<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended November 30, 1999
Commission File Number 000-19364
AMERICAN HEALTHCORP, INC.
-------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1117144
- ---------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3841 Green Hills Village Drive, Nashville, TN 37215
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(Address of Principal Executive Offices) (Zip Code)
615-665-1122
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(Registrant's Telephone Number, Including Area Code)
One Burton Hills Boulevard, Nashville, TN 37215
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of January 10, 2000 there were outstanding 8,239,963 shares of the
Registrant's Common Stock, par value $.001 per share.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
---------------------------------
November 30, August 31,
1999 1999
---------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,969,254 $ 13,501,016
Accounts receivable, net 5,534,021 5,333,695
Other current assets 1,271,816 1,240,071
Deferred tax asset 1,179,000 1,179,000
----------------------------------
Total current assets 17,954,091 21,253,782
----------------------------------
Property and equipment:
Leasehold improvements 1,637,904 408,458
Equipment 10,202,847 8,598,750
----------------------------------
11,840,751 9,007,208
Less accumulated depreciation (3,506,540) (2,996,655)
----------------------------------
8,334,211 6,010,553
----------------------------------
Long-term deferred tax asset 2,123,000 2,123,000
----------------------------------
Other assets, net 695,278 543,408
----------------------------------
Excess of cost over net assets
of purchased companies, net 10,987,365 11,082,920
----------------------------------
$ 40,093,945 $ 41,013,663
==================================
</TABLE>
2
<PAGE> 3
AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------
November 30, August 31,
1999 1999
---------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,450,765 $ 1,095,232
Accrued salaries and benefits 2,318,442 2,951,041
Accrued liabilities 1,641,736 1,775,071
Income taxes payable 1,069,852 1,116,799
Current portion of other long-term liabilities 481,550 301,940
---------------------------------
Total current liabilities 6,962,345 7,240,083
---------------------------------
Other long-term liabilities 2,712,787 2,819,776
---------------------------------
Stockholders' equity:
Common stock
$.001 par value, 15,000,000 shares
authorized, 8,237,015 and 8,461,772
shares outstanding 8,237 8,462
Additional paid-in capital 23,630,888 24,750,587
Retained earnings 6,779,688 6,194,755
---------------------------------
Total stockholders' equity 30,418,813 30,953,804
---------------------------------
$ 40,093,945 $ 41,013,663
=================================
</TABLE>
3
<PAGE> 4
AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------
Three Months Ended November 30,
1999 1998
----------------------------------
<S> <C> <C>
Revenues $ 13,065,079 $ 11,834,889
----------------------------------
Expenses:
Salaries and benefits 8,525,657 7,487,162
Other operating expenses 2,868,844 2,888,791
Depreciation and amortization 666,645 404,986
Interest -- 256
----------------------------------
Total expenses 12,061,146 10,781,195
----------------------------------
Income before income taxes 1,003,933 1,053,694
Income tax expense 419,000 448,000
----------------------------------
Net income $ 584,933 $ 605,694
==================================
Basic income per share $ 0.07 $ 0.07
==================================
Fully diluted income per share $ 0.07 $ 0.07
==================================
Weighted average common shares
and equivalents
Basic 8,370,840 8,148,195
Fully diluted 8,782,490 8,684,467
</TABLE>
4
<PAGE> 5
AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, August 31, 1999 $ 8,462 $ 24,750,587 $ 6,194,755 $ 30,953,804
Repurchase of stock (225) (1,119,699) -- (1,119,924)
Net income -- -- 584,933 584,933
--------------------------------------------------------
Balance, November 30, 1999 $ 8,237 $ 23,630,888 $ 6,779,688 $ 30,418,813
========================================================
</TABLE>
5
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AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------
Three Months Ended November 30,
1999 1998
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 584,933 $ 605,694
Income tax expense 419,000 448,000
----------------------------------
Income before income taxes 1,003,933 1,053,694
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization 666,645 404,986
Increase in working capital items (642,472) (5,643,924)
Other noncash transactions 158,205 241,270
----------------------------------
1,186,311 (3,943,974)
Income taxes (net paid) (465,947) (553,484)
Increase in other assets (199,652) (63,972)
Payments on other long-term liabilities (85,582) (308,452)
----------------------------------
Net cash flows provided by (used in) operating activities 435,130 (4,869,882)
----------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (2,846,968) (683,320)
----------------------------------
Net cash flows used in investing activities (2,846,968) (683,320)
----------------------------------
Cash flows from financing activities:
Exercise of stock options -- 591,647
Repurchase of stock (1,119,924) --
----------------------------------
Net cash flows provided by (used in)
financing activities (1,119,924) 591,647
----------------------------------
Net decrease in cash and cash equivalents (3,531,762) (4,961,555)
Cash and cash equivalents, beginning of period 13,501,016 13,243,571
----------------------------------
Cash and cash equivalents, end of period $ 9,969,254 $ 8,282,016
==================================
</TABLE>
6
<PAGE> 7
AMERICAN HEALTHCORP, INC.
DBA AMERICAN HEALTHWAYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL REPORTING
The accompanying consolidated financial statements of American
Healthcorp, Inc. and its subsidiaries (the "Company") for the three month
periods ended November 30, 1999 and 1998 are unaudited. However, in the opinion
of the Company, all adjustments consisting of normal, recurring accruals
necessary for a fair presentation, have been reflected therein.
On November 12, 1999, the Company's Board of Directors approved an
amendment to the Company's Restated Certificate of Incorporation, subject to
stockholder approval, to change the Company's name from American Healthcorp,
Inc. to American Healthways, Inc. The amendment will be considered by the
Company's stockholders at the Annual Meeting of Stockholders on January 25,
2000. During December 1999, the Company began to utilize the name American
Healthways as a "doing business as" name for American Healthcorp pending
approval of the proposed amendment.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting principles,
but which is not required for interim reporting purposes, has been omitted. The
accompanying consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1999.
(2) STOCK REPURCHASE
In January 1998, the Company's Board of Directors authorized the
repurchase and cancellation of up to 400,000 shares of the Company's common
stock. The authorization enabled the Company to make repurchases from time to
time in open market and private transactions prior to January 1, 2000. As of
November 30, 1999, the Company had repurchased 361,987 shares at a cost of
$2,283,118.
(3) BUSINESS SEGMENTS
The Company is a national provider of diabetes disease management
services to hospitals and health plans to enhance the quality and lower the cost
of treatment of individuals with diabetes. The Company also recently introduced
a cardiac disease management program for enrollees of health plans with cardiac
disease and intends to develop or acquire a respiratory disease management
program. The Company's reportable segments are the types of customers, hospital
or health plan, who contract for the Company's services. The segments are
managed separately and the Company evaluates performance of the respective
segments based on operating profits. Because the Company's services are similar
for both types of customers, the Company supports both segments with common
human resources, clinical, marketing and information technology resources.
The accounting policies of the segments are the same as the policies
used for the Company's consolidated financial statements. There are no
intersegment sales. Income before income taxes by operating segment excludes
interest income, interest expense and general corporate expenses.
7
<PAGE> 8
Summarized financial information by business segment is as follows:
<TABLE>
<CAPTION>
----------------------------------
Three Months Ended November 30,
1999 1998
----------------------------------
<S> <C> <C>
Revenues:
Health plan contracts $ 7,975,999 $ 5,770,929
Hospital contracts 4,938,777 5,915,141
Other revenue 150,303 148,819
----------------------------------
$ 13,065,079 $ 11,834,889
==================================
Income before income taxes:
Health plan contracts $ 1,624,877 $ 1,413,470
Hospital contracts 1,349,151 1,674,307
Shared support services (1,516,803) (1,461,456)
----------------------------------
Total segments 1,457,225 1,626,321
General corporate expenses (453,292) (572,627)
----------------------------------
$ 1,003,933 $ 1,053,694
==================================
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
American Healthcorp, Inc. (the "Company"), a corporation formed in
1981, is a national provider of diabetes disease management services to
hospitals and health plans designed to enhance the quality and lower the cost of
treatment of individuals with diabetes. The Company also recently introduced a
cardiac disease management program for enrollees of health plans with cardiac
disease and intends to develop or acquire a respiratory disease management
program.
On November 12, 1999, the Company's Board of Directors approved an
amendment to the Company's Restated Certificate of Incorporation, subject to
stockholder approval, to change the Company's name from American Healthcorp,
Inc. to American Healthways, Inc. The amendment will be considered by the
Company's stockholders at the Annual Meeting of Stockholders on January 25,
2000. During December 1999, the Company began to utilize the name American
Healthways as a "doing business as" name for American Healthcorp pending
approval of the proposed amendment.
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements which are based upon current
expectations and involve a number of risks and uncertainties. In order for the
Company to utilize the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, investors are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below, and consequently, actual operations and results may differ materially
from those expressed in these forward-looking statements. The important factors
include: the Company's ability to renew and/or maintain contracts with its
customers under existing terms or restructure these contracts on terms that
would not have a material negative impact on the Company's results of
operations; the Company's ability to execute contracts for health plan diabetes
and cardiac disease management services and for hospital-based diabetes
services; the Company's ability to effect estimated cost savings and clinical
outcome improvements under health plan contracts or to
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<PAGE> 9
effect such savings and improvements within the time frames contemplated by the
Company; the ability of the Company to negotiate favorable fee structures with
health plans; unusual and unforeseen patterns of healthcare utilization by
individuals with diabetes in the health plans with which the Company has
executed a diabetes disease management contract; the ability of the health plans
to maintain the number of covered lives enrolled in the plans during the terms
of the agreements between the health plans and the Company; the Company's
ability to implement its backlog of contracted lives within anticipated time
frames contemplated by the Company; the Company's ability to successfully
develop and implement its cardiac disease management program; the Company's
ability to develop a respiratory disease management program or find a suitable
acquisition candidate and close an acquisition on terms satisfactory to the
Company; the Company's ability to attract and/or retain and effectively manage
the employees required to implement its agreements with hospitals and health
plan organizations; the impact of existing and any future litigation or judicial
or administrative proceedings; the impact of future state and federal healthcare
legislation and regulations on the ability of the Company to deliver its
services or on the financial health of the Company's customers and their
willingness to purchase the Company's services; and the Company's ability and
the ability of its customers and vendors to prepare their mission-critical
information technology resources to handle Year 2000 processing requirements.
The Company undertakes no obligation to update or revise any such
forward-looking statements.
The following table sets forth the sources of the Company's revenues by
customer type as a percentage of total revenues for the three months ended
November 30, 1999 and 1998.
<TABLE>
<CAPTION>
----------------------------------
Three months ended November 30,
1999 1998
--------------------------------
<S> <C> <C>
Health plan contracts 61% 49%
Hospital contracts 38 50
Other 1 1
--------------------------------
100% 100%
================================
</TABLE>
The Company's revenue growth for the three month period ended November
30, 1999 compared to the three month period ended November 30, 1998 resulted
primarily from the growth in the Company's health plan diabetes disease
management operations. The Company has developed and implemented diabetes
disease management contract services which are designed to assist health plans
in reducing the total costs and improving the quality of care for individuals
with diabetes enrolled in their plans, and believes that a substantial portion
of its future revenue growth will result from healthcare management contracts
with health plans.
The Company's disease management services for health plans are designed
to meet the needs of individual health plan customers. Services range from
telephone and mail contacts directed primarily to enrollees with diabetes or
cardiac disease that can be provided from a centralized operations call center
to services that also include providing local personnel resources to address
acute episode interventions as well as coordination of care with local
healthcare providers. The fees charged by the Company vary according to the
level of service being provided under each of its health plan customer
contracts. These contracts are generally for terms of three years with
provisions for subsequent renewal and typically provide that between 15% and 30%
of the per member per month fee is at risk subject to the Company's performance
against clinical and financial cost savings criteria.
9
<PAGE> 10
As of November 30, 1999, the Company had contracts with 11 health plans
to provide diabetes disease management services in 51 health plan markets
compared with contracts with eight health plans in 22 markets as of November 30,
1998. The number of covered lives under management pursuant to these contracts
which were implemented as of November 30, 1999 and 1998 is 128,548 and 79,014,
respectively. Covered lives at November 30, 1999 do not include approximately
19,000 contract lives under existing contracts that are scheduled for
implementation subsequent to November 30, 1999 but do include approximately
3,000 lives under a contract that was discontinued December 31, 1999. In
addition, the Company is currently in the final stages of negotiating contracts
with four new health plan customers covering approximately 31,000 additional
lives where implementation has already begun. Of these lives, approximately
24,000 are diabetes and 7,000 are cardiac lives.
Disease management contracts require a sophisticated management
information system to enable the Company to manage the care of large populations
of diabetes patients and to assist in reporting outcomes and costs. The Company
has developed a clinical management system which it believes meets its
information management needs for its diabetes population management services and
has installed and is utilizing the system for the enrollees of each of its
health plan contract customers. This system is currently being upgraded to
enable the system to handle additional diseases other than diabetes from a
common platform and to increase the Company's call center capabilities and
efficiency with the installation of state-of-the-art dialing, call routing, and
information access technologies. The Company has also recently developed an
internet-based enrollee and provider communication capability for one of its
health plan customers. The Company anticipates expansion of this capability to
other customers as well as enhancement of the capabilities of its internet
communication technology. It is anticipated that these upgrades to this system
will begin to be installed during January 2000 and will continue through the
remainder of fiscal 2000. The capital expenditures estimated to be required
during fiscal 2000 to upgrade the Company's information technology capability,
to complete a call center in Phoenix, Arizona and to add the number of lives
currently under contract totals approximately $4.5 million. Approximately $1.4
million of these expenditures were made during the quarter ended November 30,
1999.
The Company is currently in the final stages of negotiations with
several health plans for its initial Cardiac Healthways(SM) program contracts.
The Company does not anticipate revenues from Cardiac Healthways(SM) to begin
until the third or fourth quarter of fiscal 2000. Although the Company believes
it has credible data regarding its performance with diabetes patients who have
cardiac disease, the Company's population based Cardiac Healthways(SM) product
is new to the industry. As a result, the Company anticipates that it may have to
assume more risk of performance in its initial cardiac disease management
contracts than the Company has assumed in its current diabetes disease
management contracts, and, therefore, the profitability of these contracts
during initial periods may be adversely affected.
During the quarter ended November 30, 1999, an existing contract with
CIGNA Healthcare to provide diabetes disease management services was amended to
extend the term of the agreement from October 31, 2001 to September 30, 2004 and
also included the addition of approximately 16,000 covered lives at nine
additional health plan sites to be managed for CIGNA Healthcare, bringing the
total lives under this contract to over 75,000. These additional 16,000 lives
represent the majority of the 19,000 lives in the Company's backlog of lives
under contract as of November 30, 1999.
