employees of the
Company; or otherwise serving as an intermediary for any such
competitor; or loaning money or rendering any other form of financial
assistance to or engaging in any form of business transaction whether
or not on an arms' length basis with any such competitor; or
(iii) engage in any practice the purpose of which is to
evade the provisions of this Agreement or willfully commit any act
which is detrimental to the successful continuation of, or which
adversely affects, the business or the Company;
provided, however, that the foregoing shall not preclude the Executive's
ownership of not more than 2% of the equity securities of a corporation which
has such securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended.
3
<PAGE> 4
(b) The Executive agrees that the geographic scope of this
covenant not to compete shall extend to the geographic area where the Company's
customers conduct business at any time during the Term of this Agreement. For
purposes of this Agreement, "customers" means any person or entity to which the
Company provides or has provided within a period of one (1) year prior to the
Executive's termination of employment labor, materials or services for the
furtherance of such entity or person's business or any person or entity that
within such period of one (1) year the Company has pursued for the purposes of
obtaining business for the Company.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to the Company
for such violation or breach and regardless of any other provision contained in
this Agreement, the Company shall be entitled to equitable remedies (including
an injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and
the duration of this covenant not to compete shall be extended in an amount
which equals the time period during which the Executive is or has been in
violation of this covenant not to compete.
(d) In the event a court of competent jurisdiction determines
that the provisions of this covenant not to compete are excessively broad as to
duration, geographic scope, prohibited activities or otherwise, the parties
agree that this covenant shall be reduced or curtailed to the extent necessary
to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, during the Term, the Executive becomes
physically or mentally disabled in accordance with the terms and conditions of
any disability insurance policy covering the Executive or, if due to such
physical or mental disability, the Executive becomes unable for a period of
more than six (6) consecutive months to perform his duties hereunder on
substantially a full-time basis as determined by the Company in its sole
reasonable discretion, the Company may, at its option, terminate the
Executive's employment hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause effective immediately upon notice. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) if the Executive is convicted of a class one or
serious felony, as evidenced by a binding and final judgment, order or decree
of a court of competent jurisdiction; (ii) for the Executive's violation of
Section 5 of this Agreement;
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<PAGE> 5
(iii) use of illegal drugs; (iv) insobriety by the Executive while performing
his or her duties hereunder; and (v) if the Executive is adjudicated by a
binding and final judgment, order or decree of a court of competent
jurisdiction to have committed any act of theft, dishonesty or falsification of
reports, records or information submitted by the Executive to the Company.
(d) Severance Payment. If the Executive is terminated by the
Company for Cause as defined in subparagraph (c) above or dies, the Executive
shall not be entitled to any further payments after the date of such
termination or death, including but not limited to any Severance Payment;
however, in the event of a termination pursuant to Section 6(c)(v), Executive
shall be paid his salary and benefits up to the date of the adjudication as set
forth therein. If the Executive (i) is terminated by the Company for any reason
other than Cause, (ii) becomes disabled and is still able to perform
Executive's duties, or (iii) terminates employment voluntarily, the Executive's
salary, bonus and benefits (other than in the case of death or disability the
right of Executive to any disability payments or death payments due under
policies in existence at the date of such termination) hereunder will terminate
as of the termination of employment; however, Executive shall be entitled to
receive the monthly Severance Payment specified on Exhibit A which shall be
payable for each month after such termination during which Executive is subject
to the Non-Compete provision specified in Section 5 hereof and Executive shall
be paid any bonus and salary earned as of the date of such termination. The
full amount of the Severance Payment shall initially be guaranteed by a letter
of credit (the "First Letter of Credit") issued in favor of the Executive by
NationsBank, N.A. with the amount thereof declining as payments are made
hereunder. The First Letter of Credit shall be non-cancelable for a period of
three (3) years. Within fifteen (15) days from the expiration date of the First
Letter of Credit, the Company shall cause a second letter of credit to be
issued in favor of the Executive to guarantee the remaining balance of the
Severance Payment due during the remaining term of this Agreement (the "Second
Letter of Credit"). The Second Letter of Credit shall be non-cancelable for a
period of two (2) years. The Executive shall be entitled to draw under the
First or Second Letter of Credit, as the case may be, upon any default in the
Company's obligation to make a Severance Payment and this Agreement shall be
deemed to be in default and the Executive shall be further entitled to draw
under the Letter of Credit if a notice of cancellation is issued thereunder and
the letter of credit is not replaced prior to fifteen (15) days before the
effective date of such cancellation.
7. RESOLUTION OF DISPUTES
(a) Arbitration. Any dispute, controversy or claim arising
out of or relating to this Employment Agreement shall be settled by binding
arbitration held in Denver, Colorado, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect,
except as specifically otherwise provided in this Section 7. Notwithstanding
the foregoing, the Company may, in its discretion, apply to a court of
competent jurisdiction for equitable relief from any violation or threatened
violation of the covenants of Executive under Section 5 (covenant not to
compete) of this Employment Agreement.
(b) Arbitrators. If the matter in controversy (exclusive of
attorney fees and
5
<PAGE> 6
expenses) shall not appear, as at the time of the demand for arbitration, to
exceed $100,000, then the panel to be appointed shall consist of one neutral
arbitrator to be mutually agreed upon by the parties; otherwise, the panel
shall be comprised of three neutral arbitrators of whom one shall be selected
by each party within twenty (20) days, and a third arbitrator shall be selected
by these two selected arbitrators. If one of the parties fails to timely select
an arbitrator, the arbitrator that was timely selected shall be the sole
arbitrator. If neither party timely selects an arbitrator, the first arbitrator
selected thereafter shall be the sole arbitrator, no others being appointed.
Where each of the parties timely selects an arbitrator, said arbitrators will
have ten (10) days from the end of the twenty (20) -day period to select the
third arbitrator. In the event the arbitrators are unable to timely agree on
the third arbitrator, either party may petition any official of the American
Arbitration Association for appointment of the third arbitrator and the parties
agree to accept any arbitrator appointed by such official subject to the
limitations hereof. Arbitrators must be reasonably independent of the parties
and their principals. Persons who are hereby expressly disqualified to serve as
arbitrators are principals of the parties, relatives of said principals,
employees of the parties or said principals, persons not residing within 100
miles of the site of the arbitration, attorneys, accountants, and other
business persons who have professional or business relationships with the
parties or said principals.
(c) Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances,
provided that any party shall be entitled to reasonable production of documents
and not less than (i) 16 hours of deposition examination and 20 written
interrogatories if the matter in controversy (exclusive of attorneys' fees and
costs) is $500,000 or less; and (ii) 24 hours of deposition examination and 40
written interrogatories if the matter in controversy (exclusive of attorneys'
fees and costs) exceeds $500,000. The arbitrators shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within one hundred
twenty (120) days after the selection of the arbitrator(s). The arbitrator(s)
shall give the parties written notice of the decision, with the reasons
therefor set out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days after the
decision. Thereafter, the decision of the arbitrator(s) shall be final,
binding, and nonappealable with respect to all persons, including (without
limitation) persons who have failed or refused to participate in the
arbitration process. The privileges, including, without limitation, the
attorney-client privilege, shall apply in arbitration.
(d) Authority. The arbitrator(s) shall have authority to
award relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorneys' fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having in personam and subject
matter jurisdiction. Each party hereby submits to the in personam jurisdiction
of the Federal and State courts in Hillsborough County, Florida for the purpose
of confirming such award and entering judgment thereon.
6
<PAGE> 7
(f) Confidentiality. All proceedings under this Article 13
and all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Section 7 shall have been or may be
invoked shall not excuse any party from performing its obligations under this
Agreement and during the pendency of any such procedure all parties shall
continue to perform their respective obligations in good faith, subject to any
rights to terminate this Agreement that may be available to any party.
(h) Tolling. All applicable statutes of limitation shall be
tolled while the procedures specified in this Section 7 are pending. The
parties will take such action, if any, required to effectuate such tolling.
(i) Expenses of Arbitration. Except as otherwise may be
provided in this Agreement, the expenses of arbitration will be borne equally
the parties, provided that each party will bear the cost of its own experts,
evidence and attorneys' fees, except that, in the discretion of the
arbitrators, any award in arbitration may include attorneys' fees if the
arbitrators expressly determine that the party against whom such an award is
entered has caused the dispute to be submitted to arbitration in bad faith or
as a dilatory tactic. No arbitration will be commenced after the date when
institution of legal or equitable proceedings based upon the same subject
matter would be barred by the applicable statute of limitations.
8. INDEMNIFICATION AND LIABILITY COVERAGE. For the period of
Executive's employment and for five years after the termination of Executive's
employment, the Executive shall be entitled to be covered by, and after
termination of employment shall remain covered by the indemnification rights
and the liability insurance coverage in effect from time to time during
Executive's employment or in effect at the time of Executive's termination, as
the case may be. The Company will use its best efforts to insure that such
indemnification and liability coverage shall at all times be as favorable to
Executive in terms of coverage amounts and coverage terms as the coverage which
exists at Health International, Inc. on the date that the Company was acquired
by the Company, provided that if such insurance coverage is not available at
rates reasonably correspondent to the rates charged at the time of the
acquisition (adjusted for inflation), the Company shall be obligated only to
buy such coverage as is available for such rates and can be commercially
obtained.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when hand-delivered, sent by telecopier, facsimile
transmission or other electronic means of transmitting written documents (as
long as receipt is acknowledged) or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to the address set forth on the signature
page
7
<PAGE> 8
If the Company:
Sykes HealthPlan Services, Inc.
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such waiver or modification is agreed to in writing signed by the
parties hereto. No waiver by any party hereto of any breach by any other party
hereto shall be deemed a waiver of any similar or dissimilar term or condition
at the same or at any prior or subsequent time. This Agreement is the entire
agreement between the parties hereto with respect to the Executive's employment
by the Company and there are no agreements or representations, oral or
otherwise, expressed or implied, with respect to or related to the employment
of the Executive which are not set forth in this Agreement. Any prior agreement
relating to the Executive's employment with the Company is hereby superseded
and void, and is no longer in effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its respective successors and assigns,
whether by merger, sale of assets or otherwise, and the Executive and his
heirs, executors, administrators and legal representatives. Except as expressly
set forth herein, no party shall assign any of his or its rights under this
Agreement without the prior written consent of the other party and any
attempted assignment without such prior written consent shall be null and void
and without legal effect. The parties agree that if any provision of this
Agreement shall under any circumstances be deemed invalid or inoperative, the
Agreement shall be construed with the invalid or inoperative provision deleted
and the rights and obligations of the parties shall be construed and enforced
accordingly. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the State of Arizona. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute but one and
the same instrument. This Agreement has been jointly drafted by the respective
representatives of the parties and no party shall be considered as being
responsible for such drafting for the purpose of applying any rule constituting
ambiguities against the drafter or otherwise.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
By:
-------------------------------------------
David Garner, President
"EXECUTIVE"
----------------------------------------------
Donald K. Kelly, M.D.
Address:
--------------------------------------
- -------------------------------------
9
<PAGE> 10
AMENDED AND RESTATED EXHIBIT A TO EMPLOYMENT AGREEMENT
Term: 5 years
Base Salary: $3,846.15 per week
Additional Consideration: The Company shall pay additional annual consideration
in the amount of $175,000 to Executive payable in
annual installments on April 24th of each year during
the Term.
Fringe Benefits: Same as are provided to the other executives at the
same level
Covenant Not to Compete: The Covenant Not to Compete shall be in force during
the term of the Employment Agreement and for a period
equal to the greater of the unexpired term of the
Employment Agreement at the time of termination of
Executive's Employment (the "Unexpired Employment
Term") or twenty-four (24) months, provided that, to
the extent the term of noncompetition extends beyond
the Unexpired Employment Term, Employer in its sole
discretion may elect to shorten the term of
non-competition to any lesser period it chooses after
the expiration of the Unexpired Employment term.
Severance Payment: $21,875 for each month during which Covenant Not to
Compete is in force. This agreement and restatement
of Exhibit A shall not have any effect on the First
Letter of Credit or Second Letter of Credit described
in Section 6(d) of the Employment Agreement.
Stock Options: Executive and the Company entered into a Stock Option
Agreement dated as of January 22, 1998, pursuant to
which Executive was granted nonqualified options to
purchase 50,000 shares of the Company's common stock
with an exercise price of $3.40 per share which vest
and become exercisable nine years after the date of
grant and will vest and become immediately
exercisable upon the completion of an initial public
offering of the Company's common stock pursuant to an
effective Registration Statement filed under the
Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Exhibit A on the 23rd day of April, 1998.
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ David Garner, President
-------------------------------
David Garner, President
"EXECUTIVE"
/s/ Donald K. Kelly, M.D.
----------------------------------
Donald K. Kelly, M.D.
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of March, 1998 by and
between SYKES HEALTHPLAN SERVICES, INC., a Florida corporation (the "Company"),
and Michael D. Peerboom (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to assure itself of the Executive's
continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company and/or
its subsidiaries on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledge, the
parties hereto covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of
this Agreement, the Company shall employ the Executive during the Term (as
hereinafter defined) as an Officer of the Company at a senior officer level and
will retain his current position and title with Health International, Inc.
which will be a subsidiary of the Company and in such other management
capacities as may be assigned, from time to time, by the Company. The Executive
accepts such employment and agrees to devote his best efforts and entire
business time, skill, labor and attention to the performance of such duties.
The Executive agrees to provide promptly a description of any other commercial
duties or pursuits engaged in by the Executive to the Company's Board of
Directors. If the Board of Directors determines, in good faith, that such
activities conflict with the Executive's performance of his duties hereunder,
the Executive shall promptly cease such activities to the extent and as
directed by the Board of Directors. It is acknowledged and agreed that such
description shall be made regarding any such activities in which the Executive
owns more than 10% of the ownership of the organization or which may be in
violation of Section 5 hereof, and that the failure of the Executive to provide
any such description shall enable the Company to terminate the Executive for
Cause (as provided in Section 6(c) hereof). The Company agrees to hold any such
information provided by the Executive confidential and not disclose the same to
any person other than a person to whom disclosure is reasonably necessary or
appropriate in light of the circumstances. In addition, the Executive agrees to
serve without additional compensation if elected or appointed to any office or
position, including as a director of the Company or and subsidiary or affiliate
of the Company; provided, however, that the Executive shall be entitled to
receive such benefits and additional compensation, if any, that is paid to
executive officers of the Company in connection with such service.
2. TERM. Subject to the terms and conditions of this Agreement,
including but not limited to the provisions for termination set forth in
Section 6 hereof, the employment of the
<PAGE> 2
Executive under this Agreement shall commence on the date hereof and shall
continue through and including the close of business on the anniversary date
hereof as set forth on Exhibit A attached hereto and incorporated herein (such
term shall herein be defined as the "Term").
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the
Executive's services under this Agreement, the Executive shall receive, and the
Company shall pay, a weekly base salary set forth on Exhibit A. Such base
salary may be increased, but not decreased, during the Term, in the Company's
discretion, based upon the Executive's performance and any other factors the
Company deems relevant. Such base salary shall be payable in accordance with
the policy then prevailing for the Company's executives.
(b) Payments. All amounts paid pursuant to this Agreement
shall be subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, federal income tax, state and local income tax, if any, and
comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by
the Company for all reasonable and customary travel and other business expenses
incurred by the Executive in the performance of the Executive's duties
hereunder in accordance with the Company's standard policy regarding expense
verification practices. The Executive shall be entitled to that number of weeks
paid vacation per year that is available to other executive officers of the
Company in accordance with the Company's standard policy regarding vacations
and such other fringe benefits as are set forth on Exhibit A, and shall be
eligible to participate in such pension, life insurance, health insurance,
disability insurance and other employee benefits plans, if any, which the
Company may from time to time make available to its executive officers
generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire
information and knowledge respecting the intimate and confidential affairs of
the Company, including without limitation confidential information with respect
to the Company's customer lists, business methodology, processes, production
methods and techniques, promotional materials and information, and other
similar matters treated by the Company as confidential (the "Confidential
Information"). Accordingly, the Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise) and thereafter, the Executive shall not, without the prior written
consent of the Company, disclose to any person, other than a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties hereunder, any
Confidential Information obtained by the Executive while in the employ of the
company.
(b) The Executive agrees that all memoranda, notes,
records, papers or other documents and all copies thereof relating to the
Company's operations or business, some of which
2
<PAGE> 3
may be prepared by the Executive, and all objects associated therewith in any
way obtained by the Executive shall be the Company's property. This shall
include, but is not limited to, documents and objects concerning any customer
lists, contracts, price lists, manuals, mailing lists, advertising materials,
and all other materials and records of any kind that may be in the Executive's
possession or under the Executive's control. The Executive shall not, except
for the Company's use, copy or duplicate any of the aforementioned documents or
objects, nor remove them from the Company's facilities, nor use any information
concerning them except for the Company's benefit, either during the Executive's
employment or thereafter. The Executive covenants and agrees that the Executive
will deliver all of the aforementioned documents and objects, if any, that may
be in the Executive's possession to the Company upon termination of the
Executive's employment, or at any other time at the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise), and thereafter for the period of time set forth on Exhibit A
following the termination of the Executive's employment with the Company, the
Executive will not:
(i) directly or indirectly engage in, continue in
or carry on the business of the Company, including owning or
controlling any financial interest in, any corporation, partnership,
firm or other form of business organization which competes with or is
engaged in or carries on any aspect of such business or any business
substantially similar thereof;
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm
or other business organization which is now or becomes a competitor of
the Company in any aspect of the Company's business during the
Executive's employment with the Company, including, but not limited
to: advertising or otherwise endorsing the products of any such
competitor; soliciting customers or employing employees of the
Company; or otherwise serving as an intermediary for any such
competitor; or loaning money or rendering any other form of financial
assistance to or engaging in any form of business transaction whether
or not on an arms' length basis with any such competitor; or
(iii) engage in any practice the purpose of which is
to evade the provisions of this Agreement or willfully commit any act
which is detrimental to the successful continuation of, or which
adversely affects, the business or the Company;
provided, however, that the foregoing shall not preclude the Executive's
ownership of not more than 2% of the equity securities of a corporation which
has such securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended.
3
<PAGE> 4
(b) The Executive agrees that the geographic scope of this
covenant not to compete shall extend to the geographic area where the Company's
customers conduct business at any time during the Term of this Agreement. For
purposes of this Agreement, "customers" means any person or entity to which the
Company provides or has provided within a period of one (1) year prior to the
Executive's termination of employment labor, materials or services for the
furtherance of such entity or person's business or any person or entity that
within such period of one (1) year the Company has pursued for the purposes of
obtaining business for the Company.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to the Company
for such violation or breach and regardless of any other provision contained in
this Agreement, the Company shall be entitled to equitable remedies (including
an injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and
the duration of this covenant not to compete shall be extended in an amount
which equals the time period during which the Executive is or has been in
violation of this covenant not to compete.
(d) In the event a court of competent jurisdiction
determines that the provisions of this covenant not to compete are excessively
broad as to duration, geographic scope, prohibited activities or otherwise, the
parties agree that this covenant shall be reduced or curtailed to the extent
necessary to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, during the Term, the Executive becomes
physically or mentally disabled in accordance with the terms and conditions of
any disability insurance policy covering the Executive or, if due to such
physical or mental disability, the Executive becomes unable for a period of
more than six (6) consecutive months to perform his duties hereunder on
substantially a full-time basis as determined by the Company in its sole
reasonable discretion, the Company may, at its option, terminate the
Executive's employment hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause effective immediately upon notice. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) if the Executive is convicted of a class one or
serious felony, as evidenced by a binding and final judgment, order or decree
of a court of competent jurisdiction; (ii) for the Executive's violation of
Section 5 of this Agreement;
4
<PAGE> 5
(iii) use of illegal drugs; (iv) insobriety by the Executive while performing
his or her duties hereunder; and (v) if the Executive is adjudicated by a
binding and final judgment, order or decree of a court of competent
jurisdiction to have committed any act of theft, dishonesty or falsification of
reports, records or information submitted by the Executive to the Company.
(d) Severance Payment. If the Executive is terminated by
the Company for Cause as defined in subparagraph (c) above or dies, the
Executive shall not be entitled to any further payments after the date of such
termination or death, including but not limited to any Severance Payment;
however, in the event of a termination pursuant to Section 6(c)(v), Executive
shall be paid his salary and benefits up to the date of the adjudication as set
forth therein. If the Executive (i) is terminated by the Company for any reason
other than Cause, (ii) becomes disabled and is still able to perform
Executive's duties, or (iii) terminates employment voluntarily, the Executive's
salary, bonus and benefits (other than in the case of death or disability the
right of Executive to any disability payments or death payments due under
policies in existence at the date of such termination) hereunder will terminate
as of the termination of employment; however, Executive shall be entitled to
receive the monthly Severance Payment specified on Exhibit A which shall be
payable for each month after such termination during which Executive is subject
to the Non-Compete provision specified in Section 5 hereof and Executive shall
be paid any bonus and salary earned as of the date of such termination. The
full amount of the Severance Payment shall initially be guaranteed by a letter
of credit (the "First Letter of Credit") issued in favor of the Executive by
NationsBank, N.A. with the amount thereof declining as payments are made
hereunder. The First Letter of Credit shall be non-cancelable for a period of
three (3) years. Within fifteen (15) days from the expiration date of the First
Letter of Credit, the Company shall cause a second letter of credit to be
issued in favor of the Executive to guarantee the remaining balance of the
Severance Payment due during the remaining term of this Agreement (the "Second
Letter of Credit"). The Second Letter of Credit shall be non-cancelable for a
period of two (2) years. The Executive shall be entitled to draw under the
First or Second Letter of Credit, as the case may be, upon any default in the
Company's obligation to make a Severance Payment and this Agreement shall be
deemed to be in default and the Executive shall be further entitled to draw
under the Letter of Credit if a notice of cancellation is issued thereunder and
the letter of credit is not replaced prior to fifteen (15) days before the
effective date of such cancellation.
7. RESOLUTION OF DISPUTES
(a) Arbitration. Any dispute, controversy or claim arising
out of or relating to this Employment Agreement shall be settled by binding
arbitration held in Denver, Colorado, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect,
except as specifically otherwise provided in this Section 7. Notwithstanding
the foregoing, the Company may, in its discretion, apply to a court of
competent jurisdiction for equitable relief from any violation or threatened
violation of the covenants of Executive under Section 5 (covenant not to
compete) of this Employment Agreement.
(b) Arbitrators. If the matter in controversy (exclusive
of attorney fees and
5
<PAGE> 6
expenses) shall not appear, as at the time of the demand for arbitration, to
exceed $100,000, then the panel to be appointed shall consist of one neutral
arbitrator to be mutually agreed upon by the parties; otherwise, the panel
shall be comprised of three neutral arbitrators of whom one shall be selected
by each party within twenty (20) days, and a third arbitrator shall be selected
by these two selected arbitrators. If one of the parties fails to timely select
an arbitrator, the arbitrator that was timely selected shall be the sole
arbitrator. If neither party timely selects an arbitrator, the first arbitrator
selected thereafter shall be the sole arbitrator, no others being appointed.
Where each of the parties timely selects an arbitrator, said arbitrators will
have ten (10) days from the end of the twenty (20) -day period to select the
third arbitrator. In the event the arbitrators are unable to timely agree on
the third arbitrator, either party may petition any official of the American
Arbitration Association for appointment of the third arbitrator and the parties
agree to accept any arbitrator appointed by such official subject to the
limitations hereof. Arbitrators must be reasonably independent of the parties
and their principals. Persons who are hereby expressly disqualified to serve as
arbitrators are principals of the parties, relatives of said principals,
employees of the parties or said principals, persons not residing within 100
miles of the site of the arbitration, attorneys, accountants, and other
business persons who have professional or business relationships with the
parties or said principals.
(c) Procedures; No Appeal. The arbitrator(s) shall allow
such discovery as the arbitrator(s) determine appropriate under the
circumstances, provided that any party shall be entitled to reasonable
production of documents and not less than (i) 16 hours of deposition
examination and 20 written interrogatories if the matter in controversy
(exclusive of attorneys' fees and costs) is $500,000 or less; and (ii) 24 hours
of deposition examination and 40 written interrogatories if the matter in
controversy (exclusive of attorneys' fees and costs) exceeds $500,000. The
arbitrators shall resolve the dispute as expeditiously as practicable, and if
reasonably practicable, within one hundred twenty (120) days after the
selection of the arbitrator(s). The arbitrator(s) shall give the parties
written notice of the decision, with the reasons therefor set out, and shall
have thirty (30) days thereafter to reconsider and modify such decision if any
party so requests within ten (10) days after the decision. Thereafter, the
decision of the arbitrator(s) shall be final, binding, and nonappealable with
respect to all persons, including (without limitation) persons who have failed
or refused to participate in the arbitration process. The privileges,
including, without limitation, the attorney-client privilege, shall apply in
arbitration.
(d) Authority. The arbitrator(s) shall have authority to
award relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorneys' fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having in personam and subject
matter jurisdiction. Each party hereby submits to the in personam jurisdiction
of the Federal and State courts in Hillsborough County, Florida for the purpose
of confirming such award and entering judgment thereon.
6
<PAGE> 7
(f) Confidentiality. All proceedings under this Article 13
and all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Section 7 shall have been or may be
invoked shall not excuse any party from performing its obligations under this
Agreement and during the pendency of any such procedure all parties shall
continue to perform their respective obligations in good faith, subject to any
rights to terminate this Agreement that may be available to any party.
(h) Tolling. All applicable statutes of limitation shall
be tolled while the procedures specified in this Section 7 are pending. The
parties will take such action, if any, required to effectuate such tolling.
(i) Expenses of Arbitration. Except as otherwise may be
provided in this Agreement, the expenses of arbitration will be borne equally
the parties, provided that each party will bear the cost of its own experts,
evidence and attorneys' fees, except that, in the discretion of the
arbitrators, any award in arbitration may include attorneys' fees if the
arbitrators expressly determine that the party against whom such an award is
entered has caused the dispute to be submitted to arbitration in bad faith or
as a dilatory tactic. No arbitration will be commenced after the date when
institution of legal or equitable proceedings based upon the same subject
matter would be barred by the applicable statute of limitations.
8. INDEMNIFICATION AND LIABILITY COVERAGE. For the period of
Executive's employment and for five years after the termination of Executive's
employment, the Executive shall be entitled to be covered by, and after
termination of employment shall remain covered by the indemnification rights
and the liability insurance coverage in effect from time to time during
Executive's employment or in effect at the time of Executive's termination, as
the case may be. The Company will use its best efforts to insure that such
indemnification and liability coverage shall at all times be as favorable to
Executive in terms of coverage amounts and coverage terms as the coverage which
exists at Health International, Inc. on the date that the Company was acquired
by the Company, provided that if such insurance coverage is not available at
rates reasonably correspondent to the rates charged at the time of the
acquisition (adjusted for inflation), the Company shall be obligated only to
buy such coverage as is available for such rates and can be commercially
obtained.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when hand-delivered, sent by telecopier, facsimile
transmission or other electronic means of transmitting written documents (as
long as receipt is acknowledged) or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to the address set forth on the
signature page
7
<PAGE> 8
If the Company:
Sykes HealthPlan Services, Inc.
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified
or waived unless such waiver or modification is agreed to in writing signed by
the parties hereto. No waiver by any party hereto of any breach by any other
party hereto shall be deemed a waiver of any similar or dissimilar term or
condition at the same or at any prior or subsequent time. This Agreement is the
entire agreement between the parties hereto with respect to the Executive's
employment by the Company and there are no agreements or representations, oral
or otherwise, expressed or implied, with respect to or related to the
employment of the Executive which are not set forth in this Agreement. Any
prior agreement relating to the Executive's employment with the Company is
hereby superseded and void, and is no longer in effect. This Agreement shall be
binding upon and inure to the benefit of the Company, its respective successors
and assigns, whether by merger, sale of assets or otherwise, and the Executive
and his heirs, executors, administrators and legal representatives. Except as
expressly set forth herein, no party shall assign any of his or its rights
under this Agreement without the prior written consent of the other party and
any attempted assignment without such prior written consent shall be null and
void and without legal effect. The parties agree that if any provision of this
Agreement shall under any circumstances be deemed invalid or inoperative, the
Agreement shall be construed with the invalid or inoperative provision deleted
and the rights and obligations of the parties shall be construed and enforced
accordingly. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the State of Arizona. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute but one and
the same instrument. This Agreement has been jointly drafted by the respective
representatives of the parties and no party shall be considered as being
responsible for such drafting for the purpose of applying any rule constituting
ambiguities against the drafter or otherwise.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
By:
-----------------------------------------
David Garner, President
"EXECUTIVE"
--------------------------------------------
Michael D. Peerboom
Address:
------------------------------------
- ---------------------------------------------------
9
<PAGE> 10
AMENDED AND RESTATED EXHIBIT A TO EMPLOYMENT AGREEMENT
Term: 5 years
Base Salary: $3,846.15 per week
Additional Consideration: The Company shall pay additional annual consideration
in the amount of $175,000 to Executive payable in
annual installments on April 24th of each year during
the Term.
Fringe Benefits: Same as are provided to the other executives at the
same level
Covenant Not to Compete: The Covenant Not to Compete shall be in force during
the term of the Employment Agreement and for a period
equal to the greater of the unexpired term of the
Employment Agreement at the time of termination of
Executive's Employment (the "Unexpired Employment
Term") or twenty-four (24) months, provided that, to
the extent the term of noncompetition extends beyond
the Unexpired Employment Term, Employer in its sole
discretion may elect to shorten the term of
non-competition to any lesser period it chooses after
the expiration of the Unexpired Employment term.
Severance Payment: $21,875 for each month during which Covenant Not to
Compete is in force. This agreement and restatement
of Exhibit A shall not have any effect on the First
Letter of Credit or Second Letter of Credit described
in Section 6(d) of the Employment Agreement.
Stock Options: Executive and the Company entered into a Stock Option
Agreement dated as of January 22, 1998, pursuant to
which Executive was granted nonqualified options to
purchase 50,000 shares of the Company's common stock
with an exercise price of $3.40 per share which vest
and become exercisable nine years after the date of
grant and will vest and become immediately
exercisable upon the completion of an initial public
offering of the Company's common stock pursuant to an
effective Registration Statement filed under the
Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Exhibit A on the 23rd day of April, 1998.
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ David Garner, President
-------------------------------
David Garner, President
"EXECUTIVE"
/s/ Michael C. Peerboom
----------------------------------
Michael C. Peerboom
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of December 1997 by and
between SHPS Acquisition Corp., a Florida corporation (the "Company"), and
wholly owned subsidiary of Sykes HealthPlan Services, Inc., a Florida
corporation ("SHPS"), and OWEN MCKENNA (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to assure itself of the
Executive's continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and
conditions of this Agreement, the Company shall employ the Executive during the
Term (as hereinafter defined) as an Executive Officer of the Company, initially
as President and CEO, and in such other management capacities, with meaningful
executive management responsibilities and requisite authority, as may be
assigned, from time to time, by the Company. The Executive accepts such
employment and agrees to devote his best efforts and entire business time,
skill, labor and attention to the performance of such duties. The Executive
agrees to provide promptly a description of any other commercial duties or
pursuits engaged in by the Executive to the Company's Board of Directors. If
the Board of Directors determines, in good faith, that such activities conflict
with the Executive's performance of his duties hereunder, the Executive shall
promptly cease such activities to the extent and as directed by the board of
Directors. It is acknowledged and agreed that such description shall be made
regarding any such activities in which the Executive owns more than 10% of the
ownership of the organization or which may be in violation of Section 5 hereof,
and that the failure of the Executive to provide any such description shall
enable the Company to terminate the Executive for Cause (as provided in Section
6(c) hereof). The Company agrees to hold any such information provided by the
Executive confidential and not disclose the same to any person other than a
person to whom disclosure is reasonably necessary or appropriate in light of
the circumstances. In addition, the Executive agrees to serve (without
additional compensation unless such position results in significant additional
responsibility) if elected or appointed to any office or position, including as
a director, of the Company or any parent, subsidiary or affiliate of the
Company; provided, however, that the Executive shall be entitled to receive
such benefits and additional compensation, if any, that is paid to executive
officers of the Company, such parent, subsidiary or affiliate in connection
with such service. Executive will be eligible for consideration to become an
Executive Officer of SHPS as the business plans and prospects for SHPS clarify,
any such appointment, however, will be subject to approval by the Board of
Directors of SHPS.
<PAGE> 2
2. TERM. Subject to the terms and conditions of this
Agreement, including but not limited to the provisions for termination set
forth in Section 6 hereof, the employment of the Executive under this Agreement
shall commence on the date hereof and shall continue through and including the
close of business on the anniversary date hereof for the term which is set
forth under the caption "Term" on Exhibit A attached hereto and incorporated
herein (such term shall herein be defined as the "Term"). Upon the effective
date of this Agreement, the existing employment agreement between Executive and
OMS Incorporated shall terminate and Employee hereby completely and
unconditionally releases OMS Incorporated from any and all claims which the
Employee has or may have against OMS Incorporated under such agreement,
including any future claims to any benefits under the agreement
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for
the Executive's services under this Agreement, the Executive shall receive, and
the Company shall pay, a weekly base salary set forth on Exhibit A. Such base
salary may be increased, but not decreased, during the Term, in the Company's
discretion, based upon the Executive's performance and any other factors the
Company deems relevant. Such base salary shall be payable in accordance with
the policy then prevailing for the Company's executives. In addition to such
base salary, the Executive shall be entitled, during the Term, to a performance
bonus as set forth on Exhibit A and to participate in and receive payments from
all other bonus and other incentive compensation plans as may be adopted by the
Company on the same basis and terms as other executive officers of the Company.
(b) Payments. All amounts paid pursuant to this
Agreement shall be subject to withholding or deduction by reason of the Federal
Insurance Contribution Act, Federal income tax, state and local income tax, if
any, and comparable laws and regulations.
(c) Stock Options. Upon the execution of this
Agreement, the Executive shall receive a stock option grant for Thirty Thousand
(30,000) shares of Sykes HealthPlan Services, Inc., non-voting common stock
with an exercise price per share of $2.40. Such options shall be subject to the
terms of a Stock Option Agreement to be executed by the Executive and the
Company. The Executive's right to exercise the options shall vest in accordance
with the vesting schedule set forth on the Addendum to Employment Agreement
attached hereto.
(d) Other Benefits. The Executive shall be
reimbursed by the Company for all reasonable and customary travel and other
business expenses incurred by the Executive in the performance of the
Executive's duties hereunder in accordance with the Company's standard policy
regarding expense verification practices. The Executive shall be entitled to
that number of weeks paid vacation per year that is available to other
executive officers of the Company in accordance with the Company's standard
policy regarding vacations and shall be eligible to participate in such
pension, life insurance, health insurance, disability
2
<PAGE> 3
insurance and other employee benefits plans, if any, which the Company or SHPS
may from time to time make available to its executive officers generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire non-public
information and knowledge respecting the intimate and confidential affairs of
the Company, including without limitation confidential information with respect
to the Company's customer lists, business methodology, processes, production
methods and techniques, promotional materials and information, and other
similar matters treated by the Company as confidential (the "Confidential
Information"). Accordingly, the Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise) and thereafter, the Executive shall not, without the prior written
consent of the Company, disclose to any person, other than a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties hereunder, any
non-public Confidential Information obtained by the Executive while in the
employ of the Company. Notwithstanding the foregoing, Executive may disclose
the Confidential Information pursuant to the requirement or request of a
governmental agency or pursuant to a court or administrative subpoena, order or
other such legal process or requirement of law, or in defense of any claims or
causes of action asserted against him; provided, however, that Executive shall
first notify the Company of such request or requirement, or proposal for use in
defense.
(b) The Executive agrees that all memoranda, notes,
records, papers or other documents and all copies thereof relating to the
Company's operations or business, some of which may be prepared by the
Executive, and all objects associated therewith in any way obtained by the
Executive shall be the Company's property. This shall include, but is not
limited to, documents and objects concerning any customer lists, contracts,
price lists, manuals, mailing lists, advertising materials, and all other
materials and records of any kind that may be in the Executive's possession or
under the Executive's control. The Executive shall not, except on the Company's
behalf, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the Company's facilities, nor use any information concerning
them except for the Company's benefit, either during the Executive's employment
or thereafter. The Executive covenants and agrees that the Executive will
deliver all of the aforementioned documents and objects, if any, that may be in
the Executive's possession to the Company upon termination of the Executive's
employment, or at any other time at the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the
Executive's employment by the Company (whether during the Term hereof or
otherwise), and thereafter for the period of time set forth on Exhibit A
following the termination of the Executive's employment with the Company, the
Executive will not:
3
<PAGE> 4
(i) directly or indirectly engage in, continue
in or carry on the business of the Company, or any business substantially
similar thereto which competes with the Company, including owning or
controlling any financial interest in, any corporation, partnership, firm or
other form of business organization which competes with any aspect of such
business or any business substantially similar thereto;
(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation, partnership, firm or other
business organization which is now, or becomes a competitor of the Company in
any aspect of the Company's business during the Executive's employment with the
Company, including, but not limited to: advertising or otherwise endorsing the
products of any such competitor; soliciting customers or employing employees of
the Company or otherwise serving as an intermediary for any such competitor; or
loaning money or rendering any other form of financial assistance to or
engaging in any form of business transaction whether or not on an arms' length
basis with any such competitor; or
(iii) engage in any practice the purpose of which
is to evade the provisions of this Agreement or to commit any act which is
detrimental to the successful continuation of, or which adversely affects, the
business or the Company; provided, however, that the foregoing shall not
preclude the Executive's ownership of not more than 2% of the equity securities
of a corporation which has such securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended.
(b) The Executive agrees that the geographic scope of
this covenant not to compete shall extend to the geographic area where the
Company's customers conduct business at any time during the Term of this
Agreement. For purposes of this Agreement, "customers" means any person or
entity to which the Company provides or has provided within a period of one (1)
year prior to the Executive's termination of employment labor, materials or
services for the furtherance of such entity or person's business or any person
or entity that within such period of one (1) year the Company has pursued or
communicated with for the purposes of obtaining business for the Company.
(c) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be inadequate
and that in addition to any relief at law which may be available to the Company
for such violation or breach and regardless of any other provision contained in
this Agreement, the Company shall be entitled to equitable remedies (including
an injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and
the duration of this covenant not to compete shall be extended in an amount
which equals the time period during which the Executive is or has been in
violation of this covenant not to compete. Further, the Executive acknowledges
and agrees that the Company shall be entitled to liquidated damages in the
amount of $100 per day for each day during which the Executive is
4
<PAGE> 5
in violation of this covenant not to compete, and the Executive does
specifically acknowledge and agree that the liquidated damages in such amount
are fair and reasonable, in that it may be difficult for the Company to
determine the extent of the damages actually incurred in the event of the
breach of this covenant not to compete by the Executive.
(d) In the event a court of competent jurisdiction
determines that the provisions of this covenant not to compete are excessively
broad as to duration, geographic scope, prohibited activities or otherwise, the
parties agree that this covenant shall be reduced or curtailed to the extent
necessary to render it enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder
shall terminate upon his death.
(b) Disability. If, during the Term, the
Executive becomes physically or mentally disabled in accordance with the terms
and conditions of any disability insurance policy covering the Executive or, if
due to such physical or mental disability, the Executive becomes unable for a
period of more than six (6) consecutive months to perform his duties hereunder
on substantially a full-time basis as determined by the Company in its sole
reasonable discretion, the Company may, at its option, terminate the
Executive's employment hereunder upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause effective immediately upon notice.
For purposes of this Agreement, the Company shall have "Cause" to terminate the
Executive's employment hereunder: (i) if the Executive engages in conduct which
has caused, or is reasonably likely to cause, demonstrable and serious injury
to Company; (ii) if the Executive is convicted of a felony, as evidenced by a
binding and final judgment, order or decree of a court of competent
jurisdiction; (iii) for the Executive's neglect of his duties hereunder or the
Executive's refusal to perform his duties or responsibilities hereunder, as
determined by the Company's Board of Directors in good faith; (iv) for the
Executive's violation of this Agreement, including without limitation Section 5
hereof; (v) chronic absenteeism; (vi) use of illegal drugs; (vii) insobriety by
the Executive while performing his or her duties hereunder; and (viii) any act
of dishonesty or falsification of reports, records or information submitted by
the Executive to the Company.
(d) Severance Payment. In the event of a
termination of the Executive's employment pursuant to this Section 6 or by the
Executive, all payments to the Executive hereunder shall immediately cease and
terminate. In the event of a termination by the Company of the Executive's
employment with the Company for any reason other than pursuant to this Section
6, then the Company shall have no further obligation to make payments under
this Agreement except that the Company shall pay the Executive severance pay
(in equal installments in accordance with Company policy immediately prior to
such termination) in the amount set
5
<PAGE> 6
forth on Exhibit A ("Severance Payment"). Such monthly Severance Payment,
however, shall not be required to be paid by the Company for more than six
months if the Company elects, in its sole discretion, after six months to
release the Executive from the covenant not to compete set forth in Section 5
hereof. If the Company terminates the Executive's employment pursuant to
Section 6(a), (b) or (c), or the Executive terminates such employment, the
Executive shall not be entitled to the Severance Payment and the covenant not
to compete set forth in Section 5 hereof shall remain in full force and effect.
Notwithstanding anything to the contrary herein contained, the Executive shall
receive all compensation and other benefits to which he was entitled under this
Agreement or otherwise as an employee of the Company through the termination
date of his employment with the Company. Among other things, this would include
the pro rata share of any bonus earned through the termination date.
(e) Transition Services. Upon a termination of
employment by the Executive, or by the Company with Cause, the Executive shall
cooperate with the Company's reasonable requests to ensure an orderly and
businesslike transfer of the Executive's duties to other personnel designated
by the Company. Additionally, the Executive shall make himself available at
reasonable times upon reasonable notice to consult with the Company and assist
the Company with respect to: (i) any matters for which the Company requests
such assistance for a period of six (6) months after such termination, and (ii)
any litigation or governmental or quasi-governmental agency investigation which
may be pending at the time of termination or implemented after termination
which relates to any period during which the Executive was employed by the
Company; provided, that, in either case, the Company shall reimburse the
Executive for any reasonable out-of-pocket expense incurred by the Executive at
the Company's request in connection with such consultation or assistance, and
with respect to (ii), the Company shall schedule such consultation at times
which will not interfere with any subsequent employment which the Executive has
obtained and such consultation shall not require more than an average of two
days per month without the Executive's consent. A breach of the foregoing
provisions by the Executive shall be deemed to be a material breach of this
Agreement.
7. NOTICE. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when hand-delivered, sent by telecopier,
facsimile transmission or other electronic means of transmitting written
documents (as long as receipt is acknowledged) or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive, to the address set forth on the
signature page.
If to the Company:
--------------------------------------
--------------------------------------
--------------------------------------
Tampa, Florida
------------------------
Attn: Chief Executive Officer
6
<PAGE> 7
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such waiver or modification is agreed to in writing
signed by the parties hereto; provided, however, Exhibit A may be amended by
the Company in its discretion without the Executive's consent to the extent
provided therein; provided, however, no amendment may be made which impairs or
adversely affects the rights of the Executive without the Executive's written
consent. No waiver by any party hereto of any breach by any other party hereto
shall be deemed a waiver of any similar or dissimilar term or condition at the
same or at any prior or subsequent time. This Agreement is the entire agreement
between the parties hereto with respect to the Executive's employment by the
Company and there are no agreements or representations, oral or otherwise,
expressed or implied, with respect to or related to the employment of the
Executive which are not set forth in this Agreement. Any prior agreement
relating to the Executive's employment with the Company is hereby superseded
and void, and is no longer in effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its respective successors and assigns, and
the Executive and his heirs, executors, administrators and legal
representatives. Except as expressly set forth herein, no party shall assign
any of his or its rights under this Agreement without the prior written consent
of the other party and any attempted assignment without such prior written
consent shall be null and void and without legal effect. The parties agree that
if any provision of this Agreement shall under any circumstances be deemed
invalid or inoperative, the Agreement shall be construed with the invalid or
inoperative provision deleted and the rights and obligations of the parties
shall be construed and enforced accordingly. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
internal laws of the State of Florida. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute but one and the same instrument. This Agreement
has been jointly drafted by the respective representatives of the parties and
no party shall be considered as being responsible for such drafting for the
purpose of applying any rule constituting ambiguities against the drafter or
otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
"COMPANY"
SHPS ACQUISITION CORP.
By:
------------------------------
David Garner, President
7
<PAGE> 8
"EXECUTIVE"
-------------------------------------
Owen McKenna
Address:
---------------------------
---------------------------
Performance of this Agreement is unconditionally guaranteed by Sykes HealthPlan
Services, Inc.
SYKES HEALTHPLAN SERVICES, INC.
By:
----------------------------------
David Garner, President
8
<PAGE> 9
EXHIBIT A TO EMPLOYMENT AGREEMENT
TERM: 3 years
BASE SALARY: $2,884.62 per week ($150,000 per year)
PERFORMANCE BONUS: $37,500 per year based upon the Company's attainment of the
Total Operating Revenue target set forth below, and $37,500 per year based upon
the Company's attainment of the EBITDA target set forth below:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total Operating Revenue(1) $6,375,800 $7,509,400 $8,831,800
EBITDA(1) $1,915,700 $2,329,600 $2,785,900
</TABLE>
-----------------------------
(1) As reported on the financial statements prepared in
accordance with GAAP by the Company's
accountants.
The Board of Directors of the Company, acting in its sole discretion, may award
a pro rata portion of the Performance Bonus in the event that the Performance
Bonus targets are only partially achieved. In addition, from time to time, the
Executive may be asked to undertake additional and/or different duties or
responsibilities with a parent, subsidiary or affiliate of the Company. In such
event, Executive and the Company hereby agree to negotiate in good faith to
adopt new Performance Bonus targets in light of such new duties or
responsibilities.
COVENANT NOT TO COMPETE: up to 24 months, unless the Company elects a shorter
term
SEVERANCE PAYMENT: $12,500 per month during the term that the Covenant Not to
Compete is in force
A-1
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Exhibit A
as of the 31st day of December, 1997.
SHPS ACQUISITION CORP.
By:
-------------------------------
David Garner, President
"EXECUTIVE"
----------------------------------
Owen McKenna
A-2
<PAGE> 11
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum to Employment Agreement of Owen McKenna ("Employee")
dated December 31, 1997 is to set forth the terms of the stock options to be
granted to Employee pursuant to the Employment Agreement.
1. Non Qualified Options - 15,000 shares Non Voting Common
vesting at end of 9 years subject
to accelerated vesting as
specified below;
2. Qualified Options - 15,000 shares Non-Voting Common vesting
1/3 per year over 3 years subject
to continued employment;
3. Strike Price - $2.40/per share;
4. Accelerated Vesting of Non Qualified Options as follows:
(a) 5,000 per year based on attainment of Total Operating
Revenue and EBITDA Targets set forth below:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total Operating Revenue(1) $6,375,800 $7,509,400 $8,831,800
EBITDA(1) $1,915,700 $2,329,600 $2,785,900
</TABLE>
---------------------
(1) As reported on the financial statements prepared in
accordance with GAAP by the Company's accountants.
(b) All options cliff vest upon completion of an initial
public offering as defined in the Sykes HealthPlan
Services, Inc. 1997 Stock Option Plan (the "1997
Stock Option Plan") or on sale of substantially all
of the assets of the corporation.
5. Options to be evidenced by and subject to standard terms and
conditions and/or of the 1997 Stock Option Plan.
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31st day of March, 1998 by and between
SYKES HEALTHPLAN SERVICES, INC., a Florida corporation (the "Company"), and
Suzanne D. Kelly (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to assure itself of the Executive's
continued employment in an executive capacity; and
WHEREAS, the Executive desires to be employed by the Company and/or its
subsidiaries on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledge, the parties hereto
covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this
Agreement, the Company shall employ the Executive during the Term (as
hereinafter defined) as an Officer of the Company at a senior officer level and
will retain his current position and title with Health International, Inc. which
will be a subsidiary of the Company and in such other management capacities as
may be assigned, from time to time, by the Company. The Executive accepts such
employment and agrees to devote his best efforts and entire business time,
skill, labor and attention to the performance of such duties. The Executive
agrees to provide promptly a description of any other commercial duties or
pursuits engaged in by the Executive to the Company's Board of Directors. If the
Board of Directors determines, in good faith, that such activities conflict with
the Executive's performance of his duties hereunder, the Executive shall
promptly cease such activities to the extent and as directed by the Board of
Directors. It is acknowledged and agreed that such description shall be made
regarding any such activities in which the Executive owns more than 10% of the
ownership of the organization or which may be in violation of Section 5 hereof,
and that the failure of the Executive to provide any such description shall
enable the Company to terminate the Executive for Cause (as provided in Section
6(c) hereof). The Company agrees to hold any such information provided by the
Executive confidential and not disclose the same to any person other than a
person to whom disclosure is reasonably necessary or appropriate in light of the
circumstances. In addition, the Executive agrees to serve without additional
compensation if elected or appointed to any office or position, including as a
director of the Company or and subsidiary or affiliate of the Company; provided,
however, that the Executive shall be entitled to receive such benefits and
additional compensation, if any, that is paid to executive officers of the
Company in connection with such service.
2. TERM. Subject to the terms and conditions of this Agreement, including
but not limited to the provisions for termination set forth in Section 6 hereof,
the employment of the
<PAGE> 2
Executive under this Agreement shall commence on the date hereof and shall
continue through and including the close of business on the anniversary date
hereof as set forth on Exhibit A attached hereto and incorporated herein (such
term shall herein be defined as the "Term").
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the Executive's
services under this Agreement, the Executive shall receive, and the Company
shall pay, a weekly base salary set forth on Exhibit A. Such base salary may be
increased, but not decreased, during the Term, in the Company's discretion,
based upon the Executive's performance and any other factors the Company deems
relevant. Such base salary shall be payable in accordance with the policy then
prevailing for the Company's executives.
(b) Payments. All amounts paid pursuant to this Agreement shall be
subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, federal income tax, state and local income tax, if any, and
comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by the Company
for all reasonable and customary travel and other business expenses incurred by
the Executive in the performance of the Executive's duties hereunder in
accordance with the Company's standard policy regarding expense verification
practices. The Executive shall be entitled to that number of weeks paid vacation
per year that is available to other executive officers of the Company in
accordance with the Company's standard policy regarding vacations and such other
fringe benefits as are set forth on Exhibit A, and shall be eligible to
participate in such pension, life insurance, health insurance, disability
insurance and other employee benefits plans, if any, which the Company may from
time to time make available to its executive officers generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire information and
knowledge respecting the intimate and confidential affairs of the Company,
including without limitation confidential information with respect to the
Company's customer lists, business methodology, processes, production methods
and techniques, promotional materials and information, and other similar matters
treated by the Company as confidential (the "Confidential Information").
Accordingly, the Executive covenants and agrees that during the Executive's
employment by the Company (whether during the Term hereof or otherwise) and
thereafter, the Executive shall not, without the prior written consent of the
Company, disclose to any person, other than a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of the Executive's duties hereunder, any Confidential Information
obtained by the Executive while in the employ of the company.
(b) The Executive agrees that all memoranda, notes, records, papers or
other documents and all copies thereof relating to the Company's operations or
business, some of which
2
<PAGE> 3
may be prepared by the Executive, and all objects associated therewith in any
way obtained by the Executive shall be the Company's property. This shall
include, but is not limited to, documents and objects concerning any customer
lists, contracts, price lists, manuals, mailing lists, advertising materials,
and all other materials and records of any kind that may be in the Executive's
possession or under the Executive's control. The Executive shall not, except for
the Company's use, copy or duplicate any of the aforementioned documents or
objects, nor remove them from the Company's facilities, nor use any information
concerning them except for the Company's benefit, either during the Executive's
employment or thereafter. The Executive covenants and agrees that the Executive
will deliver all of the aforementioned documents and objects, if any, that may
be in the Executive's possession to the Company upon termination of the
Executive's employment, or at any other time at the Company's request.
5. COVENANT NOT TO COMPETE.
(a) The Executive covenants and agrees that during the Executive's
employment by the Company (whether during the Term hereof or otherwise), and
thereafter for the period of time set forth on Exhibit A following the
termination of the Executive's employment with the Company, the Executive will
not:
(i) directly or indirectly engage in, continue in or carry on
the business of the Company, including owning or controlling any
financial interest in, any corporation, partnership, firm or other form
of business organization which competes with or is engaged in or carries
on any aspect of such business or any business substantially similar
thereof;
(ii) consult with, advise or assist in any way, whether or not
for consideration, any corporation, partnership, firm or other business
organization which is now or becomes a competitor of the Company in any
aspect of the Company's business during the Executive's employment with
the Company, including, but not limited to: advertising or otherwise
endorsing the products of any such competitor; soliciting customers or
employing employees of the Company; or otherwise serving as an
intermediary for any such competitor; or loaning money or rendering any
other form of financial assistance to or engaging in any form of business
transaction whether or not on an arms' length basis with any such
competitor; or
(iii) engage in any practice the purpose of which is to evade the
provisions of this Agreement or willfully commit any act which is
detrimental to the successful continuation of, or which adversely
affects, the business or the Company;
provided, however, that the foregoing shall not preclude the Executive's
ownership of not more than 2% of the equity securities of a corporation which
has such securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended.
3
<PAGE> 4
(b) The Executive agrees that the geographic scope of this covenant
not to compete shall extend to the geographic area where the Company's customers
conduct business at any time during the Term of this Agreement. For purposes of
this Agreement, "customers" means any person or entity to which the Company
provides or has provided within a period of one (1) year prior to the
Executive's termination of employment labor, materials or services for the
furtherance of such entity or person's business or any person or entity that
within such period of one (1) year the Company has pursued for the purposes of
obtaining business for the Company.
(c) In the event of any breach of this covenant not to compete, the
Executive recognizes that the remedies at law will be inadequate and that in
addition to any relief at law which may be available to the Company for such
violation or breach and regardless of any other provision contained in this
Agreement, the Company shall be entitled to equitable remedies (including an
injunction) and such other relief as a court may grant after considering the
intent of this Section 5. It is further acknowledged and agreed that the
existence of any claim or cause of action on the part of the Executive against
the Company, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of this covenant not to compete, and the
duration of this covenant not to compete shall be extended in an amount which
equals the time period during which the Executive is or has been in violation of
this covenant not to compete.
(d) In the event a court of competent jurisdiction determines that the
provisions of this covenant not to compete are excessively broad as to duration,
geographic scope, prohibited activities or otherwise, the parties agree that
this covenant shall be reduced or curtailed to the extent necessary to render it
enforceable.
6. TERMINATION.
(a) Death. The Executive's employment hereunder shall terminate upon
his death.
(b) Disability. If, during the Term, the Executive becomes physically
or mentally disabled in accordance with the terms and conditions of any
disability insurance policy covering the Executive or, if due to such physical
or mental disability, the Executive becomes unable for a period of more than six
(6) consecutive months to perform his duties hereunder on substantially a
full-time basis as determined by the Company in its sole reasonable discretion,
the Company may, at its option, terminate the Executive's employment hereunder
upon not less than 30 days' written notice.
(c) Cause. The Company may terminate the Executive's employment
hereunder for Cause effective immediately upon notice. For purposes of this
Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) if the Executive is convicted of a class one or
serious felony, as evidenced by a binding and final judgment, order or decree of
a court of competent jurisdiction; (ii) for the Executive's violation of Section
5 of this Agreement;
4
<PAGE> 5
(iii) use of illegal drugs; (iv) insobriety by the Executive while performing
his or her duties hereunder; and (v) if the Executive is adjudicated by a
binding and final judgment, order or decree of a court of competent jurisdiction
to have committed any act of theft, dishonesty or falsification of reports,
records or information submitted by the Executive to the Company.
(d) Severance Payment. If the Executive is terminated by the Company
for Cause as defined in subparagraph (c) above or dies, the Executive shall not
be entitled to any further payments after the date of such termination or death,
including but not limited to any Severance Payment; however, in the event of a
termination pursuant to Section 6(c)(v), Executive shall be paid his salary and
benefits up to the date of the adjudication as set forth therein. If the
Executive (i) is terminated by the Company for any reason other than Cause, (ii)
becomes disabled and is still able to perform Executive's duties, or (iii)
terminates employment voluntarily, the Executive's salary, bonus and benefits
(other than in the case of death or disability the right of Executive to any
disability payments or death payments due under policies in existence at the
date of such termination) hereunder will terminate as of the termination of
employment; however, Executive shall be entitled to receive the monthly
Severance Payment specified on Exhibit A which shall be payable for each month
after such termination during which Executive is subject to the Non-Compete
provision specified in Section 5 hereof and Executive shall be paid any bonus
and salary earned as of the date of such termination. The full amount of the
Severance Payment shall initially be guaranteed by a letter of credit (the
"First Letter of Credit") issued in favor of the Executive by NationsBank, N.A.
with the amount thereof declining as payments are made hereunder. The First
Letter of Credit shall be non-cancelable for a period of three (3) years. Within
fifteen (15) days from the expiration date of the First Letter of Credit, the
Company shall cause a second letter of credit to be issued in favor of the
Executive to guarantee the remaining balance of the Severance Payment due during
the remaining term of this Agreement (the "Second Letter of Credit"). The Second
Letter of Credit shall be non-cancelable for a period of two (2) years. The
Executive shall be entitled to draw under the First or Second Letter of Credit,
as the case may be, upon any default in the Company's obligation to make a
Severance Payment and this Agreement shall be deemed to be in default and the
Executive shall be further entitled to draw under the Letter of Credit if a
notice of cancellation is issued thereunder and the letter of credit is not
replaced prior to fifteen (15) days before the effective date of such
cancellation.
7. RESOLUTION OF DISPUTES
(a) Arbitration. Any dispute, controversy or claim arising out of or
relating to this Employment Agreement shall be settled by binding arbitration
held in Denver, Colorado, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 7. Notwithstanding the foregoing, the Company
may, in its discretion, apply to a court of competent jurisdiction for equitable
relief from any violation or threatened violation of the covenants of Executive
under Section 5 (covenant not to compete) of this Employment Agreement.
(b) Arbitrators. If the matter in controversy (exclusive of attorney
fees and
5
<PAGE> 6
expenses) shall not appear, as at the time of the demand for arbitration, to
exceed $100,000, then the panel to be appointed shall consist of one neutral
arbitrator to be mutually agreed upon by the parties; otherwise, the panel shall
be comprised of three neutral arbitrators of whom one shall be selected by each
party within twenty (20) days, and a third arbitrator shall be selected by these
two selected arbitrators. If one of the parties fails to timely select an
arbitrator, the arbitrator that was timely selected shall be the sole
arbitrator. If neither party timely selects an arbitrator, the first arbitrator
selected thereafter shall be the sole arbitrator, no others being appointed.
Where each of the parties timely selects an arbitrator, said arbitrators will
have ten (10) days from the end of the twenty (20) -day period to select the
third arbitrator. In the event the arbitrators are unable to timely agree on the
third arbitrator, either party may petition any official of the American
Arbitration Association for appointment of the third arbitrator and the parties
agree to accept any arbitrator appointed by such official subject to the
limitations hereof. Arbitrators must be reasonably independent of the parties
and their principals. Persons who are hereby expressly disqualified to serve as
arbitrators are principals of the parties, relatives of said principals,
employees of the parties or said principals, persons not residing within 100
miles of the site of the arbitration, attorneys, accountants, and other business
persons who have professional or business relationships with the parties or said
principals.
(c) Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances,
provided that any party shall be entitled to reasonable production of documents
and not less than (i) 16 hours of deposition examination and 20 written
interrogatories if the matter in controversy (exclusive of attorneys' fees and
costs) is $500,000 or less; and (ii) 24 hours of deposition examination and 40
written interrogatories if the matter in controversy (exclusive of attorneys'
fees and costs) exceeds $500,000. The arbitrators shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within one hundred
twenty (120) days after the selection of the arbitrator(s). The arbitrator(s)
shall give the parties written notice of the decision, with the reasons therefor
set out, and shall have thirty (30) days thereafter to reconsider and modify
such decision if any party so requests within ten (10) days after the decision.
Thereafter, the decision of the arbitrator(s) shall be final, binding, and
nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration process.
The privileges, including, without limitation, the attorney-client privilege,
shall apply in arbitration.
(d) Authority. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys' fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Each party hereby submits to the in personam jurisdiction of the
Federal and State courts in Hillsborough County, Florida for the purpose of
confirming such award and entering judgment thereon.
6
<PAGE> 7
(f) Confidentiality. All proceedings under this Article 13 and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
(g) Continued Performance. The fact that the dispute resolution
procedures specified in this Section 7 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party.
(h) Tolling. All applicable statutes of limitation shall be tolled
while the procedures specified in this Section 7 are pending. The parties will
take such action, if any, required to effectuate such tolling.
(i) Expenses of Arbitration. Except as otherwise may be provided in
this Agreement, the expenses of arbitration will be borne equally the parties,
provided that each party will bear the cost of its own experts, evidence and
attorneys' fees, except that, in the discretion of the arbitrators, any award in
arbitration may include attorneys' fees if the arbitrators expressly determine
that the party against whom such an award is entered has caused the dispute to
be submitted to arbitration in bad faith or as a dilatory tactic. No arbitration
will be commenced after the date when institution of legal or equitable
proceedings based upon the same subject matter would be barred by the applicable
statute of limitations.
8. INDEMNIFICATION AND LIABILITY COVERAGE. For the period of Executive's
employment and for five years after the termination of Executive's employment,
the Executive shall be entitled to be covered by, and after termination of
employment shall remain covered by the indemnification rights and the liability
insurance coverage in effect from time to time during Executive's employment or
in effect at the time of Executive's termination, as the case may be. The
Company will use its best efforts to insure that such indemnification and
liability coverage shall at all times be as favorable to Executive in terms of
coverage amounts and coverage terms as the coverage which exists at Health
International, Inc. on the date that the Company was acquired by the Company,
provided that if such insurance coverage is not available at rates reasonably
correspondent to the rates charged at the time of the acquisition (adjusted for
inflation), the Company shall be obligated only to buy such coverage as is
available for such rates and can be commercially obtained.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when hand-delivered, sent by telecopier, facsimile
transmission or other electronic means of transmitting written documents (as
long as receipt is acknowledged) or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to the address set forth on the signature page
7
<PAGE> 8
If the Company:
Sykes HealthPlan Services, Inc.
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such waiver or modification is agreed to in writing signed by the
parties hereto. No waiver by any party hereto of any breach by any other party
hereto shall be deemed a waiver of any similar or dissimilar term or condition
at the same or at any prior or subsequent time. This Agreement is the entire
agreement between the parties hereto with respect to the Executive's employment
by the Company and there are no agreements or representations, oral or
otherwise, expressed or implied, with respect to or related to the employment of
the Executive which are not set forth in this Agreement. Any prior agreement
relating to the Executive's employment with the Company is hereby superseded and
void, and is no longer in effect. This Agreement shall be binding upon and inure
to the benefit of the Company, its respective successors and assigns, whether by
merger, sale of assets or otherwise, and the Executive and his heirs, executors,
administrators and legal representatives. Except as expressly set forth herein,
no party shall assign any of his or its rights under this Agreement without the
prior written consent of the other party and any attempted assignment without
such prior written consent shall be null and void and without legal effect. The
parties agree that if any provision of this Agreement shall under any
circumstances be deemed invalid or inoperative, the Agreement shall be construed
with the invalid or inoperative provision deleted and the rights and obligations
of the parties shall be construed and enforced accordingly. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the internal laws of the State of Arizona. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which together will constitute but one and the same instrument. This
Agreement has been jointly drafted by the respective representatives of the
parties and no party shall be considered as being responsible for such drafting
for the purpose of applying any rule constituting ambiguities against the
drafter or otherwise.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
By:
------------------------------------------
David Garner, President
"EXECUTIVE"
---------------------------------------------
Suzanne D. Kelly
Address:
-------------------------------------
-------------------------------------
9
<PAGE> 10
AMENDED AND RESTATED EXHIBIT A TO EMPLOYMENT AGREEMENT
Term: 5 years
Base Salary: $3,846.15 per week
Additional Consideration: The Company shall pay additional annual consideration
in the amount of $175,000 to Executive payable in
annual installments on April 24th of year during the
Term.
Fringe Benefits: Same as are provided to the other executives at the
same level
Covenant Not to Compete: The Covenant Not to Compete shall be in force during
the term of the Employment Agreement and for a period
equal to the greater of the unexpired term of the
Employment Agreement at the time of termination of
Executive's Employment (the "Unexpired Employment
Term") or twenty-four (24) months, provided that, to
the extent the term of noncompetition extends beyond
the Unexpired Employment Term, Employer in its sole
discretion may elect to shorten the term of
non-competition to any lesser period it chooses after
the expiration of the Unexpired Employment term.
Severance Payment: $21,875 for each month during which Covenant Not to
Compete is in force. This agreement and restatement
of Exhibit A shall not have any effect on the First
Letter of Credit or Second Letter of Credit described
in Section 6(d) of the Employment Agreement.
Stock Options: Executive and the Company entered into a Stock Option
Agreement dated as of January 22, 1998, pursuant to
which Executive was granted nonqualified options to
purchase 50,000 shares of the Company's common stock
with an exercise price of $3.40 per share which vest
and become exercisable nine years after the date of
grant and will vest and become immediately
exercisable upon the completion of an initial public
offering of the Company's common stock pursuant to an
effective Registration Statement filed under the
Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Exhibit A on the 23rd day of April, 1998.
