<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11506
-------
Value Health, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1194838
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22 Waterville Road, Avon, Connecticut 06001
----------------------------------------------------------
(Address of principal executive offices, Zip Code)
(860) 678-3400
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
The number of shares of Common Stock, without par value, outstanding on
October 28, 1996 was 54,399,370.
Exhibit Index located on Page 19.
<PAGE>
Value Health, Inc.
Table of Contents
- --------------------------------------------------------------------------------
PART I -- FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
And December 31, 1995 3
Consolidated Statements Of Operations For The Three And
Nine Months Ended September 30, 1996 And 1995 4
Consolidated Statements Of Cash Flows For The Nine
Months Ended September 30, 1996 And 1995 5
Notes To Consolidated Financial Statements 6
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations 10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits And Reports On Form 8-K 17
SIGNATURES 18
2
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(in thousands, except par value and share amounts)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(unaudited) (audited)
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 126,090 $ 68,505
Restricted cash 3,995 5,806
Short-term investments 4,402 25,514
Accounts receivable (net of allowance for doubtful accounts of
$17,873 and $17,171, respectively) 309,250 304,272
Inventories 27,983 30,052
Prepaid expenses and other current assets 25,219 31,495
Deferred taxes 51,544 71,797
------------ ------------
Total current assets 548,483 537,441
------------ ------------
Fixed assets:
Land 3,513 3,532
Buildings 14,980 14,226
Furniture and fixtures 16,974 19,820
Equipment and software 143,503 150,425
Leasehold improvements 13,679 15,709
------------ ------------
192,649 203,712
Less accumulated depreciation and amortization (68,578) (71,242)
------------ ------------
Total fixed assets 124,071 132,470
------------ ------------
Long-term investments 6,282 12,868
Goodwill, net 214,389 190,605
Other assets 50,855 30,651
------------ ------------
271,526 234,124
------------ ------------
Total assets $ 944,080 $ 904,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to providers $ 156,694 $ 116,166
Accounts payable and accrued expenses 71,036 65,195
Merger-related expense 9,769 49,767
Accrued loss contracts 12,128 30,386
Restructuring reserve 16,549 30,597
Other liabilities 22,869 24,300
------------ ------------
Total current liabilities 289,045 316,411
------------ ------------
Capital lease obligations, less current portion 1,498 2,130
Other liabilities 3,621 4,450
------------ ------------
Total long-term liabilities 5,119 6,580
------------ ------------
Total liabilities 294,164 322,991
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, authorized 1,000,000 - -
shares, no shares issued
Common stock - without par value, authorized 100,000,000
shares, issued and outstanding 54,396,954 and
53,688,740 shares, respectively 504,263 467,325
Retained earnings 171,453 113,950
Treasury stock, at cost, 959,998 shares at September 30, 1996 (25,353) -
Unrealized loss on securities available-for-sale, net of tax (447) (231)
------------ ------------
Total stockholders' equity 649,916 581,044
------------ ------------
Total liabilities and stockholders' equity $ 944,080 $ 904,035
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
for the three months ended for the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Prescription drugs - services $ 276,950 $ 262,602 $ 856,757 $ 751,464
Prescription drugs - products 108,618 103,190 325,521 318,183
Mental health 53,139 55,423 158,549 163,367
Workers' compensation 25,466 23,953 79,733 70,943
Disease management and information services 8,777 14,216 35,554 46,013
Other 1,364 1,535 4,198 6,106
Investment income 1,299 1,229 4,273 6,360
-------------- ------------ ------------- -------------
Total revenues 475,613 462,148 1,464,585 1,362,436
-------------- ------------ ------------- -------------
Expenses:
Costs of services 296,536 291,223 923,092 841,156
Costs of products 95,170 92,319 282,954 266,960
Selling, general and administrative 42,488 48,981 133,725 132,372
Depreciation and amortization 6,750 7,378 20,491 21,083
Amortization of goodwill 2,054 1,841 6,454 5,077
Interest expense 125 525 366 1,659
Loss contracts - 34,000 - 46,600
Merger-related expense - 68,807 - 68,807
-------------- ------------ ------------- -------------
Total expenses 443,123 545,074 1,367,082 1,383,714
-------------- ------------ ------------- -------------
Earnings (loss) before income taxes 32,490 (82,926) 97,503 (21,278)
Provision (benefit) for income taxes 13,354 (28,238) 40,000 (3,354)
-------------- ------------ ------------- -------------
Net earnings (loss) $ 19,136 $ (54,688) $ 57,503 $ (17,924)
============== ============ ============= =============
Weighted average common shares
and common share equivalents outstanding 54,654 54,585 54,902 54,359
============== ============ ============= =============
Net earnings (loss) per share $ 0.35 $ (1.00) $ 1.05 $ (0.33)
============== ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $57,503 ($17,924)
--------- ---------
Adjustments to reconcile net earnings (loss) to net cash:
Depreciation and amortization 20,491 21,083
Provision for doubtful accounts and notes receivable 8,587 5,438
Deferred taxes 20,253 (51,503)
Tax effect of certain stock option transactions 3,000 1,172
Amortization of goodwill 6,454 5,077
Amortization of deferred revenue (4,788) (2,606)
Amortization of investment premiums 96 378
Gain on sales of securities 0 563
Change in assets and liabilities:
(Increase) decrease in assets:
Restricted cash 1,811 (2,048)
Accounts receivable (14,958) (66,046)
Inventories 2,069 5,500
Other current and non-current assets (12,442) (1,744)
Increase (decrease) in liabilities:
Payable to providers 40,528 23,813
Accounts payable and accrued expenses 6,607 46,607
Merger-related expense (30,088) (8,221)
Accrued loss contracts (18,258) 38,087
Restructuring reserve (9,308) 0
Other current and non-current liabilities 3,544 (1,334)
--------- ---------
Total adjustments 23,598 14,216
--------- ---------
Net cash provided by (used in) operating activities 81,101 (3,708)
--------- ---------
Cash flows from investing activities:
Capital expenditures (37,238) (35,763)
Proceeds from sale of fixed assets 5,961 0
Purchase of subsidiaries and assets, net of cash acquired (20,921) (13,910)
Sale of subsidiary, net of cash sold 18,017 0
Purchases of securities (28,743) (55,317)
Maturities and sales of securities 56,024 136,620
--------- ---------
Net cash provided by (used in) investing activities (6,900) 31,630
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of common stock options 9,691 14,389
Advances under financing agreements 0 (200)
Repayments of advances under financing agreements 0 1,174
Payments for common stock repurchase (25,353) 0
Proceeds from issuance of long-term debt 0 16,500
Payments of long-term debt and capital lease obligations (954) (45,771)
--------- ---------
Net cash used in financing activities (16,616) (13,908)
--------- ---------
Net increase in cash and cash equivalents 57,585 14,014
Cash and cash equivalents at beginning of period 68,505 84,899
--------- ---------
Cash and cash equivalents at end of period $126,090 $98,913
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The unaudited interim consolidated financial statements included herein, as
of and for the three-month and nine-month periods ended September 30, 1996
and 1995, contain all adjustments which, in the opinion of management, are
necessary to present a fair statement of the financial condition, results
of operations and cash flows for the interim periods reported. Operating
results for the interim periods are not necessarily indicative of those
expected for the full year. Certain prior year amounts have been
reclassified to conform to the 1996 presentation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and the
rules and regulations of the Securities and Exchange Commission. These
financial statements have been prepared under the presumption that users of
the interim financial information have either read or have access to the
Company's audited financial statements for the year ended December 31,
1995. Accordingly, footnote disclosures which would substantially
duplicate the disclosures contained in the Company's December 31, 1995
audited financial statements have been omitted from these interim financial
statements. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
instructions, rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these unaudited interim consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
On October 9, 1996, the Company announced plans to spin off its
ValueRx subsidiary (see Part II, Item 5). The Company has not yet
formulated the details of this plan.
2. Investments:
Investments in debt and equity securities as of September 30, 1996 and
December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Available-for-Sale Amortized Unrealized Unrealized Aggregate
September 30, 1996 Cost Gain Loss Fair Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of States and
Municipalities $ 4,350,000 $ - $ - $ 4,350,000
Obligations of U.S.
Government and
Agencies 5,429,000 8,000 (6,000) 5,431,000
Equity Securities 1,649,000 - (746,000) 903,000
- ------------------------------------------------------------------------------
$11,428,000 $8,000 $(752,000) $10,684,000
==============================================================================
</TABLE>
6
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
Debt
Maturities: Less Than One Year One To Five Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortized Cost $4,402,000 $5,377,000 $9,779,000
Aggregate Fair Value $4,402,000 $5,379,000 $9,781,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities were $3,600,000 and
$88,699,000 for the three months ended September 30, 1996 and 1995,
respectively. Realized gains from these sales were $0 and $1,170,000 for the
three months ended September 30, 1996 and 1995, respectively. Proceeds from the
sale of available for sale securities were $45,807,000 and $103,851,000 for the
nine months ended September 30, 1996 and 1995, respectively. Realized gains
(losses) from these sales were $0 and $(563,000), respectively.
<TABLE>
<CAPTION>
Available-for-Sale Amortized Unrealized Unrealized Aggregate
December 31, 1995 Cost Gain Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of States
and Municipalities $31,751,000 $ 14,000 $ -- $31,765,000
Obligations of U.S.
Government and
Agencies 5,364,000 4,000 -- 5,368,000
Equity Securities 1,654,000 -- (405,000) 1,249,000
- -----------------------------------------------------------------------------------------------------------------------
$38,769,000 $ 18,000 $ (405,000) $38,382,000
=======================================================================================================================
<CAPTION>
Debt
Maturities: Less Than One Year One To Five Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortized Cost $25,499,000 $11,616,000 $37,115,000
Aggregate Fair Value $25,514,000 $11,619,000 $37,133,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Merger Related Expense:
The following table is a reconciliation of the accrued merger-related
expense for the nine months ended September 30, 1996.
<TABLE>
<CAPTION>
Asset
Write-Offs And
Costs Of Reduction Of
Transaction Combining Headcount
(In thousands) Costs Operations and Capacity Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995 $345 $31,468 $17,954 $49,767
Expenses Recorded -- -- -- --
Payments and Write-Offs (94) (31,468) (8,436) (39,998)
- -----------------------------------------------------------------------------------------------------------------------
Balance at September 30,
1996 $251 $ -- $ 9,518 $ 9,769
=======================================================================================================================
</TABLE>
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Restructuring Reserve:
The following table is a reconciliation of the restructuring reserve for
the nine months ended September 30, 1996.
<TABLE>
<CAPTION>
Lease Vacation and
Severance and Other Associated
(In thousands) Related Benefits Costs Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31,
1995 $ 7,732 $22,865 $ 30,597
Expenses Recorded -- -- --
Payments and Write-Offs (4,815) (9,233) (14,048)
---------------------------------------------------------------------------
Balance at September 30,
1996 $ 2,917 $13,632 $ 16,549
===========================================================================
</TABLE>
5. Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of:"
Effective January 1, 1996, the Company adopted SFAS 121. There was no
material impact on financial condition, results of operations or cash flows
during the third quarter of 1996.
6. Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------
<S> <C> <C>
Cash Paid During The Period For:
Interest $ 313,000 $ 1,678,000
Income Taxes $ 32,139,000 $ 52,285,000
--------------------------------------------------------------------
Noncash Transactions:
Note Receivable From Sale Of
Subsidiary $ -- $ 2,900,000
Common Stock Issued In Acquisitions $ 23,065,000 $ 10,138,000
Fixed Asset Writeoffs from Merger and
Restructuring $ 20,522,000 $ --
Assets contributed in Exchange for
Equity Interest in Joint Venture $ 18,577,000 $ --
--------------------------------------------------------------------
</TABLE>
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Short-Term Borrowings
On August 21, 1996, the Company entered into a five-year, $140 million
revolving credit agreement with a bank group. The agreement requires an
annual facility fee of.10% to .20%, as defined in the agreement. Borrowings
under the agreement bear interest based on the prime rate, the Federal
Funds rate, or LIBOR, as defined in the agreement. The Company has the
option to select either interest pricing method. The agreement requires
compliance with certain financial covenants, all of which the Company has
complied with as of September 30, 1996. In connection with the planned
spin-off of ValueRx (See Part II, Item 5), it is expected that this
agreement will be re-negotiated. There were no borrowings under this
agreement during the third quarter of 1996.
8. Accounting for Joint Ventures
The Company's investments in joint ventures are accounted for under the
equity method. The investment in joint ventures is included in other
assets and is increased/decreased by the Company's equity interest in
earnings/losses of the joint ventures. The balances at September 30, 1996
and December 31, 1995 were $17,518,000 and $500,000, respectively.
9. Income Taxes
The provision (benefit) for income taxes in both periods includes estimates
of federal and state income taxes. The effective rate for the nine months
ended September 30, 1996 was 41%. The effective (benefit) rate for the
nine months ended September 30, 1995 was (16%). The lower effective rate
in 1995 was due to a high level of non-deductible 1995 expenses relative to
the amount of reported loss before taxes.
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Value Health, Inc. ("the Company") is a leading provider of specialty managed
health care benefit programs.
Revenues for the three months ended September 30, 1996 of $475.6 million
increased $13.5 million or 2.9% over the third quarter of 1995. For the first
nine months of 1996, revenues were $1,464.6 million, up 7.5% over the first nine
months of 1995. The Company's revenues are from specialized managed health care
services in the areas of prescription drugs, mental health and substance abuse,
workers' compensation and disability management, and disease management and
information services.
The Company's net earnings for the third quarter of 1996 were $19.1 million as
compared with a net loss of $54.7 million during the third quarter of 1995.
Year to date net earnings were $57.5 million as compared with a net loss of
$17.9 million in 1995. The 1995 results included loss contract expenses of
$34.0 million and $46.6 million during the third quarter and year to date
periods, respectively. In addition, 1995 results included merger-related
expenses of $68.8 million recorded in the third quarter.
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein which are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by the forward-looking
statements. These factors could include, but not be limited to, the impact of
increases in health care costs and utilization on expenses, the amount of
rebates from pharmaceutical manufacturers, competition, the loss of contracts or
failure to secure new contracts, the timing of obtaining new business, the
timing of implementing recently-awarded contracts, government regulation,
potential legal liability resulting from errors and/or omissions in providing
services, reliance on data processing and other risks detailed from time to time
in the Company's Securities and Exchange Commission filings.
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth certain consolidated financial data as
percentages of revenues for the three and nine-month periods ended September 30,
1996 and 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Percentage of Revenues Percentage of Revenues
for the three months for the nine months
ended September 30, ended September 30,
- -----------------------------------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Prescription Drugs - Services 58.2% 56.8% 58.5% 55.1%
Prescription Drugs - Products 22.8 22.3 22.2 23.4
Mental Health 11.2 12.0 10.8 12.0
Workers' Compensation 5.4 5.2 5.5 5.2
Disease Management and
Information Services 1.8 3.1 2.4 3.4
Other 0.3 0.3 0.3 0.4
Investment Income 0.3 0.3 0.3 0.5
- -----------------------------------------------------------------------------
Total Revenues 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------
Expenses:
Costs of Services/(1)/ 62.4 63.0 63.1 61.7
Costs of Products/(2)/ 20.0 20.0 19.3 19.6
Selling, General &
Administrative 8.9 10.6 9.1 9.7
Depreciation & Amortization 1.5 1.6 1.4 1.6
Amortization of Goodwill 0.4 0.4 0.4 0.4
Interest Expense 0.0 0.1 0.0 0.1
Loss Contracts 0.0 7.4 0.0 3.4
Merger-Related Expenses 0.0 14.8 0.0 5.1
- -----------------------------------------------------------------------------
Total Expenses 93.2 117.9 93.3 101.6
- -----------------------------------------------------------------------------
Earnings (Loss) Before
Income Taxes 6.8 (17.9) 6.7 (1.6)
Provision (Benefit) For
Income Taxes 2.8 (6.1) 2.8 (0.3)
- -----------------------------------------------------------------------------
Net Earnings (Loss) 4.0% (11.8%) 3.9% (1.3%)
=============================================================================
=============================================================================
/(1)/ Costs Of Services As A
Percentage Of Services
Revenues 81.4% 81.8% 81.6% 81.5%
=============================================================================
/(2)/ Costs Of Products
As A Percentage
Of Products Revenues 87.6% 89.5% 86.9% 83.9%
=============================================================================
</TABLE>
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- ---------------------
Revenues increased by $13.5 million or 2.9% over the third quarter of 1995.
The addition of new customers increased revenues by $51.6 million. Revenues
from existing customers declined by $14.3 million and the sale of Lewin in 1996
caused third quarter 1996 revenues to decline by $5.8 million from 1995. As
discussed more fully below, revenues from the Company's joint ventures are not
consolidated (see Part II, Item 5). Accordingly, reported third quarter and
year to date prescription drug services revenues were reduced by $18.0 million
as compared to 1995. Other revenues decreased by $0.2 million and investment
income increased by $0.1 million from 1995. Year to date revenues increased by
$102.1 million or 7.5% over the first nine months of 1995. New customers and
acquisitions increased revenues by $189.2 million and $5.9 million,
respectively. Revenues from existing customers declined by $ 63.1 million and
the sale of Lewin-VHI, Inc. in May 1996 caused revenues to decline by $7.9
million. Other revenues and investment income declined by $1.9 million and $2.1
million, respectively.
Prescription drug service revenues (from the retail pharmacy network and
institutional businesses) increased by $14.3 million or 5.5% over the third
quarter of 1995. The addition of new customers increased revenues by $42.2
million and revenues from existing customers declined by $9.9 million. Lost
business was partially offset by increases in enrollment and expansion programs
within existing accounts. Year to date prescription drug service revenues
increased by $105.3 million over the first nine months of 1995. The addition of
new customers increased revenues by $152.5 million while revenues from existing
customers declined $29.2 million. The Company's joint venture with Allegiance
Corporation commenced operations in July, 1996 (see Part II, Item 5). Under
generally accepted accounting principles, joint venture revenue is not
consolidated with the Company's revenue. Accordingly, for the three and nine-
month periods ended September 30, 1996, reported prescription drug service
revenue from existing (institutional) customers was reduced in comparison to
prior periods by approximately $18 million due to this accounting treatment.
Fourth quarter 1996 prescription drug service revenue is expected to be reduced
from the prior year level by a similar amount.
Prescription drug product revenues (from the mail service pharmacy business) for
the third quarter increased by $5.4 million or 5.3% over the third quarter of
1995. The addition of new customers increased revenues by $2.9 million while
revenues from existing customers increased by $2.5 million. Year to date
prescription drug product revenues increased by $7.3 million over the first nine
months of 1995. The addition of new customers increased revenues by $16.5
million while revenues from existing customers declined by $9.2 million.
Lost prescription drug service and product business occurred as a result of
certain loss contracts canceled by the Company as well as profitable contracts
canceled by certain customers. The Company expects revenue decreases from
existing prescription drug customers to continue during the fourth quarter of
1996, as compared to the fourth quarter of 1995, due to the effects of these
contract cancellations.
12
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- ---------------------
Mental health revenues for the third quarter of 1996 decreased by $2.3 million
or 4.1% over the third quarter of 1995. New business added $5.4 million to 1996
revenues. Revenues from existing customers decreased by $7.7 million as a
result of enrollment reductions, lost business and price reductions. Year to
date mental health revenues declined by $4.8 million from the first nine months
of 1995. The addition of new customers and acquisitions increased revenues by
$12.8 million and $3.1 million, respectively, over the first nine months of
1995. Revenues from existing customers declined by $20.7 million. The decrease
was due to enrollment reductions, lost business and price reductions.
Workers' compensation revenues for the third quarter of 1996 increased by $1.5
million or 6.3% from the third quarter of 1995. New business added $0.5 million
to 1996 revenues. Revenues from existing customers, net of revenue decreases
from non-core operations that were divested or discontinued, increased by $1.0
million in 1996 primarily due to expansion programs. Year to date workers'
compensation revenues increased by $8.8 million over the first nine months of
1995. New business and acquisitions added $3.8 million and $0.6 million,
respectively, to 1996 revenues. Revenues from existing customers, net of revenue
decreases from non-core operations that were divested or discontinued, increased
by $4.4 million primarily due to expansion programs.
Disease management and information services revenues for the third quarter of
1996 decreased by $5.5 million or 38.3% from the third quarter of 1995. New
customers, including disease management programs added $0.7 million to revenues.