Also during the quarter ended November 30, 1999, the Company and a
health plan customer mutually decided to terminate a pilot program contract
begun during fiscal 1998 covering approximately 3,000 lives. The Company also
provides diabetes disease management services to this customer at other
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<PAGE> 11
locations, which have not been affected by this pilot project termination. The
loss of this contract is not expected to have a material negative impact upon
the Company's net income in fiscal 2000.
The Company is currently engaged in discussions with one of its largest
health plan customers to restructure its contract with that customer. While the
final impact of any such restructuring cannot be determined at this time, it is
likely that the Company's revenues will be reduced as part of the restructuring
and that there will be a negative impact on the Company's net income as a result
of this contract change. Nevertheless, the Company believes that the
contribution margin percentage for this contract following the restructuring
will be within the Company's targeted contribution margin percentage range for
its health plan operations.
The Company's hospital-based diabetes treatment centers are located in
and operated under contracts with general acute care hospitals. The primary goal
of each center is to create a center of excellence for the treatment of diabetes
in the community in which it is located and thereby increase the hospital's
market share of diabetes patients and lower the hospital's cost of providing
services to this population. Fee structures under the hospital contracts consist
of either fixed management fees, incentive-based fees or a combination thereof.
Incentive arrangements generally provide for fee payments to the Company based
on changes in the client hospital's market share of diabetes inpatients and the
costs of providing care to these patients. The form of these contracts includes
various structures ranging from arrangements where all costs of the Company
program for center professional personnel, medical director fees and community
relations are the responsibility of the Company to structures where all Company
program costs are the responsibility of the client hospital.
As of November 30, 1999, the Company had 57 hospital contracts to
provide services at 71 hospital sites compared with the same number of contracts
at 74 hospital sites as of November 30, 1998. The number of hospital contracts
and hospital sites for these periods includes two Arthritis and Osteoporosis
Care Center ("AOCC") contracts with hospitals to provide comprehensive arthritis
and osteoporosis services that are operated by the Company.
The components of changes to the total number of hospital contracts and
hospital sites under these contracts for the three months ended November 30,
1999 and 1998 are presented below.
<TABLE>
<CAPTION>
Three months ended November 30,
-------------------------------------------
1999 1998
-------------------------------------------
Contracts Sites Contracts Sites
-------------------- ---------------------
<S> <C> <C> <C> <C>
Total contracts/sites at
beginning of period 58 72 57 72
New contracts/sites signed 2 2 1 3
Converted to health
plan contract (1) (1) -- --
Contracts/sites discontinued (2) (2) (1) (1)
------------------- -------------------
Total contracts/sites at end
of period 57 71 57 74
=================== ===================
</TABLE>
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<PAGE> 12
During the three month period ended November 30, 1999, three contracts
were renewed for the Company's hospital-based diabetes treatment centers. During
the remainder of fiscal 2000, 22 contracts are eligible to be terminated under
the terms of the contracts with the hospitals.
The Company periodically renegotiates existing hospital contracts and,
in that connection, has historically agreed to reduce its fee structure in
certain of these contracts in order to maintain favorable long-term client
relationships with these hospitals. The Company anticipates that it will
continue to make such fee reductions or center contract restructurings which
will have a negative impact on the Company's revenues and profitability.
The hospital industry is currently experiencing pressures on its
profitability as a result of constrained revenues from governmental and private
revenue sources as well as from increasing underlying medical care costs. The
Company believes that these pressures will continue. While the Company believes
that its products are geared specifically to assist hospitals in controlling the
high costs associated with the treatment of chronic diseases, the pressures to
reduce costs immediately may have a negative effect, in certain circumstances,
on the ability of or the length of time required by the Company to sign new
hospital contracts as well as on the Company's ability to retain hospital
contracts. This focus on cost reduction may also result in a continuation in
contract restructurings that reduce the fees paid to the Company for the
Company's services. In addition, financial and cash flow difficulties that are
being experienced by certain of the Company's hospital customers negatively
impacted the Company's ability to recognize fee revenues during the quarter
ended November 30, 1999 and may continue to negatively impact future periods.
While the Company believes that the overall environment for hospitals may become
somewhat more positive as a result of Medicare reimbursement relief that has
been granted for hospitals during the quarter because of recently passed federal
legislation, there can be no assurance that these financial pressures will not
continue to have a negative impact on the Company's hospital contract
operations.
The Company's strategy is to develop additional relationships with
health plans and to further develop and expand its hospital-based diabetes
treatment center business. During fiscal 1999, the Company introduced its
comprehensive cardiac disease management program, Cardiac Healthways(SM), for
health plans and intends to develop or acquire a respiratory disease management
program. It is the Company's strategy to provide health plans with programs that
address the needs of enrollees with each of these chronic diseases and to
support the management of these diseases from a common clinical, information
technology and business platform. The Company anticipates that it will utilize
its state-of-the-art call center and medical information technologies to gain a
competitive advantage in delivering its health plan disease management services.
In November 1994, the Company received an administrative subpoena for
documents from a regional office of the Office of the Inspector General ("OIG")
of the Department of Health and Human Services in connection with an
investigation of a wholly-owned subsidiary of the Company, Diabetes Treatment
Centers of America ("DTCA"), under certain federal Medicare and Medicaid
statutes. On February 10, 1995, the Company learned that the federal government
had declined to take over and pursue a civil "whistle blower" action brought
under seal in June 1994 on behalf of the government by a former employee
dismissed by the Company in February 1994. The Company believes that this
lawsuit triggered the OIG investigation. The civil suit was filed in June 1994
against the Company, DTCA, and certain named and unnamed medical directors and
client hospitals and was kept under seal to permit the government to determine
whether to take over the lawsuit. Following its review, the government made the
determination not to take over the litigation, and the complaint was unsealed on
February 10, 1995. As a result of the resolution of preliminary motions in this
case, the Company was
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<PAGE> 13
dismissed as a defendant. DTCA remains as a defendant. Currently, the case is
still in the discovery stage and has not yet been set for trial.
The Company has cooperated fully with the OIG in its investigation, and
believes that its operations have been conducted in full compliance with
applicable statutory requirements. Although there can be no assurance that the
existence of, or the results of, the investigation would not have a material
adverse effect on the Company, the Company believes that the resolution of
issues, if any, which may be raised by the government and the resolution of the
civil litigation would not have a material adverse effect on the Company's
financial position or results of operations except to the extent that the
Company incurs material legal expenses associated with its defense of this
matter and the civil suit.
YEAR 2000 COMPLIANCE PLAN
Historically, many computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
program failing to properly recognize a year that begins with "20" instead of
"19". Potential system failures or miscalculations are generally referred to as
Year 2000 issues. While the Company's business does not involve the sale of
computer services or medical equipment that might be affected by Year 2000
compliance, the Company does make extensive use of information technologies to
support its operations.
In particular, the Company's health plan disease management operations
are structured around its electronic medical record capability and various data
interchange capabilities with its health plan customers. The underlying
electronic medical record system upon which the Company's proprietary standards
of care are built is licensed from an outside software company.
The Company made an extensive effort to address Year 2000 compliance.
This Year 2000 Project addressed software applications, information technology
hardware, other infrastructure and customer and other third party relationships
and data exchanges. The structured approach of this Project included (1)
compiling an inventory of affected technology, systems and processes; (2)
assessing Year 2000 compliance for critical components of the Company's
operations and selection of appropriate remediation efforts where required; (3)
remediating, converting or replacing each critical non-compliant component; (4)
testing each critical component for compliance; and (5) implementing remediated
and tested components. Because the Company is highly dependent, particularly in
its health plan operations, on the ability of its customers to provide the
Company with enrollment, claims and other data which is utilized by the Company
to provide services under its contracted service agreements, the Year 2000
Project also included activities related to coordinating and, in some cases,
testing compliance of key data exchange systems with the Company's customers.
The Company has completed all five phases of its Year 2000 Project for its
critical components of operations.
As part of its Year 2000 Project, the Company identified the electronic
medical record utilized in its health plan operations as its primary
mission-critical component and has completed a planned upgrade of this software
capability to a version of the base electronic medical record that the third
party provider of this platform represents as Year 2000 compliant. This
conversion is designed to position the Company to realize significant operating
enhancements for the system in addition to Year 2000 compliance. This upgrade
project is complete and the upgraded electronic medical record has been
remediated, tested and implemented.
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<PAGE> 14
No potential compliance problems have been identified with customers or
critical vendors as a result of the Company's survey of its customers and
critical vendors to determine their readiness of Year 2000.
The Company believes that all of its critical systems and processes are
now Year 2000 compliant. As of January 12, 2000, no significant problems were
encountered in any of the Company's mission-critical systems thus far in the
Year 2000. The Company is also not aware of any significant problems being
experienced by its major customers or vendors which would have a negative impact
on the Company's operations. Some non-critical systems may not be addressed
until after January 2000; however, the Company believes that the potential
failure of some or all of these non-critical systems will not have a material
adverse effect on its operations. The Company incurred approximately $54,000 in
operating expenditures during the first quarter of fiscal 2000 on its Year 2000
Project and does not anticipate any significant expenditures during the
remainder of fiscal 2000 on this project. In addition, the Company has incurred
no significant level of capital expenditures to date in its Year 2000 Project to
replace non-compliant items.
While the Company believes that it has successfully completed its Year
2000 Project, there can be no assurance that it will not incur unexpected
difficulties in Year 2000 compliance or that one or more of its customers or
critical vendors will not experience unexpected difficulties that impact their
ability to be Year 2000 compliant. The failure of the Company's critical systems
or the failure of one or more of its large health plan customers, the failure of
a significant number of its hospital customers or the failure of one or more of
its critical vendors to be Year 2000 compliant and the inability to correct any
such non-compliance within a relatively short period of time would materially
impact the ability of the Company to provide services and earn revenues and/or
receive cash payments from its customers.
The Company has developed contingency plans that address potential Year
2000 compliance-related failure of its most critical systems as well as Year
2000 compliance-related failures of major customers of the Company or its
critical vendors. While these contingency plans include, among other
considerations, manual procedures for certain critical automated systems and the
availability of additional financial resources to deal with scenarios that
interrupt the Company's payments from customers, all of the Company's
contingency plans address short-term Company, customer or vendor compliance
issues. The costs to implement the contingency plans that address these
short-term compliance failures are not expected to be material to the Company's
operations. However, should any compliance problem interrupt the Company's
services or should major customers or critical vendors experience significant
compliance problems for extended periods of time (such as a complete shut-down
beyond a two week period of time), the Company's contingency plans will likely
not be sufficient to prevent such a failure or failures from having a material
negative impact on the operations of the Company.
RESULTS OF OPERATIONS
Revenues for the three month period ended November 30, 1999 increased
10% over the same period in 1998. This increase in revenues resulted primarily
from an increase in the average number of lives enrolled in the Company's health
plan diabetes disease management contracts to approximately 120,000 lives for
the three month period ended November 30, 1999 from approximately 76,000 lives
for the comparable three month period during the prior year. This increase in
lives under management was primarily the result of new managed care contracts
signed during fiscal 1999. The average revenue per member per month for
enrollees under the Company's health plan contracts was 13% less
14
<PAGE> 15
during the three month period ended November 30, 1999 than during the prior year
period. This decrease in average per member per month revenue occurred primarily
as a result of a greater mix of lives under contracts providing lower service
intensity in the fiscal 2000 period when compared with the fiscal 1999 period.
Revenues from the Company's hospital contract operations for the three month
period ended November 30, 1999 were 17% less than hospital contract revenues for
the comparable period last year on approximately the same average number of
contracts in operation for the three month period. This reduction in hospital
contract revenue is due primarily to contract fee reductions and to a greater
mix of relatively newer contracts with lower fees than contracts that were
discontinued since the comparable period the prior fiscal year. In addition,
certain hospital contract customers have experienced cash flow difficulties
which have negatively impacted the recognition of revenue from these customers
during the quarter. The Company anticipates that revenues for fiscal 2000 will
increase over fiscal 1999 primarily as a result of additional lives enrolled
under disease management contracts with health plans offset somewhat by the
impact of lower revenues from the restructuring of one of its health plan
customer contracts and by lower revenues from its hospital contract operations.
Salaries and benefits for the three month period ended November 30,
1999 increased 14% primarily from higher staffing levels associated with
increases in the number of lives enrolled in the Company's health plan contracts
and the opening of a new telephone call center in Phoenix, Arizona offset
somewhat by decreased employee incentive compensation associated with operating
performance during the current year. Salaries and benefits as a percentage of
revenues increased to 65% for the three month period ended November 30, 1999
from 63% for the comparable period last year primarily as a result of higher
staffing levels at its health plan contract operations. The Company anticipates
salaries and benefits expense to increase during the remainder of fiscal 2000
compared with fiscal 1999 primarily as a result of increased staff required for
expected increases in the number of lives enrolled under the Company's health
plan contracts.
Other operating expenses for the three month period ended November 30,
1999 decreased 1% from the comparable period last year. The decrease for the
quarter was primarily the result of lower consulting fees associated with Year
2000 Project compliance issues offset by higher operating costs at its health
plan operations compared to the same period last year. Other operating expenses
as a percentage of revenues decreased to 22% for the three month period ended
November 30, 1999 from 24% for the comparable period last year primarily as a
result of improved revenue performance at the Company's health plan contract
operations and lower Year 2000 Project compliance costs during the fiscal 2000
quarter. The Company anticipates other operating expenses will increase during
the remainder of fiscal 2000 compared with fiscal 1999 primarily as a result of
increased costs associated with anticipated increases in the number of lives
enrolled under the Company's health plan contracts as well as from increased
expenses associated with planned improvements in the Company's information
technology capabilities.
The increase in depreciation and amortization expense to $666,645 for
the three month period ended November 30, 1999 from $404,986 for the comparable
period last year principally resulted from increased depreciation expense
associated with equipment and computer-related capital expenditures for the
Company's disease management operations for health plans. The Company
anticipates depreciation and amortization expense to increase during the
remainder of fiscal 2000 compared with fiscal 1999 primarily as a result of
capital expenditures associated with expected increases in the number of covered
lives enrolled under the Company's health plan contracts as well as from growth
and improvement in the Company's information technology capabilities.
15
<PAGE> 16
The Company's income tax expense for the three month period ended
November 30, 1999 was $419,000 compared to $448,000 for the comparable period
last year. The decrease in the income tax expense between these periods resulted
primarily from a decrease in profitability. The differences between the
statutory federal income tax rate of 34% and the Company's effective tax rates
during both periods are due primarily to the impact of state income taxes and
the amortization of excess costs over net assets of purchased companies which
are not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the three months ended November 30, 1999
generated $435,000 in cash flow. Investing activities during this period used
$2.8 million in cash which consisted of the acquisition of property and
equipment purchases for the Company primarily associated with its expanding
health plan contract operations and leasehold improvements and other associated
costs for its relocated and expanded corporate and primary support office
location in Nashville, Tennessee. Financing activities for the three months
ended November 30, 1999 used $1.1 million in cash flow resulting from the
Company's repurchase of its common stock.