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ David Garner, President
-------------------------------
David Garner, President
"EXECUTIVE"
/s/ Suzanne D. Kelly
----------------------------------
Suzanne D. Kelly
<PAGE> 1
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
dated as of March 9, 1998
between
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
and
SYKES HEALTHPLAN SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. Certain Defined Terms........................................ 1
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale............................................ 5
SECTION 2.02. Purchase Price............................................... 5
SECTION 2.03. Closing...................................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 3.01. Incorporation and Authority of the Seller.................... 8
SECTION 3.02. Incorporation and Qualification of the Company............... 8
SECTION 3.03. Capital Stock of the Company................................. 8
SECTION 3.04. No Conflict.................................................. 9
SECTION 3.05. Consents and Approvals....................................... 9
SECTION 3.06. Financial Information........................................ 9
SECTION 3.07. Litigation................................................... 9
SECTION 3.08. Material Contracts........................................... 10
SECTION 3.09. Compliance with Laws......................................... 10
SECTION 3.10. Real Property................................................ 11
SECTION 3.11. Tangible Personal Property................................... 11
SECTION 3.12. Employee Benefit Matters..................................... 12
SECTION 3.13. Transactions with Affiliates................................. 13
SECTION 3.14. No Adverse Changes........................................... 13
SECTION 3.15. Taxes........................................................ 13
SECTION 3.16. Brokers...................................................... 14
SECTION 3.17. Subsidiaries................................................. 14
SECTION 3.18. Environmental and Employee Safety Matters.................... 15
SECTION 3.19. Intellectual Property........................................ 15
SECTION 3.20. Insurance Policies........................................... 16
SECTION 3.21. Certain Business Practices................................... 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 3.22. No Misrepresentations........................................ 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Incorporation and Authority of the Purchaser................. 16
SECTION 4.02. No Conflict.................................................. 16
SECTION 4.03. Absence of Litigation........................................ 17
SECTION 4.04. Consents and Approvals....................................... 17
SECTION 4.05. Restricted Securities........................................ 17
SECTION 4.06. Investment Purpose........................................... 17
SECTION 4.07. Financing.................................................... 17
SECTION 4.08. Brokers...................................................... 17
SECTION 4.09. No Misrepresentations........................................ 17
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing..................... 18
SECTION 5.02. Investigation................................................ 18
SECTION 5.03. Access to Information........................................ 19
SECTION 5.04. Books and Records............................................ 20
SECTION 5.05. Confidentiality.............................................. 20
SECTION 5.06. Regulatory and Other Authorizations; Consents................ 20
SECTION 5.07. No Solicitation.............................................. 20
SECTION 5.08. Intellectual Property........................................ 21
SECTION 5.09. Transitional Systems Support Services........................ 21
SECTION 5.10. Further Action............................................... 21
SECTION 5.11. Covenant Not to Compete...................................... 21
SECTION 5.12. LegalCare.................................................... 22
SECTION 5.13. Prudential Health Care Pharmacy Services..................... 22
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Continuation of Benefits..................................... 22
SECTION 6.02. Severance Agreements......................................... 23
SECTION 6.03. Succession................................................... 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 6.04. Survival..................................................... 23
ARTICLE VII
TAX MATTERS
SECTION 7.01. Indemnity.................................................... 23
SECTION 7.02. Returns and Payments......................................... 24
SECTION 7.03. Refunds...................................................... 25
SECTION 7.04. Contests..................................................... 25
SECTION 7.05. Certain Audit Adjustments.................................... 26
SECTION 7.06. Cooperation and Exchange of Information...................... 27
SECTION 7.07. Conveyance Taxes............................................. 27
SECTION 7.08. Miscellaneous................................................ 27
SECTION 7.09. Section 338(h)(10) Election.................................. 28
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller...................... 28
SECTION 8.02. Conditions to Obligations of the Purchaser................... 29
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.01. Survival..................................................... 30
SECTION 9.02. Indemnification by the Purchaser............................. 30
SECTION 9.03. Indemnification by the Seller................................ 32
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination................................................. 35
SECTION 10.02. Effect of Termination....................................... 35
SECTION 10.03. Waiver...................................................... 35
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
ARTICLE XI
GENERAL PROVISIONS
<S> <C> <C>
SECTION 11.01. Expenses.................................................... 35
SECTION 11.02. Notices..................................................... 35
SECTION 11.03. Public Announcements........................................ 36
SECTION 11.04. Interpretation.............................................. 37
SECTION 11.05. Severability................................................ 37
SECTION 11.06. Disclosure Schedule......................................... 37
SECTION 11.07. Entire Agreement............................................ 37
SECTION 11.08. Assignment.................................................. 37
SECTION 11.09. No Third-Party Beneficiaries................................ 37
SECTION 11.10. Amendment................................................... 37
SECTION 11.11. Governing Law............................................... 37
SECTION 11.12. Counterparts................................................ 38
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
1.01(C) - Reference Balance Sheet
5.09 - Form of Transitional Systems
7.09(a) - Asset Allocation
8.01(f) - Form of Assignment Agreement
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT dated as of March 9, 1998 between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a mutual insurance company domiciled in
the State of New Jersey (the "SELLER"), and SYKES HEALTHPLAN SERVICES, INC., a
Florida corporation (the "PURCHASER").
WITNESSETH:
WHEREAS, the Seller owns all the authorized, issued and outstanding
shares of common stock, par value $10.00 per share (the "SHARES"), of Prudential
Service Bureau, Inc., a Kentucky corporation (the "COMPANY"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, the Shares on the terms and subject to the
conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Seller and the Purchaser
hereby agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ADJUSTMENT" has the meaning specified in Section 7.05.
"AFFILIATE" of a specified Person means a person that directly
or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person.
"BOOK VALUE" means the excess of total assets over total
liabilities, each as reflected in the corresponding line items of any
specified balance sheet.
"BUSINESS" means the business of the Company as conducted
through the date hereof of providing health and welfare benefits
administration, including (i) flexible spending account administration,
(ii) benefit plan administration, (iii) COBRA administration, (iv) life
insurance record keeping and (v) various other administration services.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or
other day on which banks are required or authorized by law to be closed
in the City of New York.
"CLOSING" has the meaning, specified in Section 2.03(a).
"CLOSING BALANCE SHEET" has the meaning specified in Section
2.02(c)(i).
<PAGE> 7
2
"CLOSING DATE" has the meaning specified in Section 2.03(a).
"COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" has the meaning specified in
Section 5.05.
"CONTEST" has the meaning specified in Section 7.04(b).
"CURRENT EMPLOYEE" means any employee employed by the Company
as of the Closing Date.
"DEPOSIT" has the meaning specified in Section 2.02(b).
"DESIGNATED AMOUNT" means $100,000.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule dated as
of the date hereof delivered to the Purchaser by the Seller.
"ENCUMBRANCE" means a pledge, lien, security interest,
mortgage, charge, adverse claim of ownership or use, or other
encumbrance of any kind.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, and the
Occupational Safety and Health Act of 1970, each as amended, together
with all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety,
including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"FORMER EMPLOYEE" means any person who, as of the Closing
Date, has a colorable claim to a benefit under any Plan or under any
employment or compensation arrangement.
<PAGE> 8
3
"GAAP" means United States generally accepted accounting
principles in effect as of the date of this Agreement.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"INDEPENDENT ACCOUNTING FIRM" has the meaning specified in
Section 2.02(c)(iv)(A).
"INTELLECTUAL PROPERTY" has the meaning specified in Section
5.08.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended.
"KNOWLEDGE OF THE SELLER" means actual knowledge of the
President, Comptroller and any Senior Vice President of the Company.
"LEGALCARE PURCHASERS" has the meaning specified in Section
5.12.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means any change in, or effect on,
the Business as currently conducted by the Company that is or is
reasonably likely to be materially adverse to the results of operations
or the financial condition of the Company after giving effect to this
Agreement and the transactions contemplated hereby.
"MATERIAL CONTRACTS" has the meaning specified in Section
3.08(a).
"MULTIEMPLOYER PLAN" has the meaning specified in Section
3.12(b).
"MULTIPLE EMPLOYER PLAN" has the meaning specified in Section
3.12(b).
"PERSON" means an individual, corporation, partnership, joint
venture, limited liability company, person (including a "person" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended), trust, association or other entity.
"PLANS" has the meaning specified in Section 3.12(a).
"PURCHASE PRICE" has the meaning specified in Section 2.02(a).
"PURCHASER'S ACCOUNTANTS" has the meaning specified in Section
2.02(c)(iv)(A).
<PAGE> 9
4
"RAYMOND JAMES" means Raymond James & Associates, Inc.
"REFERENCE BALANCE SHEET" means the unaudited pro forma
balance sheet of the Company, including the notes thereto, reflected on
Exhibit 1.01(c) attached hereto.
"REQUIRED APPROVALS" has the meaning specified in Section
3.09.
"RETAINED LIABILITIES" has the meaning specified in Section
9.03(a)(ii).
"RETURNS" has the meaning specified in Section 3.15.
"SELLER'S ACCOUNTANTS" means Price Waterhouse LLP.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" of any Person means any corporation, limited
liability company, partnership, joint venture, trust, association or
other legal entity of which such Person (either alone or through or
together with any other subsidiary) owns, directly or indirectly, more
than 50% 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.
"TANGIBLE PERSONAL PROPERTY" means machinery, equipment,
vehicles and other tangible personal property.
"TAX" or "TAXES" means all income, gross receipts, gains,
sales, use, employment, franchise, profits, excise, property, value
added or other taxes, fees, stamp taxes and duties, assessments or
charges of any kind whatsoever (whether payable directly or by
withholding), together with any interest and penalties, additions to
tax or additional amounts with respect thereto imposed by any taxing
authority.
"TRANSITIONAL SYSTEMS SUPPORT SERVICES AGREEMENT" means the
Transitional Systems Support Services Agreement substantially in the
form attached hereto as Exhibit 5.09.
"TREASURY REGULATION" means any applicable final or temporary
regulation promulgated under the Internal Revenue Code.
<PAGE> 10
5
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE. On the terms and subject to the
conditions set forth in this Agreement, the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, on the Closing
Date, the Shares.
SECTION 2.02. PURCHASE PRICE. (a) The aggregate purchase price (the
"PURCHASE PRICE") for the Shares is $50,000,000, payable as provided in Section
2.03(c), subject to any adjustment required by Section 2.02(c).
(b) In connection with the execution of a Letter of Intent between
the parties dated February 26, 1998, the Purchaser delivered to the Seller a
non-refundable deposit of $2.0 million cash (the "DEPOSIT")to be credited
against the Purchase Price. If the transactions contemplated by this Agreement
are not consummated for any reason (other than a termination of this Agreement
pursuant to Section 10.01(c) or a termination on account of Seller's failure to
fulfill any obligation under this Agreement that has been the cause of, or has
resulted in, the failure of the Closing to occur prior to the date specified in
Section 10.01(b)), the Seller shall be entitled to retain the Deposit.
(c) The Purchase Price shall be subject to adjustment, if any,
after the Closing Date as specified in this Section 2.02(c).
(i) CLOSING BALANCE SHEET. As soon as practicable, but in any
event within 90 calendar days following the Closing Date, the Seller
shall deliver to the Purchaser an audited balance sheet (and the
related notes and schedules thereto) of the Company (the "CLOSING
BALANCE SHEET")as of the Closing Date, together with the report thereon
of the Seller's Accountants, stating that the Closing Balance Sheet
fairly presents the financial position of the Company at the Closing
Date in conformity with GAAP applied on a basis consistent with those
applied in the preparation of the Reference Balance Sheet, subject to
the adjustments and exceptions set forth in Section 3.06. Certain of
such adjustments were made to exclude the assets and liabilities
related to fulfillment center activities, which the Purchaser and the
Seller agree shall remain with the Company after the Closing. The
Closing Balance Sheet will reflect the retention by the Company of
fulfillment center activities.
(ii) COOPERATION. During the preparation of the Closing
Balance Sheet by the Seller and the period of any dispute referred to
in Section 2.02(c)(iv), the Purchaser, upon reasonable notice, shall
provide the Seller and Seller's Accountants full access to the books,
records, facilities and employees of the Purchaser, the Company and its
successors, if any, and shall cooperate fully with Seller's
Accountants, in each case to the extent reasonably required by the
Seller and Seller's Accountants in order to prepare the Closing Balance
Sheet and to investigate the basis for any such dispute; provided,
<PAGE> 11
6
however, that (A) any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the
Business and (B) the Purchaser shall not be required to supply the
Seller with any information which the Purchaser shall be under a legal
obligation not to supply.
(iii) PURCHASE PRICE ADJUSTMENT. Subject to the limitation set
forth in Section 2.02(c)(iv)(C), within 10 Business Days after the date
of receipt by the Purchaser of the Closing Balance Sheet:
(A) in the event that the Book Value of the Company reflected
on the Closing Balance Sheet is less than $11.3 million by at least the
Designated Amount, the Seller shall pay to the Purchaser, as an
adjustment to the Purchase Price, in immediately available funds, an
amount equal to such deficiency over the Designated Amount; and
(B) in the event that the Book Value of the Company reflected
on the Closing Balance Sheet exceeds $11.3 million by at least the
Designated Amount, the Purchaser shall pay to the Seller, as an
adjustment to the Purchase Price, in immediately available funds, an
amount equal to such excess over the Designated Amount.
(iv) DISPUTES. (A) The Purchaser may dispute any amounts
reflected on the Closing Balance Sheet to the extent that the net
effect of such disputed amounts in the aggregate would be to reduce the
Book Value of the Company reflected on the Closing Balance Sheet by
more than the Designated Amount, but only on the basis that the amounts
reflected on the Closing Balance Sheet were not arrived at in
accordance with GAAP applied on a basis consistent with those applied
in the preparation of the Reference Balance Sheet, with only such
deviations from such generally accepted principles as are referred to
in the notes to the Reference Balance Sheet or in accordance with the
pro forma adjustments described therein; provided, however, that the
Purchaser shall notify the Seller and Seller's Accountants in writing
of each disputed item, specifying the amount thereof in dispute and
setting forth, in detail, the basis for such dispute, within 20
Business Days of the Purchaser's receipt of the Closing Balance Sheet.
In the event of such a dispute, Arthur Andersen LLP ("PURCHASER'S
ACCOUNTANTS") and Seller's Accountants shall attempt to reconcile their
differences and any resolution by them as to any disputed amounts shall
be final, binding and conclusive on the parties hereto. If any such
resolution by Purchaser's Accountants and Seller's Accountants leaves
in dispute amounts the net effect of which in the aggregate would not
be to reduce the Book Value of the Company reflected on the Closing
Balance Sheet by at least the Designated Amount, all the amounts
remaining in dispute shall then be deemed to have been resolved in
favor of the amounts set forth on the Closing Balance Sheet, and such
resolution shall be final, binding and conclusive on the parties
hereto. If Purchaser's Accountants and Seller's Accountants are unable
to reach a resolution with such effect, Purchaser's Accountants and
Seller's Accountants shall submit the items remaining in dispute that
the Purchaser shall be entitled to dispute by the terms of this Section
2.02(c)(iv) for resolution to an independent accounting firm of
national reputation as may
<PAGE> 12
7
be mutually acceptable to the Seller and the Purchaser (the
"INDEPENDENT ACCOUNTING FIRM"), which shall, within 30 Business Days of
such submission, determine and report to the Seller and the Purchaser
upon such remaining disputed items, and such report shall have the
legal effect of an arbitral award and shall be final, binding and
conclusive on the Seller and the Purchaser. The fees and disbursements
of the Independent Accounting Firm shall be allocated between the
Purchaser and the Seller in the same proportion that the aggregate
amount of such remaining disputed items so submitted to the Independent
Accounting Firm which is unsuccessfully disputed by each such party (as
finally determined by the Independent Accounting Firm) bears to the
total amount of such remaining disputed items so submitted.
(B) No adjustment to any amount payable by the Seller or the
Purchaser pursuant to Section 2.02(c)(iii) shall be made with respect
to amounts disputed by the Purchaser pursuant to this Section
2.02(c)(iv), unless the net effect of the amounts successfully disputed
by the Purchaser in the aggregate is to reduce the Book Value of the
Company reflected on the Closing Balance Sheet by at least the
Designated Amount, in which case such adjustment shall only be made in
an amount equal to any excess over the Designated Amount.
(C) Any amount that is subject to dispute under this Section
2.02(c)(iv) shall be paid by the Seller or the Purchaser, as the case
may be, in immediately available funds, within five Business Days
following the resolution of such dispute and in an amount in accordance
with such resolution.
(D) In acting under this Agreement, Seller's Accountants,
Purchaser's Accountants and the Independent Accounting Firm shall be
entitled to the privileges and immunities of arbitrators.
(v) INTEREST. Any payment required to be made by the Seller or
the Purchaser pursuant to Section 2.02(c)(iii) shall bear interest from
the Closing Date through the date of payment at the rate of interest
publicly announced by the Morgan Guaranty Trust Company in New York,
New York from time to time as its reference rate from the Closing Date
to the date of such payment plus 2.0%.
SECTION 2.03. CLOSING. (a) Subject to the terms and conditions of this
Agreement, the sale and purchase of the Shares contemplated hereby shall take
place at a closing at the offices of King & Spalding, 1185 Avenue of the
Americas, New York, New York (the "CLOSING")at 10:00 a.m., local time, on the
third Business Day following expiration or termination of the applicable waiting
periods under the HSR Act or at such other time or on such other date or at such
other place as the Seller and the Purchaser may mutually agree upon in writing
(the day on which the Closing takes place being the "CLOSING DATE"). The Seller
and the Purchaser shall use their commercially reasonable efforts to effectuate
the Closing on or before March 31, 1998.
<PAGE> 13
8
(b) At the Closing, the Seller shall deliver or cause to be delivered
to the Purchaser (i) stock certificates evidencing the Shares duly endorsed in
blank or accompanied by stock powers duly executed in blank, in proper form for
transfer and (ii) a certificate of the Seller pursuant to Section 8.02(a).
(c) At the Closing, the Purchaser shall deliver to the Seller (i) the
Purchase Price, less the Deposit, by wire transfer in immediately available
funds to an account designated by the Seller in writing at least two Business
Days prior to the Closing Date and (ii) a certificate of the Purchaser pursuant
to Section 8.01(a).
(d) Notwithstanding Section 2.02, such sale and purchase of the Shares
shall be deemed for all purposes to have taken place as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
SECTION 3.01. INCORPORATION AND AUTHORITY OF THE SELLER. The Seller is
a mutual insurance company domiciled, validly existing and in good standing
under the laws of the State of New Jersey and has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Seller, and (assuming due authorization,
execution and delivery by the Purchaser) this Agreement constitutes a legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws affecting
the rights of creditors generally.
SECTION 3.02. INCORPORATION AND QUALIFICATION OF THE COMPANY. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Kentucky and has the corporate power and
authority to own, operate or lease the properties and assets now owned, operated
or leased by the Company and to carry on the Business as it is now being
conducted by the Company. The Company is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failures which,
when taken together with all other such failures, would not have a Material
Adverse Effect.
SECTION 3.03. CAPITAL STOCK OF THE COMPANY. The Shares constitute all
the authorized, issued and outstanding shares of capital stock of the Company.
The Shares have been duly authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of any pre-emptive rights. There
are no options, warrants or rights of conversion or other rights, agreements,
arrangements or commitments relating to the capital stock of the
<PAGE> 14
9
Company obligating the Company to issue, transfer or sell any of its shares of
capital stock or securities convertible into or exchangeable for such shares of
capital stock. The Seller owns the Shares, free and clear of all Encumbrances,
except for any Encumbrances arising out of, under or in connection with this
Agreement.
SECTION 3.04. NO CONFLICT. Assuming all consents, approvals,
authorizations and other actions described in Section 3.05 have been obtained
and all filings and notifications listed in Section 3.05 of the Disclosure
Schedule have been made, and except as may result from any facts or
circumstances relating solely to the Purchaser, the execution, delivery and
performance of this Agreement by the Seller do not and will not (a) violate or
conflict with the organizational documents of the Seller, (b) conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Seller, the Company or the Business
that is material to the operation of the Business, or (c) except as set forth in
Section 3.04(c) of the Disclosure Schedule or as would not, individually or in
the aggregate, have a Material Adverse Effect, result in any breach of, or
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on, any of the assets or properties of the Company
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument relating to such assets or
properties to which the Company is a party or by which any of such assets or
properties is bound or affected.
SECTION 3.05. CONSENTS AND APPROVALS. The execution and delivery of
this Agreement by the Seller do not, and the performance of this Agreement by
the Seller will not, require any consent, approval, authorization or other
action by, or filing with or notification to, any governmental or regulatory
authority, except (a) as described in Section 3.05 of the Disclosure Schedule,
(b) the notification requirements of the HSR Act, (c) where failure to obtain
such consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Seller from performing any of its material
obligations under this Agreement or would not have a Material Adverse Effect and
(d) as may be necessary as a result of any facts or circumstances relating
solely to the Purchaser.
SECTION 3.06. FINANCIAL INFORMATION. The Reference Balance Sheet was
prepared in accordance with GAAP subject (i) to one exception, the
reclassification of an intracompany note payable to shareholder's equity and
(ii) to a series of adjustments referred to in the notes set forth on Exhibit
l.01(c), which relate to liabilities being assumed by Seller and intercompany
activity between the Company and other areas of Seller. Subject to the above
statements, the Reference Balance Sheet fairly presents in all material respects
the Company's financial position as of December 31, 1997, and no material
liability of the Company that is required in accordance with GAAP to be
reflected on the Reference Balance Sheet is not reflected on the Reference
Balance Sheet.
SECTION 3.07. LITIGATION. Except as set forth in Section 3.07 of the
Disclosure Schedule, there are no claims, actions, proceedings or investigations
pending or, to the Seller's
<PAGE> 15
10
knowledge, threatened against the Company or any of its assets or properties,
before any court, arbitrator or administrative, governmental or regulatory
authority or body. Except as set forth in Section 3.07 of the Disclosure
Schedule, neither the Company nor any of its assets or properties is subject to
any order, writ, judgment, injunction, decree, determination or award.
SECTION 3.08. MATERIAL CONTRACTS. (a) Section 3.08(a) of the Disclosure
Schedule lists each of the following contracts of the Company (such contracts
being "MATERIAL CONTRACTS"):
(i) the twenty contracts with customers of the Company
projected as of the date of this Agreement to generate the greatest
amount of 1998 revenues;
(ii) all existing software license agreements utilized in
the Business which involve an aggregate payment or commitment per
contract on the part of the counterparty or counterparties thereto of
more than $10,000 per annum (exclusive of such licenses used in
connection with the services to be provided pursuant to the
Transitional Systems Support Services Agreement);
(iii) any agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis or providing
severance benefits;
(iv) all other contracts (excluding leases listed in
Section 3.10(a) of the Disclosure Schedule) to which the Company or its
affiliates are a party made other than in the ordinary course of
business which are material to the Business as a whole.
(v) all existing contracts that obligate the Company for
an amount in excess of $50,000 per annum.
(vi) all contracts or agreements that limit the ability of
the Company to compete in any line of business or with any person or
entity in any geographic area or during any period of time.
(b) Except as described in Section 3.08(b) of the Disclosure
Schedule, each Material Contract necessary to carry on the Business as currently
conducted is, to the knowledge of the Seller, valid and binding and in full
force and effect. Except as set forth in Section 3.08(a)(i) of the Disclosure
Schedule, each of the customer contracts listed in Section 3.08(a)(i) of the
Disclosure Schedule is terminable with notice of 90 days or less and the Seller
makes no representation that such customers will not exercise their right to
terminate. The Company is not in material default under the terms of any
Material Contract.
SECTION 3.09. COMPLIANCE WITH LAWS. Except as set forth in Section
3.09(a) of the Disclosure Schedule, the Company has or has effected all material
permits, licenses, approvals, authorizations, registrations, qualifications and
filings with and under all Federal, state and local laws, authorities and
agencies, that are required to enable the Company to carry on the Business as
currently conducted (collectively, the "REQUIRED APPROVALS").
<PAGE> 16
11
All the Required Approvals are in full force and effect and no suspension of
them is, to the knowledge of the Seller, threatened. The Company is not in
material violation of any applicable material ordinance, law, rule, regulation,
order, judgment or decree, except as set forth in Section 3.09(b) of the
Disclosure Schedule. Section 3.09(c) of the Disclosure Schedule sets forth each
state in which the Company is currently licensed as a third party administrator
or in which such license is pending.
SECTION 3.10. REAL PROPERTY. (a) Section 3.10(a) of the Disclosure
Schedule lists (i) each parcel of real property leased by the Company from a
third person and each material parcel of real property currently leased by the
Company to a third person and (ii) the identity of the lessor and lessee of each
such parcel of real property.
(b) The Company has made available to the Purchaser copies of the
leases and subleases set forth in Section 3.10(a) of the Disclosure Schedule.
Except as (i) described in Section 3.10(b) of the Disclosure Schedule, or (ii)
as would not materially adversely affect the present use of such property or as
would not have a Material Adverse Effect, with respect to each such lease or
sublease:
(i) such lease or sublease is in full force and effect
and is a legal, valid and binding obligation of the Company and is
enforceable by the Company in accordance with its terms;
(ii) the Company is in peaceful and undisturbed possession
of the space and/or estate under such lease or sublease; and, to the
knowledge of the Seller, no rights adverse to the rights of the Company
have been asserted by any third persons; and
(iii) no notice of default under such lease or sublease has
been received by the Company which is still in effect; and the Company
is not in material breach or default of any such lease or sublease, and
no event has occurred which, with notice or lapse of time or both,
would constitute such a breach or default or permit termination,
modification or acceleration under such lease or sublease.
SECTION 3.11. TANGIBLE PERSONAL PROPERTY. (a) Except for changes made
in the ordinary course of business since the date of the Reference Balance
Sheet, the Company owns the Tangible Personal Property reflected on the
Reference Balance Sheet, free and clear of all Encumbrances, except (i) as
described in Section 3.11(a) of the Disclosure Schedule, (ii) Encumbrances
incurred in the ordinary course of business, (iii) Encumbrances for Taxes and
assessments not yet payable, (iv) Encumbrances for Taxes, assessments and
charges and other governmental claims the validity of which are being contested
in good faith as set forth in Section 3.11(a) of the Disclosure Schedule, and
(v) Encumbrances and imperfections of title the existence of which, individually
or in the aggregate, do not materially adversely affect the present use of such
Tangible Personal Property or do not have a Material Adverse Effect.
<PAGE> 17
12
(b) Except (i) as described in Section 3.11(b) of the Disclosure
Schedule, or (ii) as would not materially adversely affect the present use of
the Tangible Personal Property leased by the Company or as would not have a
Material Adverse Effect, with respect to each such lease:
(A) such lease is in full force and effect and is a legal,
valid and binding obligation of the Company and is enforceable by the
Company in accordance with its terms;
(B) the Company is in peaceful and undisturbed possession of
the Tangible Personal Property subject to such lease; and
(C) there has been no notice of default under any lease
received by the Company which is still in effect; and the Company is
not in material breach or default of any such lease, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default or permit the termination, modification or acceleration
of such lease.
SECTION 3.12. EMPLOYEE BENEFIT MATTERS. (a) Section 3.12(a) of the
Disclosure Schedule contains a true and complete list of all employee benefit
plans (within the meaning of Section 3(3) of ERISA) and all material bonus,
stock option, stock purchase, incentive, deferred compensation, retiree medical
or life insurance, supplemental retirement, severance or other employee benefit
plans, programs or arrangements, and all material employment or compensation
agreements, in each case for the benefit of, or relating to, current employees
and former employees of the Company (collectively, the "PLANS").
(b) Except as disclosed in Section-3.12(b) of the Disclosure
Schedule, none of the. Plans is a multiemployer plan, within the meaning of
Section 3(37) or 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN") or a single
employer pension plan, within the meaning of Section 4001(a)(15) of ERISA, for
which the Company could incur liability under Section 4063 or 4064 of ERISA (a
"MULTIPLE EMPLOYER PLAN").
(c) To the knowledge of the Seller, all Plans are in compliance in
all material respects with the requirements prescribed by applicable statutes,
orders or governmental rules or regulations currently in effect with respect
thereto, and the Company has performed all material obligations required to be
performed by it under, and is not in any material respect in default under or in
violation of, any of the Plans.
(d) Except as set forth in Section 3.12(d) of the Disclosure
Schedule, each Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code has heretofore been determined by the Internal Revenue
Service to so qualify, and each trust created thereunder has heretofore been
determined by the Internal Revenue Service to be exempt from tax under the
provisions of Section 501(a) of the Internal Revenue Code and, to the knowledge
of the Seller, nothing has occurred since the date of the most recent
determination that would be reasonably
<PAGE> 18
13
likely to cause any such Employee Plan or trust to fail to qualify under Section
401(a) or 501(a) of the Internal Revenue Code.
(e) The Company has not incurred any material liability to the
Pension Benefit Guaranty Corporation or any "withdrawal liability" within the
meaning of Section 4201 of ERISA, in either case relating to any Plan or any
pension plan maintained by any company which would be treated as a single
employer with the Company, under Section 4001 of ERISA.
(f) The Seller has made available to the Purchaser full and
complete copies of all Plans and, where applicable, summary plan descriptions as
filed pursuant to ERISA with respect to the Plans
(g) To the knowledge of the Seller, no claim, lawsuit,
arbitration, or other action (other than routine claims for benefits) has been
threatened, asserted, or instituted against any Plan, any trustee or fiduciaries
thereof, the Company, or any of the assets of any trust maintained under any
Plan.
SECTION 3.13. TRANSACTIONS WITH AFFILIATES. Except as set forth in
Section 3.13 of the Disclosure Schedule, on the Closing Date, the Company is not
a party to any material written contract, lease or agreement with the Seller (or
any affiliate of the Seller), including any material written contract, lease or
agreement pursuant to which the Company is obligated to pay money or provide
goods, services or property for use in or in connection with the Business.
SECTION 3.14. NO ADVERSE CHANGES. Since the date of the Reference
Balance Sheet, except as contemplated by this Agreement, (i) there have been no
events that, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect; (ii) the Company has conducted the
Business in the ordinary course of business and consistent with past practice;
(iii) the Company has not increased the salary of any officer (except in the
ordinary course of business, consistent with past practices); (iv) the Company
has not waived any material rights that could reasonably be expected to have a
Material Adverse Effect; and (v) the Company has not made any distribution to
its shareholder.
SECTION 3.15. TAXES. (a) Except as set forth in Section 3.15(a) of the
Disclosure Schedule and except for such matters that would not have a Material
Adverse Effect,
(i) to the Seller's knowledge, the Company has timely
filed or been included in, or will timely file or be included in, all
returns required to be filed by it or in which it is required to be
included with respect to Taxes for any period ending on or before the
Closing Date, taking into account any extension of time to file granted
to or obtained on behalf of the Seller or the Company;
(ii) all Taxes shown to be payable on such returns have
been paid or will be paid;
<PAGE> 19
14
(iii) no deficiency for any material amount of Tax has been
asserted or assessed by a taxing authority against the Company;
(iv) the Company has not received any written notification
from an authority in a jurisdiction where the Company does not file Tax
returns, reports, declarations, claims for refund, forms, or
information returns or statements relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof
("RETURNS"), that it is or may be subject to taxation by that
jurisdiction;
(v) there are no security interests in any of the assets
of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax;
(vi) there is no waiver by the Company that is currently
in effect of any statute of limitations in respect of Taxes (other than
income Tax) or any agreement that is currently in effect to an
extension of time with respect to a Tax (other than income Tax)
assessment or deficiency:
(vii) the Company is not and has never been a party to any
Tax allocation or sharing agreement or arrangement other than any such
agreement or arrangement that will be terminated as of the Closing Date
pursuant to Section 7.08(c);
(viii) the Company has not filed a consent under Internal
Revenue Code ss.341(f) concerning collapsible corporations;
(ix) as of the date hereof, no Internal Revenue Code
ss.481 adjustment will be required to be taken into account by the
Company on any federal income Return for any period ending after the
Closing Date; and
(x) as of the date hereof, the Company is not the holder
of any debt obligations as to which it will be required to report
imputed interest income under any provision of the Internal Revenue
Code or report income under the installment method described in
Internal Revenue Code ss.453.
(b) Section 3.15(b) of the Disclosure Schedule lists all Returns
filed with respect to the Company for taxable periods ended on or after December
31, 1995, lists all such Returns that have been audited, and lists all such
Returns that currently are the subject of audit.
SECTION 3.16. BROKERS. Except for Raymond James, 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 the Seller. The Seller is solely
responsible for the fees and expenses of Raymond James.
SECTION 3.17. SUBSIDIARIES. The Company has no subsidiaries.
<PAGE> 20
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SECTION 3.18. ENVIRONMENTAL AND EMPLOYEE SAFETY MATTERS. (a) Except as
set forth in Section 3.18(a) of the Disclosure Schedule, to the knowledge of the
Seller, the Company and its affiliates have complied, in all material respects,
with all Environmental, Health, and Safety Laws related to the conduct of the
Business, and no action, suit, proceedings, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply, except where such non-compliance would not
have a Material Adverse Effect. Without limiting the generality of the preceding
sentence, the Company and its affiliates have obtained, and been in compliance
with all of the terms and conditions of all permits, licenses, and other
authorizations that are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables that are contained in, all Environmental,
Health, and Safety Laws related to the conduct of the Business.
(b) There are no conditions existing prior to the Closing and
caused by the Seller at any of the leased premises of the Company which could
subject the Seller to any environmental Liability which would have a Material
Adverse Effect.
(c) To the knowledge of the Seller, all properties and equipment
used in the Business of the Company are free of underground storage tanks,
underground injection wells, radioactive materials. asbestos and PCB's.
(d) Except as set forth in Section 3.18(d) of the Disclosure
Schedule, there are no environmental reports, assessments, audits or studies
relating to the Company or to any property currently or formerly owned (within
the last five years), operated or leased by the Company that are either in the
possession or control of the Company.
SECTION 3.19. INTELLECTUAL PROPERTY. (a) The Company owns or has the
right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property set forth on Section 3.19 of the Disclosure Schedule.
Except as set forth in Section 5.08 of this Agreement, each item of Intellectual
Property owned or used by the Company immediately prior to the Closing hereunder
shall be owned or available for use by the Company on substantially similar
terms and conditions immediately subsequent to the Closing hereunder.
(b) The Company has not materially interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the directors and officers (and
employees with responsibility for Intellectual Property matters) of the Company
has ever received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). To the knowledge of the Seller, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company.
<PAGE> 21
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(c) Notwithstanding the foregoing, no representation, express or
implied, is made herein as to the planning, research and development and/or
implementation of computer software and systems currently utilized or
contemplated to be utilized by the Company in connection with the operation of
the Business, including representations as to the adequacy, capabilities and
fitness of the foregoing for their intended or contemplated purpose.
SECTION 3.20. INSURANCE POLICIES. Section 3.20 of the Disclosure
Schedule sets forth a summary description of all insurance policies with respect
to the Company. The Company has complied with all the provisions of such
policies in all material respects, and the policies are in full force and
effect. Such policies provide coverage in amounts and covering such rights as
are adequate in accordance with customary industry practice.
SECTION 3.21. CERTAIN BUSINESS PRACTICES. The Company has not made,
and, to the knowledge of the Seller, no officers, directors, employees,
consultants, agents or representatives of the Company have made, directly or
indirectly, with respect to the Business, any bribes, kickbacks, or other
illegal payments or illegal political contributions, illegal payments from
corporate funds to governmental officials in their individual capacities, or
illegal payments from corporate funds to obtain or retain business either within
the United States or abroad.
SECTION 3.22. NO MISREPRESENTATIONS. None of the representations and
warranties of the Seller set forth in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
render the same not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
SECTION 4.01. INCORPORATION AND AUTHORITY OF THE PURCHASER. The
Purchaser is a corporation duly incorporated, validly existing and with active
status under the laws of Florida and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Purchaser, and (assuming due authorization,
execution and delivery by the Seller) constitutes a legal, valid and binding
obligation of the Purchaser enforceable against the Purchaser in accordance with
its terms.
SECTION 4.02. NO CONFLICT. Except as may result from any facts or
circumstances relating solely to the Seller, the execution, delivery and
performance of this Agreement by the Purchaser do not and will not (a) violate
or conflict with the Articles of Incorporation or By-laws of the Purchaser, (b)
conflict with or violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Purchaser, or (c)
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment,
<PAGE> 22
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acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of the Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument relating to such assets or properties to which the Purchaser or
any of its respective subsidiaries is a party or by which any of such assets or
properties is bound or affected, which would have, or is reasonably likely to
have, a material adverse effect on the ability of the Purchaser to consummate
the transactions contemplated by this Agreement.
SECTION 4.03. ABSENCE OF LITIGATION. There are no claims, actions,
proceedings or investigations, either at law or in equity, pending or, to the
knowledge of the Purchaser, threatened which seek to delay or prevent the
consummation of the transactions contemplated hereby or which would be
reasonably likely to adversely affect, restrict or delay the Purchaser's ability
to consummate the transactions contemplated hereby.
SECTION 4.04. CONSENTS AND APPROVALS. The execution and delivery of
this Agreement by the Purchaser do not, and the performance of this Agreement by
the Purchaser will not, require any consent, approval, authorization or other
action by, or filing with or notification to, any governmental or regulatory
authority, except (a) as described in a writing delivered to the Seller by the
Purchaser on the date hereof, (b) the notification requirements of the HSR Act,
(c) where failure to obtain such consent, approval, authorization or action, or
to make such filing or notification, would not prevent the Purchaser from
performing any of its material obligations under this Agreement and (d) as may
be necessary as a result of any facts or circumstances relating solely to the
Seller.
SECTION 4.05. RESTRICTED SECURITIES. The Purchaser understands and
agrees that the Shares have not been registered under the Securities Act or any
state securities laws, and that the Shares may not be resold without
registration under the Securities Act and any applicable state securities laws
or pursuant to an exemption therefrom.
SECTION 4.06. INVESTMENT PURPOSE. The Purchaser is acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution or other disposition thereof.
SECTION 4.07. FINANCING. The Purchaser has readily available sufficient
funds necessary to consummate the transactions contemplated by this Agreement.
SECTION 4.08. 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 the Purchaser.
SECTION 4.09. NO MISREPRESENTATIONS. None of the representations and
warranties of the Purchaser set forth in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
render the same not misleading.
<PAGE> 23
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. CONDUCT OF BUSINESS PRIOR TO THE CLOSING.
(a) The Seller covenants and agrees that, between the date hereof and the
Closing Date, it shall not permit the Company to conduct the Business other than
in the ordinary course and consistent with its prior practice except as
described in Section 5.01 of the Disclosure Schedule. As an amplification of the
foregoing, the Seller agrees, except as described in Section 5.01 of the
Disclosure Schedule or as consented to by the Purchaser, it will not permit the
Company, prior to the Closing, to (i) change its accounting methods, principles
or practices, (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, property or any combination thereof) in respect of the
Shares or redeem, repurchase or otherwise acquire any equity securities issued
by the Company, (iii) revalue any of its assets, including writing off notes or
accounts receivable, other than in the ordinary course of business, (iv)
establish or materially increase any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including the
granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan, or
otherwise increase the compensation payable or to become payable to any officers
or key employees of the Company, except in the ordinary course of business
consistent with past practice or as may be required by law or (v) enter into any
employment or severance agreement with any of its employees or establish, adopt,
or enter into any collective bargaining agreement.
(b) The Seller covenants and agrees that, prior to the Closing, it
will cause the Company to use commercially reasonable efforts to preserve intact
the business organization of the Business, to keep available to the Purchaser
the services of substantially all of the employees of the Company (but the
Seller shall have no liability to the Purchaser for the failure to keep the
services of any employees who voluntarily resign from employment by the
Company).
(c) Except in connection with the name change of the Seller as
contemplated in Section 5.08, the Seller covenants and agrees that, prior to the
Closing, it will not permit the Company to amend its Certificate of
Incorporation or By-laws or merge or consolidate, or obligate itself to do so,
with or into any other entity, without the prior written consent of the
Purchaser.
(d) Prior to the Closing, the Seller shall confer, to the extent
reasonably practicable, with the Purchaser on a regular basis and report on
significant operational matters and material decisions affecting the Business.
SECTION 5.02. INVESTIGATION. (a) The Purchaser acknowledges and agrees
that it (i) has made its own inquiry and investigation into, and, based thereon,
has formed an independent judgment concerning, the Company and the Business,
(ii) has been furnished with or given adequate access to such information about
the Company and the Business, as it has requested, and (iii) will not assert any
claim against the Seller or any of its directors, officers, employees,
<PAGE> 24
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agents, stockholders, affiliates, consultants, investment bankers or
representatives, or hold the Seller or any such persons liable, for any
inaccuracies, misstatements or omissions with respect to information (other
than, with respect to the Seller, the representations and warranties contained
in this Agreement) furnished by the Seller or such persons concerning the
Seller, the Company and the Business.
(b) In connection with the Purchaser's investigation of the
Company and the Business, the Purchaser received from the Seller certain
estimates, projections and other forecasts for the Company, and certain plan and
budget information. The Purchaser acknowledges that there are uncertainties
inherent in attempting to make such estimates, projections, forecasts, plans and
budgets, that the Purchaser is familiar with such uncertainties, that the
Purchaser is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all estimates, projections, forecasts, plans and
budgets so furnished to it, and that the Purchaser will not assert any claim
against the Seller or any of its affiliates or any of its directors, officers,
employees, agents, stockholders, affiliates, consultants, investment bankers or
representatives, or hold the Seller or any such persons liable with respect
thereto. Accordingly, the Seller makes no representation or warranty, either
express or implied, with respect to any estimates, projections, forecasts, plans
or budgets referred to in this Section 5.02.
SECTION 5.03. ACCESS TO INFORMATION. (a) From the date hereof until the
Closing, upon reasonable notice, the Seller shall, and shall cause each of its
and each of the Company's officers, directors, employees, auditors and agents
to, (i) afford the officers, employees and authorized agents and representatives
of the Purchaser reasonable access, during normal business hours, to the
offices, properties, books and records of the Company and (ii) furnish to the
officers, employees and authorized agents and representatives of the Purchaser
such additional financial and operating data and other information regarding the
assets, properties, goodwill and business of the Company as the Purchaser may
from time to time reasonably request; provided, however, that such investigation
shall not unreasonably interfere with any of the businesses or operations of the
Company, the Seller or any of its affiliates or subsidiaries.
(b) In order to facilitate the resolution of any claims made by or
against or incurred by the Seller prior to the Closing for six years, after the
Closing, upon reasonable notice, the Purchaser shall (i) afford the officers,
employees and authorized agents and representatives of the Seller reasonable
access, during normal business hours, to the offices, properties, books and
records of the Purchaser and the Company with respect to the Business, (ii)
furnish to the officers, employees and authorized agents and representatives of
the Seller such additional financial and other information regarding the
Business as the Seller may from time to time reasonably request and (iii) make
available to the Seller the employees of the Company or the Purchaser whose
assistance, testimony or presence is necessary to assist the Seller in
evaluating any such claims and in defending such claims, including the presence
of such persons as witnesses in hearings or trials for such purposes; provided,
however, that such investigation shall not unreasonably interfere with the
business or operations of the Purchaser or any of its affiliates or
subsidiaries.
<PAGE> 25
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SECTION 5.04. BOOKS AND RECORDS. (a) The Purchaser agrees that it shall
preserve and keep all books and records of the Company in the Purchaser's
possession for a period of at least six years from the Closing Date. After such
six-year period, before the Purchaser shall dispose of any of such books and
records, at least 90 calendar days' prior written notice to such effect shall be
given by the Purchaser to the Seller, and the Seller shall be given an
opportunity, at its cost and expense, to remove and retain all or any part of
such books and records as the Seller may select. During such six-year period,
duly authorized representatives of the Seller shall, upon reasonable notice,
have access thereto during normal business hours to examine, inspect and copy
such books and records.
(b) If, in order properly to prepare documents required to be
filed with governmental authorities or its financial statements, it is necessary
that either party hereto or any successors be furnished with additional
information relating to the Company or the Business, and such information is in
the possession of the other party hereto, such party agrees to use its
commercially reasonable efforts to furnish such information to such other party,
at the cost and expense of the party being furnished such information.
SECTION 5.05. CONFIDENTIALITY. The terms of the letter agreement dated
as of December 5, 1997 (the "CONFIDENTIALITY AGREEMENT") between the Seller and
the Purchaser are hereby incorporated by reference and shall continue in full
force and effect for a period of one year after the Closing, and at the end of
such time the Confidentiality Agreement and the obligations of the Purchaser
under this Section 5.05 shall terminate; provided, however, that the
Confidentiality Agreement shall terminate only in respect of that portion of the
Information (as defined in the Confidentiality Agreement) exclusively relating
to the transactions contemplated by this Agreement. If this Agreement is, for
any reason, terminated prior to the Closing, the Confidentiality Agreement shall
continue in full force and effect in respect of such Information.
SECTION 5.06. REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS. Each party
hereto will use commercially reasonable efforts to obtain all authorizations,
consents, orders and approvals of all Federal, state and local regulatory bodies
and officials that may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to, this Agreement and will
cooperate fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Each party hereto agrees to make
an appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby within ten Business Days of
the date hereof and to supply promptly any additional information and
documentary material that may be requested pursuant to the HSR Act. The parties
hereto will not take any action that will have the effect of delaying, impairing
or impeding the receipt of any required approvals.
SECTION 5.07. NO SOLICITATION. For a period of one year following the
Closing, (a) the Seller shall not, directly or indirectly, actively solicit or
induce any member of senior management of the Company to leave such employment
and become an employee of the Seller or any of its affiliates and, (b) the
Purchaser and the Company shall not, directly or indirectly, actively solicit or
induce any member of senior management of the Seller or any affiliate of the
<PAGE> 26
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Seller to leave such employment and become an employee of the Purchaser or any
of its affiliates; provided, however, that nothing in this Section 5.07 shall
prohibit the Seller or any of its affiliates or the Purchaser or any of its
affiliates from employing any person (i) who contacts them on his or her own
initiative and without any direct or indirect solicitation by the Seller or any
of its affiliates or the Purchaser or any of its affiliates, as the case may be,
or (ii) who applies for employment as a result of the general solicitation for
open positions by the Seller or any of its affiliates or the Purchaser or any of
its affiliates, as the case may be; provided, further, that nothing in this
Section 5.07 shall prohibit the Seller or Purchaser from soliciting or employing
any person that is no longer employed by the Company, Purchaser or the Seller,
as the case may be.
SECTION 5.08. INTELLECTUAL PROPERTY. As of the Closing Date, any and
all trademarks, servicemarks, logos, tradenames, corporate names and copyright
registrations of the Seller and/or the Company, including the name "Prudential"
and "Prudential Service Bureau, Inc." or any derivative thereof containing the
word "Prudential" (collectively, the "INTELLECTUAL PROPERTY"), shall cease to be
used by the Company, and any and all rights thereto shall remain with the Seller
after the Closing and shall not be used by the Purchaser or any of its
affiliates; provided, however, that any advertising that has been contracted for
as of the date of this Agreement to appear on a date or dates after the Closing
Date shall not be deemed to be a violation of the foregoing. The Purchaser shall
change the name of the Company concurrently with the Closing, and shall amend
the Certificate of Incorporation of the Company to reflect such name change, to
delete any reference to "Prudential."
SECTION 5.09. TRANSITIONAL SYSTEMS SUPPORT SERVICES. The Seller shall
make available to the Purchaser certain services pursuant to the Transitional
Systems Support Services Agreement attached hereto as Exhibit 5.09 to be
executed by the parties at Closing.
SECTION 5.10. FURTHER ACTION. Each of the parties hereto shall execute
and deliver such documents and other papers and take such further actions as may
be reasonably required to carry out the provisions hereof and give effect to the
transactions contemplated hereby. The parties agree that, in connection with
obtaining the consent referred to in item 2.c. of Section 3.04(c) of the
Disclosure Schedule, to the extent that any payments are required to be made to
obtain such consent (i) the Seller shall pay the first $50,000 of any payment
that is an upfront fee or a marginal increase in the rent under the lease
referred to in such Section of the Disclosure Schedule for its remaining term
and (ii) the Seller and the Purchaser shall split 50-50 any payments that are
required to be paid in excess of such $50,000.
SECTION 5.11. COVENANT NOT TO COMPETE. For a period of two years from
and after the Closing Date, the Seller shall not engage directly or indirectly
in the Business in North America as it relates to flexible spending account
administration and COBRA administration; provided, however, that the foregoing
shall not prevent the Seller or any of its affiliates from (i) investing in
businesses that compete with the Business to the extent that any such investment
constitutes ownership of less than 15 % of the outstanding stock of a publicly
traded company, (ii) acquiring and continuing the operations of any entity or
business less than 25% of the
<PAGE> 27
22
revenues of which are derived from business substantially similar to any of the
Business of the Company, (iii) entering into or maintaining any accommodations
with respect to flexible spending account administration and COBRA
administration to current or future clients of the Seller or its affiliates to
the extent that such accommodations are not a substantial or primary part of the
services provided to such clients and (iv) engaging in customary investment
activities conducted by the Seller and its affiliates. The parties acknowledge
that the Seller engages in retirement plan administration, life insurance record
keeping, and long-term care insurance record keeping, and notwithstanding the
foregoing, the Seller shall be entitled to continue to provide these services to
current and future clients.
SECTION 5.12. LEGALCARE. The parties hereto acknowledge that the
Company and the Seller currently provide certain services to Montgomery Ward
Life Insurance Company and Forum Insurance Company (the "LegalCare Purchasers")
in connection with their purchase of the LegalCare business from certain
affiliates of the Seller. The parties hereto agree that (i) after the Closing,
each of the Seller and the Company shall continue to provide the services that
it respectively provided to the LegalCare Purchasers prior to Closing and (ii)
they shall notify the LegalCare Purchasers that the LegalCare Purchasers will be
billed by the Company and the Seller separately and directly for the services
rendered by them after the Closing. If the Company or the Seller, as the case
may be, receives payments from the LegalCare Purchasers that are due to the
other party, the recipient of such payment shall remit the payment to the other
party.
SECTION 5.13. PRUDENTIAL HEALTH CARE PHARMACY SERVICES. The Purchaser
and the Seller agree that the arrangements in effect as of the date of this
Agreement between the Company and Prudential HealthCare Pharmacy Services shall
continue on the same terms and conditions until April 1, 1999.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. CONTINUATION OF BENEFITS. The Purchaser shall (or shall
cause any other appropriate subsidiary or affiliate of the Purchaser to) provide
the Company's employees with benefits that are not less favorable to such
employees than the benefits provided to employees of the Purchaser having
similar rank. To the extent that service is relevant for vesting, eligibility or
benefit calculations or allowances (including entitlement to vacation and sick
days) under any plan or arrangement maintained in order to provide the benefits
described in the previous sentence, such plan or arrangement shall credit
employees of the Company for service on or prior to the Closing Date with the
Company or any affiliate of the Company (as the case may be). Nothing in this
Section 6.01 shall be construed in any way to increase or extend the obligations
of the Purchaser or the Company under the terms of any employee benefit plan or
to restrict existing rights of the Company to terminate or modify any such plan.
<PAGE> 28
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SECTION 6.02. SEVERANCE AGREEMENTS. In addition to the obligations set
forth in Section 6.01, the Purchaser shall cause the Company to comply with its
obligations pursuant to the Company's severance agreements with the individuals
listed in Section 6.02 of the Disclosure Schedule, unless such employee is
terminated within 90 days of the Closing Date. In such case, the Seller and the
Purchaser shall share equally such severance obligations under such agreements;
provided, however, that the Seller shall not be obligated to pay in excess of
$500,000 in the aggregate in respect of such obligations; and provided further
that the Purchaser shall not be obligated to pay any severance obligations of
the Company to Wayne Mickiewicz or the relocation obligations of the Seller in
respect of the employees of the Company listed in Section 6.02 of the Disclosure
Schedule.
SECTION 6.03. SUCCESSION. In the event the Purchaser or the Company or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Purchaser or the Company, as the case may be, shall assume the obligations set
forth in this Article VI.
SECTION 6.04. SURVIVAL. This Article VI shall survive the Closing as
provided in Section 9.01.
ARTICLE VII
TAX MATTERS
SECTION 7.01. INDEMNITY. (a) From and after the Closing Date, the
Seller shall indemnify the Purchaser and the Company against all Taxes (i)
imposed on the Company with respect to any taxable period or portion thereof
that ends on or before the Closing Date or (ii) imposed on the Seller or any
member of an affiliated group with which the Seller files a consolidated or
combined income tax return (other than the Company) with respect to any taxable
period that ends on or before the Closing Date or includes the Closing Date;
provided, however, that the Seller shall not be obligated to indemnify the
Purchaser for any Tax resulting from, attributable to, or caused by (A) an
actual or deemed election under Section 338 of the Internal Revenue Code with
respect to the transactions contemplated by this Agreement (other than an
election to apply Section 338(h)(10) of the Internal Revenue Code), (B) a
reduction in any net operating loss, capital loss or tax credit carryover
allocable to the Company (except as provided in Section 7.05), or (C) any
transaction of the Company occurring after the Closing that is not in the
ordinary course of business.
(b) From and after the Closing Date, the Purchaser and the Company
shall indemnify the Seller against all Taxes (i) imposed on the Company with
respect to its income, business, property or operations for any taxable period
or portion thereof that begins after the Closing Date, and (ii) resulting from,
attributable to, or caused by any transactions of the Company occurring after
the Closing that is not in ordinary course of business.
<PAGE> 29
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(c) For purposes of Sections 7.01(a) and (b), in the case of Taxes
that are payable with respect to a taxable period that begins before the Closing
Date and ends after the Closing Date, the portion of any such Tax that is
allocable to the portion of the period ending on the Closing Date shall: (i) in
the case of Taxes that are either (x) based upon or related to income or
receipts or (y) imposed in connection with any sale, other transfer or
assignment or any deemed sale, transfer or assignment of property (real or
personal, tangible or intangible) (other than conveyances pursuant to this
Agreement, as provided under Section 7.07), be deemed equal to the amount which
would be payable if the taxable year ended on the Closing Date, and (ii) in the
case of Taxes imposed on a periodic basis with respect to the assets of the
Company or otherwise measured by the level of any item, be deemed to be the
amount of such Taxes for the entire period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the immediately
preceding period) multiplied by a fraction the numerator of which is the number
of calendar days in the portion of such period ending on the Closing Date and
the denominator of which is the number of calendar days in the entire period.
For purposes of clause (i) above, any exemption, deduction, credit or other item
that is calculated on an annual basis shall be allocated to the period beginning
before the Closing Date and, pursuant to clause (i) treated as ending on the
Closing Date, based on the pro rata portion of such item determined by
multiplying the total amount of such item times a fraction, the numerator of
which is the number of calendar days in the period up to and including the
Closing Date and the denominator of which is the total number of calendar days
in the entire period.
SECTION 7.02. RETURNS AND PAYMENTS. (a) From the date of this Agreement
through and after the Closing Date, the Seller shall prepare and file or
otherwise furnish to the appropriate party (or cause to be prepared and filed or
so furnished) in a timely manner all Returns, with respect to the Company for
any taxable period ending on or before the Closing Date, and the Purchaser shall
do the same for any taxable period ending after the Closing Date. Returns filed
by the Purchaser for any taxable period that includes the Closing Date shall be
prepared in a manner consistent with past practices employed by the Seller with
respect to the Company or by the Company. With respect to any Return required to
be filed with respect to the Company after the Closing Date and as to which an
amount of Tax is allocable to the Seller under Section 7.01(c), the Purchaser
shall provide the Seller and its authorized representatives with a copy of such
completed Return and a statement (including all necessary supporting schedules
and information required to support such statement) that certifies and sets
forth the calculation of the amount of tax shown on such Return that is
allocable to the Seller pursuant to Section 7.01(c) at least 30 days prior to
the due date (including any extension thereof) for the filing of such Return,
and the Seller and its authorized representatives shall have the right to review
and approve (which approval shall not be unreasonably withheld) such Return and
statement (including any supporting Schedules or other documents relevant
thereto) prior to the filing of such Return. The Seller and the 'Purchaser agree
to consult and to attempt in good faith to resolve any issues arising as a
result of the review and approval of such Return and statement by the Seller or
its authorized representatives. If the Seller and Purchaser cannot resolve any
such issues, such issues shall be resolved by an independent accounting firm
selected by the Purchaser's and Seller's accounting firms and such resolution
shall be final and binding on the Purchaser and the Seller.
<PAGE> 30
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(b) The Seller and the Purchaser shall each pay or cause to be
paid when due and payable all Taxes that have not been paid as of the Closing
Date that are allocable to them pursuant to the provisions of Section 7.01.
(c) Payment of any amounts due under this Article VII shall be
made (i) with respect to agreed amounts, at least three calendar days before the
payment of any such Tax is due, provided that no such payment shall be due prior
to 15 Business Days following receipt of written notice that payment of such Tax
is due, or (ii) within 15 Business Days following either an agreement between
the Seller and the Purchaser that an amount is payable by the Seller or the
Purchaser to the other or within 15 Business Days of a "determination" as
defined in section 1313(a) of the Internal Revenue Code.
SECTION 7.03. REFUNDS. Any refunds received by the Purchaser or the
Company or any successor to any of the foregoing (including any equivalent
benefit to any such entity through a reduction in Tax liability for a
post-Closing Date period) of Taxes in respect of the Company relating to taxable
periods or portions thereof ending on or before the Closing Date shall be for
the account of the Seller, and the Purchaser shall pay over to the Seller any
such refund (or the amount of any equivalent benefit) within five Business Days
of the earlier of receipt or entitlement thereto. The Purchaser shall, if the
Seller so requests, cause the relevant entity to file for and obtain any refunds
or equivalent amounts to which the Seller is entitled under this Section 7.03.
The Purchaser shall permit the Seller to prepare any documentation relating to
such claims and to control any procedure or action necessary to obtain such
refund and shall cause the relevant entity to authorize by appropriate
power-of-attorney such persons as the Seller shall designate to represent such
entity with respect to such refund claim and the Seller shall reimburse the
Purchaser for all its reasonable out-of-pocket expenses in connection therewith.
SECTION 7.04. CONTESTS. (a) After the Closing, the Purchaser shall
promptly notify the Seller in writing of the commencement of any Tax audit or
administrative or judicial proceeding and shall also separately notify the
Seller in writing of any demand or claim on the Purchaser or the Company which,
if determined adversely to the taxpayer or after the lapse of time would be
grounds for indemnification by the Seller under this Article VII. Such notice
shall contain factual information (to the extent known to the Purchaser or the
Company) describing the asserted Tax liability in reasonable detail and shall
include copies of any notice or other document received from any taxing
authority in respect of any such asserted Tax liability. If the Purchaser fails
to give the Seller prompt notice of an asserted Tax liability as required by
this Section 7.04, then (i) if the Seller is precluded by the failure to give
prompt notice from contesting the asserted Tax liability in the appropriate
administrative or judicial forums, then the Seller shall not have any obligation
to indemnify the Purchaser for any loss or damage arising out of such asserted
Tax liability, and (ii) if the Seller is not so precluded from contesting but
such failure to give prompt notice results in a detriment to the Seller, then
any amount which the Seller is otherwise required to pay the Purchaser pursuant
to this Article VII with respect to such liability shall be reduced by the
amount of such detriment.
<PAGE> 31
26
(b) The Seller may elect to direct, through counsel of its own
choosing and at its own expense, any audit, or administrative or judicial
proceeding involving any asserted liability with respect to which indemnity may
be sought under this Article VII (any such audit or proceeding relating to an
asserted Tax liability are referred to herein collectively as a "CONTEST"). If
the Seller elects to direct the Contest of an asserted Tax liability, it shall
within 30 calendar days of receipt of the notice of an asserted Tax liability
notify the Purchaser of its intent to do so, and the Purchaser shall cooperate
in good faith and shall cause the Company or its successor to cooperate in good
faith, at the Seller's expense, in each phase of such Contest. If the Seller
contests its obligation to indemnify the Purchaser under Section 7.01 and the
Purchaser elects to proceed with the Contest, the Seller shall only be obligated
to pay the Purchaser's expenses in connection with such Contest in the event it
is determined that the Seller is obligated to pay such asserted liability under
Section 7.01. If the Seller elects not to direct the Contest or fails to notify
the Purchaser of its election as herein provided, the Purchaser or the Company
may pay, compromise or contest such asserted liability, at the Seller's expense;
provided, however, that if the Seller has acknowledged its obligations under
Section 7.01 with respect to such asserted liability, the Purchaser may not
contest such asserted liability. However, in such case, neither the Purchaser
nor the Company (including any designated representative of either) may settle
or compromise any asserted liability over the objection of the Seller; provided,
however, that the Seller's consent to settlement or compromise shall not be
unreasonably withheld (provided that in the event the Seller withholds consent,
the Seller shall then be obligated to direct such Contest). In any event, each
of the Purchaser (or the Company) and the Seller may participate, at its own
expense, in the Contest. If the Seller chooses to direct the Contest, the
Purchaser shall promptly empower and shall cause the Company or its successor
promptly to empower (by power-of-attorney and such other documentation as may be
appropriate) such representatives of the Seller as it may designate to represent
the Purchaser or the Company or its successor in the Contest insofar as the
Contest involves an asserted Tax liability for which the Seller would be liable
under this Article VII.
SECTION 7.05. CERTAIN AUDIT ADJUSTMENTS. If an audit adjustment or
other adjustment resulting from any judicial or administrative proceeding, claim
for refund or amended return ("ADJUSTMENT") after the date hereof, both (i)
increases any Tax which is allocated to the Seller under Section 7.01 (or
reduces a loss, credit or other Tax benefit otherwise available to the Seller)
for a period ending on or before the Closing Date and (ii) decreases a Tax
liability (or increases a loss, credit or other Tax benefit) of the Purchaser or
the Company for a period ending after the Closing Date, then, when and to the
extent that the Purchaser (or the Company) derives a benefit from such
Adjustment (through a reduction of Taxes, refund of Taxes paid or credit against
Taxes due), the Purchaser shall promptly pay to the Seller an amount equal to
the amount of such refund, reduction or credit (unless the Seller has previously
been compensated for such benefit under Section 7.03). Similarly, if an
Adjustment both (i) decreases a Tax liability (or increases a loss, credit or
other Tax benefit) which is allocated to the Seller under Section 7.01 for a
period ending on or before the Closing Date and (ii) increases any Tax of the
Purchaser or the Company (or reduces a loss, credit or other Tax benefit
otherwise available to any such corporation) for a period ending after the
Closing Date, then, when and to the extent that the Seller derives a benefit
from such Adjustment (through a refund or reduction of Taxes
<PAGE> 32
27
paid or credit against Taxes due), the Seller shall promptly pay to the
Purchaser an amount equal to the amount of such refund, reduction or credit.
SECTION 7.06. COOPERATION AND EXCHANGE OF INFORMATION. The Seller and
the Purchaser will provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Tax return,
amended return or claim for refund, determining a liability for Taxes or a right
to a refund of Taxes or participating in or conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of relevant Tax returns or portions thereof, together with
accompanying schedules and related work papers and documents relating to rulings
or other determinations by taxing authorities, but in no event shall the Seller
or the Purchaser be required to disclose to the other any information relating
to the operations of either, as the case may be, other than information relating
to the Company. The Seller and the Purchaser shall make its employees available
on a mutually convenient basis to provide explanations of any documents or
information provided hereunder. The Seller and the Purchaser will retain all
returns, schedules and work papers and all material records or other documents
relating to Tax matters of the Company for its taxable period first ending after
the Closing Date and for all prior taxable periods until the later of: (i) the
expiration of the statute of limitations of the taxable periods to which such
returns and other documents relate, without regard to extensions except to the
extent notified by the other party in writing of such extensions for the
respective Tax periods; or (ii) six years following the due date (without
extension) for such returns. After such time, before the Purchaser shall dispose
of any of such books and records, at least 90 calendar days prior written notice
to such effect shall be given by the Purchaser to the Seller, and the Seller
shall be given an opportunity, at its cost and expense, to remove and retain all
or any part of such books and records as the Seller may select. Any information
obtained under this Section 7.06 shall be kept confidential, except as may be
otherwise necessary in connection with the filing of returns or claims for
refund or in conducting an audit or other proceeding.
SECTION 7.07. CONVEYANCE TAXES. The parties shall share equally any
sales, use, transfer, stamp, stock transfer, withholding, real property transfer
or gain value added, transfer, registration, or recording Taxes or fees, or any
similar Taxes or fees incurred as a result of the transactions contemplated
hereby.
SECTION 7.08. MISCELLANEOUS. (a) The Seller and the Purchaser agree to
treat all payments made by either to or for the benefit of the other (including
any payments to the Company) under this Article VII, and any other payments made
under the Agreement as adjustments to the Purchase Price.
(b) For purposes of this Article VII, the "Purchaser" and the
"Seller", respectively, shall include each member of the affiliated group of
persons of which it is or becomes a member.
<PAGE> 33
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(c) The Seller shall cause any tax-sharing agreements or
arrangements with the Company to be terminated as of the Closing Date, with no
amounts payable thereunder after the Closing other than those amounts payable
thereunder in respect of current tax payable accounts.
SECTION 7.09. SECTION 338(H)(10) ELECTION. (a) The Seller agrees that,
if the Purchaser notifies the Seller in writing of the Purchaser's intention to
make an election under Section 338(h)(10) of the Internal Revenue Code within 90
days of the Closing Date, the Seller shall (i) make, cooperate in making, or
cause to be made a joint election under Internal Revenue Code ss. 338(h)(10) and
the regulations thereunder (and any corresponding election under any state,
local or foreign tax law) with respect to the purchase of the stock of the
Company pursuant to this Agreement; (ii) take all actions that are necessary to
ensure that such elections are valid; and (iii) refrain from taking any actions
that could result in such elections being invalid.
(b) In the event that the election or elections described in
Section 7.09(a) are made, the Purchaser and the Seller agree that the Purchase
Price and the applicable liabilities of the Company (plus related items) will be
allocated to the assets of the Company for all applicable Tax purposes in a
manner consistent with the fair market values set forth in the allocation
schedule attached hereto as Exhibit 7.09. The Seller, the Purchaser and the
Company agree that they will file all applicable Returns in a manner consistent
with such values, unless making such a filing would not be in accordance with
applicable law.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations
of the Seller to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations
and warranties of the Purchaser contained in this Agreement shall be true and
correct as of the Closing in all material respect, with the same force and
effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, and all the covenants contained in
this Agreement to be complied with by the Purchaser on or before the Closing
shall have been complied with in all material respects, and the Seller shall
have received a certificate of the Purchaser to such effect signed by a duly
authorized officer thereof;
(b) SELLER'S APPROVAL BY BOARD OF DIRECTORS. The Board of
Directors of the Seller shall have authorized and approved all of the
transactions set forth in this Agreement;
(c) HSR ACT. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated; and
<PAGE> 34
29
(d) NO ORDER. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
parties hereto shall use their reasonable best efforts to have any such order or
injunction vacated.
(e) The Purchaser shall have executed and delivered the
Transitional Systems Support Services Agreement.
(f) The Company and the Seller shall have executed and delivered
the Assignment attached hereto as Exhibit 8.01(f) providing for the assignment
to the Seller as joint owners of all rights to certain software owned by the
Company.
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations
and warranties of the Seller contained in this Agreement shall be true and
correct, in all material respects, other than such representations and
warranties as are made as of another date, and all the covenants contained in
this Agreement to be complied with by the Seller on or before the Closing shall
have been complied with, and the Purchaser shall have received a certificate of
the Seller to such effect signed by a duly authorized officer thereof;
(b) HSR ACT. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated; and
(c) NO ORDER. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
parties hereto shall use their reasonable best efforts to have any such order or
injunction vacated.
(d) The Seller shall have executed and delivered the Transitional
Systems Support Services Agreement.
(e) The parties shall have received the consent referred to in
item 2.c. of Section 3.04(c) of the Disclosure Schedule.
<PAGE> 35
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ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.01. SURVIVAL. Subject to the limitations and other provisions
of this Agreement, the representations, warranties, covenants and agreements of
the parties hereto contained herein shall survive the Closing and shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Seller or the Purchaser, for a period of 18 months after the Closing
Date; provided, however, that the representations and warranties set forth in
Section 3.15 and the agreements set forth in Sections 5.03(b), 5.04, 5.05, 5.06,
5.07, 5.08 and 5.09 and Articles VI, VII, IX and XI shall remain in full force
and effect until the applicable period set forth in such section has expired or,
if no period is set forth, until the period under the statute of limitations
expires.
SECTION 9.02. INDEMNIFICATION BY THE PURCHASER. (a) The Purchaser
agrees, subject to the other terms and conditions of this Agreement, to
indemnify the Seller against and hold the Seller harmless from all liabilities
of and damages to the Seller arising out of (i) the material breach of any
representation, warranty, covenant or agreement of the Purchaser herein (other
than Article VII, it being understood that the sole remedy for breach thereof
shall be pursuant to Article VII), (ii) the conduct of the Business by the
Purchaser following the Closing and (iii) any and all claims against the Seller
brought by any current or former employee of the Purchaser that relate to such
employee's terms and conditions of employment arising under any federal, state
or local law, ordinance or regulation or under common law. Anything in Section
9.01 to the contrary notwithstanding, no claim may be asserted nor may any
action be commenced against the Purchaser for breach of any representation,
warranty, covenant or agreement contained herein, unless written notice of such
claim or action is received by the Purchaser describing in detail the facts and
circumstances with respect to the subject matter of such claim or action on or
prior to the date on which the representation, warranty, covenant or agreement
on which such claim or action is based ceases to survive as set forth in Section
9.01, irrespective of whether the subject matter of such claim or action shall
have occurred before or after such date.
(b) No claim may be made against the Purchaser for indemnification
pursuant to Section 9.02(a) with respect to any item of liability or damage,
unless the aggregate of all such liabilities and damages of the Seller with
respect to Section 9.02(a) shall exceed an amount equal to $300,000, and the
Purchaser shall only be required to pay or be liable for the amount of any such
liabilities and damages in excess of $300,000. The Seller shall not be
indemnified pursuant to Section 9.02(a) with respect to any individual item of
liability or damage if the aggregate of all liabilities and damages of the
Seller for which the Seller has received indemnification pursuant to Section
9.02(a) shall have exceeded an amount equal to 10% of the Purchase Price. For
the purposes of this Section 9.02(b), in computing such individual or aggregate
amounts of claims, the amount of each claim shall be deemed to be an amount (i)
net of any Tax benefit to the Seller or any affiliate thereof and (ii) net of
any insurance proceeds and any indemnity,
<PAGE> 36
31
contribution or other similar payment recoverable by the Seller or any affiliate
from any third party with respect thereto.