Revenues from existing customers decreased by $0.3 million, primarily due to
enrollment reductions, lost business and scheduled fee decreases in certain
major disease management contracts. The sale of the assets of Lewin-VHI, Inc.
in May, 1996 accounted for $5.8 million of the revenue decrease. Year to date
disease management and information services revenues declined by $10.5 million.
New customers, including disease management programs, added $3.7 million to
revenues. The acquisition of Value Health Management in May, 1995 added $2.2
million and revenues from existing customers declined by $8.5 million due to
enrollment reductions, lost business and scheduled fee decreases in certain
major disease management contracts. The sale of the assets of Lewin-VHI, Inc.
in May, 1996 accounted for $7.9 million of the revenue decrease. Revenues
during the fourth quarter of 1996 are expected to be lower than the comparable
period in 1995 due to the Lewin sale and scheduled fee decreases as discussed
above. During the third quarter of 1996, the Company commenced discussions with
Johnson & Johnson to restructure its disease management contract. It is
anticipated that this restructuring could result in lower disease management
revenues for 1997.
Other revenues for the third quarter of 1996 decreased by $0.2 million from the
third quarter of 1995, while year to date revenues declined by $1.9 million.
The year to date decline was due primarily to the sale of National Foot Care
Program in the first quarter of 1995.
13
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- ---------------------
Investment income for the three-month period ended September 30, 1996 increased
by $0.1 million over 1995 due to higher investment balances. Investment income
for the nine months ended September 30, 1996 declined by $2.1 million from 1995
due to lower investment balances, primarily during first six months of 1996.
The Company's costs of services consist of direct expenses of providing
specialty managed care and information services, including costs of retail
prescription drugs, mental health and substance abuse provider charges, salaries
and wages of medical management, customer service and claims processing
personnel and certain data processing costs. Costs of services for the three
months ended September 30, 1996 increased by $5.3 million or 1.8% over the third
quarter of 1995. Costs of services for the nine months ended September 30, 1996
increased by $81.9 million or 9.7% over the first nine months of 1995. Most of
these increases were due to an increased number of plan participants and
provider and drug price increases. As a percentage of service revenues, costs
of services for the third quarter of 1996 were 81.4% as compared with 81.8%
during the third quarter of 1995 and 81.6% for the nine months ended September
30, 1996 as compared with 81.5% during the first nine months of 1995. Despite a
competitive pricing environment, the Company maintained a stable cost of
services ratio during 1996 as compared with 1995. This is due primarily to the
Company's restructuring and re-engineering programs implemented during 1996,
resistance to rebids at excessively low margins and cancellations of certain
loss contracts during 1995.
The Company's costs of products consist of the cost of mail order prescription
drugs, including labor and overhead charges associated with warehousing,
processing and shipping activities. Costs of products for the three months
ended September 30, 1996 increased by $2.9 million or 3.1% over the third
quarter of 1995. Costs of products for the first nine months of 1996 increased
by $16.0 million or 6.0% over the first nine months of 1995. As a percentage of
product revenues, costs of products decreased to 87.6% for the three months
ended September 30, 1996, from 89.5% during the third quarter of 1995, and
increased to 86.9% during the nine months ended September 30, 1996 from 83.9%
during the nine months ended September 30, 1995. The higher costs of products
ratio for the third quarter of 1995 was due largely to certain unusual charges
recorded at Diagnostek. The increase in the costs of products ratio for the
nine months ended September 30, 1996 is due to the competitive pricing
environment, the loss of certain profitable accounts since the third quarter of
1995 and increases in costs due to alternate sourcing of purchases resulting
from the bankruptcy of a major supplier.
14
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- ---------------------
Selling, general and administrative expenses for the three months ended
September 30, 1996, decreased by $6.5 million or 13.3% over the third quarter of
1995. Selling, general and administrative expenses for the first nine months of
1996 increased by $1.4 million or 1.0% over the first nine months of 1995. As a
percentage of revenues, selling, general and administrative expenses were 8.9%
for the third quarter of 1996 and 10.6% during the third quarter of 1995. For
the nine months ended September 30, selling, general and administrative expenses
as a percentage of revenues were 9.1% in 1996 and 9.7% in 1995. The lower
ratios during 1996 are due in part to the Company's restructuring and re-
engineering programs in 1996. In addition, certain unusual charges were
recorded during the third quarter of 1995, including $6.6 million for asset
write-offs, litigation and other expenses.
Depreciation and amortization expense, which consists of the depreciation of
property and equipment and the amortization of purchased and internally
developed software, was $6.8 million for the three months ended September 30,
1996 as compared to $7.4 million for the third quarter of 1995 and $20.5 million
for the nine months ended September 30, 1996 as compared to $21.1 million for
the nine months ended September 30, 1995. The reduction in depreciation and
amortization expense during 1996 was due to lower property, plant, and equipment
balances resulting from the Company's restructuring programs. Amortization of
goodwill arising from purchase acquisitions was $2.1 million for the three
months ended September 30, 1996 as compared to $1.8 million during the three
months ended September 30, 1995 and $6.5 million for the nine months ended
September 30, 1996 as compared to $5.1 million during the nine months ended
September 30, 1995. The higher level of 1996 goodwill amortization was due to
purchase acquisitions completed in 1995 and 1996, together with earnout payments
made in 1995 and 1996 in connection with the acquisition of Community Care
Network, Inc. in 1994. Such earnout payments are recorded as additional
goodwill. The Company expects depreciation and goodwill amortization to
continue to increase over prior year levels throughout the remainder of 1996.
As more fully discussed in the Company's 1995 annual report, the Company, in
1995, recorded loss contract expenses of $46.6 million in connection with
certain pharmacy benefit management contracts and $68.8 million of merger-
related expenses associated with the Diagnostek merger.
The provision (benefit) for income taxes in both years includes estimates of
federal and state income taxes. The effective tax rate for the three and nine-
month periods ended September 30, 1996 was 41%. The effective tax (benefit)
rates for the three and nine month periods ended September 30, 1995 were (34%)
and (16%), respectively. These lower effective (benefit) rates resulted from
high levels of non-deductible merger expenses, relative to the amount of
reported loss before income taxes.
15
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has historically funded its operations and capital expenditures
primarily from the proceeds of stock issuances and internally generated cash. On
August 21, 1996, the Company entered into a five-year, $140 million revolving
credit agreement with a bank group (See note 7). In connection with the planned
spin-off of ValueRx (See Part II, Item 5), it is expected that this agreement
will be modified to provide future liquidity to both the Company and Value Rx.
As of September 30, 1996, the Company had working capital of $259.4 million and
unrestricted cash and marketable securities of $136.8 million.
During the first quarter of 1996, the Company repurchased 959,998 shares of its
common stock in connection with the Medintell acquisition and an earnout from a
previous acquisition. On October 9, 1996 the Company announced its intention to
repurchase up to $100 million of its common shares.
Capital additions were approximately $37.2 million for the nine months ended
September 30, 1996. Capital additions were primarily for computer hardware and
software, furniture, leasehold improvements and software development for
information services.
On October 9, 1996 the Company announced that it reached an agreement to
acquire MedView Services, Incorporated for $87.5 million in cash. Closing of
the acquisition is expected to occur during the fourth quarter of 1996.
The Company's remaining contingent payments to CCN under its Acquisition
Agreement dated May 18, 1995, may be up to $63 million. If such payments are
required to be made, approximately $58 million would be paid during the second
quarter of 1997. These payments are not expected to have a material impact on
the Company's financial condition or results of operations.
The Company has announced its intent to invest up to $10 million over the next
two years in development expenses to expand its public sector managed care
capability. The Company is also investing in new product development to serve
the cancer care market. The Company may in the future acquire certain
businesses or products complementary to its strategy. If the Company's
available cash and marketable securities and credit line are not sufficient to
meet liquidity and funding requirements, then the Company will pursue additional
capital from a variety of sources, including but not limited to equity and debt
offerings, additional bank lines of credit and other sources. Although the
Company is confident that it will be able to obtain such additional financing,
there can be no assurance that the Company will be able to secure financing or
that its terms will be favorable to the Company.
Management believes that existing cash and marketable securities and its
revolving credit agreement, together with internally generated cash, will be
sufficient to meet the Company's normal operating requirements through 1996.
16
<PAGE>
Value Health, Inc.
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
- ---------------------------
The Company is involved in certain litigation as more fully described in its
Annual Report on Form 10K for the year ended December 31, 1995. The Company
denies the allegations in those cases and intends to defend them vigorously. Any
potential losses cannot be estimated at this time.
Item 5. - Other Information
- ---------------------------
In July, 1996, the Company's joint venture with Allegiance Corporation to
provide medication management services to hospitals and other health-care
facilities commenced operations. The Company contributed substantially all of
the operating assets and contracts of its HPI Health Care Services, Inc.
subsidiary to the joint venture.
On October 9, 1996, the Company announced plans to spin off its ValueRx
prescription benefit and medication management subsidiary to shareholders. The
Company also announced plans to acquire MedView Services, Incorporated of
Farmington Hills, MI, a provider of workers' compensation managed care services
for $87.5 million and to institute an open market share repurchase program of up
to $100 million.
Item 6. - Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibit 10 - Revolving Credit Agreement
(b) Exhibit 11 - Schedule of Computation of Net Earnings Per Share
(c) A report on Form 8-K dated October 8, 1996 was filed on October 11, 1996 in
connection with the Company's plan to spin off its ValueRx subsidiary.
17
<PAGE>
Value Health, Inc.
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 thereunto duly authorized.
DATE: November 13, 1996 Value Health, Inc.
By: /s/ Robert E. Patricelli
------------------------
Robert E. Patricelli
Chairman, President
and Chief Executive Officer
DATE: November 13, 1996 By: /s/ David M. Wurzer
-------------------
David M. Wurzer
Senior Vice President
and Chief Financial Officer
(Principal Financial
and Accounting Officer)
18
<PAGE>
Value Health, Inc.
EXHIBIT INDEX
Exhibit Number and Description
- ------------------------------
Exhibit 10 Revolving Credit Agreement
Exhibit 11 Schedule of Computation of
Net Earnings Per Share
19
<PAGE>
Exhibit 10
REVOLVING CREDIT AGREEMENT
--------- ------ ---------
BY AND AMONG
VALUE HEALTH, INC.,
FLEET NATIONAL BANK
AND
THE OTHER LENDERS WHICH ARE OR MAY BECOME PARTIES HERETO
AND
FLEET NATIONAL BANK, AS AGENT
Dated the 21st day of August, 1996
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS CO-AGENT
<PAGE>
TABLE OF CONTENTS
----- -- --------
<TABLE>
<CAPTION>
<S> <C>
(S)1. DEFINITIONS AND RULES OF INTERPRETATION....................................1
(S)1.1. Definitions.....................................................1
(S)1.2. Rules of Interpretation.........................................13
(S)2. THE REVOLVING CREDIT FACILITY..............................................13
(S)2.1. Commitment to Lend..............................................13
(S)2.2. Facility Fee....................................................14
(S)2.3. Voluntary Reduction of Total Commitment.........................14
(S)2.4. The Notes.......................................................14
(S)2.5. Interest on Revolving Credit Loans..............................15
(S)2.6. Requests for Revolving Credit Loans.............................15
(S)2.7. Conversion Options..............................................15
(S)2.8. Funds for Revolving Credit Loan.................................16
(S)2.9. Maturity........................................................17
(S)2.10. Mandatory Repayments of Revolving Credit Loans.................17
(S)2.11. Optional Repayments of Revolving Credit Loans..................18
(S)3. COMPETITIVE BID ADVANCES...................................................18
(S)3.1. Competitive Bid Borrowings......................................18
(S)3.2. Interest on Competitive Bid Advances............................22
(S)3.3. Limits on Competitive Bid Advances..............................22
(S)3.4. Funding Losses..................................................22
(S)3.5. Repayment of Competitive Bid Advances...........................23
(S)3.6. No Prepayment of Competitive Bid Advances.......................23
(S)4. CERTAIN GENERAL PROVISIONS.................................................23
(S)4.1. Agent's Fee.....................................................23
(S)4.2. Other Fees......................................................23
(S)4.3. Funds for Payments..............................................23
(S)4.4. Computations....................................................24
(S)4.5. Inability to Determine LIBOR Rate...............................24
(S)4.6. Illegality......................................................24
(S)4.7. Additional Costs, Etc...........................................25
(S)4.8. Capital Adequacy................................................26
(S)4.9. Certificate.....................................................26
(S)4.10. Indemnity......................................................26
(S)4.11. Interest After Default.........................................27
(S)5. REPRESENTATIONS AND WARRANTIES.............................................27
(S)5.1. Corporate Authority.............................................27
(S)5.2. Governmental Approvals..........................................28
(S)5.3. Title to Properties; Leases.....................................28
(S)5.4. Financial Statements............................................28
(S)5.5. No Material Changes, Etc........................................29
(S)5.6. Franchises, Patents, Copyrights, Etc............................29
(S)5.7. Litigation......................................................29
(S)5.8. No Materially Adverse Contracts, Etc............................29
(S)5.9. Compliance with Other Instruments, Laws, Etc....................30
(S)5.10. Tax Status.....................................................30
(S)5.11. No Event of Default............................................30
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
<S> <C>
(S)5.12. Holding Company and Investment Company Acts....................30
(S)5.13. Regulations U and X............................................30
(S)5.14. Subsidiaries, etc..............................................30
(S)5.15. Medicare Qualifications........................................31
(S)5.16. Recoupment.....................................................31
(S)6. AFFIRMATIVE COVENANTS OF THE BORROWER......................................31
(S)6.1. Punctual Payment................................................31
(S)6.2. Maintenance of Office...........................................31
(S)6.3. Records and Accounts............................................31
(S)6.4. Financial Statements, Certificates and Information..............32
(S)6.5. Notices.........................................................33
(S)6.6. Corporate Existence; Maintenance of Properties..................33
(S)6.7. Insurance.......................................................34
(S)6.8. Taxes...........................................................34
(S)6.9. Inspection of Properties and Books, Etc.........................34
(S)6.10. Compliance with Laws, Contracts, Licenses, and Permits.........34
(S)6.11. Use of Proceeds................................................35
(S)6.12. Further Assurances.............................................35
(S)7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.................................35
(S)7.1. Restrictions on Indebtedness....................................35
(S)7.2. Restrictions on Liens...........................................36
(S)7.3. Restrictions on Investments.....................................37
(S)7.4. Merger, Consolidation and Disposition of Assets.................38
(S)7.5. Sale and Leaseback..............................................39
(S)7.6. Compliance with Medicare and Medicaid Laws;
Social Security Act............................................39
(S)7.7. No Restrictions on Pledge.......................................39
(S)8. FINANCIAL COVENANTS OF THE BORROWER........................................39
(S)8.1. Fixed Charge Ratio..............................................40
(S)8.2. Consolidated Debt Ratio.........................................40
(S)8.3. Consolidated Shareholders' Equity...............................40
(S)9. CLOSING CONDITIONS.........................................................40
(S)9.1. Loan Documents..................................................40
(S)9.2. Certified Copies of Charter Documents...........................40
(S)9.3. Corporate, Action...............................................40
(S)9.4. Incumbency Certificate..........................................40
(S)9.5. Financial Condition.............................................41
(S)9.6. Regulatory Approvals............................................41
(S)9.7. Opinion of Counsel..............................................41
(S)9.8. Payment of Fees.................................................41
(S)10. CONDITIONS TO ALL BORROWINGS..............................................41
(S)10.1. Representations True; No Event of Default......................41
(S)10.2. Proceedings and Documents......................................42
(S)11. EVENTS OF DEFAULT; ACCELERATION; ETC......................................42
(S)11.1. Events of Default and Acceleration.............................42
(S)11.2. Termination of Commitments.....................................44
</TABLE>
<PAGE>
-3-
<TABLE>
<CAPTION>
<S> <C>
(S)11.3. Remedies.......................................................44
(S)12. SETOFF....................................................................45
(S)13. THE AGENT.................................................................45
(S)13.1. Authorization..................................................45
(S)13.2. Employees and Agents...........................................45
(S)13.3. No Liability...................................................46
(S)13.4. No Representations.............................................46
(S)13.5. Payments.......................................................46
(S)13.6. Holders of Notes...............................................47
(S)13.7. Indemnity......................................................47
(S)13.8. Agent as Bank..................................................48
(S)13.9. Resignation....................................................48
(S)13.10. Notification of Defaults and Events of Default................48
(S)13.11. Duties in the Case of Enforcement.............................49
(S)13.12. Co-Agent......................................................49
(S)14. EXPENSES..................................................................49
(S)15. INDEMNIFICATION...........................................................49
(S)16. SURVIVAL OF COVENANTS, ETC................................................50
(S)17. ASSIGNMENT AND PARTICIPATION..............................................50
(S)17.1. Conditions to Assignment by Banks..............................50
(S)17.2. Certain Representations and Warranties;
Limitations; Covenants........................................51
(S)17.3. Register.......................................................52
(S)17.4. New Notes......................................................52
(S)17.5. Participations.................................................52
(S)17.6. Disclosure.....................................................53
(S)17.7. Assignee or Participant Affiliated with the Borrower...........53
(S)17.8. Miscellaneous Assignment Provisions............................54
(S)17.9. Assignment by Borrower.........................................54
(S)18. NOTICES, ETC..............................................................54
(S)19. GOVERNING LAW.............................................................55
(S)20. HEADINGS..................................................................55
(S)21. COUNTERPARTS..............................................................55
(S)22. ENTIRE AGREEMENT, ETC.....................................................55
(S)23. WAIVER OF JURY TRIAL......................................................55
(S)24. CONSENTS, AMENDMENTS, WAIVERS, ETC........................................56
(S)25. COMMERCIAL TRANSACTION; PREJUDGMENT
REMEDY WAIVER............................................................56
(S)26. SEVERABILITY..............................................................57
</TABLE>
<PAGE>
-4-
Exhibits
- --------
Exhibit A Promissory Notes of Borrower
Exhibit B Loan Requests
Exhibit C Competitive Bid Quote Request
Exhibit D Invitation for Competitive Bid Quote Request
Exhibit E Competitive Bid Quote
Exhibit F Compliance Certificate
Exhibit G Assignment and Acceptance
Schedules
- ---------
Schedule 1 Bank Listing
Schedule 5.3 Title to Property; Leases
Schedule 5.7 Litigation
Schedule 5.8 No Materially Adverse Contracts, Etc.
Schedule 5.14 Subsidiaries, etc.
Schedule 5.15 Medicare Qualifications
Schedule 5.16 Recoupment
Schedule 7.1 Indebtedness
Schedule 7.2 Liens Existing
Schedule 7.3 Investments
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT is made as of the 16th day of August, 1996,
by and among VALUE HEALTH, INC. (the "Borrower"), a Delaware corporation having
its principal place of business at 22 Waterville Road, Avon, Connecticut 06001,
and FLEET NATIONAL BANK and the other lending institutions listed on Schedule 1
-------- -
(collectively, the "Banks"), FLEET NATIONAL BANK as agent for itself and such
other lending institutions (in such capacity, the "Agent") and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, as Co-Agent for the Banks (in such capacity,
the "Co-Agent"; the Agent and the Co-Agent being collectively referred to herein
as the "Agents").
(S)1. DEFINITIONS AND RULES OF INTERPRETATION.
(S)1.1. Definitions. The following terms shall have the meanings set
-----------
forth in this (S)1 or elsewhere in the provisions of this Credit Agreement
referred to below:
Absolute Rate Auction. A solicitation of Competitive Bid Quotes
-------- ---- -------
setting forth Competitive Bid Absolute Rates pursuant to (S)3 hereof.
Affiliate. Any Person that would be considered to be an affiliate
---------
of the Borrower or any Bank under Rule 144(a) of the Rules and Regulations of
the Securities and Exchange Commission, as in effect on the date hereof, if the
Borrower or such Bank were issuing securities.
Agent's Head Office. The Agent's office in Connecticut located at
------- ---- ------
777 Main Street, Hartford, Connecticut 06115, or at such other location as the
Agent may designate from time to time.
Agent. Fleet National Bank, acting as agent for the Banks.
-----
Agent's Special Counsel. Bingham, Dana & Gould or such other
------- ------- -------
counsel as may be approved by the Agent.