In early January 2000, the Company executed a financing agreement with
a financial institution which would provide the Company with up to $6 million in
borrowing capacity under a credit facility which expires in January 2002.
Borrowings under this agreement would bear interest at 2.5% above LIBOR.
Borrowings under this agreement are secured by the Company's receivables and
contract rights and are guaranteed by the Company's subsidiaries. The agreement
also contains various financial covenants and also limits the amount of any
future repurchases of the Company's common stock.
The Company believes that cash flow from operating activities, its
available cash balances of $10.0 million at November 30, 1999 and available
credit under its new financing agreement will continue to enable the Company to
fund its working capital needs, capital expenditures associated with its growing
health plan operations, including the development or acquisition of respiratory
disease management capability, and the remaining capital expenditures for
leasehold improvements and other associated costs for its relocated and expanded
corporate and primary support office location in Nashville, Tennessee. Remaining
commitments for capital expenditures of approximately $4.0 million are expected
to be paid over the next two quarters of fiscal 2000. The Company's stock
repurchase authorization expired January 1, 2000; 361,987 shares were
repurchased since January of 1998 under this authorization.
16
<PAGE> 17
PART II
ITEM 1. Legal Proceedings.
In November 1994, the Company received an administrative subpoena for
documents from a regional office of the Office of the Inspector
General ("OIG") of the Department of Health and Human Services in
connection with an investigation of a wholly-owned subsidiary of the
Company, Diabetes Treatment Centers of America ("DTCA"), under certain
federal Medicare and Medicaid statutes. On February 10, 1995, the
Company learned that the federal government had declined to take over
and pursue a civil "whistle blower" action brought under seal in June
1994 on behalf of the government by a former employee dismissed by the
Company in February 1994. The Company believes that this lawsuit
triggered the OIG investigation. The civil suit was filed in June 1994
against the Company, DTCA, and certain named and unnamed medical
directors and client hospitals and was kept under seal to permit the
government to determine whether to take over the lawsuit. Following
its review, the government made the determination not to take over the
litigation, and the complaint was unsealed on February 10, 1995. As a
result of the resolution of preliminary motions in this case, the
Company was dismissed as a defendant. DTCA remains as a defendant.
Currently, the case is still in the discovery stage and has not yet
been set for trial.
The Company has cooperated fully with the OIG in its investigation,
and believes that its operations have been conducted in full
compliance with applicable statutory requirements. Although there can
be no assurance that the existence of, or the results of, the
investigation would not have a material adverse effect on the Company,
the Company believes that the resolution of issues, if any, which may
be raised by the government and the resolution of the civil litigation
would not have a material adverse effect on the Company's financial
position or results of operations except to the extent that the
Company incurs material legal expenses associated with its defense of
this matter and the civil suit.
ITEM 2. Changes in Securities.
Not Applicable.
ITEM 3. Defaults Upon Senior Securities.
Not Applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
ITEM 5. Other Information.
Not Applicable.
17
<PAGE> 18
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Credit Agreement and Revolving Credit Note between
American Healthcorp, Inc. and SunTrust Bank dated January
4, 2000
27. Financial Data Schedule
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for
which this report is filed.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
American Healthcorp, Inc.
----------------------------------------
(Registrant)
Date January 14, 2000 By /s/ Henry D. Herr
----------------------- -------------------------------------
HENRY D. HERR
Executive Vice President
Finance and Administration,
(Principal Financial Officer)
Date January 14, 2000 By /s/ David A. Sidlowe
---------------------- -------------------------------------
DAVID A. SIDLOWE
Vice President and Controller
(Principal Accounting Officer)
19
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
Dated as of January 4, 2000
By and Between
AMERICAN HEALTHCORP, INC.
AND
SUNTRUST BANK
<PAGE> 2
EXHIBITS
Exhibit A: Form of Revolving Credit Note
Exhibit B: Form of Subsidiary Guaranty
Exhibit C: Notice of Borrowing
Exhibit D: Opinion of Counsel to Borrower
Exhibit E: Compliance Certificate
Exhibit F: Form of Assignment and Security Agreement
SCHEDULES
Schedule 4.5: Litigation
Schedule 4.13: List of Subsidiaries
Schedule 4.16: Patents, Trademarks, and Authorizations
<PAGE> 3
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of this 4th day of
January, 2000 by and between AMERICAN HEALTHCORP, INC., a Delaware corporation,
doing business as American Healthways, Inc. (the "Borrower"), and SUNTRUST BANK
(the "Lender").
RECITALS:
1. The Borrower desires that the Lender extend the Borrower credit
pursuant to the terms of this Credit Agreement.
2. The Lender is willing to extend the Borrower credit pursuant to the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
SECTION 1.1. DEFINITIONS.
In addition to the other terms defined herein, the following terms used
herein shall have the meanings herein specified (to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquisition" means the acquisition by any Person of any of the
following: (a) the controlling interest in any other Person, or (b)
substantially all of the Property of any other Person.
"Advance" shall mean any principal amount advanced and remaining
outstanding at any time under the Revolving Credit Note.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person, whether
through the ownership of voting securities, by contract or otherwise. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by", and "under common control with") as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person.
"Agreement" shall mean this Credit Agreement, as hereafter amended,
restated, supplemented or otherwise modified from time to time.
"Applicable Margin" means 250 basis points per annum.
"Applicable Rate" means (a) either the 30 Day LIBOR Rate, the 60 Day
LIBOR Rate, or the 90 Day LIBOR Rate, plus (b) the Applicable Margin.
<PAGE> 4
"Bankruptcy Code" shall mean the Bankruptcy Code of 1978, as amended
and in effect from time to time (11 U.S.C. ss. 101 et seq.) and any successor
statute.
"Base Rate" means that rate of interest established from time to time
and announced by Lender as its "base rate," such rate being an interest rate
used as an index for establishing interest rates on loans.
"Borrower" shall mean American Healthcorp, Inc., a Delaware
corporation.
"Borrowing Base" shall mean the lesser of: (i) $6,000,000, or (b) the
sum of: (A) Borrower's cash and cash equivalents, plus (B) an amount equal to
fifty percent (50%) of Eligible Accounts Receivable, as such exists on any date
of calculation.
"Business Day" shall mean any day excluding Saturday, Sunday and any
other day on which banks are required or authorized to close in Nashville,
Tennessee.
"Capital Lease" shall mean, as applied to any Person, any lease of any
Property by such Person as lessee which would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on a balance
sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee in respect of
such Capital Lease.
"Change of Control" shall mean the occurrence, after the date of this
Agreement, of (i) any Person or two or more Persons acting in concert acquiring
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended),
directly or indirectly, of securities of the Borrower (or other securities
convertible into such securities) representing 50% or more of the combined
voting power of all securities of the Borrower entitled to vote in the election
of directors; or (ii) during any period from the date hereof until January 4,
2002, individuals who on the date hereof were directors of the Borrower cease
for any reason to constitute a majority of the Board of Directors of Borrower
unless the Persons replacing such individuals were nominated by the Board of
Directors of Borrower; or (iii) any Person or two or more Persons acting in
concert acquiring by contract or otherwise, or entering into a contract or
arrangement which upon consummation will result in its or their acquisition of,
or control over, securities of the Borrower (or other securities convertible
into such securities) representing 50% or more of the combined voting power of
all securities of the Borrower entitled to vote in the election of directors.
"Closing Date" shall mean January 4, 2000.
"Collateral" shall mean all of Borrower's presently existing and
hereafter arising accounts, accounts receivable, chattel paper, general
intangibles, contract rights, and licenses.
2
<PAGE> 5
"Consolidated EBIT" shall mean for any fiscal period, an amount equal
to (A) the sum of Consolidated Net Income (Loss) for such period, plus, (B) to
the extent deducted in determining Consolidated Net Income (Loss), (i)
Consolidated Interest Expense for such period, and (ii) provisions for taxes
(whether paid or deferred) of the Borrower and its Subsidiaries for such period.
The calculation of Consolidated EBIT shall be made without giving effect to any
extraordinary gains or losses, any other non-cash charges or gains or losses
from sales of assets, determined for the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any fiscal period of
Borrower, total interest expense (including without limitation, interest expense
attributable to Capital Leases in accordance with GAAP and any program costs
incurred by the Borrower and its Subsidiaries in connection with sales of
accounts receivable pursuant to a securitization program) of the Borrower and
its Subsidiaries on a consolidated basis.
"Consolidated Net Income (Loss)" shall mean for any fiscal period of
Borrower, the net income (or loss) of the Borrower and its Subsidiaries on a
consolidated basis for such period (taken as a single accounting period)
determined in conformity with GAAP; provided that there shall be excluded
therefrom any items of gain or loss which were included in determining such
consolidated net income and were not realized in the ordinary course of
business.
"Consolidated Net Worth" shall mean on a consolidated basis the excess
of (A) total assets less (B) total liabilities of the Borrower and its
Subsidiaries, as determined in accordance with GAAP.
"Contractual Obligation" of any Person shall mean any provision of any
security issued by such Person and any other agreement, instrument or
undertaking under which such Person is obligated or by which it or any of the
Property owned by it is bound and which is Material to such Person.
"Credit Documents" shall mean, collectively, this Agreement, the
Revolving Credit Note, the Subsidiary Guaranties, the Security Documents, and
all other instruments, documents, certificates, agreements and writings executed
in connection herewith.
"Default" shall mean any event or condition the occurrence of which
constitutes or would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Eligible Accounts Receivable" shall mean accounts receivable owed to
Borrower by non-affiliated Persons for services rendered by Borrower and which
shall exclude:
3
<PAGE> 6
(a) accounts receivable which are due and owing for more than
60 days from the date of invoice;
(b) accounts receivable owed by any federal, state, or local
governmental agency or authority;
(c) accounts receivable owed by a Person who is insolvent or
the subject of a bankruptcy or insolvency proceeding in state or
federal court;
(d) accounts receivable owed by any Person who has other
accounts receivable owing to Borrower if those other accounts
receivable are more than 60 days past due and such past due accounts
receivable constitute more than 20% of the aggregate accounts
receivable of such Person; or
(e) accounts receivable subject to any dispute, counterclaim,
or objection.
"Environmental Laws" shall mean all federal, state, local and foreign
statutes and codes or regulations, rules or ordinances issued, promulgated, or
approved thereunder, now or hereafter in effect relating to health, industrial
hygiene, waste materials, removal of waste materials, oil, gas, or underground
storage tanks, Hazardous Substances, other environmental conditions on, under,
or affecting Borrower's Property or any interest therein.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended and in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any Person, each trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Tax Code.
"Event of Default" shall have the meaning provided in Article 7.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute thereto.
"Executive Officer" shall mean with respect to any Person, the Chief
Executive Officer, President, Chief Financial Officer, Treasurer, Secretary and
any Person holding comparable offices or duties (if elected by the Board of
Directors of such Person).
"Facility Fee" shall have the meaning ascribed to it in Section 2.6.
"Financial Officer" means with respect to the Borrower, any of the
Chief Financial Officer, Vice President of Finance, and Treasurer.
4
<PAGE> 7
"Financial Report" means at a specified date, the most recent
consolidated financial statements of the Borrower delivered pursuant to Section
5.7. of this Agreement.
"Fiscal Year" means the twelve (12) month accounting period ending on
August 31st of each year and presently used by Borrower as its fiscal year for
accounting purposes.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Guaranty" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including contractual obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received. The amount of any Guaranty shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which guaranty is made or, if not so stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Hazardous Substances" shall have the meaning assigned to that term in
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Acts of 1986.
"Hedging Obligations" shall mean all obligations of Borrower to any
Person under an ISDA Master Swap Agreement or under any Interest Rate Contract.
"Income Taxes" shall have the meaning given such term by GAAP.
"Indebtedness" of any Person shall mean, without duplication, (i) all
obligations of such Person which in accordance with GAAP would be shown on the
balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of Property
or
5
<PAGE> 8
services, and obligations evidenced by bonds, debentures, notes or other similar
instruments, (ii) all Capital Lease Obligations; (iii) all Guaranties of such
Person (including the stated amount of undrawn letters of credit); (iv)
Indebtedness of others secured by any Lien upon Property owned by such Person,
whether or not assumed; and (v) obligations or other liabilities under currency
contracts, Interest Rate Contracts or similar agreements or combinations
thereof. Notwithstanding the foregoing, in determining the Indebtedness of any
Person, (x) there shall be included all obligations of such Person of the
character referred to in clauses (i) through (v) above deemed to be extinguished
under GAAP but for which such Person remains legally liable and (y) any deferred
obligations of such Person to make payments on any agreement not to compete
which was entered into by such Person in connection with the acquisition of any
business shall be reduced by the effective federal and state corporate tax rate
applicable to such Person in order to recognize the deductibility of such
payments and the resulting reduction of the cash actually expended by the Person
to satisfy such obligation.
"Indebtedness for Borrowed Money" shall mean, with respect to any
Person and without duplication:
(a) Indebtedness for money borrowed, including all revolving
and term Indebtedness and all other lines of credit; and
(b) Indebtedness which:
(i) is represented by a note payable or drafts
accepted, that represent extensions of credit;
(ii) constitutes obligations evidenced by bonds,
debentures, notes or similar instruments; or
(iii) constitutes Purchase Money Indebtedness,
conditional sales contracts, asset securitization vehicles,
title retention debt instruments or other similar instruments
upon which interest charges are customarily paid or that are
issued or assumed as full or partial payment for property;
(c) Indebtedness that constitutes a Capital Lease Obligation;
(d) all indemnity agreements and reimbursement obligations
under any acceptances or any letters of credit (other than commercial
letters of credit) issued in support of Indebtedness of the character
described in clauses (a) through (c) above; and
(e) all Indebtedness of others of the character described in
clauses (a) through (d) above, but only to the extent that such
Indebtedness is subject to a Guaranty of such Person.
"Interest Period" shall mean the one month, two month, or three month
interest period selected by the Borrower pursuant to Section 2.5 hereof.
6
<PAGE> 9
"Interest Rate Contract" shall mean all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance and other agreements and arrangements designed to provide protection
against fluctuations in interest rates, in each case as the same may be from
time to time amended, restated, renewed, supplemented or otherwise modified.
"Lender" shall mean SunTrust Bank, its successors and assigns.
"Lending Office" shall mean 201 Fourth Avenue North, Nashville,
Tennessee 37219 or such other office as Lender may designate in writing from
time to time.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor's interest under a
Capital Lease or analogous instrument, in, of or on any Property.
"Margin Regulations" shall mean Regulation T, Regulation U and
Regulation X of the Board of Governors of the Federal Reserve System, as the
same may be in effect from time to time.