(c) Payments by the Purchaser pursuant to Section 9.02(a) shall be
limited to the amount of any liability or damage that remains after deducting
therefrom any Tax benefit to the Seller or any affiliate thereof and any
insurance proceeds and any indemnity, contribution or other similar payment
recoverable by the Seller from any third party with respect thereto. A Tax
benefit will be considered to be recognized by the Seller for purposes of this
Section 9.02 in the tax period in which the indemnity payment occurs, and the
amount of the Tax benefit shall be determined by assuming that the Seller is in
the maximum applicable statutory tax bracket after any deductions or other
allowances reportable with respect to a payment hereunder.
(d) The Seller agrees to give the Purchaser prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which it has knowledge concerning any liability or damage as to which it may
request indemnification hereunder. The Purchaser shall have the right to direct,
through counsel of its own choosing, the defense or settlement of any such claim
or proceeding at its own expense. If the Purchaser elects to assume the defense
of any such claim or proceeding, the Seller may participate in such defense, but
in such case the expenses of the Seller shall be paid by the Seller. The Seller
shall provide the Purchaser with access to its records and personnel relating to
any such claim, assertion, event or proceeding during normal business hours and
shall otherwise cooperate with the Purchaser in the defense or settlement
thereof, and the Purchaser shall reimburse the Seller for all its reasonable
out-of-pocket expenses in connection therewith. If the Purchaser elects to
direct the defense of any such claim or proceeding, the Seller shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability, unless the Purchaser consents in writing to such payment or unless
the Purchaser, subject to the last sentence of this Section 9.02(d), withdraws
from the defense of such asserted liability, or unless a final judgment from
which no appeal may be taken by or on behalf of the Purchaser is entered against
the Seller for such liability. If the Purchaser shall fail to defend, or if,
after commencing or undertaking any such defense, the Purchaser fails to
prosecute or withdraws from such defense, the Seller shall have the right to
undertake the defense or settlement thereof, at the Purchaser's expense. If the
Seller assumes the defense of any such claim or proceeding pursuant to this
Section 9.02(d) and proposes to settle such claim or proceeding prior to a final
judgment thereon or to forgo appeal with respect thereto, then the Seller shall
give the Purchaser prompt written notice thereof and the Purchaser shall have
the right to participate in the settlement or assume or reassume the defense of
such claim or proceeding.
(e) Anything in this Article IX to the contrary notwithstanding,
the Purchaser shall have no obligation under this Article IX to indemnify the
Seller with respect to any matter that was the subject of a dispute with respect
to the Closing Balance Sheet pursuant to the terms of Section 2.02(b) but did
not result in an adjustment to the Purchase Price pursuant to Section 2.02(b).
Any such matter shall be disregarded for all purposes of this Section 9.02.
<PAGE> 37
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(f) Except as set forth in this Agreement, the Purchaser is not
making any representation, warranty, covenant or agreement with respect to the
matters contained herein.
(g) The Seller hereby acknowledges and agrees that its sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article IX and in Article VII. In furtherance of the foregoing,
the Seller hereby waives, to the fullest extent permitted under applicable law,
any and all rights, claims and causes of action it may have against the
Purchaser arising under or based upon any Federal, state or local statute, law,
ordinance, rule or regulation (including any such rights, claims or causes of
action arising under or based upon common law or otherwise).
(h) The Purchaser shall have no liability under any provision of
this Agreement for any liabilities and damages to the extent that such
liabilities and damages relate to actions taken by the Seller or any of its
affiliates after the Closing Date, and in no event shall the Purchaser be
liability for consequential damages. The Seller shall take all reasonable steps
to mitigate all such liabilities and damages upon and after becoming aware of
any event which could reasonably be expected to give rise to such liabilities
and damages.
SECTION 9.03. INDEMNIFICATION BY THE SELLER. (a) The Seller agrees,
subject to the other terms and conditions of this Agreement, to indemnify the
Purchaser against and hold it harmless from all liabilities of and damages to
the Purchaser arising out of:
(i) the material breach of any representation, warranty,
covenant or agreement of the Seller herein (other than Section 3.15 and
Article VII, it being understood that the sole remedy for breach
thereof shall be pursuant to Section 3.15 and Article VII); and
(ii) (A) the retention by the Company prior to the Closing of
COBRA payments received from participants and held in interest bearing
accounts until they are remitted to the employer or carrier, (B)
failure by the Company prior to the Closing to comply with any
applicable laws of escheatment and (C) the failure by the Company prior
to the Closing to register or obtain licenses in accordance with the
third party administrator statute in any state where such is required
of the Company in the conduct of the Business, but solely to the extent
the liabilities or damages resulting from the failure to be so
registered or so licensed arise from the operation of the Business
prior to the Closing (collectively, the "RETAINED LIABILITIES"). The
eighteen-month time limitation set forth in Section 9.01 shall not
apply to the Retained Liabilities;
Anything in Section 9.01 to the contrary notwithstanding, no claim may be
asserted nor any action commenced against the Seller for breach of any
representation, warranty, covenant or agreement contained herein or pursuant to
Section 9.03(a)(ii), unless written notice of such claim or action is received
by the Seller describing in detail the facts and circumstances with respect to
the subject matter of such claim or action on or prior to the date on which the
representation,-warranty, covenant or agreement or the event set forth in
Section 9.03(a)(ii) on which such claim
<PAGE> 38
33
or action is based ceases to survive as set forth in Section 9.01, irrespective
of whether the subject matter of such claim or action shall have occurred before
or after such date.
(b) No claim may be made against the Seller for indemnification
pursuant to Section 9.03(a)(i) with respect to any item of liability or damage,
unless the aggregate of all such liabilities and damages of the Purchaser with
respect to Section 9.03(a)(i) shall exceed an amount equal to $300,000, and the
Seller shall only be required to pay or be liable for the amount of any such
liabilities and damages in excess of $300,000. The Purchaser shall not be
indemnified pursuant to Section 9.03(a)(i) with respect to any individual item
of liability or damage if the aggregate of all liabilities and damages of the
Purchaser for which the Purchaser has received indemnification pursuant to
Section 9.03(a)(i) shall have exceeded an amount equal to 10% of the Purchase
Price. For the purposes of this Section 9.03(b), in computing such individual or
aggregate amounts of claims, the amount of each claim shall be deemed to be an
amount (i) net of any Tax benefit to the Purchaser or any affiliate thereof,
(ii) net of any insurance proceeds and any indemnity, contribution or other
similar payment recoverable by the Purchaser or any affiliate from any third
party with respect thereto, (iii) net of any reserves provided for the item in
question in the Closing Balance Sheet and (iv) net of any adjustments to the
Purchase Price paid pursuant to Section 2.02 with respect to the subject matter
in dispute. This Section 9.03(b) shall not apply to any Retained Liabilities or
to any of the Seller's obligations with respect to Wayne Mickiewicz, as provided
in Section 6.02 of this Agreement.
(c) Payments by the Seller pursuant to Section 9.03(a) shall be
limited to the amount of any liability or damage that remains after deducting
therefrom (i) any Tax benefit to the Purchaser or any affiliate thereof, (ii)
any insurance proceeds and any indemnity, contribution or other similar payment
recoverable by the Purchaser or any affiliate from any third party with respect
thereto, (iii) any reserves provided for the item in question on the Closing
Balance Sheet and (iv) any adjustments to the Purchase Price paid pursuant to
Section 2.02 with respect to the subject matter in dispute. A Tax benefit will
be considered to be recognized by the Purchaser or any affiliate for purposes of
this Section 9.03 in the tax period in which the indemnity payment occurs, and
the amount of the Tax benefit shall be determined by assuming that the Purchaser
and any affiliate is in the maximum applicable statutory tax bracket after any
deductions or other allowances reportable with respect to a payment hereunder.
(d) The Purchaser agrees to give the Seller prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which the Purchaser has knowledge concerning any liability or damage as to
which the Purchaser may request indemnification hereunder or any liability or
damage as to which the amounts referred to in Section 9.03(b) may be applied.
The Seller shall have the right to direct, through counsel of its own choosing,
the defense or settlement of any such claim or proceeding at its own expense. If
the Seller elects to assume the defense of any such claim or proceeding, the
Purchaser may participate in such defense, but in such case the expenses of the
Purchaser shall be paid by the Purchaser. The Purchaser shall provide the Seller
with access to its records and personnel relating to any such claim, assertion,
event or proceeding during normal business hours and shall otherwise cooperate
with the Seller in the defense or settlement thereof, and the Seller shall
<PAGE> 39
34
reimburse the Purchaser for all its reasonable out-of-pocket expenses in
connection therewith. If the Seller elects to direct the defense of any such
claim or proceeding, the Purchaser shall not pay, or permit to be paid, any part
of any claim or demand arising from such asserted liability unless the Seller
consents in writing to such payment or unless the Seller, subject to the last
sentence of this Section 9.03(d), withdraws from the defense of such asserted
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Seller is entered against the Purchaser for such liability. If the
Seller shall fail to defend, or if after commencing or undertaking any such
defense, fail to prosecute or withdraws from such defense, the Purchaser shall
have the right to undertake the defense or settlement thereof, at the Seller's
expense. If the Purchaser assumes the defense of any such claim or proceeding
pursuant to this Section 9.03(d) and proposes to settle such claim or proceeding
prior to a final judgment thereon or to forgo any appeal with respect thereto,
then such party shall give the Seller prompt written notice thereof and the
Seller shall have the right to participate in the settlement or assume or
reassume the defense of such claim or proceeding.
(e) Anything in this Article IX to the contrary notwithstanding,
the Seller shall have no obligation under this Article IX to indemnify the
Purchaser with respect to any matter that was the subject of a dispute with
respect to the Closing Balance Sheet pursuant to the terms of Section 2.02(b)
but did not result in an adjustment to the Purchase Price pursuant to Section
2.02(b). Any such matter shall be disregarded for all purposes of this Section
9.03.
(f) The Purchaser hereby acknowledges and agrees that its sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article IX and in Article VII. In furtherance of the foregoing,
the Purchaser hereby waives, to the fullest extent permitted under applicable
law, any and all rights, claims and causes of action it (or, after the Closing,
the Company) may have against the Seller arising under or based upon any
Federal, state or local statute, law, ordinance, rule or regulation (including
any such rights, claims or causes of action arising under or based upon common
law or otherwise).
(g) Except as set forth in this Agreement, the Seller is not
making any representation warranty, covenant or agreement with respect to the
matters contained herein.
(h) The Seller shall have no liability under any provision of this
Agreement for any liabilities and damages to the extent that such liabilities
and damages relate to actions taken by the Purchaser or any of its affiliates,
including the Company, after the Closing Date and in no event shall the Seller
be liable for consequential damages. The Purchaser shall take and shall cause
the Company to take all reasonable steps to mitigate all such liabilities and
damages upon and after becoming aware of any event which could reasonably be
expected to give rise to such liabilities and damages.
<PAGE> 40
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ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) by the mutual written consent of the Seller and the Purchaser;
or
(b) by either the Seller or the Purchaser, if the Closing shall
not have occurred prior to the date two months after the date of this Agreement;
provided, however, that the right to terminate this Agreement under this Section
10.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have been the cause of or shall have
resulted in the failure of the Closing to occur prior to such date.
Time shall be of the essence in this Agreement.
SECTION 10.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto (a)
except as set forth in Section 5.05 and Section 11.01 and (b) except that
nothing herein shall relieve either party from liability for any willful breach
hereof.
SECTION 10.03. WAIVER. At any time prior to the Closing, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party to be bound thereby and shall not be
construed as a waiver of any subsequent breach or waiver of the same term or
condition, or a waiver of any other term or condition of this Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. EXPENSES. All costs and expenses, including fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses whether or not the Closing
shall have occurred.
SECTION 11.02. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by
<PAGE> 41
36
telecopy, or 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 notice):
(a) if to the Seller:
The Prudential Insurance Company of America
751 Broad Street
Newark, NEW JERSEY 07102-5311
Attention: Douglas A. Gregory
Telecopy: (973)802-2005
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attention: Stephen M. Wiseman
Telecopy: (212) 556-2222
(b) if to the Purchaser:
Sykes HealthPlan Services, Inc.
c/o HealthPlan Services Corporation
4501 Frontage Road
Tampa, Florida 33607
Attention: Jack Murray III and David E. Garner
Telecopy: (813) 289-9359
with a copy to:
Holland & Knight LLP
400 North Ashley Drive
Suite 2300
Tampa, Florida 33602
Attention: Robert J. Grammig
Telecopy: (813) 229-0134
SECTION 11.03. PUBLIC ANNOUNCEMENTS. No party to this Agreement shall
make any public announcements in respect of this Agreement or the transactions
contemplated herein or otherwise communicate with any news media without prior
notification to the other party, and the parties shall cooperate as to the
timing and contents of any such announcement.
<PAGE> 42
37
SECTION 11.04. INTERPRETATION. The section and other headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." Unless otherwise
indicated herein or the context otherwise requires, the singular shall include
the plural. The word "or" shall not be deemed exclusive.
SECTION 11.05. 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 a mutually acceptable
manner in order that the transactions contemplated hereby be consummated as
originally contemplated to the greatest extent possible.
SECTION 11.06. DISCLOSURE SCHEDULE. Disclosure of information in any
portion of the Disclosure Schedule shall be deemed disclosure in any other
portion of the Disclosure Schedule if an appropriate cross reference is
contained in such Disclosure Schedule.
SECTION 11.07. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, other
than the Confidentiality Agreement between the Seller and the Purchaser with
respect to the subject matter hereof and except as otherwise expressly provided
herein.
SECTION 11.08. ASSIGNMENT. This Agreement shall not be assigned by
either party hereto without the consent of the other party.
SECTION 11.09. NO THIRD-PARTY BENEFICIARIES. Except as provided in
Article VI, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 11.10. AMENDMENT. This Agreement may not be amended or modified
except by an instrument in writing signed by the Seller and the Purchaser.
SECTION 11.11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
<PAGE> 43
38
SECTION 11.12. COUNTERPARTS. This Agreement may be executed in one or
more 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.
<PAGE> 44
39
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By
------------------------------------
Name:
Title:
SYKES HEALTHPLAN SERVICES, INC.
By /s/ David E. Garner
------------------------------------
Name: David E. Garner
Title: President
<PAGE> 45
40
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By/s/ Jean D. Hamilton
---------------------------------------
Name: Jean D. Hamilton
Title: Senior Vice President
Prudential Insurance Company
of America
SYKES HEALTHPLAN SERVICES, INC.
By
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.10
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement"), made this 31st day of
December, 1997, is entered into by and among Sykes HealthPlan Services, Inc., a
Florida corporation (the "Parent"), SHPS Acquisition Corp., a Florida
corporation (the "Purchaser"), and OMS Holding Corporation ("OMS Holding"), Owen
McKenna ("McKenna"), Stephen Holland, M.D. ("Holland"), Mark Wellman ("Wellman")
(the "Current Shareholders"), Robert J. Bargar, M.D. and David C. Deitz, M.D.
(the "Current Option Holders") (collectively, the "Selling Shareholders") and
OMS Incorporated, a Massachusetts corporation (the "Acquired Company").
W I T N E S S E T H :
WHEREAS, the parties desire to enter into this Acquisition Agreement
pursuant to which Purchaser will purchase and the Selling Shareholders will sell
all of the outstanding capital stock of the Acquired Company from the Selling
Shareholders.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
parties hereto agree as follows:
I. DEFINITIONS. The capitalized terms used herein will have the
meanings ascribed to them in Exhibit 1.1 hereto. Unless the context otherwise
requires, such capitalized terms will include the singular and plural and the
term "including" shall mean "including but not limited to." Wherever in this
Agreement reference is made to the knowledge of the Acquired Company it means
the individual knowledge of the Acquired Company's officers, directors and
employees.
II. COVENANTS AND UNDERTAKINGS.
II.1 Purchase and Sale of Stock. Subject to the terms and conditions
hereinafter set forth, at the Closing, the Selling Shareholders shall sell,
assign, transfer, convey and deliver to Purchaser, free and clear of all liens,
claims, charges, security interests and other encumbrances of any nature
whatsoever, and Purchaser shall purchase, Nine Hundred Seventy-Nine Thousand
Nine Hundred Ninety-Eight (979,998) shares of the common capital stock of the
Acquired Company (collectively, the "Shares") which represent all of the issued
and outstanding shares of capital stock of the Acquired Company. Such sale,
transfer, conveyance and delivery shall be evidenced by the delivery to
Purchaser of share certificates duly endorsed in blank or share certificates
accompanied by duly executed stock powers (with signatures guaranteed and with
all necessary transfer taxes, if any, paid or
<PAGE> 2
other revenue stamps affixed thereto) together with such other documents of
transfer as Purchaser shall reasonably request.
II.2 Purchase Price.
II.2.1 Consideration. Purchaser, in full payment for the Shares
shall pay the Purchase Price as follows:
II.2.1.1 The Cash Purchase Price Amount less the Escrow
Amount shall be paid in cash, or by wire transfer of immediately available funds
at Closing, to the Selling Shareholders (and/or the Selling Shareholders'
Representative on behalf of the Selling Shareholders, as directed by the Selling
Shareholders' Representative as evidenced by Exhibit 2.2.1 attached hereto),
such amount to be allocated among the Selling Shareholders based on their
ownership of the preferred and the common capital stock as set forth on Exhibit
2.2.1 under the heading of "Cash Payable at Closing;"
II.2.1.2 The Escrow Amount shall be paid in cash or other
immediately available funds at Closing to the Escrow Agent to be held in escrow
pursuant to the terms of the Escrow Agreement; and
II.2.1.3 The Downward Purchase Price Adjustment Amount, if
any, shall be paid in cash, or by other immediately available funds, to the
Purchaser by the Selling Shareholders (such amount to be allocated among the
Selling Shareholders in relationship to the purchase price allocated to each at
Closing to the total purchase price as set forth on Exhibit 2.2.1 under the
heading "Allocation of Adjustment Payment Amount"), as required by Section 2.2.2
below, within 10 days of the determination of the Final Closing Balance Sheet.
II.2.1.4 The Upward Purchase Price Adjustment Amount, if
any, shall be paid in cash, or by other immediately available funds, by the
Purchaser to the Selling Shareholders (such amount to be allocated among the
Selling Shareholders in relationship to the purchase price allocated to each at
Closing to the total purchase price as set forth on Exhibit 2.2.1 under the
heading "Allocation of Adjustment Payment Amount"), as required by Section 2.2.2
below, within 10 days of the determination of the Final Closing Balance Sheet.
II.2.2 Post-Closing Adjustment Procedures and Determination of
the Adjustment Payment Amount.
II.2.2.1 Within 90 days of the Closing Date, Purchaser
will use its best efforts to deliver to the Selling Shareholders the Closing
Balance Sheet. Thereafter, each of Purchaser and the Selling Shareholders'
Representative shall give
2
<PAGE> 3
the other and any independent auditors and authorized representatives of such
party full access at all reasonable times to the properties, books, records and
personnel of the Acquired Company relating to periods prior to the Closing Date
for purposes of preparing, reviewing and resolving any disputes concerning the
Closing Balance Sheet. The Selling Shareholders shall have 30 days following
delivery to the Selling Shareholders of the Closing Balance Sheet during which
to notify Purchaser of any dispute of any item contained therein, which notice
shall set forth in reasonable detail the basis for such dispute. If the Selling
Shareholders fail to notify Purchaser of any such dispute within such 30-day
period, the Closing Balance Sheet provided by the Purchaser shall be final,
conclusive and binding and shall be deemed to be the "Final Closing Balance
Sheet." In the event that the Selling Shareholders shall so notify Purchaser of
any dispute, the undisputed portion of Adjustment Payments shall be paid and
Purchaser and the Selling Shareholders shall cooperate in good faith to resolve
such dispute as promptly as practicable. If Purchaser and the Selling
Shareholders are unable to resolve any such dispute within 15 days of the
Selling Shareholders' delivery of such notice, such dispute shall be resolved by
a Settlement Auditor. The Settlement Auditor shall make such revisions to the
Closing Balance Sheet and Closing Income Statement as it deems appropriate in
order to make a determination of the disputed items as promptly as practicable
provided that the amount of the disputed item as so determined must be between
(or equal to one of) the amounts proposed by the Selling Shareholders and
Purchaser in the dispute. Such determination shall be final, conclusive and
binding on the parties and shall be deemed a final arbitration award that is
enforceable pursuant to all terms of the Federal Arbitration Act, 9 U.S.C.
ss.ss. 1 et seq. (the "Federal Arbitration Act"). The expenses relating to the
engagement of the Settlement Auditor shall be shared equally by Purchaser and
the Selling Shareholders. In the event of a dispute, the Closing Balance Sheet
and Closing Income Statement, as modified by the Settlement Auditor shall be the
"Final Closing Balance Sheet."
II.2.2.2 Upon determination of the Final Closing Balance
Sheet (i) the Purchaser may withdraw from the Escrow Fund the amount by which
the book value net worth of the Acquired Company as of the Closing Date was less
than $3,224,957 (the "Downward Purchase Price Adjustment Amount"), less any
undisputed portion previously paid pursuant to Section 2.2.2.1, provided that
the maximum amount that can be withdrawn from the Escrow Fund by the Downward
Purchase Price Adjustment shall not exceed $250,000, and if such withdrawal is
insufficient to cover the Downward Purchase Price Adjustment Amount, the Selling
Shareholders shall pay to the Purchaser the deficit promptly following receipt
of written notice of the deficit; or (ii) the Purchaser shall pay to the Selling
Shareholders one-half (1/2) of the amount by which the book value net worth of
the Acquired Company as of the Closing
3
<PAGE> 4
Date was greater than $3,224,957 (the "Upward Purchase Price Adjustment
Amount"), less any undisputed portion previously paid pursuant to Section
2.2.2.1.
4
<PAGE> 5
II.3 Conduct of the Business of the Acquired Company Prior to Closing.
5
<PAGE> 6
II.3.1 Except (i) with the prior consent in writing of Parent, (ii) as
provided otherwise in this Agreement or (iii) as set forth on Schedule 2.3.1 of
the Disclosure Letter, the Selling Shareholders and the Acquired Company
covenant that, between the date of this Agreement and the Closing Date, the
Acquired Company will conduct its business only in the ordinary course, and that
it will: (a) use its best efforts to preserve the organization of the Acquired
Company intact and to preserve the goodwill of clients, customers and others
having business relations with the Acquired Company; (b) maintain the properties
of the Acquired Company in the same working order and condition as such
properties are in as of the date of this Agreement, reasonable wear and tear
excepted; (c) keep in force at no less than the present limits of all existing
bonds, letters of credit and policies of insurance insuring the Acquired
Company, its performance and its respective properties; (d) not enter into any
contract, commitment, arrangement or transaction of the type required to be
listed on Schedules 3.4, 3.7, 3.11, 3.14.1, 3.14.2(i), 3.14.2(ii), 3.17 or 3.20
of the Disclosure Letter or suffer, permit or incur any of the transactions or
events described in Section 3.10 hereof (except for (i) the payment of any
health, disability and life insurance premiums which may become due, (ii)
contributions or distributions required to be made (and not discretionary)
pursuant to the terms of any Benefit Plans, including the payment prior to
Closing of the Acquired Company's portion of 401(k) plan contributions on behalf
of its employees in an amount not to exceed $55,000, which payment is not
discretionary but would normally be made in March of 1998 and (iii) payment of
employee bonuses other than to the Selling Shareholders, which bonuses shall not
exceed in the aggregate $110,000 (such items (i) through (iii) hereinafter
referred to as "Permitted Employee Distributions")) to the extent such events or
transactions are within the control of the Acquired Company; (e) not make or
permit any change in the Acquired Company's Certificate of Incorporation or
Bylaws, or in its authorized, issued or outstanding securities; (f) not issue
any security except as contemplated by Section 2.13 hereof, or grant any stock
option or right to purchase any security of the Acquired Company, issue any
security convertible into such securities, purchase, redeem, retire or otherwise
acquire any of such securities, or agree to do any of the foregoing or declare,
set aside or pay any dividend or other distribution in respect of such
securities; (g) not make any contribution to or distribution on behalf of or to
any employee of the Acquired Company (except Permitted Employee Distributions);
(h) not make any capital expenditure which when aggregated with all other
capital expenditures for the period exceeds the sum of $100,000; and (i)
promptly advise Parent in writing of any matters arising or discovered after the
date of this Agreement which, if existing or known at the date hereof, would be
required to be set forth or described in this Agreement or the Disclosure
Letter.
6
<PAGE> 7
II.3.2 Except after prior notification to, and with the prior
written consent of, Parent, the Acquired Company will not make, between the date
of this Agreement and the Closing Date, any material change in its respective
banking or safe deposit arrangements or grant any powers of attorney. A list of
all bank accounts, safe deposit boxes (and the contents thereof) and powers of
attorney of the Acquired Company and of all persons authorized to act with
respect thereto is set forth in Schedule 2.3.2 of the Disclosure Letter.
II.3.3 Except with the prior consent in writing of Parent or as
otherwise required by GAAP, the Acquired Company will not make, between the date
of this Agreement and the Closing Date, any changes in its accounting methods or
practices.
II.4 Intercompany Accounts and Services. Prior to or at the Closing,
the Acquired Company will take all actions necessary to settle as of the
Closing all cash overdrafts, loans, advances, intercompany payables or
receivables, indebtedness and other accounts between the Acquired Company, on
the one hand, and any employee or any Affiliate of any employee.
II.5 Examination of Property and Records. Between the date of this
Agreement and the Closing Date, the Acquired Company will allow Parent, its
counsel and other representatives full access to all the books, records, files,
documents, assets, properties, contracts and agreements of the Acquired Company
which may be reasonably requested, and shall furnish Parent, its officers and
representatives during such period with all information concerning the affairs
of the Acquired Company which may be reasonably requested. Parent will conduct
any investigation in a manner which will not unreasonably interfere with the
business of the Acquired Company.
II.6 Employment and Noncompete Agreements. The Acquired Company will
cause those employees identified on Exhibit 2.6(a) to enter into, at the
Closing, Employment Agreements substantially in the form set forth in Exhibit
2.6(b).
II.7 Consents and Approvals. The Acquired Company will use its best
efforts to obtain the waiver, consent and approval of all persons whose waiver,
consent or approval (i) is required or advisable in order to consummate the
transactions contemplated by this Agreement or (ii) is required by any material
agreement, lease, instrument, arrangement, judgment, decree, order or license to
which the Acquired Company or any Affiliate of the Acquired Company is a party
or subject to on the Closing Date and (a) which would prohibit, or require the
waiver, consent or approval of any person to such transactions or (b) under
which, without such waiver, consent or approval, such transactions would
7
<PAGE> 8
constitute an occurrence of default under the provisions thereof, result in the
acceleration of any obligation thereunder or give rise to a right of any party
thereto to terminate its obligations thereunder. All required written notices,
waivers, consents and approvals from persons other than governmental authorities
are listed on Schedule 3.9 of the Disclosure Letter and except as waived by the
Parent in writing, at or prior to Closing, the consents shall be produced at
Closing in form and content reasonably satisfactory to Parent.
II.8 Access to Business Records. Prior to Closing, the Acquired Company
shall cause any Selling Shareholder or any Affiliates thereof, who possess
documents required to the performance of the Acquired Company's businesses to
transfer such documents to the Acquired Company. Such Selling Shareholders may
make copies or extracts from such books and records prior to transfer at their
sole expense.
II.9 Employee Matters.
II.9.1 After the Closing until such date as the Acquired Company's
employees commence participation in Parent's employee benefit plans, as
described in the next sentence (the "Plan Transfer Date"), Parent shall cause
the Purchaser to take whatever action is necessary or appropriate to cause the
Acquired Company to maintain the participation, sponsorship and/or maintenance
of all of the Acquired Company's employee benefit plans except those identified
on Exhibit 2.9.1. From and after the Plan Transfer Date, all employees of the
Acquired Company shall become participants in the employee benefit plans and
programs maintained by the Parent for similarly situated employees of the
Parent, which plans shall be substantially comparable to those of the Acquired
Company, except as otherwise mutually agreed by the Acquired Company and the
Parent. Such employee benefit plans that are health benefit plans shall (i)
recognize expenses and claims that were incurred by such employees in the year
in which the Closing Date occurs and recognized for similar purposes under the
Acquired Company's plans as of the Closing Date and (ii) provide coverage
(without any required waiting period) for pre-existing health conditions to the
extent covered under the applicable plans or benefit programs of the Acquired
Company as of the Closing Date. In addition, such employee benefit plans and
programs shall credit such employees with years of service with the Acquired
Company for all plan purposes, provided that no such crediting shall be required
to the extent that it would result in a duplication of benefits or require
contributions for years prior to the Closing Date.
II.9.2 The Selling Shareholders and the Acquired Company shall
provide Parent with any information which Parent shall reasonably request
concerning the employees of the Acquired
8
<PAGE> 9
Company (the "Employees"), and shall cooperate with, and assist, Parent with
respect to the commencement of participation of any Employee in the Parent's
benefit plans or arrangements.
II.10 Affiliated Contracts. At or prior to Closing, the Acquired
Company shall cause the Selling Shareholders and their Affiliates to transfer to
the Acquired Company any contracts the revenues from which are included in the
revenues of the Acquired Company but which are in the name of the Selling
Shareholders or their Affiliates and any assets which have been paid for by the
Acquired Company but which are owned by the Selling Shareholders or their
Affiliates, as opposed to the Acquired Company. All such assets and contracts
are listed on Schedule 2.10 of the Disclosure Letter.
II.11 Alternative Proposals. Prior to the Closing Date, the Selling
Shareholders and the Acquired Company agree that the Acquired Company will not,
nor shall it permit its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or purchase of (i) all or any significant portion of the assets of
the Acquired Company, or (ii) 25% or more of the outstanding shares of Acquired
Company Preferred Stock and/or Common Stock (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal
(excluding the transactions contemplated by this Agreement), or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal.
Nothing in this Section 2.11 shall (x) permit the Acquired Company to terminate
this Agreement, (y) permit the Acquired Company to enter into any agreement with
respect to an Alternative Proposal for as long as this Agreement remains in
effect (it being agreed that for as long as this Agreement remains in effect,
the Acquired Company shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal), or (z) affect
any other obligation of the Acquired Company under this Agreement.
II.12 Shareholder Consent. Each Selling Shareholder shall execute and
deliver a Selling Shareholder Consent and Power of Attorney (the "Selling
Shareholder Consent") appointing Owen McKenna to act as his, her or its
attorney-in-fact for purposes of this Agreement and the obligations and
covenants of such Selling Shareholder hereunder. In such capacity Owen McKenna
(and any successor of Owen McKenna in such capacity as provided in the
9
<PAGE> 10
Selling Shareholder Consent) is referred to in this Agreement as the "Selling
Shareholders' Representative." The Parent and the Purchaser shall be entitled to
rely on the acts of the Selling Shareholders' Representative as the acts of the
Selling Shareholders without any obligation to inquire of the Selling
Shareholders as to the authority of the Selling Shareholders' Representative to
take any action taken by him as Agent or Selling Shareholders' Representative
and the actions of the Selling Shareholders' Representative shall be binding on
the Selling Shareholders as between them and the Parent and the Purchaser.
II.13 Acquired Company Options. Prior to the Closing, the Selling
Shareholders and the Acquired Company will take such action as is legally
required to amend any Acquired Company stock option plans and the terms of all
Acquired Company options outstanding at the Effective Time such that: (i) all
outstanding Acquired Company options are immediately vested and exercisable in
full at or before the Effective Time, (ii) no further options will be grantable
under such plans after the date of this Agreement, and (iii) all
change-of-control provisions contained in such plans and outstanding Acquired
Company options will not apply to any Acquired Company options outstanding as of
the date of this Agreement. In addition, at or prior to the Closing, the Current
Option Holders shall exercise all of their options to acquire the common stock
of the Acquired Company. All proceeds from the exercise of the Acquired Company
options shall remain in the Acquired Company and reflected as an asset on the
Closing Balance Sheet.
II.14 Resignations. The Acquired Company and the Selling Shareholders
covenant to cause to be delivered at the Closing the resignation of each of the
directors of the Acquired Company, such resignations to be effective immediately
following the Closing.
II.15 Restrictions on OMS Holding Corporation Distributions. OMS
Holding will not distribute or otherwise transfer any of the proceeds received
by it from the sale of its Acquired Company Stock to any of its shareholders or
affiliates unless and until it shall deliver to Parent a guarantee by Anthem
Blue Cross Blue Shield of Connecticut (the "Anthem Guaranty") guaranteeing
Holdings' obligations under this Agreement which guarantee shall be in form and
substance acceptable to the Parent. OMS Holding will use its best efforts to
deliver such guarantee to the parent within 30 days of the Closing.
II.16 Delivery of Legal Opinion of Massachusetts Counsel. Within thirty
(30) days of the Closing, the Selling Shareholders shall deliver to the Parent
and the Purchaser a legal opinion under Massachusetts law covering items listed
on Exhibit 2.16, which shall be in form and content acceptable to the Parent and
the Purchaser.
10
<PAGE> 11
III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY AND THE
SELLING SHAREHOLDERS.
Subject to the indemnity limitations set forth in Article VII, OMS
Holding, severally but not jointly, and the Selling Shareholders other than OMS
Holding jointly and severally represent and warrant to the Parent and the
Purchaser as follows:
III.1 Residency, Organization, Standing and Foreign Qualification.
III.1.1 The Acquired Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full corporate power and authority to carry on its
business as it is now being conducted and to own and lease the properties and
assets which it now owns or leases.
III.1.2 The Acquired Company is now, and will be at Closing, duly
qualified and/or licensed to transact business and in good standing as a foreign
corporation in the jurisdictions listed in Schedule 3.1.2 of the Disclosure
Letter, and the character of the property owned or leased by the Acquired
Company and the nature of the business conducted by them do not require such
qualification and/or licensing in any other jurisdiction, except where the
failure to be so qualified or licensed would not have an Acquired Company
Material Adverse Effect.
III.1.3 The Acquired Company has no Subsidiaries.
III.1.4 Each Selling Shareholder is a resident of the state set
forth opposite their name on Schedule 3.1.4 of the Disclosure Letter and has the
capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other person whomsoever.
III.2 Authority and Status/Ownership of Capital Stock.
III.2.1 The Acquired Company has the capacity and authority to
execute and deliver this Agreement, to perform hereunder without the necessity
of any act or consent of any other person whomsoever. The execution, delivery
and performance by the Acquired Company of this Agreement and each and every
agreement, document and instrument provided for herein have been duly authorized
and approved by the Board of Directors of the Acquired Company. This Agreement
and each and every agreement, document and instrument to be executed, delivered
and performed by the Acquired Company and the Selling Shareholders in connection
11
<PAGE> 12
herewith constitute or will, when executed and delivered, constitute the valid
and legally binding obligations of such party enforceable against such party in
accordance with their respective terms, except as enforceability may be limited
by applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally. Attached as Schedule 3.2 of the
Disclosure Letter are true, correct and complete copies of the Certificate of
Incorporation and Bylaws of the Acquired Company.
III.2.2 Each Current Shareholder owns and each Current Option
Holder will own at Closing the shares of capital stock of the Acquired Company
set forth opposite his name on Exhibit 2.2.1 free and clear of any lien, charge
or encumbrance whatsoever, and the Shares set forth thereon represent all of the
shares of capital stock of the Acquired Company which will be issued and
outstanding as of the Closing Date.
III.3 Capitalization. The authorized capital stock of the Acquired
Company consists of 1,100,000 shares of common stock, par value $.01 per share,
of which 439,998 are issued and outstanding as of the date of this Agreement,
and 510,000 shares of preferred stock, par value $2.55 per share, of which
510,000 are issued and outstanding as of the date of this Agreement. All of the
outstanding shares of the Acquired Company are duly authorized, validly issued,
fully paid, nonassessable and free of any preemptive rights. The authorization
or consent of no other person or entity is required in order to consummate the
transactions contemplated herein by virtue of any such person or entity having
an equitable or beneficial interest in the Acquired Company or the capital stock
of the Acquired Company. Except as set forth on Schedule 3.3 of the Disclosure
Letter or as contemplated herein, there are no outstanding options, warrants,
calls, commitments or plans by the Acquired Company to issue any additional
shares of its capital stock, to pay any dividends on such shares or to purchase,
redeem, or retire any outstanding shares of its capital stock, nor are there
outstanding any securities or obligations which are convertible into or
exchangeable for any shares of capital stock of the Acquired Company. Concurrent
with the Closing, OMS Holding will exercise its right to convert its 510,000
shares of preferred stock into 510,000 shares of common stock in accordance with
Article 4, Section 3 of the Acquired Company's Restated Articles of
Organization. In addition, the Current Option Holders will exercise their
respective options and acquire 30,000 shares of common stock (Deitz - 20,000
shares; Bargar - 10,000 shares) in accordance with their respective
Non-Qualified Stock Option Agreements, as amended. Accordingly, as of the
Closing, there be 979,998 shares of common stock, par value $0.01 per share
issued and outstanding.
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III.4 Absence of Equity Investments. Except as described in Schedule
3.4 of the Disclosure Letter, the Acquired Company does not, either directly or
indirectly, own of record or beneficially any shares or other equity interests
in any corporation, partnership, limited partnership, joint venture, trust or
other business entity. No officer or director of the Acquired Company or other
Affiliate of such person, directly or indirectly, owns of record or beneficially
any shares or other equity interests in any corporation (except as a shareholder
holding less than one percent (1%) interest in a corporation whose shares are
traded on a national or regional securities exchange or in the
over-the-counter-market), partnership, limited partnership, joint venture, trust
or other business entity, all or any portion of the business of which is
competitive with that of the Acquired Company.
III.5 Liabilities and Obligations of the Acquired Company.
III.5.1 Attached as Schedule 3.5.1(a) are true, correct and
complete copies of the Acquired Company's audited balance sheets as of December
31, 1994, 1995 and 1996 and the related statements of operations and cash flows
for the fiscal years ending on December 31, 1994, 1995 and 1996 (the "Financial
Statements"). Also attached as Schedule 3.5.1(a) are true, correct and complete
copies of the Acquired Company's unaudited balance sheet as of August 31, 1997
and the related unaudited statement of operations and cash flows for the
eight-month period then ended (the "Interim Financial Statements"). Except as
specifically described in Schedule 3.5.1(b), the Financial Statements and the
Interim Financial Statements fairly present the Acquired Company's current
operations and financial condition as of the dates thereof, except to the extent
that the Interim Financial Statements lack footnotes and do not reflect normal
year-end adjustments, none of which would materially and adversely change the
results reported therein.
III.5.2 Except as described in Schedule 3.5.1(a) and 3.5.1(b),
the Acquired Company has no liability or obligation related to its assets or
business (whether accrued, absolute, contingent or otherwise), except for (i)
the liabilities and obligations of the Acquired Company that are disclosed or
reserved against in the Interim Financial Statements, to the extent and in the
amounts so disclosed or reserved against, (ii) liabilities that were incurred or
accrued in the ordinary course of the Acquired Company's business since the date
of the Interim Financial Statements, (iii) the liabilities and obligations of
the Acquired Company under the Material Agreements, and (iv) those nonmaterial
liabilities and obligations of the Acquired Company under all contracts and
agreements other than the Material Agreements.
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III.6 Taxes. The Acquired Company has duly filed all federal, and
material state, local and foreign income, franchise, excise, real and personal
property and other tax returns and reports (including, but not limited to, those
filed on a consolidated, combined or unitary basis) required to have been filed
by the Acquired Company prior to the date hereof. All of the foregoing returns
and reports are true and correct in all material respects, and the Acquired
Company has paid or, prior to the Closing Date, will pay all taxes, interest and
penalties required to be paid in respect of the periods covered by such returns
or reports to any federal, state, foreign, local or other taxing authority. The
Acquired Company will pay or make adequate provision in the Final Closing
Balance Sheet for all taxes payable in respect of all periods ending on or prior
to the Closing Date. The Acquired Company at Closing will have no material
liability for any taxes in excess of the amounts so paid or reserves so
established and the Acquired Company will not be delinquent in the payment of
any material tax, assessment or governmental charge that is due and payable and
has not requested any extension of time within which to file any returns in
respect of any fiscal year which have not since been filed. No deficiencies for
any tax, assessment or governmental charge have been proposed in writing,
asserted or assessed (tentatively or definitely), in each case, by any taxing
authority, against the Acquired Company for which there are not adequate
reserves. The Acquired Company is not the subject of any Tax audit. As of the
date of this Agreement, there are no pending requests for waivers of the time to
assess any such tax, other than those made in the ordinary course and for which
payment has been made or there are adequate reserves. For the purposes of this
Agreement, the term "Tax" shall include all federal, state, local and foreign
taxes including interest and penalties thereon. The Acquired Company has not
filed an election under Section 341(f) of the Code to be treated as a consenting
corporation.
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III.7 Ownership of Assets and Leases.
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III.7.1 Real Estate and Personal Property. Schedule 3.7 of the
Disclosure Letter is a complete and correct list and brief description as of the
date of this Agreement of all real property and items of personal property which
are owned and have a book value in excess of $100,000 net of the reserve for
depreciation, and all real property and all material items of personal property
which are leased or licensed by the Acquired Company under leases relating to
assets which are material to the operation of the Acquired Company or which
provide for payments throughout the lease term of more than $25,000. The
Acquired Company has good and marketable title to all of its property and
assets, other than leased or licensed property, including those listed and
described in Schedule 3.7 of the Disclosure Letter as owned property and assets,
in each case free and clear of any liens, security interests, claims, charges,
options, rights of tenants or other encumbrances, except as disclosed or
reserved against in Schedule 3.7 of the Disclosure Letter (to the extent and in
the amounts so disclosed or reserved against) and except for liens arising from
current taxes not yet due and payable. Each of the leases, licenses and
agreements described in Schedule 3.7 of the Disclosure Letter is in full force
and effect and constitutes a legal, valid and binding obligation of the Acquired
Company and, to the knowledge of the Acquired Company and the Selling
Shareholders, the other respective parties thereto and, to the knowledge of the
Acquired Company and the Selling Shareholders, is enforceable in accordance with
its terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally, and there is not under any of such leases, licenses or agreements
existing any default of the Acquired Company or, to the knowledge of the
Acquired Company and the Selling Shareholders, any other parties thereto.
Neither the Acquired Company nor any Selling Shareholder has received any
payment from a lessor or licensee in connection with or as inducement for
entering into a lease or license under which it is a lessee or a licensee. All
buildings, machinery and equipment owned or leased by the Acquired Company are
in good operating condition and reasonable state of repair, subject only to
ordinary wear and tear. The Acquired Company has not received any notice of a
violation of any applicable zoning regulation, ordinance or other law,
regulation or requirement relating to its operations and properties, whether
owned or leased, and there is no such violation by the Acquired Company or
grounds therefor which could have an Acquired Company Material Adverse Effect.
Except pursuant to this Agreement, neither the Acquired Company nor any Selling
Shareholder is a party to any contract or obligation whereby there has been
granted to anyone an absolute or contingent right to purchase, obtain or acquire
any rights in any of the assets, properties or operations which are owned by the
Acquired Company or which are used in connection with the business
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of the Acquired Company.
III.8 Accounts Receivable. All of the accounts receivable of the
Acquired Company as of the date of the Interim Financial Statements are and as
of the Closing Date will have arisen in the ordinary course of business and
represent valid accounts which are not subject to offset or dispute except as
otherwise disclosed to Parent in the Disclosure Letter. The accounts receivables
reserves reflected on the Interim Financial Statements are as of such date
established in accordance with GAAP consistently applied and any reserves
established after such date and prior to the Closing Date will likewise be
established in accordance with GAAP consistently applied. An aged list of the
Accounts Receivable of the Acquired Company as of the end of the last month
preceding the date of this Agreement is set forth on Schedule 3.8(a) of the
Disclosure Letter. To the best knowledge of the Acquired Company, the accounts
receivable of the Acquired Company are collectible in full net of any reserves
thereon. Except as set forth on Schedule 3.8(b), no accounts payable of the
Acquired Company are, as of the date of this Agreement, over thirty (30) days
old.
III.9 Required Filings and Absence of Conflicts. Except as listed in
Schedule 3.9 of the Disclosure Letter, the execution and delivery of this
Agreement by the Acquired Company and the Selling Shareholders does not, and the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation, as amended, or Bylaws, as
amended, of the Acquired Company or violate or constitute an occurrence of
default under any provision of, or conflict with, or result in acceleration of
any obligation under, or give rise to a right by any party to terminate its
obligations under, any material mortgage, deed of trust, conveyance to secure
debt, note, loan, lien, lease, agreement, instrument, or any order, judgment,
decree or other material arrangement to which the Acquired Company is a party or
is bound or by which the Acquired Company's assets are affected. Except as
listed or described on Schedule 3.9 of the Disclosure Letter, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required to be obtained or made by or with
respect to the Acquired Company, any Selling Shareholder or any assets,
properties or operations of the Acquired Company or any Selling Shareholder, in
connection with the execution and delivery by the Acquired Company of this
Agreement or the consummation of the transactions contemplated hereby.
III.10 Absence of Changes. Since August 31, 1997, the Acquired Company
has not, nor has anyone on its behalf, except as disclosed on Schedule 3.10 of
the Disclosure Letter or as permitted by Section 2.3 hereof:
III.10.1 Transferred, assigned, conveyed or liquidated
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into current assets any of its assets or business or entered into any
transaction or incurred any liability or obligation, other than in the ordinary
course of its business;
III.10.2 Suffered any Acquired Company Material Adverse Effect or
become aware of any event or state of facts which may result in any an Acquired
Company Material Adverse Effect;
III.10.3 Suffered any destruction, damage or loss to a material
asset or a group of assets that are in the aggregate material to the business,
whether or not covered by insurance;
III.10.4 Suffered, permitted or incurred the imposition of any
lien, charge, encumbrance (which as used herein includes, without limitation,
any mortgage, deed of trust, conveyance to secure debt or security interest) or
claim upon any of its assets, except for any current year lien with respect to
Taxes not yet due and payable;
III.10.5 Committed, suffered, permitted or incurred any default
in any liability or obligation;
III.10.6 Made or agreed to any adverse change in the terms of any
material contract or instrument to which it is a party;
III.10.7 Waived, canceled, sold or otherwise disposed of, for
less than the face amount thereof, any material claim or right which it has
against others or accelerated its collections or its efforts to collect accounts
receivable or otherwise deviated from its normal collection activities
consistent with historic practice in any material respect;
III.10.8 Declared, promised or made any dividend payment,
distribution or other payment to its shareholders (other than the payment of
reasonable compensation for services actually rendered) or issued any additional
shares or rights, options or calls with respect to the Acquired Company's
shares, or redeemed, purchased or otherwise acquired the Acquired Company's
shares except in accordance with Section 2.13 hereof, or made any change
whatsoever in the Acquired Company's capital structure;
III.10.9 Except for Permitted Employee Distributions, paid,
agreed to pay or incurred any obligation for any payment for, any contribution
or other amount to, or with respect to, any employee benefit plan, or paid or
agreed to pay any bonus to, or granted or agreed to grant any increase in the
compensation of, the Acquired Company's directors, officers, agents or
employees, or made any increase in the pension, retirement or other benefits of
its directors, officers, agents or other employees.
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III.10.10 Committed, suffered, permitted or incurred any
transaction or event which would materially increase its Tax liability for any
prior taxable year;
III.10.11 Incurred any other material liability or obligation or
entered into any transaction other than in the ordinary course of business and
other than the obligation to pay broker's fees and expenses pursuant to Section
9.2 and 9.4 (for purposes of this Section, the incurrence of term debt, debt
incurred pursuant to promissory notes and capital leases shall not be considered
as incurred in the ordinary course of business);
III.10.12 Received any notices, or had reason to believe, that
any material customer has taken or contemplates any steps which could materially
disrupt the business relationship of the Acquired Company with said person or
could result in the material diminution in the value of the Acquired Company as
a going concern;
III.10.13 Paid, agreed to pay or incurred any material
obligation for any payment of any indebtedness except current liabilities
incurred in the ordinary course of business, broker's fees and expenses pursuant
to Sections 9.2 and 9.4, and except for payments as they become due pursuant to
governing agreements as such agreements existed on August 31, 1997;
III.10.14 Delayed or postponed the payment of any liabilities,
whether current or long term, or failed to pay in the ordinary course of
business any material liability on a timely basis consistent with prior
practice;
III.10.15 Suffered or experienced any material adverse change in
the equipment, other assets or liability accounts; or
III.10.16 Acquired or agreed to acquire any capital items with
an aggregate value of more than $100,000.
III.11 Litigation. Except as otherwise set forth in Schedule 3.11 of
the Disclosure Letter, there is no suit, action, proceeding, claim or
investigation pending or, to the knowledge of the Acquired Company, threatened
against or affecting the Acquired Company and, to the knowledge the Acquired
Company, there exists no basis or grounds for any such suit, action, proceeding,
claim or investigation. None of the items described in Schedule 3.11 of the
Disclosure Letter, individually or in the aggregate, if pursued and/or resulting
in a judgment, would have an Acquired Company Material Adverse Effect or
adversely affect the right of the Acquired Company or the Selling Shareholders
to consummate the transactions contemplated hereby.
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III.12 Licenses and Permits; Compliance With Law. Any disclosures on
Schedule 3.12 notwithstanding, the Acquired Company holds all licenses,
certificates, permits, franchises and rights from all appropriate federal, state
or other public authorities necessary for the conduct of its business and the
use of its assets. All such licenses, certificates, permits, franchises and
rights are listed in Schedule 3.12 of the Disclosure Letter. Except as noted in
Schedule 3.12 of the Disclosure Letter, the Acquired Company is presently
conducting its business so as to comply with all applicable statutes,
ordinances, rules, regulations and orders of any governmental authority, except
to the extent such failure to comply would not have an Acquired Company Material
Adverse Effect. Further, the Acquired Company is not presently charged with, or,
to the knowledge of the Acquired Company, under governmental investigation with
respect to, any actual or alleged violation of any statute, ordinance, rule or
regulation, nor presently the subject of any pending or, to the knowledge of the
Acquired Company, threatened material adverse proceeding by any regulatory
authority having jurisdiction over its business, properties or operations.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the termination of any material
license, certificate, permit, franchise or right held by the Acquired Company.
III.13 Contracts, Etc. Schedule 3.13 of the Disclosure Letter sets
forth a true and complete list of all contracts, agreements and other
instruments to which the Acquired Company is a party which are not listed on
Schedules 3.7, 3.14.2(ii), 3.17 or 3.20 of the Disclosure Letter and which
involve the payment by or to the Acquired Company of more than $100,000 over the
term of the agreement, and contemporaneously with the delivery of the Disclosure
Letter, the Acquired Company has delivered a true and complete copy of each
contract, agreement or instrument listed in Schedules 3.7, 3.13, 3.14.2(ii),
3.17 and 3.20 of the Disclosure Letter which is written and a summary of the
terms of each such contract or agreement which is oral, certified as such by a
duly authorized officer of the Acquired Company. Schedule 3.13 of the Disclosure
Letter includes the following:
III.13.1 Any contract or commitment which requires services in
excess of $100,000 to be provided or performed by the Acquired Company or which
authorizes others to perform services for a third party for, through or on
behalf of the Acquired Company, other than those services performed for
customers and clients set forth on Schedule 3.18 of the Disclosure Letter;
III.13.2 Any contract or commitment involving an obligation in
excess of $100,000 which cannot, or in reasonable probability will not, be
performed or terminated within one year from the dates as of which these
representations are made;
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III.13.3 Any note receivable;
III.13.4 Any contract or commitment providing for payments
based in any manner upon the sales, purchases, receipts, income or profits of
the Acquired Company;
III.13.5. Any franchise agreement, marketing agreement or
royalty agreement (and with respect to each such agreement Schedule 3.13 of the
Disclosure Letter sets forth the aggregate royalties or similar payment paid or
payable hereunder by the Acquired Company as of the date hereof);
III.13.6 Any contract or agreement with a creditor not made in
the ordinary course of business;
III.13.7 Any employment contract or arrangement regarding an
employee or independent contractors which is not terminable by the Acquired
Company within thirty (30) days without payment of any amount for any reason
whatsoever, or without any continuing payment of any type or nature, including,
without limitation, any bonuses and vested commissions;
III.13.8 Any contract, agreement, understanding or arrangement
materially restricting the Acquired Company from carrying on its business
anywhere in the world;
III.13.9 Any material instrument or arrangement evidencing or
related to indebtedness for money borrowed or to be borrowed, whether directly
or indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise;
III.13.10 Any contract with any labor organization; and
III.13.11 Any material bond, suretyship arrangement, guarantee,
letter of credit or other performance guarantee document pursuant to which any
obligation of the Acquired Company is guaranteed or secured or pursuant to which
the Acquired Company has guaranteed or secured the performance or obligation of
another person.
All of the contracts, agreements, policies of insurance or instruments
described in Schedules 3.4, 3.7, 3.13, 3.14.2(i), 3.14.2(ii), 3.17 or 3.20 of
the Disclosure Letter (collectively, the "Material Agreements") are valid and
binding upon the Acquired Company and, to the knowledge of the Acquired Company,
the other parties thereto and are in full force and effect. Neither the Acquired
Company nor, to the knowledge of the Acquired Company, any other party to any
such contract, commitment or arrangement has breached any material provision of,
or is in default under,
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the terms thereof. The credentialling Application(s) submitted by the Acquired
Company to BCBSC and incorporated by reference into the Utilization/Quality
Management Consulting Services Agreement is true and correct in all material
respects and as of the Closing Date, there exist no circumstances which would
cause or give a right of termination of such contract to BCBSC.
III.14 Intellectual Property; Computer Software.
III.14.1 Schedule 3.14.1 of the Disclosure Letter sets forth a
complete and correct list and summary description of all material trademarks,
trade names, service marks, service names, brand names, copyrights and patents,
registrations thereof and applications therefor, applicable to or used in the
business of the Acquired Company, together with a complete list of all licenses
granted by or to the Acquired Company with respect to any of the above. All such
trademarks, trade names, service marks, service names, brand names, copyrights
and patents are owned by the Acquired Company, free and clear of all liens,
claims, security interests and encumbrances of any nature whatsoever. The
Acquired Company is not currently in receipt of any notice claiming any
violation of, and, to the knowledge of the Acquired Company, it is not
violating, the rights of others in any trademark, trade name, service mark,
copyright, patent, trade secret, know-how or other intangible asset. The
disclosures on Schedule 3.14.1 notwithstanding, the Company is not violating or
infringing upon any patent of Health Risk Management Incorporated.
III.14.2 (i) Schedule 3.14.2(i) of the Disclosure Letter
contains a complete and accurate list of all material computer software owned by
the Acquired Company (the "Owned Software"). Except as set forth on Schedule
3.14.2(i) of the Disclosure Letter, the Acquired Company has exclusive title to
the Owned Software, free and clear of all claims, including claims or rights of
employees, agents, consultants, customers, licensees or other parties involved
in the development, creation, marketing, maintenance, enhancement or licensing
of such computer software. Except as set forth on Schedule 3.14.2(i) of the
Disclosure Letter, the Owned Software is not dependent on any Licensed Software
(as defined in subsection (ii) below) in order to fully operate in the manner in
which it is intended. No Owned Software has been published or disclosed to any
other parties, except as set forth on Schedule 3.14.2(i) of the Disclosure
Letter, and except pursuant to contracts requiring such other parties to keep
the Owned Software confidential. To the knowledge of the Acquired Company, no
such other party has breached any such obligation of confidentiality.
(ii) Schedule 3.14.2(ii) of the Disclosure Letter
contains a complete and accurate list of all software (other than Shrinkwrap
Software) under which the Acquired Company
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is a licensee, lessee or otherwise has obtained the right to use software (the
"Licensed Software"). Schedule 3.14.2(ii) of the Disclosure Letter also sets
forth a list of all license fees, rents, royalties or other charges that the
Acquired Company is required or obligated to pay with respect to Licensed
Software. The Acquired Company has the right and license to use, sublicense,
modify and copy Licensed Software, free and clear of any limitations or
encumbrances except as may be set forth in any license agreements listed in
Schedule 3.14.2(ii) of the Disclosure Letter or contained in any license for
Shrinkwrap Software. The Acquired Company is in full compliance with all
material provisions of any license, lease or other similar agreement pursuant to
which it has rights to use the Licensed Software. Except as disclosed on
Schedule 3.14.2(ii) of the Disclosure Letter, none of the Licensed Software has
been incorporated into or made a part of any Owned Software or any other
Licensed Software. The Acquired Company has not published or disclosed any
Licensed Software to any other party.
(iii) The Owned Software and Licensed Software
constitute all software currently used in or necessary for the conduct of the
businesses of the Acquired Company as currently conducted (the "Acquired Company
Software"). Schedule 3.14.2(iii) of the Disclosure Letter sets forth a list of
all contract programmers, independent contractors, nonemployee agents and
persons or other entities (other than employees) who have performed material
computer programming services for the Acquired Company (provided, however, that
if such services were performed by another company, the schedule need not list
the employees of the company performing such services) and identifies all
material contracts and agreements pursuant to which such services were
performed. The transactions contemplated herein will not cause a material breach
or default under any licenses, leases or similar agreements relating to the
Acquired Company Software or materially impair the Parent's or the Purchaser's
ability to use the Acquired Company Software in the same manner as such computer
software is currently used by the Acquired Company. The Acquired Company is not
infringing any intellectual property rights of any other person or entity with
respect to the Acquired Company Software, and to the knowledge of the Acquired
Company, no other person or entity is infringing any intellectual property
rights of the Acquired Company with respect to the Acquired Company Software or
is claiming any right, title or interest in the Acquired Company Software or any
infringement by the Acquired Company of any intellectual property right which
such other person may possess.
(iv) Schedule 3.14.2(iv)(a) of the Disclosure Letter
lists and separately identifies all agreements pursuant to which the Acquired
Company has been granted rights to market software owned by third parties, and
Schedule 3.14.2(iv)(b) of the Disclosure Letter lists and separately identifies
all agreements
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pursuant to which the Acquired Company has granted marketing rights in the
Acquired Company Software to third parties.
(v) To the knowledge of the Acquired Company, the
Acquired Company has not taken or failed to take any actions under the law of
any applicable foreign jurisdictions where the Acquired Company has marketed or
licensed Acquired Company Software that would restrict or limit the ability of
the Acquired Company to protect, or prevent it from protecting, its ownership
interests in, confidentiality rights of, and rights to market, license, modify
or enhance, the Acquired Company Software.
(vi) Except as set forth in Schedule 3.14.2(i) of the
Disclosure Letter, the Owned Software and Licensed Software (a) includes Year
2000 date data century recognition; calculations which accommodate same century
and multi-century formulas and date values; correct sort ordering; and date data
interface values that reflect the century; (b) will not cause an abnormal abend
or abort within the application on account of date data properly entered into
the application or result in the generation of incorrect values or invalid
outputs involving such date; and (c) provides that all date related user
interface functionalities and data fields include the indication of the correct
century. Except as set forth in Schedule 3.14.2(i), all date processing by Owned
Software and Licensed Software will include four digit year format and recognize
and correctly process dates for leap years.
III.15 Product Warranties and Liabilities. Except as listed on Schedule
3.15 of the Disclosure Letter, the Acquired Company has no forms of warranties
or guarantees of its products and services that are in effect or proposed to be
used by it. Schedule 3.15 of the Disclosure Letter sets forth a description of
each pending or, to the knowledge of the Acquired Company, threatened material
action under any warranty or guaranty against the Acquired Company. The Acquired
Company has not incurred, nor does the Acquired Company know or have any reason
to believe there is any basis for alleging, any material liability, damage,
loss, cost or expense as a result of any material defect or other deficiency
(whether of design, materials, workmanship, labeling instructions or otherwise)
("Product Liability") with respect to any product sold or services rendered by
or on behalf of the Acquired Company (including any lessee thereof) prior to the
Closing Date, whether such Product Liability is incurred by reason of any
express or implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance.
III.16 Labor Matters. Schedule 3.16 of the Disclosure
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Letter sets forth a list of all employees, consultants and independent
contractors of the Acquired Company whose compensation for 1997 or expected
compensation for 1998 exceeds $75,000 per annum and lists the compensation per
annum for such persons. Except as set forth on Schedule 3.16 of the Disclosure
Letter, within the last three (3) years, the Acquired Company has not been the
subject of any union activity or labor dispute, nor has there been any strike of
any kind called or threatened to be called, against the Acquired Company. Except
as set forth on Schedule 3.16 of the Disclosure Letter, the Acquired Company has
not violated any applicable federal or state law or regulation relating to
labor, labor practices or immigration matters. The Acquired Company has no
knowledge that there will be any adverse change in relations with employees and
independent contractors of the Acquired Company as a result of the transactions
contemplated by this Agreement.
III.17 Benefit Plans.
III.17.1 Schedule 3.17 of the Disclosure Letter, lists every
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plan, any other material written or unwritten employee program, arrangement,
agreement or understanding, (whether arrived at through collective bargaining or
otherwise), any medical, vision, dental or other health plan, any life insurance
plan or any other employee benefit plan or fringe benefit plan, including,
without limitation, any "employee benefit plan," as that term is defined in
Section 3(3) of ERISA, or any other plan, program, agreement, arrangement,
commitment and/or method of compensation, whether funded or unfunded, whether
legally binding or not, currently or previously adopted, maintained, sponsored
in whole or in part or contributed to by the Acquired Company or any Affiliate
of the Acquired Company for the benefit of employees, retirees, dependents,
spouses, directors, officers, independent contractors or other beneficiaries of
the Acquired Company or an Affiliate of the Acquired Company and under which
employees, retirees, dependents, spouses, directors, officers, independent
contractors or other beneficiaries of the Acquired Company or an Affiliate of
the Acquired Company are eligible to participate or under or in connection with
which the Acquired Company may have any contingent or noncontingent liability of
any kind whether or not probable of assertion (collectively, the "Benefit
Plans"). Any of the Benefit Plans which is an "employee pension benefit plan,"
as that term is defined in Section 3(2) of ERISA, or an "employee welfare
benefit plan" as that term is defined in Section 3(1) of ERISA, is referred to
herein as an "ERISA Plan." No Benefit Plan is or has been a "multiemployer plan"
within the meaning of Section 3(37) of ERISA. The Acquired Company has never
contributed to or had an obligation to contribute to any multiemployer plan.
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III.17.2 Schedule 3.17 of the Disclosure Letter also lists:
(a) where applicable, with respect to any such plans or plan amendments, the
most recent determination letters issued by the United States Internal Revenue
Service, (b) all rulings, opinion letters, information letters or advisory
opinions issued by the United States Department of Labor, the United States
Internal Revenue Service or the Pension Benefit Guaranty Corporation after
December 31, 1974, with respect to such Benefit Plan, (c) annual reports or
Returns and audited or unaudited financial statements for the most recent three
plan years and any amendments thereto, and (d) the most recent summary plan
descriptions and any material modifications thereto, and any other material
written communications to employees or to any governmental agency with respect
to such Benefit Plans during the three most recent plan years. Contemporaneous
with the delivery of the Disclosure Letter, the Acquired Company has delivered a
true and complete copy of each such Benefit Plan or summary description if such
Benefit Plan is not in writing, agreements, letters, rulings, opinions, letters,
reports, Returns, financial statements and summary plan descriptions described
in Sections 3.17.1 or 3.17.2 hereof, certified as such by a duly authorized
officer of the Acquired Company.
III.17.3 Except to the extent that it would not have an Acquired
Company Material Adverse Effect, all the Benefit Plans and the related trusts
subject to ERISA comply with and have been administered in compliance with the
provisions of ERISA, all provisions of the Code relating to qualification and
tax exemption under Code Sections 401(a) and 501(a) or otherwise applicable to
secure intended Tax consequences, all applicable state or federal securities
laws and all other applicable laws, rules and regulations and collective
bargaining agreements, and neither the Acquired Company nor any Affiliate has
received any notice from any governmental agency or instrumentality questioning
or challenging such compliance. All available governmental approvals for the
Benefit Plans have been obtained, including, but not limited to, timely
determination letters on the qualification of the ERISA Plans and tax exemption
of related trusts, as applicable, under the Code and timely registration and
disclosure under applicable securities laws, and all such governmental approvals
continue in full force and effect. No event has occurred which will or could
give rise to disqualification of any such plan under sections 401(a) or 501(a)
of the Code, adversely affect the qualified status of the Plan of any such plan
under Sections 401(a) or 501(a) of the Code or to a tax under Section 511 of the
Code. All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each Benefit
Plan and have been paid on a timely basis.
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III.17.4 Neither the Acquired Company, any Affiliate nor any
administrator or fiduciary of any such Benefit Plan (or agent or delegate of any
of the foregoing) has engaged in any transaction or acted or failed to act in
any manner which could subject the Acquired Company to any direct or indirect
liability (by indemnity or otherwise) for a breach of any fiduciary,
co-fiduciary or other duty under ERISA. No oral or written representation or
communication with respect to any aspect of the Benefit Plans has been or will
be made to employees of the Acquired Company prior to the Closing Date which is
not in accordance with the written or otherwise pre-existing terms and
provisions of such Benefit Plans in effect immediately prior to the Closing
Date. There are no unresolved claims or disputes under the terms of, or in
connection with, the Benefit Plans, and no action, legal or otherwise, has been
commenced with respect to any claim.
III.17.5 All annual reports or Returns, audited or unaudited
financial statements, actuarial valuations, summary annual reports and summary
plan descriptions issued with respect to the Benefit Plans are correct and
accurate in all material respects as of the dates thereof, and have been timely
filed or disseminated, as appropriate or required by applicable law, and there
have been no amendments filed to any of such reports, returns, statements,
valuations or descriptions or required to make the information therein true and
accurate.
III.17.6 No "party in interest" (as defined in Section 3(14) of
ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of the Code)
of any Benefit Plan has engaged in any "prohibited transaction" (within the
meaning of Section 4975(c) of the Code or Section 406 of ERISA). There has been
no (a) "reportable event" (as defined in Section 4043 of ERISA), or event
described in Section 4062(f) or Section 4063(a) of ERISA or (b) termination or
partial termination, withdrawal or partial withdrawal with respect to any of the
ERISA Plans which the Acquired Company or an Affiliate of the Acquired Company
maintains or contributes to or has maintained or contributed to or was required
to maintain or contribute to or for the benefit of employees of the Acquired
Company or any Affiliate of the Acquired Company now or formerly in existence.
III.17.7 Except as set forth on Schedule 3.17.8 of the
Disclosure Letter, the Acquired Company did not have any current or future
liability under any Benefit Plan that was not reflected in such filing, and the
liability of the Acquired Company in connection with any Benefit Plan as of
Closing will not exceed the amount recorded therefor on the books of the
Acquired Company.
III.17.8 The Acquired Company has not maintained a Benefit Plan
providing welfare benefits (as defined in ERISA
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Section 3(1)) to employees after retirement or other separation of service
except to the extent required under Part 6 of Title I of ERISA and Code Section
4980B, or except as set forth on Schedule 3.17.10 of the Disclosure Letter.
III.17.9 The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee of the
Acquired Company to severance pay, unemployment compensation or any payment
contingent upon a change in control or ownership of the Acquired Company, or
(ii) accelerate the time of payment or vesting, or increase the amount, of any
compensation due to any such employee or former employee.
III.17.10 All Benefit Plans subject to section 4980B of the Code
as amended from time to time or Part 6 of Title I of ERISA or both have been
maintained in material compliance with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder except to the extent that
such noncompliance would not cause an Acquired Company Material Adverse Effect.