Applicable Rate. With respect to any fiscal quarter of the
---------- ----
Borrower, that rate determined by the Agent based on the Fixed Charge Ratio of
the Borrower for the period of four consecutive fiscal quarters of the Borrower
ending on the last day of the immediately preceding fiscal quarter, all as
follows (provided that, during the period beginning on the Closing Date and
ending on September 30, 1996, the Applicable Rate shall be .100%):
<TABLE>
<CAPTION>
Fixed Charge Ratio Applicable Rate
------------------ ---------------
<S> <C>
Greater than or equal to 4.25:1.0 .100%
Less than 4.25:1.0 but greater than or .150%
equal to 3.25:1.0
Less than 3.25:1.0 .200%
</TABLE>
<PAGE>
-2-
The Agent shall determine the Applicable Rate for each fiscal quarter
on the sixtieth (60th) day following the last day of the immediately preceding
fiscal quarter by reference to the financial statements delivered to the Banks
by the Borrower with respect to such immediately preceding fiscal quarter.
Assignment and Acceptance. See (S)17.1.
---------- --- ----------
Balance Sheet Date. March 31, 1996.
------- ----- ----
Banks. Fleet and the other lending institutions listed on Schedule 1
----- -------- -
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to (S)17.
Base Rate. The higher of (a) the annual rate of interest announced
---- ----
from time to time by Fleet at its principal office in Boston, Massachusetts as
its "base rate" and (b) one-half of one percent (1/2%) above the Federal Funds
Effective Rate. For the purposes of this definition, "Federal Funds Effective
Rate" shall mean for any day, the rate per annum equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three funds brokers of recognized
standing selected by the Agent.
Base Rate Loans. Revolving Credit Loans bearing interest calculated
---- ---- -----
by reference to the Base Rate.
Borrower. As defined in the preamble hereto.
--------
Business Day. Any day on which banking institutions in Hartford,
-------- ---
Connecticut and New York, New York are open for the transaction of banking
business and, in the case of LIBOR Rate Loans, which is a LIBOR Business Day.
Capitalized Leases. Leases under which the Borrower or any of its
----------- ------
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
Closing Date. The first date on which the conditions set forth in
------- ----
(S)9 have been satisfied and any Revolving Credit Loans or any Competitive Bid
Advances are to be made hereunder.
Code. The Internal Revenue Code of 1986, as amended or modified or
----
any successor thereto.
<PAGE>
-3-
Commitment. With respect to each Bank, the amount set forth on
----------
Schedule 1 hereto as the amount of such Bank's commitment to make Revolving
- -------- -
Credit Loans to, the Borrower, as the same may be reduced from time to time; or
if such commitment is terminated pursuant to the provisions hereof, zero.
Commitment Percentage. With respect to each Bank, the percentage set
---------- ----------
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
-------- -
Commitments of all of the Banks, as the same may be amended from time to time in
accordance with the terms hereof.
Competitive Bid Absolute Rate. See (S)3.1(d)(ii)(D).
------------------------ ----
Competitive Bid Absolute Rate Advance. A Competitive Bid Advance to be
------------------------ ---- -------
made pursuant to (S)3 hereof by a Bank pursuant to an Absolute Rate Auction.
Competitive Bid Advance. A Competitive Bid LIBOR Rate Advance or a
-----------------------
Competitive Bid Absolute Rate Advance.
Competitive Bid LIBOR Rate Advance. A Competitive Bid Advance to be
-------------------------- -------
made pursuant to (S)3 hereof by a Bank pursuant to a LIBOR Rate Auction.
Competitive Bid Borrowing. A borrowing consisting of one or more
-------------------------
Competitive Bid Advances made by each of the Banks whose offer to make a
Competitive Bid Advance as part of such borrowing has been accepted by the
Borrower under the auction bidding procedure described in (S)3 hereof.
Competitive Bid Margin. See (S)3.1(d)(ii)(C).
----------------------
Competitive Bid Quote. An offer by a Bank to make a Competitive Bid
---------------------
Advance in accordance with (S)3.
Competitive Bid Quote Request. See (S)3.1(b).
--------------------- -------
Consolidated or consolidated. With reference to any term defined
------------ ------------
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated Net Income. The consolidated net income (or deficit) of
------------ --- ------
the Borrower and its Subsidiaries, after deduction of all expenses, taxes, and
other proper charges, determined in accordance with generally accepted
accounting principles.
Consolidated Operating Cash Flow. For any period, an amount equal to
------------ --------- ---- ----
(a) the sum of (i) Earnings Before Interest and Taxes for such period, plus (ii)
----
depreciation and amortization for such period.
<PAGE>
-4-
Consolidated Shareholders' Equity. An amount equal to the sum of (a)
------------ ------------- ------
the consolidated capital accounts (including common stock and preferred stock,
minus treasury stock) of the Borrower and its Subsidiaries, plus (b) the
- ----- ----
consolidated earned surplus and capital surplus of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Consolidated Tangible Net Worth. The excess of Consolidated Total
------------ -------- --- -----
Assets over Consolidated Total Liabilities, and less the sum of:
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets under generally accepted
accounting principles, including such items as good will, the purchase price of
acquired assets in excess of the fair market value thereof, trademarks, trade
names, service marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing; plus
----
(b) all amounts representing any write-up in the book value of any
assets of the Borrower or its Subsidiaries resulting from a revaluation
thereof subsequent to the Balance Sheet Date.
Consolidated Total Assets. All assets of the Borrower and its
------------ ----- ------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Consolidated Total Funded Debt. On any date, (a) all indebtedness of
------------ ----- ------ ----
the Borrower and/or its Subsidiaries for borrowed money (other than current
trade liabilities and accruals incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other indebtedness of
the Borrower and/or its Subsidiaries which is evidenced by a note, bond,
debenture or similar instrument, (c) all obligations of the Borrower and/or its
Subsidiaries under Capitalized Leases, (d) all obligations of the Borrower
and/or its Subsidiaries in respect of outstanding letters of credit, acceptances
and similar obligations issued or created for the account of the Borrower and/or
its Subsidiaries, (e) all indebtedness, obligations and liabilities (direct or
indirect, contingent or otherwise), of the Borrower and/or its Subsidiaries
arising under or pursuant to any payment or performance guaranty, and (f) all
indebtedness of the Borrower and/or its Subsidiaries arising under or pursuant
to any final judgment against the Borrower or any of its Subsidiaries.
Consolidated Total Interest Expense. For any period, the aggregate
------------ ----- -------- -------
amount of interest required to be paid or accrued by the Borrower and its
Subsidiaries during such period on all Indebtedness of the Borrower and its
Subsidiaries outstanding during all or any part of such period, including any
interest that is in respect of Capitalized Leases.
<PAGE>
-5-
Consolidated Total Liabilities. All liabilities of the Borrower and
------------ ----- -----------
its Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles and all Indebtedness of the Borrower and its
Subsidiaries, whether or not so classified.
Conversion Request. A notice given by the Borrower to the Agent of
---------- -------
the Borrower's election to convert or continue in accordance with (S)2.7.
Credit Agreement. This Revolving Credit Agreement, including the
------ ---------
Schedules and Exhibits hereto.
Default. See (S)11.1.
-------
Default Rate. The Base Rate plus two percent (2%).
------- ----
Dollars or $. Dollars in lawful currency of the United States of
------- -
America.
Domestic Lending Office. Initially, the office of each Bank
-------- ------- ------
designated as such in Schedule 1 hereto; thereafter, such other office of such
-------- -
Bank, if any, located within the United States that will be making or
maintaining Base Rate Loans.
Drawdown Date. The date on which any Advance is made or is to be
-------- ----
made, and the date on which any Revolving Credit Loan is converted or continued
in accordance with (S)2.7.
Earnings Before Interest and Taxes. The consolidated earnings (or
-------- ------ -------- --- -----
loss) from the operations of the Borrower and its Subsidiaries for any period,
after all expenses and other proper charges but before payment or provision for
any income taxes or interest expense for such period, determined in accordance
with generally accepted accounting principles.
Eligible Assignee. Any of (a) a commercial bank organized under the
-------- --------
laws of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted accounting
principles; (c) a commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
--------
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD; (d) the central bank of any country
which is a member of the OECD; and (e) any other bank, insurance company,
commercial finance company or other financial institution approved by the Agent,
such approval not to be unreasonably withheld.
<PAGE>
-6-
Environmental Laws. Any judgment, decree, order, law, license, rule
------------- ----
or regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment.
ERISA. The Employee Retirement Income Security Act of 1974.
-----
ERISA Affiliate. Any Person which is treated as a single employer
----- ---------
with the Borrower under (S)414 of the Code.
ERISA Reportable Event. A reportable event with respect to a
----- ---------- -----
Guaranteed Pension Plan within the meaning of (S)4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has not
been waived.
Event of Default. See (S)11.1.
----- -- -------
Fixed Rate Advance. Collectively, LIBOR Rate Loans, Competitive Bid
----- ---- -------
Advances and any continuation of LIBOR Rate Loans permitted by the terms hereof.
Fixed Charge Ratio. The ratio of (i) the sum of (A) Earnings Before
----- ------ -----
Interest and Taxes of the Borrower and its Subsidiaries plus (B) the aggregate
----
amount of Rental Obligations to (ii) the sum of (A) Consolidated Total Interest
Expense of the Borrower and its Subsidiaries plus (B) the aggregate amount of
----
Rental Obligations.
Fleet. Fleet National Bank, a national banking association, in its
-----
individual capacity.
Generally Accepted Accounting Principles or generally accepted
--------- -------- ---------- ---------- -- --------- --------
accounting principles. (a) When used in (S)8, whether directly or indirectly
- ---------- ----------
through reference to a capitalized term used therein, means (i) principles that
are consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, and (ii) to the extent consistent with such
principles, the accounting practice of the Borrower reflected in its financial
statements for the year ended on the Balance Sheet Date, and (b) when used in
general, other than as provided above, means principles that are (i) consistent
with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors, as in effect from time to time, and (ii)
consistently applied with past financial statements of the Borrower adopting the
same principles, provided that in each case referred to in this definition of
<PAGE>
-7-
"generally accepted accounting principles" a certified public accountant would,
insofar as the use of such accounting principles is pertinent, be in a position
to deliver an unqualified opinion (other than a qualification regarding changes
in generally accepted accounting principles) as to financial statements in which
such principles have been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
---------- ------- ----
meaning of (S)3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Indebtedness. All obligations, contingent and otherwise, that in
------------
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; (c) indebtedness arising under or in connection with any
judgment; and (d) all guarantees, endorsements and other contingent obligations
whether direct or indirect in respect of indebtedness of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase indebtedness, or to assure the owner of
indebtedness against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer in respect of any letters of credit; provided, that the definition of
--------
Indebtedness set forth herein shall exclude (1) any required capital or equity
contributions to any partnership or joint venture if and only if, such required
capital contributions (A) will not be used exclusively by such partnership or
joint venture to pay indebtedness for borrowed money of such partnership or
joint venture and (B) are not required by any lender in connection with any
lending relationship with such partnership or joint venture or the Borrower or
(2) in the case of acquisitions, made either prior or subsequent to the date
hereof, that portion of the purchase price for all of the issued and outstanding
capital stock of, or all of the assets of, any corporation that is calculated by
reference to the future financial performance of such corporation or the Person
acquiring such assets.
Interest Payment Date. (a) As to any Base Rate Loan, the last day of
-------- ------- ----
the calendar quarter which includes the Drawdown Date thereof; and (b) as to any
LIBOR Rate Loan in respect of which the Interest Period is (i) 3 months or less,
the last day of such Interest Period and (ii) more than 3 months, the date that
is 3 months from the first day of such Interest Period and, in addition, the
last day of such Interest Period.
<PAGE>
-8-
Interest Period. (a) With respect to each Revolving Credit Loan (i)
-------- ------
initially, the period commencing on the Drawdown Date of such Revolving Credit
Loan and ending on the last day of one of the periods set forth below, as
selected by the Borrower in a Loan Request (A) for any Base Rate Loan, the last
day of the calendar quarter; and (B) for any LIBOR Rate Loan, 1, 2, 3 or 6
months; and (ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Revolving Credit Loan and ending on
the last day of one of the periods set forth above, as selected by the Borrower
in a Conversion Request; provided that all of the foregoing provisions relating
--------
to Interest Periods are subject to the following:
(1) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest Period
shall be extended to the next succeeding LIBOR Business Day unless the result of
such extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding LIBOR Business Day;
(2) if any Interest Period with respect to a Base Rate Loan would
end on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(3) if the Borrower shall fail to give notice as provided in (S)2.7,
the Borrower shall be deemed to have requested a conversion of the affected
LIBOR Rate Loan to a Base Rate Loan on the last day of the then current Interest
Period with respect thereto;
(4) any Interest Period relating to any LIBOR Rate Loan that begins
on the last LIBOR Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last LIBOR Business Day of the corresponding
calendar month; and
(5) any Interest Period relating to any Revolving Credit Loan that
would otherwise extend beyond the Revolving Credit Maturity Date shall end on
the Revolving Credit Maturity Date.
(b) With respect to each Competitive Bid LIBOR Rate Advance, the
period commencing on the Drawdown Date of such Competitive Bid LIBOR Rate
Advance and ending not less than one month and not more than twelve months
thereafter, as the Borrower may elect in accordance with (S)3 hereof; provided,
--------
that, the Borrower may not choose any Interest Period with respect to any
- ----
Competitive Bid LIBOR Rate Advance which would end subsequent to the Revolving
Credit Maturity Date.
(c) With respect to each Competitive Bid Absolute Rate Advance, the
period commencing on the Drawdown Date of such Competitive Bid Absolute
<PAGE>
-9-
Rate Advance and ending not less than 7 days and not more than 360 days
thereafter, as the Borrower may elect in accordance with (S)3 hereof; provided,
--------
that, the Borrower may not choose any Interest Period with respect to any
- ----
Competitive Bid Absolute Rate Advance which would end subsequent to the
Revolving Credit Maturity Date.
Investments. All expenditures made and all liabilities incurred
-----------
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Invitation for Competitive Bid Quotes. See (S)3.1(c).
-------------------------------------
LIBOR Business Day. Any day on which commercial banks are open for
----- -------- ---
international business (including dealings in Dollar deposits) in London,
England or such other interbank market as may be selected by the Majority Banks
in their sole discretion acting in good faith.
LIBOR Lending Office. Initially, the office of each Bank designated
----- ------- ------
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
-------- -
any, that shall be making or maintaining LIBOR Rate Loans.
LIBOR Rate. For any Interest Period with respect to a LIBOR Rate
----- ----
Loan, the rate of interest equal to the rate determined by the Agent at which
Dollar deposits for the beginning of such Interest Period are offered based
either on information presented on Telerate Page 3750 as of 11:00 a.m. London
time on the second LIBOR Business Day prior to the first day of such Interest
Period or, if such Telerate Page is unavailable for any reason whatsoever, on
any other information reasonably available to the Agent.
LIBOR Rate Applicable Margin. With respect to any fiscal quarter of
----- ---- ---------- ------
the Borrower, the rate determined by the Agent after review of the Fixed Charge
Ratio of the Borrower for the period of four consecutive fiscal quarters
<PAGE>
-10-
ending on the last day of the immediately preceding fiscal quarter, all as
follows (provided that, during the period beginning on the Closing Date and
ending on September 30, 1996, the LIBOR Rate Applicable Margin shall be .200%):
<TABLE>
<CAPTION>
LIBOR Rate
----------
Fixed Charge Ratio Applicable Margin
------------------ -----------------
<S> <C>
Greater than or equal to 4.25:1. .200%
Less than 4.25:1.0 but greater than or
equal to 3.25:1.0 .250%
Less than 3.25:1.0 .300%
</TABLE>
The Agent shall determine the LIBOR Rate Applicable Margin for each fiscal
quarter on the sixtieth (60th) day following the last day of the immediately
preceding fiscal quarter by reference to the financial statements delivered to
the Banks by the Borrower with respect to such immediately preceding fiscal
quarter.
LIBOR Rate Auction. A solicitation of Competitive Bid Quotes setting
----- ---- -------
forth Competitive Bid Margins base on the LIBOR Rate pursuant to (S)3.
LIBOR Rate Loans. Revolving Credit Loans and Competitive Bid Libor
----- ---- -----
Rate Advances bearing interest calculated by reference to the LIBOR Rate.
LIBOR Reserve Rate. For any day with respect to a LIBOR Rate Loan,
----- ------- ----
the maximum rate (expressed as a decimal) at which any lender subject thereto
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "LIBOR Liabilities" (as that term
is used in Regulation D), if such liabilities were outstanding. The LIBOR
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in the LIBOR Reserve Rate.
Loan Documents. This Credit Agreement, the Notes and that certain
---- ---------
Letter Agreement of even date herewith between the Borrower and the Agent
regarding the payment of agency and other fees that may be due and payable
thereunder.
Loan Request. See (S)2.6.
---- -------
Majority Banks. As of any date, Banks whose aggregate Commitments
-------- -----
constitute at least sixty-one percent (61%) of the Total Commitment; and if the
Commitments have been terminated in accordance with the terms hereof, Banks
holding at least sixty-one percent (61%) of the outstanding principal amount of
the Notes on such date.
<PAGE>
-11-
Multiemployer Plan. Any multiemployer plan within the meaning of
------------- ----
(S)3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Medicare and Medicaid Laws. Any and all portions of Title 42 of the
-------- --- -------- ----
United State Code and Title 17 of the Connecticut General Statutes relating to
the Medicare or Medicaid acts, and any and all rules and regulations established
in connection therewith or pursuant thereto.
Notes. See (S)2.4.
-----
Note Record. A Record with respect to a Note.
-----------
Obligations. All indebtedness, obligations and liabilities of any of
-----------
the Borrower and its Subsidiaries to any of the Banks and the Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Revolving Credit Loans or Competitive Bid Advances made or
any of the Notes or other instruments at any time evidencing any thereof.
Outstanding. With respect to the Revolving Credit Loans and
-----------
Competitive Bid Advances, the aggregate unpaid principal thereof as of any date
of determination.
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of
----
ERISA and any successor entity or entities having similar responsibilities.
Permitted Liens. Liens, security interests and other encumbrances
--------- -----
permitted by (S)7.2.
Person. Any individual, corporation, limited liability company,
------
partnership, trust, unincorporated association, business, or other legal entity,
and any government or any governmental agency or political subdivision thereof.
Principal Subsidiaries. Collectively, Value Rx, Inc., Value
--------- ------------
Behavioral Health, Inc. and Value Health Sciences, Inc., each a Delaware
corporation, and Community Care Network, a California domestic corporation.
Real Estate. All real property at any time owned or leased (as lessee
---- ------
or sublessee) by the Borrower or any of its Subsidiaries.
Record. The grid attached to a Note, or the continuation of such
------
grid, or any other similar record, including computer records, maintained by any
<PAGE>
-12-
Bank with respect to any Revolving Credit Loans and Competitive Bid Advance
referred to in such Note.
Rental Obligations. All present or future obligations of the Borrower
------ -----------
or any of its Subsidiaries under any rental agreements or leases of real or
personal property, other than obligations in respect of Capitalized Leases.
Revolving Credit Maturity Date. August 31, 2001; provided, that with
--------- ------ -------- ---- --------
the written consent of the Agent and each of the Banks (which may be withheld in
their sole and absolute discretion) the Revolving Credit Maturity Date may be
extended for additional periods of up to one year upon the request of the
Borrower received no earlier than one hundred and twenty (120) days prior to the
then current maturity date and no later than sixty (60) days prior to the then
current maturity date.
Revolving Credit Loans. Revolving credit loans made or to be made by
--------- ------ -----
the Banks to the Borrower pursuant to (S)2.
Social Security Act. 42 U.S.C. (S)1396 et. seq.
------ -------- ---
Subsidiary. Any corporation, association, trust, or other business
----------
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
Total Commitment. The sum of the Commitments of the Banks, as in
----- ----------
effect from time to time.
Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan
----
or a LIBOR Rate Loan.
Voting Stock. Stock or similar interests, of any class or classes
------ -----
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
(S)1.2. Rules of Interpretation.
-----------------------
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural
includes the singular.
<PAGE>
-13-
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles applied on
a consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by
generally accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the State of Connecticut, have the meanings
assigned to them therein.
