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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 31, 1996
MEDAPHIS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 000-19480 58-1651222
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification Number)
2700 CUMBERLAND PARKWAY
SUITE 300
ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770)444-5300
NOT APPLICABLE
(Former Name of Former Address, if Changed Since Last Report)
Exhibit Index Located on Page: 4
Total Number of Pages: 166
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Item 5. Other Events
On February 5, 1997, Medaphis Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1.
In addition, the Company has entered into the written agreement
attached hereto as Exhibit 99.2, executed by all of the financial institutions
that are parties thereto, on February 4, 1997, regarding the amendment and
restatement of its existing revolving credit facilities. In connection
therewith, the Company entered into one or more written agreements in the form
attached hereto as Exhibit 4.1, executed by the Company on February 4, 1997,
regarding the issuance of warrants to purchase up to an aggregate of 1,694,201
shares of the Company's common stock, par value $.01 per share.
Also, the Company has filed its 1995 consolidated financial statements
attached hereto as Exhibit 99.3. These financial statements were previously
filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on July
9, 1996 (as amended by the Company's Current Report on Forms 8-K/A and 8-K/A-2,
filed on November 14, 1996 and January 10, 1997, respectively), as the Company's
supplemental consolidated financial statements.
The Company also has filed certain financial data attached hereto as
Exhibit 99.4, relating to its lines of business for the quarterly periods ended
March 31, 1996 and 1995, June 30, 1996 and 1995, September 30, 1996 and 1995,
and December 31, 1996 and 1995, respectively.
The Company also has filed the Safe Harbor Compliance Statement for
Forward-Looking Statements (the "Safe Harbor Statement") attached hereto as
Exhibit 99.5 in connection with its continuing effort to qualify its written
and oral forward-looking statements for the safe harbor protection of the
Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77z-2
and 78u-5 (Supp. 1996). The Safe Harbor Statement filed herewith supercedes
the Safe Harbor Statement filed as Exhibit 99 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1996 and the Company
undertakes no obligation to update or revise the Safe Harbor Statement to
reflect future developments.
Item 7. Exhibits
Exhibit No.
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4.1 Form of Warrant, dated February 4, 1997.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (for SEC use only).
99.1 Text of press release of Medaphis Corporation, dated February
5, 1997.
99.2 Second Amended and Restated Credit Agreement, dated as of
February 4, 1997, among Medaphis Corporation, the lenders
listed therein, and the Agent.
99.3 Consolidated Financial Statements and Financial Statement
Schedule of Medaphis Corporation, as described in Item 5 of
this Current Report on Form 8-K.
99.4 Quarterly Consolidated Segment Data of Medaphis Corporation,
as described in Item 5 of this Current Report on Form 8-K.
99.5 Safe Harbor Compliance Statement for Forward-Looking
Statements.
THIS FORM 8-K CONTAINS STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF
MEDAPHIS CORPORATION AND MEMBERS OF ITS MANAGEMENT TEAM. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE
SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
INCLUDED AS EXHIBIT 99.5 TO THIS FORM 8-K, AND ARE HEREBY INCORPORATED BY
REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 18, 1997
MEDAPHIS CORPORATION
By: /s/ David E. McDowell
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David E. McDowell
Chairman and Chief Executive
Officer
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INDEX
4.1 Form of Warrant, dated February 4, 1997.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (for SEC use only).
99.1 Text of press release of Medaphis Corporation, dated February
5, 1997.
99.2 Second Amended and Restated Credit Agreement, dated as of
February 4, 1997, among Medaphis Corporation, the lenders listed
therein, and the Agent.
99.3 Consolidated Financial Statements and Financial Statement
Schedule of Medaphis Corporation, as described in Item 5 of
this Current Report on Form 8-K.
99.4 Quarterly Consolidated Segment Data of Medaphis Corporation, as
described in Item 5 of this Current Report on Form 8-K.
99.5 Safe Harbor Compliance Statement for Forward-Looking Statements.
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EXHIBIT 4.1
EXHIBIT J
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED OR QUALIFIED UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES
AN OPINION IN REASONABLY ACCEPTABLE FORM AND SCOPE TO THE COMPANY OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR
OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY SUCH LAWS. THE OFFERING OF
THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE'S SECURITIES ADMINISTRATOR.
THIS WARRANT IS ALSO SUBJECT TO CERTAIN ADDITIONAL TRANSFER RESTRICTIONS
PROVIDED FOR HEREIN.