III.18 Customers and Clients. Schedule 3.18 of the Disclosure Letter
consists of a true and correct list of all of the customers and clients of the
Acquired Company within the preceding twenty-four months who generated revenues
of more than $100,000 within a twelve-month period, setting forth as to each
customer or client its name and address. Except as set forth on Schedule 3.18 of
the Disclosure Letter, neither the Acquired Company nor any Selling Shareholder
has received any notice, or has knowledge that any such customer or client has
taken or contemplates taking any steps which could materially disrupt the
business relationship of the Acquired Company with such customer or client, or
could result in the material diminution in the value of the business of the
Acquired Company as a going concern.
III.19 Environmental Matters. Except as set forth in Schedule 3.19 of
the Disclosure Letter, no real property now or previously used by the Acquired
Company or now or previously owned or leased by the Acquired Company (the "Real
Property") has been used by the Acquired Company for the handling, treatment,
storage or disposal of any Hazardous Substance (as hereinafter defined). Except
as set forth in Schedule 3.19 of the Disclosure Letter, the Acquired Company has
not released, discharged, spilled or disposed into the environment any Hazardous
Substance and the Acquired Company has not caused soil, water or air
contamination by any Hazardous Substance in, from or on the Real Property.
Except as set forth in Schedule 3.19 of the Disclosure Letter, the Acquired
Company has complied with all reporting requirements under any applicable
federal, state or local environmental laws and permits, and there are no
existing violations by the Acquired Company of any such environmental laws or
permits, except to the
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extent that such violation would not have an Acquired Company Material Adverse
Effect. There are no claims, actions, suits, proceedings or investigations
pending, or to the knowledge of the Acquired Company, threatened against the
Acquired Company related to the presence, release, production, handling,
discharge, spillage, transportation or disposal of any Hazardous Substance or
ambient air conditions or contamination of soil, water or air by any Hazardous
Substance with respect to the Real Property. To the knowledge of the Acquired
Company and the Selling Shareholders, no building or other improvement included
in any Real Property which is or was owned by the Acquired Company or is
presently leased by the Acquired Company contains any asbestos or has radon
contamination. For the purposes of this Agreement, "Hazardous Substance" shall
mean any hazardous or toxic substance or waste as those terms are defined by any
applicable federal, state or local law, ordinance, regulation, policy, judgment,
decision, order or decree, including, without limitation, the Comprehensive
Environmental Recovery Compensation and Liability Act, 42 U.S.C. 9601 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et. seq. and the
Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., and petroleum,
petroleum products and oil, but shall not include normal cleaning or office
supply products in limited quantities customary to an office environment.
III.20 Insurance. Set forth in Schedule 3.20 of the Disclosure Letter
is a complete list of all insurance policies which the Acquired Company
maintained, or was an insured party under, with respect to its businesses,
properties or employees which are currently in force and effect together with a
list of all such policies which have been in effect during the last 36 months
but have expired. Schedule 3.20 of the Disclosure Letter lists the annual
premium and renewal date of all such insurance policies. Except as set forth in
Schedule 3.20 of the Disclosure Letter, since January 1, 1997, there has not
been any change in the Acquired Company's relationship with its insurers or in
the premiums payable pursuant to such policies.
III.21 Related Party Relationships. Except as set forth in Schedule
3.21 of the Disclosure Letter or as may be contained in the investment portfolio
of BCBSC, to the Acquired Company's knowledge, no Selling Shareholder, or
Affiliate of any Selling Shareholder nor any officer or director of the Acquired
Company possesses, directly or indirectly, any beneficial interest in, or is a
director, officer or employee of, any corporation, partnership, firm,
association or business organization which is a client, supplier, customer,
lessor, lessee, lender, creditor, borrower, debtor or contracting party with or
of the Acquired Company (except as a shareholder holding less than a five
percent interest in a corporation whose shares are traded on a national or
regional securities exchange or in the over-the-counter market).
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III.22 Schedules. All Schedules set forth in the Disclosure Letter are
true, correct and complete in all material respects as of the date of this
Agreement and will be true, correct and complete in all material respects as of
the Closing, except to the extent that such Schedules may be untrue, incorrect
or incomplete due to changes occurring due to the operation of the Acquired
Company in the ordinary course. Matters disclosed on each Schedule in the
Disclosure Letter shall be deemed disclosed only for purposes of the matters to
be disclosed on such Schedule and shall not be deemed to be disclosed for any
other purpose unless expressly provided therein.
III.23 Disclosure and Absence of Undisclosed Liabilities. No statement
contained herein or in any certificate, Schedule of the Disclosure Letter, list,
Exhibit or other instrument furnished to Parent pursuant to the provisions
hereof contains or will contain any untrue statement of any material fact.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE Purchaser.
Parent and the Purchaser represent and warrant to the Acquired Company
for the benefit of the Selling Shareholders as follows:
IV.1 Organization and Standing. The Parent and the Purchaser are duly
organized and validly existing corporations in good standing under the laws of
the State of Florida.
IV.2 Corporate Power and Authority. The Parent and the Purchaser have
the capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other Person whomsoever. The execution,
delivery and performance by the Parent and the Purchaser of this Agreement and
each and every agreement, document and instrument provided for herein have been
duly authorized and approved by the respective Board of Directors of the Parent
and Purchaser. This Agreement and each and every other agreement, document and
instrument to be executed, delivered and performed by Parent or the Purchaser in
connection herewith, constitute or will, when executed and delivered, constitute
the valid and legally binding obligation of Parent or Purchaser (whichever is
applicable) enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principles, or
by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time
to time in effect affecting the enforcement of creditors' rights generally.
IV.3 Agreement Does Not Violate Other Instruments. The
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execution and delivery of this Agreement by the Parent and Purchaser do not, and
the consummation of the transactions contemplated hereby will not, violate any
provisions of the Certificate of Incorporation, or Bylaws, of Parent or
Purchaser.
IV.4 Required Filings and Absence of Conflicts. Except as listed in
Schedule 4.4 of the Disclosure Letter, the execution and delivery of this
Agreement by the Purchaser and the Parent does not, and the consummation of the
transactions contemplated hereby will not, violate any provision of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of the
Purchaser and the Parent or violate or constitute an occurrence of default under
any provision of, or conflict with, or result in acceleration of any obligation
under, or give rise to a right by any party to terminate its obligations under,
any material mortgage, deed of trust, conveyance to secure debt, note, loan,
lien, lease, agreement, instrument, or any order, judgment, decree or other
material arrangement to which the Purchaser or the Parent is a party or is bound
or by which any of the Purchaser's or the Parent's material assets are affected.
Except as listed or described on Schedule 4.4 of the Disclosure Letter, no
consent, approval, order to authorization of, or registration, declaration or
filing with, any governmental entity is required to be obtained or made by or
with respect to the Purchaser or the Parent or any assets, properties or
operations of the Purchaser or the Parent, in connection with the execution and
delivery by the Purchaser or the Parent of this Agreement or the consummation of
the transactions contemplated hereby.
IV.5 Neither the Purchaser nor the Parent is subject to any suit,
action, proceeding, claim or investigation which if adversely determined would
affect the right of the Purchaser or the Parent to consummate the transactions
contemplated hereby.
V. CONDITIONS .
VI.1 Conditions to Each Party's Obligation to Effect the Transactions.
The respective obligation of each party to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:
VI.1.1 Neither of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the event
any such order or injunction shall have been issued, each party agrees to use
its reasonable efforts to have any such injunction lifted.
VI.1.2 All consents, authorizations, orders and approvals
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of (or filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the transactions contemplated by this Agreement and
any other documents required to be filed after the Closing Date and except where
the failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not adversely effect the Acquired Company
or its business.
V.2 Conditions to Obligations of Parent and Purchaser to Effect the
Transactions Contemplated by this Agreement. All of the obligations of Parent
and the Purchaser to consummate the transactions contemplated by this Agreement
are contingent upon and subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived, in whole or in part, by Parent for purposes of consummating such
transactions, but without prejudice to any other right or remedy which Parent
may have hereunder:
V.2.1 Representations True at Closing. The representations and
warranties made by the Acquired Company to Parent in this Agreement, the
Schedules contained in the Disclosure Letter or any document or instrument
delivered to Parent hereunder shall be true and correct in all material respects
on the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such time, except for
changes contemplated by this Agreement and changes occurring in the ordinary
course of the Acquired Company's business.
V.2.2 Covenants of the Acquired Company . The Acquired Company
shall have duly performed in all material respects all of the covenants, acts
and undertakings to be performed by it on or prior to the Closing Date, and the
President of the Acquired Company shall deliver to Parent a certificate dated as
of the Closing Date certifying to the fulfillment of this condition and the
condition set forth in Section 5.2.1 hereof in substantially the form attached
hereto as Exhibit 5.2.2.
V.2.3 Opinion of Counsel. An opinion of Shipman & Goodwin LLP,
counsel for the Acquired Company, shall have been delivered to Parent dated as
of the Closing Date, substantially in form and substance of the opinion attached
hereto as Exhibit 5.2.3.
V.2.4 Consents, Approvals, and Waivers. Parent shall have
received a true and correct copy of each and every consent, approval and waiver
(a) referred to in Section 2.7 hereof, or (b) otherwise required for the
execution of this Agreement and the consummation of the transactions
contemplated
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hereby.
V.2.5 Absence of Adverse Changes. Since August 31, 1997 the
Acquired Company shall not have suffered an Acquired Company Material Adverse
Event or any series of events which when taken in the aggregate have an Acquired
Company Material Adverse Effect.
V.2.6 Employment Agreements. Each individual listed in
Exhibit 2.6(a) shall have executed or agreed to execute an Employment Agreement,
substantially in forms set forth in Exhibit 2.6(b).
V.2.7 Acquired Company Options. The Current Option Holders
shall have exercised all company options held by them and after the Closing
Date, no person shall have any right under any sock option plan (or any option
granted thereunder) or other plan, program or arrangement to acquire any equity
securities of the Acquired Company.
V.2.8 Escrow Agreement. The Selling Shareholders and the
Escrow Agent shall have executed the Escrow Agreement in substantially the form
of Exhibit 5.2.8 of this Agreement and the Escrow Amount shall have been
deposited with the Escrow Agent.
V.2.9 Resignations. The Acquired Company and the Selling
Shareholders shall deliver to the Purchaser and the Parent the resignations of
each director of the Acquired Company, effective immediately after the Closing.
V.2.10 BCBSC Contracts. BCBSC shall have entered into
contracts with the Acquired Company containing substantially the terms and
conditions set forth in Exhibits 5.2.10(a) (License Agreement) and 5.2.10(b)
(Consulting Agreement) attached hereto.
V.2.11 Termination of Deferred Compensation and Split Dollar
Agreements. At or prior to the Closing, the Company and the Current Shareholders
shall terminate those certain Deferred Compensation and Split Dollar Agreements
between the Company and each of the Current Shareholders dated November 8, 1996
and the Company shall be released of all liability thereunder subject to the
payment to each of the Current Shareholders of an amount equal to the cash
surrender value of the underlying life insurance policy on their respective
lives, which policy is owned by the Company, the aggregate amount of which is
represented to be $266,853.00 for all three policies.
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V.3 Conditions Precedent To The Obligations Of The Acquired Company and
the Selling Shareholders To Close. All of the obligations of the Acquired
Company to consummate the transactions contemplated by this Agreement shall be
contingent upon and subject to the satisfaction, on or before the Closing Date,
of each and every one of the following conditions, all or any of which may be
waived, in whole or in part, by the Acquired Company and the Selling
Shareholders for purposes of consummating such transactions, but without
prejudice to any other right or remedy which they may have hereunder:
V.3.1 Representations True at Closing. The representations and
warranties made by Parent and the Purchaser to the Acquired Company in this
Agreement or any document or instrument delivered to the Acquired Company
hereunder shall be true and correct in all material respects on the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of such date, except for changes contemplated by this
Agreement.
V.3.2 Covenants of Parent and Purchaser. Parent and the Purchaser
shall have duly performed in all material respects all of the covenants, acts
and undertakings to be performed by it on or prior to the Closing Date, and a
duly authorized officer of Parent shall deliver, in substantially the form
attached hereto as Exhibit 5.3.2, a certificate dated as of the Closing Date
certifying to the fulfillment of this condition and the condition set forth
under Section 5.3.1 above.
V.3.3 Opinion of Counsel. An opinion of Fowler, White, Gillen,
Boggs, Villareal and Banker, P.A. counsel for the Parent and Purchaser, shall
have been delivered to the Acquired Company dated as of the Closing Date,
substantially in form and substance of the opinion attached hereto as Exhibit
5.3.3.
V.3.4 Employment Agreements. The Parent, Purchaser and/or the
Acquired Company shall have executed an Employment Agreement with each
individual listed in Exhibit 2.6(a), substantially in forms set forth in Exhibit
2.6(b) and executed and delivered to such individuals all agreements ancillary
thereto and contemplated thereby, including option agreements. Purchaser and
Parent, if not the principal obligors, shall have also executed such Employment
Agreements and ancillary agreements, fully and unconditionally guaranteeing the
performance of such agreements and payment of all obligations thereunder as they
come due to the respective employee.
V.3.5 Escrow Agreement. The Parent, Purchaser and the Escrow Agent
shall have executed the Escrow Agreement in substantially the form of Exhibit
5.2.8 of this Agreement and the Escrow Amount shall have been deposited with the
Escrow Agent.
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VI. CLOSING.
VI. 1 Time and Place of Closing. The Closing shall be held at the
offices of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., 501 East
Kennedy Blvd., Tampa, Florida, commencing at 10:00 a.m. Eastern Daylight Time,
on the later of (i) the business day after the last to be fulfilled or waived of
the conditions set forth in Article V shall be fulfilled or waived in accordance
with the provisions hereof but in no event later than December 31, 1997 or such
other date, time and place as the parties shall mutually agree.
VI.2 Transactions at Closing. At the Closing, each of the parties
shall deliver to the others such certificates and other documents as called for
by the terms of this agreement or as otherwise reasonably requested by such
parties and their respective counsel.
VII. INDEMNITY AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES,
AGREEMENTS AND COVENANTS AFTER CLOSING.
VII.1 Survival of Representations and Warranties of the Selling
Shareholders, Parent and Purchaser, and Indemnity.
VII.1.1 All representations, warranties, agreements,
covenants and obligations made or undertaken by the Parent, Purchaser and the
Selling Shareholders in this Agreement or in any document or instrument executed
and delivered pursuant hereto shall not merge in the performance of any
obligation by any party hereto but shall survive the Closing hereunder for the
period of time that a claim for indemnification can be made for a breach thereof
as set forth in Section 7.6.2 hereof; provided, however, that from and after the
Closing, all representations of the Acquired Company shall be deemed to be
representations of the Selling Shareholders only and the Acquired Company shall
have no liability, whether directly or indirectly by way of contribution, to the
Selling Shareholders for a breach thereof asserted by the Parent and/or the
Purchaser.
VII.1.2 Subject to the provisions of this Article VII, OMS
Holding, severally but not jointly, and each other Selling Shareholder, jointly
and severally, agrees to indemnify and hold Parent and/or Purchaser harmless
from and against all liability, loss, damages or injury and all reasonable costs
and expenses (including reasonable counsel fees and costs of any suit related
thereto) suffered or incurred by Purchaser, or Parent or the Acquired Company,
and not compensated by insurance, arising from any misrepresentation by, or
breach of any covenant or
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warranty of, the Acquired Company or any Selling Shareholder contained in this
Agreement, or any misrepresentation in any certificate or other instrument
furnished or to be furnished by the Acquired Company or any Selling Shareholder
hereunder.
VII.1.3 Subject to the provisions of this Article VII,
Parent and Purchaser agree to indemnify and hold each Selling Shareholder
harmless from and against all liability, loss, damage or injury and all
reasonable costs and expenses (including reasonable counsel fees and costs of
any suit related thereto) suffered or incurred by such Selling Shareholder
arising from any misrepresentation by, or breach of any covenant or warranty of,
Parent or Purchaser contained in this Agreement or any misrepresentation in or
omission from any certificate or instrument furnished or to be furnished by
Purchaser hereunder.
VII.2 Notice of Asserted Liability. Promptly after receipt by an
indemnified party hereunder of notice of any demand, claim or circumstances
which, with or without the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a loss subject to
indemnification under this Agreement, such indemnified party shall give notice
thereof (the "Claims Notice") to the indemnifying party. The Claims Notice shall
describe the Asserted Liability in reasonable detail and shall indicate the
amount (estimated, if necessary) of the loss that has been or may be suffered by
such indemnified party.
VII.3 Opportunity to Defend. The indemnifying party may elect (with the
Selling Shareholders being deemed one indemnifying party that acts through the
Selling Shareholders' Representative in making such election and taking all
other actions specified in this Article VII) to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability; provided, however, that
the indemnifying party may not compromise or settle any Asserted Liability
without the consent of the indemnified party unless such compromise or
settlement requires no more than a monetary payment for which the indemnified
party hereunder is fully indemnified or involves other matters not binding upon
the indemnified party and such compromise or settlement includes an
unconditional release of the indemnified party. If the indemnifying party elects
to compromise or defend such Asserted Liability, the Selling Shareholders'
Representative or Parent or Purchaser, as the case may be, shall within ten (10)
ten business days after receipt of notice thereof (or sooner, if the nature of
the Asserted Liability so requires) notify the indemnified party of his or its
intent to do so, and the indemnified party shall cooperate, at the expense of
the indemnifying party with respect to out-of-pocket expenses of the indemnified
party, in the compromise of or defense against such Asserted Liability. The
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assumption of the defense of a matter by an indemnifying party shall be deemed
an admission by such indemnifying party of its obligation to indemnify the
indemnified party hereunder with respect to such claim. If the indemnifying
party elects not to compromise or defend the Asserted Liability, fails to notify
the indemnified party of its election as herein provided or contests its
obligation to indemnify, the indemnified party or parties may pay, compromise or
defend such Asserted Liability in respect of any Asserted Liability for which
the indemnifying party may have an indemnification obligation. In any event, the
indemnified party and the indemnifying party may participate in the defense of
such Asserted Liability in respect of any Asserted Liability for which the
indemnifying party may have an indemnification obligation; provided that if the
indemnifying party assumes the defense and compromise of such Asserted Liability
as provided above, then the indemnified party shall bear any expenses incurred
in participating in such defense from and after the assumption of the defense
thereof by the indemnifying party.
VII.4 No Claim Against Acquired Company. Since following the Closing
the Acquired Company will be owned by Purchaser, the parties agree that the
Selling Shareholders will have no right of reimbursement or contribution against
the Acquired Company on account of any indemnified loss hereunder, and any
liability, loss, damage or injury suffered or incurred by the Acquired Company
against which Parent or Purchaser are indemnified and held harmless as provided
in Section 7.1 of this Agreement shall be deemed suffered by Parent and
Purchaser, which shall, either independently or jointly with the Acquired
Company, be entitled to enforce such indemnity.
VII.5 Indemnification Payments. Without limiting the rights of Parent
and Purchaser hereunder, any indemnification payment due, as determined by
either (i) a written agreement between the Parent, Purchaser and the Selling
Shareholders, or (ii) a final non-appealable order of a court of competent
jurisdiction, to the Selling Shareholders under this Article VII, may be
collected from the Escrow Fund pursuant to the terms of the Escrow Agreement so
long as the Escrow is in existence.
VII.6 Limitations.
VII.6.1 Notwithstanding the provisions of Section 7.1.2 above,
The Selling Shareholders shall not be required to make any indemnification
payments under Section 7.1.2 until the aggregate amount of losses suffered by
Purchaser that are subject to indemnification under such Section exceed $100,000
(the "Minimum Indemnity Amount"), at which time claims may be asserted for all
amounts up to and in excess of the Minimum Indemnity Amount. All claims for
indemnity shall be asserted first against the Escrow until the Escrow Claims
Termination Date. To the
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extent that the Escrow Fund is not sufficient to cover all indemnity claims or
such arises after the Escrow Claims Termination Date, the excess of such claims
(an "Escrow Fund Deficiency Claim") shall be paid by the Selling Shareholders
subject to the following limitations:
(a) OMS Holding shall not be required to make any indemnification
payments under Section 7.1.2 for an Escrow Fund Deficiency Claim resulting from
a breach of the Limited Representations and Warranties unless OMS Holding or its
parent had knowledge of the underlying facts and circumstances giving rise to
the misrepresentation or breach of warranty which cause such indemnity claim.
This shall not, however, prohibit the Parent from seeking indemnification in
full from the Selling Shareholders other than OMS Holding for an Escrow Fund
Deficiency Claim related to the breach of a Limited Representation and Warranty,
whether or not such other Selling Shareholders had knowledge of the facts and
circumstances giving rise to the breach of the Limited Representation and
Warranty.
(b) Neither Selling Shareholders nor the Escrow Fund shall be
required to make any indemnification payments under Section 7.1.2 above to the
extent that the loss, damage, cost or expense underlying the indemnification
claim by Parent or Purchaser has been taken into account by a reduction in the
book value net worth of the Acquired Company as of the Closing Date as provided
in the Final Closing Balance Sheet.
(c) The liability of any Selling Shareholder hereunder shall not
exceed the Cash Purchase Price Amount less any Upward or Downward Purchase Price
Adjustment Amount received by such Selling Shareholder (the "Maximum Liability
Amount").
(d) Indemnification under the provisions of this Article VII
shall be Parent's and Purchaser's exclusive remedy with respect to any loss,
damage, injury, cost, expense, liability, or other obligation incurred or
suffered arising out of, or relating to this Agreement, or any of the
transactions contemplated hereby, or Selling Stockholders' and the Acquired
Company's performance, non-performance, or breach of its or their duties,
covenants, or obligations, or any misrepresentation under the representations or
warranties made or given in this Agreement; except a claim for a Downward
Purchase Price Adjustment pursuant to Section 2.2.2.2 above, or for fraud or
intentional material misrepresentation or omission.
VII.2 Notwithstanding the provisions of Section 7.1 above, no
claim for indemnification under this Agreement may be made after March 31, 1999,
unless notice of such claim or the facts underlying it is given to the
indemnifying party prior to March 31, 1999; provided, however, that the
foregoing restriction
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shall not apply with respect to (i) any liability, loss, damage, injury or claim
by Parent or Purchaser resulting from a breach of the covenants, representations
and warranties set forth in Sections 2.1, 2.2.2, 3.2, 3.3, 3.6, 9.2 or 9.4 or
from a breach of the covenants contained in Section 2.3.1 to the extent they
pertain to the making of a payment described in subparagraph (f) thereof or in
Section 3.10.8 and 3.10.9 or resulting from fraud or intentional material
misrepresentation or omission on the part of the Selling Shareholders or the
Acquired Company, and (ii) any liability, loss, damage, injury or claim by the
Selling Shareholders resulting from a breach of the covenants, representations
and warranties set forth in Sections 2.2.2, 4.1, 4.2, 9.2 or 9.4; provided
further that any claim based upon any of the matters described in subsection (i)
or (ii) may be brought at any time, subject to any applicable statutes of
limitation.
VIII. TERMINATION.
VIII.1 Termination by Mutual Consent. This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing Date, by the mutual consent of the Parent and the Acquired
Company.
VIII.2 Termination by Either Parent or Acquired Company. This Agreement
may be terminated and the transactions contemplated by this Agreement may be
abandoned by action of the Board of Directors of either the Parent or the
Acquired Company if (a) the Closing shall not have been consummated by December
31, 1997 or (b) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling, or
other action shall have become final and non-appealable; provided that the party
seeking to terminate this Agreement pursuant to this clause (b) shall have used
all reasonable efforts to remove such injunction, order or decree; and provided
further, in the case of a termination pursuant to clause (a) above, that the
terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Closing by the close of business on
December 31, 1997.
VIII.3 Termination by Selling Shareholders' Representative. This
Agreement may be terminated and the transactions contemplated by this Agreement
may be abandoned at any time prior to the Closing Date, by action of the Selling
Shareholders' Representative, if there has been a material breach
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by the Purchaser or the Parent of any of the covenants or agreements of the
Purchaser or the Parent set forth in this Agreement.
VIII.4 Termination by Parent. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing Date, by action of the Board of Directors of the Parent, if (a)
there has been a breach by the Acquired Company of any representation or
warranty contained in this Agreement which would have or would be reasonably
likely to have an Acquired Company Material Adverse Effect, or (b) there has
been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the Acquired Company.
VIII.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the transactions
contemplated by this Agreement pursuant to this Article VIII, all obligations of
the parties hereto shall terminate, except the obligations of the parties
pursuant to this Section 8.5 and except for the provisions of Article VIII.
Moreover, in the event of termination of this Agreement pursuant to Section 8.3
or 8.4, nothing herein shall prejudice the ability of the non-breaching party
from seeking damages from any other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any remedy
at law or in equity.
VIII.6 Extension, Waiver. At any time prior to the Closing Date, any
party hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the presentations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
VIII.7 Risk of Loss. The Acquired Company assumes all risk of
condemnation, destruction, loss or damage due to fire or other casualty from the
date of this Agreement up to the Closing. If the condemnation, destruction,
loss, or damage is such that the business of the Acquired Company is materially
interrupted or curtailed or the value of the assets of the Acquired Company is
materially adversely affected after taking into account all applicable insurance
proceeds, then Parent shall have the right to terminate this Agreement. If the
condemnation, destruction, loss, or damage is such that the business of the
Acquired Company is neither materially interrupted nor curtailed nor its asset
value
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materially affected after taking into account all applicable insurance proceeds,
or if the business is materially interrupted or curtailed or the asset value is
so materially affected and Parent nevertheless forgoes the right to terminate
this Agreement, the purchase price shall be adjusted at the Closing to reflect
such condemnation, destruction, loss, or damage to the extent that applicable
insurance proceeds are not sufficient to cover such destruction, loss or damage.
If Parent, on the one hand, and the Acquired Company, on the other hand, are
unable to agree upon the amount of such adjustment, the dispute shall be
resolved by arbitration in Tampa, Florida, in accordance with the rules and
regulations of the American Arbitration Association. The decision of such
arbitration shall be final and binding.
IX. GENERAL PROVISIONS.
IX.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
certified mail, return receipt requested, first class postage prepaid, or sent
by Federal Express or similarly recognized national overnight delivery service
with receipt acknowledged, addressed as follows:
IX.1.1 If to the Acquired Company:
OMS Incorporated
81 Hartwell Ave.
Lexington, MA 02173
Attn: Owen McKenna
Fax: 781-863-0464
and to:
John E. Kreitler, Esq.
Shipman & Goodwin LLP
One American Row
Hartford, CT 06103-2819
Fax: 860-251-5900
IX.1.2 If to Parent or Purchaser:
Sykes HealthPlan Services, Inc.
3501 Frontage Road
Tampa, FL 33607
Fax: 813-289-9359
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and to:
David C. Shobe
Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 E. Kennedy Blvd.
Suite 1700
Tampa, FL 33602
Fax: 813-229-8313
IX.1.3 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail or by overnight delivery service, the
date on which such notice, request, instruction or document is received shall be
the date of delivery. In the event any such notice, request, instruction or
document is mailed or shipped by overnight delivery service to a party in
accordance with this Section 9.1 and is returned to the sender as
nondeliverable, then such notice, request, instruction or document shall be
deemed to have been delivered or received on the fifth day following the deposit
of such notice, request, instruction or document in the United States mail or
the delivery to the overnight delivery service.
IX.1.4 Any party hereto may change its address specified for
notices herein by designating a new address by notice in accordance with this
Section 9.1.
IX.2 Brokers. Parent and Purchaser, jointly and severally represent and
warrant to the Selling Shareholders and OMS Holding, severally but not jointly,
and the Selling Shareholders (other than OMS Holding), jointly and severally,
represent and warrant to Parent and Purchaser that no broker or finder has acted
for it or them or any entity controlling, controlled by or under common control
with it or them in connection with this Agreement, other than Salomon Brothers
which has acted as the Acquired Company's and the Selling Shareholders' advisor.
Parent agrees to indemnify and hold harmless the Acquired Company and the
Selling Shareholders against any fee, loss or expense arising out of any claim
by any broker or finder employed or alleged to have been employed by it, and the
Acquired Company and the Selling Shareholders agree to indemnify and hold
harmless Parent against any fee, loss, or expense arising out of any claim by
any broker or finder employed or alleged to have been employed by it, including
the fees of Salomon Brothers. It is understood and agreed that the fees of
Salomon Brothers will be paid by the Acquired Company either before or promptly
after the Closing, and will be treated as a pre-closing expense of the Acquired
Company for purposes of calculating the Final Closing Balance Sheet.
IX.3 Waiver. Any failure on the part of any party hereto to
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comply with any of its obligations, agreements or conditions hereunder may be
waived by any other party to whom such compliance is owed. No waiver of any
provision of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.
IX.4 Expenses. Except as otherwise provided herein, Purchaser and
Parent shall pay all their respective costs in connection with or related to the
negotiation, preparation, authorization, execution and consummation of this
Agreement and the Closing of the transactions contemplated hereby. The expenses
incurred by the Acquired Company and the Selling Shareholders in connection with
or related to the negotiation, preparation, authorization, execution and
consummation of this Agreement and the Closing of the transactions contemplated
hereby will be paid by the Acquired Company either before or promptly following
Closing, and will be treated as a pre-closing expense of the Acquired Company
for purposes of calculating the Final Closing Balance Sheet.
IX.5 Public Announcements. At all times at or before the Closing, the
Acquired Company and the Selling Shareholders, on the one hand, and the Parent,
on the other hand, will consult with one another before issuing or making any
reports, statements, or releases to the public with respect to this Agreement or
the transactions contemplated hereby and will use good faith efforts to agree on
the text of a joint public report, statement, or release or will use good faith
efforts to obtain the other parties' approval of the text of any public report,
statement, or release to be made solely on behalf of a party. If such parties
are unable to agree on or approve any such public report, statement, or release
and such report, statement, or release is, based on the advice of legal counsel
to a party, required by Law or appropriate to discharge such party's disclosure
obligations, then such party may make or issue the legally required or
appropriate report, statement, or release upon prior notice to the other parties
hereto.
IX.6 Confidentiality. The parties hereto will refrain from disclosing
to any other Person (i) any documents or information concerning the other party
furnished to it in connection with this Agreement or the transactions
contemplated hereby, and (ii) any documents or information concerning the other
party, unless (A) such disclosure is compelled by judicial or administrative
process or by other requirements of law and notice of such disclosure is
furnished to Parent; or (B) such confidential documents or information can be
shown to have been (x) previously known by the Person receiving such documents
or information, or (y) in the public domain through no fault of such Persons. If
for any reason the transactions contemplated by this
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Agreement are not consummated, the parties hereto agree that they will return
any and all such confidential information provided by any of them to the other
party so providing such information. The Confidentiality Agreement between the
parties hereto shall not be replaced by this provision but shall remain in place
in addition to this Agreement.
IX.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
IX.8 Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
IX.9 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
IX.10 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida (regardless of the laws that
might be applicable under principles of conflicts of law) as to all matters
including, but not limited to, matters of validity, construction, effect and
performance.
IX.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IX.12 Pronouns. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter gender as the context requires.
IX.13 Exhibits Incorporated. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such Exhibits, if any, will
be filled in as required in order to consummate the transactions contemplated
herein and in accordance with this Agreement.
IX.14 Time of Essence. Time is of the essence in this Agreement.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
"Parent"
SYKES HEALTHPLAN SERVICES, INC.
By:
--------------------------------
Title:
"Acquired Company":
OMS INCORPORATED
By:
--------------------------------
Title:
"Purchaser"
SHPS ACQUISITION CORP.
By:
--------------------------------
David E. Garner
Title:
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"Current Shareholders"
----------------------------------
Owen McKenna
----------------------------------
Stephen Holland, M.D.
----------------------------------
Mark Wellman
OMS HOLDING COMPANY
By:
----------------------------------
Title:
"Current Option Holders"
-----------------------------------
Robert Bargar, M.D.
-----------------------------------
David Deitz, M.D.
"Selling Shareholders"
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<PAGE> 48
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
1.1 Definitions.
2.2.1 Allocation of Consideration among the Selling Shareholders
2.6(a) List of Employees to Enter into Employment Agreements.
2.6(b) Forms of Employment Agreements for Employees.
2.9.1 Benefit Plans to be Terminated
2.12 Form of Selling Shareholder Consent and Power of Attorney
2.16 Form of Massachusetts Legal Opinion
5.2.2 Form of Certificate of the President of the Acquired Company.
5.2.3 Form of Opinion of Counsel for the Acquired Company.
5.2.8 Form of Escrow Agreement
5.2.10(a) BCBSC License Agreement Extension
5.2.10(b) BCBSC Consulting Agreement
5.3.2 Officer's Certificate of Parent and Purchaser.
5.3.3 Form of Opinion of Counsel for Parent and Purchaser.
</TABLE>
(i)
<PAGE> 49
EXHIBIT 1.1
DEFINED TERMS
As used herein, the following terms shall have the following meanings unless the
context otherwise requires:
<TABLE>
<S> <C>
1. "Acquired Company" shall mean OMS Incorporated, a Massachusetts
corporation.
2. "Acquired Company Material Adverse Effect" shall mean a material
adverse effect on the business, prospects, results of operation or
condition (financial or otherwise) of the Acquired Company.
3. "Acquired Company Material Adverse Event" shall mean an event which
causes an Acquired Company Material Adverse Effect.
4. "Acquired Company Software" shall have the meaning set forth in Section
3.14.2(iii).
5. "Adjustment Payment" shall mean the payment of either the undisputed
portion of the Downward Purchase Price Adjustment Amount, or the
payment the undisputed portion of the Upward Purchase Price Adjustment
Amount, as the case may be.
6. "Affiliate" shall mean, with respect to a Person, any other Person
which is required to be aggregated with such Person under Code ss.
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
7. "Agreement" shall mean this Acquisition Agreement.
8. "Alternative Proposal" shall have the meaning ascribed thereto in
Section 2.11.
9. "Asserted Liability" shall have the meaning set forth in Section 7.2.
10. "BCBSC" shall mean Anthem Health Plans, Inc. d/b/a Anthem Blue Cross
and Blue Shield of Connecticut.
11. "Benefit Plans" shall have the meaning set forth in Section 3.17.1.
12. "Cash Purchase Price Amount" means the sum of $10,000,000.00 (U.S.).
13. "Claims Notice" shall have the meaning set forth in Section 7.2.
</TABLE>
(i)
<PAGE> 50
<TABLE>
<S> <C>
14. "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 6.1 hereof.
15. "Closing Balance Sheet" means the balance sheet of the Company as of
the close of business on the Closing Date prepared by the Parent and
the Company in accordance with GAAP except as otherwise provided in
this Agreement.
16. "Closing Date" shall mean the date on which the Closing occurs pursuant
to Section 6.1 hereof.
17. "Code" shall mean the Internal Revenue Code of 1986, as amended.
18. "Current Option Holders" shall mean Robert Bargar, M.D. and David
Deitz, M.D.
19. "Current Shareholders" shall mean Owen McKenna, Stephen Holland, M.D.,
Mark Wellman and OMS Holding Company
20. "Disclosure Letter" shall mean the letter delivered to Parent by the
Acquired Company and the Selling Shareholders simultaneously with the
execution of this Agreement containing certain requested disclosures
concerning the Acquired Company.
21. "Downward Purchase Price Adjustment Amount" shall have the meaning set
forth in Section 2.2.2.2.
22. "Employees" shall have the meaning set forth in Section 2.9.2.
23. "Employment Agreements" shall mean those Employment Agreements among
the entities and those individuals set forth in Exhibit 2.6(a),
substantially in the form attached as Exhibit 2.6(b), each of which may
be referred to individually as an "Employment Agreement."
24. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
25. "ERISA Plan" shall have the meaning set forth in Section 3.17.1.
26. "Escrow Agent" means NationsBank N.A. or such other financial
institution as the Purchaser and the Selling Shareholders may agree
upon to hold the Escrow Amount pursuant to the Escrow Agreement.
27. "Escrow Agreement" means the escrow agreement in form or substance
reasonably satisfactory to Purchaser, the Selling
</TABLE>
(ii)
<PAGE> 51
<TABLE>
<S> <C>
Shareholders and the Escrow Agent pursuant to which the Escrow Amount
will be held by the Escrow Agent.
28. "Escrow Amount" means the sum of $500,000 (U.S.).
29. "Escrow Claims Terminate Date" shall mean June 30, 1998.
30. "Escrow Fund" is defined as set forth in the Escrow Agreement.
31. "Final Closing Balance Sheet" means the Final Closing Balance Sheet
specified in Section 2.2.2.1.
32. "Financial Statements" shall have the meaning set forth in Section
3.5.1.
33. "GAAP" shall mean Generally Accepted Accounting Principles formulated
by the American Institute of Certified Public Accountants as in effect
from time to time during the term of this Agreement.
34. "Hazardous Substance" shall have the meaning set forth in Section 3.19.
35. "Interim Financial Statements" shall have the meaning set forth in
Section 3.5.1.
36. "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
37. "Limited Representations and Warranties shall mean the representations
and warranties contained in Sections 3.5.2, 3.6, 3.7.1, 3.8, 3.10
(except 3.10.1, 3.10.3, 3.10.8 and 3.10.10), 3.11 through 3.17 (except
that the last sentence of Section 3.14.1 and the first sentence of
Section 3.12 shall not be considered a Limited Representation and
Warranty), 3.19 and 3.21 through 3.23.
38. "Material Agreements" shall have the meaning set forth in Section
3.13.11.
39. "Maximum Indemnity Amount" shall have the meaning set forth in Section
7.6.1.
40. "Minimum Indemnity Amount" shall have the meaning set forth in Section
7.6.1.
41. "Owned Software" shall have the meaning set forth in Section 3.14.2(i).
42. "Parent" shall mean Sykes HealthPlan Services, Inc., a Florida
corporation.
</TABLE>
(iii)
<PAGE> 52
<TABLE>
<S> <C>
43. "Permitted Employee Distributions" shall have the meaning set forth in
Section 2.3.1.
44. "Person" shall include, but is not limited to, an individual, a trust,
an estate, a partnership, an association, a company, a corporation, a
limited liability company, a sole proprietorship, a professional
corporation or a professional association.
45. "Plan Transfer Date" shall have the meaning set forth in Section 2.9.1.
46. "Product Liability" shall have the meaning ascribed thereto in Section
3.15.
47. "Purchaser" shall mean SHPS Acquisition Corp., a Florida corporation.
48. "Real Property" shall have the meaning set forth in Section 3.19.
49. "Schedule" shall mean the schedules contained in the Disclosure Letter.
50. "Selling Shareholders" shall mean the shareholders of the Acquired
Company at the Closing Date, each of which may be referred to
individually as a "Selling Shareholder."
51. "Selling Shareholders Consent" shall have the meaning set forth in
Section 2.12.
52. "Selling Shareholders' Representative" shall have the meaning set forth
in Section 2.12.
53. "Settlement Auditor" shall mean a big-six accounting firm to be
mutually agreed upon by the parties. If for any reason such accounting
firm shall not be available to resolve such issues, Seller and
Purchaser shall promptly contact the national office of, and shall
retain the services of, another big-six accounting firm. If Seller and
Purchaser cannot agree on such accounting firm to be retained, Seller
and Purchaser shall each submit the name of another big-six independent
accounting firm which does not at the time provide, and has not in the
prior two years provided, significant services to Seller or Purchaser,
and the firm shall be selected by lot from these two firms.
54. "Shares" shall mean all of the issued and outstanding shares of capital
stock of the Acquired Company as of the time of the Closing.
</TABLE>
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<PAGE> 53
<TABLE>
<S> <C>
55. "Shrinkwrap Software" shall mean commercially available software which
is produced for the mass market and is subject to general licensing
terms applicable to all purchasers.
56. "Tax" or "Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments or Liabilities including without limitation income,
gross receipts, inventory, ad valorem, excise, real property, personal
property, sales, use, transfer, withholding, deed, license, employment,
payroll, and franchise taxes imposed by any governmental authority
(including any interest, fines, penalties, or additions attributable to
any such tax or any contest or dispute thereof).
57. "Tax Return" or "Return" shall mean any report, return, statement or
other written information required to be supplied to a taxing authority
in connection with Taxes.
58. "Upward Purchase Price Adjustment Amount" shall have the meaning set
forth in Section 2.2.2.2.
</TABLE>
(v)
<PAGE> 54
SCHEDULES TO THE DISCLOSURE LETTER
<TABLE>
<CAPTION>
Schedule
<S> <C>
2.3.1 Conduct of Business Prior to Closing
2.3.2 Bank Accounts, Safe Deposit Boxes and Powers of Attorney
2.10 Affiliated Assets and Contracts
3.1.2 Jurisdiction of Incorporation and Foreign Jurisdictions where there is Good Standing Status
3.1.4 Residence of Selling Shareholders
3.2 Certificate of Incorporation and Bylaws of the Acquired Company
3.3 Capitalization of the Acquired Company
3.4 Equity Investments
3.5.1(a) 1994, 1995, 1996 and eight-month Interim 1997 Financial Statements
3.5.1(b) Liabilities Not Disclosed in the Financial Statements and the Interim Financial Statements
and Undisclosed Liabilities
3.7 Assets and Leases; Encumbrances
3.8(a) Aged Accounts Receivable
3.8(b) Accounts Receivable Over Thirty Days Old
3.9 Required Consents
3.10 Changes
3.11 Litigation
3.12 Licenses and Permits and Noncompliance with Laws
3.13 Contracts
3.14.1 Trademarks, Trade Names, Service Marks, Service Names, Etc.
</TABLE>
(i)
<PAGE> 55
<TABLE>
<S> <C>
3.14.2(i) Owned Software
3.14.2(ii) Licensed Software, Problems with Software Licenses
3.14.2(iii) Computer Programming Services Providers and agreements
3.14.2(iv)(a) Marketing Rights Received
3.14.2(iv)(b) Marketing Rights Granted to Third Parties
3.15 Product Warranties and Liabilities
3.16 Highly Compensated Employees and their Compensation, Union Activities and Labor Disputes
3.17 Benefit Plans
3.17.8 Undisclosed Current or Future Liability Under Benefit Plans
3.17.9 Benefit Plans Providing Deferred or Stock Based Compensation
3.17.10 Benefit Plans Providing Post Separation Benefits
3.18 Customers, Addresses, Telephone Numbers and Principal Person of Contact and Problems with
Customer
3.19 Environmental Matters
3.20 Insurance Matters
3.21 Related Party Relationships
</TABLE>
(ii)
<PAGE> 1
EXHIBIT 10.11
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (the "Agreement"), made this
11th day of February, 1998, is entered into by and among Sykes HealthPlan
Services, Inc., a Florida corporation (hereinafter referred to as the
"Purchaser"), Sykes HealthPlan Services Acquisition Corporation, a Florida
corporation (the "Merger Subsidiary"), and Health International Inc., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of the Purchaser,
Merger Subsidiary and the Company have approved the merger (the "Merger") of the
Merger Subsidiary with and into the Company upon the terms and subject to the
conditions set forth in this Agreement, in accordance with the Florida General
Corporation Law and the General Corporation Law of the State of Delaware (the
"Acts"), with the effect that the Company will become a wholly-owned subsidiary
of the Purchaser;
WHEREAS, concurrently with the execution of this Agreement,
also in order to induce the Purchaser to enter into this Agreement, the
Purchaser is entering into a Support/Voting Agreement (the "Support/Voting
Agreement") with the Supporting Shareholders providing for certain voting and
other restrictions with respect to the shares of the Company Common Stock as
defined herein which are owned by such shareholders.
NOW, THEREFORE, in consideration of the premises and the
mutual promises, representations, warranties and covenants hereinafter set
forth, the parties hereto agree as follows:
I. DEFINITIONS. The capitalized terms used herein will have the
meanings ascribed to them in Exhibit 1.1 hereto. Unless the context otherwise
requires, such capitalized terms will include the singular and plural and the
term "including" shall mean "including but not limited to." Wherever in this
Agreement reference is made to the knowledge of the Company it means the
individual actual knowledge of Donald K. Kelly, M.D., Suzanne D. Kelly, and Mike
Peerboom.
II. COVENANTS AND UNDERTAKINGS.
II.1 The Merger. At the Effective Time and in accordance with the
provisions of this Agreement and the Acts, the Merger Subsidiary will be merged
with and into the Company in the Merger, the separate corporate existence of the
Merger Subsidiary shall thereupon cease, and the Company shall be the surviving
corporation (the "Surviving Corporation").
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II.2 Effective Time of Merger. The Merger shall become effective at the
time on the Closing Date (the "Effective Time") of filing of Articles of Merger
with the Department of State of the State of Florida and Articles of Merger with
the Secretary of State of the State of Delaware in accordance with the
provisions of the Acts.
II.3 Effects of Merger. Subject to the Acts, at the Effective Time, the
Merger shall have the following effects:
II.3.1 Conversion of Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any
shares of capital stock of the Purchaser or the Company:
II.3.1.1 each share of Merger Subsidiary Common Stock
that is issued and outstanding immediately prior to the
Effective Time shall remain outstanding;
II.3.1.2 each share of Company Common Stock that is
issued and outstanding immediately prior to the Effective
Time, except for Dissenting Shares, shall be converted into
the right to receive the Per Share Closing Cash Consideration;
II.3.1.3 each outstanding certificate representing
shares of Company Common Stock, except for Dissenting Shares,
shall be deemed, for all purposes, to evidence only the right
to receive upon surrender of such certificate the
consideration into which such shares of Company Common Stock
are convertible; and
II.3.1.4 each share of Company Common Stock that is
owned by the Company immediately prior to the Effective Time
as treasury stock will be canceled and retired and will cease
to exist, without any conversion thereof.
II.3.1.5 Notwithstanding anything in this Section 2.3
to the contrary, shares of Company Common Stock which are
issued and outstanding immediately prior to the Effective Time
and which are held by Shareholders who have not voted such
shares in favor of the Merger and who shall have properly
exercised their rights of appraisal for such shares in the
manner provided by the Delaware General Corporation Law (the
"Dissenting Shares") shall evidence only the right to receive
the amount, if any, determined to be payable thereon pursuant
to the applicable appraisal rights statute and shall not be
converted or exchangeable for the right to receive the Per
Share Closing Cash Consideration set
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forth herein, unless and until such holder shall have failed
to perfect or shall have effectively withdrawn or lost such
holder's right to appraisal and payment, as the case may be.
If such Shareholder shall have failed to so perfect or shall
have effectively withdrawn or lost such right, such
Shareholder's shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Per Share Closing
Cash Consideration set forth herein without any interest
thereupon. The Company shall give the Purchaser prompt notice
of any Dissenting Shares (and shall also give the Purchaser
prompt notice of any withdrawals of such demands for appraisal
rights) and the Purchaser shall have the right to direct all
negotiations and proceedings with respect to any such demands.
The Company shall not, except with the prior written consent
of the Purchaser, voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for
appraisal rights.
II.4 Exchange of Certificates.
II.4.1 Exchange Agent. Not later than the Effective Time,
the Purchaser shall deposit with the Exchange Agent for the benefit of Company
Shareholders, for exchange in accordance with this Section 2.4, cash in the
amount of the Closing Cash Consideration (hereinafter referred to as the
"Exchange Fund").
II.4.2 Exchange Procedures for Certificates Representing
Shares. No later than five (5) days following the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into the
right to receive the Per Share Closing Cash Consideration pursuant to Section
2.3 (i) a letter of transmittal (which shall specify that delivery shall be
effected, and that risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates (or affidavits of loss in lieu thereof) to the
Exchange Agent and shall be in such form and have such other provisions as the
Purchaser may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for the Per Share Closing Cash
Consideration as set forth herein. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with a duly executed and complete
letter of transmittal, the holder of such Certificate shall be entitled to
receive in exchange therefor as soon thereafter as possible either a wire
transfer of same day funds (if the Shareholder pays all wire transfer fees) or a
check, at the Shareholder's option, representing the amount of the Per Share
Closing Cash
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Consideration multiplied by the number of shares represented by such
certificate(s), after giving effect to any required withholding tax, if any, and
the shares represented by the Certificate so surrendered shall be canceled
forthwith. No interest will be paid or accrued on the Per Share Closing Cash
Consideration. In the event of a transfer of ownership of shares of Company
Common Stock which is not registered on the transfer records of the Company, the
transferee shall only be entitled to the Per Share Closing Cash Consideration
for each share so transferred if the Certificate representing such shares of
Company Common Stock held by such transferee is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.4, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon surrender the Per Share Closing Cash Consideration as provided in
this Article II.
II.4.3 Distributions with Respect to Unexchanged Shares.
Notwithstanding any other provisions of this Agreement, no part of the Per Share
Closing Cash Consideration shall be paid to any holder, until the holder shall
surrender the Certificate as to which such Per Share Closing Cash Consideration
relates as provided in this Section 2.4.
II.4.4 No Further Ownership Rights in Company Common Stock.
The Per Share Closing Cash Consideration paid pursuant to this Article II shall
be deemed to have been issued in full satisfaction of all rights pertaining to
the shares of Company Common Stock and from and after the Effective Time there
shall be no further registration of transfers on the stock transfer books of the
Company of shares of Company Common Stock. If, after the Effective Time,
Certificates are presented to the Purchaser or the Company for any reason, they
shall be canceled and exchanged as provided in this Section 2.4.
II.4.5 Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to Company Shareholders for six months
after the Effective Time shall be delivered to the Purchaser, upon demand
thereby, and holders of shares of Company Common Stock who have not theretofore
complied with this Section 2.4 shall thereafter look only to the Purchaser for
payment of any claim to the Per Share Closing Cash Consideration.
II.4.6 No Liability. None of the Purchaser, the Company or
the Exchange Agent shall be liable to any person in respect of any part of the
Per Share Closing Cash Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. If any Certificates
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<PAGE> 5
shall not have been surrendered prior to seven years after the Effective Time of
the Merger (or immediately prior to such earlier date on which any part of the
Per Share Closing Cash Consideration would otherwise escheat to or become the
property of any governmental authority), any such cash, dividends or
distributions in respect of such Certificate shall, to the extent permitted by
the Acts, become the property of the Purchaser, free and clear of all claims or
interest of any person previously entitled thereto.
II.4.7 Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by the Purchaser, on
a daily basis. Any interest and other income resulting from such investments
shall be paid to the Purchaser upon termination of the Exchange Fund pursuant to
Section 2.4.5.
II.4.8 Lost, Stolen or Destroyed Certificates. In the event
any Certificate of Company Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Purchaser,
the posting by such Person of a bond in the amount of the Per Share Closing Cash
Consideration multiplied by the number of shares represented thereby as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Per Share Closing Cash Consideration upon receipt of
such affidavit in respect of the Company Common Stock represented by such
Certificate pursuant to this Agreement.
II.5 Treatment of Stock Options. Each holder of an option to
purchase shares of Company Common Stock that is outstanding at the Effective
Time (a "Company Option") shall prior to the Closing cancel and terminate such
options in exchange for a cash payment from the Company equal to (i) the total
number of shares of Company Common Stock subject to the unexercised portion of
such Company Option, determined by assuming that such Company Option is
immediately vested and exercisable in full, multiplied by (ii) the excess of (x)
the Per Share Option Consideration over (y) the per share exercise price
specified in such Company Option. The total amount paid by the Company in
cancellation of all the Company Options shall not exceed $2,606,000. The Company
shall take all action necessary to ensure that between the date of this
Agreement and the Effective Time, no outstanding options or other rights to
purchase Company securities are exercised except for the conversion of the
Company's Preferred Stock as contemplated by Section 3.3 hereof. Prior to the
Effective Time, the Company shall take all action necessary and shall cause all
Current Option Holders to take all action necessary to amend the Company's Stock
Option Plans and all outstanding option agreements thereunder so as to
accommodate the foregoing termination of all outstanding
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<PAGE> 6
options in exchange for the right to receive cash immediately prior to the
Effective Time. The actions to be taken by the Company with respect to the
Company Options pending the Closing, as described in this Section 2.5, shall
specifically be deemed to be contemplated and permitted by this Agreement,
notwithstanding any other provisions of this Agreement to the contrary. At the
Closing, the Purchaser will contribute $2,606,000 to the Company as a capital
contribution to replenish capital used by the Company in terminating the options
as specified in Section 2.5 above.
II.6 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Company shall become the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended as provided
by law.
II.7 Bylaws. The Bylaws in the form of Exhibit 2.7 hereto shall
become the Bylaws of the Surviving Corporation, until thereafter amended as
provided by law.
II.8 Directors. The directors of the Merger Subsidiary immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
II.9 Officers. The officers of the Surviving Corporation shall be
the officers of the Company at the Effective Time and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Certificate of Incorporation and
Bylaws of the Surviving Corporation, or as otherwise provided by law.
II.10 HSR Act Filings. As promptly as practicable after the
execution of this Agreement, and in any event not later than the fourteenth (14)
business day following the date of this Agreement, the Purchaser and the Company
shall, if required, in cooperation with each other, make the required filings in
connection with the transactions contemplated by this Agreement under the HSR
Act with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice, and, as promptly as practicable from time to time
thereafter, each party shall make all such further filings and submissions, and
take such further action, as may be required in connection therewith. The
Purchaser shall be solely responsible for payment of the fee required for making
applications under the HSR Act. The Purchaser and the Company shall each request
early termination of the waiting period with respect to such filings. Each party
shall furnish the other all information in its possession necessary for
compliance by the other with the provisions of this Section 2.10. The Purchaser
and
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<PAGE> 7
the Company shall each notify the other immediately upon receiving any request
for additional information with respect to such filings from either the
Antitrust Division of the Department of Justice or the Federal Trade Commission
and the party receiving the request shall use its best efforts to comply with
such request as soon as possible. Neither party shall withdraw any such filing
or submission without the written consent of the other party.
II.11 Conduct of the Business of the Company Prior to Closing.
Except (i) with the prior consent in writing of Purchaser, (ii) as provided
otherwise in this Agreement or (iii) as set forth on Schedule 2.11.1 of the
Disclosure Letter, the Company covenants that, between the date of this
Agreement and the Closing Date:
II.11.1 The Company will conduct its business only in the
ordinary course, and it will: (a) use its commercially reasonable efforts to
preserve the organization of the Company intact and to preserve the goodwill of
clients, customers and others having business relations with the Company; (b)
maintain the properties of the Company in the same working order and condition
as such properties are in as of the date of this Agreement, reasonable wear and
tear excepted; (c) keep in force at no less than the present limits all existing
bonds, letters of credit and policies of insurance insuring the Company, its
performance and its respective properties (except to the extent such bonds,
letters of credit and policies of insurance expire on their own terms and are
replaced or renewed with bonds, letters of credit and policies of insurance
containing substantially the same coverage as was contained in the expiring
bond, letter of credit and policy of insurance); (d) not enter into any
contract, commitment, arrangement or transaction of the type required to be
listed on Schedules 3.4, 3.7, 3.10,3.14.2(i), 3.14.2(ii) (unless the term of
such contract, commitment, arrangement or transaction does not exceed one year
and the aggregate amount of all payments due thereunder does not exceed
$100,000), 3.17 or 3.20 of the Disclosure Letter or suffer, permit or incur any
of the transactions or events described in Section 3.10 hereof (except for (i)
the payment of any health, disability and life insurance premiums which may
become due, (ii) contributions or distributions required to be made (and not
discretionary) pursuant to the terms of any Benefit Plans, hereinafter referred
to as "Permitted Employee Distributions")) to the extent such events or
transactions are within the control of the Company; (e) not make or permit any
change in the Company's Certificate of Incorporation or Bylaws, or in its
authorized, issued or outstanding securities; (f) not issue any security except
as contemplated by Section 2.5 hereof, or grant any stock option or right to
purchase any security of the Company, issue any security convertible into such
securities, purchase, redeem, retire or otherwise acquire any of such
securities, or agree to do any of the foregoing or declare,
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<PAGE> 8
set aside or pay any dividend or other distribution in respect of such
securities; (g) not make any contribution to or distribution on behalf of or to
any employee of the Company (except Permitted Employee Distributions); (h) not
make any capital expenditure which when aggregated with all other capital
expenditures for the period exceeds the sum of $100,000; and (i) promptly advise
Purchaser in writing of any matters arising or discovered after the date of this
Agreement which, if existing or known at the date hereof, would be required to
be set forth or described in this Agreement or the Disclosure Letter.
II.11.2 The Company will not make any material change in its
respective banking or safe deposit arrangements or grant any powers of attorney.
A list of all bank accounts, safe deposit boxes (and the contents thereof) and
powers of attorney of the Company and of all persons authorized to act with
respect thereto is set forth in Schedule 2.11.2 of the Disclosure Letter.
II.11.3 Except as otherwise required by GAAP, the Company
will not make any changes in its accounting methods or practices.
II.11.4 The Company will not (i) allow its capitalized lease
obligations on the Closing Date to be greater than $800,000 plus any capitalized
leases approved by Purchaser after the date of this Agreement or otherwise
permitted by this Agreement less normal amortization accruals since September
30, 1997, (ii) allow its adjusted working capital defined as current assets but
excluding the effect of any option payments or capital contributions
contemplated by Section 2.5 hereof, less current liabilities as determined in
accordance with GAAP to be less than $2,660,307 exclusive of any Transaction
Expenses on the Closing Date, or (iii) allow any material negative change in the
equipment, other assets or liability accounts as these accounts existed on the
Financial Statements at December 31, 1997, other than for normal depreciation of
equipment and for Transaction Expenses.
II.12 Intercompany Accounts and Services. Prior to or at the
Closing, the Company will take all actions necessary to settle as of the Closing
all cash overdrafts, loans, advances, intercompany payables or receivables,
indebtedness and other accounts between the Company, on the one hand, and any
employee or any Affiliate of any employee.
II.13 Examination of Property and Records. Between the date of this
Agreement and the Closing Date, the Company will allow Purchaser, its counsel
and other representatives full access to all the books, records, files,
documents, assets, properties, contracts and agreements of the Company which may
be reasonably requested, and shall furnish Purchaser, its officers and
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representatives during such period with all information concerning the affairs
of the Company which may be reasonably requested. Purchaser will conduct any
investigation in a manner which will not unreasonably interfere with the
business of the Company.
II.14 Employment Agreements. The Company will use its commercially
reasonable efforts to cause those employees identified on Exhibit 2.14(a) to
enter into, at the Closing, Employment Agreements substantially in the form set
forth in Exhibit 2.14(b).
II.15 Consents and Approvals. The Company will use its commercially
reasonable efforts to obtain the waiver, consent and approval of all Persons
whose waiver, consent or approval (i) is required or advisable in order to
consummate the transactions contemplated by this Agreement or (ii) is required
by any material agreement, lease, instrument, arrangement, judgment, decree,
order or license to which the Company or any Affiliate of the Company is a party
or subject to on the Closing Date and (a) which would prohibit, or require the
waiver, consent or approval of any Person to such transactions or (b) under
which, without such waiver, consent or approval, such transactions would
constitute an occurrence of default under the provisions thereof, result in the
acceleration of any obligation thereunder or give rise to a right of any party
thereto to terminate its obligations thereunder. All required written notices,
waivers, consents and approvals from Persons are listed on Schedule 3.9 of the
Disclosure Letter and except as waived by the Purchaser in writing, at or prior
to Closing, the consents shall be produced at Closing in form and content
reasonably satisfactory to Purchaser.
II.16 Access to Business Records. Prior to Closing, the Company
shall cause any Controlling Shareholder or any Affiliates thereof, who possess
documents required for the performance of the Company's businesses to transfer
such documents to the Company. Such Controlling Shareholders may make copies or
extracts from such books and records prior to transfer at their sole expense.
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II.17 Employee Matters.
II.17.1 After the Closing until such date as the Company's
employees commence participation in Purchaser's employee benefit plans, as
described in the next sentence (the "Plan Transfer Date"), Purchaser shall take
whatever action is necessary or appropriate to cause the Surviving Corporation
to maintain the participation, sponsorship and/or maintenance of all of the
Company's employee benefit plans except those identified on Exhibit 2.17.1. From
and after the Plan Transfer Date, all employees of the Company shall become
participants in the employee benefit plans and programs maintained by the
Purchaser for similarly situated employees of the Purchaser, which plans shall
be substantially comparable to those of the Company, except as otherwise
mutually agreed by the Company and the Purchaser. Such employee benefit plans
that are health benefit plans shall (i) recognize expenses and claims that were
incurred by such employees in the year in which the Closing Date occurs and
recognized for similar purposes under the Company's plans as of the Closing Date
and (ii) provide coverage (without any required waiting period) for pre-existing
health conditions to the extent covered under the applicable plans or benefit
programs of the Company as of the Closing Date. In addition, such employee
benefit plans and programs shall credit such employees with years of service
with the Company for all plan purposes, provided that no such crediting shall be
required to the extent that it would result in a duplication of benefits or
require contributions for years prior to the Closing Date.
II.17.2 The Company shall provide Purchaser with any
information which Purchaser shall reasonably request concerning the employees of
the Company (the "Employees"), and shall cooperate with, and assist, Purchaser
with respect to the commencement of participation of any Employee in the
Purchaser's benefit plans or arrangements.
II.18 Affiliated Contracts. At or prior to Closing, the Company
shall cause the Controlling Shareholders and their Affiliates to transfer to the
Company any contracts the revenues from which are included in the revenues of
the Company but which are in the name of the Controlling Shareholders or their
Affiliates and any assets which have been paid for by the Company but which are
owned by the Controlling Shareholders or their Affiliates, as opposed to the
Company. All such assets and contracts are listed on Schedule 2.18 of the
Disclosure Letter.
II.19 Alternative Proposals. Prior to the Closing Date, the Company
will not, nor shall it permit its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) to, initiate, solicit or encourage, directly or
indirectly,
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any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its shareholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or purchase of (i) all or any significant portion of the assets of
the Company, or (ii) 25% or more of the outstanding shares of Company Preferred
Stock and/or Company Common Stock (any such proposal or offer being hereinafter
referred to as an "Alternative Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Alternative Proposal (excluding the
transactions contemplated by this Agreement), or otherwise facilitate any effort
or attempt to make or implement an Alternative Proposal; provided, however, that
nothing contained in this Agreement shall prevent the Company or its board of
directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal; (B) engaging in any negotiations or
discussions with or providing any information to any person in response to an
unsolicited bona fide written Alternative Proposal by any such Person, if and
only to the extent that, in each such case referred to above, the board of
directors of the Company believes in good faith (after consultation with its
financial advisors) that such Alternative Proposal is reasonably likely to be
capable of being completed, taking into account all legal, financial and
regulatory aspects of the proposal and the Person making the proposal and would,
if consummated, result in a transaction materially more favorable to the
Company's stockholders from a financial point of view than the transaction
contemplated by this Agreement and the board of directors of the Company
determines in good faith after consultation with outside legal counsel that such
action is required in order for its directors to comply with their respective
fiduciary duties under applicable law. Nothing in this Section 2.19 shall (x)
permit the Company to terminate this Agreement except as permitted by Section
7.3 hereof, (y) permit the Company to enter into any agreement with respect to
an Alternative Proposal for as long as this Agreement remains in effect (it
being agreed that for as long as this Agreement remains in effect, the Company
shall not enter into any agreement with any person that provides for, or in any
way facilitates, an Alternative Proposal), or (z) affect any other obligation of
the Company under this Agreement.
II.20 Indemnification. (a) For three (3) years after the Effective
Time, Purchaser shall provide each present and former director and officer of
the Company (when acting in such capacity) determined as of the Effective Time
(the "Indemnified Parties") with indemnification rights and the liability
insurance coverage at least as favorable to the Indemnified Parties in terms of
coverage amounts and terms of coverage amounts and terms as the coverage set
forth in the indemnity provisions and policies attached as Schedule 2.20 of the
Disclosure Letter which is the
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coverage existing on this date provided that if such insurance coverage is not
available at rates reasonably correspondent to the rates charged at the
Effective Time (adjusted for inflation), the Purchaser shall be obligated only
to buy such coverage as is available for such rates as can be commercially
obtained.
(b) If the Purchaser or any of its successors or assigns
(i) shall consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any Person,
then and in each such case, proper provisions shall be made so that the
successors and assigns of the Purchaser shall assume all of the obligations set
forth in this Section.
(c) The provisions of this Section are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified Parties,
their heirs and their representatives.
II.21 Letter of Credit. On or prior to February 20, 1998, the
Purchaser shall obtain a binding commitment in form and substance acceptable to
the Company from NationsBank N.A. in accordance with the application attached
hereto as Exhibit 2.21 to issue a Letter of Credit in favor of Donald K. Kelly,
M.D., Suzanne D. Kelly and Michael D. Peerboom (the "Company Officers")
guaranteeing in full all payments to be made to the Company Officers under and
for the full term of their respective employment agreements (the "Letter of
Credit"). On or prior to the Closing, the Purchaser shall deliver to the Company
and the Company Officers written evidence of (a) advance payment in full of all
payments under the Letter of Credit for a three-year term and (b) issuance by
the Bank of the Letter of Credit.
II.22 Net Worth Covenant. At the Effective Time, the Shareholders
Equity of the Company determined in accordance with GAAP applied on a basis
consistent with prior periods (after subtracting the Company option payments but
adding back the amount of the capital contribution by Purchaser called for by
Section 2.5) will not be less than $3,768,906 without taking into account the
Company's Transactional Expenses.
II.23 The Company will deliver to the Purchaser within five business
days of the execution of this Agreement an opinion of counsel acceptable to the
Purchaser to the effect that the Support/Voting Agreements are enforceable in
accordance with their terms except as enforceability may be limited by the
General Qualifications contained in Sections 11-14 and Limitations set forth in
Sections 18-20 set forth in the Legal Opinion Accord of the ABA Section of
Business Law (1991).
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III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
III.1 Residency, Organization, Standing and Foreign
Qualification.
III.1.1 The Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation as set forth in Schedule 3.1.1
of the Disclosure Letter and has full corporate power and authority to carry on
its business as it is now being conducted and to own and lease the properties
and assets which it now owns or leases.
III.1.2 The Company and each of its Subsidiaries is now, and
will be at Closing, duly qualified and/or licensed to transact business and in
good standing as a foreign corporation in the jurisdictions listed in Schedule
3.1.2 of the Disclosure Letter, and the character of the property owned or
leased by the Company and each of its Subsidiaries and the nature of the
business conducted by them do not require such qualification and/or licensing in
any other jurisdiction.
III.1.3 Except as disclosed in Schedule 3.1.3 of the
Disclosure Letter, the Company has no Subsidiaries.
III.2 Authority and Status/Ownership of Capital Stock.
III.2.1 The Company has the capacity and authority to execute
and deliver this Agreement, and to perform hereunder without the necessity of
any act or consent of any other Person whomsoever (except as listed on Schedule
3.9 of the Disclosure Letter). The execution, delivery and performance by the
Company of this Agreement and each and every agreement, document and instrument
provided for herein have been duly authorized and approved by the Board of
Directors of the Company. This Agreement and each and every agreement, document
and instrument to be executed, delivered and performed by the Company in
connection herewith constitute or will, when executed and delivered, constitute
the valid and legally binding obligations of such party enforceable against such
party in accordance with their respective terms, except as enforceability may be
limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally. Attached as Schedule
3.2.1 of the Disclosure Letter are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Company and of each Subsidiary of
the Company.
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III.2.2 Attached as Schedule 3.2.2 to the Disclosure Letter
is a true and complete list of the Shareholders of the Company as of a recent
date.
III.3 Capitalization. The authorized capital stock of the Company
consists of 5,000,000 shares of common stock, par value $0.10 per share, of
which 2,772,867 are issued and outstanding as of the date of this Agreement, and
1,000,000 shares of preferred stock, no par value ("Company Preferred Stock"),
of which 25 shares are issued and outstanding as of the date of this Agreement.
Prior to Closing, the Outstanding Preferred Shares will be converted to 50,000
shares of common stock and one warrant will be exercised for 4,000 shares of
common stock, leaving 2,826,867 shares of common issued and outstanding as of
the Effective Time. All outstanding securities of each Subsidiary of the
Company, the entire authorized capital stock, the amount of shares issued and
outstanding and the amount of shares held in treasury for each such Subsidiary
are as set forth on Schedule 3.3 of the Disclosure Letter. All of the
outstanding shares of the Company and each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of any preemptive rights.