(h) Reference to a particular "(S)" refers to that section
of this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
(S)2. THE REVOLVING CREDIT FACILITY.
(S)2.1. Commitment to Lend. Subject to the terms and conditions
------------------
set forth in this Credit Agreement, each of the Banks severally agrees to lend
to the Borrower and the Borrower may borrow, repay, and reborrow from time to
time between the Closing Date and the Revolving Credit Maturity Date upon notice
by the Borrower to the Agent given in accordance with (S)2.6, such sums as are
requested by the Borrower up to a maximum aggregate amount outstanding (after
giving effect to all amounts requested) at any one time equal to such Bank's
Commitment provided that the sum of the outstanding amount of the Revolving
--------
Credit Loans and the outstanding amount of all Competitive Bid Advances (after
giving effect to all amounts requested) shall not at any time exceed the Total
Commitment. The Revolving Credit Loans shall be made pro rata in accordance with
--- ----
each Bank's Commitment Percentage. Each request for a Revolving Credit Loan
hereunder shall constitute a representation and warranty by the Borrower that
the conditions set forth in (S)9 and (S)10, in the case of the initial Revolving
Credit Loans to be made on the Closing Date, and (S)10, in the case of all other
Revolving Credit Loans, have been satisfied on the date of such request.
(S)2.2. Facility Fee. The Borrower agrees to pay to the Agent for
------------
the accounts of the Banks in accordance with their respective Commitment
Percentages a facility fee calculated on the basis of a 365/366 day year and at
a
<PAGE>
-14-
a rate per annum equal to the Applicable Rate on the average daily Total
--- -----
Commitment (whether used or unused) during each calendar quarter or portion
thereof from the date hereof to the Revolving Credit Maturity Date. The facility
fee shall be payable quarterly in arrears on the first day of each calendar
quarter for the immediately preceding calendar quarter commencing on the first
such date following the date hereof, with a final payment on the Revolving
Credit Maturity Date or any earlier date on which the Commitments shall
terminate.
(S)2.3. Voluntary Reduction of Total Commitment. The Borrower shall
---------------------------------------
have the right at any time and from time to time upon five (5) Business Days'
prior written notice to the Agent to reduce by $5,000,000 or an integral
multiple of $1,000,000 in excess thereof or terminate entirely the Total
Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in
--- ----
accordance with their respective Commitment Percentages of the amount specified
in such notice or, as the case may be, terminated. Promptly after receiving any
notice of the Borrower delivered pursuant to this (S)2.3, the Agent will notify
the Banks of the substance thereof. Upon the effective date of any such
reduction or termination, the Borrower shall pay to the Agent for the respective
accounts of the Banks the full amount of the facility fee then accrued on the
amount of the reduction in accordance with (S)2.2 hereof. No reduction or
termination of the Commitments may be reinstated.
(S)2.4. The Notes. The Revolving Credit Loans, together with the
---------
Competitive Bid Advances, shall be evidenced by separate promissory notes of the
Borrower in substantially the form of Exhibit A hereto (each a "Note"), dated as
------- -
of the Closing Date and completed with appropriate insertions. One Note shall be
payable to the order of each Bank in a principal amount equal to the Total
Commitment or, if less, the outstanding amount of all Revolving Credit Loans and
Competitive Bid Advances made by such Bank, plus interest accrued thereon, as
set forth below. The Borrower irrevocably authorizes each Bank to make or cause
to be made, at or about the time of the Drawdown Date of any Revolving Credit
Loan or Competitive Bid Advance or at the time of receipt of any payment of
principal on such Bank's Note, an appropriate notation on such Bank's Note
Record reflecting the making of such Revolving Credit Loan or Competitive Bid
Advance or at the time or receipt of any payment of principal on such Banks'
Note, an appropriate notation on such Bank's Note Record reflecting the making
of such Revolving Credit Loan or Competitive Bid Advance or (as the case may be)
the receipt of such payment. The outstanding amount of the Revolving Credit
Loans and Competitive Bid Advances set forth on such Bank's Note Record shall be
prima facie evidence of the principal amount thereof owing and unpaid to such
- ----- -----
Bank, but the failure to record, or any error in so recording, any such amount
on such Bank's Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Note to make payments of principal of or
interest on any Note when due.
<PAGE>
-15-
(S)2.5. Interest on Revolving Credit Loans. Except as otherwise
----------------------------------
provided in (S)4.11,
(a) Each Base Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the Base Rate.
(b) Each LIBOR Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the LIBOR Rate determined for such
Interest Period, plus the LIBOR Rate Applicable Margin.
----
(c) The Borrower promises to pay interest on each
Revolving Credit Loan in arrears on each Interest Payment Date with respect
thereto.
(S)2.6. Requests for Revolving Credit Loans. The Borrower shall
-----------------------------------
give to the Agent written notice in the form of Exhibit B hereto (or telephonic
---------
notice confirmed in a writing in the form of Exhibit B hereto) of each Revolving
---------
Credit Loan requested hereunder (a "Loan Request") no less than (a) one (1)
Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (b)
three (3) LIBOR Business Days prior to the proposed Drawdown Date of any LIBOR
Rate Loan. Each such notice shall specify (i) the principal amount of the
Revolving Credit Loan requested, (ii) the proposed Drawdown Date of such
Revolving Credit Loan, (iii) the Interest Period for such Revolving Credit Loan
and (iv) the Type of such Revolving Credit Loan. Promptly upon receipt of any
such notice, the Agent shall notify each of the Banks thereof. Each Loan Request
shall be irrevocable and binding on the Borrower and shall obligate the Borrower
to accept the Revolving Credit Loan requested from the Banks on the proposed
Drawdown Date. Each Loan Request for a LIBOR Rate Loan shall be in a minimum
aggregate amount of $5,000,000 or whole multiple of $1,000,000 in excess thereof
and each Loan Request for a Base Rate Loan shall be in a minimum aggregate
amount of $1,000,000 or an integral multiple thereof.
(S)2.7. Conversion Options.
------------------
(a) The Borrower may elect from time to time to convert
any outstanding Revolving Credit Loan to a Revolving Credit Loan of another
Type, provided that (i) with respect to any such conversion of a Revolving
--------
Credit Loan to a Base Rate Loan, the Borrower shall give the Agent at least one
(1) Business Day's prior written notice of such election; (ii) with respect to
any such conversion of a Base Rate Loan to a LIBOR Rate Loan, the Borrower shall
give the Agent at least three (3) LIBOR Business Days' prior written notice of
such election; (iii) with respect to any such conversion of a LIBOR Rate Loan
into a Revolving Credit Loan of another Type, such conversion shall only be made
on the last day of the Interest Period with respect thereto and (iv) no Loan may
be converted into a LIBOR Rate Loan when any Default or Event of Default has
<PAGE>
-16-
occurred and is continuing. On the date on which such conversion is being made
each Bank shall take such action as is necessary to transfer its Commitment
Percentage of such Revolving Credit Loans to its Domestic Lending Office or its
LIBOR Lending Office, as the case may be. All or any part of outstanding
Revolving Credit Loans of any Type may be converted into a Revolving Credit Loan
of another Type as provided herein, provided that any partial conversion shall
--------
be in an aggregate principal amount of $1,000,000 or a whole multiple thereof.
Each Conversion Request relating to the conversion of a Revolving Credit Loan to
a LIBOR Rate Loan shall be irrevocable by the Borrower.
(b) Any Revolving Credit Loan of any Type may be
continued as a Revolving Credit Loan of the same Type upon the expiration of an
Interest Period with respect thereto by compliance by the Borrower with the
notice provisions contained in (S)2.7(a); provided that no LIBOR Rate Loan may
--------
be continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Base Rate Loan on the last
day of the first Interest Period relating thereto ending during the continuance
of any Default or Event of Default of which officers of the Agent active upon
the Borrower's account have actual knowledge. The Agent shall notify the Banks
promptly when any such automatic conversion contemplated by this (S)2.7 is
scheduled to occur.
(c) Any conversion to or from LIBOR Rate Loans shall be
in such amounts and be made pursuant to such elections so that, after giving
effect thereto, the aggregate principal amount of all LIBOR Rate Loans having
the same Interest Period shall not be less than $5,000,000 or a whole multiple
of $1,000,000 in excess thereof. Notwithstanding anything to the contrary
contained herein, at no time shall there be, in the aggregate, more than eight
(8) different Interest Periods with respect to outstanding LIBOR Rate Loans.
(S)2.8. Funds for Revolving Credit Loan.
-------------------------------
(a) Not later than 1:00 p.m. (Hartford time) on the
proposed Drawdown Date of any Revolving Credit Loans, each of the Banks will
make available to the Agent, at its Head Office, in immediately available funds,
the amount of such Bank's Commitment Percentage of the amount of the requested
Revolving Credit Loans. Upon receipt from each Bank of such amount, and upon
receipt of the documents required by (S)(S)9 and 10 and the satisfaction of the
other conditions set forth therein, to the extent applicable, the Agent will
make available to the Borrower the aggregate amount of such Revolving Credit
Loans made available to the Agent by the Banks. The failure or refusal of any
Bank to make available to the Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage of the requested Revolving
Credit Loans shall not relieve any other Bank from its several obligation
hereunder to make available to the Agent the amount of such other Bank's
Commitment Percentage of any requested Revolving Credit Loans.
<PAGE>
-17-
(b) The Agent may, unless notified to the contrary by any
Bank prior to a Drawdown Date, assume that such Bank has made available to the
Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of
the Revolving Credit Loans to be made on such Drawdown Date, and the Agent may
(but it shall not be required to), in reliance upon such assumption, make
available to the Borrower a corresponding amount. If any Bank makes available to
the Agent such amount on a date after such Drawdown Date, such Bank shall pay to
the Agent on demand an amount equal to the product of (i) the average computed
for the period referred to in clause (iii) below, of the weighted average
interest rate paid by the Agent for federal funds acquired by the Agent during
each day included in such period, times (ii) the amount of such Bank's
-----
Commitment Percentage of such Revolving Credit Loans, times (iii) a fraction,
-----
the numerator of which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Bank's Commitment
Percentage of such Revolving Credit Loans shall become immediately available to
the Agent, and the denominator of which is 365. A statement of the Agent
submitted to such Bank with respect to any amounts owing under this paragraph
shall be prima facie evidence of the amount due and owing to the Agent by such
----- -----
Bank. If the amount of such Bank's Commitment Percentage of such Revolving
Credit Loans is not made available to the Agent by such Bank within three (3)
Business Days following such Drawdown Date, the Agent shall be entitled to
recover such amount from the Borrower within five (5) Business Days of the
Agent's demand therefor, with interest thereon at the rate per annum applicable
to the Revolving Credit Loans made on such Drawdown Date.
(S)2.9. Maturity. The Borrower promises to pay on the Revolving
--------
Credit Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Maturity Date, all of the Revolving Credit Loans outstanding on
such date, together with any and all accrued and unpaid interest thereon.
(S)2.10. Mandatory Repayments of Revolving Credit Loans. If at any
----------------------------------------------
time the sum of the outstanding amount of the Revolving Credit Loans and the
Competitive Bid Advances exceeds the Total Commitment, then the Borrower shall
immediately pay the amount of such excess to the Agent first for the respective
accounts of the Banks for application to the Revolving Credit Loans and then the
Competitive Bid Advances. Each such partial prepayment shall be applied, in the
absence of instruction by the Borrower, first to the principal of Base Rate
Loans and then to the principal of LIBOR Rate Loans or both, at the Agent's
option. Each prepayment of Revolving Credit Loans shall be allocated among the
Banks, in proportion, as nearly as practicable, to the respective unpaid
principal amount of each Bank's Revolving Credit Loans, with adjustments to the
extent practicable to equalize any prior payments or repayments not exactly in
proportion.
(S)2.11. Optional Repayments of Revolving Credit Loans. The
---------------------------------------------
Borrower shall have the right, at its election, to repay the outstanding amount
<PAGE>
-18-
of the Revolving Credit Loans, as a whole or in part, at any time without
penalty or premium, provided that if any full or partial prepayment of the
--------
outstanding amount of any LIBOR Rate Loans pursuant to this (S)2.11 is made on a
day other than the last day of the Interest Period relating thereto, then the
Borrower shall be obligated to pay any loss, cost or expense associated with the
prepayment of LIBOR Rate Loans in accordance with (S)4.10 hereof. The Borrower
shall give the Agent, no later than 10:00 a.m., Hartford time, at least two (2)
Business Days' prior written notice of any proposed prepayment pursuant to this
(S)2.11 of Base Rate Loans, and three (3) LIBOR Business Days' notice of any
proposed prepayment pursuant to this (S)2.11 of LIBOR Rate Loans, in each case
specifying the proposed date of prepayment of Revolving Credit Loans and the
principal amount to be prepaid. Each such partial prepayment of the Revolving
Credit Loans shall be in a principal amount of (a) $500,000 or an integral
multiple thereof with respect to Base Rate Loans and (b) $5,000,000 or an
integral multiple of $1,000,000 in excess thereof with respect to LIBOR Rate
Loans, and each such prepayment shall be accompanied by the payment of accrued
interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of LIBOR Rate Loans, at the Agent's
option. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Loans, with adjustments to the extent
practicable to equalize any prior repayments not exactly in proportion.
(S)3. COMPETITIVE BID ADVANCES.
(S)3.1. Competitive Bid Borrowings.
----------- --- ----------
(a) The Competitive Bid Option. In addition to the Revolving
--- --------------- ------
Credit Loans permitted to be made hereunder pursuant to (S)2 hereof, the
Borrower may, pursuant to the terms of this (S)3, cause the Agent to request the
Banks to make offers to fund Competitive Bid Advances to the Borrower from time
to time prior to the Revolving Credit Maturity Date. The Banks may, but shall
have no obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept such offers in the manner set forth in this (S)3.
<PAGE>
-19-
(b) Competitive Bid Quote Request. When the Borrower wishes to
--------------- ----- -------
request offers to make Competitive Bid Advances under this (S)3, it shall
transmit to the Agent by telex or telecopier a Competitive Bid Quote Request
substantially in the form of Exhibit C hereto (a "Competitive Bid Quote
---------
Request") so as to be received no later than (X) 11:00 a.m. (Hartford time) on
the 3rd LIBOR Business Day prior to the requested Drawdown Date, in the case of
LIBOR Rate Auction or (Y) 11:00 a.m. (Hartford time) on the first Business Day
prior to the requested Drawdown Date, in the case of an Absolute Rate Auction,
specifying (i) the requested Drawdown Date (which must be a Business Day) and
the amount of such Competitive Bid Advance (which must be a minimum of
$5,000,000 or any greater integral multiple of $1,000,000), (ii) the Interest
Period of such Competitive Bid Advance and (iii) whether the Competitive Bid
Quotes requested are to set forth a Competitive Bid Margin or a Competitive Bid
Absolute Rate. The Borrower may request offers to make Competitive Bid Revolving
Credit Loans for more than one Interest Period in a single Competitive Bid Quote
Request.
(c) Invitation for Competitive Bid Quotes. Subsequent to
---------- --- ----------- --- ------
receipt of a Competitive Bid Quote Request, the Agent shall send to the Banks by
telex or telecopier an Invitation for Competitive Bid Quotes substantially in
the form of Exhibit D hereto (an "Invitation for Competitive Bid Quotes") not
---------
later tha n (X) in the case of a LIBOR Rate Auction, 2:00 p.m. (Hartford Time)
on the third LIBOR Business Day preceding the requested Drawdown Date and (Y) in
the case of an Absolute Rate Auction, not later than 2:00 p.m. (Hartford time)
on the first Business Day prior to the requested Drawdown Date, which shall
constitute an invitation by the Borrower to each Bank to submit Competitive Bid
Quotes offering to make Competitive Bid Advances to which such Competitive Bid
Quote Request relates in accordance with this (S)3.
(d) Submission and Contents of Competitive Bid Quotes.
---------- --- -------- -- ----------- --- ------
(i) Each Bank may submit a Competitive Bid Quote
containing an offer or offers to make Competitive Bid Advances in response to
any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must
comply with the requirements of this subsection (d) and must be submitted to the
Agent by telex or telecopier not later than (X) 12:00 p.m. (Hartford time) on
the second LIBOR Business Day prior to the requested Drawdown Date, in the case
of LIBOR Rate Auction or (Y) 12:00 p.m. (Hartford time) on the requested
Drawdown Date in the case of an Absolute Rate Auction; provided, that,
-------- ----
Competitive Bid Quotes may be submitted by the Agent in its capacity as a Bank
only if the Agent notifies the Borrower of the terms of the offer or offers
contained therein not later than 11:30 a.m. (Hartford time) on the second LIBOR
Business Day prior to the requested Drawdown Date, in the case of a LIBOR Rate
Auction or 11:30 a.m. (Hartford time) on the requested Drawdown Date, in the
case of an Absolute Rate Auction. Subject to the provisions of (S)(S)9 and 10
hereof, any Competitive Bid Quote so made shall be irrevocable except
<PAGE>
-20-
with the written consent of the Agent given on the instructions of the Borrower.
(ii) Each Competitive Bid Quote shall be in substantially the
form of Exhibit E hereto and shall in any case specify:
---------
(A) the requested Drawdown Date,
(B) the principal amount of the Competitive Bid Advance for
which each such offer is being made, which principal amount (X)
may be greater than the Commitment of the quoting Bank but may
not exceed an amount equal to the difference between the Total
Commitment minus the aggregate outstanding principal amount of
all Revolving Credit Loans and Competitive Bid Advances (after
giving effect to all amounts requested), (Y) must be $5,000,000
or a larger multiple of $1,000,000 and (Z) may not exceed the
principal amount of Competitive Bid Advances for which offers
were requested,
(C) in the case of LIBOR Rate Auctions, the applicable
LIBOR Rate and the margin above or below such applicable LIBOR
Rate (the "Competitive Bid Margin") offered for each such
Competitive Bid Advance, with such margins expressed as a
percentage (rounded to the nearest 1/1000th of 1%) to be added to
or subtracted from the LIBOR Rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (rounded to the nearest 1/1000th of 1%) (the
"Competitive Bid Absolute Rate") offered for each such
Competitive Bid Advance, and
(E) the identity of the quoting Bank.
(ii) Any Competitive Bid Quote shall be disregarded if it:
(A) is not substantially in the form of Exhibit E hereto or
----------
does not specify all of the information required by subsection
(d)(ii);
(B) contains qualifying, conditional or similar language;
or
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Competitive Bid Quotes.
<PAGE>
-21-
(e) Notice to Borrower. Not later than (X) 1:00 p.m. (Hartford time)
------ -- --------
on the second LIBOR Business Day prior to the requested Drawdown Date, in the
case of a LIBOR Rate Auction or (Y) 1:00 p.m. (Hartford time) on the requested
Drawdown Date, in the case of an Absolute Rate Auction, the Agent shall notify
the Borrower of the terms of any Competitive Bid Quote submitted by a Bank that
is in accordance with the preceding subsection (d). The Agent's notice to the
Borrower shall specify (A) the aggregate principal amount of Competitive Bid
Advances for which offers have been received for each Interest Period specified
in the related Competitive Bid Quote Request and (B) the respective principal
amounts and Competitive Bid Margins or Competitive Bid Absolute Rates, as the
case may be, so, offered.
(f) Acceptance and Notice by Borrower. Not later than (X) 2:00 p.m.
---------- --- ------ -- --------
(Hartford time) on the second LIBOR Business Day prior to a requested Drawdown
Date, in the case of a LIBOR Rate Auction or (Y) 2:00 p.m. (Hartford time) on
the requested Drawdown Date, in the case of an Absolute Rate Auction, the
Borrower shall notify the Agent, and the Agent shall promptly notify the Banks,
of the Borrower's acceptance or non-acceptance of the offers of which it was
notified pursuant to the preceding subsection (e). In the case of an acceptance,
such notice (a "Notice of Competitive Bid Borrowing") shall specify the
aggregate principal amount of offers for each Interest Period that are accepted.