Dated: February 4, 1997
WARRANT
To Purchase an Aggregate of __________ Shares of
Common Stock of MEDAPHIS CORPORATION
Expiring April 1, 2008
THIS TO CERTIFY THAT, for value received, [NAME OF LENDER]
or any registered assigns ("Holder") is entitled to purchase from MEDAPHIS
CORPORATION, a Delaware corporation (the "Company"), at any time or from
time to time after 9:00 a.m., New York City time, on or after (i) January 1,
1998, with respect to ____ shares, as such number shall be adjusted from
time to time in accordance with Article IV hereof (collectively, the
"Initial Shares") and (ii) April 1, 1998, with respect to ____ shares, as
such number shall be adjusted from time to time in accordance with Article
IV hereof (collectively, the "Additional Shares"), and prior to 5:00 p.m.,
New York City time, on April 1, 2008, at the place where the Warrant Agency
is located, at the Exercise Price, the aggregate number of shares of common
stock, par value $.01 per share (the "Common Stock") of the Company shown
above, subject to adjustment as provided in Article 4 hereof and termination
as provided in Section 1.6 hereof, and upon the other terms and conditions
hereinafter provided, and is entitled also to exercise the other appurtenant
rights, powers and privileges hereinafter described.
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This Warrant is one of one or more warrants (the "Warrants") of
the same form and having the same terms as this Warrant, entitling the holders
initially to purchase up to an aggregate of 1,694,201 shares of Common Stock,
originally issued on the date hereof. The Warrants have been issued by the
Company pursuant to the $285,000,000 Second Amended and Restated Credit
Agreement dated as of February 4, 1997 (as amended from time to time, the
"Credit Agreement") among the Company, the Lenders listed on the signature
pages thereof and , as Agent for such Lenders, in consideration of
various loans, extensions of credit, and commitment to make the foregoing, to
the Company by such Lenders.
Certain terms used in this Warrant are defined in Article VI.
ARTICLE I
EXERCISE OF WARRANT
1.1. METHOD OF EXERCISE. To exercise this Warrant with
respect to any shares of Common Stock as to which this Warrant is then
exercisable in whole or in part, the Holder shall deliver on any Business Day
to the Company at the Warrant Agency (a) this Warrant, (b) a written notice of
the Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased (which shall be a whole number
of shares if for less than all the shares then issuable hereunder), the
denominations of the share certificate or certificates desired and the name or
names in which such certificates are to be registered, and (c) payment of the
Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, either (a) by cash, certified or bank cashier's check or
wire transfer in an amount equal to the product of (i) the Exercise Price times
(ii) the number of Warrant Shares as to which this Warrant is being exercised
or (b) by receiving from the Company the number of Warrant Shares equal to (i)
the number of Warrant Shares as to which this Warrant is being exercised minus
(ii) the number of Warrant Shares having an aggregate value (determined by
reference to the average Closing Price of the Common Stock on the ten trading
days immediately prior to the date of such exercise), equal to the product of
(x) the Exercise Price times (y) the number of Warrant Shares as to which this
Warrant is being exercised.
The Company shall, as promptly as practicable and in any event
within seven days after receipt of such notice and payment, (i) forward a copy
of such notice to all other Warrantholders, and (ii) execute and deliver or
cause to be executed and delivered, in accordance with such notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice together with cash in lieu of any
fractions of a share as provided in Section 1.3. The share certificate or
certificates so delivered shall be in such denominations as may be specified in
such notice, and shall be issued in the name of the Holder or such other name
or names as shall be designated in such notice. This Warrant shall be deemed
to have been exercised and such certificate or certificates shall be deemed to
have been issued, and such Holder or any other Person so designated to be named
therein shall be
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deemed for all purposes to have become a holder of record of shares, as of
the date the aforementioned notice and payment is received by the Company.
If this Warrant shall have been exercised only in part, the Company shall,
at the time of delivery of such certificate or certificates, deliver to the
Holder a new Warrant evidencing the right to purchase the remaining shares
of Common Stock called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, stamp,
documentary and similar taxes and other charges payable in connection with
the preparation, issuance and delivery of share certificates and new
Warrants, except that, if share certificates or new Warrants shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer
shall be paid by the Holder at the time of delivery of the aforementioned
notice of exercise or promptly upon receipt of a written request of the
Company for payment.
1.2. SHARES TO BE FULLY PAID AND NONASSESSABLE. All
shares of Common Stock issued upon the exercise of this Warrant shall be
validly issued, fully paid and nonassessable and, if such Common Stock is
then quoted on NASDAQ or listed on any national securities exchange (as
defined in the Exchange Act), shall, to the extent permitted under the
applicable rules of such exchange or NASDAQ, be duly quoted or listed
thereon, as the case may be.
1.3. NO FRACTIONAL SHARES REQUIRED TO BE ISSUED. The
Company shall not be required to issue fractions of shares of Common Stock
upon exercise of this Warrant. If any fraction of a share would, but for
this Section, be issuable upon final exercise of this Warrant, in lieu of
such fractional share, the Company shall pay to the Holder in cash an amount
equal to the same fraction of the Fair Market Value of the Company per share
of outstanding Common Stock on the Business Day immediately prior to the
date of such exercise.