Except as set forth on Schedule 3.3 of the Disclosure Letter, all of the
outstanding shares of each Subsidiary are owned by the Company, in each case
free and clear of all liens, claims, charges and encumbrances of any nature
whatsoever except those disclosed in Schedule 3.7 of the Disclosure Letter, and
the authorization or consent of no other person or entity is required in order
to consummate the transactions contemplated herein by virtue of any such person
or entity having an equitable or beneficial interest in the Company or the
capital stock of the Company. Except for options covering 511,000 shares of the
Common Stock of the Company as set forth on Schedule 3.3 of the Disclosure
Letter (which identifies all persons holding options with the amount so held,
the exercise price and the termination date thereof as well as whether such
options are considered qualified or nonqualified options under the Code), there
are no outstanding options, warrants, calls, commitments or plans by the Company
or any Subsidiary to issue any additional shares of its capital stock, to pay
any dividends on such shares or to purchase, redeem, or retire any outstanding
shares of its capital stock, nor are there outstanding any securities or
obligations which are convertible into or exchangeable for any shares of capital
stock of the Company or any Subsidiary.
III.4 Absence of Equity Investments. Except as described in Schedule
3.4 of the Disclosure Letter, the Company does not, either directly or
indirectly, own of record or beneficially any shares or other equity interests
in any corporation, partnership, limited partnership, joint venture, trust or
other business entity. No officer or director of the Company or any Subsidiary
or other Affiliate of such person, directly or indirectly, owns of
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record or beneficially any shares or other equity interests in any corporation
(except as a shareholder holding less than one percent (1%) interest in a
corporation whose shares are traded on a national or regional securities
exchange or in the over-the-counter-market), partnership, limited partnership,
joint venture, trust or other business entity, all or any portion of the
business of which is competitive with that of the Company.
III.5 Liabilities and Obligations of the Company.
III.5.1 Attached as Schedule 3.5.1(a) are true, correct and
complete copies of the Company's audited balance sheets as of September 30,
1995, 1996 and 1997 and the related statements of income and cash flows for the
fiscal years ending on September 30, 1995, 1996 and 1997 (the "Financial
Statements"). Also attached as Schedule 3.5.1(a) are true, correct and complete
copies of the Company's unaudited balance sheet as of December 31, 1997, and the
related unaudited statement of income and cash flows for the three-month period
then ended (the "Interim Financial Statements"). Except as specifically
described in Schedule 3.5.1(b), the Financial Statements and the Interim
Financial Statements fairly present the Company and its Subsidiaries' current
operations and financial condition as of the dates thereof.
III.5.2 Except as described in Schedule 3.5.1(a) and
3.5.1(b), the Company has no liability or obligation related to its assets or
business (whether accrued, absolute, contingent or otherwise), except for (i)
the liabilities and obligations of the Company that are disclosed or reserved
against in the Interim Financial Statements, to the extent and in the amounts so
disclosed or reserved against, (ii) liabilities that were incurred or accrued in
the ordinary course of the Company's business since the date of the Interim
Financial Statements, (iii) the liabilities and obligations of the Company under
the Material Agreements, and (iv) those nonmaterial liabilities and obligations
of the Company under all contracts and agreements other than the Material
Agreements.
III.6 Taxes. The Company has duly filed all federal, and material
state, local and foreign income, franchise, excise, real and personal property
and other Tax returns and reports (including, but not limited to, those filed on
a consolidated, combined or unitary basis) required to have been filed by the
Company prior to the date hereof. All of the foregoing returns and reports are
true and correct in all material respects, and the Company has paid or, prior to
the Closing Date, will pay all Taxes, interest and penalties required to be paid
in respect of the periods covered by such returns or reports to any federal,
state, foreign, local or other taxing authority. The Company has paid or made
adequate provision in the Interim Financial
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Statements for all Taxes payable in respect of all periods ending on or prior to
the date of the Interim Financial Statements. Neither the Company nor any of its
Subsidiaries has any material liability for any Taxes in excess of the amounts
so paid or reserves so established and neither the Company nor any of its
Subsidiaries is delinquent in the payment of any material Tax, assessment or
governmental charge and none of them has requested any extension of time within
which to file any returns in respect of any fiscal year which have not since
been filed. No deficiencies for any Tax, assessment or governmental charge have
been proposed in writing, asserted or assessed (tentatively or definitely), in
each case, by any taxing authority, against the Company or any of its
Subsidiaries for which there are not adequate reserves. Neither the Company nor
any of its Subsidiaries is the subject of any Tax audit. As of the date of this
Agreement, there are no pending requests for waivers of the time to assess any
such Tax, other than those made in the ordinary course and for which payment has
been made or there are adequate reserves. For the purposes of this Agreement,
the term "Tax" shall include all federal, state, local and foreign taxes
including interest and penalties thereon. The Company has not filed an election
under Section 341(f) of the Code to be treated as a consenting corporation.
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III.7 Ownership of Assets, Real Estate, Leases and Personal
Property. Schedule 3.7 of the Disclosure Letter is a complete and correct list
and brief description as of the date of this Agreement of all real property and
items of personal property which are owned and have a book value in excess of
$100,000 net of the reserve for depreciation, and all real property and all
material items of personal property which are leased or licensed by the Company
under leases relating to assets which are material to the operation of the
Company or which provide for payments throughout the lease term of more than
$25,000. The Company has good and marketable title to all of its property and
assets, other than leased or licensed property, including those listed and
described in Schedule 3.7 of the Disclosure Letter as owned property and assets,
in each case free and clear of any liens, security interests, claims, charges,
options, rights of tenants or other encumbrances, except as disclosed or
reserved against in Schedule 3.7 of the Disclosure Letter (to the extent and in
the amounts so disclosed or reserved against) and except for liens arising from
current Taxes not yet due and payable. Each of the leases, licenses and
agreements described in Schedule 3.7 of the Disclosure Letter is in full force
and effect and constitutes a legal, valid and binding obligation of the Company
and, to the knowledge of the Company, the other respective parties thereto and
is enforceable in accordance with its terms, except as enforceability may be
limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally, and there is not under
any of such leases, licenses or agreements existing any default of the Company
or any other parties thereto (or event or condition which, with notice or lapse
of time, or both, would constitute a default). Neither the Company nor any
Controlling Shareholder, has received any payment from a lessor or licensee in
connection with or as inducement for entering into a lease or license under
which it is a lessee or a licensee. All buildings, machinery and equipment owned
or leased by the Company are in good operating condition and reasonable state of
repair, subject only to ordinary wear and tear. The Company has not received any
notice of a violation of any applicable zoning regulation, ordinance or other
law, regulation or requirement relating to its operations and properties,
whether owned or leased, and, to the knowledge of the Company, there is no such
violation or grounds therefor which could have a Company Material Adverse
Effect. Except pursuant to this Agreement, neither the Company nor any
Controlling Shareholder is a party to any contract or obligation whereby there
has been granted to anyone an absolute or contingent right to purchase, obtain
or acquire any rights in any of the assets, properties or operations which are
owned by the Company or which are used in connection with the business of the
Company.
III.8 Accounts Receivable. All of the accounts receivable of
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the Company as of the date of the Interim Financial Statements are and as of
the Closing Date will have arisen in the ordinary course of business and
represent valid accounts which are not subject to offset or dispute except as
otherwise disclosed to Purchaser in Section 3.8 the Disclosure Letter. The
accounts receivables reserves reflected on the Interim Financial Statements are
as of such date established in accordance with GAAP consistently applied and
any reserves established after such date and prior to the Closing Date will
likewise be established in accordance with GAAP consistently applied. An aged
list of the Accounts Receivable of the Company as of the end of the last month
preceding the date of this Agreement is set forth on Schedule 3.8 of the
Disclosure Letter. To the best knowledge of the Company, the accounts
receivable of the Company are collectible in full net of any reserves thereon.
Except as set forth on Schedule 3.8, no accounts payable of the Company are, as
of the date of this Agreement, over thirty (30) days old.
III.9 Required Filings and Absence of Conflicts. Except as listed in
Schedule 3.9 of the Disclosure Letter, the execution and delivery of this
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of the Certificate of
Incorporation, as amended, or Bylaws, as amended, of the Company or any
Subsidiary or violate or constitute an occurrence of default under any provision
of, or conflict with, or result in acceleration of any obligation under, or give
rise to a right by any party to terminate its obligations under, any material
mortgage, deed of trust, conveyance to secure debt, note, loan, lien, lease,
agreement, instrument, or any order, judgment, decree or other material
arrangement to which the Company or any Subsidiary is a party or is bound or by
which the Company's assets are affected. Except as listed or described on
Schedule 3.9 of the Disclosure Letter, no consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
entity is required to be obtained or made by or with respect to the Company, any
Controlling Shareholder or any assets, properties or operations of the Company
or any Controlling Shareholder, in connection with the execution and delivery by
the Company of this Agreement or the consummation of the transactions
contemplated hereby.
III.10 Absence of Changes. Since September 30, 1997, neither the
Company nor any Subsidiary has, nor has anyone on its or their behalf, except as
disclosed on Schedule 3.10 of the Disclosure Letter or as permitted by Section
2.11 hereof:
III.10.1 Transferred, assigned, conveyed or liquidated into
current assets any of its assets or business or entered into any transaction or
incurred any liability or obligation, other than in the ordinary course of its
business;
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III.10.2 Suffered any Company Material Adverse Effect or
become aware of any event or state of facts which may result in any a Company
Material Adverse Effect;
III.10.3 Suffered any destruction, damage or loss to a
material asset or a group of assets that are in the aggregate material to the
business, whether or not covered by insurance;
III.10.4 Suffered, permitted or incurred the imposition of any
lien, charge, encumbrance (which as used herein includes, without limitation,
any mortgage, deed of trust, conveyance to secure debt or security interest) or
claim upon any of its assets, except for any current year lien with respect to
Taxes not yet due and payable;
III.10.5 Committed, suffered, permitted or incurred any
default in any liability or obligation;
III.10.6 Made or agreed to any adverse change in the terms of
any material contract or instrument to which it is a party;
III.10.7 Waived, canceled, sold or otherwise disposed of, for
less than the face amount thereof, any material claim or right which it has
against others or accelerated its collections or its efforts to collect accounts
receivable or otherwise deviated from its normal collection activities
consistent with historic practice in any material respect;
III.10.8 Declared, promised or made any dividend payment,
distribution or other payment to its Shareholders (other than the payment of
reasonable compensation for services actually rendered) or issued any additional
shares or rights, options or calls with respect to the Company's shares, or
redeemed, purchased or otherwise acquired the Company's shares except in
accordance with Section 2.5 hereof, or made any change whatsoever in the
Company's capital structure;
III.10.9 Paid, agreed to pay or incurred any obligation for
any payment for, any contribution or other amount to, or with respect to, any
employee benefit plan (except for the payment of health, disability and life
insurance premiums which had become due and except for contributions or
distributions required to be made (and not discretionary) pursuant to any
Benefit Plans), or paid or agreed to pay any bonus to, or granted or agreed to
grant any increase in the compensation of, the Company's directors, officers,
agents or employees, or made any increase in the pension, retirement or other
benefits of its directors, officers, agents or other employees.
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III.10.10 Committed, suffered, permitted or incurred any
transaction or event which would materially increase its Tax liability for any
prior taxable year;
III.10.11 Incurred any other material liability or obligation
or entered into any transaction other than in the ordinary course of business
(for purposes of this Section, the incurrence of term debt, debt incurred
pursuant to promissory notes and capital leases shall not be considered as
incurred in the ordinary course of business);
III.10.12 Received any notices, or had reason to believe, that
any material customer has taken or contemplates any steps which could materially
disrupt the business relationship of the Company with said person or could
result in the material diminution in the value of the Company as a going
concern;
III.10.13 Paid, agreed to pay or incurred any material
obligation for any payment of any indebtedness except current liabilities
incurred in the ordinary course of business and except for payments as they
become due pursuant to governing agreements as such agreements existed on
September 30, 1997;
III.10.14 Delayed or postponed the payment of any liabilities,
whether current or long term, or failed to pay in the ordinary course of
business any material liability on a timely basis consistent with prior
practice;
III.10.15 Suffered or experienced any material adverse change
in the equipment, other assets or liability accounts;
III.10.16 Acquired or agreed to acquire any capital items with
an aggregate value of more than $100,000; or
III.10.17 Taken any action which would be contrary to the
provisions of Section 2.11.4.
III.11 Litigation. Except as otherwise set forth in Schedule 3.11 of
the Disclosure Letter, there is no suit, action, proceeding, claim or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company and, to the knowledge the Company, there exists no basis
or grounds for any such suit, action, proceeding, claim or investigation. None
of the items described in Schedule 3.11 of the Disclosure Letter, individually
or in the aggregate, if pursued and/or resulting in a judgment, would have a
Company Material Adverse Effect or adversely affect the right of the Company or
the Supporting Shareholders to consummate the transactions contemplated hereby.
III.12 Licenses and Permits; Compliance With Law. The Company holds
all licenses, certificates, permits, franchises and rights
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from all appropriate federal, state or other public authorities necessary for
the conduct of its business and the use of its assets. All such licenses,
certificates, permits, franchises and rights are listed in Schedule 3.12 of the
Disclosure Letter. Except as noted in Schedule 3.12 of the Disclosure Letter,
the Company is presently conducting its business so as to comply in all material
respects with all applicable statutes, ordinances, rules, regulations and orders
of any governmental authority. Further, the Company is not presently charged
with, or, to the knowledge of the Company, under governmental investigation with
respect to, any actual or alleged violation of any statute, ordinance, rule or
regulation, nor presently the subject of any pending or, to the knowledge of the
Company, threatened material adverse proceeding by any regulatory authority
having jurisdiction over its business, properties or operations. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the termination of any material
license, certificate, permit, franchise or right held by the Company.
III.13 Contracts, Etc. Schedule 3.13 of the Disclosure Letter sets
forth a true and complete list of all contracts, agreements and other
instruments to which the Company is a party which are not listed on Schedules
3.7, 3.14.2(ii), 3.17 or 3.20 of the Disclosure Letter and which involve the
payment by or to the Company of more than $100,000 over the term of the
agreement, and contemporaneously with the delivery of the Disclosure Letter, the
Company has delivered a true and complete copy of each contract, agreement or
instrument listed in Schedules 3.7, 3.13, 3.14.2(ii), 3.17 and 3.20 of the
Disclosure Letter which is written and a summary of the terms of each such
contract or agreement which is oral, certified as such by a duly authorized
officer of the Company. The foregoing notwithstanding Schedule 3.13 of the
Disclosure Letter includes all of the following:
III.13.1 Any contract or commitment which requires services in
excess of $100,000 to be provided or performed by the Company or which
authorizes others to perform services for a third party for, through or on
behalf of the Company, other than those services performed for customers and
clients set forth on Schedule 3.18 of the Disclosure Letter;
III.13.2 Any contract or commitment involving an obligation in
excess of $100,000 which cannot, or in reasonable probability will not, be
performed or terminated within one year from the dates as of which these
representations are made;
III.13.3 Any note receivable;
III.13.4 Any contract or commitment providing for payments
based in any manner upon the sales, purchases, receipts, income or profits of
the Company;
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III.13.5 Any franchise agreement, marketing agreement or
royalty agreement (and with respect to each such agreement Schedule 3.13 of the
Disclosure Letter sets forth the aggregate royalties or similar payment paid or
payable hereunder by the Company as of the date hereof);
III.13.6 Any contract or agreement with a creditor not made in
the ordinary course of business;
III.13.7 Any employment contract or arrangement regarding an
employee or independent contractors which is not terminable by the Company
within thirty (30) days without payment of any amount for any reason whatsoever,
or without any continuing payment of any type or nature, including, without
limitation, any bonuses and vested commissions;
III.13.8 Any contract, agreement, understanding or arrangement
materially restricting the Company from carrying on its business anywhere in the
world;
III.13.9 Any material instrument or arrangement evidencing or
related to indebtedness for money borrowed or to be borrowed, whether directly
or indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise;
III.13.10 Any contract with any labor organization; and
III.13.11 Any material bond, suretyship arrangement,
guarantee, letter of credit or other performance guarantee document pursuant to
which any obligation of the Company is guaranteed or secured or pursuant to
which the Company has guaranteed or secured the performance or obligation of
another person.
All of the contracts, agreements, policies of insurance or instruments
described in Schedules 3.4, 3.7, 3.13, 3.14.2(i), 3.14.2(ii), 3.17 or 3.20 of
the Disclosure Letter (collectively, the "Material Agreements") are valid and
binding upon the Company and, to the knowledge of the Company, the other parties
thereto and are in full force and effect and enforceable in accordance with
their terms. Neither the Company nor, to the knowledge of the Company, any other
party to any such contract, commitment or arrangement has breached any material
provision of, or is in default under, the terms thereof.
III.14 Intellectual Property; Computer Software.
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III.14.1 Schedule 3.14.1 of the Disclosure Letter sets forth a
complete and correct list and summary description of all material trademarks,
trade names, service marks, service names, brand names, copyrights and patents,
registrations thereof and applications therefor, applicable to or used in the
business of the Company, together with a complete list of all licenses granted
by or to the Company with respect to any of the above. All such trademarks,
trade names, service marks, service names, brand names, copyrights and patents
are owned by the Company, free and clear of all liens, claims, security
interests and encumbrances of any nature whatsoever. The Company is not
currently in receipt of any notice of any violation of, and, to the knowledge of
the Company, it is not violating, the rights of others in any trademark, trade
name, service mark, copyright, patent, trade secret, know-how or other
intangible asset.
III.14.2 (i) Schedule 3.14.2(i) of the Disclosure
Letter contains a complete and accurate list of all material computer software
owned by the Company (the "Owned Software"). Except as set forth on Schedule
3.14.2(i) of the Disclosure Letter, the Company has exclusive title to the Owned
Software, free and clear of all claims, including claims or rights of employees,
agents, consultants, customers, licensees or other parties involved in the
development, creation, marketing, maintenance, enhancement or licensing of such
computer software. Except as set forth on Schedule 3.14.2(i) of the Disclosure
Letter, the Owned Software is not dependent on any Licensed Software (as defined
in subsection (ii) below) in order to fully operate in the manner in which it is
intended. No Owned Software has been published or disclosed to any other
parties, except as set forth on Schedule 3.14.2(i) of the Disclosure Letter, and
except pursuant to contracts requiring such other parties to keep the Owned
Software confidential. To the knowledge of the Company, no such other party has
breached any such obligation of confidentiality.
(ii) Schedule 3.14.2(ii) of the Disclosure
Letter contains a complete and accurate list of all software under which the
Company is a licensee, lessee or otherwise has obtained the right to use
software (the "Licensed Software"). Schedule 3.14.2(ii) of the Disclosure Letter
also sets forth a list of all license fees, rents, royalties or other charges
that the Company is required or obligated to pay with respect to Licensed
Software. The Company has the right and license to use, sublicense, modify and
copy Licensed Software, free and clear of any limitations or encumbrances except
as may be set forth in any license agreements listed in Schedule 3.14.2(ii) of
the Disclosure Letter. The Company is in full compliance with all material
provisions of any license, lease or other similar agreement pursuant to which it
has rights to use the Licensed Software. Except as disclosed on Schedule
3.14.2(ii) of the Disclosure Letter, none of the Licensed Software has been
incorporated into or made a part of any Owned
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Software or any other Licensed Software. The Company has not published or
disclosed any Licensed Software to any other party.
(iii) The Owned Software and Licensed
Software constitute all software currently used in or necessary for the conduct
of the businesses of the Company as currently conducted (the "Company
Software"). Schedule 3.14.2(iii) of the Disclosure Letter sets forth a list of
all contract programmers, independent contractors, nonemployee agents and
persons or other entities (other than employees) who have performed material
computer programming services for the Company and identifies all material
contracts and agreements pursuant to which such services were performed. The
transactions contemplated herein will not cause a material breach or default
under any licenses, leases or similar agreements relating to the Company
Software or materially impair the Purchaser's or the Surviving Corporation's
ability to use the Company Software in the same manner as such computer software
is currently used by the Company. The Company is not infringing any intellectual
property rights of any other person or entity with respect to the Company
Software, and to the knowledge of the Company, no other person or entity is
infringing any intellectual property rights of the Company with respect to the
Company Software or is claiming any right, title or interest in the Company
Software or any infringement by the Company of any intellectual property right
which such other person may possess.
(iv) Schedule 3.14.2(iv)(a) of the
Disclosure Letter lists and separately identifies all agreements pursuant to
which the Company has been granted rights to market software owned by third
parties, and Schedule 3.14.2(iv)(b) of the Disclosure Letter lists and
separately identifies all agreements pursuant to which the Company has granted
marketing rights in the Company Software to third parties.
(v) To the knowledge of the Company, the
Company has not taken or failed to take any actions under the law of any
applicable foreign jurisdictions where the Company has marketed or licensed
Company Software that would restrict or limit the ability of the Company to
protect, or prevent it from protecting, its ownership interests in,
confidentiality rights of, and rights to market, license, modify or enhance, the
Company Software.
(vi) Except as set forth in Schedule
3.14.2(i) of the Disclosure Letter, the Owned Software and Licensed Software (a)
includes Year 2000 date conversion and capabilities including, but not limited
to: date data century recognition; calculations which accommodate same century
and multi-century formulas and date values; correct sort ordering; and date data
interface values that reflect the century; (b) automatically compensates for and
manages and manipulates data
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involving dates, including single century formulas and multi-century formulas,
and will not cause an abnormal abend or abort within the application or result
in the generation of incorrect values or invalid outputs involving such date;
(c) provides that all date related user interface functionalities and data
fields include the indication of the correct century; (d) provides that all date
related system to system or application to application data interface
functionalities will include the indication of the correct century; and (e) will
continue to comply with clauses (a) through (d) above. Except as set forth in
Schedule 3.14.2(i), all date processing by Owned Software and Licensed Software
will include four digit year format and recognize and correctly process dates
for leap years.
III.15 Product Warranties and Liabilities. Except as listed on Schedule
3.15 of the Disclosure Letter, the Company has no forms of warranties or
guarantees of its products and services that are in effect or proposed to be
used by it. Schedule 3.15 of the Disclosure Letter sets forth a description of
each pending or, to the knowledge of the Company, threatened material action
under any warranty or guaranty against the Company. The Company has not
incurred, nor does the Company know or have any reason to believe there is any
basis for alleging, any material liability, damage, loss, cost or expense as a
result of any material defect or other deficiency (whether of design, materials,
workmanship, labeling instructions or otherwise) ("Product Liability") with
respect to any product sold or services rendered by or on behalf of the Company
(including any lessee thereof) prior to the Closing Date, whether such Product
Liability is incurred by reason of any express or implied warranty (including,
without limitation, any warranty of merchantability or fitness), any doctrine of
common law (tort, contract or other), any statutory provision or otherwise and
irrespective of whether such Product Liability is covered by insurance.
III.16 Labor Matters. Schedule 3.16 of the Disclosure Letter sets forth
a list of all employees, consultants and independent contractors of the Company
whose compensation for 1997 or expected compensation for 1998 exceeds $75,000
per annum and lists the compensation per annum for such persons. Except as set
forth on Schedule 3.16 of the Disclosure Letter, within the last three (3)
years, the Company has not been the subject of any union activity or labor
dispute, nor has there been any strike of any kind called or threatened to be
called, against the Company. Except as set forth on Schedule 3.16 of the
Disclosure Letter, the Company has not violated any applicable federal or state
law or regulation relating to labor, labor practices or immigration matters. The
Company has no knowledge that there will be any adverse change in relations with
employees and independent contractors of the Company as a result of the
transactions contemplated by this Agreement.
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III.17 Benefit Plans.
III.17.1 Schedule 3.17 of the Disclosure Letter, lists every
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plan, any other written or unwritten employee program, arrangement, agreement or
understanding, (whether arrived at through collective bargaining or otherwise),
any medical, vision, dental or other health plan, any life insurance plan or any
other employee benefit plan or fringe benefit plan, including, without
limitation, any "employee benefit plan," as that term is defined in Section 3(3)
of ERISA, or any other plan, program, agreement, arrangement, commitment and/or
method of compensation, whether funded or unfunded, whether legally binding or
not, currently or previously adopted, maintained, sponsored in whole or in part
or contributed to by the Company or any Affiliate of the Company for the benefit
of employees, retirees, dependents, spouses, directors, officers, independent
contractors or other beneficiaries of the Company or an Affiliate of the Company
and under which employees, retirees, dependents, spouses, directors, officers,
independent contractors or other beneficiaries of the Company or an Affiliate of
the Company are eligible to participate or under or in connection with which the
Company may have any contingent or noncontingent liability of any kind whether
or not probable of assertion (collectively, the "Benefit Plans"). Any of the
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, or an "employee welfare benefit plan" as that
term is defined in Section 3(1) of ERISA, is referred to herein as an "ERISA
Plan." No Benefit Plan is or has been a "multiemployer plan" within the meaning
of Section 3(37) of ERISA. Neither the Company nor any Subsidiary has ever
contributed to or had an obligation to contribute to any multiemployer plan.
III.17.2 Schedule 3.17 of the Disclosure Letter also lists:
(a) where applicable, with respect to any such plans or plan amendments, the
most recent determination letters issued by the United States Internal Revenue
Service, (b) all rulings, opinion letters, information letters or advisory
opinions issued by the United States Department of Labor, the United States
Internal Revenue Service or the Pension Benefit Guaranty Corporation after
December 31, 1974, with respect to such Benefit Plan, (c) annual reports or
Returns and audited or unaudited financial statements for the most recent three
plan years and any amendments thereto, and (d) the most recent summary plan
descriptions and any material modifications thereto, and any other material
written communications to employees or to any governmental agency with respect
to such Benefit Plans during the three most recent plan years. Contemporaneous
with the delivery
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of the Disclosure Letter, the Company has delivered a true and complete copy of
each such Benefit Plan or summary description if such Benefit Plan is not in
writing, agreements, letters, rulings, opinions, letters, reports, Returns,
financial statements and summary plan descriptions described in Sections 3.17.1
or 3.17.2 hereof, certified as such by a duly authorized officer of the Company.
III.17.3 All the Benefit Plans and the related trusts subject
to ERISA comply with and have been administered in compliance with the
provisions of ERISA, all provisions of the Code relating to qualification and
tax exemption under Code Sections 401(a) and 501(a) or otherwise applicable to
secure intended Tax consequences, all applicable state or federal securities
laws and all other applicable laws, rules and regulations and collective
bargaining agreements, and neither the Company nor any Affiliate has received
any notice from any governmental agency or instrumentality questioning or
challenging such compliance. All available governmental approvals for the
Benefit Plans have been obtained, including, but not limited to, timely
determination letters on the qualification of the ERISA Plans and tax exemption
of related trusts, as applicable, under the Code and timely registration and
disclosure under applicable securities laws, and all such governmental approvals
continue in full force and effect. No event has occurred which will or could
give rise to disqualification of any such plan under sections 401(a) or 501(a)
of the Code, adversely affect the qualified status of any such plan under
Sections 401(a) or 501(a) of the Code or to a tax under Section 511 of the Code.
All contributions (including all employer contributions and employee salary
reduction contributions) which are due have been paid to each Benefit Plan and
have been paid on a timely basis.
III.17.4 Neither the Company, any Affiliate nor any
administrator or fiduciary of any such Benefit Plan (or agent or delegate of any
of the foregoing) has engaged in any transaction or acted or failed to act in
any manner which could subject the Company to any direct or indirect liability
(by indemnity or otherwise) for a breach of any fiduciary, co-fiduciary or other
duty under ERISA. No oral or written representation or communication with
respect to any aspect of the Benefit Plans has been or will be made to employees
of the Company prior to the Closing Date which is not in accordance with the
written or otherwise preexisting terms and provisions of such Benefit Plans in
effect immediately prior to the Closing Date. There are no unresolved claims or
disputes under the terms of, or in connection with, the Benefit Plans, and no
action, legal or otherwise, has been commenced with respect to any claim.
III.17.5 All annual reports or Returns, audited or unaudited
financial statements, actuarial valuations, summary
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annual reports and summary plan descriptions issued with respect to the Benefit
Plans are correct and accurate in all material respects as of the dates thereof,
and have been timely filed or disseminated, as appropriate or required by
applicable law, and there have been no amendments filed to any of such reports,
Returns, statements, valuations or descriptions or required to make the
information therein true and accurate.
III.17.6 No "party in interest" (as defined in Section 3(14)
of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of the
Code) of any Benefit Plan has engaged in any "prohibited transaction" (within
the meaning of Section 4975(c) of the Code or Section 406 of ERISA). There has
been no (a) "reportable event" (as defined in Section 4043 of ERISA), or event
described in Section 4062(f) or Section 4063(a) of ERISA or (b) termination or
partial termination, withdrawal or partial withdrawal with respect to any of the
ERISA Plans which the Company or an Affiliate of the Company maintains or
contributes to or has maintained or contributed to or was required to maintain
or contribute to or for the benefit of employees of the Company or any Affiliate
of the Company now or formerly in existence.
III.17.7 The Company does not have any ERISA Plan which is an
employee pension benefit plan as defined in ERISA Section 3(2).
III.17.8 Except as set forth on Schedule 3.17.8 of the
Disclosure Letter, the Company did not have any current or future liability
under any Benefit Plan that was not reflected in such filing, and the liability
of the Company in connection with any Benefit Plan as of Closing will not exceed
the amount recorded therefor on the books of the Company.
III.17.9 Except as set forth on Schedule 3.17.9 of the
Disclosure Letter, the Company does not maintain any Benefit Plan providing
deferred or stock based compensation.
III.17.10 The Company has not maintained a Benefit Plan
providing welfare benefits (as defined in ERISA Section 3(1)) to employees after
retirement or other separation of service except to the extent required under
Part 6 of Title I of ERISA and Code Section 4980B, or except as set forth on
Schedule 3.17.10 of the Disclosure Letter.
III.17.11 The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee of the
Company to severance pay, unemployment compensation or any payment contingent
upon a change in control or ownership of the Company, or (ii) accelerate the
time of payment or vesting, or increase the amount, of any compensation due to
any such employee or former employee.
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III.17.12 All Benefit Plans subject to section 4980B of the
Code as amended from time to time or Part 6 of Title I of ERISA or both have
been maintained in compliance with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder.
III.18 Customers and Clients. Schedule 3.18 of the Disclosure Letter
consists of a true and correct list of all of the customers and clients of the
Company within the preceding twenty-four months who generated revenues of more
than $100,000 within a twelve-month period, setting forth as to each customer or
client its name and address. Except as set forth on Schedule 3.18 of the
Disclosure Letter, neither the Company nor any Controlling Shareholder has
received any notice, or has reason to believe, that any such customer or client
has taken or contemplates taking any steps which could materially disrupt the
business relationship of the Company with such customer or client, or could
result in the material diminution in the value of the business of the Company as
a going concern.
III.19 Environmental Matters. Except as set forth in Schedule 3.19 of
the Disclosure Letter, no real property now or previously used by the Company or
now or previously owned or leased by the Company (the "Real Property") has been
used by the Company, or to the knowledge of the Company, any other party for the
handling, treatment, storage or disposal of any Hazardous Substance (as
hereinafter defined). Except as set forth in Schedule 3.19 of the Disclosure
Letter, no release, discharge, spillage or disposal into the environment of any
Hazardous Substance and no soil, water or air contamination by any Hazardous
Substance has occurred or is occurring in, from or on the Real Property. Except
as set forth in Schedule 3.19 of the Disclosure Letter, the Company has complied
with all reporting requirements under any applicable federal, state or local
environmental laws and permits, and there are no existing violations by the
Company of any such environmental laws or permits. There are no claims, actions,
suits, proceedings or investigations related to the presence, release,
production, handling, discharge, spillage, transportation or disposal of any
Hazardous Substance or ambient air conditions or contamination of soil, water or
air by any Hazardous Substance pending or, to the knowledge of the Company,
threatened with respect to the Real Property or otherwise against the Company in
any court or before any state, federal or other governmental agency or private
arbitration tribunal and, to the knowledge of the Company, there is no basis for
any such claim, action, suit, proceeding or investigation. To the knowledge of
the Company, there are no underground storage tanks on any Real Property which
is or was owned by the Company or is currently leased by the Company. No
building or other improvement included in any Real Property which is or was
owned by the Company or is
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presently leased by the Company contains any asbestos, and such buildings and
improvements are free from radon contamination. For the purposes of this
Agreement, "Hazardous Substance" shall mean any hazardous or toxic substance or
waste as those terms are defined by any applicable federal, state or local law,
ordinance, regulation, policy, judgment, decision, order or decree, including,
without limitation, the Comprehensive Environmental Recovery Compensation and
Liability Act, 42 U.S.C. 9601 et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801 et. seq. and the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., and petroleum, petroleum products and oil.
III.20 Insurance. Set forth in Schedule 3.20 of the Disclosure Letter
is a complete list of all insurance policies which the Company maintained, or
was an insured party under, with respect to its businesses, properties or
employees which are currently in force and effect together with a list of all
such policies which have been in effect during the last 36 months but have
expired. Schedule 3.20 of the Disclosure Letter lists the annual premium and
renewal date of all such insurance policies. Except as set forth in Schedule
3.20 of the Disclosure Letter, since January 1, 1997, there has not been any
change in the Company's relationship with its insurers or in the premiums
payable pursuant to such policies.
III.21 Related Party Relationships. Except as set forth in Schedule
3.21 of the Disclosure Letter, to the Company's knowledge, no Controlling
Shareholder, or Affiliate of any Controlling Shareholder nor any officer or
director of the Company possesses, directly or indirectly, any beneficial
interest in, or is a director, officer or employee of, any corporation,
partnership, firm, association or business organization which is a client,
supplier, customer, lessor, lessee, lender, creditor, borrower, debtor or
contracting party with or of the Company (except as a shareholder holding less
than a one percent interest in a corporation whose shares are traded on a
national or regional securities exchange or in the over-the-counter market).
III.22 Schedules. All Schedules set forth in the Disclosure Letter are
true, correct and complete in all material respects as of the date of this
Agreement and will be true, correct and complete in all material respects as of
the Closing, except to the extent that such Schedules may be untrue, incorrect
or incomplete due to changes occurring due to the operation of the Company in
the ordinary course. Matters disclosed on each Schedule in the Disclosure Letter
shall be deemed disclosed only for purposes of the matters to be disclosed on
such Schedule and shall not be deemed to be disclosed for any other purpose
unless expressly provided therein.
III.23 Disclosure. No statement contained herein or in
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any certificate, Schedule of the Disclosure Letter, list, Exhibit or other
instrument furnished to the Purchaser pursuant to the provisions hereof contains
or will contain any untrue statement of any material fact or omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
III.24 Support/Voting Agreements. The Support/Voting Agreements with
the Supporting Shareholders have been duly executed and delivered to the
Purchaser prior to or simultaneous with the execution of this Agreement and
represent the valid and binding obligations of the Supporting Shareholders which
are enforceable in accordance with their terms except as enforceability may be
limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and do not violate the
terms of any control share or affiliated transaction law applicable thereto.
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
MERGER SUBSIDIARY
The Purchaser and the Merger Subsidiary represent and warrant to the
Company for the benefit of the Shareholders as follows:
IV.1 Organization and Standing. The Purchaser and the Merger Subsidiary
are duly organized and validly existing corporations in good standing under the
laws of the State of Florida.
IV.2 Corporate Power and Authority. The Purchaser and the Merger
Subsidiary have the capacity and authority to execute and deliver this
Agreement, to perform hereunder and to consummate the transactions contemplated
hereby without the necessity of any act or consent of any other Person
whomsoever. The execution, delivery and performance by the Purchaser and the
Merger Subsidiary of this Agreement and each and every agreement, document and
instrument provided for herein have been duly authorized and approved by the
respective Board of Directors of the Purchaser and Merger Subsidiary. This
Agreement and each and every other agreement, document and instrument to be
executed, delivered and performed by Purchaser or the Merger Subsidiary in
connection herewith, constitute or will, when executed and delivered, constitute
the valid and legally binding obligation of Purchaser or Merger Subsidiary
(whichever is applicable) enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
equitable principles, or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting
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the enforcement of creditors' rights generally.
IV.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by the Purchaser and Merger Subsidiary do not, and
the consummation of the transactions contemplated hereby will not, violate any
provisions of the Articles of Incorporation, or Bylaws, of Purchaser or Merger
Subsidiary.
IV.4 Required Filings and Absence of Conflicts. The execution and
delivery of this Agreement by the Purchaser and the Merger Subsidiary does not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the Articles of Incorporation, as amended, or Bylaws, as
amended, of the Purchaser and the Merger Subsidiary or any other Subsidiary or
violate or constitute an occurrence of default under any provision of, or
conflict with, or result in acceleration of any obligation under, or give rise
to a right by any party to terminate its obligations under, any material
mortgage, deed of trust, conveyance to secure debt, note, loan, lien, lease,
agreement, instrument, or any order, judgment, decree or other material
arrangement to which the Purchaser and the Merger Subsidiary or any Subsidiary
is a party or is bound or by which the Purchaser and the Merger Subsidiary's
assets are affected and which would cause Purchaser or Merger Subsidiary not to
be able to consummate the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required to be obtained or made by or with
respect to the Purchaser and the Merger Subsidiary, or any assets, properties or
operations of the Purchaser and the Merger Subsidiary in connection with the
execution and delivery by the Purchaser and the Merger Subsidiary of this
Agreement or the consummation of the transactions contemplated hereby which will
not be completed prior to the Effective Time.
IV.5 Disclosure. No statement contained herein or in any certificate,
list, Exhibit or other instrument furnished to the Company pursuant to the
provisions hereof contains or will contain any untrue statement of any material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
IV.6 Litigation. There is no suit, action, proceeding, claim or
investigation pending or, to the knowledge of Purchaser or Merger Subsidiary,
threatened against or affecting the Purchaser or the Merger Subsidiary which, if
pursued and/or resulting in a judgment, would prevent the Purchaser or the
Merger Subsidiary from consummating the transactions contemplated hereby, and,
to the knowledge of the Purchaser and the Merger Subsidiary,
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there exists no basis or grounds for any such suit, action, proceeding, claim or
investigation.
IV.7 Financing. The Purchaser has, prior to the date hereof,
received all consents and financing commitments from its lender(s) necessary to
consummate the transactions contemplated hereby and such consents and financing
commitments are on terms and conditions acceptable to the Purchaser. Purchaser
has, or will have prior to the Closing, sufficient cash to enable it to make
payment of the Closing Cash Consideration.
V. CONDITIONS .
V.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
V.1.1 This Agreement and the transactions contemplated
hereby shall have been approved in the manner required by applicable law or by
the applicable regulations of any stock exchange or other regulatory body, as
the case may be, by the holders of the issued and outstanding shares of capital
stock of the Company; provided that such approval shall not be deemed to have
been obtained unless at least a majority of the shares of Company Common Stock
held by Shareholders other than Donald K. Kelly, M.D. and Suzanne D. Kelly are
voted in favor of this Agreement and the Merger.
V.1.2 The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
V.1.3 Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the event
any such order or injunction shall have been issued, each party agrees to use
its reasonable efforts to have any such injunction lifted.
V.1.4 All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to be
filed after the Closing Date and except where the failure to have obtained or
made any such consent, authorization, order, approval, filing or registration
would not have a Company Material Adverse Effect or provide a reasonable basis
to conclude that the parties hereto or
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any of their affiliates or respective directors, officers, agents, advisors or
other representatives would be subject to the risk of criminal liability.
V.2 Conditions to Obligations of Purchaser and Merger Subsidiary
to Effect the Merger. All of the obligations of Purchaser and the Merger
Subsidiary to consummate the transactions contemplated by this Agreement are
contingent upon and subject to the satisfaction, on or before the Closing Date,
of each and every one of the following conditions, all or any of which may be
waived, in whole or in part, by Purchaser for purposes of consummating such
transactions, but without prejudice to any other right or remedy which Purchaser
may have hereunder:
V.2.1 Representations True at Closing. The representations
and warranties made by the Company to Purchaser in this Agreement, the Schedules
contained in the Disclosure Letter or any document or instrument delivered to
Purchaser hereunder shall be true and correct in all material respects on the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of such time, except for changes contemplated
by this Agreement.
V.2.2 Covenants of the Company . The Company shall have
duly performed in all material respects all of the covenants, acts and
undertakings to be performed by it on or prior to the Closing Date, and the
Chief Executive Officer of the Company shall deliver to Purchaser a certificate
dated as of the Closing Date certifying to the fulfillment of this condition and
the condition set forth in Section 5.2.1 hereof in substantially the form
attached hereto as Exhibit 5.2.2.
V.2.3 Opinion of Counsel. An opinion of Munger, Tolles &
Olson LLP, counsel for the Company, shall have been delivered to Purchaser dated
as of the Closing Date, substantially in form and substance of the opinion
attached hereto as Exhibit 5.2.3.
V.2.4 Consents, Approvals, and Waivers. Purchaser shall
have received from the Company a true and correct copy of each and every
consent, approval and waiver (a) referred to in Section 3.9 hereof, or (b)
otherwise required for the execution of this Agreement and the consummation of
the transactions contemplated hereby except for those for which the failure to
obtain such consent, approval or waiver would not have a Company Material
Adverse Effect or would not materially adversely affect the ability of the
Company to consummate the Merger.
V.2.5 Absence of Adverse Changes. Since the date of this
Agreement, the Company shall not have suffered a Company Material Adverse Event
or any series of events which when taken in
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the aggregate have a Company Material Adverse Effect.
V.2.6 Employment Agreements. Each individual listed in
Exhibit 2.14(a) shall have executed or agreed to execute an Employment
Agreement, substantially in forms set forth in Exhibit 2.14(b).
V.2.7 Shareholder Approval/Dissenter's or Statutory Rights.
Such shareholders of the Company as are required by applicable law and Section
5.1.1 to have approved the Merger shall have in fact approved the Merger and
Shareholders holding not more than 5% of the outstanding stock of the Company
shall not have notified the Company that such Shareholders intend to elect nor
shall have taken any other action to perfect any dissenter's or similar
statutory rights under the provisions of any state statute affording such
Shareholder such rights as a result of the Merger.
V.2.8 Company Options and Preferred Stock. None of the
Current Option Holders shall have exercised any Company Options held by them as
of the date of this Agreement, the Company and the Current Option Holders shall
have taken all actions required of them under Section 2.5 hereof and after the
Closing Date, no person shall have any right under any stock option plan (or any
option granted thereunder) or other plan, program or arrangement to acquire any
equity securities of the Company. All holders of the Preferred Stock and all
outstanding stock purchase warrants shall have all converted their Preferred
Stock into, and exercised their warrants for, shares of Company Common Stock as
required by Section 3.3 hereof.
V.2.9 Support/Voting Agreement to Remain In Effect. The
Support/Voting Agreements shall have remained in full force and effect through
the Effective Time.
V.2.10 Due Diligence. The Purchaser and the Merger
Subsidiary shall have been provided with all information reasonably requested by
them or their representatives in connection with the conduct of their due
diligence investigation and shall not have discovered any fact or circumstance
not disclosed in this Agreement which constitutes or which the Purchaser
reasonably believes with the passage of time will constitute a Material Adverse
Event as to the Company or its prospects.
V.2.11 The Purchaser shall have received from the Company's
transfer agent a true and complete list of the Company's Shareholders as shown
on the transfer agent's books as of the Closing Date.
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V.3 Conditions Precedent To The Obligations Of The Company To
Close. All of the obligations of the Company to consummate the transactions
contemplated by this Agreement shall be contingent upon and subject to the
satisfaction, on or before the Closing Date, of each and every one of the
following conditions, all or any of which may be waived, in whole or in part, by
the Company for purposes of consummating such transactions, but without
prejudice to any other right or remedy which they may have hereunder:
V.3.1 Representations True at Closing. The representations
and warranties made by Purchaser and the Merger Subsidiary to the Company in
this Agreement or any document or instrument delivered to the Company hereunder
shall be true and correct in all material respects on the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of such date, except for changes contemplated by this Agreement.
V.3.2 Covenants of Purchaser and Merger Subsidiary.
Purchaser and the Merger Subsidiary shall have duly performed in all material
respects all of the covenants, acts and undertakings to be performed by it on or
prior to the Closing Date, and a duly authorized officer of Purchaser shall
deliver, in substantially the form attached hereto as Exhibit 5.3.2, a
certificate dated as of the Closing Date certifying to the fulfillment of this
condition and the condition set forth under Section 5.3.1 above.
V.3.3 Opinion of Counsel. An opinion of Fowler, White,
Gillen, Boggs, Villareal and Banker, P.A. counsel for the Purchaser and Merger
Subsidiary, shall have been delivered to the Company dated as of the Closing
Date, substantially in form and substance of the opinion attached hereto as
Exhibit 5.3.3.
V.3.4 Consents, Approvals and Waivers. The Company shall
have received from the Purchaser a true and correct copy of each and every
consent, approval and waiver required for the execution of this Agreement and
the consummation of the transactions contemplated hereby, except for those for
which would not materially adversely affect the ability of the Purchaser to
consummate the Merger.
V.3.5 Letter of Credit. The Purchaser shall have timely
complied with each of its obligations under Section 2.21 with respect to the
Letter of Credit.
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VI. CLOSING.
VI.1 Time and Place of Closing. The Closing shall be held at the
offices of Fowler, White, Gillen, Boggs, Villareal and Banker P.A., 501 East
Kennedy Blvd, Tampa, Florida, commencing at 10:00 a.m. Eastern Daylight Time, on
the later of (i) the business day after the last to be fulfilled or waived of
the conditions set forth in Article V shall be fulfilled or waived in accordance
with the provisions hereof but in no event later than May 15, 1998 or such other
date, time and place as the parties shall mutually agree.
VI.2 Transactions at Closing. At the Closing, each of the parties
shall deliver to the others such certificates and other documents as called for
by the terms of this Agreement or as otherwise reasonably requested by such
parties and their respective counsel.
VII. TERMINATION.
VII.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by the mutual consent of the Purchaser and the Company.
VII.2 Termination by Either Purchaser or Company. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either the Purchaser or the Company if (a) the Merger shall not
have been consummated by May 15, 1998 or (b) the approval of the Company's
Shareholders required by Section 5.1.1 shall not have been obtained at a meeting
duly convened therefor or at any adjournment thereof, or (c) a United States
federal or state court of competent jurisdiction or United States federal or
state governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling, or other action shall have become
final and non-appealable; provided that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used all reasonable efforts to
remove such injunction, order or decree; and provided further, in the case of a
termination pursuant to clause (a) above, that the terminating party shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger by May 15, 1998.
VII.3 Termination by Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to
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the Effective Time, by action of the Board of Directors of the Company, if (a)
in accordance with Section 2.19 the Board of Directors of the Company determines
that such termination is required by reason of an Alternative Proposal being
made; provided that the Company shall notify the Purchaser promptly of its
intention to terminate this Agreement or enter into a definitive agreement with
respect to any Alternative Proposal; or (b) there has been a material breach by
the Purchaser or Merger Subsidiary of any of the representations, warranties,
covenants or agreements of the Purchaser or the Merger Subsidiary set forth in
this Agreement, which breach is not curable and constitutes a Material Adverse
Event or, if curable, is not cured within 30 days after written notice of such
breach is given by the Company to the Purchaser (without limiting the generality
of the foregoing sentence, any failure by the Purchaser to comply timely with
its obligations under Section 2.21 with respect to the Letter of Credit shall be
deemed to be a Material Adverse Event under this Agreement and shall not entitle
Purchaser to any cure period or require any prior notice of such breach to
Purchaser from the Company). Notwithstanding the foregoing, the Company's
ability to terminate this Agreement pursuant to clause (a) of this Section 7.3
is conditioned upon the payment by the Company of any amounts owed by it
pursuant to Section 7.5(a).
VII.4 Termination by Purchaser. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by action
of the Board of Directors of the Purchaser, if (a) the Board of Directors of the
Company shall have withdrawn or modified in a manner materially adverse to the
Purchaser its approval or recommendation of this Agreement or the Merger or
shall have recommended an Alternative Proposal to the Company Stockholders, or
(b) there has been a breach by the Company of any representation or warranty
contained in this Agreement which would have or would be reasonably likely to
have a Company Material Adverse Effect, or (c) there has been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
the Company, which breach is not curable and constitutes a Company Material
Adverse Event or, if curable, is not cured within 30 days after written notice
of such breach is given by the Purchaser to the Company.
VII.5 Effect of Termination and Abandonment. (a) In the event that
this Agreement is validly terminated (i) by the Company pursuant to Section
7.2(a) or 7.2(b) (but only if an Alternative Proposal has been made prior
thereto) or (ii) by the Purchaser pursuant to 7.2(a) or 7.2(b) (after an
Alternative Proposal has been received) or Section 7.4, then the Company shall
pay the Purchaser the sum of $750,000, which amount shall be paid by wire
transfer of same day funds either prior to such termination becoming effective
if the termination is by the Company and within three days if the termination is
by the Purchaser pursuant to
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Section 7.4 when no Alternative Proposal has been received by the Company and
following execution by the Company of an agreement to consummate an Alternative
Proposal if the termination is by the Purchaser after an Alternative Proposal
has been received. The Company acknowledges that the agreements contained in
this Section 7.5(a) are an integral part of the transactions contemplated in
this Agreement, and that, without these agreements, the Purchaser would not
enter into this Agreement; accordingly, if the Company fails to promptly pay the
amount due pursuant to this Section 7.5(a), and, in order to obtain such
payment, the Purchaser commences a suit which results in a judgment against the
Company for the fee set forth in this Section 7.5(a), the Company shall pay to
the Purchaser its costs and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest on the amount of the fee at
the rate of 8% per annum.
(b) In the event that this Agreement is validly terminated by the
Company pursuant to Section 7.3(b), then the Purchaser shall pay the Company the
sum of $750,000, which amount shall be paid by wire transfer of same day funds
within three days of the Purchaser's receipt of notice of the termination. The
Purchaser and Merger Subsidiary acknowledge that the agreements contained in
this Section 7.5(b) are an integral part of the transactions contemplated in
this Agreement, and that, without these agreements, the Company would not enter
into this Agreement; accordingly, if the Purchaser fails to pay promptly the
amount due pursuant to this Section 7.5(b), and, in order to obtain such
payment, the Company commences a suit which results in a judgment against the
Purchaser for the fee set forth in this Section 7.5(b), the Purchaser shall pay
to the Company its costs and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest on the amount of the fee at
the rate of 8% per annum.
(c) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article VII, all obligations of the
parties hereto shall terminate, except the obligations of the parties pursuant
to this Section 7.5 and except for the provisions of Article VIII. Moreover, in
the event of termination of this Agreement pursuant to Section 7.3 or 7.4 by
reason of a breach of this Agreement by the non-terminating party, nothing
herein shall prejudice the ability of the non-breaching party from seeking
damages from any other party for such breach of this Agreement, including
without limitation, attorneys' fees and the right to pursue any remedy at law or
in equity.
VII.6 Extension, Waiver. At any time prior to the Effective Time,
any party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations
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<PAGE> 40
and warranties made to such party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
VIII. GENERAL PROVISIONS.
VIII.1 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand or
mailed by certified mail, return receipt requested, first class postage prepaid,
or sent by Federal Express or similarly recognized national overnight delivery
service with receipt acknowledged, or sent by facsimile if receipt thereof is
confirmed in writing, addressed as follows:
VIII.1.1 If to the Company:
Health International Inc.
14770 North 78th Way
Scottsdale, AZ 85260
Attn: Donald K. Kelly, M.D.
Facsimile: (602) 948-2523
and to:
Robert B. Knauss
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071
Facsimile: (213) 687-3702
VIII.1.2 If to Purchaser or Merger Subsidiary:
Sykes HealthPlan Services, Inc.
3501 Frontage Road
Tampa, FL 33607
Fax: 813-289-9359
Attn: President
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<PAGE> 41
and to:
David C. Shobe
Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 E. Kennedy Blvd.
Suite 1700
Tampa, FL 33602
Fax: 813-229-8313
VIII.1.3 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail, facsimile or by overnight delivery
service, the date on which such notice, request, instruction or document is
received shall be the date of delivery. In the event any such notice, request,
instruction or document is mailed or shipped by overnight delivery service to a
party in accordance with this Section 8.1 and is returned to the sender as
nondeliverable, then such notice, request, instruction or document shall be
deemed to have been delivered or received on the fifth day following the deposit
of such notice, request, instruction or document in the United States mail or
the delivery to the overnight delivery service.
VIII.1.4 Any party hereto may change its address specified for
notices herein by designating a new address by notice in accordance with this
Section 8.1.
VIII.2 Brokers. Purchaser represents and warrants to the Company, and
the Company represents and warrants to Purchaser that no broker or finder has
acted for it or them or any entity controlling, controlled by or under common
control with it or them in connection with this Agreement, other than Dain,
Rauscher Incorporated which has acted as the Company's advisor. Purchaser agrees
to indemnify and hold harmless the Company against any fee, loss or expense
arising out of any claim by any broker or finder employed or alleged to have
been employed by it, and the Company agrees to indemnify and hold harmless
Purchaser against any fee, loss, or expense arising out of any claim by any
broker or finder employed or alleged to have been employed by it, including the
fees of Dain, Rauscher Incorporated.
VIII.3 Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived by
any other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
VIII.4 Expenses. Except as otherwise provided herein,
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<PAGE> 42
all costs incurred by the parties hereto in connection with or related to the
authorization, preparation and execution of this Agreement and the Closing of
the transactions contemplated hereby, including, without limitation of the
generality of the foregoing, all fees and expenses of agents, representatives,
counsel and accountants employed by any such party, shall be borne solely and
entirely by the party which has incurred the same. The expenses incurred by the
Company pursuant to Section 8.2 will be paid by the Company either before or
promptly following Closing.
VIII.5 Public Announcements. At all times at or before the Closing,
the Company, on the one hand, and the Purchaser, on the other hand, will consult
with one another before issuing or making any reports, statements, or releases
to the public with respect to this Agreement or the transactions contemplated
hereby and will use good faith efforts to agree on the text of a joint public
report, statement, or release or will use good faith efforts to obtain the other
parties' approval of the text of any public report, statement, or release to be
made solely on behalf of a party. If such parties are unable to agree on or
approve any such public report, statement, or release and such report,
statement, or release is, based on the advice of legal counsel to a party,
required by law or appropriate to discharge such party's disclosure obligations,
then such party may make or issue the legally required or appropriate report,
statement, or release upon prior notice to the other parties hereto.
VIII.6 Confidentiality. The Company, its respective officers,
directors, employees, agents, and other representatives will refrain from
disclosing to any other Person (i) any documents or information concerning
Purchaser or its Affiliates furnished to it in connection with this Agreement or
the transactions contemplated hereby, and (ii) any documents or information
concerning the Company, unless (A) such disclosure is compelled by judicial or
administrative process or by other requirements of law and notice of such
disclosure is furnished to Purchaser; or (B) such confidential documents or
information can be shown to have been (x) previously known by the Person
receiving such documents or information, or (y) in the public domain through no
fault of such Persons. If for any reason the transactions contemplated by this
Agreement are not consummated, Purchaser and the Company agree that they will
return any and all such confidential information provided by any of them to the
other party so providing such information.
VIII.7 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
VIII.8 Headings. The section and other headings in this
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<PAGE> 43
Agreement are inserted solely as a matter of convenience and for reference, and
are not a part of this Agreement.
VIII.9 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes and cancels any prior
agreements, representations, warranties, or communications, whether oral or
written, among the parties hereto relating to the transactions contemplated
hereby or the subject matter herein. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an
agreement in writing signed by the party against whom or which the enforcement
of such change, waiver, discharge or termination is sought.
VIII.10 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Florida (regardless of the laws that
might be applicable under principles of conflicts of law) as to all matters
including, but not limited to, matters of validity, construction, effect and
performance.
VIII.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
VIII.12 Pronouns. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter gender as the context requires.
VIII.13 Exhibits Incorporated. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such Exhibits, if any, will
be filled in as required in order to consummate the transactions contemplated
herein and in accordance with this Agreement.
VIII.14 Time of Essence. Time is of the essence in this Agreement.
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<PAGE> 44
IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
"Purchaser"
SYKES HEALTHPLAN SERVICES, INC.
By:
---------------------------------
Title:
"Merger Subsidiary"
SYKES HEALTHPLAN SERVICES
ACQUISITION CORP.
By:
---------------------------------
Title:
"Company"
HEALTH INTERNATIONAL, INC.
By:
---------------------------------
Title:
<PAGE> 45
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
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<S> <C>
1.1 Definitions.
2.7 Bylaws of the Surviving Corporation
2.14(a) List of Employees to Enter into Employment Agreements.
2.14(b) Forms of Employment Agreements for Employees.
2.17.1 Benefit Plans not to be maintained by Surviving
Corporation
2.21 Form of binding commitment for letter of credit from
NationsBank N.A.
5.2.2 Form of Certificate of the President of the Company.
5.2.3 Form of Opinion of Counsel for the Company.
5.3.2 Officer's Certificate of Purchaser and Merger
Subsidiary.
5.3.3 Form of Opinion of Counsel for Purchaser and Merger
Subsidiary.
</TABLE>
(i)
<PAGE> 46
EXHIBIT 1.1
DEFINED TERMS
As used herein, the following terms shall have the following meanings unless the
context otherwise requires:
<TABLE>
<S> <C>
1. "Acts" shall mean the Florida General Corporation Law and the
Delaware General Corporation Law.
2. "Affiliate" shall mean, with respect to a Person, any other Person
which is required to be aggregated with such Person under Code ss.
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
3. "Agreement" shall mean this Plan and Agreement of Merger.
4. "Alternative Proposal" shall have the meaning ascribed thereto in
Section 2.19.
5. "Benefit Plans" shall have the meaning set forth in Section 3.17.1.
6. "Certificates" shall have the meaning set forth in Section 2.4.2.
7. "Closing" shall mean the closing of the transactions
contemplated by this Agreement as provided in Section 6.1
hereof.
8. "Closing Cash Consideration" shall mean an amount of cash equal to
$22,614,936 (U.S.).
9. "Closing Date" shall mean the date on which the Closing occurs pursuant
to Section 6.1 hereof.
10. "Code" shall mean the Internal Revenue Code of 1986, as amended.
11. "Company" shall mean Health International, Inc. a Delaware
corporation, and unless otherwise specified, shall be deemed to
include all of its Subsidiaries.
12. "Company Common Stock" shall mean the common stock of the Company.
13. "Company Officers" shall mean Donald K. Kelly, M.D., Suzanne D. Kelly
and Michael D. Peerboom.
</TABLE>
(i)
<PAGE> 47
<TABLE>
<S> <C>
14. "Company Option" shall mean the options to purchase Company Common
Stock which are outstanding prior to the Effective Time pursuant to
Section 2.5 hereof.
15. "Company Preferred Stock" shall mean the preferred stock of the
Company.
16. "Company Shareholders" or "Shareholders" shall mean the shareholders of
the Company at the Effective Time, each of which may be referred to
individually as a "Shareholder."
17. "Company Software" shall have the meaning set forth in Section
3.14.2(iii).
18. "Company's Transactional Expenses" shall mean the actual reasonable
expenses of the Company for the fees and expenses of its lawyers,
accountants, investment bankers, transfer agent, and partners in
connection with the transactions contemplated hereby which in no event
will exceed $500,000.
19. "Controlling Shareholders" shall mean Donald K. Kelly, M.D., Suzanne D.
Kelly, Gerald Milton and Waltrut Milton, each of whom may be referred
to individually as a "Controlling Shareholder."
20. "Current Option Holder" shall mean any Person who owns or has been
granted a Company Option which is outstanding on the date of this
Agreement.
21. "Disclosure Letter" shall mean the letter delivered to Purchaser by the
Company simultaneously with the execution of this Agreement containing
certain requested disclosures concerning the Company.
22. "Dissenting Shares" shall have the meaning set forth in Section
2.3.1.5.
23. "Effective Time" shall have the meaning set forth in Section 2.2
hereof.
24. "Employees" shall have the meaning set forth in Section 2.17.2.
25. "Employment Agreements" shall mean those Employment Agreements among
the entities and those individuals set forth in Exhibit 2.14(a),
substantially in the form attached as Exhibit 2.14(b), each of which
may be referred to individually as an "Employment Agreement."
26. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
</TABLE>
(ii)
<PAGE> 48
<TABLE>
<S> <C>
27. "ERISA Plan" shall have the meaning set forth in Section 3.17.1.
28. "Exchange Act" shall mean the Securities Exchange Act of 1934.
29. "Exchange Agent" shall mean ChaseMellon Shareholder Services, LLC.
30. "Exchange Fund" shall have the meaning specified in Section 2.4.1
hereof.
31. "Financial Statements" shall have the meaning set forth in Section
3.5.1.
32. "GAAP" shall mean Generally Accepted Accounting Principles formulated
by the American Institute of Certified Public Accountants as in effect
from time to time during the term of this Agreement.
33. "Hazardous Substance" shall have the meaning set forth in Section 3.19.
34. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1978, as amended.
35. "Indemnified Parties" shall have the meaning set forth in Section 2.20.
36. "Interim Financial Statements" shall have the meaning set forth in
Section 3.5.1.
37. "Letter of Credit" shall have the meaning set forth in Section 2.21.
38. "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
39. "Material Adverse Effect" shall mean any event or group of events which
either individually or when considered together have a material adverse
effect on the business, prospects, results of operation or condition
(financial or otherwise) of the entity to which it is applied and its
Subsidiaries, taken as a whole, or on the ability of the entity to
which it is applied to consummate the transactions contemplated hereby.
For purposes of the foregoing, if the event or events are quantifiable
monetarily, they shall not be considered to be material unless the
aggregate adverse effect of all such events together is equal to or
greater than $500,000.00. This term is sometimes used in conjunction
with the defined term for one of the parties and in such event shall
have the same meaning as
</TABLE>
(iii)
<PAGE> 49
<TABLE>
<S> <C>
set forth above as applied to that party.
40. "Material Adverse Event" shall mean an event or events which
individually or when taken together cause a Material Adverse Effect.
41. "Material Agreements" shall have the meaning set forth in Section 3.13.
42. "Merger" shall mean the merger of the Merger Subsidiary with and into
the Company.
43. "Merger Subsidiary" shall mean Sykes HealthPlan Services Acquisition
Corporation, a Florida corporation.
44. "Merger Subsidiary Common Stock" shall mean the common stock of the
Merger Subsidiary.
45. "Outstanding Option Consideration" shall mean the amount of
$4,088,000.00.
46. "Outstanding Preferred Shares" shall mean the issued and outstanding
preferred shares of the Company as of the date of this Agreement.
47. "Outstanding Share Consideration" shall mean the amount of $22,614,936.
48. "Owned Software" shall have the meaning set forth in Section 3.14.2(i).
49. "Per Share Closing Cash Consideration" shall mean an amount of cash
equal to the Outstanding Share Consideration divided by the total
number of issued and outstanding shares of Company Common Stock at the
Closing.
50. "Per Share Option Consideration" shall mean an amount of cash equal to
the Outstanding Option Consideration divided by the total number of
shares into which options outstanding as of the Effective Time may be
converted.
51. "Permitted Employee Distributions" shall have the meaning set forth in
Section 2.11.1.
52. "Person" shall include, but is not limited to, an individual, a trust,
an estate, a partnership, an association, a company, a corporation, a
limited liability company, a sole proprietorship, a professional
corporation or a professional association.
53. "Plan Transfer Date" shall have the meaning set forth in Section
2.17.1.
</TABLE>
(iv)
<PAGE> 50
<TABLE>
<S> <C>
54. "Product Liability" shall have the meaning ascribed thereto in Section
3.15.
55. "Purchaser" shall mean Sykes HealthPlan Services, Inc., a Florida
corporation.
56. "Real Property" shall have the meaning set forth in Section 3.19.
57. "Return" shall mean any report, return, statement or other written
information required to be supplied to a taxing authority in connection
with Taxes.
58. "Schedule" shall mean the schedules contained in the Disclosure Letter.
59. "Stock Option Plans" shall mean the oral or written plans of the
Company pursuant to which Company Options have been granted.
60. "Subsidiary" shall mean any entity, the controlling interest in which
is owned either directly or indirectly by the Company or the Purchaser,
as applicable.
61. "Support/Voting Agreements" shall mean the agreements by and between
the Purchaser and the Supporting Shareholders providing for certain
voting and other restrictions with respect to the shares of the Company
Common Stock which are owned by such shareholders.
62. "Supporting Shareholder" shall mean Donald K. Kelly, M.D., Suzanne D.
Kelly, who own 1,153,319 shares of the Company Common Stock, and Gerald
Milton and Waltrut Milton, who own 880,000 shares of Company Common
Stock as of the date hereof, each of whom have executed Support/Voting
Agreements with the Purchaser simultaneous with the execution of this
Agreement.
63. "Surviving Corporation" shall have the meaning set forth in Section
2.1.
64. "Tax" or "Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments or liabilities including without limitation income,
gross receipts, inventory, ad valorem, excise, real property, personal
property, sales, use, transfer, withholding, deed, license, employment,
payroll, and franchise taxes imposed by any governmental authority
(including any interest, fines, penalties, or additions attributable to
any such tax or any contest or dispute thereof).
</TABLE>
(v)
<PAGE> 51
SCHEDULES TO THE DISCLOSURE LETTER
<TABLE>
<CAPTION>
Schedule
- --------
<S> <C>
2.11.1 Conduct of Business Prior to Closing
2.11.2 Bank Accounts, Safe Deposit Boxes and Powers of
Attorney
2.18 Affiliated Assets and Contracts
2.20 Indemnity Provisions and Policies
3.1.1 Jurisdictions of Incorporation
3.1.2 Foreign Jurisdictions/Qualifications
3.1.3 Subsidiaries
3.2.1 Certificate of Incorporation and Bylaws of the Company
3.2.2 List of Shareholders of the Company and Subsidiaries
3.3 Capitalization of the Company; Option Information
3.4 Equity Investments
3.5.1(a) 1994, 1995, 1996 and three-month Interim 1998
Financial Statements
3.5.1(b) Liabilities Not Disclosed in the Financial Statements
and the Interim Financial Statements and Undisclosed
Liabilities
3.7 Assets and Leases; Encumbrances
3.8 Aged Accounts Receivable
3.9 Required Consents
3.10 Changes
3.11 Litigation
3.12 Licenses and Permits and Noncompliance with Laws
</TABLE>
(vi)
<PAGE> 52
<TABLE>
<S> <C>
3.13 Contracts
3.14.1 Trademarks, Trade Names, Service Marks, Service Names,
Etc.
3.14.2(i) Owned Software; Exceptions to Year 2000 date
conversion and capabilities for Owned Software and
Licensed Software
3.14.2(ii) Licensed Software, Problems with Software Licenses
3.14.2(iii) Computer Programming Services Providers and agreements
3.14.2(iv)(a) Marketing Rights Received
3.14.2(iv)(b) Marketing Rights Granted to Third Parties
3.15 Product Warranties and Liabilities
3.16 Highly Compensated Employees and their Compensation;
Union Activities and Labor Disputes; Violations of
Labor Laws and Regulations
3.17 Benefit Plans
3.17.8 Undisclosed Current or Future Liability Under Benefit
Plans
3.17.9 Benefit Plans Providing Deferred or Stock Based
Compensation
3.17.10 Benefit Plans Providing Post Separation Benefits
3.18 Customers, Addresses, Telephone Numbers and Principal
Person of Contact and Problems with Customer
3.19 Environmental Matters
3.20 Insurance Matters
3.21 Related Party Relationships
</TABLE>
(vii)
<PAGE> 1
EXHIBIT 10.12
AMENDMENT TO PLAN AND AGREEMENT OF MERGER
THIS IS AN AMENDMENT TO THE PLAN AND AGREEMENT OF MERGER by and among
Sykes HealthPlan Services, Inc., a Florida corporation (the "Purchaser"), Sykes
HealthPlan Services Acquisition Corp., a Florida corporation (the "Merger
Subsidiary"), and Health International, Inc., a Delaware corporation (the
"Company").