The Borrower may accept any Competitive Bid Quote in whole or in part; provided
--------
that:
- ----
(i) the aggregate principal amount of each Competitive Bid
Borrowing may not exceed the applicable amount set forth in the related
Competitive Bid Quote Request,
(ii) the principal amount of each Competitive Bid Advance must
be $5,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made in the order of
ascending Competitive Bid Margins or Competitive Bid Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) above or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent; Usage of Commitments. If offers are made
---------- -- ------ ----- -- -----------
by two or more Banks with the same Competitive Bid Margins or Competitive Bid
Absolute Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are accepted for the related Interest
Period, the principal amount of Competitive Bid Advances in respect of which
such offers are accepted shall be allocated by the Agent among such Banks as
nearly as possible (in such multiples, not greater than $100,000, as the Agent
may deem appropriate) in proportion to the aggregate principal
<PAGE>
-22-
amounts of such offers. Determination by the Agent of the amounts of Competitive
Bid Advances shall be conclusive in the absence of manifest error. Upon each
occasion that a Competitive Bid Advance is made, and during the period for which
such Competitive Bid Advance is outstanding, each Bank's Commitment shall be
deemed automatically utilized by an amount equal to the amount of such
Competitive Bid Advance multiplied by such Bank's Commitment Percentage,
regardless of the extent to which such Bank makes such Competitive Bid Advance.
(h) Funding of Competitive Bid Advances. If, on or prior to the
------- -- ----------- --- --------
Drawdown Date of any Competitive Bid Borrowing, the Total Commitment has not
terminated in full and the applicable conditions of (S)(S)9 and 10 hereof are
satisfied, the Bank or Banks whose offers the Borrower has accepted will fund
each Competitive Bid Borrowing so accepted. The Bank or Banks will make such
Competitive Bid Borrowings, by crediting the Agent, for further credit to the
Borrower's specified account with the Agent, in immediately available funds not
later than 3:00 p.m. (Hartford time) on such Drawdown Date. As soon as the Agent
receives such funds, it will immediately credit them to the Borrower's specified
account with the Agent.
(S)3.2. Interest on Competitive Bid Advances. Each Competitive Bid LIBOR
-------- -- --------------- ---------
Rate Advance shall bear interest on the outstanding principal amount thereof,
for the Interest Period applicable thereto, at a rate per annum equal to the sum
of the LIBOR Rate for such Interest Period plus the positive or negative
----
Competitive Bid Margin quoted by the Bank making such Advance in accordance with
(S)3.1(d)(ii)(C) hereof. Each Competitive Bid Absolute Rate Advance shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Competitive Bid Absolute
Rate quoted by the Bank making such Advance in accordance with (S)3.1(d)(ii)(D).
Such interest shall be payable for each Interest Period on the last day thereof
or, if such Interest Period is longer than three months, every three months
after the first day thereof and on the last day thereof.
(S)3.3. Limits on Competitive Bid Advances. Notwithstanding any other
----------------------------------
provision herein to the contrary, at no time shall the aggregate principal
amount of Competitive Bid Advances outstanding at any time exceed the Total
Commitment minus the aggregate principal amount of Revolving Credit Loans
-----
outstanding at such time.
(S)3.4. Funding Losses. If after acceptance of any Competitive Bid Quote
---------------
pursuant to (S)3.1(f), the Borrower fails to borrow any Competitive Bid Advance
so accepted on the date specified therefor, the Borrower shall indemnify the
Bank funding such Advance against any loss or expense incurred by such Bank as a
result of such failure, including, without limitation, any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Bank to fund or maintain such unborrowed Advance, including,
without limitation compensation as provided in (S)4.10.
<PAGE>
-23-
(S)3.5. Repayment of Competitive Bid Advances. The principal of each
-------------------------------------
Competitive Bid Advance shall become absolutely due and payable by the Borrower
on the last day of the Interest Period relating thereto. Subject to the terms of
this Agreement, the Borrower may reborrow any amounts so repaid.
(S)3.6. No Prepayment of Competitive Bid Advances. The Borrower shall
-----------------------------------------
not be permitted to prepay any Competitive Bid Advances.
(S)4. CERTAIN GENERAL PROVISIONS.
(S)4.1. Agent's Fee. The Borrower shall pay to the Agent annually in
-----------
advance, for the Agent's own account, on the Closing Date and on each
anniversary of the Closing Date, an Agent's fee in the amount set forth in the
letter agreement of even date herewith between the Borrower and the Agent.
(S)4.2. Other Fees. The Borrower agrees to pay to the Agent on the
-----------
Closing Date the other fees in the amounts set forth in the letter agreement of
even date herewith between the Borrower and the Agent.
(S)4.3. Funds for Payments.
------------------
(a) All payments of principal, interest, commitment fees and
any other amounts due hereunder or under any of the other Loan Documents shall
be made to the Agent, for the respective accounts of the Banks and the Agent, at
the Agent's Head Office or at such other location that the Agent may from time
to time designate, in each case in immediately available funds.
(b) All payments by the Borrower hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges,
fees, deductions, withholdings, compulsory loans, restrictions or conditions of
any nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein unless the
Borrower is compelled by law to make such deduction or withholding. If any such
obligation is imposed upon the Borrower with respect to any amount payable by it
hereunder or under any of the other Loan Documents, the Borrower will pay to the
Agent, for the account of the Banks or (as the case may be) the Agent, on the
date on which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to enable the
Banks or the Agent to receive the same net amount which the Banks or the Agent
would have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Agent certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by the Borrower hereunder or under such other Loan
Document.
<PAGE>
-24-
(S)4.4. Computations. All computations of interest on the Revolving
------------
Credit Loans and the Competitive Bid Advances and of facility fees and other
fees shall, unless otherwise expressly provided herein, be based on (a) a 360-
day year with respect to Fixed Rate Advances and (b) a 365/366 day year with
respect to Base Rate Loans, facility fees and other fees and paid for the actual
number of days elapsed. Except as otherwise provided in the definition of the
term "Interest Period" with respect to Fixed Rate Advances, whenever a payment
hereunder or under any of the other Loan Documents becomes due on a day that is
not a Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
outstanding amount of the Revolving Credit Loans and Competitive Bid Advances as
reflected on the Note Records from time to time shall be considered correct and
binding on the Borrower; provided, that within five (5) Business Days after
--------
receipt of any notice by the Borrower of such outstanding amount, the Borrower
may notify the Agent or such Bank of its disagreement with such amount.
(S)4.5. Inability to Determine LIBOR Rate. In the event prior to the
---------------------------------
commencement of any Interest Period relating to any LIBOR Rate Loan or any
Competitive Bid LIBOR Rate Advance, the Agent shall determine that adequate and
reasonable methods do not exist for ascertaining the LIBOR Rate that would
otherwise determine the rate of interest to be applicable during any Interest
Period, the Agent shall forthwith give notice of such determination to the
Borrower and the Banks (which shall be conclusive and binding on the Borrower
and the Banks). In such event (a) any Loan Request or Conversion Request with
respect to LIBOR Rate Loans or Competitive Bid Quote Request with respect to
Competitive Bid Advances shall be automatically withdrawn, (b) each LIBOR Rate
Loan will automatically, on the last day of the then current Interest Period
relating thereto, become a Base Rate Loan, and (c) the obligations of the Banks
to make LIBOR Rate Loans shall be suspended until the Agent determines that the
circumstances giving rise to such suspension no longer exist, whereupon the
Agent shall so notify the Borrower and the Banks.
(S)4.6. Illegality. Notwithstanding any other provisions herein, if any
----------
present or future law, regulation, treaty or directive, or the interpretation or
application thereof shall make it unlawful for any Bank to make or maintain
LIBOR Rate Loans or any Competitive Bid LIBOR Rate Advance, such Bank shall
forthwith give notice of such circumstances to the Borrower, the Agent and the
other Banks and thereupon (a) the commitment of such Bank to make LIBOR Rate
Loans or convert Base Rate Loans to LIBOR Rate Loans shall forthwith be
suspended and (b) such Bank's Revolving Credit Loans then outstanding as LIBOR
Rate Loans, if any, shall be converted automatically to Base Rate Loans on the
last day of each Interest Period applicable to such LIBOR Rate Loans or within
such earlier period as may be required by applicable law. In addition, such Bank
shall no longer be obligated to make any Competitive Bid LIBOR Rate Advance that
it has offered to make. The Borrower hereby agrees promptly to pay the Agent for
account of such Bank,
<PAGE>
-25-
upon demand by such Bank, any additional amounts that are reasonably necessary
to compensate such Bank for any costs (but excluding loss of anticipated
profits) incurred by such Bank in making any conversion in accordance with this
(S)4.6, including any interest or fees payable by such Bank to lenders of funds
obtained by it in order to make or maintain Fixed Rate Advances hereunder.
(S)4.7. Additional Costs, Etc. If any present or future applicable law,
---------------------
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Agent or any Bank by any central bank or other fiscal,
monetary or other governmental authority (whether or not having the force of
law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the other Loan Documents, such Bank's Commitment or the Revolving
Credit Loans or Competitive Bid Advances (other than taxes based upon or
measured by the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for change
in taxes on income or profits) of payments to any Bank or the Agent of the
principal of or the interest on any Revolving Credit Loan or Competitive Bid
Advance or any other amounts payable to the Agent or any Bank under this
Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Agreement) any LIBOR Rate
Reserve, special deposits, other reserves, assessment, liquidity, capital
adequacy or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans by, or
letters of credit issued by, or commitments of an office of any Bank, or
(d) impose on the Bank any other conditions or requirements with
respect to this Agreement, the other Loan Documents, such Bank's Commitment, the
Revolving Credit Loans, the Competitive Bid Advances, or any class of loans or
commitments of which any of the Revolving Credit Loans or Competitive Bid
Advances forms a part, and the result of any of the foregoing is:
(i) to increase the cost (excluding, however, any administration
or bank overhead cost) to any Bank of making, funding, issuing, renewing,
extending or maintaining any of the Revolving Credit Loans or Competitive
Bid Advances or such Bank's Commitment, or
<PAGE>
-26-
(ii) to reduce the amount of principal, interest or other amount
payable to such Bank or the Agent hereunder on account of such Bank's
Commitment or any of the Revolving Credit Loans or Competitive Bid
Advances, or
(iii) to require the Agent or such Bank to make any payment or to
forego any interest or other sum payable hereunder the amount of which
payment or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by such Bank or the
Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank or
the Agent at any time and from time to time and as often as the occasion
therefor may arise, pay to the Agent or such Bank such additional amounts as
will be sufficient to compensate the Agent or such Bank for such additional
cost, reduction, payment or foregone interest or other sum.
(S)4.8. Capital Adequacy. If any present or future law, governmental
----------------
rule, regulation, policy, guideline or directive (whether or not having the
force or law) or the interpretation thereof by a court or governmental authority
with appropriate jurisdiction affects the minimum amount of capital required to
be maintained by any Bank or the Agent or any corporation controlling the Agent
or such Bank and the Agent or such Bank determines that the minimum amount of
capital required to be maintained by it is increased by or based upon the
existence of such Bank's Commitment or the Revolving Credit Loans or Competitive
Bid Advances, then the Agent or such Bank may notify the Borrower of such fact.
To the extent that such Bank reasonably determines that the costs of such
increased capital requirements are not reflected in the interest rates
applicable to Revolving Credit Loans or the Competitive Bid Advances, the
Borrower and such Bank shall thereafter attempt to negotiate in good faith,
within thirty (30) days of the day on which the Borrower receives such notice,
an adjustment payable hereunder that will adequately compensate such Bank or the
Agent (as the case may be) in light of these circumstances. If the Borrower and
such Bank or the Agent (as the case may be) are unable to agree to such
adjustment within thirty (30) days of the date on which the Borrower receives
such notice, then commencing on the date of such notice (but not earlier than
the effective date of any such increased capital requirement), the amounts
payable hereunder shall increase by an amount that will, in the reasonable
determination of such Bank or the Agent (as the case may be), provide adequate
compensation. Each Bank shall allocate such cost increases among its customers
in good faith and on an equitable basis.
(S)4.9. Certificate. A certificate setting forth any additional amounts
-----------
amounts payable pursuant to (S)(S)4.7 or 4.8 and a reasonable explanation of
such amounts which are due, submitted by any Bank or the Agent to the Borrower,
shall be conclusive, absent manifest error, that such amounts are due and owing.
<PAGE>
-27-
(S)4.10. Indemnity. The Borrower agrees to indemnify each Bank and to
---------
hold each Bank harmless from and against any loss, cost or expense that such
Bank may sustain or incur as a consequence of (a) default by the Borrower in
payment of the principal amount of or any interest on all or any portion of any
Fixed Rate Advance as and when due and payable, including any such loss or
expense arising from interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain Fixed Rate Advance, (b) default by the
Borrower in making a borrowing after the Borrower has given (or is deemed to
have given) a Loan Request or Notice of Competitive Bid Borrowing, (c) or
conversion of any Fixed Rate Advance after the Borrower has given (or is deemed
to have given) a request for conversion in accordance with (S)2.6 or (d) the
making of any payment of all or any portion of any Fixed Rate Advance or the
making of any conversion of all or any portion of such LIBOR Rate Loan to a Base
Rate Loan on a day that is not the last day of the applicable Interest Period
with respect thereto, including interest or fees payable by such Bank to lenders
of funds obtained by it in order to maintain any such Fixed Rate Advances.
(S)4.11. Interest After Default.
----------------------
(a) Overdue (beyond any grace period) principal and (to the extent
permitted by applicable law) interest on any Advance and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum equal to
the Default Rate until such amount shall be paid in full (after as well as
before judgment).
(b) During the continuance of an Event of Default, the outstanding
principal amount of the Revolving Credit Loans and Competitive Bid Advances not
overdue shall, until such Event or Default has been cured or remedied or such
Event of Default has been waived by the Banks pursuant to (S)24, bear interest
at a rate per annum equal to the Default Rate.
(S)5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
------------------------------
to the Banks and the Agent as follows:
(S)5.1. Corporate Authority.
-------------------
(a) Incorporation; Good Standing. Each of the Borrower and its
----------------------------
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (ii) has all requisite
corporate power to own its property and conduct its business as now conducted
and as presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction where
such qualification is necessary except where a failure to be so qualified would
not have a materially adverse effect on the business, assets or financial
condition of the Borrower or such Subsidiary.
<PAGE>
-28-
(b) Authorization. The execution, delivery and performance of
-------------
this Credit Agreement and the other Loan Documents to which the Borrower or any
of its Subsidiaries is or is to become a party and the transactions contemplated
hereby and thereby (i) are within the corporate authority of such Person, (ii)
have been duly authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which the Borrower or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit applicable
to the Borrower or any of its Subsidiaries and (iv) do not conflict with any
provision of the corporate charter or bylaws of, or any agreement or other
instrument binding upon, the Borrower or any of its Subsidiaries.
(c) Enforceability. The execution and delivery of this Credit
--------------
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is or is to become a party will result in valid and legally binding
obligations of such Person enforceable against it in accordance with the
respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
(S)5.2. Governmental Approvals. The execution, delivery and performance
----------------------
by the Borrower and any of its Subsidiaries of this Credit Agreement and the
other Loan Documents to which the Borrower or any of its Subsidiaries is or is
to become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
(S)5.3. Title to Properties; Leases. Except as indicated on Schedule 5.3
--------------------------- -------- ---
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
(S)5.4. Financial Statements. There has been furnished to each of the
--------------------
Banks a consolidated balance sheet and a consolidated statement of income of the
Borrower and its Subsidiaries for the fiscal year ending December 31, 1995,
certified by the Borrower's independent certified public accountants and an
unaudited consolidated balance sheet and an unaudited consolidated statement of
income of the Borrower and its Subsidiaries as at the Balance Sheet Date. Such
balance sheets and statements of income have been prepared
<PAGE>
-29-
in accordance with generally accepted accounting principles and fairly present
the financial condition of the Borrower and its Subsidiaries as at the close of
business on the date thereof and the results of operations for the periods
reported therein. There are no contingent liabilities of the Borrower or any of
its Subsidiaries as of such date involving material amounts, known to the
officers of the Borrower, which were not disclosed in such balance sheet and the
notes related thereto. In addition, the Borrower has furnished to the Banks
financial statements in its Report on Form 10Q for the quarter ended March 31,
1996.
(S)5.5. No Material Changes, Etc. Since the Balance Sheet Date there has
-------------------------
occurred no materially adverse change in the financial condition or business of
the Borrower and its Subsidiaries as shown on or reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the consolidated statement of income for the fiscal year then ended, other
than changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business or
financial condition of the Borrower or any of its Subsidiaries.
(S)5.6. Franchises, Patents, Copyrights, Etc. Each of the Borrower and
-------------------------------------
its Subsidiaries possesses all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
known conflict with any rights of others.
(S)5.7. Litigation. Except as set forth in Schedule 5.7 hereto, there are
---------- -------- ---
no actions, suits, proceedings or investigations of any kind pending or
threatened against the Borrower or any of its Subsidiaries before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of the Borrower and its
Subsidiaries or materially impair the right of the Borrower and its
Subsidiaries, considered as a whole, to carry on business substantially as now
conducted by them, or result in any substantial liability not adequately covered
by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of the Borrower and its Subsidiaries, or which
question the validity of this Credit Agreement or any of the other Loan
Documents, or any action taken or to be taken pursuant hereto or thereto.
(S)5.8. No Materially Adverse Contracts, Etc. Except as set forth on
-------------------------------------
Schedule 5.8, neither the Borrower nor any of its Subsidiaries is subject to any
- -------- ---
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation that has or is expected in the future to have a materially
adverse effect on the business, assets or financial condition of the Borrower or
any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries is a
party to any contract or agreement that has or is expected, in the judgment of
<PAGE>
-30-
the Borrower's officers, to have any materially adverse effect on the business
of the Borrower or any of its Subsidiaries.
(S)5.9. Compliance with Other Instruments, Laws, Etc. Neither the
---------------------------------------------
Borrower nor any of its Subsidiaries is in violation of any provision of its
charter documents, bylaws, or any agreement or instrument to which it may be
subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule, regulation or law (including, without
limitation, Environmental laws, Medicare and Medicaid Laws, the Social Security
Act and ERISA), in any of the foregoing cases in a manner that could result in
the imposition of substantial penalties or materially and adversely affect the
financial condition, properties or business of the Borrower or any of its
Subsidiaries.
(S)5.10. Tax Status. The Borrower and its Subsidiaries (a) have made or
----------
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is subject, (b)
have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
(S)5.11. No Event of Default. No Default or Event of Default has
-------------------
occurred and is continuing.
(S)5.12. Holding Company and Investment Company Acts. Neither the
-------------------------------------------
Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
(S)5.13. Regulations U and X. The proceeds of the Revolving Credit Loans
-------------------
and Competitive Bid Advances shall be used for working capital and general
corporate purposes of the Borrower. No portion of any Advance is to be used for
the purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
(S)5.14. Subsidiaries, etc. The only Subsidiaries of the Borrower are set
------------------
forth on Schedule 5.14 attached hereto; provided, that if the Borrower shall
-------- ---- --------
acquire any additional Subsidiaries after the date hereof in accordance
<PAGE>
-31-
with the terms hereof, the Borrower shall provide the Agent and the Banks with
an updated Schedule 5.14 concurrently with the delivery of the quarterly
-------- ----
financial statements required by (S)6.4(b) hereof.
(S)5.15. Medicare Qualifications. Except as set forth on Schedule 5.15
-----------------------
hereto, neither the Borrower nor any of its Subsidiaries, has engaged in any
activity in material violation of any law, statute, rule or regulation related
to the delivery of health care or health care services or the payment for health
care or health care services, including, but not limited to, 42 U.S.C. (S)1320a-
7 et seq., 42 U.S.C. (S)1395 et seq., 42 U.S.C. (S)1396 et seq., 42 U.S.C.
(S)1307 et seq., 18 U.S.C. (S)286, 18 U.S.C. (S)287, 19 U.S.C. (S)666; or any
activity which could result in the exclusion of the Borrower or any of its
Subsidiaries from any program promulgated or established under Medicare or
Medicaid Laws.
(S)5.16. Recoupment. Except as set forth on Schedule 5.16 attached
----------
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the best knowledge of the Borrower after diligent inquiry and
investigation, threatened against the Borrower or any of its Subsidiaries which
seek the recoupment of any material portion of any payments previously received
by the Borrower or any of its Subsidiaries pursuant to any law, statute, rule or
regulation related to the delivery of health care or health care services,
including without limitation, Medicare or Medicaid Laws.