"Material" (or words derived therefrom) as used in this Agreement,
means the measure of a matter or significance which shall be determined as being
an amount equal to $2,000,000.00.
"Materially Adverse Effect" shall mean any Material adverse change in
(i) the results of operations or the net assets of the Borrower and its
Subsidiaries, taken as a whole, (ii) the ability of Borrower to perform its
obligations under this Agreement, or (iii) the ability of the Borrower and its
Subsidiaries (taken as a whole) to perform their respective obligations, if any,
under the Credit Documents.
"Maturity Date" shall mean the earlier of: (a) January 4, 2002, and (b)
the date on which all amounts outstanding under this Agreement have been
declared or have automatically become due and payable pursuant to the provisions
of Article 8.
"Moody's" shall mean Moody's Investors Services, Inc. and each of its
successors.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Notice of Borrowing" shall have the meaning provided in Section 2.3.
"Obligations" shall mean all amounts owing to the Lender pursuant to
the terms of this Agreement or any other Credit Document, including, without
limitation, the Revolving Credit Note (including all principal and interest
payments due thereunder), fees, expenses, indemnification and reimbursement
payments, indebtedness, liabilities, and obligations of the Borrower and its
Subsidiaries, direct or indirect, absolute or contingent, liquidated or
unliquidated, now existing
7
<PAGE> 10
or hereafter arising, together with all renewals, extensions, modifications or
refinancings thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Liens" shall mean those liens identified in Section 6.2.
herein.
"Person" shall mean any individual, partnership, firm, corporation,
association, joint venture, trust, limited liability company, limited liability
partnership, or other entity, or any government or political subdivision or
agency, department or instrumentality thereof.
"Plan" shall mean any "employee benefit plan" (as defined in Section
3(3) of ERISA), including, but not limited to, any defined benefit pension plan,
profit sharing plan, money purchase pension plan, savings or thrift plan, stock
bonus plan, employee stock ownership plan, Multiemployer Plan, or any plan,
fund, program, arrangement or practice providing for medical (including
post-retirement medical), hospitalization, accident, sickness, disability, or
life insurance benefits.
"Property" or "Properties" means any interest in any kind of property
or asset, whether real or personal, or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean Indebtedness incurred or
assumed for the purpose of financing all or any part of the acquisition cost of
any Property (excluding trade payables incurred in the ordinary course of
business) and any refinancing thereof, in each case entered into in compliance
with this Agreement.
"Rating Agency" shall mean either Moody's or Standard & Poor's.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be in effect from time to time.
"Requirement of Law" for any Person shall mean any law, treaty, rule or
regulation, or determination of an arbitrator or a court or other governmental
authority, in each case applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Revolving Credit Note" shall mean the promissory note in the form
attached hereto as Exhibit A.
"Security Agreement" means the Assignment and Security Agreement
executed by Borrower and each Subsidiary Guarantor granting the Lender a
perfected security interest in and to the property described on Exhibit A
thereto.
"Security Documents" shall mean the Security Agreements, as such may be
amended, from time to time, and all financing statements executed in connection
with such Security Agreements.
8
<PAGE> 11
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc. and its successors.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (including, without limitation, limited liability companies,
partnerships, joint ventures, and associations) regardless of its jurisdiction
of organization or formation, at least a majority of the total combined voting
power of all classes of Voting Stock or other ownership interests of which
shall, at the time as of which any determination is being made, be owned by such
Person, either directly or indirectly through one or more other Subsidiaries.
"Subsidiary Guaranty" shall mean a Subsidiary Guaranty substantially in
the form of Exhibit B executed and delivered by each of the wholly-owned
Subsidiaries of Borrower in favor of the Lender, together with all amendments
and supplements thereto.
"Subsidiary Guaranties" shall mean more than one Subsidiary Guaranty.
"Subsidiary Guarantor" shall mean a wholly-owned Subsidiary of the
Borrower which will execute a Subsidiary Guaranty pursuant to Section 5.10.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended and
in effect from time to time.
"Taxes" shall mean any present or future taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States, or any state, local or
foreign government or by any department, agency or other political subdivision
or taxing authority thereof or therein and all interest, penalties, additions to
tax and similar liabilities with respect thereto.
"Voting Stock" shall mean stock of a corporation of a class or classes
having general voting power under ordinary circumstances to elect a majority of
the board of directors, managers or trustees of such corporation (irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by the reason of the happening of any contingency).
"30 day LIBOR Rate, 60 day LIBOR Rate, and 90 day LIBOR Rate" shall
mean, as applicable, either the 30-day, 60-day, or 90-day LIBOR Rate as quoted
by Telerate, Inc. ("Telerate"), and as set forth in Lender's Funds Management,
Cost of Funds Report, published each Monday through Friday that Lender is open
for business; provided however, if such rate is not available on Telerate, then
such offered rate shall be otherwise independently determined by Lender from an
alternative, substantially similar independent source available to Lender or
shall be calculated by Lender by a substantially similar methodology as that
theretofore used to determine such offered rated by Telerate.
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SECTION 1.2. ACCOUNTING TERMS AND DETERMINATION.
Unless otherwise defined or specified herein, all accounting terms
shall be construed herein, all accounting determinations hereunder shall be
made, all financial statements required to be delivered hereunder shall be
prepared, and all financial records shall be maintained, in accordance with
GAAP. In the event of a change in GAAP that is applicable to the Borrower,
compliance with the financial covenants contained herein shall continue to be
determined in accordance with GAAP as in effect prior to such change; provided,
however, that the Borrower and the Lender will thereafter negotiate in good
faith to revise such covenants to the extent necessary to conform such covenants
to GAAP as then in effect.
SECTION 1.3. OTHER DEFINITIONAL TERMS.
The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
Schedule, Exhibit and like references are to this Agreement unless otherwise
specified.
SECTION 1.4. EXHIBITS AND SCHEDULES.
Exhibits and Schedules attached hereto are by reference made a part hereof.
ARTICLE II.
REVOLVING CREDIT LOAN
SECTION 2.1. REVOLVING CREDIT COMMITMENT; USE OF PROCEEDS.
(a) Subject to and upon the terms and conditions herein set
forth, the Lender agrees to make to Borrower from time to time on and
after the Closing Date, but prior to the Maturity Date, Advances under
the Revolving Credit Note in an amount not to exceed the Borrowing
Base.
(b) The proceeds of Revolving Credit Note shall be used solely
for providing working capital and other general corporate purposes of
the Borrower.
(c) Until a Default or Event of Default occurs, the Borrower
may borrow, repay, and reborrow under the Revolving Credit Note.
SECTION 2.2. REVOLVING CREDIT NOTE; REPAYMENT OF PRINCIPAL.
(a) The Borrower's obligations to pay the principal of, and
interest on, the Advances to the Lender shall be evidenced by the
records of the Lender and by the Revolving Credit Note payable to the
Lender completed in conformity with this Agreement.
(b) All Advances outstanding under the Revolving Credit Note
shall be due and payable in full on the Maturity Date.
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(c) In the event that at any time, the outstanding Advances
exceed the Borrowing Base, then the Borrower shall make an immediate
principal payment to Lender in an amount so as to reduce the
outstanding principal balance of the Revolving Credit Note to an amount
equal to or less than the Borrowing Base.
SECTION 2.3. FUNDING NOTICES.
Whenever the Borrower desires to receive an Advance under the Revolving
Credit Note, it shall give the Lender prior written notice in substantially the
same form as set forth in Exhibit C (or telephonic notice promptly confirmed in
writing) of such Advance (a "Notice of Borrowing"), prior to 11:00 a.m.
(Nashville, Tennessee time) one Business Day prior to the Business Day which is
the requested date of such Advance. Notices received after 11:00 a.m.
(Nashville, Tennessee time) shall be deemed received on the next Business Day.
Each Notice of Borrowing shall be irrevocable and shall specify the aggregate
principal amount of the Advance, the date of Advance (which shall be a Business
Day), the Interest Period applicable thereto, and representation and warranties
that the Borrower is in full compliance with the terms and conditions contained
herein. In the event that the Borrower selects the one month Interest Period,
then the Applicable Rate shall be the 30 Day LIBOR Rate plus the Applicable
Margin. In the event the Borrower selects the two month Interest Period, then
the Applicable Rate shall be the 60 Day LIBOR Rate, plus the Applicable Margin.
In the event the Borrower selects the three month Interest Period, then the
Applicable Rate shall be the 90 Day LIBOR Rate, plus the Applicable Margin.
SECTION 2.4. INTEREST RATE.
(a) Borrower agrees to pay interest in respect of all unpaid
Advances from the respective dates such principal amounts were advanced
to maturity (whether by acceleration, notice of prepayment or
otherwise) at the Applicable Rate.
(b) Overdue principal and, to the extent not prohibited by
applicable law, overdue interest, in respect of the Advances, and all
other overdue amounts owing hereunder, shall bear interest from each
date that such amounts are overdue at a rate of interest equal to the
lesser of (i) 13% per annum or (ii) the maximum lawful rate allowed by
applicable law.
(c) Interest shall be calculated based upon a year of 360 days
for actual number of days elapsed.
SECTION 2.5. INTEREST PERIODS; MAXIMUM NUMBER OF BORROWINGS.
(a) In connection with the making or continuation of an
Advance, the Borrower shall select an Interest Period to be applicable
to such Advance, which Interest Period shall be either a 1, 2 or 3
month period.
(b) Notwithstanding paragraph (a) of this Section 2.5.:
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(i) The initial Interest Period for any Advance shall
commence on the date of such Advance and each Interest Period
occurring thereafter in respect of such Advance shall commence
on the day on which the next preceding Interest Period
expires;
(ii) If any Interest Period would otherwise expire on
a day which is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day;
(iii) Any Interest Period which begins on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall,
subject to part (iv) below, expire on the last Business Day of
such calendar month; and
(iv) No Interest Period shall extend beyond the
Maturity Date,
(c) At no time shall there be more than four Advances bearing
different Interest Periods outstanding at any one time.
(d) Two (2) Business Days prior to the expiration of any
applicable Interest Period, the Borrower shall designate a new Interest
Period for the unpaid Advance. In the event the Borrower fails to
designate a new Interest Period in a timely fashion, then it shall be
conclusively presumed that the Borrower has selected the one month
Interest Period.
(e) The Applicable Rate shall remain fixed during the
applicable Interest Period related thereto.
SECTION 2.6. FEES.
Borrower shall pay to the Lender a Facility Fee quarterly in arrears
equal to the average daily unused amount under the Revolving Credit Note
multiplied by one quarter of one percent (1/4%)per annum.
SECTION 2.7. VOLUNTARY PREPAYMENTS.
(a) Advances may be prepaid on the last day of any applicable
Interest Period, in whole, or from time to time in part.
(b) All voluntary prepayments shall be applied to the payment
of interest then due and owing before application to principal.
SECTION 2.8. MANNER OF PAYMENT AND CALCULATION OF INTEREST.
(a) All payments under this Agreement and the other Credit
Documents shall be made without defense, set-off, or counterclaim to
the Lender not later than 1:00 p.m. (Nashville, Tennessee time) on the
date when due and shall be made in Dollars in immediately available
funds.
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(b) Whenever any payment to be made hereunder or under the
Revolving Credit Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the applicable rate during such
extension.
(c) All computations of interest and fees shall be made on the
basis of a year of 360 days for the actual number of days (including
the first day but excluding the last day) occurring in the period for
which such interest or fees are payable (to the extent computed on the
basis of days elapsed).
SECTION 2.9. INTEREST RATE NOT ASCERTAINABLE, ETC.
In the event that the Lender shall have determined (which determination
shall be made in good faith and, absent manifest error, shall be final,
conclusive and binding upon all parties) that on any date for determining the
Applicable Rate for any Interest Period, by reason of any changes arising after
the date of this Agreement affecting the London interbank market, or the
Lender's position in such market, adequate and fair means do not exist for
ascertaining the Applicable Rate, then, and in any such event, the Lender shall
forthwith give notice (by telephone confirmed in writing) to Borrower of such
determination and a summary of the basis for such determination. Until the
Lender notifies Borrower that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Lender to make or
permit portions of the Revolving Credit Note to remain outstanding past the last
day of the then current Interest Periods shall be suspended, and such affected
Advances shall bear the same interest as Lender's Base Rate.
SECTION 2.10. ILLEGALITY.
(a) In the event that the Lender shall have determined (which
determination shall be made in good faith and, absent manifest error,
shall be final, conclusive and binding upon all parties) at any time
that the making or continuance of any Advance at the Applicable Rate
has become unlawful by compliance by the Lender in good faith with any
applicable law, governmental rule, regulation, guideline or order
(whether or not having the force of law and whether or not failure to
comply therewith would be unlawful), then, in any such event, the
Lender shall give prompt notice (by telephone confirmed in writing) to
Borrower of such determination and a summary of the basis for such
determination.
(b) Upon the giving of the notice to Borrower referred to in
subsection (a) above, Borrower's right to request and the Lender's
obligation to make Advances at the Applicable Rate shall be immediately
suspended, and the Applicable Rate shall become the Base Rate.
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SECTION 2.11. INCREASED COSTS.
If, by reason of (x) after the date hereof, the introduction
of or any change (including, without limitation, any change by way of imposition
or increase of reserve requirements) in or in the interpretation of any law or
regulation, or (y) the compliance with any guideline or request from any central
bank or other governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally (whether or not having
the force of law):
(i) the Lender shall be subject to any tax, duty or
other charge with respect to its Advances at the Applicable
Rate, or its obligation to make such Advances, or the basis of
taxation of payments to the Lender of the principal of or
interest on the Advances or its obligation to make Advances
shall have changed (except for changes in the tax on the
overall net income of the Lender imposed by the jurisdiction
in which the Lender's principal executive office or Lending
Office is located); or
(ii) any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended
by, the Lender shall be imposed or deemed applicable or any
other condition affecting its Advances or its obligation to
make Advances shall be imposed on the Lender or its Lending
Office or the London interbank market;
and as a result thereof there shall be any increase in the cost to the
Lender of agreeing to make or making, funding or maintaining Advances
at the Applicable Rate or its obligation to make Advances at the
Applicable Rate, then Borrower shall from time to time upon written
notice from and demand by the Lender to Borrower, pay to the Lender
within ten (10) Business Days after the date of such notice and demand,
additional amounts sufficient to indemnify the Lender against such
increased cost. A certificate as to the amount of such increased cost,
submitted to Borrower by the Lender in good faith and accompanied by a
statement prepared by the Lender describing in reasonable detail the
basis for and calculation of such increased cost, shall, except for
manifest error, be final, conclusive and binding for all purposes.
SECTION 2.12. FUNDING LOSSES.