W I T N E S S E T H :
WHEREAS, the parties have heretofore entered into a Plan and Agreement
of Merger dated February 11, 1998 (the "Plan and Agreement of Merger") which
requires that certain shares of Company Preferred Stock be converted into
Company Common Stock prior to the closing of the transactions contemplated
thereby; and
WHEREAS, on February 26, 1998, the Company issued a call for
redemption of the Company Preferred Stock effective on March 30, 1998. Pursuant
to the terms of the Company Preferred Stock, the Company Preferred Stock is
entitled to a redemption payment of $10,000 per share. At any time prior to the
redemption date, each share of Company Preferred Stock can be converted into
2,000 shares of Company Common Stock. Although holders of the Company Preferred
Stock would likely receive more consideration by converting their shares of
Company Preferred Stock then by allowing them to be redeemed, as of the date
hereof holders of five shares have not elected to convert their shares of
Company Preferred Stock. In order to give each holder of Company Preferred Stock
the full consideration provided in the Plan and Agreement of Merger,
notwithstanding whether such holder elects to convert such holder's Company
Preferred Stock prior to the redemption, the Company desires to amend the Plan
and Agreement of Merger so as to convert the unconverted shares of Company
Preferred Stock into the right to receive the same consideration which would
have been received by the holders of the Company Preferred Stock had they
converted their Company Preferred Shares into Company Common Shares prior to the
Merger; and
WHEREAS, the Purchaser and the Merger Subsidiary are willing to so
amend the Plan and Agreement of Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
parties hereto agree as follows:
1. Definitions. All definitions used herein which are not defined
herein shall have the same meanings as set forth in the Plan and Agreement of
Merger unless otherwise defined.
2. Representation of the Company. The Company hereby represents and
warrants to the Purchaser and the Merger Subsidiary that twenty (20) shares of
Company Preferred Stock have duly and validly converted into forty thousand
(40,000) shares of Company Common Stock prior to the date hereof, leaving as of
the date hereof only five (5) shares of Company Preferred Stock which have not
been converted which will reduce the expected outstanding Company Common Stock
at Closing to 2,816,867 shares.
3. Waiver of Requirement for Conversion of Company Preferred Stock. By
entering into this Amendment, the parties agree to waive the requirements of
Section 3.3 of the Plan and Agreement of Merger and Section 5.2.8 of the Plan
and Agreement of Merger, which would require the remaining five shares of
Company Preferred Stock to be converted into Company Common Stock as a condition
to the closing of the Merger.
<PAGE> 2
4. Amendment to Paragraph 2.3 of the Plan and Agreement of Merger.
Paragraph 2.3 of the Plan and Agreement of Merger is hereby amended by deleting
in its entirety the present Paragraph 2.3 and substituting therewith the
following:
"2.3 Effects of Merger. Subject to the Acts, at the Effective Time,
the Merger shall have the following effects:
2.3.1 Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any
shares of capital stock of the Purchaser or the Company:
2.3.1.1 each share of Merger Subsidiary Common Stock that
is issued and outstanding immediately prior to the Effective Time
shall remain outstanding;
2.3.1.2 each share of Company Common Stock that is issued
and outstanding immediately prior to the Effective Time, except
for Dissenting Shares, shall be converted into the right to
receive the Per Share Common Stock Consideration and each share
of Company Preferred Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to
receive the Per Share Preferred Stock Consideration;
2.3.1.3 each outstanding certificate representing shares of
Company Common Stock or Company Preferred Stock, except for
Dissenting Shares, shall be deemed, for all purposes, to evidence
only the right to receive upon surrender of such certificate the
consideration into which such shares of Company Common Stock or
Company Preferred Stock are convertible as specified in Section
2.3.1.2 above; and
2.3.1.4 each share of Company Common Stock and Company
Preferred Stock that is owned by the Company immediately prior to
the Effective Time as treasury stock will be canceled and retired
and will cease to exist, without any conversion thereof.
2.3.1.5 Notwithstanding anything in this Section 2.3 to the
contrary, shares of Company Common Stock and Company Preferred
Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by Shareholders who have not
voted such shares in favor of the Merger and who shall have
properly exercised their rights of appraisal for such shares in
the manner provided by the Delaware General Corporation Law (the
"Dissenting Shares") shall evidence only the right to receive the
amount, if any, determined to be payable thereon pursuant to the
applicable appraisal rights statute and shall not be converted or
exchangeable for the right to receive the Per Share Common Stock
Consideration or Per Share Preferred Stock Consideration, as the
case may be, set forth herein, unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or
lost such holder's right to appraisal and payment, as the case
may be. If such Shareholder shall have failed to so perfect or
shall have effectively withdrawn or lost such right, such
Shareholder's shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Per Share Common Stock
Consideration or the Per Share Preferred Stock
2
<PAGE> 3
Consideration, as the case may be, set forth herein without any
interest thereupon. The Company shall give the Purchaser prompt
notice of any Dissenting Shares (and shall also give the
Purchaser prompt notice of any withdrawals of such demands for
appraisal rights) and the Purchaser shall have the right to
direct all negotiations and proceedings with respect to any such
demands. The Company shall not, except with the prior written
consent of the Purchaser, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for
appraisal rights."
5. Amendment to Paragraph 2.4 of the Plan and Agreement of Merger.
Paragraph 2.4 of the Plan and Agreement of Merger is amended by deleting the
present Paragraph 2.4 and substituting therefor the following:
"2.4 Exchange of Certificates.
2.4.1 Paying Agent. Not later than the Effective Time, the Purchaser
shall deposit with the Paying Agent for the benefit of Company Shareholders, for
payment in accordance with this Section 2.4, cash in the amount of the Closing
Cash Consideration less an amount equal to the number of shares of Company
Common Stock and Company Preferred Stock for which the Company has reserved a
valid notice of dissent multiplied by the Per Share Common Stock Consideration
or the Per Share Preferred Stock Consideration, as the case may be (hereinafter
referred to as the "Payment Fund").
2.4.2 Exchange Procedures for Certificates Representing Shares. No
later than five (5) days following the Effective Time, the Paying Agent or the
Company shall mail to each holder of record of a certificate or certificates
(the "Certificates") which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock or Company Preferred Stock whose
shares were converted into the right to receive the Per Share Common Stock
Consideration or Per Share Preferred Stock Consideration, as the case may be,
pursuant to Section 2.3 (i) a letter of transmittal (which shall specify that
delivery shall be effected, and that risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates (or affidavits of loss in
lieu thereof) to the Paying Agent and shall be in such form and have such other
provisions as the Purchaser may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for the Per Share Common
Stock Consideration or Per Share Preferred Stock Consideration, as the case may
be, as set forth herein. Upon surrender of a Certificate for cancellation to the
Paying Agent, together with a duly executed and complete letter of transmittal,
the holder of such Certificate shall be entitled to receive in exchange therefor
as soon thereafter as possible either a wire transfer of same day funds (if the
Shareholder pays all wire transfer fees) or a check, at the Shareholder's
option, representing the amount of the Per Share Common Stock Consideration or
Per Share Preferred Stock Consideration, as the case may be, multiplied by the
number of shares represented by such certificate(s), after giving effect to any
required withholding tax, if any, and the shares represented by the Certificate
so surrendered shall be canceled forthwith. No interest will be paid or accrued
on the Per Share Common Stock Consideration or Per Share Preferred Stock
Consideration. In the event of a transfer of ownership of shares of Company
Common Stock or Company Preferred Stock which is not registered on the transfer
records of the Company, the transferee shall only be entitled to the Per Share
Common Stock Consideration or Per Share Preferred Stock Consideration for each
share so transferred if the Certificate representing such shares of Company
Common Stock or Company Preferred Stock held by such transferee is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such
3
<PAGE> 4
transfer and to evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.4, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon surrender the Per Share Common Stock Consideration or Per Share
Preferred Stock Consideration as provided in this Article II.
2.4.3 Distributions with Respect to Unsurrendered Shares.
Notwithstanding any other provisions of this Agreement, no part of the Per Share
Common Stock Consideration or Per Share Preferred Stock Consideration shall be
paid to any holder of Company Common Stock or Company Preferred Stock, until the
holder shall surrender the Certificate as to which such Per Share Common Stock
Consideration or Per Share Preferred Stock Consideration relates as provided in
this Section 2.4.
2.4.4 No Further Ownership Rights in Company Common Stock or Company
Preferred Stock. The Per Share Common Stock Consideration or Per Share Preferred
Stock Consideration paid pursuant to this Article II shall be deemed to have
been paid in full satisfaction of all rights pertaining to the shares of Company
Common Stock or Company Preferred Stock and from and after the Effective Time
there shall be no further registration of transfers on the stock transfer books
of the Company of shares of Company Common Stock or Company Preferred Stock. If,
after the Effective Time, Certificates are presented to the Purchaser or the
Company for any reason, they shall be canceled and exchanged as provided in this
Section 2.4.
2.4.5 Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to Company Shareholders for six months after the
Effective Time shall be delivered to the Purchaser, upon demand thereby, and
holders of shares of Company Common Stock or Company Preferred Stock who have
not theretofore complied with this Section 2.4 shall thereafter look only to the
Purchaser for payment of any claim to the Per Share Common Stock Consideration
or Per Share Preferred Stock Consideration.
2.4.6 No Liability. None of the Purchaser, the Company or the Paying
Agent shall be liable to any person in respect of any part of the Per Share
Common Stock Consideration or Per Share Preferred Stock Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to seven
years after the Effective Time of the Merger (or immediately prior to such
earlier date on which any part of the Per Share Common Stock Consideration or
Per Share Preferred Stock Consideration would otherwise escheat to or become the
property of any governmental authority), any such cash in respect of such
Certificate shall, to the extent permitted by the Acts, become the property of
the Purchaser, free and clear of all claims or interest of any person previously
entitled thereto.
2.4.7 Investment of Payment Fund. The Paying Agent shall invest any
cash included in the Payment Fund, as directed by the Purchaser, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to the Purchaser upon termination of the Payment Fund pursuant to Section
2.4.5.
2.4.8 Lost, Stolen or Destroyed Certificates. In the event any
Certificate of Company Common Stock or Company Preferred Stock shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Purchaser, the posting by such Person of a bond in the amount of the
Per Share Common Stock Consideration or Per Share Preferred Stock Consideration
multiplied by the number of shares represented
4
<PAGE> 5
thereby as indemnity against any claim that may be made against it with respect
to such Certificate, the Paying Agent will issue in exchange for such lost,
stolen or destroyed Certificate the Per Share Common Stock Consideration or Per
Share Preferred Stock Consideration upon receipt of such affidavit in respect of
the Company Common Stock represented by such Certificate pursuant to this
Agreement."
6. The defined term "Company Shareholders" or "Shareholders"
contained in Item 16 of Exhibit 1.1 of the Plan and Agreement of Merger shall be
amended to read in its entirety as follows:
"Company Shareholders" or "Shareholders" shall mean the
shareholders of the Company at the Effective Time, including holders
of Company Common Stock or Company Preferred Stock, each of which may
be referred to individually as a "Shareholder."
The defined terms "Exchange Agent" and "Exchange Fund" in Items 29 and
30 of Exhibit 1.1 to the Plan and Agreement of Merger shall be changed
throughout the Plan and Agreement of Merger to "Paying Agent" and "Payment
Fund," respectively. The definition of "Per Share Closing Cash Consideration"
contained in Item 49 of Exhibit 1.1 of the Plan and Agreement of Merger is
deleted in its entirety and in its place the following definitions are added as
items 49(A) and 49(B):
"49A. "Per Share Common Stock Consideration" shall mean an amount
of cash equal to the Outstanding Share Consideration divided by (i)
the total number of issued and outstanding shares of Company Common
Stock at the Closing plus (ii) the total number of issued and
outstanding shares of Company Preferred Stock at Closing multiplied by
2000.
49B. "Per Share Preferred Stock Consideration" shall mean an
amount of cash equal to the Per Share Common Stock Consideration
multiplied by 2000."
7. Except as set forth herein, all the terms of the Plan and
Agreement of Merger shall remain in full force and effect.
IN WITNESS WHEREOF, each party hereto has executed or caused this
Amendment to the Plan and Agreement of Merger to be executed on its behalf
effective as of this 30th day of March, 1998.
"Purchaser"
SYKES HEALTHPLAN SERVICES, INC.
By:
----------------------------------
Title:
"Merger Subsidiary"
5
<PAGE> 6
SYKES HEALTHPLAN SERVICES
ACQUISITION CORP.
By:
----------------------------------
Title:
"Company"
HEALTH INTERNATIONAL, INC.
By:
----------------------------------
Title:
6
<PAGE> 1
EXHIBIT 10.13
================================================================================
CREDIT AGREEMENT
by and among
SYKES HEALTHPLAN SERVICES, INC.,
as Borrower,
NATIONSBANK, NATIONAL ASSOCIATION ,
as Agent and as Lender
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
March __, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions and Terms
<S> <C> <C>
1.1. Definitions.......................................................2
1.2. Rules of Interpretation..........................................25
ARTICLE II
The Revolving Credit Facility
2.1. Revolving Loans..................................................27
2.2. Payment of Interest..............................................29
2.3. Payment of Principal.............................................29
2.4. Non-Conforming Payments..........................................30
2.5. Notes............................................................30
2.6. Pro Rata Payments................................................30
2.7. Reductions.......................................................30
2.8. Conversions and Elections of Subsequent Interest Periods.........31
2.9. Increase and Decrease in Amounts.................................32
2.10. Unused Fee.......................................................32
2.11. Deficiency Advances; Failure to Purchase Participations..........32
2.12. Use of Proceeds..................................................33
ARTICLE III
Letters of Credit
3.1. Letters of Credit................................................34
3.2. Reimbursement....................................................34
3.3. Letter of Credit Facility Fees...................................37
3.4. Administrative Fees..............................................37
ARTICLE IV
Change in Circumstances
4.1. Increased Cost and Reduced Return................................38
4.2. Limitation on Types of Loans.....................................39
4.3. Illegality.......................................................39
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.4. Treatment of Affected Loans......................................40
4.5. Compensation.....................................................40
4.6. Taxes...........................................................41
ARTICLE V
Conditions to Making Loans and Issuing Letters of Credit
5.1. Conditions of Initial Advance...................................43
5.2. Conditions of Revolving Loans and Letter of Credit...............45
ARTICLE VI
Representations and Warranties
6.1. Organization and Authority.......................................47
6.2. Loan Documents...................................................47
6.3. Solvency.........................................................48
6.4. Subsidiaries and Stockholders....................................48
6.5. Ownership Interests..............................................48
6.6. Financial Condition..............................................48
6.7. Title to Properties..............................................49
6.8. Taxes............................................................49
6.9. Other Agreements.................................................49
6.10. Litigation.......................................................50
6.11. Margin Stock.....................................................50
6.12. Investment Company...............................................50
6.13. Patents, Etc.....................................................50
6.14. No Untrue Statement..............................................51
6.15. No Consents, Etc.................................................51
6.16. Employee Benefit Plans...........................................51
6.17. No Default.......................................................52
6.18. Environmental Laws...............................................52
6.19. Employment Matters...............................................53
6.20. RICO.............................................................53
ARTICLE VII
Affirmative Covenants
7.1. Financial Reports, Etc...........................................54
7.2. Maintain Properties..............................................55
7.3. Existence, Qualification, Etc....................................55
7.4. Regulations and Taxes............................................56
7.5. Insurance........................................................56
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.6. True Books.......................................................56
7.7. Right of Inspection..............................................56
7.8. Observe all Laws.................................................56
7.9. Governmental Licenses............................................57
7.10. Covenants Extending to Other Persons.............................57
7.11. Officer's Knowledge of Default...................................57
7.12. Suits or Other Proceedings.......................................57
7.13. Notice of Environmental Complaint or Condition...................57
7.14. Environmental Compliance.........................................57
7.15. Indemnification..................................................58
7.16. Further Assurances...............................................58
7.17. Employee Benefit Plans...........................................58
7.18. Continued Operations.............................................59
7.19. New Subsidiaries.................................................59
7.20. Use of Proceeds..................................................61
ARTICLE VIII
Negative Covenants
8.1. Financial Covenants..............................................62
8.2. Acquisitions.....................................................62
8.3. Liens............................................................63
8.4. Indebtedness.....................................................64
8.5. Transfer of Assets...............................................64
8.6. Investments......................................................64
8.7. Merger or Consolidation..........................................65
8.8. Restricted Payments..............................................65
8.9. Transactions with Affiliates.....................................65
8.10. Compliance with ERISA............................................65
8.11. Fiscal Year......................................................66
8.12. Dissolution, etc.................................................66
8.13. Limitations on Sales and Leasebacks..............................66
8.14. Change in Control................................................67
8.15. Rate Hedging Obligations.........................................67
8.16. Negative Pledge Clauses..........................................67
8.17. Prepayments, Etc. of Indebtedness................................67
</TABLE>
iii
<PAGE> 5
ARTICLE IX
Events of Default and Acceleration
<TABLE>
<S> <C> <C>
9.1. Events of Default................................................68
9.2. Agent to Act.....................................................71
9.3. Cumulative Rights................................................71
9.4. No Waiver........................................................71
9.5. Allocation of Proceeds...........................................71
ARTICLE X
The Agent
10.1. Appointment, Powers, and Immunities..............................73
10.2. Reliance by Agent................................................73
10.3. Defaults.........................................................74
10.4. Rights as Lender.................................................74
10.5. Indemnification..................................................74
10.6. Non-Reliance on Agent and Other Lenders..........................75
10.7. Resignation of Agent.............................................75
10.8. Sharing of Payments, etc.........................................75
10.9. Fees.............................................................76
ARTICLE XI
Miscellaneous
11.1. Assignments and Participations...................................77
11.2. Notices..........................................................78
11.3. Right of Set-off; Adjustments....................................79
11.4. Survival.........................................................80
11.5. Expenses.........................................................80
11.6. Amendments and Waivers...........................................80
11.7. Counterparts.....................................................81
11.8. Termination......................................................81
11.9. Indemnification; Limitation of Liability.........................81
11.10. Severability.....................................................82
11.11. Entire Agreement.................................................82
11.12. Agreement Controls...............................................82
11.13. Usury Savings Clause.............................................83
11.14. GOVERNING LAW; WAIVER OF JURY TRIAL..............................83
11.15. Payments.........................................................84
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
EXHIBIT A Applicable Commitment Percentages............................A-1
EXHIBIT B Form of Assignment and Acceptance............................B-1
EXHIBIT C Notice of Appointment (or Revocation) of Authorized
Representative...............................................C-1
EXHIBIT D Form of Borrowing Notice.....................................D-1
EXHIBIT E Form of Interest Rate Selection Notice.......................E-1
EXHIBIT F LC ACCOUNT AGREEMENT.........................................F-1
EXHIBIT G Form of Revolving Note.......................................G-1
EXHIBIT H PARENT GUARANTY..............................................H-1
EXHIBIT I Form of Opinion of Borrower's and Guarantors' Counsel........I-1
EXHIBIT J Compliance Certificate.......................................J-1
EXHIBIT K Form of Facility Guaranty....................................K-1
EXHIBIT L Form of Pledge Agreement.....................................L-1
EXHIBIT M Form of Amendment Agreement..................................M-1
Schedule 6.4 Subsidiaries and Investments in Other Persons................S-1
Schedule 6.6 Indebtedness.................................................S-2
Schedule 6.7 Liens........................................................S-3
Schedule 6.8 Tax Matters..................................................S-4
Schedule 6.10 Litigation...................................................S-5
Schedule 7.5 Insurance....................................................S-6
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March __, 1998 (the "Agreement"), is
made by and among SYKES HEALTHPLAN SERVICES, INC., a Florida corporation having
its principal place of business in Tampa, Florida (the "Borrower"), NATIONSBANK,
NATIONAL ASSOCIATION, a national banking association organized and existing
under the laws of the United States, in its capacity as a Lender
("NationsBank"), and each other financial institution executing and delivering a
signature page hereto and each other financial institution which may hereafter
execute and deliver an instrument of assignment with respect to this Agreement
pursuant to Section 11.1 (hereinafter such financial institutions may be
referred to individually as a "Lender" or collectively as the "Lenders"), and
NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and
existing under the laws of the United States, in its capacity as agent for the
Lenders (in such capacity, and together with any successor agent appointed in
accordance with the terms of Section 10.7, the "Agent");
WITNESSETH:
WHEREAS, the Borrower has requested that the Lenders make available to
the Borrower a revolving credit facility of up to $75,000,000.00, the proceeds
of which are to be used for general corporate purposes and acquisitions and
which shall include a letter of credit facility of up to $10,000,000 for the
issuance of standby letters of credit; and
WHEREAS, the Lenders party hereto have agreed to make available to
Borrower a revolving credit facility of up to $65,000,000 which includes a
letter of credit facility of up to $10,000,000 upon the terms and conditions set
forth herein and hereby agrees that the revolving credit facility may be
increased to $75,000,000 at any time so long as no Default or Event of Default
exists without further action or approval of the Lenders;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as
follows:
1
<PAGE> 8
ARTICLE I
Definitions and Terms
1.1. Definitions. For the purposes of this Agreement, in addition
to the definitions set forth above, the following terms shall have the
respective meanings set forth below:
"Acquisition" means the acquisition of (i) a controlling
equity interest in another Person (including the purchase of an option,
warrant or convertible or similar type security to acquire such a
controlling interest at the time it becomes exercisable by the holder
thereof), whether by purchase of such equity interest or upon exercise
of an option or warrant for, or conversion of securities into, such
equity interest, or (ii) assets of another Person which constitute all
or substantially all of the assets of such Person or of a line or lines
of business conducted by such Person.
"Adjusted Consolidated Shareholders' Equity" means
Consolidated Shareholders' Equity plus non-cash charges and certain
acquisition-related cash charges so long as the inclusion of such
charges is approved by the Required Lenders.
"Advance" means a borrowing under the Revolving Credit
Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan.
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is
under common control with the Borrower; or (ii) which beneficially owns
or holds 10% or more of any class of the outstanding voting stock (or
in the case of a Person which is not a corporation, 10% or more of the
equity interest) of the Borrower; or 10% or more of any class of the
outstanding voting stock (or in the case of a Person which is not a
corporation, 10% or more of the equity interest) of which is
beneficially owned or held by the Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through ownership of voting stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender at any time, a fraction, the numerator of which shall be such
Lender's Revolving Credit Commitment and the denominator of which shall
be the Total Revolving Credit Commitment, which Applicable Commitment
Percentage for each Lender as of the Closing Date is as set forth in
Exhibit A; provided that the Applicable Commitment Percentage of each
Lender shall be increased or decreased to reflect any assignments to or
by such Lender effected in accordance with Section 11.1.
"Applicable Lending Office" means, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an
affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other office of such Lender (or an
affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower
2
<PAGE> 9
by written notice in accordance with the terms hereof as the office by
which its Loans of such Type are to be made and maintained.
"Applicable Margin" means that percent per annum set forth
below, which shall be based upon the Consolidated Leverage Ratio for
the Four-Quarter Period most recently ended as specified below. So long
as the guaranties of HPS and Sykes are effective pursuant to the Parent
Guaranty, the Applicable Margin shall be as set forth above in Table I.
At such time as the guaranties of HPS and Sykes cease to be effective
in accordance with the terms of the Parent Guaranty, the Applicable
Margin shall be as set forth above in Table II.
TABLE I
<TABLE>
<CAPTION>
Applicable
Margin
Tier Consolidated Leverage Base Eurodollar
---- Ratio Rate Rate
--------------------- ------ ----------
<S> <C> <C> <C>
V Greater than or equal
to 2.50 to 1.00 0.50% 1.75%
IV Less than 2.50 to 1.00
but greater than or equal
to 1.75 to 1.00 0.25% 1.50%
III Less than 1.75 to 1.00
but greater than or equal
to 1.00 to 1.00 0.00% 1.25%
II Less than 1.00 to 1.00
but greater than or equal
to 0.50 to 1.00 0.00% 1.00%
I Less than 0.50 to 1.00 0.00% 0.75%
</TABLE>
3
<PAGE> 10
TABLE II
<TABLE>
<CAPTION>
Applicable
Margin
Tier Consolidated Leverage Base Eurodollar
---- Ratio Rate Rate
--------------------- ------ ----------
<S> <C> <C> <C>
V Greater than or equal
to 2.50 to 1.00 0.75% 2.00%
IV Less than 2.50 to 1.00
but greater than or equal
to 1.75 to 1.00 0.50% 1.75%
III Less than 1.75 to 1.00
but greater than or equal
to 1.00 to 1.00 0.25% 1.50%
II Less than 1.00 to 1.00
but greater than or equal
to 0.50 to 1.00 0.00% 1.25%
I Less than 0.50 to 1.00 0.00% 1.00%
</TABLE>
The Applicable Margin shall be established at the end of each fiscal
quarter of the Borrower (each, a "Determination Date"). Any change in
the Applicable Margin following each Determination Date shall be
determined based upon the computations set forth in the certificate
furnished to the Agent pursuant to Section 7.1(a)(ii) and Section
7.1(b)(ii), subject to review and approval of such computations by the
Agent, and shall be effective commencing on the fifth day following the
date such certificate is received until the first day following the
date on which a new certificate is delivered or is required to be
delivered, whichever shall first occur; provided however, if the
Borrower shall fail to deliver any such certificate within the time
period required by Section 7.1, then the Applicable Margin shall be
Tier V until the appropriate certificate is so delivered. From the
Closing Date to the day following the date of delivery of the
certificate for the first Determination Date, the Applicable Margin
shall be .25% for Base Rate Loans and 1.50% for Eurodollar Rate Loans.
"Applicable Unused Fee" means that percent per annum set forth
below, which shall be based upon the Consolidated Leverage Ratio for
the Four-Quarter Period most recently ended as specified below. So long
as the guaranties of HPS and Sykes are effective pursuant to the Parent
Guaranty, the Applicable Unused Fee shall be as set forth above in
Table I. At such time as the guaranties of HPS and Sykes cease to be
effective in accordance with the terms of the Parent Guaranty, the
Applicable Unused Fee shall be as set forth above in Table II.
4
<PAGE> 11
TABLE I
<TABLE>
<CAPTION>
Applicable
Tier Consolidated Leverage Unused
---- Ratio Fee
---------------------- -----------
<S> <C> <C>
V Greater than or equal
to 2.50 to 1.00 .300%
IV Less than 2.50 to 1.00
but greater than or equal
to 1.75 to 1.00 .275%
III Less than 1.75 to 1.00
but greater than or equal
to 1.00 to 1.00 .250%
II Less than 1.00 to 1.00
but greater than or equal
to 0.50 to 1.00 .200%
I Less than 0.50 to 1.00 .150%
</TABLE>
TABLE II
<TABLE>
<CAPTION>
Applicable
Tier Consolidated Leverage Unused
---- Ratio Fee
---------------------- -----------
<S> <C> <C>
V Greater than or equal
to 2.50 to 1.00 .300%
IV Less than 2.50 to 1.00
but greater than or equal
to 1.75 to 1.00 .300%
III Less than 1.75 to 1.00
but greater than or equal
to 1.00 to 1.00 .250%
II Less than 1.00 to 1.00 but greater
than or equal to 0.50 to 1.00 .200%
I Less than 0.50 to 1.00 .200%
</TABLE>
5
<PAGE> 12
The Applicable Unused Fee shall be established at the end of each
fiscal quarter of the Borrower (the "Determination Date"). Any change
in the Applicable Unused Fee following each Determination Date shall be
determined based upon the computations set forth in the certificate
furnished to the Agent pursuant to Section 7.1(a)(ii) and Section
7.1(b)(ii), subject to review and approval of such computations by the
Agent and shall be effective commencing on the fifth day following the
date such certificate is received until the first day following the
date on which a new certificate is delivered or is required to be
delivered, whichever shall first occur; provided however, if the
Borrower shall fail to deliver any such certificate within the time
period required by Section 7.1, then the Applicable Unused Fee shall be
Tier V until the appropriate certificate is so delivered. From the
Closing Date to the day following the date of delivery of the
certificate for the first Determination Date, the Applicable Unused Fee
shall be .250%.
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit, or
similar documentation, executed by the Borrower from time to time and
delivered to the Issuing Bank to support the issuance of Letters of
Credit.
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered to the Agent in connection with an assignment of a
Lender's interest under this Agreement pursuant to Section 11.1.
"Authorized Representative" means any of the President or any
Vice President of the Borrower or, with respect to financial matters,
the chief financial officer of the Borrower, or any other Person
expressly designated by the Board of Directors of the Borrower (or the
appropriate committee thereof) as an Authorized Representative of the
Borrower, as set forth from time to time in a certificate in the form
of Exhibit C.
"Base Rate" means, for any day, the rate per annum equal to
the sum of (a) the higher of (i) the Federal Funds Rate for such day
plus one-half of one percent (0.5%) and (ii) the Prime Rate for such
day plus (b) the Applicable Margin. Any change in the Base Rate due to
a change in the Prime Rate or the Federal Funds Rate shall be effective
on the effective date of such change in the Prime Rate or Federal Funds
Rate.
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate.
"Base Rate Refunding Loan" means a Base Rate Loan made to
satisfy Reimbursement Obligations arising from a drawing under a Letter
of Credit.
6
<PAGE> 13
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrower's Account" means a demand deposit account number
3660604788 or any successor account with the Agent, which may be
maintained at one or more offices of the Agent or an agent of the
Agent.
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving Credit
Facility in the form of Exhibit D.
"Business Day" means, (i) with respect to any Base Rate Loan,
any day which is not a Saturday, Sunday or a day on which banks in the
States of New York and North Carolina are authorized or obligated by
law, executive order or governmental decree to be closed and, (ii) with
respect to any Eurodollar Rate Loan, any day which is a Business Day,
as described above, and on which the relevant international financial
markets are open for the transaction of business contemplated by this
Agreement in London, England, New York, New York and Charlotte, North
Carolina.
"Capital Expenditures" means, with respect to the Borrower and
its Subsidiaries, for any period the sum of (without duplication) (i)
all expenditures (whether paid in cash or accrued as liabilities) by
the Borrower or any Subsidiary during such period for items that would
be classified as "property, plant or equipment" or comparable items on
the consolidated balance sheet of the Borrower and its Subsidiaries,
including without limitation all transactional costs incurred in
connection with such expenditures provided the same have been
capitalized, excluding, however, the amount of any Capital Expenditures
paid for with proceeds of casualty insurance as evidenced in writing
and submitted to the Agent together with any compliance certificate
delivered pursuant to Section 7.1(a) or (b), and (ii) with respect to
any Capital Lease entered into by the Borrower or its Subsidiaries
during such period, the present value of the lease payments due under
such Capital Lease over the term of such Capital Lease applying a
discount rate equal to the interest rate provided in such lease (or in
the absence of a stated interest rate, that rate used in the
preparation of the financial statements described in Section 7.1(a)),
all the foregoing in accordance with GAAP applied on a Consistent
Basis.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time
including Statement No. 13 of the Financial Accounting Standards Board
and any successor thereof.
"Change of Control" means, at any time:
(i) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than Sykes or
HPS that either: (A) becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act ), directly or
indirectly, of Voting Stock of the Borrower (or securities
convertible into or exchangeable for such Voting Stock)
representing either (a) at any time a total of
7
<PAGE> 14
25% or more of the combined voting power of all Voting Stock
of the Borrower (on a fully diluted basis) or (b) after the
Closing Date, an increase of 25% or more of the combined
voting power of all Voting Stock of the Borrower (on a fully
diluted basis); or (B) otherwise has the ability, directly or
indirectly, to elect a majority of the board of directors of
the Borrower;
(ii) during any period of up to 24 consecutive
months, commencing on the Closing Date, individuals who at the
beginning of such 24-month period were directors of the
Borrower shall cease for any reason (other than the death,
disability or retirement of an officer of the Borrower or a
Guarantor that is serving as a director at such time so long
as another officer of the Borrower or a Guarantor replaces
such Person as a director) to constitute a majority of the
board of directors of the Borrower;
(iii) any Person or two or more Persons acting in
concert shall have acquired by contract or otherwise, or shall
have entered into a contract or arrangement that, upon
consummation thereof, will result in its or their acquisition
of the power to exercise, directly or indirectly, a
controlling influence on the management or policies of the
Borrower; or
(iv) if Sykes or HPS shall sell, transfer or
otherwise dispose of any of the shares of Voting Stock of the
Borrower owned by either of them, other than a one-time sale
of shares of Voting Stock of the Borrower pursuant to an
initial public offering so long as the number of shares sold
in such public offering do not exceed 55% of the combined
voting power of all Voting Stock of the Borrower.
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 5.1 have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
"Collateral" means, collectively, all property of any
Subsidiary or any other Person in which the Agent or any Lender is
granted a Lien as security for all or any portion of the Obligations
under any Pledge Agreement.
"Consistent Basis" in reference to the application of GAAP
means the accounting principles observed in the period referred to are
comparable in all material respects to those applied in the preparation
of the audited financial statements of the Borrower referred to in
Section 6.6(a).
"Consolidated EBITDA" means with respect to a Person and its
Subsidiaries for any period ending on the date of computation thereof,
the sum of, without duplication, (i) Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) taxes on income, (iv)
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<PAGE> 15
amortization, (v) depreciation, (vi) non-cash charges so long as the
inclusion of such charges are approved by the Required Lenders, all
determined on a consolidated basis in accordance with GAAP applied on a
Consistent Basis; provided, however, that with respect to an
Acquisition that is accounted for as a "purchase" all determined on a
consolidated basis in accordance with GAAP, for the four Four-Quarter
Periods ending next following the date of such Acquisition,
Consolidated EBITDA shall include the results of operations of the
Person or assets so acquired, which amounts shall be determined on a
rolling Four-Quarter Period pro forma basis as if such Acquisition had
been consummated as a "pooling of interests".
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and its Subsidiaries for any period of computation thereof,
the ratio of (i) Consolidated EBITDA for such period less (without
duplication) Capital Expenditures for such period and less cash income
taxes, to (ii) Consolidated Fixed Charges for such period.
"Consolidated Fixed Charges" means, with respect to Borrower
and its Subsidiaries for any Four-Quarter Period ending on the date of
computation thereof, the sum of, without duplication, (i) Consolidated
Interest Expense, (ii) current maturities (i.e., amounts paid in such
Four-Quarter Period) of Consolidated Indebtedness having a term of one
year or greater including any renewals and (iii) additional purchase
price amounts in the form of earnouts and other contingent obligations
incurred as a part of a Cost of Acquisition and paid in Four-Quarter
Period.
"Consolidated Indebtedness" means all Indebtedness for Money
Borrowed of a Person and its Subsidiaries, all determined on a
consolidated basis.
"Consolidated Interest Expense" means, with respect to any
period of computation thereof, the gross interest expense of a Person
and its Subsidiaries, including without limitation (i) the current
amortized portion of debt discounts to the extent included in gross
interest expense, (ii) the current amortized portion of all fees
(including fees payable in respect of any Swap Agreement) payable in
connection with the incurrence of Indebtedness to the extent included
in gross interest expense and (iii) the portion of any payments made in
connection with Capital Leases allocable to interest expense, all
determined on a consolidated basis in accordance with GAAP applied on a
Consistent Basis.
"Consolidated Leverage Ratio" means, as of the date of
computation thereof, the ratio of (i) the sum of (without duplication)
Consolidated Indebtedness (determined as at such date) to (ii)
Consolidated EBITDA (for the Four-Quarter Period ending on (or most
recently ended prior to) such date).
"Consolidated Net Income" means, for any period of computation
thereof, the gross revenues from operations of a Person and its
Subsidiaries (including payments received by such Person and its
Subsidiaries of (i) interest income, and (ii) dividends and
distributions made in the ordinary course of their businesses by
Persons in which investment is permitted pursuant to this Agreement and
not related to an extraordinary event), less all operating and
non-operating expenses of such Person and its Subsidiaries including
taxes on income, all
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<PAGE> 16
determined on a consolidated basis in accordance with GAAP applied on a
Consistent Basis; but excluding (for all purposes other than (x)
compliance with Section 8.1(a) hereof) as income: (i) net gains on the
sale, conversion or other disposition of capital assets, (ii) net gains
on the acquisition, retirement, sale or other disposition of capital
stock and other securities of such Person or its Subsidiaries, (iii)
net gains on the collection of proceeds of life insurance policies,
(iv) any write-up of any asset, and (v) any other net gain or credit of
an extraordinary nature as determined in accordance with GAAP applied
on a Consistent Basis.
"Consolidated Shareholders' Equity" means, as of any date on
which the amount thereof is to be determined, the sum of the following
in respect of the Borrower and its Subsidiaries (determined on a
consolidated basis and excluding any upward adjustment after the
Closing Date due to revaluation of assets): (i) the amount of issued
and outstanding share capital, plus (ii) the amount of additional
paid-in capital and retained earnings (or, in the case of a deficit,
minus the amount of such deficit), plus (iii) the amount of any foreign
currency translation adjustment (if positive, or, if negative, minus
the amount of such translation adjustment), minus (iv) the amount of
any treasury stock, all as determined in accordance with GAAP applied
on a Consistent Basis.
"Contingent Obligation" of any Person means all contingent
liabilities required (or which, upon the creation or incurring thereof,
would be required) to be included in the financial statements
(including footnotes) of such Person in accordance with GAAP applied on
a Consistent Basis, including Statement No. 5 of the Financial
Accounting Standards Board, all Rate Hedging Obligations and any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including obligations of such Person however incurred:
(1) to purchase such Indebtedness or other obligation
or any property or assets constituting security therefor;
(2) to advance or supply funds in any manner (i) for
the purchase or payment of such Indebtedness or other
obligation, or (ii) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(3) to grant or convey any lien, security interest,
pledge, charge or other encumbrance on any property or assets
of such Person to secure payment of such Indebtedness or other
obligation;
(4) to lease property or to purchase securities or
other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
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<PAGE> 17
(5) otherwise to assure the owner of the Indebtedness
or such obligation of the primary obligor against loss in
respect thereof.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.8 hereof of a Eurodollar Rate Loan
of one Type as a Eurodollar Rate Loan of the same Type from one
Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a
conversion pursuant to Sections 2.8 or Article III of one Type of Loan
into another Type of Loan.
"Cost of Acquisition" means, with respect to any Acquisition,
as at the date of entering into any agreement therefor, the sum of the
following (without duplication): (i) the value of the capital stock,
warrants or options to acquire capital stock of Borrower or any
Subsidiary to be transferred in connection therewith, (ii) the amount
of any cash and fair market value of other property (excluding property
described in clause (i) and the unpaid principal amount of any debt
instrument) given as consideration, (iii) the amount (determined by
using the face amount or the amount payable at maturity, whichever is
greater) of any Indebtedness incurred, assumed or acquired by the
Borrower or any Subsidiary in connection with such Acquisition, (iv)
all additional purchase price amounts in the form of earnouts and other
contingent obligations that should be recorded on the financial
statements of the Borrower and its Subsidiaries in accordance with
GAAP, (v) all amounts paid in respect of covenants not to compete,
consulting agreements that should be recorded on financial statements
of the Borrower and its Subsidiaries in accordance with GAAP, and other
affiliated contracts in connection with such Acquisition, (vi) the
aggregate fair market value of all other consideration given by the
Borrower or any Subsidiary in connection with such Acquisition, and
(vii) out of pocket transaction costs for the services and expenses of
attorneys, accountants and other consultants incurred in effecting such
transaction, and other similar transaction costs so incurred less the
net amount of cash acquired in such Acquisition. For purposes of
determining the Cost of Acquisition for any transaction, (A) the
capital stock of the Borrower shall be valued (I) in the case of
capital stock that is then designated as a national market system
security by the National Association of Securities Dealers, Inc.
("NASDAQ") or is listed on a national securities exchange, the average
of the reported bid and ask quotations or the prices reported thereon
during the period allowed by GAAP, and (II) with respect to shares that
are not freely tradeable, as determined by the Board of Directors of
the Borrower and, if requested by the Agent, determined to be a
reasonable valuation by the independent public accountants referred to
in Section 7.1(a), (B) the capital stock of any Subsidiary shall be
valued as determined by the Board of Directors of such Subsidiary and,
if requested by the Agent, determined to be a reasonable valuation by
the independent public accountants referred to in Section 7.1(a), and
(C) with respect to any Acquisition accomplished pursuant to the
exercise of options or warrants or the conversion of securities, the
Cost of Acquisition shall include both the cost of acquiring such
option, warrant or convertible security as well as the cost of exercise
or conversion.
"Credit Party" means, collectively, the Borrower, each
Guarantor and each other Person providing Collateral pursuant to any
Security Instrument.
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<PAGE> 18
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder.
"Default Rate" means (i) with respect to each Eurodollar Rate
Loan, until the end of the Interest Period applicable thereto, a rate
of two percent (2%) above the Eurodollar Rate applicable to such Loan,
and thereafter at a rate of interest per annum which shall be two
percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans
and Reimbursement Obligations, at a rate of interest per annum which
shall be two percent (2%) above the Base Rate and (iii) in any case,
the maximum rate permitted by applicable law, if lower.
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States
of America.
"Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
Lender, and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.1, the Borrower,
such approval not to be unreasonably withheld or delayed by the
Borrower and such approval to be deemed given by the Borrower within
two Business Days after notice of such proposed assignment has been
provided by the assigning Lender to the Borrower; provided, however,
that neither the Borrower nor an affiliate of the Borrower shall
qualify as an Eligible Assignee.
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Agent:
(a) Government Securities;
(b) obligations of any corporation organized under
the laws of any state of the United States of America or under
the laws of any other nation, payable in the United States of
America, expressed to mature not later than 92 days following
the date of issuance thereof and rated in an investment grade
rating category by S&P and Moody's;
(c) interest bearing demand or time deposits issued
by any Lender or certificates of deposit maturing within one
year from the date of issuance thereof and issued by a bank or
trust company organized under the laws of the United States or
of any state thereof having capital surplus and undivided
profits aggregating at least $400,000,000 and being rated
"A-3" or better by S&P or "A" or better by Moody's;
(d) Repurchase Agreements;
(e) Municipal Obligations;
(f) Pre-Refunded Municipal Obligations;
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<PAGE> 19
(g) shares of mutual funds which invest in
obligations described in paragraphs (a) through (f) above, the
shares of which mutual funds are at all times rated "AAA" by
S&P;
(h) tax-exempt or taxable adjustable rate preferred
stock issued by a Person having a rating of its long term
unsecured debt of "A" or better by S&P or "A- 3" or better by
Moody's; and
(i) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P-1" by Moody's.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of the Borrower or any of its ERISA Affiliates or is assumed
by the Borrower or any of its ERISA Affiliates in connection with any
Acquisition or (ii) has at any time been maintained for the employees
of the Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means any federal, state or local
statute, law, ordinance, code, rule, regulation, order, decree, permit
or license regulating, relating to, or imposing liability or standards
of conduct concerning, any environmental matters or conditions,
environmental protection or conservation, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended; the Superfund Amendments and Reauthorization
Act of 1986, as amended; the Resource Conservation and Recovery Act, as
amended; the Toxic Substances Control Act, as amended; the Clean Air
Act, as amended; the Clean Water Act, as amended; together with all
regulations promulgated thereunder, and any other "Superfund" or
"Superlien" law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute and all
rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to the Borrower, means any
Person or trade or business which is a member of a group which is under
common control with the Borrower, who together with the Borrower, is
treated as a single employer within the meaning of Section 414(b) and
(c) of the Code.
"Eurodollar Rate Loan" means a Loan for which the rate of
interest is determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means the interest rate per annum calculated
according to the following formula:
Eurodollar = Interbank Offered Rate + Applicable
--------------------------
Rate 1- Reserve Requirement Margin
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<PAGE> 20
"Event of Default" means any of the occurrences set forth as
such in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Facility Guaranty" means each Guaranty and Suretyship
Agreement between one or more Guarantors who are Subsidiaries and the
Agent for the benefit of the Lenders, delivered as of the Closing Date
and otherwise pursuant to Section 7.19, as the same may be amended,
modified or supplemented.
"Facility Termination Date" means such date as all of the
following shall have occurred: (a) the Borrower shall have permanently
terminated the Revolving Credit Facility by payment in full of all
Revolving Credit Outstandings and Letter of Credit Outstandings,
together with all accrued and unpaid interest thereon, except for such
issued and undrawn Letters of Credit as have been fully cash
collateralized in a manner consistent with the terms of Section
9.1(l)(B), (b) all Swap Agreements shall have been terminated, expired
or cash collateralized, (c) all Revolving Credit Commitments and Letter
of Credit Commitments shall have terminated or expired and (d) the
Borrower shall have fully, finally and irrevocably paid and satisfied
in full all Obligations (other than Obligations consisting of
continuing indemnities and other contingent Obligations of the Borrower
or any Guarantor that may be owing to the Lenders pursuant to the Loan
Documents and expressly survive termination of this Agreement);
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and
(b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate
charged to the Agent (in its individual capacity) on such day on such
transactions as determined by the Agent.
"Fiscal Year" means the twelve month fiscal period of the
Borrower and its Subsidiaries commencing on January 1 of each calendar
year and ending on December 31 of each calendar year.
"Foreign Benefit Law" means any applicable statute, law,
ordinance, code, rule, regulation, order or decree of any foreign
nation or any province, state, territory, protectorate or other
political subdivision thereof regulating, relating to, or imposing
liability or standards of conduct concerning, any Employee Benefit
Plan.
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<PAGE> 21
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower and its Subsidiaries, taken together as
one accounting period.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board, the American Institute of Certified Public Accountants
or which have other substantial authoritative support and are
applicable in the circumstances as of the date of a report.
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of America.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, court, agency or instrumentality or political
subdivision thereof or any entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a
foreign entity or government.
"Guaranties" means all obligations of the Borrower or any
Subsidiary directly or indirectly guaranteeing, or in effect
guaranteeing, any Indebtedness or other obligation of any other Person.
"Guarantors" means, at any date, the Subsidiaries who are
required to be parties to a Facility Guaranty at such date and HPS and
Sykes, parties to the Parent Guaranty.
"Hazardous Material" means and includes any pollutant,
contaminant, or hazardous, toxic or dangerous waste, substance or
material (including without limitation petroleum products,
asbestos-containing materials and lead), the generation, handling,
storage, transportation, disposal, treatment, release, discharge or
emission of which is subject to any Environmental Law.
"HPS" means HealthPlan Services Corporation.
"Indebtedness" means with respect to any Person, without
duplication, all Indebtedness for Money Borrowed, all indebtedness of
such Person for the acquisition of property or arising under Rate
Hedging Obligations, all accrued and unpaid liabilities earned under
earnout agreements, all indebtedness secured by any Lien on the
property of such Person whether or not such indebtedness is assumed,
all liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business), all
Guaranties, that portion of obligations with respect to Capital Leases
and other items which in accordance with GAAP is required to be
classified as a liability on a balance sheet; but excluding all
accounts payable in the ordinary course of business so long as payment
therefor is due within one year; provided that in no event shall the
term Indebtedness include surplus
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<PAGE> 22
and retained earnings, lease obligations (other than pursuant to
Capital Leases), reserves for deferred income taxes and investment
credits, other deferred credits or reserves.
"Indebtedness for Money Borrowed" means with respect to any
Person, without duplication, all indebtedness in respect of money
borrowed, including without limitation all Capital Leases and the
deferred purchase price of any property or asset, evidenced by a
promissory note, bond, debenture or similar written obligation for the
payment of money (including conditional sales or similar title
retention agreements), other than trade payables incurred in the
ordinary course of business.
"Interbank Offered Rate" means, with respect to any Eurodollar
Rate Loan for the Interest Period applicable thereto, the rate per
annum (rounded upwards, if necessary), to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00
A.M. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "Interbank Offered
Rate" shall mean, with respect to any Eurodollar Rate Loan for the
Interest Period applicable thereto, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 A.M. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to
such Interest Period, provided, however; if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to
the nearest 1/100 of 1%).
"Interest Period" means, for each Eurodollar Rate Loan, a
period commencing on the date such Eurodollar Rate Loan is made or
Converted and ending, at the Borrower's option, on the date one, two,
three or six months thereafter as notified to the Agent by the
Authorized Representative three (3) Business Days prior to the
beginning of such Interest Period; provided, that,
(i) if the Authorized Representative fails to notify
the Agent of the length of an Interest Period three (3)
Business Days prior to the first day of such Interest Period,
the Loan for which such Interest Period was to be determined
shall be deemed to be a Base Rate Loan as of the first day
thereof;
(ii) if an Interest Period for a Eurodollar Rate Loan
would end on a day which is not a Business Day, such Interest
Period shall be extended to the next Business Day (unless such
extension would cause the applicable Interest Period to end in
the succeeding calendar month, in which case such Interest
Period shall end on the next preceding Business Day);
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the
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<PAGE> 23
calendar month at the end of such Interest Period) shall end
on the last Business Day of a calendar month;
(iv) no Interest Period shall extend past the Stated
Termination Date; and
(v) there shall not be more than five (5) Interest
Periods in effect on any day.
"Interest Rate Selection Notice" means the written notice
delivered by an Authorized Representative in connection with the
election of a subsequent Interest Period for any Eurodollar Rate Loan
or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or
the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in
the form of Exhibit E.
"Issuing Bank" means initially NationsBank and thereafter any
Lender which is successor to NationsBank as issuer of Letters of Credit
under Article III.
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Borrower and the Agent, as amended,
modified or supplemented from time to time, substantially in the form
of Exhibit F.
"Letter of Credit" means a standby letter of credit issued by
the Issuing Bank pursuant to Article III hereof for the account of the
Borrower in favor of a Person advancing credit or securing an
obligation on behalf of the Borrower.
"Letter of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to acquire Participations in
respect of Letters of Credit and Reimbursement Obligations up to an
aggregate amount at any one time outstanding equal to such Lender's
Applicable Commitment Percentage of the Total Letter of Credit
Commitment as the same may be increased or decreased from time to time
pursuant to this Agreement.
"Letter of Credit Facility" means the facility described in
Article III hereof providing for the issuance by the Issuing Bank for
the account of the Borrower of Letters of Credit in an aggregate stated
amount at any time outstanding not exceeding the Total Letter of Credit
Commitment.
"Letter of Credit Outstandings" means, as of any date of
determination, the aggregate amount available to be drawn under all
Letters of Credit plus Reimbursement Obligations then outstanding.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this
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<PAGE> 24
Agreement, the Borrower and any Subsidiary shall be deemed to be the
owner of any property which it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement
pursuant to which title to the property has been retained by or vested
in some other Person for security purposes.
"Loan" or "Loans" means any borrowing pursuant to an Advance
under the Revolving Credit Facility in accordance with Article II.
"Loan Documents" means this Agreement, the Notes, the Pledge
Agreement, the Facility Guaranties, the LC Account Agreement, the
Applications and Agreements for Letter of Credit, the Parent Guaranty
and all other instruments and documents heretofore or hereafter
executed or delivered to or in favor of any Lender or the Agent in
connection with the Loans made and transactions contemplated under this
Agreement, as the same may be amended, supplemented or replaced from
the time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole or
any other Credit Party, (ii) the ability of any Credit Party to pay or
perform its respective obligations, liabilities and indebtedness under
the Loan Documents as such payment or performance becomes due in
accordance with the terms thereof, or (iii) the rights, powers and
remedies of the Agent or any Lender under any Loan Document or the
validity, legality or enforceability thereof.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions
within the preceding six (6) Fiscal Years.
"Municipal Obligations" means general obligations issued by,
and supported by the full taxing authority of, any state of the United
States of America or of any municipal corporation or other public body
organized under the laws of any such state which are rated in the
highest investment rating category by both S&P and Moody's.
"NationsBank" means NationsBank, National Association.
"NMS" means NationBanc Montgomery Securities LLC and its
successors.
"Notes" means, collectively, the promissory notes of the
Borrower evidencing Revolving Loans executed and delivered to the
Lenders substantially in the form of Exhibit G.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the
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<PAGE> 25
Reimbursement Obligations and otherwise in respect of the Letters of
Credit, (iii) all liabilities of Borrower to any Lender or any
affiliate of any Lender which arise under a Swap Agreement, and (iii)
the payment and performance of all other obligations, liabilities and
Indebtedness of the Borrower to the Lenders, the Agent or NMS
hereunder, under any one or more of the other Loan Documents or with
respect to the Loans.
"Operating Documents" means with respect to any corporation,
limited liability company, partnership, limited partnership, limited
liability partnership or other legally authorized incorporated or
unincorporated entity, the bylaws, operating agreement, partnership
agreement, limited partnership agreement or other applicable documents
relating to the operation, governance or management of such entity.
"Organizational Action" means with respect to any corporation,
limited liability company, partnership, limited partnership, limited
liability partnership or other legally authorized incorporated or
unincorporated entity, any corporate, organizational or partnership
action (including any required shareholder, member or partner action),
or other similar official action, as applicable, taken by such entity.
"Organizational Documents" means with respect to any
corporation, limited liability company, partnership, limited
partnership, limited liability partnership or other legally authorized
incorporated or unincorporated entity, the articles of incorporation,
certificate of incorporation, articles of organization, certificate of
limited partnership or other applicable organizational or charter
documents relating to the creation of such entity.
"Outstandings" means, collectively, at any date, the Letter of
Credit Outstandings and Revolving Credit Outstandings on such date.
"Parent Guaranty" means that certain Guaranty and Suretyship
Agreement among HPS, Sykes and the Agent for the benefit of the Lenders
dated as of the date hereof, as the same may be amended, modified or
supplemented, substantially in the form of Exhibit H hereof.
"Participation" means, with respect to any Lender (other than
the Issuing Bank) and a Letter of Credit, the extension of credit
represented by the participation of such Lender hereunder in the
liability of the Issuing Bank in respect of a Letter of Credit issued
by the Issuing Bank in accordance with the terms hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" means any employee pension benefit plan within
the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412
of the Code and which (i) is maintained for employees of the Borrower
or any of its ERISA Affiliates or is assumed by the Borrower or any of
its
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ERISA Affiliates in connection with any Acquisition or (ii) has at any
time been maintained for the employees of the Borrower or any current
or former ERISA Affiliate.
"Person" means an individual, partnership, corporation,
limited liability company, limited liability partnership, trust,
unincorporated organization, association, joint venture or a government
or agency or political subdivision thereof.
"Pledge Agreement" means collectively the Stock Pledge
Agreement between the Borrower and the Agent delivered on the Closing
Date and any Stock Pledge Agreement hereafter delivered to the Agent
pursuant to Section 7.19 as hereafter amended, supplemented or replaced
from time to time.
"Pledged Stock" has the meaning given to such term in the
Pledge Agreement.
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably called
for redemption and advance refunded through the deposit in escrow of
Government Securities or other debt securities which are (i) not
callable at the option of the issuer thereof prior to maturity, (ii)
irrevocably pledged solely to the payment of all principal and interest
on such obligations as the same becomes due and (iii) in a principal
amount and bear such rate or rates of interest as shall be sufficient
to pay in full all principal of, interest, and premium, if any, on such
obligations as the same becomes due as verified by a nationally
recognized firm of certified public accountants.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of NationsBank,
presently located at Independence Center, 15th Floor, NC1 001-15-04,
Charlotte, North Carolina 28255, Attention: Agency Services, or such
other office and address as the Agent may from time to time designate.
"Rate Hedging Obligations" means any and all obligations of
the Borrower or any Subsidiary, whether absolute or contingent and
howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor), under (i) any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward
rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, Dollar-denominated or
cross-currency interest rate exchange agreements, forward currency
exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts, warrants and
those
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commonly known as interest rate "swap" agreements; and (ii) any and all
cancellations, buybacks, reversals, terminations or assignments of any
of the foregoing.
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Regulatory Change" means any change effective after the
Closing Date in United States federal or state laws or regulations
(including Regulation D and capital adequacy regulations) or foreign
laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks,
which includes any of the Lenders, under any United States federal or
state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with
the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy,
including those relating to "highly leveraged transactions," whether or
not having the force of law, and whether or not failure to comply
therewith would be unlawful and whether or not published or proposed
prior to the date hereof.
"Reimbursement Obligation" shall mean at any time, the
obligation of the Borrower with respect to any Letter of Credit to
reimburse the Issuing Bank and the Lenders to the extent of their
respective Participations (including by the receipt by the Issuing Bank
of proceeds of Loans pursuant to Section 3.2) for amounts theretofore
paid by the Issuing Bank pursuant to a drawing under such Letter of
Credit.
"Repurchase Agreement" means a repurchase agreement entered
into with any financial institution whose debt obligations or
commercial paper are rated "A" by either of S&P or Moody's or "A-1" by
S&P or "P-1" by Moody's.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating (i) if there
shall be fewer than three (3) Lenders, 100% of the aggregate Credit
Exposures of all Lenders on such date, and (ii) if there shall be three
(3) or more Lenders, more than 75% of the aggregate Credit Exposures of
all the Lenders on such date. For purposes of the preceding sentence,
the amount of the "Credit Exposure" of each Lender shall be equal at
all times (a) other than following the occurrence and during the
continuance of an Event of Default, to the sum of its Revolving Credit
Commitment, and (b) following the occurrence and during the continuance
of an Event of Default, to the sum of (i) the aggregate principal
amount of such Lender's Applicable Commitment Percentage of Revolving
Credit Outstandings plus (ii) the amount of such Lender's Applicable
Commitment Percentage of Letter of Credit Outstandings; provided that,
for the purpose of this definition only, (A) if any Lender shall have
failed to fund its Applicable Commitment Percentage of any Advance or
Revolving Credit Commitment, as applicable, of such Lender shall be
deemed reduced by the amount it so failed to fund for so long as such
failure shall continue and such Lender's Credit Exposure attributable
to such failure shall be deemed held by any Lender making more than its
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Applicable Commitment Percentage of such Advance to the extent it
covers such failure, (B) if any Lender shall have failed to pay to the
Issuing Bank upon demand its Applicable Commitment Percentage of any
drawing under any Letter of Credit resulting in an outstanding
Reimbursement Obligation, such Lender's Credit Exposure attributable to
such Letter of Credit Outstandings shall be deemed to be held by
Issuing Bank;
"Reserve Requirement" means, at any time, the maximum rate at
which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) by member banks of the
Federal Reserve System against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (i) any category of
liabilities which includes deposits by reference to which the
Eurodollar Rate is to be determined, or (ii) any category of extensions
of credit or other assets which include Eurodollar Rate Loans. The
Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"Restricted Payment" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of stock of Borrower or any of its Subsidiaries (other than those
payable or distributable solely to the Borrower) now or hereafter
outstanding, except a dividend payable solely in shares of a class of
stock to the holders of that class; (b) any redemption, conversion,
exchange, retirement or similar payment, purchase or other acquisition
for value, direct or indirect, of any shares of any class of stock of
Borrower or any of its Subsidiaries (other than those payable or
distributable solely to the Borrower) now or hereafter outstanding; (c)
any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any
class of stock of Borrower or any of its Subsidiaries now or hereafter
outstanding; and (d) any issuance and sale of capital stock of any
Subsidiary of the Borrower (or any option, warrant or right to acquire
such stock) other than to the Borrower.
"Revolving Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Loans to the Borrower up
to an aggregate principal amount at any one time outstanding equal to
such Lender's Applicable Commitment Percentage of the Total Revolving
Credit Commitment.
"Revolving Credit Facility" means the facility described in
Article II hereof providing for Loans to the Borrower by the Lenders in
the aggregate principal amount of the Total Revolving Credit
Commitment.
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Loans then
outstanding.
"Revolving Credit Termination Date" means (i) the Stated
Termination Date or (ii) such earlier date of termination of Lenders'
obligations pursuant to Section 9.1 upon the
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occurrence of an Event of Default, or (iii) such date as the Borrower
may voluntarily and permanently terminate the Revolving Credit Facility
by payment in full of all Revolving Credit Outstandings and Letter of
Credit Outstandings and cancellation of all Letters of Credit, together
with all accrued and unpaid interest thereon.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill.
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Stated Termination Date" means March __, 2001.
"Subordinated Debt" means Indebtedness subordinated to the
Obligations on terms as shall be acceptable to the Required Lenders.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower and/or
by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements between the
Borrower and any Person with respect to Indebtedness evidenced by any
or all of the Notes, on terms mutually acceptable to Borrower and such
Person and approved by each of the Lenders, which agreements create
Rate Hedging Obligations; provided, however, that no such approval of
the Lenders shall be required to the extent such agreements are entered
into between the Borrower and any Lender or an affiliate of any Lender.
"Sykes" means Sykes Enterprises, Incorporated.
"Termination Event" means: (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder (unless
the notice requirement has been waived by applicable regulation); or
(ii) the withdrawal of the Borrower or any ERISA Affiliate from
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a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA or was deemed such
under Section 4068(f) of ERISA; or (iii) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate a Pension Plan by the PBGC; or (v) any other event or
condition which would constitute grounds under Section 4042(a) of ERISA
for the termination of, or the appointment of a trustee to administer,
any Pension Plan; or (vi) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the
imposition of a Lien pursuant to Section 412 of the Code or Section 302
of ERISA; or (viii) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Section 4241
or Section 4245 of ERISA, respectively; or (ix) any event or condition
which results in the termination of a Multiemployer Plan under Section
4041A of ERISA or the institution by the PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA.
"Total Letter of Credit Commitment" means an amount not to
exceed $10,000,000.00.
"Total Revolving Credit Commitment" means an amount equal to
(i) $65,000,000 or (ii) at such time as the existing Exhibit A hereto
is amended by the entering into of an Amendment Agreement in the form
of Exhibit M by the Borrower, the Agent and any lender or lenders
agreeing to provide additional Loans of up to $20,000,000, an amount
equal to $75,000,000, as such amounts are reduced from time to time in
accordance with Section 2.7.
"Type" shall mean any type of Loan (i.e., a Base Rate Loan or
a Eurodollar Rate Loan).
"Voting Stock" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
1.2. Rules of Interpretation.
(a) All accounting terms not specifically defined herein shall
have the meanings assigned to such terms and shall be interpreted in
accordance with GAAP applied on a Consistent Basis.
(b) Each term defined in Article 1 or 9 of the Florida Uniform
Commercial Code shall have the meaning given therein unless otherwise
defined herein, except to the extent that the Uniform Commercial Code
of another jurisdiction is controlling, in which case such terms shall
have the meaning given in the Uniform Commercial Code of the applicable
jurisdiction.
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(c) The headings, subheadings and table of contents used
herein or in any other Loan Document are solely for convenience of
reference and shall not constitute a part of any such document or
affect the meaning, construction or effect of any provision thereof.
(d) Except as otherwise expressly provided, references herein
to articles, sections, paragraphs, clauses, annexes, appendices,
exhibits and schedules are references to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules in or
to this Agreement.
(e) All definitions set forth herein or in any other Loan
Document shall apply to the singular as well as the plural form of such
defined term, and all references to the masculine gender shall include
reference to the feminine or neuter gender, and vice versa, as the
context may require.
(f) When used herein or in any other Loan Document, words such
as "hereunder", "hereto", "hereof" and "herein" and other words of like
import shall, unless the context clearly indicates to the contrary,
refer to the whole of the applicable document and not to any particular
article, section, subsection, paragraph or clause thereof.
(g) References to "including" means including without limiting
the generality of any description preceding such term, and for purposes
hereof the rule of ejusdem generis shall not be applicable to limit a
general statement, followed by or referable to an enumeration of
specific matters, to matters similar to those specifically mentioned.
(h) All dates and times of day specified herein shall refer to
such dates and times at Charlotte, North Carolina.
(i) Each of the parties to the Loan Documents and their
counsel have reviewed and revised, or requested (or had the opportunity
to request) revisions to, the Loan Documents, and any rule of
construction that ambiguities are to be resolved against the drafting
party shall be inapplicable in the construing and interpretation of the
Loan Documents and all exhibits, schedules and appendices thereto.
(j) Any reference to an officer of the Borrower or any other
Person by reference to the title of such officer shall be deemed to
refer to each other officer of such Person, however titled, exercising
the same or substantially similar functions.
(k) All references to any agreement or document as amended,
modified or supplemented, or words of similar effect, shall mean such
document or agreement, as the case may be, as amended, modified or
supplemented from time to time only as and to the extent permitted
therein and in the Loan Documents.
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ARTICLE II
The Revolving Credit Facility
2.1. Revolving Loans.
(a) Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances to the Borrower under
the Revolving Credit Facility from time to time from the Closing Date until the
Revolving Credit Termination Date on a pro rata basis as to the total borrowing
requested by the Borrower on any day determined by such Lender's Applicable
Commitment Percentage up to but not exceeding the Revolving Credit Commitment of
such Lender, provided, however, that the Lenders will not be required and shall
have no obligation to make any such Advance (i) so long as a Default or an Event
of Default has occurred and is continuing or (ii) if the Agent has accelerated
the maturity of any of the Notes as a result of an Event of Default; provided
further, however, that immediately after giving effect to each such Advance, the
amount of Revolving Credit Outstandings plus Letter of Credit Outstandings shall
not exceed the Total Revolving Credit Commitment. Within such limits, the
Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a
Business Day from the Closing Date until, but (as to borrowings and
reborrowings) not including, the Revolving Credit Termination Date; provided,
however, that (y) no Revolving Loan that is a Eurodollar Rate Loan shall be made
which has an Interest Period that extends beyond the Stated Termination Date and
(z) each Revolving Loan that is a Eurodollar Rate Loan may, subject to the
provisions of Section 2.7, be repaid only on the last day of the Interest Period
with respect thereto unless such payment is accompanied by the additional
payment, if any, required by Section 4.5.
(b) Amounts. The amount of Revolving Credit Outstandings plus
Letter of Credit Outstandings shall not exceed at any time the Total Revolving
Credit Commitment, and, in the event there shall be outstanding any such excess,
the Borrower shall immediately make such payments and prepayments as shall be
necessary to comply with this restriction. Each Loan hereunder, other than Base
Rate Refunding Loans, and each Conversion under Section 2.8, shall be in an
amount of at least $1,000,000, and, if greater than $1,000,000, an integral
multiple of $250,000.
(c) Advances. (i) An Authorized Representative shall give the
Agent (1) at least three (3) Business Days' irrevocable written notice by
telefacsimile transmission of a Borrowing Notice or Interest Rate Selection
Notice (as applicable) with appropriate insertions, effective upon receipt, of
each Revolving Loan that is a Eurodollar Rate Loan (whether representing an
additional borrowing hereunder or the Conversion of a borrowing hereunder from
Base Rate Loans to Eurodollar Rate Loans) prior to 10:30 A.M. and (2)
irrevocable written notice by telefacsimile transmission of a Borrowing Notice
or Interest Rate Selection Notice (as applicable) with appropriate insertions,
effective upon receipt, of each Revolving Loan (other than Base Rate Refunding
Loans to the extent the same are effected without notice pursuant to Section
2.1(c)(iv)) that is a Base Rate Loan (whether representing an additional
borrowing hereunder or the Conversion of borrowing hereunder from Eurodollar
Rate Loans to Base Rate Loans) prior to 10:30 A.M. on the day of such proposed
Revolving Loan. Each such notice shall specify the amount of the borrowing, the
type of Revolving Loan (Base Rate or Eurodollar Rate), the date of borrowing
and, if a Eurodollar Rate
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Loan, the Interest Period to be used in the computation of interest. Notice of
receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case
may be, together with the amount of each Lender's portion of an Advance
requested thereunder, shall be provided by the Agent to each Lender by
telefacsimile transmission with reasonable promptness, but (provided the Agent
shall have received such notice by 10:30 A.M.) not later than 1:00 P.M. on the
same day as the Agent's receipt of such notice.
(ii) Not later than 2:00 P.M. on the date specified for each borrowing
under this Section 2.1, each Lender shall (provided it has received notice by
1:00 P.M.), pursuant to the terms and subject to the conditions of this
Agreement, make the amount of the Advance or Advances to be made by it on such
day available by wire transfer to the Agent in the amount of its pro rata share,
determined according to such Lender's Applicable Commitment Percentage of the
Revolving Loan or Revolving Loans to be made on such day. Such wire transfer
shall be directed to the Agent at the Principal Office and shall be in the form
of Dollars constituting immediately available funds. The amount so received by
the Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower by delivery of the proceeds thereof to the Borrower's
Account or otherwise as shall be directed in the applicable Borrowing Notice by
the Authorized Representative and reasonably acceptable to the Agent.