(S)6. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
-------------------------------------
agrees that, so long as any Revolving Credit Loan or Competitive Bid Advance or
Note is outstanding or any Bank has any obligation to make any Revolving Credit
Loan:
(S)6.1. Punctual Payment. The Borrower will duly and punctually pay or
----------------
cause to be paid the principal and interest on the Revolving Credit Loan or
Competitive Bid Advances, the commitment fees, the Agent's fee and all other
amounts provided for in this Credit Agreement and the other Loan Documents to
which the Borrower or any of its Subsidiaries is a party, all in accordance with
the terms of this Credit Agreement and such other Loan Documents.
(S)6.2. Maintenance of Office. The Borrower will maintain its chief
---------------------
executive office in Avon, Connecticut, or at such other place in the United
States of America as the Borrower shall designate upon written notice to the
Agent, where notices, presentations and demands to or upon the Borrower in
respect of the Loan Documents to which the Borrower is a party may be given or
made.
(S)6.3. Records and Accounts. The Borrower will (a) keep, and cause each
--------------------
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation, depletion,
<PAGE>
-32-
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.
(S)6.4. Financial Statements, Certificates and Information. The Borrower
--------------------------------------------------
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than one
hundred twenty (120) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such year, and the related consolidated statement of income, consolidated
statement of cash flow, and consolidated statement of shareholders' equity for
such year, each setting forth in comparative form the figures for the previous
fiscal year and all such consolidated statements to be in reasonable detail,
prepared in accordance with generally accepted accounting principles, and
certified without qualification by independent certified public accountants
satisfactory to the Agent;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of the
Borrower, copies of the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such quarter, and the related consolidated
statement of income and consolidated statement of cash flow for the portion of
the Borrower's fiscal year then elapsed, all in reasonable detail and prepared
in accordance with generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of the Borrower
that the information contained in such financial statements fairly presents the
financial position of the Borrower and its Subsidiaries on the date thereof
(subject to year-end adjustments);
(c) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by the
principal financial or accounting officer of the Borrower in substantially the
form of Exhibit F hereto and setting forth in reasonable detail computations
---------
evidencing compliance with the covenants contained in (S)8 and (if applicable)
reconciliations to reflect changes in generally accepted accounting principles
since the Balance Sheet Date;
(d) promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the Borrower's
public shareholders or filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange, including without
limitation copies of all registration statements and Forms 10-K, 10-Q and 8-K,
and amendments thereto; and
(e) from time to time such other financial data and information
(including accountants' management letters) as the Agent or any Bank may
reasonably request.
<PAGE>
-33-
(S)6.5. Notices.
-------
(a) Defaults. The Borrower will promptly notify the Agent and
--------
each of the Banks in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other action in respect
of a claimed default (whether or not constituting an Event of Default) under
this Credit Agreement or any other note, evidence of indebtedness, indenture or
other obligation to which or with respect to which the Borrower or any of its
Subsidiaries is a party or obligor, whether as principal, guarantor, surety or
otherwise, the Borrower shall forthwith give written notice thereof to the Agent
and each of the Banks, describing the notice or action and the nature of the
claimed default.
(b) Notice of Litigation and Judgments. The Borrower will, and
----------------------------------
will cause each of its Subsidiaries to, give notice to the Agent and each of the
Banks in writing within fifteen (15) days of becoming aware of any litigation or
proceedings threatened in writing or any pending litigation and proceedings
affecting the Borrower or any of its Subsidiaries or to which the Borrower or
any of its Subsidiaries is or becomes a party involving an uninsured claim
against the Borrower or any of its Subsidiaries that could reasonably be
expected to have a materially adverse effect on the Borrower or any of its
Subsidiaries and stating the nature and status of such litigation or
proceedings. The Borrower will, and will cause each of its Subsidiaries to, give
notice to the Agent and each of the Banks, in writing, in form and detail
satisfactory to the Agent, within ten (10) days of any judgment not covered by
insurance, final or otherwise, against the Borrower or any of its Subsidiaries
in an amount in excess of $1,000,000.
(S)6.6. Corporate Existence; Maintenance of Properties. The Borrower
----------------------------------------------
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and those of its
Subsidiaries. It (a) will cause all of its properties and those of its
Subsidiaries used or useful in the conduct of its business or the business of
its Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment, (b) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times, and (c) will, and will cause each of its Subsidiaries to, continue
to engage primarily in the businesses now conducted by them and in related
businesses; provided that nothing in this (S)6.6 shall prevent the Borrower from
--------
discontinuing the operation and maintenance of any of its properties or any of
those of its Subsidiaries if such discontinuance is, in the judgment of the
Borrower, desirable in the conduct of its or their business and that do not in
the aggregate materially adversely affect the business of the Borrower and its
Subsidiaries on a consolidated basis.
<PAGE>
-34-
(S)6.7. Insurance The Borrower will, and will cause each of its
---------
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent.
(S)6.8. Taxes. The Borrower will, and will cause each of its
-----
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
--------
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and provided further that the Borrower
-------- -------
and Borrower will pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
(S)6.9. Inspection of Properties and Books, Etc. The Borrower shall
---------------------------------------
permit the Agent to visit and inspect any of the properties of the Borrower or
any of its Subsidiaries, to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its and their officers, all at such
reasonable times and intervals as the Agent may reasonably request.
(S)6.10. Compliance with Laws, Contracts, Licenses, and Permits. The
------------------------------------------------------
Borrower will, and will cause each of its Subsidiaries to, comply with (a) the
applicable laws and regulations wherever its business is conducted, including
all Environmental Laws, Medicare and Medicaid Laws, the Social Security Act and
ERISA, (b) the provisions of its charter documents and by-laws, (c) all
agreements and instruments by which it or any of its properties may be bound and
(d) all applicable decrees, orders, and judgments. If any authorization,
consent, approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that the Borrower
or any of its Subsidiaries may fulfill any of its obligations hereunder or any
of the other Loan Documents to which the Borrower or such Subsidiary is a party,
the Borrower will, or (as the case may be) will cause such Subsidiary to,
immediately take or cause to be taken all reasonable steps within the power of
the Borrower or such Subsidiary to obtain such authorization, consent, approval,
permit or license and furnish the Agent and the Banks with evidence thereof.
<PAGE>
-35-
(S)6.11. Use of Proceeds. The Borrower will use the proceeds of the
---------------
Revolving Credit Loans and Competitive Bid Advances solely for working capital
and general corporate purposes (including, without limitation, permitted
acquisitions and stock repurchase arrangements).
(S)6.12. Further Assurances. The Borrower will, and will cause each
------------------
of its Subsidiaries to, cooperate with the Banks and the Agent and execute such
further instruments and documents as the Banks or the Agent shall reasonably
request to carry out to their satisfaction the transactions contemplated by this
Credit Agreement and the other Loan Documents.
(S)7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
------------------------------------------
agrees that, so long as any Revolving Credit Loan or Competitive Bid Advance or
Note is outstanding or any Bank has any obligation to make any Revolving Credit
Loan:
(S)7.1. Restrictions on Indebtedness. The Borrower will not permit
----------------------------
any of its Subsidiaries to, create, incur, assume, guarantee or be or remain
liable, contingently or otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under
any of the Loan Documents;
(b) current liabilities of such Subsidiary incurred in the
ordinary course of business not incurred through (i) the borrowing of money, or
(ii) the obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with normal purchases of
goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment therefor shall not at the time be required to be made in
accordance with the provisions of (S)6.8;
(d) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal so long
as execution is not levied thereunder or in respect of which the Borrower or
such Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary course
of business;
(f) Indebtedness existing on the date hereof and listed and
described on Schedule 7.1 hereto;
-------- ---
<PAGE>
-36-
(g) Indebtedness owed to the Borrower by a Subsidiary of the
Borrower and existing on the Closing Date;
(h) obligations under Capitalized Leases not exceeding five
percent (5%) of the Consolidated Tangible Net Worth of the Borrower in the
aggregate amount at any time outstanding; and
(i) other Indebtedness not described above in an aggregate
amount not in excess of $5,000,000 at any time.
(S)7.2. Restrictions on Liens. The Borrower will not, and will not
---------------------
permit any of its Subsidiaries to, (a) create or incur or suffer to be created
or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired; (b) transfer
any of such property or assets or the income or profits therefrom for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to payment of its general creditors; (c)
acquire, or agree or have an option to acquire, any property or assets upon
conditional sale or other title retention or purchase money security agreement,
device or arrangement; (d) suffer to exist for a period of more than thirty (30)
days after the same shall have been incurred any Indebtedness or claim or demand
against it that if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; (e)
sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse; or
(f) enter into or permit to exist any arrangement or agreement which directly or
indirectly prohibits the Borrower or such Subsidiary from creating or incurring
any lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest of any kind provided that the Borrower and any Subsidiary of the
Borrower may create or incur or suffer to be created or incurred or to exist:
(i) liens in favor of the Borrower on all or part of the assets
of Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries
of the Borrower to the Borrower;
(ii) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties to
secure claims for labor, material or supplies in respect of obligations not
overdue;
(iii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iv) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by (S)7.1(d);
<PAGE>
-37-
(v) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties, in existence less than 120
days from the date of creation thereof in respect of obligations not
overdue;
(vi) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto, landlord's or
lessor's liens under leases to which the Borrower or a Subsidiary of the
Borrower is a party, and other minor liens or encumbrances none of which in
the opinion of the Borrower interferes materially with the use of the
property affected in the ordinary conduct of the business of the Borrower
and its Subsidiaries, which defects do not individually or in the aggregate
have a materially adverse effect on the business of the Borrower
individually or of the Borrower and its Subsidiaries on a consolidated
basis;
(vii) liens existing on the date hereof and listed on
Schedule 7.2 hereto; and
-------- ---
(viii) liens (in addition to liens excepted by clauses (i)
through (vii) above) on its properties and assets so long as the fair value
of such assets (as reasonably determined by the Agent) does not exceed, in
the aggregate, ten percent (10%) of the Consolidated Tangible Net Worth of
the Borrower at any time.
(S)7.3. Restrictions on Investments. The Borrower will not, and will not
---------------------------
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America and its agencies that mature within five (5) years from the
date of purchase by the Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks having total assets in excess of
$1,000,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated and
the ratings for which are not less than "P 1" if rated by Moody's Investors
Services, Inc., and not less than "A 1" if rated by Standard and Poor's;
(d) Investments existing on the date hereof and listed on
Schedule 7.3 hereto;
- -------- ---
<PAGE>
-38-
(e) Investments with respect to Indebtedness permitted by
(S)7.1(g);
(f) Investments by the Borrower in Subsidiaries;
(g) Investments consisting of loans and advances to employees
for moving, entertainment, travel and other similar expenses in the ordinary
course of business not to exceed $3,000,000 in the aggregate at any time
outstanding;
(h) Obligations of a State, Territory or a possession of the
United States of America, or any political subdivision of any of the foregoing,
or of the District of Columbia, the interest on which is exempt from federal
income taxation under Section 103(a)(1) of the Internal Revenue Code of 1986, as
amended, which at the time of purchase have been rated "M1G1", if rated by
Moody's Investor Services, Inc. and not less than "A-1" or "SP-1", if rated by
Standard and Poor's and which mature within one year from the date of issue;
(i) Repurchase agreements secured by any one or more of the
Investments in which the Company is permitted to invest in pursuant to this
(S)7.3(a), (b) and (c);
(j) Corporate and mortgage-backed securities having a maturity
of not more than five years and which at the time of purchase have been rated,
and the ratings for which are not less than "A" if rated by Standard and Poor's
or its equivalent if rated by any other rating agency;
(k) Investments in joint ventures, partnerships and corporations
that are engaged in the health care, health insurance and health care
information technology industries; and
(l) Investments in any mutual or other similar fund which
invests exclusively in any of the Investments described above in (S)7.3.
(S)7.4. Merger, Consolidation and Disposition of Assets.
-----------------------------------------------
(a) The Borrower will not, and will not permit any of its
Subsidiaries to, become a party to any merger or consolidation, or agree to or
effect any asset acquisition or stock acquisition other than, in each case as
long as no Default or Event of Default shall have occurred and be continuing or
would result therefrom, (i) the acquisition of assets in the ordinary course of
business consistent with past practices, (ii) any asset acquisition or stock
acquisition not in the ordinary course of business as long as such assets are
acquired in connection with the Borrower's healthcare or health insurance
businesses, (iii) Investments described in (S)7.3 above, (iv) the merger or
consolidation of one or more of the Subsidiaries of the Borrower with and into
the Borrower, or (v) the merger or consolidation of any corporation engaged in
<PAGE>
-39-
the healthcare or health insurance industries with and into the Borrower and the
Borrower is the surviving entity of such merger or consolidation or (vi) the
merger or consolidation of two or more Subsidiaries of the Borrower, provided,
--------
that, if a merger or consolidation occurs between a Subsidiary which is
- ----
partially owned by the Borrower and a Subsidiary which is wholly owned by the
Borrower, the wholly owned subsidiary shall be the surviving entity.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, become a party to or agree to or effect any disposition of
assets, other than (i) the disposition of obsolete or worn-out assets in the
ordinary course of business, consistent with past practices and (ii) the
disposition of assets having a fair value (as reasonably determined by the
Agent) not in excess of twenty-five percent (25%) of the Consolidated Tangible
Net Worth of the Borrower at any time after the date hereof.
(S)7.5. Sale and Leaseback. The Borrower will not, and will not permit
------------------
any of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
(S)7.6. Compliance with Medicare and Medicaid Laws; Social Security Act.
---------------------------------------------------------------
The Borrower will not, and will not permit any of its Subsidiaries to, engage in
any activity in material violation of any law or regulation related to the
delivery of health care or health care services or the payment for health care
services, including, but not limited to, 42 U.S.C. (S)1320a-7 et seq., 42 U.S.C.
(S)1395 et seq., 42 U.S.C. (S)1396 et seq., 42 U.S.C. (S)1307 et seq., 42 U.S.C.
(S)1902 et seq., 18 U.S.C. (S)286, 18 U.S.C. (S)287, 18 U.S.C. (S)666, Title 17
of the Connecticut General Statutes, as amended; or which could result in the
exclusion of the Borrower from any program promulgated or established under any
Medicare or Medicaid Laws or the Social Security Act or the exclusion of the
Borrower or any of its Subsidiaries from receiving provider payments pursuant to
any Medicare or Medicaid Laws or the Social Security Act.
(S)7.7. No Restrictions on Pledge. The Borrower will not agree with any
-------------------------
third party to limit, prohibit or restrict in any way the ability or right of
the Borrower or any of its Subsidiaries to grant to the Agent on behalf of the
Banks liens on or security interests in any of their respective properties and
assets.
(S)8. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees
-----------------------------------
that, so long as any Revolving Credit Loan or Competitive Bid Advance or Note is
outstanding or any Bank has any obligation to make any Revolving Credit Loan;
<PAGE>
-40-
(S)8.1. Fixed Charge Ratio. The Borrower will not permit the Fixed
------------------
Charge Ratio of the Borrower and its Subsidiaries to be less than 2.5:1.0 for
any period consisting of four consecutive fiscal quarters of the Borrower ending
on or after September 30, 1996.
(S)8.2. Consolidated Debt Ratio. The Borrower will not permit the ratio
-----------------------
of Consolidated Total Funded Debt of the Borrower and its Subsidiaries to
Consolidated Operating Cash Flow of the Borrower and its Subsidiaries to exceed
2.0:1.0 for any period consisting of four consecutive fiscal quarters of the
Borrower ending on or after September 30, 1996.
(S)8.3. Consolidated Shareholders' Equity. The Borrower will not permit
---------------------------------
its Consolidated Shareholders' Equity to be less at any time than the sum of (a)
$500,000,000, plus (b) on a cumulative basis, twenty-five percent (25%) of
positive Consolidated Net Income for each fiscal year of the Borrower ending on
or after the date hereof.
(S)9. CLOSING CONDITIONS. The obligations of the Banks to make the initial
------------------
Revolving Credit Loans and Competitive Bid Advances shall be subject to the
satisfaction of the following conditions precedent on or prior to the Closing
Date:
(S)9.1. Loan Documents. Each of the Loan Documents shall have been duly
---------------
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
(S)9.2. Certified Copies of Charter Documents. Each of the Banks shall
-------------------------------------
have received from the Borrower and each of its Principal Subsidiaries a copy,
certified by a duly authorized officer of such Person to be true and complete on
the Closing Date, of each of (a) its charter or other incorporation documents as
in effect on such date of certification, and (b) its by-laws as in effect on
such date.
(S)9.3. Corporate, Action. All corporate action necessary for the valid
-----------------
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
(S)9.4. Incumbency Certificate. Each of the Banks shall have received
----------------------
from the Borrower an incumbency certificate, dated as of the Closing Date,
signed by a duly authorized officer of the Borrower, and giving the name and
bearing a specimen signature of each individual who shall be authorized: (a) to
sign, in the name and on behalf of the Borrower, each of the Loan Documents
<PAGE>
-41-
to which the Borrower is or is to become a party; (b) to make Loan Requests,
Competitive Bid Quote Requests and Conversion Requests; and (c) to give notices
and to take other action on its behalf under the Loan Documents.
(S)9.5. Financial Condition. The Banks shall be satisfied that the
-------------------
financial information previously delivered to them fairly presents the business
and financial condition of the Borrower and its Subsidiaries as at the close of
business on the Balance Sheet Date and the results of operations for the periods
covered by such information, and that there has been no material adverse change
in the business, assets or financial condition of the Borrower and/or its
Subsidiaries since such date.
(S)9.6. Regulatory Approvals. The Agent shall have received all
--------------------
necessary regulatory approvals and evidence of compliance with all state and
Federal laws, including but not limited to Regulation U, and state and Federal
securities laws, applicable to any of the parties to the transactions.
(S)9.7. Opinion of Counsel. Each of the Banks and the Agent shall have
------------------
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Paul Finigan, general counsel to the Borrower and its Subsidiaries.
(S)9.8. Payment of Fees. The Borrower shall have paid to the Agent the
---------------
fees required pursuant to (S)(S)4.1 and 4.2.
(S)10. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make
----------------------------
any Revolving Credit Loan or Competitive Bid Advance, whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
(S)10.1. Representations True; No Event of Default. Each of the
-----------------------------------------
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Advance with the same effect as if
made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing. The Agent
shall have received a certificate of the Borrower signed by an authorized
officer of the Borrower to such effect.
<PAGE>
-42-
(S)10.2. Proceedings and Documents. All proceedings in connection with
-------------------------
the transactions contemplated by this Credit Agreement, the other Loan Documents
and all other documents incident thereto shall be satisfactory in substance and
in form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
(S)11. EVENTS OF DEFAULT; ACCELERATION; ETC.
(S)11.1. Events of Default and Acceleration. If any of the following
----------------------------------
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay within five (5) Business
Days of the date when due any principal of any Revolving Credit Loan or
Competitive Bid Advance when the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;
(b) the Borrower or any of its Subsidiaries shall fail to
pay, within five (5) Business Days of the applicable due date, any interest on
any Revolving Credit Loan or Competitive Bid Advance, the facility fee, the
Agent's fee, or other sums due hereunder or under any of the other Loan
Documents, when the same shall become due and payable, whether at the stated
date of maturity or any accelerated date of maturity or at any other date fixed
for payment;
(c) the Borrower shall fail to comply with any of its
covenants contained in (S)(S)7.3, 7.4, 7.5, 7.7 or 8;
(d) the Borrower or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained herein or in any of the other
Loan Documents (other than those specified elsewhere in this (S)11.1) for
fifteen (15) days after written notice of such failure has been given to the
Borrower by the Agent;
(e) any representation or warranty of the Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan Documents or
in any other document or instrument delivered pursuant to or in connection with
this Credit Agreement shall prove to have been false in any material respect
upon the date when made or deemed to have been made or repeated;
(e) the Borrower or any of its Subsidiaries shall fail to pay
when due, or within any applicable period of grace, any obligation for borrowed
money or credit received in excess of $5,000,000 in the aggregate outstanding
and/or in respect of any Capitalized Leases or fail to observe or perform any
<PAGE>
-43-
material term, covenant or agreement contained in any agreement by which it is
bound, evidencing or securing borrowed money or credit received in excess of
$5,000,000 in the aggregate outstanding and/or in respect of any Capitalized
Leases for such period of time as would permit (assuming the giving of
appropriate notice if required) the holder or holders thereof or of any
obligations issued thereunder to accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its inability to
pay or generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Borrower or any of its Subsidiaries or of any
substantial part of the assets of the Borrower or any of its Subsidiaries or
shall commence any case or other proceeding relating to the Borrower or any of
its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or shall take any action to authorize
or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall be
commenced against the Borrower or any of its Subsidiaries and the Borrower or
any of its Subsidiaries shall indicate its approval thereof, consent thereto or
acquiescence therein or such petition or application shall not be dismissed
within sixty (60) days of the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any of its
Subsidiaries bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in respect of the
Borrower or any Subsidiary of the Borrower in an involuntary case under federal
bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied
and unstayed, for more than thirty days, any final judgment against the Borrower
or any of its Subsidiaries that, with other outstanding final judgments,
undischarged, against the Borrower or any of its Subsidiaries exceeds in the
aggregate $5,000,000; or
(j) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Banks shall have
determined in their reasonable discretion that such event reasonably could be
expected to result in liability of the Borrower or any of its Subsidiaries to
the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding
$5,000,000 and such event in the circumstances occurring reasonably could
constitute grounds for the termination of such Guaranteed Pension Plan by the
PBGC or for the appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan; or a trustee shall have been
appointed by the United States District Court to administer such Plan; or
<PAGE>
-44-
the PBGC shall have instituted proceedings to terminate such Guaranteed Pension
Plan;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents to be, and they shall thereupon forthwith
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower; provided that in the event of any Event of Default specified in
--------
(S)(S)11.1(g) or 11.1(h), all such amounts shall become immediately due and
payable automatically and without any requirement of notice from the Agent or
any Bank.