Borrower shall compensate the Lender, upon its written request to
Borrower (which request shall set forth the basis for requesting such amounts in
reasonable detail and which request shall be made in good faith and, absent
manifest error, shall be final, conclusive and binding upon all of the parties
hereto), for all actual losses, expenses and liabilities (including, without
limitation, any interest paid by the Lender to lenders of funds borrowed by it
to make or carry its Advances at the
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Applicable Rate, in either case to the extent not recovered by the Lender in
connection with the re-employment of such funds but excluding loss of
anticipated profits), which the Lender may sustain: (i) if for any reason (other
than a default by the Lender) a borrowing of or continuation of Advances to
Borrower does not occur on the date specified therefor in a Notice of Borrowing
or subsequent continuation thereof (whether or not withdrawn), (ii) if any
repayment of any Advances to Borrower occurs on a date which is not the last day
of an Interest Period applicable thereto, or (iii), if, for any reason, Borrower
defaults in its obligation to repay its Advances when required by the terms of
this Agreement.
SECTION 2.13. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR ADVANCES.
Calculation of all amounts payable to the Lender under this Article 2.
shall be made as though the Lender had actually funded the Advance through the
purchase of deposits in the relevant market bearing interest at the rate
applicable to such Advance in an amount equal to the amount of the Advance and
having a maturity comparable to the relevant Interest Period and through the
transfer of such Advance from an offshore office of the Lender to a domestic
office of the Lender in the United States of America; provided, however that
each Lender may fund each Advance in any manner it sees fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
Article 2.
ARTICLE III.
CONDITIONS TO BORROWINGS
The obligation of the Lender to make Advances to Borrower is subject to
the satisfaction of the following conditions:
SECTION 3.1. CONDITIONS PRECEDENT TO INITIAL LOAN.
On the Closing Date, the Lender shall have received the following, in
form and substance reasonably satisfactory in all respects to the Lender:
(a) this Agreement duly executed;
(b) the duly completed Revolving Credit Note;
(c) the duly completed Security Documents and all other
documents required to perfect a first priority security interest in the
Collateral to secure the Indebtedness, subject only to Permitted Liens;
(d) all duly executed Subsidiary Guaranties;
(e) certificates of the Secretary or Assistant Secretary of
the Borrower and the Subsidiary Guarantors attaching and certifying
copies of the resolutions of the board of directors of the Borrower and
the Subsidiary
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Guarantors, authorizing as applicable the execution, delivery and
performance of the Credit Documents;
(f) certificates of the Secretary or an Assistant Secretary of
the Borrower and the Subsidiary Guarantors, as applicable, (i)
certifying the name, title and true signature of each officer of the
Borrower and the Subsidiary Guarantors executing the Credit Documents,
(ii) certifying and attaching the charter and the bylaws of the
Borrower and the Subsidiary Guarantors; and (iii) attaching
certificates of good standing or existence from the Secretary of State
of the jurisdiction of incorporation or organization of the Borrower
and the Subsidiary Guarantors, and each other jurisdiction where the
ownership of Property or the conduct of its business require the
Borrower and the Subsidiary Guarantors to be qualified;
(g) the favorable opinion of corporate counsel to the Borrower
and the Subsidiary Guarantors as to certain matters, substantially in
the form of Exhibit D in each case addressed to the Lender;
(h) copies of all documents and instruments, including all
consents, authorizations and filings, required under the articles or
certificate of incorporation and bylaws or other organizational or
governing documents, under any Requirement of Law or by any Material
Contractual Obligation of the Borrower and its Subsidiaries, in
connection with the execution, delivery, performance, validity and
enforceability of the Credit Documents and the other documents to be
executed and delivered hereunder, and such consents, authorizations,
filings and orders shall be in full force and effect;
(i) certification by Borrower's Executive Officer that there
has been no material adverse change in the Borrower's financial
condition and operations from that reflected on its financial
statements dated August 31, 1999; and
(j) payment of all fees required to be paid by this Agreement
prior to the Closing Date.
SECTION 3.2. CONDITIONS TO ADVANCES.
At the time of the making of any Advances, including the initial
Advance hereunder, the following conditions shall have been satisfied or shall
exist:
(a) there shall exist no Default or Event of Default;
(b) all representations and warranties by Borrower contained
herein shall be true and correct in all Material respects with the same
effect as though such representations and warranties had been made on
and as of the date of such Advance except to the extent they expressly
relate to an earlier date or have been updated to the extent permitted
herein or with
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respect to changes occurring after the date of this Agreement caused by
transactions not prohibited under this Agreement;
(c) since the date of the most recent financial statements of
the Borrower described in Section 4.14., there shall have been no
change which has had or is reasonably likely to have a Materially
Adverse Effect (whether or not any notice with respect to such change
has been furnished to the Lender);
(d) there shall be no action or proceeding instituted or
pending before any court or other governmental authority or, to the
knowledge of any Executive Officer of Borrower, threatened which is
reasonably likely to have a Materially Adverse Effect;
(e) the Advance to be made and the use of proceeds thereof
shall not contravene, violate or conflict with, or involve the Lender
in a violation of, any law, rule, injunction, or regulation, or
determination of any court of law or other governmental authority
applicable to the Borrower and its Subsidiaries; and
(f) the Lender shall have received such other documents or
legal opinions as the Lender may reasonably request, all in form and
substance reasonably satisfactory to the Lender.
Each request for an Advance and the acceptance by Borrower of the
proceeds thereof shall constitute a representation and warranty by Borrower, as
of the date of the Advance, that the applicable conditions specified in Sections
3.1. and 3.2. have been satisfied.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
SECTION 4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW.
The Borrower and each Subsidiary are corporations duly organized,
validly existing, and in good standing under the laws of the states of their
respective incorporation. The Borrower and each Subsidiary (i) are duly
qualified as foreign corporations and are in good standing under the laws of
each jurisdiction where their ownership of Property or the conduct of their
respective business requires such qualification except where the failure to be
so qualified would not have a Materially Adverse Effect, and (ii) are in
compliance with all Requirements of Law, where the failure to so comply is
reasonably likely to have a Materially Adverse Effect.
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SECTION 4.2. CORPORATE POWER; AUTHORIZATION.
Each of the Borrower and its Subsidiaries has the corporate power and
authority to execute, deliver and perform the Credit Documents to which it is a
party and has taken all necessary corporate action to authorize the execution,
delivery and performance of such Credit Documents. No consent or authorization
of, or filing with, any Person (including, without limitation, any governmental
authority), is required in connection with the execution, delivery or
performance by the Borrower or its Subsidiaries, of the Credit Documents, other
than such consents, authorizations or filings which have been made or obtained.
SECTION 4.3. ENFORCEABLE OBLIGATIONS.
This Agreement has been duly executed and delivered, and each other
Credit Document will be duly executed and delivered, by each of the Borrower and
the Subsidiary Guarantors, as applicable, and this Agreement constitutes, and
each other Credit Document when executed and delivered will constitute, legal,
valid and binding obligations of the Borrower and the Subsidiary Guarantors,
enforceable against each of the Borrower and the Subsidiary Guarantors in
accordance with their respective terms.
SECTION 4.4. NO LEGAL BAR.
The execution, delivery and performance by the Borrower and the
Subsidiary Guarantors of the Credit Documents do not violate their respective
articles or certificates of incorporation, bylaws or other organizational or
governing documents, or cause a breach or default under any of their respective
Material Contractual Obligations, or to the best of Borrower's knowledge, any
Requirement of Law, or any applicable judgment, court order, administrative
agency order.
SECTION 4.5. NO MATERIAL LITIGATION.
Except as set forth on Schedule 4.5, no litigation, investigation or
proceeding of or before any court, tribunal, arbitrator or governmental
authority is pending or, to the knowledge of any Executive Officer of the
Borrower, threatened by or against any of the Borrower or the Subsidiary
Guarantors, (a) with respect to any Credit Document, or any of the transactions
contemplated hereby or thereby, or (b) which, if adversely determined, is
reasonably likely to have a Materially Adverse Effect.
SECTION 4.6. INVESTMENT COMPANY ACT, ETC.
None of the Borrower or the Borrower's Subsidiaries is an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended). None of the Borrower or the Borrower's Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, or any foreign, federal or local statute or regulation limiting its
ability to incur Indebtedness for Money Borrowed, guarantee such indebtedness,
or pledge
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its assets to secure such indebtedness, as contemplated hereby or by any other
Credit Document.
SECTION 4.7. MARGIN REGULATIONS.
No part of the proceeds of the Revolving Credit Note will be used for
any purpose which violates, or which would be inconsistent or not in compliance
with, the provisions of the applicable Margin Regulations.
SECTION 4.8. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) The Borrower and its Subsidiaries have received no notices
of claims or potential liability under, and are in compliance with, all
applicable Environmental Laws, where such claims and liabilities under,
and failures to comply with, such statutes, regulations, rules,
ordinances, laws or licenses, is reasonably likely to result in
penalties, fines, claims or other liabilities to the Borrower or any of
its Subsidiaries in amounts that would have a Materially Adverse
Effect.
(b) None of the Borrower or any of its Subsidiaries has
received any notice of violation, or notice of any action, either
judicial or administrative, from any governmental authority relating to
the actual or alleged violation of any Environmental Law, including,
without limitation any notice of any actual or alleged spill, leak, or
other release of any Hazardous Substance, waste or hazardous waste by
the Borrower or any of its Subsidiaries, or as to the existence of any
continuation on any Properties owned by the Borrower or any of its
Subsidiaries, where any such violation, spill, leak, release or
contamination is reasonably likely to result in penalties, fines,
claims or other liabilities to the Borrower or any of its Subsidiaries
in amounts that would have a Materially Adverse Effect.
(c) The Borrower and its Subsidiaries have obtained all
necessary governmental permits, licenses and approvals for the
operations conducted on their respective Properties, including without
limitation, all required Material permits, licenses and approvals for
(i) the emission of air pollutants or contaminants, (ii) the treatment
or pretreatment and discharge of waste water or storm water, (iii) the
treatment, storage, disposal or generation of hazardous wastes, (iv)
the withdrawal and usage of ground water or surface water, and (v) the
disposal of solid wastes, in any such case where the failure to have
such license, permit or approval is reasonably likely to have a
Materially Adverse Effect.
SECTION 4.9. INSURANCE.
The Borrower and its Subsidiaries currently maintain such insurance
with respect to their Properties and business with financially sound and
reputable insurers, and in such amounts and having such coverages against losses
and damages in types and in amounts customary in the industry and locations
where
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the Borrower and its Subsidiaries are located and which the Borrower and its
Subsidiaries in the exercise of their reasonable prudent business judgment have
determined to be necessary to prevent the Borrower and its Subsidiaries from
experiencing a loss which would cause a Materially Adverse Effect. The Borrower
and its Subsidiaries have paid all Material amounts of insurance premiums now
due and owing with respect to such insurance policies and coverages, and such
policies and coverages are in full force and effect. The Borrower at all times
shall maintain such insurance as required by the Security Documents.
SECTION 4.10. NO DEFAULT.
None of the Borrower or the Borrower's Subsidiaries is in default under
or with respect to any Contractual Obligation in any respect which has had or is
reasonably likely to have a Materially Adverse Effect.
SECTION 4.11. NO BURDENSOME RESTRICTIONS.
None of the Borrower nor the Borrower's Subsidiaries is a party to or
bound by any Contractual Obligation (including collective bargaining agreements)
or Requirement of Law or any provision of its respective articles or
certificates of incorporation, bylaws, or other organizational or governing
documents which has had or is reasonably likely to have a Materially Adverse
Effect.
SECTION 4.12. TAXES.
The Borrower and the Borrower's Subsidiaries have filed all Federal tax
returns (or have obtained permitted extensions) and, to the knowledge of any
Executive Officer of the Borrower, the Borrower and the Borrower's Subsidiaries
have filed (or have obtained permitted extensions) all other tax returns which
are required to have been filed in any jurisdiction; the Borrower and the
Borrower's Subsidiaries have paid all taxes shown to be due and payable on such
Federal returns and other returns and all other taxes, assessments, fees and
other charges payable by them, in each case, to the extent the same have become
due and payable and before they have become delinquent, except for the filing of
any such returns or the payment of any taxes, assessments, fees and other
charges the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Borrower and the Borrower's Subsidiaries have set aside on their books' reserves
(segregated to the extent required by GAAP) deemed by them in good faith to be
adequate. The Borrower has not received written notice of any proposed Material
tax assessment with respect to Federal income taxes against the Borrower or the
Borrower's Subsidiaries nor does any Executive Officer of the Borrower know of
any Material Federal income tax liability on the part of the Borrower and the
Borrower's Subsidiaries other than any such assessment or liability which is
adequately reserved for on the books of the Borrower and its Subsidiaries in
accordance with GAAP.
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SECTION 4.13. SUBSIDIARIES.
Schedule 4.13. depicts all Subsidiaries of the Borrower, including the
state of incorporation and the ownership of all issued and outstanding capital
stock.
SECTION 4.14. FINANCIAL STATEMENTS.
Borrower has furnished to the Lender (i) the audited consolidated
balance sheets as of August 31, 1999 of the Borrower and the related
consolidated statements of income, shareholders' equity and cash flows for the
fiscal years then ended, including in each case the related notes. The foregoing
financial statements fairly present in all Material respects the consolidated
financial condition of the Borrower and its Subsidiaries as at the dates thereof
and results of operations for such periods in conformity with GAAP consistently
applied. The Borrower and its Subsidiaries taken as a whole did not have any
Material contingent obligations, contingent liabilities, or Material liabilities
for known taxes, long-term leases or unusual forward or long-term commitments
required to be reflected in the foregoing financial statements or the notes
thereto that are not so reflected. Since August 31, 1999, there have been no
changes with respect to the Borrower and its Subsidiaries which has had or is
reasonably likely to have a Materially Adverse Effect.
SECTION 4.15. ERISA.
The Borrower and its Subsidiaries are in compliance in all material
respects with the applicable provisions of ERISA. Neither the Borrower, its
Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to, or
has during the past seven years maintained or contributed to, any Plan,
including any Multiemployer Plan, that is subject to Title IV of ERISA. Neither
the Borrower, its Subsidiaries nor any of their ERISA Affiliates has incurred
any "accumulated funding deficiency" or "withdrawal liability" within the
meaning of ERISA, nor any liability to the PBGC, in connection with any Plan
subject to Title IV of ERISA, which would have a Materially Adverse Effect.
SECTION 4.16. PATENTS, TRADEMARKS, LICENSES, ETC.
Except as set forth on Schedule 4.16., (i) the Borrower and its
Subsidiaries have obtained and hold in full force and effect all Material
governmental authorizations, consents, approvals, patents, trademarks, service
marks, franchises, trade names, copyrights, licenses and other such rights, free
from burdensome restrictions, which are necessary for the operation of their
respective businesses as presently conducted, and (ii) to the best of Borrower's
knowledge, no product, process, method, service or other item presently sold by
or employed by the Borrower or its Subsidiaries in connection with such business
infringes any patents, trademark, service mark, franchise, trade name,
copyright, license or other right owned by any other Person and there is not
presently pending, or to the knowledge of Borrower, threatened, any claim or
litigation against or affecting the Borrower or its Subsidiaries contesting such
Person's right to sell or use any such product, process, method, substance or
other item where the result of such failure
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to obtain and hold such benefits or such infringement would have a Materially
Adverse Effect.