(iii) The Borrower shall have the option to elect the duration of the
initial and any subsequent Interest Periods and to Convert the Revolving Loans
in accordance with Section 2.8. Eurodollar Rate Loans and Base Rate Loans may be
outstanding at the same time, provided, however, there shall not be outstanding
at any one time Eurodollar Rate Loans having more than five (5) different
Interest Periods. If the Agent does not receive a Borrowing Notice or an
Interest Rate Selection Notice giving notice of election of the duration of an
Interest Period or of Conversion of any Loan to or Continuation of a Loan as a
Eurodollar Rate Loan by the time prescribed by Section 2.1(c) or 2.8, the
Borrower shall be deemed to have elected to Convert such segment to (or Continue
such segment as) a Base Rate Loan until the Borrower notifies the Agent in
accordance with Section 2.8.
(iv) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank prior to the
Stated Termination Date, and the Borrower shall not immediately fully reimburse
the Issuing Bank in respect of such drawing, (A) provided that the conditions to
making a Revolving Loan as herein provided shall then be satisfied, the
Reimbursement Obligation arising from such drawing shall be paid to the Issuing
Bank by the Agent without the requirement of notice to or from the Borrower from
immediately available funds which shall be advanced as a Base Rate Refunding
Loan by each Lender under the Revolving Credit Facility in an amount equal to
such Lender's Applicable Commitment Percentage of such Reimbursement Obligation,
and (B) if the conditions to making a Revolving Loan as herein provided shall
not then be satisfied, each of the Lenders shall fund by payment to the Agent
(for the benefit of the Issuing Bank) in immediately available funds the
purchase from the Issuing Bank of their respective Participations in the related
Reimbursement Obligation based on their respective Applicable Commitment
Percentages of the Total Letter of Credit Commitment. If a drawing is presented
under any Letter of Credit in accordance with the terms thereof and the Borrower
shall not immediately reimburse the Issuing Bank in respect thereof, then notice
of such drawing or payment shall be
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provided promptly by the Issuing Bank to the Agent and the Agent shall provide
notice to each Lender by telephone or telefacsimile transmission. If notice to
the Lenders of a drawing under any Letter of Credit is given by the Agent at or
before 12:00 noon on any Business Day, each Lender shall, pursuant to the
conditions specified in this Section 2.1(c)(iv), either make a Base Rate
Refunding Loan or fund the purchase of its Participation in the amount of such
Lender's Applicable Commitment Percentage of such drawing or payment and shall
pay such amount to the Agent for the account of the Issuing Bank at the
Principal Office in Dollars and in immediately available funds before 2:30 P.M.
on the same Business Day. If notice to the Lenders of a drawing under a Letter
of Credit is given by the Agent after 12:00 noon on any Business Day, each
Lender shall, pursuant to the conditions specified in this Section 2.1(c)(iv),
either make a Base Rate Refunding Loan or fund the purchase of its Participation
in the amount of such Lender's Applicable Commitment Percentage of such drawing
or payment and shall pay such amount to the Agent for the account of the Issuing
Bank at the Principal Office in Dollars and in immediately available funds
before 12:00 noon on the next following Business Day. Any such Base Rate
Refunding Loan shall be advanced as, and shall Continue as, a Base Rate Loan
unless and until the Borrower Converts such Base Rate Loan in accordance with
the terms of Section 2.8.
2.2. Payment of Interest. (a) The Borrower shall pay interest to the
Agent for the account of each Lender on the outstanding and unpaid principal
amount of each Revolving Loan made by such Lender for the period commencing on
the date of such Revolving Loan until such Revolving Loan shall be due at the
then applicable Base Rate for Base Rate Loans or applicable Eurodollar Rate for
Eurodollar Rate Loans, as designated by the Authorized Representative pursuant
to Section 2.1; provided, however, that if any amount shall not be paid when due
(at maturity, by acceleration or otherwise), all amounts outstanding hereunder
shall bear interest thereafter at the Default Rate.
(b) Interest on each Revolving Loan shall be computed on the
basis of a year of 360 days and calculated in each case for the actual number of
days elapsed. Interest on each Revolving Loan shall be paid (i) quarterly in
arrears on the last Business Day of each March, June, September and December,
commencing March 31, 1998 for each Base Rate Loan, (ii) on the last day of the
applicable Interest Period for each Eurodollar Rate Loan and, if such Interest
Period extends for more than three (3) months, at intervals of three (3) months
after the first day of such Interest Period, and (iii) upon payment in full of
the principal amount of such Revolving Loan.
2.3. Payment of Principal. The principal amount of each Revolving Loan
shall be due and payable to the Agent for the benefit of each Lender in full on
the Revolving Credit Termination Date, or earlier as specifically provided
herein. The principal amount of any Base Rate Loan may be prepaid in whole or in
part at any time. The principal amount of any Eurodollar Rate Loan may be
prepaid only at the end of the applicable Interest Period unless the Borrower
shall pay to the Agent for the account of the Lenders the additional amount, if
any, required under Section 4.5. All prepayments of Revolving Loans made by the
Borrower shall be in the amount of $1,000,000 or such greater amount which is an
integral multiple of $250,000, or the amount equal to all Revolving Credit
Outstandings, or such other amount as necessary to comply with Section 2.1(b) or
Section 2.8.
2.4. Non-Conforming Payments. (a) Each payment of principal (including
any prepayment) and payment of interest and fees, and any other amount required
to be paid to the
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Lenders with respect to the Revolving Loans, shall be made to the Agent at the
Principal Office, for the account of each Lender, in Dollars and in immediately
available funds before 12:30 P.M. on the date such payment is due. The Agent
may, but shall not be obligated to, debit the amount of any such payment which
is not made by such time to any ordinary deposit account, if any, of the
Borrower with the Agent.
(b) The Agent shall deem any payment made by or on behalf of the
Borrower hereunder that is not made both in Dollars and in immediately available
funds and prior to 12:30 P.M. to be a non-conforming payment. Any such payment
shall not be deemed to be received by the Agent until the later of (i) the time
such funds become available funds and (ii) the next Business Day. Any
non-conforming payment may, at the election of the Agent, constitute or become a
Default or Event of Default. Interest shall continue to accrue on any principal
as to which a non-conforming payment is made until the later of (x) the date
such funds become available funds or (y) the next Business Day at the Default
Rate from the date such amount was due and payable.
(c) In the event that any payment hereunder or under the Notes becomes
due and payable on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day unless provided otherwise under
clause (ii) of the definition of "Interest Period"; provided that interest shall
continue to accrue during the period of any such extension and provided further,
that in no event shall any such due date be extended beyond the Revolving Credit
Termination Date.
2.5. Notes. Revolving Loans made by each Lender shall be evidenced by
the Note payable to the order of such Lender in the respective amount of its
Applicable Commitment Percentage of the Revolving Credit Commitment, which Note
shall be dated the Closing Date or a later date pursuant to an Assignment and
Acceptance and shall be duly completed, executed and delivered by the Borrower.
2.6. Pro Rata Payments. Except as otherwise provided herein, (a) each
payment on account of the principal of and interest on the Revolving Loans and
the fees described in Section 2.10 shall be made to the Agent for the account of
the Lenders pro rata based on their Applicable Commitment Percentages, (b) all
payments to be made by the Borrower for the account of each of the Lenders on
account of principal, interest and fees, shall be made without diminution,
setoff, recoupment or counterclaim, and (c) the Agent will promptly distribute
to the Lenders in immediately available funds payments received in fully
collected, immediately available funds from the Borrower.
2.7. Reductions. (a) The Borrower shall, by notice from an Authorized
Representative, have the right from time to time but not more frequently than
once each calendar month, upon not less than three (3) Business Days' written
notice to the Agent, effective upon receipt, to reduce the Total Revolving
Credit Commitment. The Agent shall give each Lender, within one (1) Business Day
of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed
in writing), of such reduction. Each such reduction shall be in the aggregate
amount of $1,000,000 or such greater amount which is in an integral multiple of
$100,000, or the entire remaining Total Revolving Credit Commitment, and shall
permanently reduce the Total Revolving Credit Commitment. Each reduction of the
Total Revolving Credit Commitment shall be accompanied by payment of the
Revolving Loans
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to the extent that the principal amount of Revolving Credit Outstandings plus
Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment
after giving effect to such reduction, together with accrued and unpaid interest
on the amounts prepaid. No such reduction shall result in the payment of any
Eurodollar Rate Loan other than on the last day of the Interest Period of such
Eurodollar Rate Loan unless such prepayment is accompanied by amounts due, if
any, under Section 4.5.
(b) The Borrower shall use the net proceeds from the sale of its
capital stock to repay Loans made pursuant to Section 2.1; however, no such
payments shall premanently reduce the Total Revolving Credit Commitment unless
the Borrower shall elect to permanently reduce the Total Revolving Credit
Commitment as provided in Section 2.7(a)
2.8. Conversions and Elections of Subsequent Interest Periods. Subject
to the limitations set forth below and in Article IV the Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. on
any Business Day, Convert all or a part of Eurodollar Rate Loans to Base Rate
Loans on the last day of the Interest Period for such Eurodollar Rate Loans; and
(b) provided that no Default or Event of Default shall have
occurred and be continuing and upon delivery, effective upon receipt, of a
properly completed Interest Rate Selection Notice to the Agent on or before
10:30 A.M. three (3) Business Days' prior to the date of such election or
Conversion:
(i) elect a subsequent Interest Period for all or a portion
of Eurodollar Rate Loans to begin on the last day of the then
current Interest Period for such Eurodollar Rate Loans; and
(ii) Convert Base Rate Loans to Eurodollar Rate Loans on any
Business Day.
Each election and Conversion pursuant to this Section 2.8 shall be
subject to the limitations on Eurodollar Rate Loans set forth in the definition
of "Interest Period" herein and in Sections 2.1, 2.3 and Article IV. The Agent
shall give written notice to each Lender of such notice of election or
Conversion prior to 3:00 P.M. on the day such notice of election or Conversion
is received. All such Continuations or Conversions of Loans shall be effected
pro rata based on the Applicable Commitment Percentages of the Lenders.
2.9. Increase and Decrease in Amounts. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrower as Advances
shall be reduced by the aggregate amount of Revolving Credit Outstandings and
Letters of Credit Outstandings.
2.10. Unused Fee. For the period beginning on the Closing Date and
ending on the Revolving Credit Termination Date, the Borrower agrees to pay to
the Agent, for the pro rata benefit
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of the Lenders based on their Applicable Commitment Percentages, an unused fee
equal to the Applicable Unused Fee multiplied by the average daily amount by
which the Total Revolving Credit Commitment exceeds the sum of (i) Revolving
Credit Outstandings plus (ii) Letter of Credit Outstandings. Such fees shall be
due in arrears on the last Business Day of each March, June, September and
December commencing March 31, 1998 to and on the Revolving Credit Termination
Date. Notwithstanding the foregoing, so long as any Lender fails to make
available any portion of its Revolving Credit Commitment when requested, such
Lender shall not be entitled to receive payment of its pro rata share of such
fee until such Lender shall make available such portion. Such fee shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
2.11. Deficiency Advances; Failure to Purchase Participations. No
Lender shall be responsible for any default of any other Lender in respect to
such other Lender's obligation to make any Loan hereunder or fund its purchase
of any Participation hereunder nor shall the Revolving Credit Commitment of any
Lender hereunder be increased as a result of such default of any other Lender.
Without limiting the generality of the foregoing, in the event any Lender shall
fail to advance funds to the Borrowers as herein provided, the Agent may in its
discretion, but shall not be obligated to, advance under the applicable Note in
its favor as a Lender all or any portion of such amount or amounts (each, a
"deficiency advance") and shall thereafter be entitled to payments of principal
of and interest on such deficiency advance in the same manner and at the same
interest rate or rates to which such other Lender would have been entitled had
it made such Advance under its Note; provided that, (i) such defaulting Lender
shall not be entitled to receive payments of principal, interest or fees with
respect to such deficiency advance until such deficiency advance shall be paid
by such Lender and (ii) upon payment to the Agent from such other Lender of the
entire outstanding amount of each such deficiency advance, together with accrued
and unpaid interest thereon, from the most recent date or dates interest was
paid to the Agent by a Borrower on each Loan comprising the deficiency advance
at the interest rate per annum for overnight borrowing by the Agent from the
Federal Reserve Bank, then such payment shall be credited against the applicable
Note of the Agent in full payment of such deficiency advance and such Borrower
shall be deemed to have borrowed the amount of such deficiency advance from such
other Lender as of the most recent date or dates, as the case may be, upon which
any payments of interest were made by such Borrower thereon. In the event any
Lender shall fail to fund its purchase of a Participation after notice from the
Issuing Bank, such Lender shall pay to the Issuing Bank interest on the amount
so due from the date of such notice at the interest rate per annum for overnight
borrowing by the Agent from the Federal Reserve Bank to the date such purchase
price is received by the Issuing Bank, as applicable.
2.12. Use of Proceeds. The proceeds of the Loans made pursuant to the
Revolving Credit Facility hereunder shall be used by the Borrower for general
working capital needs and other corporate purposes, including the making of
Acquisitions permitted hereunder.
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ARTICLE III
Letters of Credit
3.1. Letters of Credit. The Issuing Bank agrees, subject to the
terms and conditions of this Agreement, upon request of the Borrower to issue
from time to time for the account of the Borrower Letters of Credit upon
delivery to the Issuing Bank of an Application and Agreement for Letter of
Credit relating thereto in form and content acceptable to the Issuing Bank;
provided, that (i) the Letter of Credit Outstandings shall not exceed the Total
Letter of Credit Commitment and (ii) no Letter of Credit shall be issued if,
after giving effect thereto, Letter of Credit Outstandings plus Revolving Credit
Outstandings shall exceed the Total Revolving Credit Commitment. No Letter of
Credit shall have an expiry date (including all rights of the Borrower or any
beneficiary named in such Letter of Credit to require renewal) or payment date
occurring later than the earlier to occur of one year after the date of its
issuance or the fifth Business Day prior to the Stated Termination Date.
3.2. Reimbursement.
(a) The Borrower hereby unconditionally agrees to pay to the
Issuing Bank immediately on demand at the Principal Office all amounts required
to pay all drafts drawn or purporting to be drawn under the Letters of Credit
and all reasonable expenses incurred by the Issuing Bank in connection with the
Letters of Credit, and in any event and without demand to place in possession of
the Issuing Bank (which shall include Advances under the Revolving Credit
Facility if permitted by Section 2.1 sufficient funds to pay all debts and
liabilities arising under any Letter of Credit. The Issuing Bank agrees to give
the Borrower prompt notice of any request for a draw under a Letter of Credit.
The Issuing Bank may charge any account the Borrower may have with it for any
and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and
reasonable expenses as from time to time agreed to by the Issuing Bank and the
Borrower; provided that to the extent permitted by Section 2.1(c)(iv), amounts
shall be paid pursuant to Advances under the Revolving Credit Facility. The
Borrower agrees to pay the Issuing Bank interest on any Reimbursement
Obligations not paid when due hereunder at the Default Rate, such rate to be
calculated on the basis of a year of 360 days for actual days elapsed.
(b) In accordance with the provisions of Section 2.1(c), the
Issuing Bank shall notify the Agent of any drawing under any Letter of Credit
promptly following the receipt by the Issuing Bank of such drawing.
(c) Each Lender (other than the Issuing Bank) shall
automatically acquire on the date of issuance thereof, a Participation in the
liability of the Issuing Bank in respect of each Letter of Credit in an amount
equal to such Lender's Applicable Commitment Percentage of such liability, and
to the extent that the Borrower is obligated to pay the Issuing Bank under
Section 3.2(a), each Lender (other than the Issuing Bank) thereby shall
absolutely, unconditionally and irrevocably assume, and shall be unconditionally
obligated to pay to the Issuing Bank as hereinafter described, its Applicable
Commitment Percentage of the liability of the Issuing Bank under such Letter of
Credit.
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(i) Each Lender (including the Issuing Bank in its
capacity as a Lender) shall, subject to the terms and
conditions of Article II, pay to the Agent for the account of
the Issuing Bank at the Principal Office in Dollars and in
immediately available funds, an amount equal to its Applicable
Commitment Percentage of any drawing under a Letter of Credit,
such funds to be provided in the manner described in Section
2.1(c)(iv).
(ii) Simultaneously with the making of each payment
by a Lender to the Issuing Bank pursuant to Section
2.1(c)(iv)(B), such Lender shall, automatically and without
any further action on the part of the Issuing Bank or such
Lender, acquire a Participation in an amount equal to such
payment (excluding the portion thereof constituting interest
accrued prior to the date the Lender made its payment) in the
related Reimbursement Obligation of the Borrower. The
Reimbursement Obligations of the Borrower shall be immediately
due and payable whether by Advances made in accordance with
Section 2.1(c)(iv) or otherwise.
(iii) Each Lender's obligation to make payment to the
Agent for the account of the Issuing Bank pursuant to Section
2.1(c)(iv) and this Section 3.2(c), and the right of the
Issuing Bank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance
whatsoever and shall be made without any offset, abatement,
withholding or reduction whatsoever. If any Lender is
obligated to pay but does not pay amounts to the Agent for the
account of the Issuing Bank in full upon such request as
required by Section 2.1(c)(iv) or this Section 3.2(c), such
Lender shall, on demand, pay to the Agent for the account of
the Issuing Bank interest on the unpaid amount for each day
during the period commencing on the date of notice given to
such Lender pursuant to Section 2.1(c) until such Lender pays
such amount to the Agent for the account of the Issuing Bank
in full at the interest rate per annum for overnight borrowing
by the Agent from the Federal Reserve Bank.
(iv) In the event the Lenders have purchased
Participations in any Reimbursement Obligation as set forth in
clause (ii) above, then at any time payment (in fully
collected, immediately available funds) of such Reimbursement
Obligation, in whole or in part, is received by Issuing Bank
from the Borrower, Issuing Bank shall promptly pay to each
Lender an amount equal to its Applicable Commitment Percentage
of such payment from the Borrower.
(d) Promptly following the end of each calendar quarter,
the Issuing Bank shall deliver to the Agent a notice describing the aggregate
undrawn amount of all Letters of Credit at the end of such quarter. Upon the
request of any Lender from time to time, the Issuing Bank shall deliver to the
Agent, and the Agent shall deliver to such Lender, any other information
reasonably requested by such Lender with respect to each Letter of Credit
outstanding.
(e) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set forth in Article V, be
subject to the conditions that such Letter of Credit
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be in such form and contain such terms as shall be reasonably satisfactory to
the Issuing Bank consistent with the then current practices and procedures of
the Issuing Bank with respect to similar letters of credit, and the Borrower
shall have executed and delivered such other instruments and agreements relating
to such Letters of Credit as the Issuing Bank shall have reasonably requested
consistent with such practices and procedures and shall not be in conflict with
any of the express terms herein contained. All Letters of Credit shall be issued
pursuant to and subject to the Uniform Customs and Practice for Documentary
Credits, 1993 revision, International Chamber of Commerce Publication No. 500
and all subsequent amendments and revisions thereto.
(f) The Borrower agrees that Issuing Bank may, in its
sole discretion, accept or pay, as complying with the terms of any Letter of
Credit, any drafts or other documents otherwise in order which may be signed or
issued by an administrator, executor, trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, liquidator, receiver,
attorney in fact or other legal representative of a party who is authorized
under such Letter of Credit to draw or issue any drafts or other documents.
(g) Without limiting the generality of the provisions of
Section 11.9, the Borrower hereby agrees to indemnify and hold harmless the
Issuing Bank, each other Lender and the Agent from and against any and all
claims and damages, losses, liabilities, reasonable costs and expenses which the
Issuing Bank, such other Lender or the Agent may incur (or which may be claimed
against the Issuing Bank, such other Lender or the Agent) by any Person by
reason of or in connection with the issuance or transfer of or payment or
failure to pay under any Letter of Credit; provided that the Borrower shall not
be required to indemnify the Issuing Bank, any other Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, (i) caused by the willful misconduct or gross negligence of the
party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay
under any Letter of Credit after the presentation to it of a request for payment
strictly complying with the terms and conditions of such Letter of Credit,
unless such payment is prohibited by any law, regulation, court order or decree.
The indemnification and hold harmless provisions of this Section 3.2(g) shall
survive repayment of the Obligations, occurrence of the Revolving Credit
Termination Date and expiration or termination of this Agreement.
(h) Without limiting Borrower's rights as set forth in
Section 3.2(g), the obligation of the Borrower to immediately reimburse the
Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's
right to receive such payment shall be absolute, unconditional and irrevocable,
and that such obligations of the Borrower shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit and the
related Applications and Agreement for any Letter of Credit, under all
circumstances whatsoever, including the following circumstances:
(i) any lack of validity or enforceability of
the Letter of Credit, the obligation supported by the Letter
of Credit or any other agreement or instrument relating
thereto (collectively, the "Related LC Documents");
(ii) any amendment or waiver of or any consent to
or departure from all or any of the Related LC Documents;
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(iii) the existence of any claim, setoff, defense
(other than the defense of payment in accordance with the
terms of this Agreement) or other rights which the Borrower
may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), the
Agent, the Lenders or any other Person, whether in connection
with the Loan Documents, the Related LC Documents or any
unrelated transaction;
(iv) any breach of contract or other dispute between
the Borrower and any beneficiary or any transferee of a Letter
of Credit (or any persons or entities for whom such
beneficiary or any such transferee may be acting), the Agent,
the Lenders or any other Person;
(v) any draft, statement 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
whatsoever;
(vi) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or
agreed to by the Agent, with or without notice to or approval
by the Borrower in respect of any of Borrower's Obligations
under this Agreement; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
3.3. Letter of Credit Facility Fees. The Borrower shall pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages, a fee on the aggregate amount available to be drawn on
each outstanding Letter of Credit at a rate equal to the Applicable Margin for
Eurodollar Rate Loans. Such fees shall be due with respect to each Letter of
Credit quarterly in arrears on the last day of each March, June, September and
December, the first such payment to be made on the first such date occurring
after the date of issuance of a Letter of Credit. The fees described in this
Section 3.3 shall be calculated on the basis of a year of 360 days for the
actual number of days elapsed.
3.4. Administrative Fees. The Borrower shall pay to the Issuing
Bank such administrative fee and other fees, if any, in connection with the
Letters of Credit in such amounts and at such times as the Issuing Bank and the
Borrower shall agree from time to time.
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ARTICLE IV
Change in Circumstances
4.1. Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or regulation,
or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such governmental authority, central bank, or
comparable agency:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty, or other charge with respect to any
Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar
Rate Loans, or change the basis of taxation of any amounts payable to
such Lender (or its Applicable Lending Office) under this Agreement or
its Note in respect of any Eurodollar Rate Loans (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement (other
than the Reserve Requirement utilized in the determination of the
Eurodollar Rate) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the Revolving
Credit Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or on the London interbank market any other condition
affecting this Agreement or its Note or any of such extensions of
credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Loans or to reduce any sum received or receivable by such Lender
(or its Applicable Lending Office) under this Agreement or its Note with respect
to any Eurodollar Rate Loans, then the Borrower shall pay to such Lender on
demand such amount or amounts as will compensate such Lender for such increased
cost or reduction. If any Lender requests compensation by the Borrower under
this Section 4.1(a), the Borrower may, by notice to such Lender (with a copy to
the Agent), suspend the obligation of such Lender to make or Continue Loans of
the Type with respect to which such compensation is requested, or to Convert
Loans of any other Type into Loans of such Type, until the event or condition
giving rise to such request ceases to be in effect (in which case the provisions
of Section 4.4 shall be applicable); provided that such suspension shall not
affect the right of such Lender to receive the compensation so requested.
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(b) If, after the date hereof, any Lender shall have determined
that the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.
(c) Each Lender shall promptly notify the Borrower and the Agent
of any event of which it has knowledge, occurring after the date hereof, which
will entitle such Lender to compensation pursuant to this Section 4.1 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 4.1 shall furnish to the Borrower and the Agent
a statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
4.2. Limitation on Types of Loans. If on or prior to the first day
of any Interest Period for any Eurodollar Rate Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall
be conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding
Eurodollar Rate Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant Type of Loans and the relevant amounts or periods, and so long as such
condition remains in effect, the Lenders shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected Type, either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.
4.3. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans
hereunder, then such Lender shall promptly notify the Borrower thereof and such
Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert
other Types of
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Loans into Eurodollar Rate Loans shall be suspended until such time as such
Lender may again make, maintain, and fund Eurodollar Rate Loans (in which case
the provisions of Section 4.4 shall be applicable).
4.4. Treatment of Affected Loans. If the obligation of any Lender
to make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other
Type into, Loans of a particular Type shall be suspended pursuant to Section 4.1
or 4.3 hereof (Loans of such Type being herein called "Affected Loans" and such
Type being herein called the "Affected Type"), such Lender's Affected Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for Affected Loans (or, in the case of a
Conversion required by Section 4.3 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 4.1 or 4.3 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Loans of the Affected Type shall be made or Continued
instead as Base Rate Loans, and all Loans of such Lender that would
otherwise be Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 4.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Revolving
Credit Commitments.
4.5. Compensation. Upon the request of any Lender, the Borrower
shall pay to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost, or
expense (including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar
Rate Loan for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 9.1) on a date other than
the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Article V to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Rate Loan on the date for such borrowing, Conversion,
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Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this
Agreement.
4.6. Taxes. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Lender and
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Lender (or its Applicable Lending
Office) or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, 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 under this Agreement or any other Loan Document
to any Lender or the Agent, (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.6) such Lender or the Agent
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 11.2, the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 4.6) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrower and the Agent with (i) Internal Revenue Service Form
1001 or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, (ii) Internal Revenue Service Form
W-8 or W-9, as appropriate, or any successor form prescribed by the Internal
Revenue Service, and (iii) any
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other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal Revenue
Code), certifying that such Lender is entitled to an exemption from or a reduced
rate of tax on payments pursuant to this Agreement or any of the other Loan
Documents.
(e) For any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section 4.6(d)
(unless such failure is due to a change in treaty, law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 4.6(a) or
4.6(b) with respect to Taxes imposed by the United States; provided, however,
that should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 4.6, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 4.6 shall survive the termination of the Revolving Credit
Commitments and the payment in full of the Notes.
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ARTICLE V
Conditions to Making Loans and Issuing Letters of Credit
5.1. Conditions of Initial Advance. The obligation of the Lenders
to make the initial Advance under the Revolving Credit Facility, and of the
Issuing Bank to issue any Letter of Credit, is subject to the conditions
precedent that:
(a) the Agent shall have received on the Closing Date, in
form and substance satisfactory to the Agent and Lenders, the
following:
(i) executed originals of each of this Agreement,
the Notes, the initial Facility Guaranties, the Parent
Guaranty, the Pledge Agreement, the LC Account Agreement and
the other Loan Documents, together with all schedules and
exhibits thereto;
(ii) the favorable written opinion or opinions with
respect to the Loan Documents and the transactions
contemplated thereby of counsel to the Credit Parties dated
the Closing Date, addressed to the Agent and the Lenders and
satisfactory to Smith Helms Mulliss & Moore, L.L.P., special
counsel to the Agent, substantially in the form of Exhibit I;
(iii) resolutions of the boards of directors or other
appropriate governing body (or of the appropriate committee
thereof) of each Credit Party certified by its secretary or
assistant secretary as of the Closing Date, approving and
adopting the Loan Documents to be executed by such Person, and
authorizing the execution and delivery thereof;
(iv) specimen signatures of officers of each of the
Credit Parties executing the Loan Documents on behalf of such
Credit Party, certified by the secretary or assistant
secretary of such Credit Party;
(v) the Organizational Documents of each of the
Credit Parties certified as of a recent date by the Secretary
of State of its state of organization;
(vi) Operating Documents of each of the Credit
Parties certified as of the Closing Date as true and correct
by its secretary or assistant secretary;
(vii) certificates issued as of a recent date by the
Secretaries of State of the respective jurisdictions of
formation of each of the Credit Parties as to the due
existence and good standing of such Person;
(viii) appropriate certificates of qualification to
do business, good standing and, where appropriate, authority
to conduct business under assumed name, issued in respect of
each of the Credit Parties as of a recent date by the
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Secretary of State or comparable official of each jurisdiction
in which the failure to be qualified to do business or
authorized so to conduct business could have a Material
Adverse Effect;
(ix) notice of appointment of the initial Authorized
Representative(s);
(x) evidence of all insurance required by the Loan
Documents;
(xi) an initial Borrowing Notice, if any, and, if
elected by the Borrower, Interest Rate Selection Notice;
(xii) evidence of the filing of Uniform Commercial
Code financing statements reflecting the filing in all places
required by applicable law to perfect the Liens of the Agent
under the Pledge Agreement as a first priority Lien as to
items of Collateral in which a security interest may be
perfected by the filing of financing statements, and such
other documents and/or evidence of other actions as may be
necessary under applicable law to perfect the Liens of the
Agent under the Security Instruments as a first priority Lien
in and to such other Collateral as the Agent may require,
including without limitation:
(i) the delivery by the Borrower of all
stock certificates evidencing Pledged Stock and
certificates, if any, evidencing ownership of
Partnership Interests, accompanied in each case by
duly executed stock powers (or other appropriate
transfer documents) in blank affixed thereto; and
(ii) the delivery by the Borrower of
certificates of the Registrar of each partnership
Subsidiary evidencing the due registration on the
registration books of such partnership of the Lien in
favor of the Agent conferred under the Security
Instruments;
(xiii) evidence that all fees payable by the Borrower
on the Closing Date to the Agent, NMS and the Lenders have
been paid in full;
(xiv) Uniform Commercial Code search results showing
only those Liens as are acceptable to the Lenders;
(xv) a balance sheet of the Borrower and its
Subsidiaries dated as at the Closing Date demonstrating an
Adjusted Consolidated Shareholders' Equity of not less than
$34,000,000; and
(xvi) such other documents, instruments,
certificates and opinions as the Agent or any Lender may
reasonably request on or prior to the Closing Date in
connection with the consummation of the transactions
contemplated hereby; and
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(b) In the good faith judgment of the Agent and the
Lenders:
(i) there shall not have occurred or become known to
the Agent or the Lenders any event, condition, situation or
status since the date of the information contained in the
financial and business projections, budgets, pro forma data
and forecasts concerning the Credit Parties delivered to the
Agent prior to the Closing Date that has had or could
reasonably be expected to result in a Material Adverse Effect;
(ii) there shall not have occurred or become known to
the Agent or the Lenders any disruption or adverse change in
the financial or capital markets generally prior to the
Closing Date that has had or could reasonably be expected to
result in a Material Adverse Effect;
(iii) no litigation, action, suit, investigation or
other arbitral, administrative or judicial proceeding shall be
pending or threatened which could reasonably be likely to
result in a Material Adverse Effect; and
(iv) the Credit Parties shall have received all
approvals, consents and waivers, and shall have made or given
all necessary filings and notices as shall be required to
consummate the transactions contemplated hereby without the
occurrence of any default under, conflict with or violation of
(A) any applicable law, rule, regulation, order or decree of
any Governmental Authority or arbitral authority or (B) any
agreement, document or instrument to which any of the Credit
Parties is a party or by which any of them or their properties
is bound.
5.2. Conditions of Revolving Loans and Letter of Credit. The
obligations of the Lenders to make any Revolving Loans, and the Issuing Bank to
issue Letters of Credit, hereunder on or subsequent to the Closing Date are
subject to the satisfaction of the following conditions:
(a) the Agent shall have received a Borrowing Notice if
required by Article II;
(b) the representations and warranties of the Credit
Parties set forth in Article VI and in each of the other Loan Documents
shall be true and correct in all material respects on and as of the
date of such Advance or Letter of Credit issuance or renewal, with the
same effect as though such representations and warranties had been made
on and as of such date, except to the extent that such representations
and warranties expressly relate to an earlier date and except that the
financial statements referred to in Section 6.6(a)(i) shall be deemed
to be those financial statements most recently delivered to the Agent
and the Lenders pursuant to Section 7.1 from the date financial
statements are delivered to the Agent and the Lenders in accordance
with such Section;
(c) in the case of the issuance of a Letter of Credit,
the Borrower shall have executed and delivered to the Issuing Bank an
Application and Agreement for Letter of
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Credit in form and content acceptable to the Issuing Bank together with
such other instruments and documents as it shall reasonably request;
(d) at the time of (and after giving effect to) each
Advance or the issuance of a Letter of Credit, no Default or Event of
Default specified in Article IX shall have occurred and be continuing;
and
(e) immediately after giving effect to:
(i) a Revolving Loan, the aggregate principal
balance of all outstanding Revolving Loans for each Lender
shall not exceed such Lender's Revolving Credit Commitment;
(ii) a Letter of Credit or renewal thereof, the
aggregate principal balance of all outstanding Participations
in Letters of Credit and Reimbursement Obligations (or in the
case of the Issuing Bank, its remaining interest after
deduction of all Participations in Letters of Credit and
Reimbursement Obligations of other Lenders) for each Lender
and in the aggregate shall not exceed, respectively, (X) such
Lender's Letter of Credit Commitment or (Y) the Total Letter
of Credit Commitment; and
(iii) a Revolving Loan or a Letter of Credit or
renewal thereof, the sum of Letter of Credit Outstandings plus
Revolving Credit Outstandings shall not exceed the Total
Revolving Credit Commitment.
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ARTICLE VI
Representations and Warranties
The Borrower represents and warrants with respect to itself and each
Credit Party (which representations and warranties shall survive the delivery of
the documents mentioned herein and the making of Loans), that:
6.1. Organization and Authority.
(a) The Borrower and each Subsidiary is a corporation duly
organized and validly existing under the laws of the jurisdiction of
its formation;
(b) The Borrower and each Subsidiary (x) has the requisite
power and authority to own its properties and assets and to carry on
its business as now being conducted and as contemplated in the Loan
Documents, and (y) is qualified to do business in every jurisdiction in
which failure so to qualify would have a Material Adverse Effect;
(c) The Borrower has the power and authority to execute,
deliver and perform this Agreement and the Notes, and to borrow
hereunder, and to execute, deliver and perform each of the other Loan
Documents to which it is a party;
(d) Each Credit Party has the power and authority to execute,
deliver and perform the Facility Guaranty and each of the other Loan
Documents to which it is a party; and
(e) When executed and delivered, each of the Loan Documents to
which any Credit Party is a party will be the legal, valid and binding
obligation or agreement, as the case may be, of such Credit Party,
enforceable against such Credit Party in accordance with its terms,
subject to the effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the
enforceability of creditors' rights generally and to the effect of
general principles of equity (whether considered in a proceeding at law
or in equity).
6.2. Loan Documents. The execution, delivery and performance by
each Credit Party of each of the Loan Documents to which it is a party:
(a) have been duly authorized by all requisite Organizational
Action of such Credit Party required for the lawful execution, delivery
and performance thereof;
(b) do not violate any provisions of (i) applicable law, rule
or regulation, (ii) any judgment, writ, order, determination, decree or
arbitral award of any Governmental Authority or arbitral authority
binding on such Credit Party or its properties, or (iii) the
Organizational Documents or Operating Documents of such Credit Party;
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(c) does not and will not be in conflict with, result in a
breach of or constitute an event of default, or an event which, with
notice or lapse of time or both, would constitute an event of default,
under any contract, indenture, agreement or other instrument or
document to which such Credit Party is a party, or by which the
properties or assets of such Credit Party are bound; and
(d) does not and will not result in the creation or imposition
of any Lien upon any of the properties or assets of such Credit Party
or any Subsidiary except any Liens in favor of the Agent and the
Lenders created by the Security Instruments.
6.3. Solvency. Each Credit Party is Solvent after giving effect to
the transactions contemplated by the Loan Documents.
6.4. Subsidiaries and Stockholders. The Borrower has no
Subsidiaries other than those Persons listed as Subsidiaries in Schedule 6.4 and
additional Subsidiaries created or acquired after the Closing Date in compliance
with Section 7.19; Schedule 6.4 states as of the date hereof the organizational
form of each entity, the authorized and issued capitalization of each Subsidiary
listed thereon, the number of shares or other equity interests of each class of
capital stock or interest issued and outstanding of each such Subsidiary and the
number and/or percentage of outstanding shares or other equity interest
(including options, warrants and other rights to acquire any interest) of each
such class of capital stock or other equity interest owned by Borrower or by any
such Subsidiary; the outstanding shares or other equity interests of each such
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable; and Borrower and each such Subsidiary owns beneficially and of
record all the shares and other interests it is listed as owning in Schedule
6.4, free and clear of any Lien.
6.5. Ownership Interests. Borrower owns no interest in any Person
other than the Persons listed in Schedule 6.4, equity investments in Persons not
constituting Subsidiaries permitted under Section 8.6 and additional
Subsidiaries created or acquired after the Closing Date in compliance with
Section 7.19.
6.6. Financial Condition.
(a) The Borrower has heretofore furnished to each Lender
audited consolidated balance sheets of HPS and Sykes and the notes
thereto and the related consolidated statements of income,
stockholders' equity and cash flows for the Fiscal Year then ended as
examined and certified by Arthur Andersen LLP; unaudited consolidated
interim financial statements of HPS and Sykes consisting of a
consolidated balance sheets and related consolidated statements of
income, stockholders' equity and cash flows, in each case without
notes, for and as of the end of the nine month period ending September
30 1997; a consolidated balance sheet of the Borrower and its
Subsidiaries as at the Closing Date demonstrating the contributions of
equity to the Borrower by HPS and Sykes; and projections for a period
of three years as to operations and cash flow of the Borrower and its
Subsidiaries all in form and substance acceptable to the Agent. Except
as set forth therein, such financial statements (including the notes
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thereto) present fairly the financial condition of HPS and Sykes as of
the end of such Fiscal Year and nine month period and results of their
operations and the changes in its stockholders' equity for the Fiscal
Year and interim period then ended, all in conformity with GAAP applied
on a Consistent Basis, subject however, in the case of unaudited
interim statements to year end audit adjustments and the pro forma
project results of operations and cash flows of the Borrower and its
Subsidiaries for the three year period;
(b) since the later of (i) the date of the audited financial
statements delivered pursuant to Section 6.6(a) hereof or (ii) the date
of the audited financial statements most recently delivered pursuant to
Section 7.1(a) hereof, there has been no material adverse change in the
condition, financial or otherwise, of the Borrower or any of the
Guarantors or in the businesses, properties, performance, prospects or
operations of the Borrower or the Guarantors, nor have such businesses
or properties been materially adversely affected as a result of any
fire, explosion, earthquake, accident, strike, lockout, combination of
workers, flood, embargo or act of God; and
(c) except as set forth in the financial statements referred
to in Section 6.6(a) or in Schedule 6.6 or permitted by Section 8.4,
neither Borrower nor any Guarantor has incurred, other than in the
ordinary course of business, any material Indebtedness, Contingent
Obligation or other commitment or liability which remains outstanding
or unsatisfied.
6.7. Title to Properties. The Borrower and each of its Subsidiaries
and each other Credit Party has good and marketable title to all its real and
personal properties, subject to no transfer restrictions or Liens of any kind,
except for the transfer restrictions and Liens described in Schedule 6.7 and
Liens permitted by Section 8.3.
6.8. Taxes. Except as set forth in Schedule 6.8, the Borrower and
each of its Subsidiaries has filed or caused to be filed all federal, state and
local tax returns which are required to be filed by it and, except for taxes and
assessments being contested in good faith by appropriate proceedings diligently
conducted and against which reserves reflected in the financial statements
described in Section 6.6(a) and satisfactory to the Borrower's independent
certified public accountants have been established, have paid or caused to be
paid all taxes as shown on said returns or on any assessment received by it, to
the extent that such taxes have become due.
6.9. Other Agreements. No Credit Party is
(a) a party to or subject to any judgment, order, decree,
agreement, lease or instrument, or subject to other restrictions, which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect; or
(b) in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in (i) any
agreement or instrument to which the Borrower or any Credit Party,
which default has, or if not remedied within any applicable grace
period could reasonably be likely to have, a Material Adverse Effect.
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6.10. Litigation. Except as set forth in Schedule 6.10, there is no
action, suit, investigation or proceeding at law or in equity or by or before
any governmental instrumentality or agency or arbitral body pending, or, to the
knowledge of the Borrower, threatened by or against the Borrower, any Subsidiary
or any other Credit Party, or affecting the Borrower or any Subsidiary or other
Credit Party or any properties or rights of the Borrower or any Subsidiary or
other Credit Party, which could reasonably be expected to have a Material
Adverse Effect.
6.11. Margin Stock. The proceeds of the borrowings made hereunder will
be used by the Borrower only for the purposes expressly authorized herein. None
of such proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute any of the Loans
under this Agreement a "purpose credit" within the meaning of said Regulation U
or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor any
agent acting in its behalf has taken or will take any action which might cause
this Agreement or any of the documents or instruments delivered pursuant hereto
to violate any regulation of the Board or to violate the Securities Exchange Act
of 1934, as amended, or the Securities Act of 1933, as amended, or any state
securities laws, in each case as in effect on the date hereof.
6.12. Investment Company. No Credit Party is an "investment company,"
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. ss. 80a-1, et seq.). The application of the proceeds
of the Loans and repayment thereof by the Borrower and the performance by the
Borrower and the other Credit Parties of the transactions contemplated by the
Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.
6.13. Patents, Etc. The Borrower and each other Credit Party owns or
has the right to use, under valid license agreements or otherwise, all material
patents, licenses, franchises, trademarks, trademark rights, trade names, trade
name rights, trade secrets and copyrights necessary to or used in the conduct of
its businesses as now conducted and as contemplated by the Loan Documents,
without known conflict with any patent, license, franchise, trademark, trade
secret, trade name, copyright, other proprietary right of any other Person.
6.14. No Untrue Statement. Neither (a) this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower or any other Credit Party in accordance with or pursuant to any
Loan Document nor (b) any statement, representation, or warranty provided to the
Agent in connection with the negotiation or preparation of the Loan Documents
contains any misrepresentation or untrue statement of material fact or omits to
state a material fact necessary, in light of the circumstance under which it was
made, in order to make any such warranty, representation or statement contained
therein not misleading.
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6.15. No Consents, Etc. Neither the respective businesses or
properties of the Credit Parties or any Subsidiary, nor any relationship among
the Credit Parties or any Subsidiary and any other Person, nor any circumstance
in connection with the execution, delivery and performance of the Loan Documents
and the transactions contemplated thereby, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of any Credit Party as a
condition to the execution, delivery and performance of, or consummation of the
transactions contemplated by the Loan Documents, which, if not obtained or
effected, would be reasonably likely to have a Material Adverse Effect, or if
so, such consent, approval, authorization, filing, registration or qualification
has been duly obtained or effected, as the case may be.
6.16. Employee Benefit Plans.
(a) The Borrower and each ERISA Affiliate is in compliance
with all applicable provisions of ERISA and the regulations and
published interpretations thereunder and in compliance with all Foreign
Benefit Laws with respect to all Employee Benefit Plans except for any
required amendments for which the remedial amendment period as defined
in Section 401(b) of the Code has not yet expired. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a) of
the Code has been determined by the Internal Revenue Service to be so
qualified, and each trust related to such plan has been determined to
be exempt under Section 501(a) of the Code. No material liability has
been incurred by the Borrower or any ERISA Affiliate which remains
unsatisfied for any taxes or penalties with respect to any Employee
Benefit Plan or any Multiemployer Plan;
(b) Neither the Borrower nor any ERISA Affiliate has (i)
engaged in a nonexempt prohibited transaction described in Section 4975
of the Code or Section 406 of ERISA affecting any of the Employee
Benefit Plans or the trusts created thereunder which could subject any
such Employee Benefit Plan or trust to a material tax or penalty on
prohibited transactions imposed under Internal Revenue Code Section
4975 or ERISA, (ii) incurred any accumulated funding deficiency with
respect to any Employee Benefit Plan, whether or not waived, or any
other liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which are due and
unpaid, (iii) failed to make a required contribution or payment to a
Multiemployer Plan, or (iv) failed to make a required installment or
other required payment under Section 412 of the Code, Section 302 of
ERISA or the terms of such Employee Benefit Plan;
(c) No Termination Event has occurred or is reasonably
expected to occur with respect to any Pension Plan or Multiemployer
Plan, and neither the Borrower nor any ERISA Affiliate has incurred any
unpaid withdrawal liability with respect to any Multiemployer Plan;
(d) The present value of all vested accrued benefits under
each Employee Benefit Plan which is subject to Title IV of ERISA, did
not, as of the most recent
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valuation date for each such plan, exceed the then current value of the
assets of such Employee Benefit Plan allocable to such benefits;
(e) To the best of the Borrower's knowledge, each Employee
Benefit Plan subject to Title IV of ERISA, maintained by the Borrower
or any ERISA Affiliate, has been administered in accordance with its
terms in all material respects and is in compliance in all material
respects with all applicable requirements of ERISA and other applicable
laws, regulations and rules;
(f) The consummation of the Loans and the issuance of the
Letters of Credit provided for herein will not involve any prohibited
transaction under ERISA which is not subject to a statutory or
administrative exemption; and
(g) No material proceeding, claim, lawsuit and/or
investigation exists or, to the best knowledge of the Borrower after
due inquiry, is threatened concerning or involving any Employee Benefit
Plan.
6.17. No Default. As of the date hereof, there does not exist any
Default or Event of Default hereunder.
6.18. Environmental Laws. Except as listed on Schedule 6.18, the
Borrower and each Subsidiary is in material compliance with all applicable
Environmental Laws and has been issued and currently maintains all required
material federal, state and local permits, licenses, certificates and approvals.
Except as listed on Schedule 6.18, neither the Borrower nor any Subsidiary has
been notified of any pending or threatened action, suit, proceeding or
investigation, and neither the Borrower nor any Subsidiary is aware of any
facts, which (a) calls into question, or could reasonably be expected to call
into question, compliance by the Borrower or any Subsidiary with any
Environmental Laws, (b) seeks, or could reasonably be expected to form the basis
of a meritorious proceeding, to suspend, revoke or terminate any license, permit
or approval necessary for the operation of the Borrower's or any Subsidiary's
business or facilities or for the generation, handling, storage, treatment or
disposal of any Hazardous Materials, or (c) seeks to cause, or could reasonably
be expected to form the basis of a meritorious proceeding to cause, any property
of the Borrower or any Subsidiary or other Credit Party to be subject to any
restrictions on ownership, use, occupancy or transferability under any
Environmental Law.
6.19. Employment Matters. (a) None of the employees of the Borrower
or any Subsidiary is subject to any collective bargaining agreement and there
are no strikes, work stoppages, election or decertification petitions or
proceedings, unfair labor charges, equal opportunity proceedings, or other
material labor/employee related controversies or proceedings pending or, to the
best knowledge of the Borrower, threatened against the Borrower or any
Subsidiary or between the Borrower or any Subsidiary and any of its employees,
other than employee grievances arising in the ordinary course of business which
could not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect; and
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(b) Except to the extent a failure to maintain compliance would not
have a Material Adverse Effect, the Borrower and each Subsidiary is in
compliance in all respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation those
pertaining to wages, hours, occupational safety and taxation and there is
neither pending or, to the knowledge of Borrower, threatened any litigation,
administrative proceeding nor, to the knowledge of the Borrower, any
investigation, in respect of such matters which, if decided adversely, could
reasonably be likely, individually or in the aggregate, to have a Material
Adverse Effect.
6.20. RICO. Neither the Borrower nor any Subsidiary is engaged in or
has engaged in any course of conduct that could subject any of their respective
properties to any Lien, seizure or other forfeiture under any criminal law,
racketeer influenced and corrupt organizations law, civil or criminal, or other
similar laws.
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ARTICLE VII
Affirmative Covenants
Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and where applicable will cause
each Subsidiary to:
7.1. Financial Reports, Etc. (a) As soon as practical and in any event
within 120 days after the end of each Fiscal Year of the Borrower, deliver or
cause to be delivered to the Agent and each Lender (i) a consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such Fiscal Year,
and the notes thereto, and the related consolidated statements of income,
stockholders' equity and cash flows, and the respective notes thereto, for such
Fiscal Year, setting forth (other than for consolidating statements) comparative
financial statements for the preceding Fiscal Year, all prepared in accordance
with GAAP applied on a Consistent Basis and containing opinions of Arthur
Andersen LLP, or other such independent certified public accountants selected by
the Borrower and approved by the Agent, which are unqualified as to the scope of
the audit performed and as to the "going concern" status of the Borrower and
without any exception not acceptable to the Lenders, and (ii) a certificate of
an Authorized Representative demonstrating compliance with Sections 8.1(a)
through 8.1(d), which certificate shall be in the form of Exhibit J;
(b) as soon as practical and in any event within 45 days after the end
of each fiscal quarter (except the last fiscal quarter of the Fiscal Year),
deliver to the Agent and each Lender (i) a consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal quarter, and the
related consolidated statements of income, stockholders' equity and cash flows
for such fiscal quarter and for the period from the beginning of the then
current Fiscal Year through the end of such reporting period, and accompanied by
a certificate of an Authorized Representative to the effect that such financial
statements present fairly the financial position of the Borrower and its
Subsidiaries as of the end of such fiscal period and the results of their
operations and the changes in their financial position for such fiscal period,
in conformity with the standards set forth in Section 6.6(a) with respect to
interim financial statements, and (ii) a certificate of an Authorized
Representative containing computations for such quarter comparable to that
required pursuant to Section 7.1(a)(ii);
(c) together with each delivery of the financial statements required by
Section 7.1(a)(i), deliver to the Agent and each Lender a letter from the
Borrower's accountants specified in Section 7.1(a)(i) stating that in performing
the audit necessary to render an opinion on the financial statements delivered
under Section 7.1(a)(i), they obtained no knowledge of any Default or Event of
Default by the Borrower in the fulfillment of the terms and provisions of this
Agreement insofar as they relate to financial matters (which at the date of such
statement remains uncured); or if the accountants have obtained knowledge of
such Default or Event of Default, a statement specifying the nature and period
of existence thereof;
(d) so long as the Parent Guaranty remains in effect, together with
each delivery of the financial statements required by Sections 7.1(a) and
7.1(b), deliver to the Agent and each
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Lender financial statements and reports of accountants for each of HPS and Sykes
similar to those described in such Sections together with a certificate of the
chief financial officer of each of HPS and Sykes demonstrating compliance with
Section 9.1(m) hereof;
(e) promptly upon their becoming available to the Borrower, the
Borrower shall deliver to the Agent and each Lender a copy of (i) all regular or
special reports or effective registration statements which Borrower or any
Subsidiary shall file with the Securities and Exchange Commission (or any
successor thereto) or any securities exchange, (ii) any proxy statement
distributed by the Borrower or any Subsidiary to its shareholders, bondholders
or the financial community in general, (iii) any management letter or other
report submitted to the Borrower or any Subsidiary by independent accountants in
connection with any annual, interim or special audit of the Borrower or any
Subsidiary and (iv) all material reports and other statements (other than
routine reports and other statements prepared in ordinary course of business
that would not result in adverse action) that the Borrower or any Subsidiary may
render to or file with any Governmental Authority; and
(f) not later than the last Business Day of each Fiscal Year, deliver
to the Agent and each Lender a capital and operating expense budget and
consolidated financial projections for the Borrower and its Subsidiaries for the
next Fiscal Year, prepared on a quarterly basis in accordance with GAAP applied
on a Consistent Basis;
(g) promptly, from time to time, deliver or cause to be delivered to
the Agent and each Lender such other information regarding Borrower's and any
Subsidiary's operations, business affairs and financial condition as the Agent
or such Lender may reasonably request;
The Agent and the Lenders are hereby authorized to deliver a copy of
any such financial or other information delivered hereunder to the Lenders (or
any affiliate of any Lender) or to the Agent, to any Governmental Authority
having jurisdiction over the Agent or any of the Lenders pursuant to any written
request therefor or in the ordinary course of examination of loan files, or to
any other Person who shall acquire or consider the assignment of, or acquisition
of any participation interest in, any Obligation permitted by this Agreement.
7.2. Maintain Properties. Maintain all properties necessary to its
operations in good working order and condition, subject to reasonable wear and
tear, make all needed repairs, replacements and renewals to such properties, and
maintain free from Liens all trademarks, trade names, patents, copyrights, trade
secrets, know-how, and other intellectual property and proprietary information
(or adequate licenses thereto), in each case as are reasonably necessary to
conduct its business as currently conducted or as contemplated hereby, all in
accordance with customary and prudent business practices.
7.3. Existence, Qualification, Etc. Except as otherwise expressly
permitted under Section 8.8, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and all material rights
and franchises, and maintain its license or qualification to do business as a
foreign corporation and good standing in each jurisdiction in which its
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ownership or lease of property or the nature of its business makes such license
or qualification necessary.
7.4. Regulations and Taxes. Comply in all material respects with or
contest in good faith all statutes and governmental regulations and pay all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, would become a Lien against any of its
properties except liabilities being contested in good faith by appropriate
proceedings diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been established
unless and until any Lien resulting therefrom attaches to any of its property
and becomes enforceable against its creditors.
7.5. Insurance. (a) Keep all of its insurable properties adequately
insured at all times with responsible insurance carriers against loss or damage
by fire and other hazards to the extent and in the manner as are customarily
insured against by similar businesses owning such properties similarly situated,
(b) maintain general public liability insurance at all times with responsible
insurance carriers against liability on account of damage to persons and
property and (c) maintain insurance under all applicable workers' compensation
laws (or in the alternative, maintain required reserves if self-insured for
workers' compensation purposes) such policies of insurance to have such limits,
deductibles, exclusions, co-insurance and other provisions providing no less
coverages than are maintained by similar businesses that are similarly situated,
such insurance policies to be in form reasonably satisfactory to the Agent. Each
of the policies of insurance described in this Section 7.5 shall provide that
the insurer shall give the Agent not less than thirty (30) days' prior written
notice before any such policy shall be terminated, lapse or be altered in any
manner.
7.6. True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set up on its books such reserves as may be required by GAAP with respect to
doubtful accounts and all taxes, assessments, charges, levies and claims and
with respect to its business in general, and include such reserves in interim as
well as year-end financial statements.
7.7. Right of Inspection. Permit any Person designated by any Lender or
the Agent to visit and inspect any of the properties, corporate books and
financial reports of the Borrower or any Subsidiary and to discuss its affairs,
finances and accounts with its principal officers and independent certified
public accountants, all at reasonable times, at reasonable intervals and with
reasonable prior notice.
7.8. Observe all Laws. Conform to and duly observe, in all material
respects all laws, rules and regulations and all other valid requirements of any
regulatory authority with respect to the conduct of its business, and all laws,
rules and regulations of Governmental Authorities pertaining to the licensing of
professional and other health care providers, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect.
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7.9. Governmental Licenses. Obtain and maintain all licenses, permits,
certifications and approvals of all applicable Governmental Authorities as are
required for the conduct of its business as currently conducted and herein
contemplated, except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect.
7.10. Covenants Extending to Other Persons. Cause each of its
Subsidiaries to do with respect to itself, its business and its assets, each of
the things required of the Borrower in Sections 7.2 through 7.9, and 7.18
inclusive.
7.11. Officer's Knowledge of Default. Upon any officer of the Borrower
obtaining knowledge of any Default or Event of Default hereunder or under any
other obligation of the Borrower or any Subsidiary or other Credit Party to any
Lender, cause such officer or an Authorized Representative to promptly notify
the Agent of the nature thereof, the period of existence thereof, and what
action the Borrower or such Subsidiary or other Credit Party proposes to take
with respect thereto.
7.12. Suits or Other Proceedings. Upon any officer of the Borrower
obtaining knowledge of any litigation or other proceedings being instituted
against the Borrower or any Subsidiary or other Credit Party, or any attachment,
levy, execution or other process being instituted against any assets of the
Borrower or any Subsidiary or other Credit Party, in an aggregate amount greater
than $250,000 not otherwise covered by insurance promptly deliver to the Agent
written notice thereof stating the nature and status of such litigation,
dispute, proceeding, levy, execution or other process.
7.13. Notice of Environmental Complaint or Condition. Promptly provide
to the Agent true, accurate and complete copies of any and all notices,
complaints, orders, directives, claims or citations received by the Borrower or
any Subsidiary relating to any (a) material violation or alleged material
violation by the Borrower or any Subsidiary of any applicable Environmental Law;
(b) release or threatened release by the Borrower or any Subsidiary, or by any
Person handling, transporting or disposing of any Hazardous Material on behalf
of the Borrower or any Subsidiary, or at any facility or property owned or
leased or operated by the Borrower or any Subsidiary, of any Hazardous Material,
except where occurring legally pursuant to a permit or license; or (c) liability
or alleged liability of the Borrower or any Subsidiary for the costs of cleaning
up, removing, remediating or responding to a release of Hazardous Materials
which could reasonably be expected to have a Material Adverse Effect.
7.14. Environmental Compliance. If the Borrower or any Subsidiary shall
receive any letter, notice, complaint, order, directive, claim or citation
alleging that the Borrower or any Subsidiary has violated any Environmental Law,
has released any Hazardous Material, or is liable for the costs of cleaning up,
removing, remediating or responding to a release of Hazardous Materials, the
Borrower and any Subsidiary shall, within the time period permitted and to the
extent required by the applicable Environmental Law or the Governmental
Authority responsible for enforcing such Environmental Law, remove or remedy, or
cause the applicable Subsidiary to remove or remedy, such violation or release
or satisfy such liability.
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7.15. Indemnification. Without limiting the generality of Section
11.9, each Borrower hereby agrees jointly and severally to indemnify and hold
the Agent and the Lenders, and their respective officers, directors, employees
and agents, harmless from and against any and all claims, losses, penalties,
liabilities, damages and expenses (including assessment and cleanup costs and
reasonable attorneys', consultants' or other expert fees, expenses and
disbursements) arising directly or indirectly from, out of or by reason of (a)
the violation of any Environmental Law by the Borrower or any Subsidiary or with
respect to any property owned, operated or leased by the Borrower or any
Subsidiary or (b) the handling, storage, transportation, treatment, emission,
release, discharge or disposal of any Hazardous Materials by or on behalf of the
Borrower or any Subsidiary, or on or with respect to property owned or leased or
operated by the Borrower or any Subsidiary. The provisions of this Section 7.15
shall survive repayment of the Obligations and expiration or termination of this
Agreement.
7.16. Further Assurances. At the Borrower's cost and expense, upon
request of the Agent, duly execute and deliver or cause to be duly executed and
delivered, to the Agent such further instruments, documents, certificates,
financing and continuation statements, and do and cause to be done such further
acts that may be reasonably necessary or advisable in the reasonable opinion of
the Agent to carry out more effectively the provisions and purposes of this
Agreement, the Security Instruments and the other Loan Documents.
7.17. Employee Benefit Plans.
(a) With reasonable promptness, and in any event within thirty
(30) days thereof, give notice to the Agent of (a) the establishment of
any new Pension Plan (which notice shall include a copy of such plan),
(b) the commencement of contributions to any Employee Benefit Plan to
which the Borrower or any of its ERISA Affiliates was not previously
contributing, (c) any material increase in the benefits of any existing
Employee Benefit Plan, (d) each funding waiver request filed with
respect to any Employee Benefit Plan and all communications received or
sent by the Borrower or any ERISA Affiliate with respect to such
request and (e) the failure of the Borrower or any ERISA Affiliate to
make a required installment or payment under Section 302 of ERISA or
Section 412 of the Code by the due date;
(b) Promptly and in any event within fifteen (15) days of
becoming aware of the occurrence or forthcoming occurrence of any (a)
Termination Event or (b) nonexempt "prohibited transaction," as such
term is defined in Section 406 of ERISA or Section 4975 of the Code, in
connection with any Pension Plan or any trust created thereunder,
deliver to the Agent a notice specifying the nature thereof, what
action the Borrower or any ERISA Affiliate has taken, is taking or
proposes to take with respect thereto and, when known, any action taken
or threatened by the Internal Revenue Service, the Department of Labor
or the PBGC with respect thereto; and
(c) With reasonable promptness but in any event within fifteen
(15) days for purposes of clauses (a), (b) and (c), deliver to the
Agent copies of (a) any unfavorable determination letter from the
Internal Revenue Service regarding the qualification of an
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Employee Benefit Plan under Section 401(a) of the Code, (b) all notices
received by the Borrower or any ERISA Affiliate of the PBGC's intent to
terminate any Pension Plan or to have a trustee appointed to administer
any Pension Plan, (c) each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) filed by the Borrower or any ERISA
Affiliate with the Internal Revenue Service with respect to each
Pension Plan and (d) all notices received by the Borrower or any ERISA
Affiliate from a Multiemployer Plan sponsor concerning the imposition
or amount of withdrawal liability pursuant to Section 4202 of ERISA.
The Borrower will notify the Agent in writing within five (5) Business
Days of the Borrower or any ERISA Affiliate obtaining knowledge or
reason to know that the Borrower or any ERISA Affiliate has filed or
intends to file a notice of intent to terminate any Pension Plan under
a distress termination within the meaning of Section 4041(c) of ERISA.
7.18. Continued Operations. Continue at all times to conduct its
business and engage principally in the same line or lines of business
substantially as heretofore conducted.
7.19. New Subsidiaries. Within thirty days of the acquisition or
creation of any Subsidiary, cause to be delivered to the Agent for the benefit
of the Lenders each of the following:
(a) a Facility Guaranty executed by such Subsidiary
substantially in the form of Exhibit K;
(b) if such Subsidiary is a corporation or is a partnership
that has issued certificates evidencing ownership of Partnership
Interests, (A) the Pledged Stock or, if applicable, certificates of
ownership of such Partnership Interests, together with duly executed
stock powers or powers of assignment in blank affixed thereto, and (B)
if such Collateral shall be owned by a Subsidiary who has not then
executed and delivered to the Agent a Security Instrument form the
owner of such Collateral granting a Lien to the Agent in such
collateral, a Pledge Agreement substantially similar in form of Exhibit
L, with appropriate revisions as to the identity of the pledgor and
securing the obligations of such pledgor under its Facility Guaranty;
(c) if such Subsidiary is a partnership not described in
clause (b) immediately above, (A) the certificate of the Registrar of
such partnership with respect to the registration of the Lien on
Partnership Interests, which certificate shall be in the form of
Exhibit A to the Pledge Agreement, and (B) if such Collateral shall be
owned by a Subsidiary who has not then executed and delivered to the
Agent a Security Instrument from the owner of such Collateral granting
a Lien to the Agent in such Collateral, a Pledge Agreement
substantially similar in form of Exhibit L, with appropriate revisions
as to the identity of the pledgor and securing the obligations of such
pledgor under its Facility Guaranty;
(d) a supplement to the appropriate schedule attached to the
appropriate Pledge Agreement listing the additional Collateral,
certified as true, correct and complete
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by the Authorized Representative (provided that the failure to deliver
such supplement shall not impair the rights conferred under the
Security Instruments in after acquired Collateral);
(e) an opinion of counsel to the Subsidiary dated as of
the date of delivery of the Facility Guaranty and other Loan Documents
provided for in this Section 7.19 and addressed to the Agent and the
Lenders, in form and substance reasonably acceptable to the Agent
(which opinion may include assumptions and qualifications of similar
effect to those contained in the opinions of counsel delivered pursuant
to Section 5.1(a)), to the effect that:
(A) such Subsidiary is duly organized, validly
existing and in good standing in the jurisdiction of its
formation, has the requisite power and authority to own its
properties and conduct its business as then owned and then
conducted and proposed to be conducted, and is duly qualified
to transact business and is in good standing as a foreign
corporation or partnership in each other jurisdiction in which
the character of the properties owned or leased, or the
business carried on by it, requires such qualification and the
failure to be so qualified would reasonably be likely to
result in a Material Adverse Effect;
(B) the execution, delivery and performance of the
Facility Guaranty and other Loan Documents described in this
Section 7.19 to which such Subsidiary is a signatory have been
duly authorized by all requisite corporate or partnership
action (including any required shareholder or partner
approval), each of such agreements has been duly executed and
delivered and constitutes the valid and binding agreement of
such Subsidiary, enforceable against such Subsidiary in
accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general
principles of equity (whether considered in a proceeding at
law or in equity); and
(C) the Uniform Commercial Code financing statements
on Form UCC-1 delivered to the Agent by the Subsidiary in
connection with the delivery of the Security Instruments of
such Subsidiary have been duly executed by the Subsidiary and
are in form, substance and number sufficient for filing in all
Uniform Commercial Code filing offices in all jurisdictions in
which filing is necessary to perfect in favor of the Agent for
the benefit of the Lenders the Lien on Collateral conferred
under such Security Instruments to the extent such Lien may be
perfected by Uniform Commercial Code filing;
(f) current copies of the charter documents, including
partnership agreements and certificate of limited partnership, if
applicable, and bylaws of such Subsidiary, minutes of duly called and
conducted meetings (or duly effected consent actions) of the Board of
Directors, partners, or appropriate committees thereof (and, if
required by such charter documents, bylaws or by applicable law, of the
shareholders) of such Subsidiary
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authorizing the actions and the execution and delivery of documents
described in this Section 7.19.
7.20. Use of Proceeds. Use proceeds of the Loans only for the purposes
listed in Section 2.12.
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ARTICLE VIII
Negative Covenants
Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, nor will it permit any
Subsidiary to:
8.1. Financial Covenants.
(a) Adjusted Consolidated Shareholders' Equity. Permit Adjusted
Consolidated Shareholders' Equity to be less than (i) $30,000,000.00 at the
Closing Date and (ii) as at the last day of each succeeding fiscal quarter of
the Borrower and until (but excluding) the last day of the next following fiscal
quarter of the Borrower, the sum of (A) the amount of Adjusted Consolidated
Shareholders' Equity required to be maintained pursuant to this Section 8.1(a)
as at the end of the immediately preceding fiscal quarter, plus (B) 90% of
Consolidated Net Income (with no reduction for net losses during any period) for
the fiscal quarter of the Borrower ending on such day (including within
"Consolidated Net Income" certain items otherwise excluded, as provided for in
the definition of "Consolidated Net Income"), plus (C) 100% of the aggregate
amount of all increases in the stated capital and additional paid-in capital
accounts of the Borrower resulting from the issuance of equity securities or
other capital investments to include capital received from HPS and Sykes.
(b) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio of the Borrower and its Subsidiaries as of the end of any Four-Quarter
Period to be greater than 3.50 to 1.00.
(c) Consolidated Fixed Charge Ratio. Permit as of the end of any
Four-Quarter Period the Consolidated Fixed Charge Ratio to be less than 2.00 to
1.00.
(d) Consolidated EBITDA. For the purposes of determining the
Consolidated Leverage Ratio and Consolidated Fixed Charge Ratio for the one, two
and three fiscal quarter periods ending March 31, 1998, June 30, 1998 and
September 30, 1998 both Consolidated EBITDA and Consolidated Fixed Charges shall
be determined by multiplying the Consolidated EBITDA and Consolidated Fixed
Charges for such periods by four, two and four-thirds, respectively, and after
September 30, 1998 such ratios shall be calculated for a Four Quarter Period.
8.2. Acquisitions. Enter into any agreement, contract, binding
commitment or other arrangement providing for any Acquisition, or take any
action to solicit the tender of securities or proxies in respect thereof in
order to effect any Acquisition, unless (i) the Person to be (or whose assets
are to be) acquired does not oppose such Acquisition and the line or lines of
business of the Person to be acquired are substantially the same as one or more
line or lines of business conducted by the Borrower and its Subsidiaries, (ii)
no Default or Event of Default shall have occurred and be continuing either
immediately prior to or immediately after giving effect to
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such Acquisition, (iii) the Borrower shall have furnished to the Agent (A) pro
forma historical financial statements as of the end of the most recently
completed Fiscal Year of the Borrower and most recent interim fiscal quarter, if
applicable giving effect to such Acquisition and (B) a certificate in the form
of Exhibit K prepared on a historical pro forma basis giving effect to such
Acquisition, which certificate shall demonstrate that no Default or Event of
Default would exist immediately after giving effect thereto, (iv) the Person
acquired shall be a wholly-owned Subsidiary, or be merged into the Borrower or a
wholly-owned Subsidiary, immediately upon consummation of the Acquisition (or if
assets are being acquired, the acquiror shall be the Borrower or a wholly-owned
Subsidiary), and (v) if the Cost of Acquisition shall exceed $5,000,000, the
Required Lenders shall consent to such Acquisition in their discretion.