(S)11.2. Termination of Commitments. If any one or more of the Events
--------------------------
of Default specified in (S)11.1(g) or (S)11.1(h) shall occur, any unused portion
of the credit hereunder shall forthwith terminate and each of the Banks shall be
relieved of all further obligations to make Revolving Credit Loans and
Competitive Bid Advances to the Borrower. If any other Event of Default shall
have occurred and be continuing, the Agent may and, upon the request of the
Majority Banks, shall, by notice to the Borrower, terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion of
the credit hereunder shall terminate immediately and each of the Banks shall be
relieved of all further obligations to make Revolving Credit Loans and
Competitive Bid Advances. No termination of the credit hereunder shall relieve
the Borrower or any of its Subsidiaries of any of the Obligations.
(S)11.3. Remedies. In case any one or more of the Events of Default
--------
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Revolving Credit Loans and Competitive Bid
Advances pursuant to (S)11.1, each Bank, if owed any amount with respect to the
Revolving Credit Loans and Competitive Bid Advances, may, with the consent of
the Majority Banks but not otherwise, proceed to protect and enforce its rights
by suit in equity, action at law or other appropriate proceeding, whether for
the specific performance of any covenant or agreement contained in this Credit
Agreement and the other Loan Documents or any instrument pursuant to which the
Obligations to such Bank are evidenced, including as permitted by applicable law
the obtaining of the ex parte appointment of a receiver, and, if such amount
-- -----
shall have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of such Bank. No remedy
herein conferred upon any Bank or the Agent or the holder of any Note is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law.
<PAGE>
-45-
(S)12. SETOFF. Regardless of the adequacy of any collateral, during the
------
continuance of any Event of Default, any deposits or other sums credited by or
due from any of the Banks to the Borrower and any securities or other property
of the Borrower in the possession of such Bank may be applied to or set off by
such Bank against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees
with each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank owed to such Bank, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness evidenced by all such
Notes held by such Bank owed to such Bank, and (b) if such Bank shall receive
from the Borrower, whether by voluntary payment, exercise of the right of
setoff, counterclaim, cross action, enforcement of the claim evidenced by the
Notes held by such Bank by proceedings against the Borrower at law or in equity
or by proof thereof in bankruptcy, reorganization, liquidation, receivership or
similar proceedings, or otherwise, and shall retain and apply to the payment of
the Note or Notes held by such Bank any amount in excess of its ratable portion
of the payments received by all of the Banks with respect to the Notes held by,
all of the Banks, such Bank will make such disposition and arrangements with the
other Banks with respect to such excess, either by way of distribution, pro
---
tanto assignment of claims, subrogation or otherwise as shall result in each
- -----
Bank receiving in respect of the Notes held by it, its proportionate payment as
contemplated by this Credit Agreement; provided that so long as no Event of
--------
Default has occurred and is continuing, any voluntary payment with respect to
the Revolving Credit Loans shall be applied ratably only to the Revolving Credit
Loans and any voluntary payment with respect to a Competitive Bid Advance shall
be applied only to the respective Competitive Bid Advance, and provided,
--------
further, if all or any part of such excess payment is thereafter recovered from
- -------
such Bank, such disposition and arrangements shall be rescinded and the amount
restored to the extent of such recovery, but without interest.
(S)13. THE AGENT.
---------
(S)13.1. Authorization. The Agent is authorized to take such action
-------------
on behalf of each of the Banks and to exercise all such powers as are hereunder
and under any of the other Loan Documents and any related documents delegated to
the Agent, together with such powers as are reasonably incident thereto,
provided that no duties or responsibilities not expressly assumed herein or
- --------
therein shall be implied to have been assumed by the Agent. The relationship
between the Agent and the Banks is and shall be that of agent and principal
only, and nothing contained in this Credit Agreement or any of the other Loan
Documents shall be construed to constitute the Agent as a trustee for any Bank.
(S)13.2. Employees and Agents. The Agent may exercise its powers and
--------------------
execute its duties by or through employees or agents and shall be
<PAGE>
-46-
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Credit Agreement and the other
Loan Documents. The Agent may utilize the services of such Persons as the Agent
in its sole discretion may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by the Borrower.
(S)13.3. No Liability. Neither the Agent nor any of its shareholders,
------------
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
(S)13.4. No Representations. The Agent shall not be responsible for
------------------
the execution or validity or enforceability of this Credit Agreement, the Notes
or any of the other Loan Documents or for the validity, enforceability or
collectability of any such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument hereafter furnished
to it by or on behalf of the Borrower or any of its Subsidiaries, or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for the Notes or to
inspect any of the properties, books or records of the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrower or any holder of any
of the Notes shall have been duly authorized or is true, accurate and complete.
The Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with respect
to the credit worthiness or financial conditions of the Borrower or any of its
Subsidiaries. Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Credit Agreement.
(S)13.5. Payments.
--------
(a) A payment by the Borrower to the Agent hereunder or any
of the other Loan Documents for the account of any Bank shall constitute a
payment to such Bank. The Agent agrees promptly to distribute to each Bank such
Bank's pro rata share of payments received by the Agent for the account of the
--- ----
Banks except as otherwise expressly provided herein or in any of the other Loan
Documents.
<PAGE>
-47-
(b) If in the opinion of the Agent the distribution of any
amount received by it in such capacity hereunder, under the Notes or under any
of the other Loan Documents might involve it in liability, it may refrain from
making distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. Pending such adjudication, the
amount received shall be segregated and held in an interest bearing account
maintained with the Agent for the benefit of the Banks. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Agent
is to be repaid, each Person to whom any such distribution shall have been made
shall either repay to the Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
(c) Notwithstanding anything to the contrary contained in
this Credit Agreement or any of the other Loan Documents, any Bank that fails
(i) to make available to the Agent its pro rata share of any Revolving Credit
--- ----
Loan or (ii) to comply with the provisions of (S)12 with respect to making
dispositions and arrangements with the other Banks, where such Bank's share of
any payment received, whether by setoff or otherwise, is in excess of its pro
---
rata share of such payments due and payable to all of the Banks with respect to
- ----
Revolving Credit Loans, in each case as, when and to the full extent required by
the provisions of this Credit Agreement, shall be deemed delinquent (a
"Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such
delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any
and all payments due to it from the Borrower, whether on account of outstanding
Revolving Credit Loans, interest, fees or otherwise, to the remaining
nondelinquent Banks for application to, and reduction of, their respective pro
---
rata shares of all outstanding Revolving Credit Loans. The Delinquent Bank
- ----
hereby authorizes the Agent to distribute such payments to the nondelinquent
Banks in proportion to their respective pro rata shares of all outstanding
--- ----
Revolving Credit Loans. A Delinquent Bank shall be deemed to have satisfied in
full a delinquency when and if, as a result of application of the assigned
payments to all outstanding Revolving Credit Loans of the nondelinquent Banks,
the Banks' respective pro rata shares of all outstanding Revolving Credit Loans
--- ----
have returned to those in effect immediately prior to such delinquency and
without giving effect to the nonpayment causing such delinquency.
(S)13.6. Holders of Notes. The Agent may deem and treat the payee of
----------------
any Note as the absolute owner or purchaser thereof for all purposes hereof
until it shall have been furnished in writing with a different name by such
payee or by a subsequent holder, assignee or transferee.
(S)13.7. Indemnity. The Banks ratably agree (in accordance with their
---------
respective Commitment Percentages) hereby to indemnify and hold harmless the
Agent from and against any and all (a) reasonable legal, consulting, accounting,
appraisal, investment banking and similar professional
<PAGE>
-48-
fees and charges incurred by the Agent in connection with this Credit Agreement,
the Notes, any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder and (b) losses, damages, costs, expenses (including any expenses for
which the Agent has not been reimbursed by the Borrower as required by (S)14),
and liabilities of every nature and character arising out of or related to any
claims, actions or suits (whether groundless or otherwise) involving this Credit
Agreement, the Notes, or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by, or incurred in connection with, the Agent's willful
misconduct or gross negligence.
(S)13.8. Agent as Bank. In its individual capacity, Fleet shall have
-------------
the same obligations and the same rights, powers and privileges in respect to
its Commitment and the Revolving Credit Loans and Competitive Bid Advances made
by it, and as the holder of any of the Notes, as it would have were it not also
the Agent.
(S)13.9. Resignation. The Agent may resign at any time by giving sixty
-----------
(60) days' prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
(S)13.10. Notification of Defaults and Events of Default. Each Bank
----------------------------------------------
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof; provided, that no Bank will
--------
incur any liability as a result of its failure to comply with the terms of this
(S)13.10. The Agent hereby agrees that upon receipt of any notice under this
(S)13.10 it shall promptly notify the other Banks of the existence of such
Default or Event of Default.
<PAGE>
-49-
(S)13.11. Duties in the Case of Enforcement. In case one of more
---------------------------------
Events of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (a) so
requested by the Majority Banks and (b) the Banks have provided to the Agent
such additional indemnities and assurances against expenses and liabilities as
the Agent may reasonably request, proceed to enforce the provisions of the Loan
Documents and exercise all or any such other legal and equitable and other
rights or remedies as it may have. The Majority Banks may direct the Agent in
writing as to the method and the extent of any such enforcement proceedings, the
Banks hereby agreeing to indemnify and hold the Agent harmless from all
liabilities incurred in respect of all actions taken or omitted in accordance
with such directions, provided that the Agent need not comply with any such
direction to the extent that the Agent reasonably believes the Agent's
compliance with such direction to be unlawful or commercially unreasonable in
any applicable jurisdiction.
(S)13.12. Co-Agent. The parties hereto agree that the Co-Agent does
--------
not have any special rights or powers under this Agreement but is entitled, in
its capacity as Co-Agent hereunder, to the same protections afforded to the
Agent under this Section 13.
(S)14. EXPENSES. The Borrower agrees to pay the fees, expenses,
--------
disbursements and out-of-pocket expenses of the Agent (including, without
limitation, reasonable legal and syndication expenses) incurred by the Agent in
connection with the preparation, administration, amendment, modification or
interpretation of the Loan Documents and other instruments mentioned herein;
provided, that such legal expenses incurred in connection with the preparation
of the Loan Documents shall not exceed $10,000 plus disbursements through the
Closing Date and all reasonable out-of-pocket expenses (including without
limitation reasonable attorneys' fees and costs, which attorneys may be
employees of any Bank or the Agent, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by any Bank or the Agent in connection with the enforcement of or
preservation of rights under any of the Loan Documents against the Borrower or
any of its Subsidiaries or the administration thereof after the occurrence of a
Default or Event of Default (including, without limitation, any fees and
expenses incurred by the Agent or any Bank following the commencement by the
Borrower or any of its Subsidiaries of any bankruptcy or insolvency
proceedings). The covenants of this (S)14 shall survive payment or satisfaction
of all other Obligations.
(S)15. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless
the Agent and the Banks from and against any and all claims, actions and suits
whether groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of this
Credit Agreement or any of the other Loan Documents or the transactions
contemplated hereby including, without limitation, (a) any actual
<PAGE>
-50-
or proposed use by the Borrower or any of its Subsidiaries of the proceeds of
any of the Revolving Credit Loans or Competitive Bid Advances, (b) the Borrower
or any of its Subsidiaries entering into or performing this Credit Agreement or
any of the other Loan Documents or (c) with respect to the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law (including, but not limited to, claims with respect to
wrongful death, personal injury or damage to property), in each case including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Banks and the Agent shall be
entitled to select their own counsel and, in addition to the foregoing
indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses
of such counsel. If, and to the extent that the obligations of the Borrower
under this (S)15 are unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment in satisfaction of such obligations
which is permissible under applicable law. The covenants contained in this (S)15
shall survive payment or satisfaction in full of all other Obligations.
(S)16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
---------------------------
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have
been relied upon by the Banks and the Agent, notwithstanding any investigation
heretofore or hereafter made by any of them, and shall survive the making by the
Banks of any of the Revolving Credit Loans or Competitive Bid Advances, as
herein contemplated, and shall continue in full force and effect so long as any
amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any
Revolving Credit Loans or Competitive Bid Advances, and for such further time as
may be otherwise expressly specified in this Credit Agreement. All statements
contained in any certificate or other paper delivered to any Bank or the Agent
at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant
hereto or in connection with the transactions contemplated hereby shall
constitute representations and warranties by the Borrower or such Subsidiary
hereunder.
(S)17. ASSIGNMENT AND PARTICIPATION.
----------------------------
(S)17.1. Conditions to Assignment by Banks. Except as provided herein,
---------------------------------
each Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Revolving Credit Loans and Competitive Bid Advances the time owing to it and
the Notes held by it); provided that the Agent and the Borrower shall have given
--------
their prior written consent to such assignment, which consent will not be
unreasonably withheld, provided, that, no consent of the Borrower shall be
-------- ----
required in connection with an assignment to an Affiliate of
<PAGE>
-51-
any Bank or to the Federal Reserve Bank, each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Credit Agreement, each assignment shall be in an amount
that is a whole multiple of $5,000,000, and the parties to such assignment shall
execute and deliver to the Agent, for recording in the Register (as hereinafter
defined), an Assignment and Acceptance, substantially in the form of Exhibit G
---------
hereto (an "Assignment and Acceptance"), together with any Notes subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, (i) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in
such assignment and upon payment to the Agent of the registration fee referred
to in (S)17.3, be released from its obligations under this Credit Agreement. In
connection with any such assignment, the Agent shall have the power and
authority to amend Schedule 1 hereto to reflect changes in the Commitments, the
-------- -
Commitment Percentages, the Domestic Lending Offices and such other changes that
the Agent deems to be necessary in order to effectuate such assignments.
(S)17.2. Certain Representations and Warranties; Limitations;
----------------------------------------------------
Covenants. By executing and delivering an Assignment and Acceptance, the parties
- ---------
to the assignment thereunder confirm to and agree with each other and the other
parties hereto as follows: other than the representation and warranty that it is
the legal and beneficial owner of the interest being assigned thereby free and
clear of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or mortgage; the
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower and its Subsidiaries or
any other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of their obligations under this Credit Agreement
or any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; such assignee confirms that it has received a copy
of this Credit Agreement, together with copies of the most recent financial
statements referred to in (S)5.4 and (S)6.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; such assignee will,
independently and without reliance upon the assigning Bank, the
<PAGE>
-52-
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement; such assignee
represents and warrants that it is an Eligible Assignee; such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Credit Agreement and the other Loan Documents as
are delegated to the Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto; such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Credit Agreement are required to be performed by it as a Bank; and such
assignee represents and warrants that it is legally authorized to enter into
such Assignment and Acceptance.
(S)17.3. Register. The Agent shall maintain a copy of each Assignment
--------
and Acceptance delivered to it and a register or similar list (the "Register")
for the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to the
Banks from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and from time to
time upon reasonable prior notice. Upon each such recordation, the assigning
Bank agrees to pay to the Agent a registration fee in the sum of $2,500.00.
(S)17.4. New Notes. Upon its receipt of an Assignment and Acceptance
---------
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such in Assignment and Acceptance and shall otherwise be substantially in the
form of the assigned Notes. The surrendered Notes shall be canceled and returned
to the Borrower.
(S)17.5. Participations. Each Bank may sell participations to one or
--------------
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents;
<PAGE>
-53-
provided that (a) each such participation shall be in an amount of not less than
- --------
$5,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant or
reduce the amount of any commitment fees to which such participant is entitled
or extend any regularly scheduled payment date for principal or interest.
(S)17.6. Disclosure. The Borrower agrees that in addition to
----------
disclosures made in accordance with standard and customary banking practices any
Bank may disclose information obtained by such Bank pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; provided that such assignees or participants or potential assignees
--------
or participants shall agree (a) to treat in confidence such information unless
such information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
(S)17.7. Assignee or Participant Affiliated with the Borrower. If any
----------------------------------------------------
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to (S)11.1 or (S)11.2, and
the determination of the Majority Banks shall for all purposes of this Agreement
and the other Loan Documents be made without regard to such assignee Bank's
interest in any of the Revolving Credit Loans or Competitive Bid Advances. If
any Bank sells a participating interest in any of the Revolving Credit Loans or
Competitive Bid Advances to a participant, and such participant is the Borrower
or an Affiliate of the Borrower, then such transferor Bank shall promptly notify
the Agent of the sale of such participation. A transferor Bank shall have no
right to vote as a Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of agreeing to
amendments or modifications to any of the Loan Documents or for purposes of
making requests to the Agent pursuant to (S)11.1 or (S)11.2 to the extent that
such participation is beneficially owned by the Borrower or any Affiliate of the
Borrower, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to the
interest of such transferor Bank in the Revolving Credit Loans and the
Competitive Bid Advances to the extent of such participation.
<PAGE>
-54-
(S)17.8. Miscellaneous Assignment Provisions. Any assigning Bank
-----------------------------------
shall retain its rights to be indemnified pursuant to (S)15 with respect to any
claims or actions arising prior to the date of such assignment. If any assignee
Bank is not incorporated under the laws of the United States of America or any
state thereof, it shall, prior to the date on which any interest or fees are
payable hereunder or under any of the other Loan Documents for its account,
deliver to the Borrower and the Agent certification as to its exemption from
deduction or withholding of any United States federal income taxes. Anything
contained in this (S)17 to the contrary notwithstanding, any Bank may at any
time pledge all or any portion of its interest and rights under this Credit
Agreement (including all or any portion of its Notes) to any of the twelve
Federal Reserve Banks organized under (S)4 of the Federal Reserve Act, 12 U.S.C.
(S)341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.
(S)17.9. Assignment by Borrower. The Borrower shall not assign or
----------------------
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
(S)18. NOTICES, ETC. Except as otherwise expressly provided in this Credit
------------
Agreement, all notices and other communications made or required to be given
pursuant to this Credit Agreement or the Notes or any shall be in writing and
shall be delivered in hand, mailed by United States registered or certified
first class mail, postage prepaid, sent by overnight courier, or sent by
telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or
postal service, addressed as follows:
(a) if to the Borrower, at Value Health, Inc. 22 Waterville
Road, Avon, Connecticut 06001, Attention: David M. Wurzer, Senior Vice President
and Chief Financial Officer, or at such other address for notice as the Borrower
shall last have furnished in writing to the Person giving the notice;
(b) if to the Agent, at 777 Main Street, Hartford,
Connecticut 06115, Attention: Paul Veiga, Vice President, or such other address
for notice as the Agent shall last have furnished in writing to the Person
giving the notice; and
(c) if to any Bank, at such Bank's address set forth on
Schedule 1 hereto, or such other address for notice as such Bank shall have last
- -------- -
furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made and to
have become effective (i) if delivered by hand, overnight courier or facsimile
to a responsible officer of the party to which it is directed, at the time of
the receipt thereof by such officer or the sending of such facsimile and (ii) if
sent by registered or certified first-class mail, postage prepaid, on the third
Business Day following the mailing thereof.