SECTION 4.17. FINANCIAL CONDITION.
On the Closing Date and after giving effect to the transactions
contemplated by this Agreement and the other Credit Documents, the Property of
the Borrower and its Subsidiaries at fair valuation and based on their present
fair saleable value will exceed the debts (excluding obligations to affiliated
companies), including contingent liabilities of the Borrower and its
Subsidiaries, (ii) the remaining capital of the Borrower and its Subsidiaries
will not be unreasonably small to conduct the business of the Borrower and its
Subsidiaries, and (iii) the Borrower and its Subsidiaries will not have incurred
debts, or have intended to incur debts, beyond the ability of the Borrower and
its Subsidiaries, to pay such debts as they mature. For purposes of this Section
4.17., "debt" means any liability on a claim, and "claim" means (a) the right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (b) the right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
SECTION 4.18. LABOR MATTERS.
The Borrower and its Subsidiaries have experienced no strikes, labor
disputes, slow downs or work stoppages due to labor disagreements which is
reasonably likely to have, a Materially Adverse Effect, and, to the knowledge of
the Executive Officers of the Borrower, there are no such strikes, disputes,
slow downs or work stoppages threatened against the Borrower and its
Subsidiaries. The hours worked and payment made to employees of the Borrower and
its Subsidiaries have not been in violation in an Material respect of the Fair
Labor Standards Act or any other applicable law dealing with such matters, and
all payments due from the Borrower and its Subsidiaries, or for which any claim
may be made against the Borrower and its Subsidiaries, on account of wages and
employee health and welfare insurance and other benefits have been paid or
accrued as liabilities on the books of the Borrower and its Subsidiaries, in
each case where the failure to comply with such laws or to pay or accrue such
liabilities i reasonably likely to have a Materially Adverse Effect.
SECTION 4.19. PAYMENT OF DIVIDEND RESTRICTIONS.
None of the Borrower nor its Subsidiaries is party to or subject to any
agreement or understanding restricting or limiting the payment of any dividends
or other distributions.
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SECTION 4.20. DISCLOSURE.
(a) No information, exhibit, or report furnished or to be
furnished to the Lender by or on behalf of the Borrower and its
Subsidiaries in connection with the transactions contemplated hereby
contains any untrue statement of a Material fact or omits to state a
Material fact necessary in order to make the statements contained
therein or herein not misleading, it being understood that the
representation set forth in this Section 4.20.(a) shall not apply to
any financial projections or other pro forma financial information.
(b) The financial projections and other pro forma financial
information contained in the information referred to in subsection (a)
above were based on good faith estimates and assumptions believed by
the Borrower to be reasonable at the time made and at the time
furnished to the Lender, it being recognized by the Lender that such
projections and other pro forma financial information as to future
events such projections and other pro forma financial information may
differ from the actual results for such period or periods.
SECTION 4.21. NOTICE OF VIOLATIONS.
The Borrower has not received notice, and none of its Subsidiaries has
received notice, that it is in violation of any Requirement of Law, judgment,
court order, rule, or regulation that would be expected to have a Materially
Adverse Effect.
SECTION 4.22. INVESTMENTS.
The Borrower has not provided equity, provided subordinated debt, or
made long-term investments in any Person other than wholly-owned Subsidiaries in
excess of $2,000,000 in the aggregate.
ARTICLE V.
AFFIRMATIVE COVENANTS
So long as the Revolving Credit Note or other Obligations shall remain
unpaid, Borrower will:
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SECTION 5.1. CORPORATE EXISTENCE, ETC.
Preserve and maintain, and cause each of its Subsidiaries to preserve
and maintain, its corporate existence (except as otherwise permitted pursuant to
Section 6.3.), its Material rights, franchises, and licenses, and its Material
patents and copyrights (for the scheduled duration thereof), trademarks, trade
names, service marks, and other intellectual property rights, necessary or
desirable in the normal conduct of its business, and its qualification to do
business as a foreign corporation in all jurisdictions where it conducts
business or other activities making such qualification necessary, where the
failure to be so qualified is reasonably likely to have a Materially Adverse
Effect.
SECTION 5.2. COMPLIANCE WITH LAWS, ETC.
Comply, and cause each of its Subsidiaries to comply, with all
Requirements of Law (including, without limitation, the Environmental Laws) and
all Contractual Obligations applicable to or binding on any of them where the
failure to comply with such Requirements of Law and Contractual Obligations is
reasonably likely to have a Materially Adverse Effect.
SECTION 5.3. PAYMENT OF TAXES AND CLAIMS, ETC.
File and cause each of its Subsidiaries to file all Federal, state,
local and foreign tax returns that are required to be filed by each of them and
pay all taxes that have become due pursuant to such returns or pursuant to any
assessment in respect thereof received by the Borrower and its Subsidiaries; and
the Borrower will pay or cause each of its Subsidiaries to pay, all other taxes,
assessments, fees and other governmental charges and levies which, to the
knowledge of the Executive Officer of Borrower, are due and payable before the
same become delinquent, except any such taxes and assessments as are being
contested in good faith by appropriate and timely proceedings and as to which
adequate reserves have been established in accordance with GAAP.
SECTION 5.4. KEEPING OF BOOKS.
Keep, and cause each of its Subsidiaries to keep, proper books of
record and account, containing complete and accurate entries of all their
respective financial and business transactions.
SECTION 5.5. VISITATION, INSPECTION, ETC.
Permit, and cause each of its Subsidiaries to permit, any
representative of the Lender, at the Lender's expense, to visit and inspect any
of its Property, to examine its books and records and to make copies and take
extracts therefrom, and to discuss its affairs, finances and accounts with its
officers, all at such reasonable times and as often as the Lender may reasonably
request after reasonable prior notice to Borrower; provided, however, that at
any time following the occurrence and during the continuance of a Default or an
Event of Default, no prior notice to Borrower shall be required.
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SECTION 5.6. INSURANCE; MAINTENANCE OF PROPERTIES.
(a) Maintain or cause to be maintained with financially sound
and reputable insurers, such insurance with respect to its Properties
and business in such amounts as the Borrower has determined in the
exercise of its reasonable prudent business judgment is necessary to
prevent the Borrower and each of its Subsidiaries, singularly or in the
aggregate from experiencing a loss which would cause a Materially
Adverse Effect.
(b) Cause, and cause each of its Subsidiaries to cause, all
Properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and cause to be made all
necessary repairs, renewals, replacements, settlements and improvements
thereof, all as in the reasonable judgment of Borrower may be necessary
so that the business carried on in connection therewith may be properly
and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent Borrower from discontinuing the
operation or maintenance of any such Properties if such discontinuance
is, in the reasonable judgment of Borrower, desirable in the conduct of
its business or the business of the Borrower and its Subsidiaries.
(c) At Lender's reasonable request, cause a summary, set forth
in format and detail reasonably acceptable to the Lender, of the types
and amounts of insurance (property and liability) maintained by the
Borrower and its Subsidiaries.
(d) Maintain and cause to be maintained all insurance required
to be maintained by the Security Documents.
SECTION 5.7. FINANCIAL REPORTS.
The Borrower will furnish to the Lender:
(a) Within forty-five (45) days after the end of each of the
first three quarter-annual periods of each Fiscal Year, the quarterly
Financial Report of the Borrower as of the end of that period, prepared
on a consolidated basis and accompanied by a certificate, dated the
date of furnishing, signed by a Financial Officer of the Borrower to
the effect that to the best of his knowledge, such Financial Report
accurately presents in all Material respects the consolidated financial
condition of the Borrower and its Subsidiaries and that such Financial
Report has been prepared in accordance with GAAP consistently applied
(subject to year end adjustments), except that such Financial Report
need not be accompanied by notes.
(b) Within ninety (90) days after the end of each Fiscal Year,
the annual Financial Report of the Borrower (with accompanying notes)
for that
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Fiscal Year prepared on a consolidated basis (which Financial Report
shall be reported on by the Borrower's independent certified public
accountants, such report to state that such Financial Report fairly
presents in all Material respects the consolidated financial condition
and results of operation of the Borrower and its Subsidiaries in
accordance with GAAP and to be without any Material qualifications or
exceptions). The audit opinion in respect of the consolidated Financial
Report shall be the unqualified opinion of one of the nationally
recognized "Big Six" firms of independent certified public accountants
reasonably acceptable to Lender.
(c) Within forty-five (45) days after the end of each of its
first three quarterly accounting periods and within ninety (90) days
after the end of each Fiscal Year, a Compliance Certificate certified
as true and correct by a Financial Officer of the Borrower,
substantially in the form of Exhibit E hereto, with back-up material
setting forth in reasonable detail such calculations attached thereto
and stating whether any Default or Event of Default has occurred and is
continuing, and if a Default or Event of Default has occurred and is
continuing, stating the Borrower's intentions with respect thereto.
(d) Within forty-five (45) days after the end of each fiscal
quarter, a listing and aging of Borrower's accounts receivable,
together with a calculation of Eligible Accounts Receivable, provided
that if there are amounts outstanding under the Revolving Credit Note,
the Borrower shall cause such listing and aging accounts receivable
report to be provided thirty (30) days after the end of each calendar
month;
(e) Promptly upon receipt thereof, copies of all financial
statements of, and all reports submitted by, independent public
accountants to Borrower in connection with each annual, interim, or
special audit of Borrower's financial statements, including without
limitation, the comment letter submitted by such accountants to
management in connection with their annual audit.
(f) As soon as possible and in any event within thirty (30)
days after the Borrower or any of its Subsidiaries knows or has reason
to know that any "Reportable Event" (as defined in Section 4043(b) of
ERISA) with respect to any Plan has occurred (other than such a
Reportable Event for which the PBGC has waived the 30-day notice
requirement under Section 4043(a) of ERISA) and such Reportable Event
involves a matter that has had, or is reasonably likely to have, a
Materially Adverse Effect, a statement of a Financial Officer of the
Borrower setting forth details as to such Reportable Event and the
action which the Borrower or any applicable Subsidiary proposes to take
with respect thereto, together with a copy of the notice of such
Reportable Event given to the PBGC if a copy of such notice is
available.
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(g) With reasonable promptness, such other information
relating to the Borrower's performance of this Agreement or its
financial condition as may reasonably be requested from time to time by
the Lender.
SECTION 5.8. NOTICES UNDER CERTAIN OTHER INDEBTEDNESS.
Within a reasonable time after receipt thereof, Borrower shall furnish
the Lender a copy of any notice received by it or any of its Subsidiaries from
the holder(s) of Indebtedness (or from any trustee, agent, attorney, or other
party acting on behalf of such holder(s)) in an amount which, in the aggregate,
exceeds $500,000 where such notice states or claims (i) the existence or
occurrence of any default or event of default with respect to such Indebtedness
under the terms of any indenture, loan o credit agreement, debenture, note, or
other document evidencing or governing such Indebtedness, or (ii) the existence
or occurrence of any event or condition which requires or permits holder(s) of
any Indebtedness of the Borrower and its Subsidiaries to exercise rights under
any Change in Control Provision.
SECTION 5.9. NOTICE OF LITIGATION.
The Borrower shall notify the Lender of any actions, suits or
proceedings instituted by any Person against the Borrower and its Subsidiaries
where the uninsured portion of the money damages sought (which shall include any
deductible amount to be paid by the Borrower or its Subsidiaries) is singularly
in an amount in excess of $500,000 or where unreserved amounts in the aggregate
are in excess of $500,000. Said notice is to be given along with the quarterly
and annual reports required by Section 5.7. hereof, and is to specify the amount
of damages being claimed or other relief being sought, the nature of the claim,
the Person instituting the action, suit or proceeding, and any other significant
features of the claim.
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SECTION 5.10. SUBSIDIARY GUARANTIES AND SECURITY AGREEMENTS, ETC.
(a) Subject to subsection (c) below, the Borrower shall cause
each of its wholly-owned Subsidiaries existing as of the Closing Date
to execute and deliver on or before the Closing Date a Subsidiary
Guaranty in substantially the same form as set forth in Exhibit C and
to execute a Security Agreement in the form of Exhibit F and such other
documents required by Lender to obtain a security interest in the
Property described therein. The delivery of such documents shall be
accompanied b such other documents as the Lender may reasonably request
(e.g., certificates of incorporation, articles of incorporation and
bylaws, opinion letters and appropriate resolutions of the Board of
Directors of any such Subsidiary Guarantor). The Borrower shall pay all
costs incurred by Lender in obtaining the Subsidiary Guaranty and the
Security Agreement, and perfecting a Lien in the Collateral.
(b) Subject to subsection (c) below, the Borrower shall cause
each of its Subsidiaries not existing as of the Closing Date to execute
and deliver a Subsidiary Guaranty in substantially the same form as set
forth in Exhibit C and to execute a Security Agreement in the form of
Exhibit F, simultaneously with or promptly after the creation or
acquisition of any such Subsidiary by the Borrower or any other
Subsidiary of the Borrower. The delivery of such documents shall be
accompanied by such other documents as the Lender may reasonably
request (e.g., certificates of incorporation, articles of incorporation
and bylaws, opinion letters and appropriate resolutions of the Board of
Directors of any such Subsidiary Guarantor). The Borrower shall pay all
costs incurred by Lender in obtaining the Subsidiary Guaranty and the
Security Agreement, and perfecting a Lien in the Collateral.
(c) Notwithstanding the foregoing subsections (a) and (b), the
Borrower shall not be required to cause any of its Subsidiaries to
deliver a Subsidiary Guaranty or Security Agreement if the delivery of
such documents would cause such Subsidiary to violate any Requirement
of Law.
SECTION 5.11. EXISTING BUSINESS.
Remain and cause each of its Subsidiaries to remain engaged in business
of the same general nature and type as conducted on the Closing Date.
SECTION 5.12. ERISA INFORMATION AND COMPLIANCE.
Comply and cause each of its Subsidiaries to comply with ERISA and all
other applicable laws governing any pension or profit sharing plan or
arrangement to which the Borrower and any of its Subsidiaries is a party. The
Borrower shall provide and shall cause each of its Subsidiaries to provide the
Lender with notice of any "reportable event" or "prohibited transaction" or the
imposition of a "withdrawal liability" within the meaning of ERISA.
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SECTION 5.13. INTEREST RATE CONTRACTS.
The Borrower, at its expense, agrees to grant the Lender a lien and
security interest in all Collateral to secure the repayment of any Interest Rate
Contracts entered into with regard to the Obligations, all pursuant to such
documentation and filings as reasonably required by the Lender.