8.3. Liens. Incur, create or permit to exist any Lien, charge or
other encumbrance of any nature whatsoever with respect to any property or
assets now owned or hereafter acquired by the Borrower or any Subsidiary, other
than
(a) Liens created under the Pledge Agreements in favor of the
Agent and the Lenders, and otherwise existing as of the date hereof and
as set forth in Schedule 6.7;
(b) Liens imposed by law for taxes, assessments or charges of
any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted
and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP and which Liens
are not yet enforceable against other creditors;
(c) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law or
created in the ordinary course of business and in existence less than
90 days from the date of creation thereof for amounts not yet due or
which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
GAAP and which Liens are not yet enforceable against other creditors;
(d) Liens incurred or deposits made in the ordinary course of
business (including, without limitation, surety bonds and appeal bonds)
in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar obligations or
arising as a result of progress payments under government contracts;
(e) easements (including reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere
materially with the ordinary conduct of the business of the Borrower or
any Subsidiary and which do not materially detract from the value of
the
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property to which they attach or materially impair the use thereof to
the Borrower or any Subsidiary; and
(f) purchase money Liens to secure Indebtedness permitted
under Section 8.4(d) and incurred to purchase fixed assets, provided
such Indebtedness represents not less than 75% of the purchase price of
such assets as of the date of purchase thereof and no property other
than the assets so purchased secures such Indebtedness.
8.4. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness of the Borrower, howsoever evidenced, except:
(a) Indebtedness existing as of the Closing Date as set forth
in Schedule 6.6; provided, none of the instruments and agreements
evidencing or governing such Indebtedness shall be amended, modified or
supplemented after the Closing Date to change any terms of
subordination, repayment or rights of conversion, put, exchange or
other rights from such terms and rights as in effect on the Closing
Date;
(b) Indebtedness owing to the Agent or any Lender in
connection with this Agreement, any Note or other Loan Document;
(c) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(d) purchase money Indebtedness described in Section 8.3(f)
not to exceed in any Fiscal Year an aggregate outstanding amount of
$2,000,000.00; and
(e) Indebtedness arising from Rate Hedging Obligations
permitted under Section 8.15; and
(f) Subordinated Debt.
8.5. Transfer of Assets. Sell, lease, transfer or otherwise dispose
of any assets of Borrower or any Subsidiary other than (a) dispositions of
inventory in the ordinary course of business, (b) dispositions of property that
is substantially worn, damaged, obsolete or, in the judgment of the Borrower, no
longer best used or useful in its business or that of any Subsidiary, (c)
transfers of assets necessary to give effect to merger or consolidation
transactions permitted by Section 8.7, and (d) the disposition of Eligible
Securities in the ordinary course of management of the investment portfolio of
the Borrower and its Subsidiaries.
8.6. Investments. Purchase, own, invest in or otherwise acquire,
directly or indirectly, any stock or other securities, or make or permit to
exist any interest whatsoever in any other Person or permit to exist any loans
or advances to any Person, except that Borrower may maintain investments or
invest in:
(a) securities of any Person acquired in an Acquisition
permitted hereunder;
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(b) Eligible Securities;
(c) investments existing as of the date hereof and as set
forth in Schedule 6.4;
(d) accounts receivable arising and trade credit granted in
the ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof in connection with
accounts of financially troubled Persons to the extent reasonably
necessary in order to prevent or limit loss; and
(e) investments in Subsidiaries and Acquisitions permitted
under 8.2.
8.7. Merger or Consolidation. (a) Consolidate with or merge into
any other Person, or (b) permit any other Person to merge into it, or (c)
liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose
of all or a substantial part of its assets (other than sales permitted under
Section 8.5(a), (b) and (e)); provided, however, (i) any Subsidiary of the
Borrower may merge or transfer all or substantially all of its assets into or
consolidate with the Borrower or any wholly-owned Subsidiary of the Borrower,
and (ii) any other Person may merge into or consolidate with the Borrower or any
wholly-owned Subsidiary and any wholly-owned Subsidiary may merge into or
consolidate with any other Person in order to consummate an Acquisition
permitted by Section 8.2, provided further, that the Borrower or its
wholly-owned Subsidiary party to such transaction shall be the surviving entity
of such transaction.
8.8. Restricted Payments. Make any Restricted Payment or apply or
set apart any of their assets therefor or agree to do any of the foregoing.
8.9. Transactions with Affiliates. Other than transactions
permitted under Sections 8.6 and 8.7, enter into any transaction after the
Closing Date, including, without limitation, the purchase, sale, lease or
exchange of property, real or personal, or the rendering of any service, with
any Affiliate of the Borrower, except (a) that such Persons may render services
to the Borrower or its Subsidiaries for compensation at the same rates generally
paid by Persons engaged in the same or similar businesses for the same or
similar services, (b) that the Borrower or any Subsidiary may render services to
such Persons for compensation at the same rates generally charged by the
Borrower or such Subsidiary and (c) in either case in the ordinary course of
business and pursuant to the reasonable requirements of the Borrower's (or any
Subsidiary's) business consistent with past practice of the Borrower and its
Subsidiaries and upon fair and reasonable terms no less favorable to the
Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate.
8.10. Compliance with ERISA. With respect to any Pension Plan,
Employee Benefit Plan or Multiemployer Plan:
(a) permit the occurrence of any Termination Event which would
result in a liability on the part of the Borrower or any ERISA
Affiliate to the PBGC; or
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(b) permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities; or
(c) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code) with respect to any
Pension Plan, whether or not waived; or
(d) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto; or
(e) engage, or permit any Borrower or any ERISA Affiliate to
engage, in any prohibited transaction under Section 406 of ERISA or
Sections 4975 of the Code for which a civil penalty pursuant to Section
502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be
imposed; or
(f) permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any
Employee Benefit Plan which establishment or amendment could result in
liability to the Borrower or any ERISA Affiliate or increase the
obligation of the Borrower or any ERISA Affiliate to a Multiemployer
Plan; or
(g) fail, or permit the Borrower or any ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the
Code, all applicable Foreign Benefit Laws and all other applicable laws
and the regulations and interpretations thereof.
8.11. Fiscal Year. Change its Fiscal Year.
8.12. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily
or involuntarily) or commence or suffer any proceedings seeking any such winding
up, liquidation or dissolution, except in connection with a merger or
consolidation permitted pursuant to Section 8.7.
8.13. Limitations on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property, whether now owned or hereafter acquired
in a related transaction or series of related transactions, which has been or is
to be sold or transferred by the Borrower or any Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the Borrower or any
Subsidiary.
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8.14. Change in Control. Cause, suffer or permit to exist or occur
any Change of Control.
8.15. Rate Hedging Obligations. Incur any Rate Hedging Obligations
or enter into any agreements, arrangements, devices or instruments relating to
Rate Hedging Obligations, except pursuant to Swap Agreements in an aggregate
notional amount not to exceed at any time the Total Revolving Credit Commitment.
8.16. Negative Pledge Clauses. Enter into or cause, suffer or permit
to exist any agreement with any Person other than the Agent and the Lenders
pursuant to this Agreement or any other Loan Documents which prohibits or limits
the ability of any of the Borrower or any Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, provided that the Borrower and any Subsidiary
may enter into such an agreement in connection with property acquired pursuant
to Section 8.4(d) so long as such limitation applies only to the property
acquired.
8.17. Prepayments, Etc. of Indebtedness. (a) Prepay, redeem,
purchase, defease or otherwise satisfy prior to the scheduled maturity thereof
in any manner, or make any payment in violation of any subordination terms of,
any Indebtedness; or
(b) amend, modify or change in any manner any term or condition of
any Indebtedness described in Section 8.4(a), (b) or (d) or any lease so that
the terms and conditions thereof are less favorable to the Agent and the Lenders
than the terms of such Indebtedness or leases as of the Closing Date.
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ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental Authority), that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of any Loan, Reimbursement Obligation or other
Obligation, when and as the same shall be due and payable whether
pursuant to any provision of Article II or Article III, at maturity, by
acceleration or otherwise; or
(b) if default shall be made in the due and punctual payment
of any amount of interest on any Loan, Reimbursement Obligation or
other Obligation or of any fees or other amounts payable to any of the
Lenders or the Agent on the date on which the same shall be due and
payable; or
(c) if default shall be made in the performance or observance
of any covenant set forth in Section 7.7, 7.11, 7.12, 7.19 or Article
VIII;
(d) if a default shall be made in the performance or
observance of, or shall occur under, any covenant, agreement or
provision contained in this Agreement or the Notes (other than as
described in clauses (a), (b) or (c) above) and such default shall
continue for 30 or more days after the earlier of receipt of notice of
such default by the Authorized Representative from the Agent or an
officer of the Borrower becomes aware of such default, or if a default
shall be made in the performance or observance of, or shall occur
under, any covenant, agreement or provision contained in any of the
other Loan Documents (beyond any applicable grace period, if any,
contained therein) or in any instrument or document evidencing or
creating any obligation, guaranty, or Lien in favor of the Agent or any
of the Lenders or delivered to the Agent or any of the Lenders in
connection with or pursuant to this Agreement or any of the
Obligations, or if any Loan Document ceases to be in full force and
effect (other than by reason of any action by the Agent), or if without
the written consent of the Lenders, this Agreement or any other Loan
Document shall be disaffirmed or shall terminate, be terminable or be
terminated or become void or unenforceable for any reason whatsoever
(other than in accordance with its terms in the absence of default or
by reason of any action by the Lenders or the Agent); or
(e) if there shall occur (i) a default, which is not waived,
in the payment of any principal, interest, premium or other amount with
respect to any Indebtedness (other than the Loans and other
Obligations) of the Borrower or any Subsidiary in an amount not less
than $100,000 in the aggregate outstanding, or (ii) a default, which is
not waived, in the
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performance, observance or fulfillment of any term or covenant
contained in any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed, guaranteed or
secured by the Borrower or any Subsidiary, or (iii) any other event of
default as specified in any agreement or instrument under or pursuant
to which any such Indebtedness may have been issued, created, assumed,
guaranteed or secured by the Borrower or any Subsidiary, and such
default or event of default shall continue for more than the period of
grace, if any, therein specified, or such default or event of default
shall permit the holder of any such Indebtedness (or any agent or
trustee acting on behalf of one or more holders) to accelerate the
maturity thereof; or
(f) if any representation, warranty or other statement of fact
contained in any Loan Document or in any writing, certificate, report
or statement at any time furnished to the Agent or any Lender by or on
behalf of the Borrower or any other Credit Party pursuant to or in
connection with any Loan Document, or otherwise, shall be false or
misleading in any material respect when given; or
(g) if the Borrower or any Subsidiary or other Credit Party
shall be unable to pay its debts generally as they become due; file a
petition to take advantage of any insolvency statute; make an
assignment for the benefit of its creditors; commence a proceeding for
the appointment of a receiver, trustee, liquidator or conservator of
itself or of the whole or any substantial part of its property; file a
petition or answer seeking liquidation, reorganization or arrangement
or similar relief under the federal bankruptcy laws or any other
applicable law or statute; or
(h) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of the Borrower or any Subsidiary or other
Credit Party or of the whole or any substantial part of its properties
and such order, judgment or decree continues unstayed and in effect for
a period of sixty (60) days, or approve a petition filed against the
Borrower or any Subsidiary seeking liquidation, reorganization or
arrangement or similar relief under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state, which petition is not dismissed within sixty (60) days; or if,
under the provisions of any other law for the relief or aid of debtors,
a court of competent juris diction shall assume custody or control of
the Borrower or any Subsidiary or other Credit Party or of the whole or
any substantial part of its properties, which control is not
relinquished within sixty (60) days; or if there is commenced against
the Borrower or any Subsidiary or other Credit Party any proceeding or
petition seeking reorganization, arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute of
the United States of America or any state which proceeding or petition
remains undismissed for a period of sixty (60) days; or if the Borrower
or any Subsidiary or other Credit Party takes any action to indicate
its consent to or approval of any such proceeding or petition; or
(i) if (i) one or more judgments or orders where the amount
not covered by insurance (or the amount as to which the insurer denies
liability) is in excess of $100,000
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is rendered against the Borrower or any Subsidiary, or (ii) there is
any attachment, injunction or execution against any of the Borrower's
or Subsidiaries' properties for any amount in excess of $100,000 in the
aggregate; and such judgment, attachment, injunction or execution
remains unpaid, unstayed, undischarged, unbonded or undismissed for a
period of thirty (30) days; or
(j) if the Borrower or any Subsidiary shall, other than in the
ordinary course of business (as determined by past practices), suspend
all or any part of its operations material to the conduct of the
business of the Borrower or such Subsidiary for a period of more than
60 days; or
(k) if the Borrower or any Subsidiary shall breach any of the
material terms or conditions of any agreement under which any Rate
Hedging Obligations permitted hereby is created and such breach shall
continue beyond any grace period, if any, relating thereto pursuant to
the terms of such agreement, or if the Borrower or any Subsidiary shall
disaffirm or seek to disaffirm any such agreement or any of its
obligations thereunder;
(l) if there shall occur and not be waived an Event of Default
as defined in any of the other Loan Documents; or
(m) so long as the Parent Guaranty is in effect, if the ratio
of Consolidated Indebtedness at any fiscal quarter end (the
"Determination Date") to Consolidated EBITDA for a period of four
consecutive fiscal quarters ending on the Determination Date (each as
determined in accordance with GAAP) of either HPS and its subsidiaries
or Sykes and its subsidiaries shall exceed 3.50 to 1.00;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall have not been waived,
(A) either or both of the following actions may be
taken: (i) the Agent, may, and at the direction of the
Required Lenders shall, declare any obligation of the Lenders
and the Issuing Bank to make further Revolving Loans or to
issue additional Letters of Credit terminated, whereupon the
obligation of each Lender to make further Revolving Loans and
of the Issuing Bank to issue additional Letters of Credit,
hereunder shall terminate immediately, and (ii) the Agent
shall at the direction of the Required Lenders, at their
option, declare by notice to the Borrower any or all of the
Obligations to be immediately due and payable, and the same,
including all interest accrued thereon and all other
obligations of the Borrower to the Agent and the Lenders,
shall forthwith become immediately due and payable without
presentment, demand, protest, notice or other formality of any
kind, all of which are hereby expressly waived, anything
contained herein or in any instrument evidencing the
Obligations to the contrary notwithstanding; provided,
however, that notwithstanding the above, if there shall occur
an Event of Default under clause (g) or (h) above, then the
obligation of the Lenders to
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make Revolving Loans and of the Issuing Bank to issue Letters
of Credit hereunder shall automatically terminate and any and
all of the Obligations shall be immediately due and payable
without the necessity of any action by the Agent or the
Required Lenders or notice to the Agent or the Lenders;
(B) The Borrower shall, upon demand of the Agent or
the Required Lenders, deposit cash with the Agent in an amount
equal to the amount of any Letter of Credit Outstandings, as
collateral security for the repayment of any future drawings
or payments under such Letters of Credit, and such amounts
shall be held by the Agent pursuant to the terms of the LC
Account Agreement; and
(C) the Agent and each of the Lenders shall have all
of the rights and remedies available under the Loan Documents
or under any applicable law.
9.2. Agent to Act. In case any one or more Events of Default shall
occur and not have been waived, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or in
any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
9.3. Cumulative Rights. No right or remedy herein conferred upon
the Lenders or the Agent is intended to be exclusive of any other rights or
remedies contained herein or in any other Loan Document, and every such right or
remedy shall be cumulative and shall be in addition to every other such right or
remedy contained herein and therein or now or hereafter existing at law or in
equity or by statute, or otherwise.
9.4. No Waiver. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
9.5. Allocation of Proceeds. If an Event of Default has occurred
and not been waived, and the maturity of the Notes has been accelerated pursuant
to Article IX hereof, all payments received by the Agent hereunder, in respect
of any principal of or interest on the Obligations or any other amounts payable
by the Borrower hereunder, shall be applied by the Agent in the following order:
(a) amounts due to the Lenders pursuant to Sections 2.10,
3.3, 3.4 and 11.5;
(b) amounts due to the Agent pursuant to Section 10.11;
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(c) payments of interest on Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the Lenders;
(d) payments of principal of Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the Lender;
(e) payments of cash amounts to the Agent in respect of
outstanding Letters of Credit pursuant to Section 9.1(B);
(f) amounts due to the Lenders pursuant to Sections
3.2(g), 7.15 and 11.9;
(g) payments of all other amounts due under any of the
Loan Documents, if any, to be applied for the ratable benefit of the
Lenders;
(h) amounts due to any of the Lenders in respect of
Obligations consisting of liabilities under any Swap Agreement with any
of the Lenders, or an affiliate of any Lender, on a pro rata basis
according to the amounts owed; and
(i) any surplus remaining after application as provided
for herein, to the Borrower or otherwise as may be required by
applicable law.
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ARTICLE X
The Agent
10.1. Appointment, Powers, and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Loan Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 10.5 and
the first sentence of Section 10.6 hereof shall include its affiliates and its
own and its affiliates' officers, directors, employees, and agents):
(a) shall not have any duties or responsibilities except those
expressly set forth in this Agreement and shall not be a trustee or
fiduciary for any Lender;
(b) shall not be responsible to the Lenders for any recital,
statement, representation, or warranty (whether written or oral) made
in or in connection with any Loan Document or any certificate or other
document referred to or provided for in, or received by any of them
under, any Loan Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Loan Document, or
any other document referred to or provided for therein or for any
failure by any Credit Party or any other Person to perform any of its
obligations thereunder;
(c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Credit Party or the satisfaction of any
condition or to inspect the property (including the books and records)
of any Credit Party or any of its Subsidiaries or affiliates;
(d) shall not be required to initiate or conduct any
litigation or collection proceedings under any Loan Document; and
(e) shall not be responsible for any action taken or omitted
to be taken by it under or in connection with any Loan Document, except
for its own gross negligence or willful misconduct.
The Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care.
10.2. Reliance by Agent. The Agent shall be entitled to rely upon
any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telefacsimile)
believed by it to be genuine and correct and to have been signed, sent or made
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel (including counsel for any Credit Party), independent
accountants, and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the
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holder thereof for all purposes hereof unless and until the Agent receives and
accepts an Assignment and Acceptance executed in accordance with Section 11.1
hereof. As to any matters not expressly provided for by this Agreement, the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding on all of the Lenders; provided,
however, that the Agent shall not be required to take any action that exposes
the Agent to personal liability or that is contrary to any Loan Document or
applicable law or unless it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking any such action.
10.3. Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless the Agent has
received written notice from a Lender or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of a Default or
Event of Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall (subject to Section 10.2 hereof) 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 Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Lenders.
10.4. Rights as Lender. With respect to its Revolving Credit Commitment
and the Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. NationsBank
(and any successor acting as Agent) and its affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, make
investments in, provide services to, and generally engage in any kind of
lending, trust, or other business with any Credit Party or any of its
Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank
(and any successor acting as Agent) and its affiliates may accept fees and other
consideration from any Credit Party or any of its Subsidiaries or affiliates for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
10.5. Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 11.9 hereof, but without limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective Revolving Credit Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the Agent
(including by any Lender) in any way relating to or arising out of any Loan
Document or the transactions contemplated thereby or any action taken or omitted
by the Agent under any Loan Document; provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Lender
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agrees to reimburse the Agent promptly upon demand for its ratable share of any
costs or expenses payable by the Borrower under Section 11.5, to the extent that
the Agent is not promptly reimbursed for such costs and expenses by the
Borrower. The agreements contained in this Section 10.5 shall survive payment in
full of the Loans and all other amounts payable under this Agreement.
10.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that
it has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Credit Parties and their Subsidiaries and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents. Except for
notices, reports, and other documents and information expressly required to be
furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition, or business of any
Credit Party or any of its Subsidiaries or affiliates that may come into the
possession of the Agent or any of its affiliates.
10.7. Resignation of Agent. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America having combined capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article X shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
10.8. Sharing of Payments, etc. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, set-off, counterclaim or
otherwise, obtain payment with respect to its Obligations (other than pursuant
to Article IV) which results in its receiving more than its pro rata share of
the aggregate payments with respect to all of the Obligations (other than any
payment expressly provided hereunder to be distributed on other than a pro rata
basis and payments pursuant to Article IV), then (a) such Lender shall be deemed
to have simultaneously purchased from the other Lenders a share in their
Obligations so that the amount of the Obligations held by each of the Lenders
shall be pro rata and (b) such other adjustments shall be made from time to time
as shall be equitable to insure that the Lenders share such payments ratably;
provided, however, that for purposes of this Section 10.8 the term "pro rata"
shall be determined with respect to both the Revolving Credit Commitment of each
Lender and to the Total Revolving Credit Commitments after subtraction in each
case of amounts, if any, by which any such Lender
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has not funded its share of the outstanding Loans and Obligations. If all or any
portion of any such excess payment is thereafter recovered from the Lender which
received the same, the purchase provided in this Section 10.8 shall be rescinded
to the extent of such recovery, without interest. The Borrower expressly
consents to the foregoing arrangements and agrees that each Lender so purchasing
a portion of the other Lenders' Obligations may exercise all rights of payment
(including, without limitation, all rights of set-off, banker's lien or
counterclaim) with respect to such portion as fully as if such Lender were the
direct holder of such portion.
10.9. Fees. The Borrower agrees to pay to the Agent, for its individual
account, an annual Agent's fee as from time to time agreed to by the Borrower
and Agent in writing.
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ARTICLE XI
Miscellaneous
11.1. Assignments and Participations. (a) Each Lender may assign to
one or more Eligible Assignees all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Loans, its Note, and its Revolving Credit Commitment; provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or
an assignment of all of a Lender's rights and obligations under this Agreement,
any such partial assignment shall be in an amount at least equal to $5,000,000
or an integral multiple of $500,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under this
Agreement and the Note;
(iv) each such assignment of participations shall be
assignments with voting rights limited to significant matters such as changes in
amount, rate, and maturity date and releases of collateral and guarantors; and
(v) the parties to such assignment shall execute and deliver
to the Agent for its acceptance an Assignment and Acceptance in the form of
Exhibit B hereto, together with any Note subject to such assignment and a
processing fee of $3,500 payable by the Assignor.
Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender hereunder and
the assigning Lender shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section, the assignor, the Agent
and the Borrower shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification as to exemption
from deduction or withholding of Taxes in accordance with Section 4.6.
(b) The Agent shall maintain at its address referred to in Section 11.2
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
Revolving Credit Commitment 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 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 or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
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(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and payment
of the processing fee, the Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit B hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the parties thereto.
(d) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under this
Agreement (including all or a portion of its Revolving Credit Commitment or its
Loans); provided, however, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participant shall be entitled to the benefit of the yield protection
provisions contained in Article IV and the right of set-off contained in Section
11.3, and (iv) the Borrower shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans and its Note and to approve
any amendment, modification, or waiver of any provision of this Agreement (other
than amendments, modifications, or waivers decreasing the amount of principal of
or the rate at which interest is payable on such Loans or Note, extending any
scheduled principal payment date or date fixed for the payment of interest on
such Loans or Note, or extending its Revolving Credit Commitment).
(e) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its Loans and
its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Lender from its obligations
hereunder.
(f) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
11.2. Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective (i) on the day on which delivered
(including hand delivery by commercial courier service) to such party (against
receipt therefor), (ii) on the date of receipt at such address, telefacsimile
number or telex number as may from time to time be specified by such party in
written notice to the other parties hereto or otherwise received), in the case
of notice by telegram, telefacsimile or telex, respectively (where the receipt
of such message is verified by return), or (iii) on the fifth Business Day after
the day on which mailed, if sent prepaid by certified or registered mail, return
receipt requested, in each case delivered, transmitted or mailed, as the case
may be, to the address, telex number or telefacsimile number, as appropriate,
set forth below or such other address or number as such party shall specify by
notice hereunder:
76
<PAGE> 83
(a) if to the Borrower:
Sykes HealthPlan Services, Inc.
3501 Frontage Road
Tampa, Florida 33607
Attn: Jack Murray, III
Telephone: (813) 289-1000
Telefacsimile: (813) 289-9359
(b) if to the Agent:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telephone: (704) 388-6482
Telefacsimile: (704) 386-9923
with a copy to:
NationsBank, National Association
400 N. Ashley Drive, 2nd Floor
Tampa, Florida 33602
Attention: James E. Harden, Jr.,
Senior Vice President
Telephone: (813) 224-5147
Telefacsimile: (813) 224-5770
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance;
(d) if to any other Credit Party, at the address set
forth on the signature page of the Facility Guaranty
or Pledge Agreement executed by such Credit Party, as
the case may be.
11.3. Right of Set-off; Adjustments. Upon the occurrence and during
the continuance of any Event of Default, each Lender (and each of its
affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender (or any of its affiliates)
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Note held by such Lender, irrespective of whether such Lender shall have
made any demand under this Agreement or such Note and although such obligations
may be unmatured. Each Lender agrees promptly to notify the Borrower after any
such set-off and application made by such Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender
77
<PAGE> 84
under this Section 11.3 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Lender may have.
11.4. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the issuance of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of Obligations remain outstanding or any Lender has any
Eurodollar Rate Loan hereunder or the Borrower has continuing obligations
hereunder unless otherwise provided herein. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and permitted assigns of such party and all covenants, provisions and
agreements by or on behalf of the Borrower which are contained in the Loan
Documents shall inure to the benefit of the successors and permitted assigns of
the Lenders or any of them.
11.5. Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the syndication, preparation,
execution, delivery, administration, modification, and amendment of this
Agreement, the other Loan Documents, and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and expenses of
counsel for the Agent (including the cost of internal counsel) with respect
thereto and with respect to advising the Agent as to its rights and
responsibilities under the Loan Documents. The Borrower further agrees to pay on
demand all costs and expenses of the Agent and the Lenders, if any (including,
without limitation, reasonable attorneys' fees and expenses and the cost of
internal counsel), in connection with the enforcement (whether through
negotiations, legal proceedings, or otherwise) of the Loan Documents and the
other documents to be delivered hereunder.
11.6. Amendments and Waivers. Any provision of this Agreement or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Required Lenders
(and, if Article X or the rights or duties of the Agent are affected thereby, by
the Agent); provided that no such amendment or waiver shall, unless signed by
all the Lenders, (i) increase the Revolving Credit Commitment of the Lenders,
(ii) reduce the principal of or rate of interest on any Loan or any fees or
other amounts payable hereunder, (iii) postpone any date fixed for the payment
of any scheduled installment of principal of or interest on any Loan or any fees
or other amounts payable hereunder or for termination of any Revolving Credit
Commitment, or (iv) change the percentage of the Revolving Credit Commitment or
of the unpaid principal amount of the Notes, or the number of Lenders, which
shall be required for the Lenders or any of them to take any action under this
Section 11.6 or any other provision of this Agreement or (v) release any
Guarantor or all or substantially all of the Collateral;
No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances, except as otherwise expressly provided herein. No delay or
omission on any Lender's or the Agent's part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy or option or
of any Default or Event of Default.
78
<PAGE> 85
11.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
11.8. Termination. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably paid in full. The rights granted to the Agent for the benefit of the
Lenders under the Loan Documents shall continue in full force and effect,
notwithstanding the termination of this Agreement, until all of the Obligations
have been paid in full after the termination hereof (other than Obligations in
the nature of continuing indemnities or expense reimbursement obligations not
yet due and payable, which shall continue) or the Borrower has furnished the
Lenders and the Agent with an indemnification satisfactory to the Agent and each
Lender with respect thereto. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until payment
in full of the Obligations unless otherwise provided herein. Notwithstanding the
foregoing, if after receipt of any payment of all or any part of the
Obligations, any Lender is for any reason compelled to surrender such payment to
any Person because such payment is determined to be void or voidable as a
preference, impermissible setoff, a diversion of trust funds or for any other
reason, this Agreement shall continue in full force and the Borrower shall be
liable to, and shall indemnify and hold the Agent or such Lender harmless for,
the amount of such payment surrendered until the Agent or such Lender shall have
been finally and irrevocably paid in full. The provisions of the foregoing
sentence shall be and remain effective notwithstanding any contrary action which
may have been taken by the Agent or the Lenders in reliance upon such payment,
and any such contrary action so taken shall be without prejudice to the Agent or
the Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
11.9. Indemnification; Limitation of Liability. (a) The Borrower agrees
to indemnify and hold harmless NMS, the Agent and each Lender and each of their
affiliates and their respective officers, directors, employees, agents, and
advisors (each, an "Indemnified Party") from and against any and all claims,
damages, losses, liabilities, costs, and expenses (including, without
limitation, reasonable attorneys' fees) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation, or proceeding or preparation of defense in
connection therewith) the Loan Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans, including,
without limitation all liabilities, claims, damages or actions arising due to
environmental issue, except to the extent such claim, damage, loss, liability,
cost, or expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 11.9 applies, such
indemnity shall be effective
79
<PAGE> 86
whether or not such investigation, litigation or proceeding is brought by the
Borrower, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrower agrees that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to it, any of its
Subsidiaries, any Guarantor, or any security holders or creditors thereof
arising out of, related to or in connection with the transactions contemplated
herein, except to the extent that such liability is found in a final
non-appealable judgment by a court of competent jurisdiction to have directly
resulted from such Indemnified Party's gross negligence or willful misconduct.
The Borrower agrees not to assert any claim against NMS, the Agent, any Lender,
any of their affiliates, or any of their respective directors, officers,
employees, attorneys, agents, and advisers, on any theory of liability, for
special, indirect, consequential, or punitive damages arising out of or
otherwise relating to the Loan Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans.
(b) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 11.9 shall survive the payment in full of the Loans and all other
amounts payable under this Agreement.
11.10. Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.
11.11. Entire Agreement. This Agreement, together with the other Loan
Documents, constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all previous proposals, negotiations,
representations, Eurodollar Rate Loans and other communications between or among
the parties, both oral and written, with respect thereto.
11.12. Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any express term of this
Agreement, the terms and provisions of this Agreement shall control to the
extent of such conflict.
11.13. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under applicable law shall not exceed the Highest Lawful Rate (as such term is
defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect. In addition, if when the Loans made hereunder are repaid
in full the total interest due hereunder (taking into account the increase
provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of interest
80
<PAGE> 87
set forth in this Agreement had at all times been in effect, then to the extent
permitted by law, the Borrower shall pay to the Agent an amount equal to the
difference between the amount of interest paid and the amount of interest which
would have been paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of the Lenders and the
Borrower to conform strictly to any applicable usury laws. Accordingly, if any
Lender contracts for, charges, or receives any consideration which constitutes
interest in excess of the Highest Lawful Rate, then any such excess shall be
cancelled automatically and, if previously paid, shall at such Lender's option
be applied to the outstanding amount of the Loans made hereunder or be refunded
to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means
the maximum lawful interest rate, if any, that at any time or from time to time
may be contracted for, charged, or received under the laws applicable to such
Lender which are presently in effect or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
11.14. GOVERNING LAW; WAIVER OF JURY TRIAL.
(A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN
THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY SHALL BE
GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA
APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH
STATE.
(B) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND
CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE
INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF
HILLSBOROUGH, STATE OF FLORIDA, UNITED STATES OF AMERICA AND, BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY
SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE BORROWER
HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(C) THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY
PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL
PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR
CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE BORROWER
PROVIDED IN SECTION
81
<PAGE> 88
11.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE
APPLICABLE LAWS IN EFFECT IN THE STATE OF FLORIDA.
(D) NOTHING CONTAINED IN SUBSECTIONS (A) OR (B) HEREOF SHALL
PRECLUDE THE AGENT OR ANY LENDER FROM BRINGING ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN THE
COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF THE BORROWER'S
PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY
THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY
WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO
THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER
COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE AVAILABLE UNDER
APPLICABLE LAW.
(E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN
THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE
AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE
TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING.
11.15. Payments. All principal, interest, and other amounts to be made
by the Borrower under this Agreement and the other Loan Documents shall be made
to the Agent at the Principal Office in Dollars and in immediately available
funds, without setoff, deduction or counterclaim. Subject to the definition of
"Interest Period" herein, whenever any payment under this Agreement or any other
Loan Document shall be stated to be due on a day that is not a Business Day,
such payment may be made on the next succeeding Business Day, and such extension
of time in such case shall be included in the computation of interest and fees,
as applicable, and as the case may be.
[Signatures on following pages]
82
<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
WITNESS:
/s/ B.M. Reynolds By:/s/ James K. Murray, III
- ----------------------- -----------------------------------------
/s/ Terry L. Witcher Name: James K. Murray, III
- ----------------------- Title: Chief Financial Officer and Treasurer
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By:/s/ James E. Harden, Jr.
-----------------------------------------
Name: James E. Harden, Jr.
Title: Senior Vice President
<PAGE> 90
NATIONSBANK, NATIONAL ASSOCIATION
By:/s/James E. Harden, Jr.
-------------------------
Name: James E. Harden, Jr.
Title: Senior Vice President
Lending Office for Base Rate Loans:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telephone: (704) 386-
Telefacsimile: (704) 386-9923
Wire Transfer Instructions:
NationsBank, National Association
ABA #053000196
Account No.:
----------------------
Reference: Sykes HealthPlan
Services, Inc.
Attention: Agency Services
Lending Office for Eurodollar Rate Loans:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Ken Deffendall
Telephone: (704) 388-6482
Telefacsimile: (704) 386-9923
Wire Transfer Instructions:
NationsBank, National Association
ABA #053000196
Account No.:
----------------------
Reference: Sykes HealthPlan
Services, Inc.
Attention: Agency Services
<PAGE> 91
FIRST UNION NATIONAL BANK
By:/s/Gail M. Golighty
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Lending Office:
301 S. College Street, 5th Floor
Charlotte, North Carolina 28288
Wire Transfer Instructions:
First Union National Bank
Charlotte, North Carolina
ABA #053000219
Account #465906 0001801
Reference: Sykes HealthPlan Services, Inc.
Attention: Callie Moses
<PAGE> 92
SOUTHTRUST BANK, NATIONAL ASSOCIATION
By:/s/Martin D. Gawel
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Lending Office:
420 North 20th Street
Birmingham, Alabama 35203
Wire Transfer Instructions:
SouthTrust Bank, National Association
Birmingham, Alabama
ABA #062000080
Account #131009
Reference: Sykes HealthPlan Services, Inc.
Attention: Joanne Gundling (813-898-2607)
<PAGE> 93
AMSOUTH BANK
By:/s/Joseph M. Rusnic
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Lending Office:
1900 Fifth Avenue North, AST7FL
Birmingham, Alabama 35203
Wire Transfer Instructions:
AmSouth Bank
ABA #63-0073530
Account #0011-0245-0400-100
Reference: Sykes HealthPlan Services, Inc.
Attention: Joanne Hoover
(205) 326-5493
(205) 581-7508 (fax)
<PAGE> 94
EXHIBIT A
Applicable Commitment Percentages
<TABLE>
<CAPTION>
Lender Revolving Applicable
- ------ Credit Commitment
Commitment Percentage
---------- -----------
<S> <C> <C>
NationsBank, National
Association $25,000,000.00 38.461538461%
First Union National Bank $15,000,000.00 23.076923076%
SouthTrust Bank,
National Association $15,000,000.00 23.076923076%
AmSouth Bank $10,000,000.00 15.384615384%
------------- ------------
Total $65,000,000.00 100%
</TABLE>
A-1
<PAGE> 95
EXHIBIT B
Form of Assignment and Acceptance
Reference is made to the Credit Agreement dated as of March __, 1998
(the "Credit Agreement") among Sykes HealthPlan Services, Inc., a Florida
corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement)
and NationsBank, N.A., as agent for the Lenders (the "Agent"). Terms defined in
the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, WITHOUT
RECOURSE and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Loan Documents. After
giving effect to such sale and assignment, the Assignee's Revolving Credit
Commitment and the amount of the Loans owing to the Assignee will be as set
forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Credit Party or
the performance or observance by any Credit Party of any of its obligations
under the Loan Documents or any other instrument or document furnished pursuant
thereto; and (iv) attaches the Note held by the Assignor and requests that the
Agent exchange such Note for new Notes payable to the order of the Assignee in
an amount equal to the Revolving Credit Commitment assumed by the Assignee
pursuant hereto and to the Assignor in an amount equal to the Revolving Credit
Commitment retained by the Assignor, if any, as specified on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor 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 decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
B-1
<PAGE> 96
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 4.6.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Florida.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
B-2
<PAGE> 97
Schedule 1
<TABLE>
<S> <C>
Percentage interest assigned: %
--------
Assignee's Commitment: $
Aggregate outstanding principal amount -------
of Loans assigned: $
-------
Principal amount of Note payable to Assignee: $
-------
Principal amount of Note payable to Assignor: $
-------
Effective Date (if other than date
of acceptance by Agent): * , 19
------- --
</TABLE>
[NAME OF ASSIGNOR], as Assignor
By:
------------------------------
Title:
Dated: , 19
-------------------- --
[NAME OF ASSIGNEE], as Assignee
By:
------------------------------
Title:
Domestic Lending Office:
Eurodollar Lending Office:
* This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Agent.
B-3
<PAGE> 98
Accepted [and Approved] **
this day of , 19
--- ----------- --
NATIONSBANK, N.A.
By:
---------------------------
Title:
[Approved this day
----
of , 19
------------- --
SYKES HEALTHPLAN SERVICES, INC.
By: ]**
-------------------------
Title:
** Required if the Assignee is an Eligible Assignee solely by reason of
clause (iii) of the definition of "Eligible Assignee".
B-4
<PAGE> 99
EXHIBIT C
Notice of Appointment (or Revocation) of Authorized Representative
Reference is hereby made to the Credit Agreement dated as of March
__, 1998 (the "Agreement") among Sykes HealthPlan Services, Inc., a Florida
corporation (the "Borrower"), the Lenders (as defined in the Agreement), and
NationsBank, National Association, as Agent for the Lenders ("Agent").
Capitalized terms used but not defined herein shall have the respective meanings
therefor set forth in the Agreement.
The Borrower hereby nominates, constitutes and appoints each
individual named below as an Authorized Representative under the Loan Documents,
and hereby represents and warrants that (i) set forth opposite each such
individual's name is a true and correct statement of such individual's office
(to which such individual has been duly elected or appointed), a genuine
specimen signature of such individual and an address for the giving of notice,
and (ii) each such individual has been duly authorized by the Borrower to act as
Authorized Representative under the Loan Documents:
<TABLE>
<CAPTION>
Name and Address Office Specimen Signature
<S> <C> <C>
- ----------------------- ------------------------- -------------------------
- -----------------------
- -----------------------
- ----------------------- ------------------------- -------------------------
- ----------------------- ------------------------- -------------------------
- -----------------------
- -----------------------
</TABLE>
Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior
appointment of as an Authorized Representative.
----------------
This the day of , 19 .
--- ------------------ --
SYKES HEALTHPLAN SERVICES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
C-1
<PAGE> 100
EXHIBIT D
Form of Borrowing Notice
To: NationsBank, National Association,
as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704)386-9923
Reference is hereby made to the Credit Agreement dated as of March
__, 1998 (the "Agreement") among Sykes HealthPlan Services, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and NationsBank,
National Association, as Agent for the Lenders ("Agent"). Capitalized terms used
but not defined herein shall have the respective meanings therefor set forth in
the Agreement.
The Borrower through its Authorized Representative hereby gives
notice to the Agent that Loans of the type and amount set forth below be made on
the date indicated:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate
(check one) Period(1) Amount(2) Date of Loan(3)
- ----------- --------- --------- ---------------
<S> <C> <C> <C>
Base Rate Loan
------ --------- ------------
Eurodollar Rate Loan
------ --------- ------------
</TABLE>
- -----------------------
(1) For any Eurodollar Rate Loan, one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $500,000,
unless a Base Rate Refunding Loan.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan;
The Borrower hereby requests that the proceeds of Loans described in
this Borrowing Notice be made available to the Borrower as follows: [insert
transmittal instructions] .
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
D-1
<PAGE> 101
2. All the representations and warranties set forth in Article VI
of the Agreement and in the Loan Documents (other than those expressly stated to
refer to a particular date) are true and correct as of the date hereof except
that the reference to the financial statements in Section 6.6(a) of the
Agreement are to those financial statements most recently delivered to you
pursuant to Section 7.1 of the Agreement (it being understood that any financial
statements delivered pursuant to Section 7.1(b) have not been certified by
independent public accountants) and attached hereto are any changes to the
Schedules referred to in connection with such representations and warranties.
3. All conditions contained in the Agreement to the making of any
Loan requested hereby have been met or satisfied in full .
SYKES HEALTHPLAN SERVICES, INC.
BY:
-------------------------------
Authorized Representative
DATE:
------------------------------
D-2
<PAGE> 102
EXHIBIT E
Form of Interest Rate Selection Notice
To: NationsBank, National Association,
as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
Reference is hereby made to the Credit Agreement dated as of March
__, 1998 (the "Agreement") among Sykes HealthPlan Services, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and NationsBank,
National Association, as Agent for the Lenders ("Agent"). Capitalized terms used
but not defined herein shall have the respective meanings therefor set forth in
the Agreement.
The Borrower through its Authorized Representative hereby gives
notice to the Agent of the following selection of a type of Loan and Interest
Period:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate
(check one) Period(1) Amount(2) Date of Loan(3)
- ----------- --------- --------- ---------------
<S> <C> <C> <C>
Base Rate Loan
------ --------- ------------
Eurodollar Rate Loan
------ --------- ------------
</TABLE>
- -----------------------
(1) For any Eurodollar Rate Loan, one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $500,000,
unless a Base Rate Refunding Loan.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan;
SYKES HEALTHPLAN SERVICES, INC.
BY:
-------------------------------
Authorized Representative
DATE:
------------------------------
E-1
<PAGE> 103
EXHIBIT F
LC ACCOUNT AGREEMENT
F-1
<PAGE> 104
EXHIBIT G
Form of Revolving Note
Promissory Note
$
------------- ,
----------- ------------
, 199
------ -- -
FOR VALUE RECEIVED, SYKES HEALTHPLAN SERVICES, INC., a Florida
corporation having its principal place of business located in Tampa, Florida
(the "Borrower"), hereby promises to pay to the order of
_______________________________________________ (the "Lender"), in its
individual capacity, at the office of NATIONSBANK, NATIONAL ASSOCIATION, as
agent for the Lenders (the "Agent"), located at One Independence Center, 101
North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the Agent may designate in writing) at the times set
forth in the Credit Agreement dated as of March __, 1998 among the Borrower, the
financial institutions party thereto (collectively, the "Lenders") and the Agent
(the "Agreement" -- all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement), in lawful money of the
United States of America, in immediately available funds, the principal amount
of
___________________________ DOLLARS ($__________) or, if less than such
principal amount, the aggregate unpaid principal amount of all Revolving Loans
made by the Lender to the Borrower pursuant to the Agreement on the Revolving
Credit Termination Date or such earlier date as may be required pursuant to the
terms of the Agreement, and to pay interest from the date hereof on the unpaid
principal amount hereof, in like money, at said office, on the dates and at the
rates provided in Article II of the Agreement. All or any portion of the
principal amount of Loans may be prepaid or required to be prepaid as provided
in the Agreement.
If payment of all sums due hereunder is accelerated under the terms of
the Agreement or under the terms of the other Loan Documents executed in
connection with the Agreement, the then remaining principal amount and accrued
but unpaid interest shall bear interest which shall be payable on demand at the
rates per annum set forth in the proviso to Section 2.2 (a) of the Agreement.
Further, in the event of such acceleration, this Note shall become immediately
due and payable, without presentation, demand, protest or notice of any kind,
all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest due hereunder thereon at the rates set forth above.
G-1
<PAGE> 105
Interest hereunder shall be computed as provided in the Agreement.
This Note is one of the Notes referred to in the Agreement and is
issued pursuant to and entitled to the benefits and security of the Agreement to
which reference is hereby made for a more complete statement of the terms and
conditions upon which the Loans evidenced hereby were or are made and are to be
repaid. This Note is subject to certain restrictions on transfer or assignment
as provided in the Agreement.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, also their right, if
any, to require the holder hereof to hold as security for this Note any
collateral deposited by any of said Persons as security. Protest, notice of
protest, notice of dishonor, diligence or any other formality are hereby waived
by all parties bound hereon.
[Remainder of page intentionally left blank.]
G-2
<PAGE> 106
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
SYKES HEALTHPLAN SERVICES, INC.
WITNESS:
By:
- ----------------------------- --------------------------------
Name:
-----------------------------
Title:
- ----------------------------- -----------------------------
G-3
<PAGE> 107
EXHIBIT H
PARENT GUARANTY
H-1
<PAGE> 108
EXHIBIT I
Form of Opinion of Borrower's and Guarantors' Counsel
See attached.
I-1
<PAGE> 109
EXHIBIT J
Compliance Certificate
NationsBank, National Association,
as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
NationsBank, National Association,
as Agent
400 N. Ashley Drive, 2nd Floor
Tampa, Florida 33602
Attention: James E. Harden, Jr.
Telefacsimile: (813) 224-5770
Reference is hereby made to the Credit Agreement dated as of March __,
1998 (the "Agreement") among Sykes HealthPlan Services, Inc., a Florida
corporation (the "Borrower"), the Lenders (as defined in the Agreement) and
NationsBank, National Association, as Agent for the Lenders ("Agent").
Capitalized terms used but not otherwise defined herein shall have the
respective meanings therefor set forth in the Agreement. The undersigned, a duly
authorized and acting Authorized Representative, hereby certifies to you as of
__________ (the "Determination Date") as follows:
1. Calculations:
A. Compliance with Section 8.1(a): Adjusted Consolidated
Shareholders' Equity *
<TABLE>
<S> <C> <C>
1. Consolidated Shareholders' Equity at the
last day of the most recent fiscal quarter $
-----------
2. Consolidated Net Income x 90% $
-----------
3. Net proceeds of sale of Common Stock (100%) $
-----------
4. Sum of A.1 + A.2 +A.3 $
-----------
5. Actual Adjusted Consolidated Shareholders'
Equity $
-----------
</TABLE>
J-1
<PAGE> 110
REQUIRED: A.5 MUST NOT BE LESS THAN A.4
B. Compliance with Section 9.1(b): Consolidated
Leverage Ratio
<TABLE>
<S> <C> <C>
1. Consolidated Indebtedness $
------------
2. Consolidated EBITDA * $
------------
3. Ratio of B.1 to B.2 to 1.00
-----
</TABLE>
REQUIRED: LINE B.3 MUST NOT BE GREATER THAN 3.50 TO 1.00.
C. Compliance with Section 9.1(c): Consolidated Fixed
Charge Ratio
<TABLE>
<S> <C> <C>
1. Consolidated EBITDA * $
------------
2. Capital Expenditures * $
------------
3. Cash Income Taxes * $
------------
4. C.1 minus the sum of C.2 and C.3 $
------------
5. Consolidated Interest Expense $
------------
6. Current Maturities of Consolidated Indebtedness $
------------
7. C.5 + C.6: Consolidated Fixed Charges $
------------
8. Ratio of C.4 to C.7 to 1.00
-----
</TABLE>
REQUIRED: LINE C.7 MUST NOT BE LESS THAN 2.00 TO 1.00.
D. Compliance with Section 9.1(m): Consolidated
Indebtedness to Consolidated EBITDA
<TABLE>
<S> <C> <C>
1. Consolidated Indebtedness - Sykes $
------------
2. Consolidated EBITDA - Sykes $
------------
3. Ratio of D.1 to D.2 to 1.00
-----
4. Consolidated Indebtedness - HPS $
------------
</TABLE>
J-2
<PAGE> 111
<TABLE>
<S> <C> <C>
5. Consolidated EBITDA - HPS $
------------
6. Ratio of D.4 to D.5 to 1.00
-----
</TABLE>
REQUIRED: D.3 AND D.6 MUST NOT EXCEED 3.50 TO 1.00.
* See Schedule 1 for calculations.
2. No Default
A. Since __________ (the date of the last similar
certification), (a) the Borrower has not defaulted in the
keeping, observance, performance or fulfillment of its
obligations pursuant to any of the Loan Documents; and (b) no
Default or Event of Default specified in Article IX of the
Agreement has occurred and is continuing.
B. If a Default or Event of Default has occurred
since __________ (the date of the last similar certification),
the Borrower proposes to take the following action with
respect to such Default or Event of Default: ________________
_____________________________________________________________
_____________________________________________.
(Note, if no Default or Event of Default has
occurred, insert "Not Applicable").
The Determination Date is the date of the last required financial
statements submitted to the Lenders in accordance with Section 7.1 of the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, 19___.
By:_______________________________________
Authorized Representative
Name:_____________________________________
Title:___________________________________
J-3
<PAGE> 112
Schedule 1 to Compliance Certificate
Covenant Calculations ($ in 000s)
I. Consolidated EBITDA Calculation:
<TABLE>
<CAPTION>
1Q Ended 2Q Ended 3Q Ended
3/31/98 6/30/98 9/30/98 Rolling
x 4 x 2 x 4/3 4Q Period
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
A. Consolidated Net Income $_______ $_______ $_______ $_______
B. Consolidated Interest Expense $_______ $_______ $_______ $_______
C. Taxes on Income $_______ $_______ $_______ $_______
D. Amortization $_______ $_______ $_______ $_______
E. Depreciation $_______ $_______ $_______ $_______
F. Consolidated EBITDA $_______ $_______ $_______ $_______
(A + B + C + D + E)
</TABLE>
II. Calculation of Components of Consolidated Fixed Charge Coverage Ratio
<TABLE>
<CAPTION>
1Q Ended 2Q Ended 3Q Ended
3/31/98 6/30/98 9/30/98 Rolling
x 4 x 2 x 4/3 4Q Period
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
A. Consolidated EBITDA $_______ $_______ $_______ $_______
B. Capital Expenditures $_______ $_______ $_______ $_______
C. Cash Income Taxes $_______ $_______ $_______ $_______
D. Consolidated Interest Expense $_______ $_______ $_______ $_______
E. Current Maturities of Indebtedness $_______ $_______ $_______ $_______
</TABLE>
III. Calculation of Adjusted Consolidated Shareholders' Equity
<TABLE>
<S> <C> <C> <C> <C>
A. Consolidated Shareholders' Equity $_______ $_______ $_______ $_______
B. Non-cash and acquisition related
charges approved by Required
Lenders $_______ $_______ $_______ $_______
C. Adjusted Consolidated Share-
holders' Equity (A + B) $_______ $_______ $_______ $_______
</TABLE>
J-4
<PAGE> 113
EXHIBIT K
Form of Facility Guaranty
K-1
<PAGE> 114
EXHIBIT L
Form of Pledge Agreement
L-1
<PAGE> 115
EXHIBIT M
Form of Amendment Agreement
Amendment No. ___ to
Credit Agreement
THIS AMENDMENT AGREEMENT is made and entered into this _____ day of
________, 199__, by and among SYKES HEALTHPLAN SERVICES, INC., a Florida
corporation (herein called the "Borrower"), NATIONSBANK, N.A. (the "Agent"), as
Agent for the lenders (the "Lenders") party to a Credit Agreement dated March
__, 1998 among such Lenders, Borrower and the Agent, as amended (the
"Agreement") and Lenders party to this Amendment Agreement.
WITNESSETH:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the principal amount of $65,000,000 as evidenced by the Notes
(as defined in the Agreement); and
WHEREAS, the Lender has agreed to provide to Borrower Loans of up to
$20,000,000 thereby increasing the Total Revolving Credit Commitment to
$75,000,000 and the parties hereto desire to amend the Agreement in the manner
herein set forth effective as of the date hereof;
NOW, THEREFORE, the Borrower, the Agent and the Lender do hereby agree
as follows:
1. Definitions. The term "Agreement" as used herein and in the
Loan Documents (as defined in the Agreement) shall mean the Agreement as hereby
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. Amendments. Subject to the conditions hereof, the Agreement is
hereby amended, effective as of the date hereof, by deleting Exhibit A and
inserting in lieu thereof Exhibit A attached hereto, and the Lender agrees by
the execution of this Amendment Agreement that it shall be a party to the
Agreement and shall provide to the Borrower its Revolving Credit Commitment.
3. Representations and Warranties. The Borrower hereby certifies
that:
(a) The representations and warranties made by Borrower in
Article VI thereof are true on and as of the date hereof except that
the financial statements referred to in Section 6.6(a) shall be those
most recently furnished to each Lender pursuant to Section 7.1(a) and
(b);
(b) There has been no material change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
date of the most recent financial reports of the Borrower received by
each Lender under Section 7.1 thereof, other than changes in the
ordinary course of business, none of which has been a material adverse
change;
M-1
<PAGE> 116
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent financial
report of the Borrower and its Subsidiaries received by each Lender
under Section 7.1 thereof have not been, adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) No event has occurred and no condition exists which, upon
the consummation of the transaction contemplated hereby, constituted a
Default or an Event of Default on the part of the Borrower under the
Agreement or the Notes either immediately or with the lapse of time or
the giving of notice, or both.
4. Conditions. As a condition to the effectiveness of this
Amendment Agreement, the Borrower shall deliver, or cause to be delivered to the
Agent, the following:
(a) Four (4) executed counterparts of this Amendment
Agreement; and
(b) A fully-executed executed Note payable to the Lender in
the amount of Lender's Revolving Credit Commitment.
5. Other Documents. All instruments and documents incident to the
consummation of the transactions contemplated hereby shall be satisfactory in
form and substance to the Agent and its counsel; the Agent shall have received
copies of all additional agreements, instruments and documents which it may
reasonably request in connection therewith, including evidence of the authority
of Borrower to enter into the transactions contemplated by this Amendment
Agreement, in each case such documents, when appropriate, to be certified by
appropriate corporate or governmental authorities; and all proceedings of the
Borrowers relating to the matters provided for herein shall be satisfactory to
the Agent and its counsel.
6. Entire Agreement. This Amendment Agreement sets forth the
entire understanding and agreement of the parties hereto in relation to the
subject matter hereof and supersedes any prior negotiations and agreements among
the parties relative to such subject matter. No promise, conditions,
representation or warranty, express or implied, not herein set forth shall bind
any party hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement or otherwise expressly stated, no
representations, warranties or commitments, express or implied, have been made
by any other party to the other. None of the terms of conditions of this
Amendment Agreement may be changed, modified, waived or canceled orally or
otherwise, except by writing, signed by all the parties hereto, specifying such
change, modification, waiver or cancellation of such terms or conditions, or of
any proceeding or succeeding breach thereof.
7. Full Force and Effect of Agreement. Except as hereby
specifically amended, modified or supplemented, the Agreement and all of the
other Loan Documents are hereby confirmed and ratified in all respects and shall
remain in full force and effect according to their respective terms.
M-2
<PAGE> 117
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
SYKES HEALTHPLAN SERVICES, INC.
WITNESS:
By:
- ---------------------------- -----------------------------------
Name: James K. Murray, III
Title: Chief Financial Officer
- ---------------------------- and Treasurer
M-3
<PAGE> 118
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
M-4
<PAGE> 119
--------------------------------
[Insert Name of Lender]
By:
----------------------------
Name:
---------------------------
Title:
-------------------------
M-5
<PAGE> 120
EXHIBIT A
Applicable Commitment Percentages
<TABLE>
<CAPTION>
Applicable
Revolving Credit Commitment
Lender Commitment Percentage
- ------ ---------- ----------
<S> <C> <C>
NationsBank, National Association $ %
First Union National Bank $
SouthTrust Bank, National Association $
$
- --------------------------------------- ------------- -------
Total $75,000,000.00 100%
</TABLE>
M-6
<PAGE> 121
Schedule 6.4
Subsidiaries and Investments in Other Persons
S-1
<PAGE> 122
Schedule 6.6
Indebtedness
S-2
<PAGE> 123
Schedule 6.7
Liens
S-3
<PAGE> 124
Schedule 6.8
Tax Matters
S-4
<PAGE> 125
Schedule 6.10
Litigation
S-5
<PAGE> 126
Schedule 7.5
Insurance
S-6
<PAGE> 1
EXHIBIT 10.14
OUTSOURCING AGREEMENT
This Outsourcing Agreement (the "Agreement") is made and entered into
as of January 1, 1998, by and between Sykes HealthPlan Services, Inc., a Florida
corporation ("SHPS"), and HealthPlan Services, Inc., a Florida corporation
("HPS").
BACKGROUND
HPS (or one of its affiliates other than SHPS) provides certain
administrative services and Care Management Services (as defined below) to
clients ("Clients") pursuant to the terms of agreements with such Clients (the
"Client Agreements") as of January 1, 1998. HPS desires that SHPS provide, and
SHPS is willing to provide, the Care Management Services to the Clients on
behalf of HPS in accordance with the terms and conditions of this Agreement.
Accordingly, in consideration of the mutual covenants and agreements set forth
below, the parties agree as follows:
TERMS
1. SERVICES PROVIDED; TERM AND TERMINATION
1.1 AGREEMENT TO OUTSOURCE CARE MANAGEMENT SERVICES. HPS
agrees to outsource to SHPS, and hereby appoints SHPS as the exclusive provider
of, Care Management Services to the Clients, subject to the terms and conditions
set forth in this Agreement. SHPS shall provide the Care Management Services
directly to the Clients in accordance with the terms of the Client Agreements.
"Care Management Services" means the business of providing utilization review
(which includes, but is not limited to, pre-admission certification, prior
authorization, prospective length of stay approvals, second opinions, concurrent
review and discharge planning), catastrophic medical case management, disease
management and demand management (24 hours per day, 7 days per week) services to
benefits payors and health providers, in all cases in accordance with the terms
of the applicable Client Agreement.
1.2 TERM. The term of this Agreement will commence on January
1, 1998 (the "Effective Date") and will end on December 31, 1998. Unless either
party gives the other at least ninety days' prior written notice that it has
elected not to extend the term of this Agreement beyond December 31, 1998, the
term of this Agreement will be automatically extended until December 31, 1999.
Thereafter this Agreement will automatically be renewed for successive
additional periods of one year, unless either party gives notice of cancellation
on or before October 1 of any such year.
1.3 TERMINATION FOR CAUSE. In the event that either party
materially or repeatedly defaults in the performance of any of its duties or
obligations hereunder and does not substantially cure such default within thirty
days after being given written notice specifying the default, or, with respect
to those defaults which cannot reasonably be cured within thirty days, if the
defaulting party fails to proceed promptly after being given such notice to
commence curing the default and thereafter to reasonably proceed to cure the
same, then the party not in default
<PAGE> 2
may, by giving written notice to the defaulting party, terminate this Agreement
as of a date specified in such notice of termination.
2. PAYMENTS
2.1 FEES FOR CURRENT HPS CLIENTS. For each month during the
term of this Agreement, HPS will pay to SHPS an amount equal to (i) eighty-two
and one-half percent (82.5%) of the first $500,000 of Care Management Revenues
(as defined below) during such month plus (ii) eighty percent (80%) of Care
Management Revenues during such month in excess of $500,000. HPS shall pay such
amount to SHPS within fifteen days following the end of the applicable month. At
the time of payment HPS shall submit to SHPS a schedule for the month of payment
setting forth the calculation of fees payable under this Section 2.1 and Care
Management Revenues by Client.
2.2 CALCULATION OF CARE MANAGEMENT REVENUES. "Care Management
Revenues" means, with respect to any month during the term, the revenues
collected by HPS from Clients (or new Clients, as applicable) for the Care
Management Services. Monthly revenues for Care Management Services shall be
calculated based on a per employee per month fee equal to: (i) the amount (as of
the date of this Agreement) set forth in the applicable Client Agreement
(including hourly medical case management fees); or (ii) if the Client Agreement
does not include a per employee per month fee for Care Management Services,
$2.00 (this amount shall apply to all individual and small group business).
Prospectively, for new Clients, SHPS and HPS shall agree to the rate HPS will
offer to such new Clients (including hourly medical case management fees).
2.3 ALLOCATION OF COSTS. SHPS shall pay to HPS its allocable
portion (which portion shall approximate HPS' direct costs chargeable to the
business function) of depreciation, information system services, rent and
utilities for the use by SHPS of HPS facilities in connection with its delivery
of Care Management Services to the Clients. SHPS shall also reimburse HPS for
direct costs for postage and telecommunications incurred by HPS in connection
with such use by SHPS of HPS facilities. For convenience, the parties
acknowledge that HPS will deduct amounts owed by SHPS under this Section 2.3
from the fees described in Section 2.1 and reflect such deductions in the
schedule prepared by HPS.
2.4 NEW CLIENTS. In the event that HPS (or one of its
affiliates other than SHPS) enters into an agreement to provide Care Management
Services with a client which is not a Client as of the date of this Agreement (a
"New Client"), SHPS shall provide such Care Management Services to the New
Client in accordance with the terms of this Agreement. HPS will pay to SHPS all
Care Management Revenues collected from such New Client, and SHPS will pay a
commission to HPS equal to five percent (5%) of such amount received by SHPS
from HPS pursuant to this Section 2.4. HPS shall pay such amount to SHPS within
fifteen days following the end of each month. At the time of payment HPS shall
submit to SHPS a schedule for the month of payment setting forth the calculation
of fees payable under this Section 2.4 and Care
2
<PAGE> 3
Management Revenues by New Client. For convenience, the parties acknowledge that
HPS will deduct amounts owed by SHPS under this Section 2.4 from the amounts
owed by HPS under this Section 2.4 and reflect such deductions in the schedule
prepared by HPS.
2.5 REPORTS; AUDIT RIGHTS. For the purpose of determining the
fees payable to SHPS under this Agreement, HPS shall preserve adequate records
of Care Management Revenues by Client. SHPS shall have the right, upon
reasonable prior written notice, to examine, copy and audit such records. Such
audit shall be conducted at the location where such records are maintained and
shall be at the expense of SHPS. Notwithstanding the foregoing, should any audit
reveal that additional payments to SHPS are due which exceed five percent (5%)
of the amount paid to SHPS for the period under audit, HPS shall pay SHPS on
demand for the cost of such audit.
3. INDEMNIFICATION. Each party agrees to defend, save and hold harmless
the other from and against all suits and claims that may be based on any injury
to any person (including death) or to the property of any person or entity
arising out of the operations of the indemnifying party or any willful act,
negligence or omission of any of the indemnifying party's agents, servants or
employees, provided that the indemnified party shall give notice promptly in
writing of any suit or claim to the other party and that the indemnified party
and its agents, servants and employees shall cooperate fully with the
indemnifying party and its counsel. The indemnifying party shall, at its own
cost and expense, pay all charges of attorneys and all costs and other expenses
arising therefrom or incurred in connection therewith, provided that it retains
the right, at its own expense, to handle any action hereunder by employing its
own counsel.
4. MISCELLANEOUS
4.1 CONFIDENTIALITY. SHPS and HPS each agree that all
information communicated to it by the other will be held in strict confidence
and will be used only for purposes of this Agreement, and that no such
information will be disclosed by the recipient party, its agents or employees
without the prior written consent of the other party.
4.2 BINDING NATURE AND ASSIGNMENT. This Agreement shall be
binding on the parties and their respective successors and assigns, but neither
party may, or shall have the power to, assign this Agreement without the prior
written consent of the other, which consent shall not be unreasonably withheld.
4.3 NOTICES. Wherever under this Agreement one party is
required or permitted to give notice to the other, such notice shall be deemed
given when delivered in hand, or when mailed by overnight delivery or United
States mail, registered or certified, return receipt requested, postage prepaid,
and addressed as follows:
3
<PAGE> 4
In the case of SHPS:
Sykes HealthPlan Services, Inc.
11405 Bluegrass Parkway
Louisville, Kentucky 40299
Attention: David E. Garner, President
In the case of HPS:
HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Attention: Philip S. Dingle, Chief Counsel
4.4 COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which taken together shall constitute the single agreement
between the parties.
4.5 HEADINGS. The section headings used in this Agreement are
for reference and convenience only and shall not enter into the interpretation
of this Agreement.
4.6 RELATIONSHIP OF PARTIES. SHPS shall be and remain an
independent contractor with respect to the performance of its obligations under
this Agreement. Nothing contained in this Agreement shall be deemed to
constitute either of the parties a joint venturer or partner of the other.
4.7 APPROVALS AND SIMILAR ACTIONS. Where agreement, approval,
acceptance, consent, or similar action by either party is required by any
provision of this Agreement, such action shall not be unreasonably delayed or
withheld.
4.8 SEVERABILITY. If any provision of this Agreement is
declared or found to be illegal, unenforceable, or void, then both parties shall
be relieved of all obligations arising under such provision, but only to the
extent that such provision is illegal, unenforceable, or void.
4.9 WAIVER. No delay or omission by either party to exercise
any right or power in this Agreement shall impair such right or power or be
construed to be a waiver of such right or power. A waiver by either of the
parties shall not be construed to be a waiver of any succeeding breach or of any
other covenant contained in this Agreement.
4.10 AMENDMENTS. No amendment, change, waiver, or discharge of
this Agreement shall be valid unless in writing and signed by an authorized
representative of the party against which such amendment, change, waiver, or
discharge is sought to be enforced.
4
<PAGE> 5
4.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and there are no representations, understandings or agreements
relating to this Agreement which are not fully expressed in this Agreement.
4.12 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws, other than choice of law rules, of the
state of Florida.
IN WITNESS WHEREOF, SHPS and HPS each caused this Agreement to be
signed and delivered by its duly authorized officer, all as of the date first
set forth above.
SYKES HEALTHPLAN SERVICES, INC. HEALTHPLAN SERVICES, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
5
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Sykes HealthPlan Services, Inc.
1. Health International, Inc., a Delaware corporation
Managed Competition International, Inc., a Delaware corporation
and wholly owned subsidiary of Health International, Inc.
2. SHPS Acquisition Corp., a Florida corporation
OMS Incorporated, a Massachusetts corporation and a wholly owned
subsidiary of SHPS Acquisition Corp.
3. Sykes HealthPlan Service Bureau (formerly Prudential Service Bureau,
Inc.), a Kentucky corporation
<PAGE> 1
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Tampa, Florida,
April 20, 1998
<PAGE> 1
EXHIBIT 23.3
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our Firm) included in or made a part of
this Registration Statement.
/s/ Arthur Andersen LLP
Los Angeles, California,
April 20, 1998
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sykes HealthPlan Service
Bureau, Inc. on Form S-1 of our report dated May 24, 1996 (March 31, 1998 as to
Note 10) on the financial statements of Sykes HealthPlan Service Bureau Inc.
(formerly Prudential Service Bureau, Incorporated), appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 23 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 16, 1998, relating
to the financial statements of Prudential Service Bureau, Incorporated, as of
December 31, 1996 and 1997 and for the years then ended, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
New York, New York
April 22, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 21, 1997, with respect to the financial
statements of OMS, Inc. as of and for the years ended December 31, 1996 and
1995 included in the Registration Statement (Form S-1) of Sykes HealthPlan
Services, Inc. for the initial registration of its common stock.
Ernst & Young LLP
Boston, Massachusetts
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYKES HEALTH PLAN SERVICES FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,918,091
<SECURITIES> 0
<RECEIVABLES> 8,845,791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,873,258
<PP&E> 5,728,781
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,704,474
<CURRENT-LIABILITIES> 24,319,097
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 81,704,474
<SALES> 0
<TOTAL-REVENUES> 2,430,610
<CGS> 0
<TOTAL-COSTS> 980,206
<OTHER-EXPENSES> 25,039,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,588,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,588,613)
<EPS-PRIMARY> 0
<EPS-DILUTED> 2.36
</TABLE>