<PAGE>
-55-
(S)19. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE
-------------
SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS
UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL FOR ALL PURPOSES BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE (EXCLUDING
THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY
SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER
BY MAIL AT THE ADDRESS SPECIFIED IN (S)18. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
(S)20. HEADINGS. The captions in this Credit Agreement are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
(S)21. COUNTERPARTS. This Credit Agreement and any amendment hereof may be
------------
executed in several counterparts and by each party on a separate counterpart,
each of which when executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this Credit Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
(S)22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
----------------------
executed in connection herewith or therewith express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Credit Agreement nor any term hereof may be changed, waived, discharged or
terminated, except as provided in (S)24.
(S)23. WAIVER OF JURY TRIAL. Each party hereto hereby waives its right to a
--------------------
jury trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, each party hereto
hereby waives any right it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. Each party hereto (a) certifies that no representative, agent or
attorney of any other party hereto has represented, expressly or otherwise, that
such party would not, in the event of litigation, seek to enforce the foregoing
waivers and (b) acknowledges that the other parties hereto have been induced to
<PAGE>
-56-
enter into this Credit Agreement and the other Loan Documents to which it is a
party by, among other things, the waivers and certifications contained herein.
(S)24. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval required
-----------------------------------
or permitted by this Credit Agreement to be given by all of the Banks may be
given, and any term of this Credit Agreement, the other Loan Documents or any
other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower or any of its Subsidiaries of any
terms of this Credit Agreement, the other Loan Documents or such other
instrument or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Borrower and the
written consent of the Majority Banks. Notwithstanding the foregoing, the rate
of interest on the Notes (other than interest accruing pursuant to (S)4.11(b)
following the effective date of any waiver by the Majority Banks of the Default
or Event of Default relating thereto), the term of the Notes (specifically,
including, but not limited to, extensions of maturities and terms for payment),
the amount of the Commitments of any of the Banks (other than with respect to
assignments permitted by the terms hereof), and the amount of commitment fee
hereunder may not be changed without the written consent of the Borrower and the
written consent of each Bank affected thereby; the definition of Majority Banks
may not be amended without the written consent of all of the Banks; and the
amount of the Agent's Fee and the arrangement fee payable for the Agent's
account and (S)13 may not be amended without the written consent of the Agent.
No waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent thereon. No course of dealing or delay or omission
on the part of the Agent or any Bank in exercising any right shall operate as a
waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon
the Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
(S)25. COMMERCIAL TRANSACTION; PREJUDGMENT REMEDY WAIVER(S). THE BORROWER
----------------------------------------------------
REPRESENTS, WARRANTS AND ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE A PART IS A "COMMERCIAL TRANSACTION"
WITHIN THE MEANING OF CHAPTER 903A OF CONNECTICUT GENERAL STATUTES, AS AMENDED.
THE BORROWER HEREBY WAIVES ITS RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT
ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR
UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT
REMEDIES THE AGENT OR THE BANKS MAY EMPLOY TO ENFORCE THEIR RIGHTS AND REMEDIES
HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS. MORE SPECIFICALLY, BORROWER
ACKNOWLEDGES THAT THE AGENT'S ATTORNEY AND/OR THE BANKS' ATTORNEY MAY, PURSUANT
TO CONN. GEN. STAT. (S)52-278f, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT
SECURING A COURT
<PAGE>
-57-
ORDER. THE BORROWER ACKNOWLEDGES AND RESERVES ITS RIGHT TO NOTICE AND A HEARING
SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS AFORESAID AND THE
AGENT AND THE BANKS ACKNOWLEDGE BORROWER'S RIGHT TO SAID HEARING SUBSEQUENT TO
THE ISSUANCE OF SAID WRIT.
(S)26. SEVERABILITY. The provisions of this Credit Agreement are severable
------------
and if any one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit
Agreement in any jurisdiction.
<PAGE>
-58-
IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as
a sealed instrument as of the date first set forth above.
VALUE HEALTH, INC.
By:_________________________________
Its
FLEET NATIONAL BANK,
individually and as Agent
By:_________________________________
Paul Veiga
Its Vice President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
individually and as Co-Agent
By:______________________________
Its
BANK OF AMERICA, NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:________________________________
Its:
<PAGE>
-59-
UNION BANK OF CALIFORNIA, N.A.
By:_______________________________
Its
THE CHASE MANHATTAN BANK
By:______________________________
Its
<PAGE>
SCHEDULE 1
-------- -
TO
--
REVOLVING CREDIT AGREEMENT
--------- ------ ---------
<TABLE>
<CAPTION>
====================================================================
BANK COMMITMENT COMMITMENT
PERCENTAGE
- --------------------------------------------------------------------
<S> <C> <C>
Fleet Bank 28.57142% $ 40,000,000
777 Main Street
Hartford, Connecticut 06103
Attn: Paul Veiga,
Vice President
Telephone: (203) 986-4426
Telecopy: (203) 986-9378
- --------------------------------------------------------------------
First Union National Bank of North 21.42857% $ 30,000,000
Carolina
301 South College Street
Charlotte, North Carolina 28288-0735
Attn: Mr. David Grams,
Vice President
Telephone: (704) 383-6249
Telecopy: (704) 383-9144
- --------------------------------------------------------------------
The Chase Manhattan Bank 14.28571% $ 20,000,000
999 Broad Street
Bridgeport, Connecticut 06604
Attn: George Burton,
Vice President
Telephone: (203) 368-5273
Telecopy: (203) 382-5361
====================================================================
Union Bank of California 17.85715% $ 25,000,000
550 South Hope Street, 3rd Flr
Los Angeles, California 90071
Attention: Albert Kelley
Tele phone: (213) 243-3505
Telecopy: (213) 243-3552
===================================================================
Bank of America 17.85715% $ 25,000,000
Corporate Banking Group
555 South Flower St., 11th Fl
Los Angeles, California 90071
Attention: Susan Wegleitner,
Managing Director
Telephone: (213) 228-2950
Telecopy: (213) 228-2756
===================================================================
TOTAL COMMITMENT 100% $140,000,000
===================================================================
</TABLE>
<PAGE>
Schedule 5.3
-------- ---
Not Applicable
<PAGE>
Schedule 5.7 - Litigation
-------------------------
As described more fully in Value Health Inc.'s Form 10-K for the fiscal year
ended December 31, 1995 and Form 10-Q for the quarter ended June 30, 1996, and
Diagnostek's Form 10-K for the fiscal year ended March 31, 1995 and Form 10-Q
for the quarter ended June 30 1995, the following is a list of material
litigation.
July 11, 1994 shareholder class action against Diagnostek, Inc. and certain of
its officers and directors, as amended December 30, 1994 and April 11, 1995.
September 22, 1995
Stockholder class actions against Value Health, Inc. and certain of its officers
and directors and the former chief executive officer of Diagnostek, Inc.
15 Commitments and Contingencies
On September 22, 1995, a purported class action lawsuit, Freedman v. Value
-----------------
Health, Inc., et al., was filed in the United States District Court for the
- --------------------
District of Connecticut against the Company and certain of its senior officers,
and the former chief executive officer of Diagnostek. In February, 1996,
counsel for the plaintiffs filed an amended complaint consolidating the two
cases, which alleges among other things, that the Proxy Statement-Prospectus
jointly issued by the Company and Diagnostek on June 27, 1995, contained
statements that were false or misleading in violation of the federal securities
laws. The Company denies the allegations in the complaints, and intends to
defend the suits vigorously. Any potential losses cannot be estimated at this
time.
In Bash, et al. v. Diagnostek, et al., a suit filed in federal court in New
----------------------------------
Mexico in 1994 against Diagnostek and certain of its former senior officers,
more fully described in Diagnostek's Form 10-K for the fiscal year ending March
31, 1995, the plaintiffs filed a motion on September 22, 1995 seeking leave to
file an amended complaint that would add claims similar to those made in the
Freedman and Balkheimer suits described above, and would add the Company and
- -------- ----------
certain of its senior officers as defendants. Following the denial of the
plaintiffs' motion, in January, 1996, the plaintiffs initiated a second action
in federal court in New Mexico, asserting claims similar to those alleged in
Freedman and Balkheimer. The Company denies these allegations and intends to
- -------- ----------
defend them vigorously. Any potential losses cannot be estimated at this time.
The Company is involved in other litigation arising in the normal course of
business. The Company believes that the resolution of these matters will not
<PAGE>
-2-
result in any payment that, in the aggregate, would be material to the financial
position or results of operations or cash flows of the Company.
On July 11, 1994, a purported shareholder class action was filed in the United
States District Court for the District of New Mexico against Diagnostek, its
Chairman and Chief Executive Officer; General Counsel, Secretary and Director;
President; and a Vice President. The plaintiffs have named two class
representatives: Irwin Bash (allegedly owning 200 shares of Diagnostek Common
Stock) and Leykin, Hyman and Bash Associates (allegedly owning 1,000 shares of
Diagnostek Common Stock).
On July 7, 1994, Diagnostek announced that it had agreed with CIGNA that
Diagnostek's pharmacy service contracts in support of the CIGNA managed health
care plans in New Mexico and Arizona would be terminated. The agreement was
reached after Diagnostek received correspondence dated June 30, 1994 from CIGNA
giving notice of termination of the CIGNA contracts. The notice of termination
stated that the contracts were being terminated because of certain instances of
inappropriate purchases by Diagnostek of drugs (under the CIGNA contracts) from
three manufacturers, which were ultimately used for other Diagnostek customers.
These contracts, which had been awarded to Diagnostek during 1991 and 1992, had
originally been scheduled to expire at various times commencing in July 1995.
Diagnostek's revenues from the CIGNA contracts for the fiscal year ended March
31, 1994 were $80.7 million.
In their original Complaint, the plaintiffs have alleged that the named
defendants pursued a "scheme and course of conduct" to inflate Diagnostek's
reported earnings through the concealment of specific facts underlying the
termination of the CIGNA contracts. On December 30, 1994, the plaintiffs filed
their First Amended Complaint which set forth additional alleged facts in
support of the claims in the original Complaint. The defendants in their Answer
to Plaintiffs' First Amended Complaint asserted that they had taken appropriate
remedial steps to rectify the situation, believed in good faith that the matter
would be resolved and did not foresee that the contract would be terminated
since at no time during the period that Diagnostek was effecting remedial steps
did CIGNA communicate its intention to terminate the contracts. The defendants
have raised in their Answer the general defenses that they did not at any time,
deceive, manipulate or defraud the plaintiffs or any other person regarding the
CIGNA contract and that all disclosures required by law pertaining to these
contracts were made at all appropriate times by the defendants. The defendants
have also asserted, among other things, that the plaintiffs did not rely upon
any statement, act or omission of the defendants in purchasing Diagnostek Common
Stock, and that any changes in the market
<PAGE>
-3-
price of Diagnostek Common Stock were due to factors other than the
misrepresentations allegedly made by the defendants.
On April 11, 1995, the plaintiffs filed a Second Amended Complaint alleging that
the defendants made further misrepresentations in a press release and certain
filings with the SEC regarding the anticipated annual revenues to be received in
connection with a Department of Defense CHAMPUS contract awarded in July 1994.
The Second Amended Complaint also extended the requested class period from July
6, 1994 to March 24, 1995.
The Second Amended Complaint asserts that the defendants violated federal
securities laws (including Section 10(b) of the Securities Exchange Act of 1934,
as amended and Rule 10(b)(5) promulgated thereunder, and prohibitions on insider
trading), and that the defendants' actions constitute common law fraud and/or
negligent misrepresentation. The plaintiffs seek monetary damages for the
losses suffered as a result of the alleged misrepresentations, disgorgement of
alleged insider trading profits and an award of costs and expenses incurred in
the filing of their actions, including attorneys' fees, accountants' fees and
experts' fees.
On May 18, 1995, the defendants filed a Motion to Dismiss Plaintiffs' Second
Amended Complaint asserting that the plaintiffs' allegations regarding the
CHAMPUS contract are wholly speculative, without a factual basis and that the
additional claims were filed purely for harassment purposes. In the event that
the defendants' Motion to Dismiss Plaintiffs' Second Amended Complaint is not
successful, the defendants expect to file an Answer raising the same general
defenses that were raised in response to the First Amended Complaint
On May 26, 1995, the plaintiffs filed a motion seeking certification of a class
consisting of all persons who purchased or otherwise acquired Diagnostek Common
Stock during the period from April 28, 1994 through March 24, 1995, but
excluding defendants and certain others associated with defendants. Defendants
are seeking discovery in order to determine whether to oppose the motion for
class certification.
Diagnostek has denied any liability and is vigorously defending the litigation.
Diagnostek has not established a reserve with respect to such litigation. There
can be no assurance that the outcome of this litigation will not have a
materially adverse effect on the Company.
Promptly after the announcement of the execution of the Merger Agreement, 11
stockholder class action lawsuits were filed in the Court of Chancery in the
State of Delaware against Diagnostek and its directors asserting that the value
of the consideration to be received by Diagnostek stockholders is unfair and
<PAGE>
-4-
grossly inadequate and that the directors of Diagnostek breached their fiduciary
duties to Diagnostek stockholders by failing to take steps to maximize
stockholder value. The suits seek, among other things, to enjoin the Merger, to
compel the directors of Diagnostek to reconsider the Exchange Ratio and to
recover unspecified damages. Diagnostek and the individual defendants intend to
vigorously defend these claims based upon their belief that the actions of
Diagnostek and its directors in connection with the Merger Agreement were
appropriately taken under applicable law and that the Merger is fair to and in
the best interest of Diagnostek's stockholders. VHI has been named as a
defendant in certain of these actions for allegedly aiding and abetting in the
alleged breaches of fiduciary duty by the Diagnostek directors. The plaintiffs
have served a document production request upon the defendants, to which the
defendants will respond. Diagnostek has filed an Answer denying the principal
allegations of the Complaint. As of June 5, 1995, no further action has been
taken by either the plaintiffs or the defendants, although counsel representing
the plaintiff have suggested that the actions be consolidated and captioned "In
--
Re: Diagnostek, Inc. Shareholders Litigation".
- --------------------------------------------
In addition, the Commission is conducting a formal investigation into the
adequacy of Diagnostek's financial disclosures, books and records, and internal
accounting controls, particularly with respect to Diagnostek's financial
statements for the quarter ended June 30, 1992, the fiscal year ended March 31,
1992, and the fiscal year ended March 31,1990. Diagnostek has cooperated fully
in connection with this investigation. At this time, Diagnostek is unable to
assess what the outcome of this investigation will be.
Diagnostek and its subsidiaries are subject to various claims and lawsuits in
the ordinary business, none of which is material.
<PAGE>
Schedule 5.8 - Adverse Contracts
--------------------------------
As more fully described in Value Health Inc.'s 1995 Annual Report, the Company
recorded $46.6 million in 1995 for all loss contracts. As of June 30, 1996, the
accrual for all loss contracts was $18.3 million.
3 Loss Contracts
At December 31, 1995 the Company has accrued $30.4 million for all loss
contracts. During 1995, $34.0 million of expense was recognized in the third
quarter and $12.6 million of expense was recognized in the first quarter. The
Company evaluates the adequacy of this accrual on an ongoing basis.
On February 1, 1995, Diagnostek's HPI subsidiary began penforming under a
contract with the State of New Jersey to provide unit dose medications to the
state's hospital system. The Company has estimated that it will incur losses
over the three year term of the contract. In the first quarter of 1995,
contract losses over the three year term were estimated at $12.6 million and
were recorded in Diagnostek's results. In the third quarter 1995, an additional
accrual of $4.0 million was recorded by the Company. The Company also estimated
that certain other risk-based accounts of Diagnostek would incur losses over
their remaining terms.
During the third quarter of 1995, the Company estimated its full-risk, capitated
contract with Ford Motor Company would incur a loss for 1996 as a result of
projected increases in utilization and unit prices. The current term of the
Ford contact expires December 31, 1996.
<PAGE>
Schedule 5.14
-------- ----
See Attached
<PAGE>
Schedule 5.15
-------------
Not Applicable
<PAGE>
Schedule 5.16
-------- ----
Not Applicable
<PAGE>
Schedule 7.1
-------- ---
Not Applicable
<PAGE>
Schedule 7.2
-------- ---
Not Applicable
<PAGE>
Schedule 7.3
-------- ---
See Attached
<PAGE>
LOAN REQUEST
Exhibit B
---------
-------------------, 199-
Fleet National Bank., as Agent
777 Main Street
Hartford, Connecticut 06115
Attn: Paul Veiga, Vice President
Re: Value Health, Inc.
------------------
Ladies and Gentlemen:
This Loan Request is delivered to you pursuant to Section 2.6 of the
-----------
Credit Agreement, dated as of August 21, 1996 (together with all the amendments,
if any, from time to time made thereto, the "Credit Agreement"), among Value
Health, Inc. (the "Borrower"), certain financial institutions and Fleet National
Bank, individually and as Agent (in its capacity as agent, the "Agent"). Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The Borrower hereby requests that a Revolving Credit Loan be made in
the aggregate principal amount of $_______________ on _________, 199 as a
[________] Loan. If such Revolving Credit Loan will be a LIBOR Rate Loan, the
Borrower hereby requests an Interest Period of ________ months.
The Borrower hereby acknowledges that, pursuant to the Credit
Agreement, the delivery of this Loan Request and the acceptance by the Borrower
of the proceeds of the Revolving Credit Loan requested hereby constitute a
representation and warranty by the Borrower that, on the Drawdown Date of such
Revolving Credit Loan, and before and after giving effect thereto and to the
application of the proceeds therefrom, all representations set forth in the Loan
Agreement are true and correct in all material respects and, in particular, no
Default or Event of Default has occurred and is continuing.
<PAGE>
Fleet National Bank, as Agent
,199
Page 2
The Borrower agrees that if prior to the Drawdown Date of the
Revolving Credit Loan requested hereby any matter certified to herein by it will
not be true and correct at such time as if then made, it will immediately so
notify the Agent. Except to the extent, if any, that prior to the Drawdown Date
of the Revolving Credit Loan requested hereby the Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein shall
be deemed once again to be certified as true and correct at the Drawdown Date of
such Revolving Credit Loan as if then made.
The Borrower has caused this Loan Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly authorized officer this ____ day of ________, 199_.
VALUE HEALTH, INC.
By:______________________________
Its
<PAGE>
Value Health, Inc.
EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
- ---------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Earnings (Loss) $19,136,000 ($54,688,000) $57,503,000 ($17,924,000)
=============================================================================================
Weighted Average Number of Shares 54,393,718 53,270,080 54,460,410 52,924,403
Outstanding During The Period
Add:
Common Stock Equivalent Shares
Represented By Employer Stock
Options Granted Related To
Stock Plans 259,786 1,315,173 441,573 1,434,999
- ---------------------------------------------------------------------------------------------
Weighted Average Number Of Common
Shares Used In The Computation Of
Net Earnings (Loss) Per Share
54,653,504 54,585,253 54,901,983 54,359,402
=============================================================================================
Net Earnings (Loss) per Share $ 0.35 ($1.00) $ 1.05 ($0.33)
=============================================================================================
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 130,085 74,311
<SECURITIES> 4,402 25,514
<RECEIVABLES> 327,123 321,443
<ALLOWANCES> 17,873 17,171
<INVENTORY> 27,983 30,052
<CURRENT-ASSETS> 548,483 537,441
<PP&E> 192,649 203,712
<DEPRECIATION> 68,578 71,242
<TOTAL-ASSETS> 944,080 904,035
<CURRENT-LIABILITIES> 289,045 316,411
<BONDS> 0 0
0 0
0 0
<COMMON> 504,263 467,325
<OTHER-SE> 145,653 113,719
<TOTAL-LIABILITY-AND-EQUITY> 944,080 904,035
<SALES> 325,521 318,183
<TOTAL-REVENUES> 1,464,585 1,362,436
<CGS> 282,954 266,960
<TOTAL-COSTS> 1,206,046 1,108,116
<OTHER-EXPENSES> 160,670 227,339
<LOSS-PROVISION> 0 46,600
<INTEREST-EXPENSE> 366 1,659
<INCOME-PRETAX> 97,503 (21,278)
<INCOME-TAX> 40,000 (3,354)
<INCOME-CONTINUING> 57,503 (17,924)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 57,503 (17,924)
<EPS-PRIMARY> 1.05 (.33)
<EPS-DILUTED> 1.05 (.33)
</TABLE>