ARTICLE VI.
NEGATIVE COVENANTS
So long as the Revolving Credit Note shall remain unpaid and any
obligations remain outstanding:
SECTION 6.1. FINANCIAL REQUIREMENTS.
The Borrower shall not:
(a) Fixed Charge Coverage Ratio. Suffer or permit the ratio of
(A) Consolidated EBIT, to (B) Consolidated Interest Expense, to be less
than 4.0 to 1.0 as measured at the end of any fiscal quarter on a
trailing four quarter basis.
(b) Minimum Net Worth. Permit its Consolidated Net Worth to be
less than a minimum amount equal to: (i) eighty-five percent (85%) of
Borrower's Consolidated Net Worth as such existed on August 31, 1999,
plus (ii) one hundred percent (100%) of all subsequently issued equity,
plus (iii) seventy-five percent (75%) of Consolidated Net Income.
(c) Repurchases. Permit repurchases by Borrower of its own
stock (retiring such shares as treasury stock) in excess of $3,000,000
in the aggregate as measured from August 31, 1999 without Lender's
prior written consent.
(d) Acquisitions. Permit Acquisitions by Borrower or any of
the Guarantors in excess of $2,000,000 in the aggregate during the term
of this Agreement without Lender's prior written consent.
SECTION 6.2. LIENS.
The Borrower will not, and will not permit any of its Subsidiaries to,
create, assume or suffer to exist any Lien upon any of their respective
Properties whether now owned or hereafter acquired; provided, however, that this
Section 6.2. shall not apply to the following:
(a) any Lien for taxes not yet due or taxes or assessments or
other governmental charges which are being actively contested in good
faith by appropriate proceedings and as to which adequate reserves have
been established in accordance with GAAP;
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(b) any customary Liens, pledges or deposits in connection
with worker's compensation, unemployment insurance, or social security,
or deposits incidental to the conduct of the business of the Borrower
or any of its Subsidiaries or the ownership of any of their Properties
which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not in the aggregate
Materially detract from the value of their Properties or Materially
impair the use thereof in the operation of their businesses;
(c) any customary Liens to secure the performance of tenders,
statutory obligations, surety and appeal bonds, and similar obligations
and as to which adequate reserves have been established in accordance
with GAAP;
(d) statutory Liens of carriers, warehousemen, mechanics,
materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested
in good faith by appropriate proceedings and as to which adequate
reserves have been established in accordance with GAAP;
(e) Liens consisting of encumbrances in the nature of zoning
restrictions, easements, rights and restrictions of record on the use
of real property on the date of the acquisition thereof and statutory
Liens of landlords and lessors which in any case do not Materially
detract from the value of such real property or impair the use thereof;
(f) any Lien in favor of the United States of America or any
department or agency thereof, or in favor of any state government or
political subdivision thereof, or in favor of a prime contractor under
a government contract of the United States, or of any state government
or any political subdivision thereof, and, in each case, resulting from
acceptance of partial, progress, advance or other payments in the
ordinary course of business under government contracts of the United
States, or of any state government or any political subdivision
thereof, or subcontracts thereunder;
(g) statutory Liens arising under ERISA created in the
ordinary course of business for amounts not yet due and as to which
adequate reserves have been established in accordance with GAAP; and
(h) Liens securing Debt permitted by Section 6.10.(b) so long
as no Liens attach to the Collateral.
SECTION 6.3. MERGER AND SALE OF ASSETS.
Except as permitted by Section 6.10. herein, the Borrower will not,
without the prior written consent of the Lender, merge or consolidate with any
other Person or sell, lease or transfer or otherwise dispose of all or, during
any twelve-month period, a Material part of its Property to any Person, nor
shall the Borrower
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permit any of its Subsidiaries to take any of the above actions; provided that
notwithstanding any of the foregoing limitations, if no Default or Event of
Default shall then exist or immediately thereafter will exist, the Borrower and
its Subsidiaries may take the following actions:
(a) Any Subsidiary of the Borrower may merge with (i) the
Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or (ii) any one or more other of Borrower's
Subsidiaries provided that either the continuing or surviving
corporation shall remain a Subsidiary of Borrower; and
(b) Any Subsidiary of the Borrower may sell, lease, transfer
or otherwise dispose of any of its assets to (i) the Borrower, or (ii)
any other Subsidiary of Borrower.
SECTION 6.4. TRANSACTIONS WITH AFFILIATES.
The Borrower will not, and will not permit any of its Subsidiaries to,
enter into or be a party to any transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange of
property with, or the rendering of any service by or for, any Affiliates),
except in the ordinary course of, and pursuant to the reasonable requirements of
Borrower's and its Subsidiaries business and upon fair and reasonable terms no
less favorable to the Borrower and any of its Subsidiaries, as applicable, than
such party would obtain in a comparable arm's-length transaction with a Person
other than an Affiliate.
SECTION 6.5. NATURE OF BUSINESS.
The Borrower will not, and will not permit any of its Subsidiaries to,
engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Borrower or
any of its Subsidiaries would be fundamentally changed from the general nature
of the business engaged in by the Borrower and its Subsidiaries on the date of
this Agreement.
SECTION 6.6. REGULATIONS T, U AND X.
The Borrower will not nor will it permit any of its Subsidiaries to
take any action that would result in any non-compliance of the Advances made
hereunder with Regulations T, U and X of the Board of Governors of the Federal
Reserve System.
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SECTION 6.7. INVESTMENTS, LOANS, AND ADVANCES.
Except as provided in Section 4.22. herein, the Borrower will not, and
will not permit any of its Subsidiaries to, make or permit to remain outstanding
any loans or advances to or investments in any Person, except that, subject to
all other provisions of this Section 6.7., the foregoing restriction shall not
apply to:
(a) investments in direct obligations of the United States of
America or any agency thereof;
(b) investments in commercial paper maturing one year or less
from the date of creation thereof of the highest credit rating of a
Rating Agency;
(c) investments in bankers' acceptances and certificates of
deposit having maturities of one year or less issued by commercial
banks in the United States of America having capital and surplus in
excess of $50,000,000;
(d) the endorsement of negotiable or similar instruments in
the ordinary course of business;
(e) investments by the Borrower in the stock of any
Subsidiary;
(f) loans and advances to officers not to exceed $500,000 in
the aggregate outstanding at any one time; and
(g) investments in money market funds so long as the entire
investment therein is fully insured or so long as the money market fund
is a fund controlled and operated by a commercial bank or banks in the
United States of America having capital and surplus in excess of
$50,000,000.
SECTION 6.8. SALES AND LEASEBACKS.
The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any arrangement, directly or indirectly, with any Person by which the
Borrower or any of its Subsidiaries shall sell or transfer any Property, and by
which the Borrower or any of its Subsidiaries shall then or thereafter rent or
lease as lessee such Property or any part thereof or other Property that the
Borrower or any of its Subsidiaries intends to use for substantially the same
purpose or purposes as the Property sold or transferred.
SECTION 6.9. GUARANTIES.
The Borrower shall not, and will not permit any of its Subsidiaries to,
enter into any Guaranty, except that, subject to all other provisions of this
Article, the foregoing restriction shall not apply to:
(a) any Subsidiary Guaranties; and
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(b) endorsements of instruments for deposit or collection in
the ordinary course of business.
SECTION 6.10. LIMITATION ON DEBT.
The Borrower shall not, and will not permit any of its Subsidiaries, in
the aggregate to incur or suffer to exist Indebtedness other than:
(a) Indebtedness to the Lender described in this Agreement;
(b) Indebtedness to other Persons not to exceed $1,000,000 in
the aggregate;
(c) Indebtedness reflected as other long term liabilities on
the Borrower's balance sheets relating to "non-qualified" deferred
compensation plans; and
(d) Indebtedness reflected as other long term liabilities on
the Borrower's balance sheet relating to reserves related to
self-insured deductibles under the Borrower's liability insurance
program.
SECTION 6.11. STOCK REPURCHASES. The Borrower will not use proceeds
from the Revolving Credit Note, either directly or indirectly, to enable the
Borrower to repurchase its stock.
SECTION 6.12. MANAGEMENT. Without the Lender's prior written consent,
the Borrower shall not remove or change Thomas G. Cigarran or Henry D. Herr as
an Executive Officer.
SECTION 6.13. CASH AND CASH EQUIVALENTS. The Borrower shall not permit
the aggregate amount of its cash and cash equivalents to be less than $3,000,000
at any time.
ARTICLE VII.
EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
SECTION 7.1. PAYMENTS.
Borrower shall fail to make promptly when due (including, without
limitation, by mandatory prepayment) any principal payment with respect to the
Revolving Credit Note within ten (10) days of the due date, or Borrower shall
fail to make any payment of interest, fee or other amount payable hereunder
within ten (10) days of the due date thereof.
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SECTION 7.2. COVENANTS WITHOUT NOTICE.
Borrower shall fail to observe or perform any covenant or agreement
contained in Sections 5.5., 5.7., 5.8., 5.9., 5.10., 5.11., or in Article 6.
herein.
SECTION 7.3. OTHER COVENANTS.
Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement, other than those referred to in Sections 7.1. and
7.2., and such failure shall remain unremedied for 30 days after the earlier of
(i) an Executive Officer of the Borrower obtaining knowledge thereof, or (ii)
written notice thereof shall have been given to Borrower by Lender;
SECTION 7.4. REPRESENTATIONS.
Any representation or warranty made or deemed to be made by Borrower or
any Subsidiary Guarantor under this Agreement or any other Credit Document
(including the Schedules attached thereto), or any certificate or other document
submitted to the Lender by any such Person pursuant to the terms of this
Agreement or any other Credit Document, shall be incorrect in any Material
respect when made or deemed to be made or submitted;
SECTION 7.5. NON-PAYMENTS OF OTHER INDEBTEDNESS.
The Borrower or the Subsidiaries of Borrower shall fail to make when
due (whether at stated maturity, by acceleration, on demand or otherwise, and
after giving effect to any applicable grace period) any payment of principal of
or interest on any Indebtedness (other than the Obligations) exceeding $500,000
individually or in the aggregate;
SECTION 7.6. DEFAULTS UNDER OTHER AGREEMENTS.
The Borrower or the Subsidiaries of Borrower shall fail to observe or
perform within any applicable grace period any covenants or agreements contained
in any agreements or instruments relating to any of its Indebtedness exceeding
$500,000 individually or in the aggregate, or any other event shall occur if the
effect of such failure or other event is to accelerate, or to permit the holder
of such Indebtedness or any other Person to accelerate, the maturity of such
Indebtedness; or any such Indebtedness shall be required to be prepaid (other
than by a regularly scheduled required prepayment) in whole or in part prior to
its stated maturity;
SECTION 7.7. BANKRUPTCY.
The Borrower or the Subsidiaries of Borrower shall commence a voluntary
case concerning itself under the Bankruptcy Code or applicable foreign
bankruptcy laws; or an involuntary case for bankruptcy is commenced against any
of the Borrower or the Subsidiaries of Borrower and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case, or a custodian (as defined in the Bankruptcy Code) or
34
<PAGE> 37
similar official under applicable foreign bankruptcy laws is appointed for, or
takes charge of, all or any substantial part of the Property of any of the
Borrower or the Subsidiaries of Borrower; or any of the Borrower or the
Subsidiaries of Borrower commences proceedings of its own bankruptcy or to be
granted a suspension of payments or any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction, whether now or
hereafter in effect, relating to any of the Borrower or the Subsidiaries of
Borrower or there is commenced against any of the Borrower or the Subsidiaries
of Borrower any such proceeding which remains undismissed for a period of 60
days; or any of the Borrower or the Subsidiaries of Borrower is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or any of the Borrower or the Subsidiaries of
Borrower suffers any appointment of any custodian or the like for it or any
substantial part of its Property to continue undischarged or unstayed for a
period of 60 days; or any of the Borrower or the Subsidiaries of Borrower makes
a general assignment for the benefit of creditors; or any of the Borrower or the
Subsidiaries of Borrower shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or any
of the Borrower or the Subsidiaries of Borrower shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
any of the Borrower or the Subsidiaries of Borrower shall by any act or failure
to act indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate action is taken by any of the Borrower or the
Subsidiaries of Borrower for the purpose of effecting any of the foregoing;
SECTION 7.8. MONEY JUDGMENT.
A final judgments or final order for the payment of money in excess of
$100,000 individually or in the aggregate or otherwise having a Materially
Adverse Effect shall be rendered against Borrower or any Subsidiary of Borrower
and such judgment or order shall continue unsatisfied (in the case of a money
judgment) and in effect for a period of 60 days during which execution shall not
be effectively stayed or deferred (whether by action of a court, by agreement or
otherwise);
SECTION 7.9. DEFAULT UNDER OTHER CREDIT DOCUMENTS.
There shall exist or occur any "Event of Default" as provided under the
terms of any Credit Document, or any Credit Document ceases to be in full force
and effect or the validity or enforceability thereof is disaffirmed by or on
behalf of Borrower or any Guarantor, or at any time it is or becomes unlawful
for Borrower or any Guarantor to perform or comply with its obligations under
any Credit Document, or the obligations of Borrower or any Guarantor, any Credit
Document are not or cease to be legal, valid and binding on Borrower or any such
Guarantor.
SECTION 7.10. OWNERSHIP. There shall occur any Change of Control.
35
<PAGE> 38
SECTION 7.11. CONTRACTS. During any rolling twelve month period,
contracts representing 25% or more of Borrower's revenues for the most recent
four (4) fiscal quarters are canceled or are not renewed.
Then, and in any such event, and at any time thereafter if any Event of
Default shall then be continuing, the Lender shall, by written notice to
Borrower, take any or all of the following actions: (i) declare its commitment
to fund further Advances terminated, whereupon the Facility Fee shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and the accrued interest on the Revolving Credit Note, and all
other Obligations owing hereunder to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower; provided, that, if
an Event of Default specified in Section 7.7. shall occur, no notice shall be
required before those matters set forth herein and in subpart (i) above shall be
effective; (iii) may exercise all remedies under any Subsidiary Guaranty; and
(iv) may exercise any other rights or remedies available under the Credit
Documents, at law or in equity.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1. NOTICES.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, telecopy or similar
teletransmission or writing) and shall be given to such party at its address or
applicable teletransmission number set forth on the signature pages hereof, or
such other address or applicable teletransmission number as such party may
hereafter specify by written notice to the other. Each such notice, request or
other communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, three (3) Business Days after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, (iii) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section and the appropriate
confirmation is received, or (iv) if given by any other means (including,
without limitation, by air courier), when delivered or received at the address
specified in this Section provided that notices to the Lender shall not be
effective until received.
SECTION 8.2. AMENDMENTS, ETC.
No amendment or waiver of any provision of this Agreement or the other
Credit Documents, nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
36
<PAGE> 39
SECTION 8.3. NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Lender in exercising any right
or remedy hereunder or under any other Credit Document, and no course of dealing
between the Borrower and the Lender shall operate as a waiver thereof, nor shall
any single or partial exercise of any right or remedy hereunder or under any
other Credit Document preclude any other or further exercise thereof or the
exercise of any other right or remedy hereunder or thereunder. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Lender would otherwise have. No notice to or demand
on the Borrower not required hereunder or under any other Credit Document in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Lender to any other or further action in any circumstances without notice or
demand.
SECTION 8.4. PAYMENT OF EXPENSES, ETC.
Borrower shall:
(i) whether or not the transactions hereby
contemplated are consummated, pay all reasonable,
out-of-pocket costs and expenses of the Lender in connection
with the preparation, execution and delivery of, preservation
of rights under, enforcement of, and, after a Default or Event
of Default or, upon the request of the Borrower, refinancing,
renegotiation or restructuring of, this Agreement and the
other Credit Documents and the documents and instruments
referred to therein, and any amendment, waiver or consent
relating thereto (including, without limitation, the
reasonable fees actually incurred and disbursements of counsel
for the Lender);
(ii) pay and hold the Lender harmless from and
against any and all present and future stamp, documentary, and
other similar Taxes with respect to this Agreement, the
Revolving Credit Note and any other Credit Documents, any
collateral described therein, or any payments due thereunder,
and hold the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or
omission to pay such Taxes; and
(iii) indemnify the Lender, and its respective
officers, directors, employees, representatives and agents
from, and hold each of them harmless against, any and all
costs, losses, liabilities, claims, damages or expenses
incurred by any of them (whether or not any of them is
designated a party thereto) (an "Indemnitee") arising out of
or by reason of any investigation, litigation or other
proceeding related to any actual or proposed use of the
proceeds of the Revolving Credit Note, including, without
limitation, the reasonable fees actually incurred and
disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding, provided,
37
<PAGE> 40
however, Borrower shall not be obligated to indemnify, any
Indemnitee for any of the foregoing arising out of such
Indemnitee's gross negligence or willful misconduct;
(iv) without limiting the Indemnitees set forth in
subsection (iii) above, indemnify each Indemnitee for any and
all expenses and costs (including without limitation,
remedial, removal, response, abatement, cleanup,
investigative, closure and monitoring costs), losses, claims
(including claims for contribution or indemnity and including
the cost of investigating or defending any claim and whether
or not such claim is ultimately defeated, and whether such
claim arose before, during or after the Borrower's or any
Guarantor's ownership, operation, possession or control of its
business, Property or facilities or before, on, or after the
date hereof, and including also any amounts paid incidental to
any compromise or settlement by the Indemnitee or Indemnitees
to the holders of any such claim), lawsuits, liabilities,
obligations, actions, judgments, suits, disbursements,
encumbrances, liens, damages (including without limitation
damages for contamination or destruction of natural
resources), penalties and fines of any kind or nature
whatsoever (including without limitation in all cases the
reasonable fees actually incurred, other charges and
disbursements of counsel in connection therewith) incurred,
suffered or sustained by that Indemnitee based upon, arising
under or relating to Environmental Laws based on, arising out
of or relating to in whole or in part, the existence or
exercise of any rights or remedies by any Indemnitee under
this Agreement, any other Credit Document or any related
documents.
If and to the extent that the obligations of Borrower under this Section 8.4.
are unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
SECTION 8.5. RIGHT OF SETOFF.
In addition to and not in limitation of all rights of offset that the
Lender may have under applicable law, the Lender shall upon the occurrence and
during the continuation of any Event of Default and whether or not the Lender or
such holder has made any demand or any obligations under the Credit Documents
have matured, have the right to appropriate and apply to the payment of any
obligations hereunder and under the other Credit Documents, all deposits of the
Borrower or any Guarantor (general or special, time or demand, provisional or
final) then or thereafter held by and other indebtedness or Property then or
thereafter owing by the Lender to the Borrower, whether or not related to this
Agreement or any transaction hereunder.
38
<PAGE> 41
SECTION 8.6. BENEFIT OF AGREEMENT AND PARTICIPATIONS.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns
of the parties hereto, provided that Borrower may not assign or
transfer any of its interest hereunder.
(b) The Lender may, without the consent of the Borrower, sell
participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement.
SECTION 8.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND UNDER THE REVOLVING CREDIT NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF
TENNESSEE.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT, THE REVOLVING CREDIT NOTES OR ANY OTHER COURT DOCUMENT, MAY
BE BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN DAVIDSON COUNTY,
TENNESSEE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER
HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
(c) THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO
A TRIAL BY JURY, AND BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
SECTION 8.8. SEVERABILITY.
In case any provision in or obligation under this Agreement or any
other Credit Documents shall be invalid, illegal or unenforceable, in whole or
in part, in any jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or obligation in any
other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 8.9. INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitation
39
<PAGE> 42
of, another covenant, shall not avoid the occurrence of a Default or an Event of
Default if such action is taken or condition exists.
SECTION 8.10. CHANGE IN ACCOUNTING PRINCIPLES, FISCAL YEAR OR TAX LAWS.
If (i) any preparation of the financial statements referred to in
Section 5.7. hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) result in a Material change in the
method of calculation of financial covenants, standards or terms found in this
Agreement, (ii) there is any change in Borrower's fiscal quarter or fiscal year,
or (iii) there is a Material change in federal tax laws which Materially affects
the Borrower's ability to comply with the financial covenants, standards or
terms found in this Agreement, Borrower and the Lender agree to enter into
negotiations in order to amend such provisions so as to equitably reflect such
changes with the desired result that the criteria for evaluating the Borrower's
financial condition shall be the same after such changes as if such changes had
not been made. Unless and until such provisions have been so amended, the
provisions of this Agreement shall govern.
SECTION 8.11. HEADINGS DESCRIPTIVE; ENTIRE AGREEMENT.
The headings of the several sections and subsections of this Agreement
are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement. This Agreement, the other
Credit Documents, and the agreements and documents required to be delivered
pursuant to the terms of this Agreement constitute the entire agreement among
the parties hereto and thereto regarding the subject matters hereof and thereof
and supersede all prior agreements, representations and understandings related
to such subject matters.
SECTION 8.12. USURY.
The parties to this Agreement intend to conform strictly to applicable
usury laws as presently in effect. Accordingly, if the transactions contemplated
hereby would be usurious under applicable law (including the laws of the United
States of America and the State of Tennessee), then, in that event,
notwithstanding anything to the contrary in any Credit Document or agreement
executed in connection with the indebtedness described herein, the Borrower and
the Lender agree as follows: (i) the aggregate of all consideration that
constitutes interest under applicable law which is contracted for, charged, or
received under any of the Credit Documents or agreements, or otherwise in
connection with the indebtedness described herein, shall under no circumstance
exceed the maximum lawful rate of interest permitted by applicable law, and any
excess shall be credited on the indebtedness by the holder thereof (or, if the
indebtedness described herein shall have been paid in full, refunded to the
Borrower); and (ii) in the event that the maturity of the indebtedness described
herein is accelerated as a result of any
40
<PAGE> 43
Event of Default or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount of interest permitted by applicable law, and excess
interest, if any, for which this Agreement provides, or otherwise, shall be
canceled automatically as of the date of such acceleration or prepayment and, if
previously paid, shall be credited on the indebtedness described herein (or, if
the indebtedness shall have been paid in full, refunded to the Borrower).
SECTION 8.13. TIME IS OF THE ESSENCE.
Time is of the essence is interpreting and performing this Agreement
and all other Credit Documents.
SECTION 8.14. CONSTRUCTION.
Should any provision of this Agreement require judicial interpretation,
the parties hereto agree that the Court interpreting or construing the same
shall not apply a presumption that the terms hereof shall be more strictly
construed against one party by reason of the rule of construction that a
document is to be more strictly construed against the party who itself or its
agents prepared the same, it being agreed that Borrower and the Lender and their
respective agents have participated in the preparation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Nashville, Tennessee by their duly authorized
officers as of the day and year first above written.
BORROWER:
AMERICAN HEALTHCORP, INC.
By:
-----------------------------------------
Title:
---------------------------------------
Address for notice:
3841 Green Hills Village Boulevard
Suite 300
Nashville, Tennessee 37215
[Signatures Continued on Next Page]
41
<PAGE> 44
LENDER:
SUNTRUST BANK
By:
-----------------------------------------
Title:
---------------------------------------
Address for notice:
201 Fourth Avenue North
P.O. Box 305110
Nashville, Tennessee 37230
42
<PAGE> 45
REVOLVING CREDIT NOTE
Nashville, Tennessee
$6,000,000.00
January 4, 2000
FOR VALUE RECEIVED AMERICAN HEALTHCORP, INC., a Delaware corporation
(the "Borrower") promises and agrees to pay to the order of SUNTRUST BANK (the
"Lender"), at its offices in Nashville, Tennessee, or at such other place as may
be designated in writing by the holder, in lawful money of the United States of
America, the principal sum of up to Six Million and no/100 Dollars
($6,000,000.00), or so much thereof as may be advanced from time to time by the
Lender (provided that in no event shall the sum of outstanding Advances exceed
the Borrowing Base), together with interest from the date hereof on the unpaid
principal balance outstanding from time to time hereon computed at the
Applicable Rate.
This Note, and all the terms and provisions hereof (including, without
limitation, all advances hereunder), is governed by and is subject to all the
terms and conditions of that certain Credit Agreement, executed of even date
herewith by Borrower and Lender, as the same agreement may hereafter be amended,
restated or modified (the "CREDIT AGREEMENT"). TERMS NOT OTHERWISE DEFINED
HEREIN SHALL HAVE THE SAME MEANING AS IN THE CREDIT AGREEMENT.
The Borrower agrees to make payments of principal and interest on the
Advances hereunder on the dates and in the amounts specified in the Credit
Agreement. This Revolving Credit Note shall mature on January 4, 2002 (the
"Maturity Date"), at which time the Borrower shall pay to the Lender an amount
equal to all outstanding principal, plus all accrued and unpaid interest.
Until maturity and provided no Default or Event of Default has occurred
hereunder, the Borrower may borrow, repay, and reborrow hereunder.
Lender and Borrower intend to conform strictly to applicable usury laws
as presently in effect. Accordingly, Borrower and Lender agree that,
notwithstanding anything to the contrary herein or in any agreement executed in
connection with or as security for this Note, the sum of all consideration that
constitutes interest under applicable law which is contracted for, charged, or
received hereunder shall under no circumstance, including without limitation any
circumstance in which the Note has been accelerated or prepaid, exceed the
maximum lawful rate of interest permitted by applicable law. Any excess interest
shall be credited on this Note or, if this Note shall have been paid in full,
refunded to Borrower, by the holder hereof.
Overdue principal and, to the extent not prohibited by applicable law,
overdue interest, in respect of the Advances, and all other overdue amounts
owing hereunder, shall bear interest from each date that such amounts are
overdue at a
<PAGE> 46
rate of interest equal to the lesser of (i) 13% per annum or (ii) the maximum
lawful rate allowed by applicable law.
TIME IS OF THE ESSENCE OF THIS NOTE, WITH REGARDS TO EACH AND EVERY
PROVISION OF THIS NOTE.
Upon the occurrence of (a) any breach of any promise made in this Note
or in any other document relating to, securing, or otherwise executed in
connection with this Note; or (b) upon the occurrence of an Event of Default as
defined in the Credit Agreement; then in any of such events (each for purposes
of this Note, an Event of Default), at the option of the holder, the entire
indebtedness hereby evidenced shall become due, payable and collectible then or
thereafter, without notice, as the holder may elect regardless of the date of
maturity. The holder may waive any default before or after the same has been
declared and restore this Note to full force and effect without impairing any
rights hereunder, such right of waiver being a continuing one.
Borrower and any and all accommodation parties, endorsers, guarantors
and other parties liable on this Note, (collectively, the "OBLIGORS") jointly
and severally waive presentment for payment, protest, notice of protest, notice
of nonpayment of this Note, demand and all legal diligence in enforcing
collection, and any discharge or defenses based on suretyship or impairment of
collateral; and hereby expressly consent to (i) any and all delays, extensions,
renewals or other modifications of this Note or any waivers of any term hereof,
(ii) any release or discharge by Lender of any of the Obligors, (iii) any
release substitution or exchange of any security for the payment hereof, (iv)
any failure to act on the part of Lender, and (vi) any indulgence shown by
Lender from time to time (without notice or further assent from any of the
Obligors) and hereby agree that no such action, failure to act or failure to
exercise any right or remedy by Lender shall in any way affect or impair the
obligations of any of the Obligors.
BORROWER HEREBY KNOWINGLY, WILLINGLY AND IRREVOCABLY WAIVES ITS RIGHTS
TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS NOTE OR ANY
DOCUMENTS EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR ANY RELATIONSHIP
BETWEEN BORROWER AND LENDER.
In any action to enforce this Note, Borrower hereby irrevocably and
unconditionally waives any and all rights under the laws of any state to claim
or recover any special, exemplary, punitive, consequential or other damages
other than actual direct damages.
Borrower shall pay, on demand, all costs and expenses (including court
costs, attorneys' fees and expenses) incurred by Lender in attempting to enforce
or collect this Note, protect or enforce its rights under this Note, or protect
or collect on any security for the payment of this Note.
2
<PAGE> 47
This Note has been executed and delivered in, and shall be governed by
and construed according to the laws of the State of Tennessee except to the
extent pre-empted by applicable laws of the United States of America. If any
provision of this Note should for any reason be invalid or unenforceable, the
remaining provisions hereof shall remain in full force and effect.
This Note may not be changed, extended or terminated except in writing
signed by Borrower and Lender. No waiver of any term or provision hereof shall
be valid unless in writing signed by Lender.
This Note is made for business purposes.
Executed this 4th day of January, 2000.
BORROWER:
AMERICAN HEALTHCORP, INC.
By:
-----------------------------------------
Title:
---------------------------------------
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HEALTHCORP, INC. FOR THE THREE MONTHS ENDED
NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 9,969,254
<SECURITIES> 0
<RECEIVABLES> 5,534,021
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,954,091
<PP&E> 11,840,751
<DEPRECIATION> 3,506,540
<TOTAL-ASSETS> 40,093,945
<CURRENT-LIABILITIES> 6,962,345
<BONDS> 0
0
0
<COMMON> 8,237
<OTHER-SE> 30,410,576
<TOTAL-LIABILITY-AND-EQUITY> 40,093,945
<SALES> 0
<TOTAL-REVENUES> 13,065,079
<CGS> 0
<TOTAL-COSTS> 11,394,501
<OTHER-EXPENSES> 666,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,003,933
<INCOME-TAX> 419,000
<INCOME-CONTINUING> 584,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 584,933
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