1.4. LEGEND. Each certificate for shares of Common
Stock issued upon exercise of this Warrant, unless at the time of exercise
such shares are registered under the Securities Act, shall bear the
following legend:
"This security has not been registered under the Securities
Act of 1933 and may not be sold or offered for sale unless
registered or qualified under said Act and any applicable state
securities laws or unless the Company receives an opinion in
reasonably acceptable form and scope to the Company of counsel
reasonably satisfactory to the Company that registration,
qualification or other such actions are not required under any such
laws or that an exemption from such registration is available. The
offering of this security has not been reviewed or approved the
United States Securities and Exchange Commission by any state's
securities administrator. This security is also subject to certain
additional transfer restrictions provided for in the Warrant
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the exercise of which resulted in the original issuance of this security,
a copy of which restrictions shall be furnished to the holder hereof by
the Company upon written request and without charge."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public offering pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel
selected by the Holder of such certificate (who may be an employee of such
holder) and reasonably acceptable to the Company, the securities represented
thereby need no longer be subject to restrictions on resale under the
Securities Act.
1.5. RESERVATION; AUTHORIZATION; CAPITALIZATION. The Company
has duly reserved, and will keep available for issuance upon exercise of the
Warrants, the total number of Warrant Shares deliverable from time to time upon
exercise of all Warrants from time to time outstanding. The Company will not
take any actions during the term of this Warrant that would result in any
adjustment of the number of shares of Common Stock issuable upon the exercise
of this Warrant if (i) the total number of shares of Common Stock issuable
after such action upon exercise of this Warrant, (ii) all shares of Common
Stock issued and outstanding and (iii) all shares then issuable (y) upon the
exercise of all Options and (z) upon the conversion or exchange of all
Convertible Securities, would exceed the total number of shares of Common Stock
then authorized for issuance by the Company. The Company will not change the
Common Stock from par value $.01 per share to any higher par value which
exceeds the Exercise Price then in effect, and will reduce the par value of the
Common Stock upon any event described in Article IV that provides for an
increase in the number of shares of Common Stock subject to purchase upon
exercise of this Warrant, in inverse proportion to and effective at the same
time as such number of shares is increased; provided that such adjustment shall
only be made in the event that such increase in the number of shares, together
with all other such increases after the date hereof would, but for the proviso
to Section 4.1, cause the aggregate Exercise Price of all Warrants (without
giving effect to any exercise thereof) to be greater than $100,000. Any such
reduction to the par value will take into account, to the extent not accounted
for in previous such reductions to par value, all previous increases in the
number of shares pursuant to Article IV. The issuance of the Warrant Shares
has been duly and validly authorized and, when issued and sold in accordance
with the Warrants, the Warrant Shares will be duly and validly issued, fully
paid and non-assessable. As of the date of the initial issuance of this
Warrant, the Company had outstanding (i) 72,071,388 shares of Common Stock,
(ii) no shares of Non-Voting Common Stock, $.01 par value, (iii) options and
warrants to acquire an additional 10,944,441 shares of Common Stock, and (iv)
no other shares of capital stock or any securities convertible into or
exchangeable for shares of capital stock or any rights, options or warrants to
purchase any shares of capital stock or any securities convertible into or
exchangeable for shares of capital stock. Neither the issuance of this Warrant
nor the issuance of Warrant Shares upon exercise of this Warrant violates or
conflicts with the Company's certificate of incorporation or bylaws or any
agreement to which the Company is a party.
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1.6 SPECIAL PROVISION REGARDING TERMINATION. In the event that
the Company shall pay in full in immediately available funds on or before
December 31, 1997 the entire outstanding principal amount of the Loans and
the outstanding amount of all other Obligations for the payment of money
(other than (x) indemnity obligations not yet due and payable or (y) Cash
Management Services Obligations) and no Revolving Loan Commitments shall
remain in effect, the Warrants shall terminate without becoming exercisable
with respect to any of the Initial Shares or the Additional Shares and shall
be of no further cause or effect. In the event that the Company shall pay
in full in immediately available funds after December 31, 1997 and on or
before March 31, 1998 the entire outstanding principal amount of the Loans
and the outstanding amount of all other Obligations for the payment of money
(other than (x) indemnity obligations not yet due and payable or (y) Cash
Management Services Obligations) and no Revolving Loan Commitments shall
remain in effect, the Warrants shall terminate in respect of any of the
Additional Shares and shall be of no further cause or effect with respect to
such shares.
ARTICLE II
WARRANT AGENCY;
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1. WARRANT AGENCY. As long as any Warrant remains
outstanding, the Company shall perform the obligations of and be the warrant
agency with respect to the Warrants (the "Warrant Agency") at its address
for notices set forth in Section 11.01 of the Credit Agreement or at such
other address as the Company shall specify by notice to all Warrantholders.
2.2. OWNERSHIP OF WARRANT. The Company shall deem and
treat the person in whose name this Warrant is registered as the holder and
owner hereof (notwithstanding any notations of ownership or writing hereon
made by any person other than the Company) for all purposes and shall not be
affected by any notice to the contrary, until due presentment of this
Warrant for registration of transfer as provided in this Article II.
2.3. TRANSFER OF WARRANT. The Company agrees to
maintain at the Warrant Agency books for the registration of transfers of
the Warrants, and transfer of this Warrant and all rights hereunder shall be
registered, in whole or in part, on such books, upon surrender of this
Warrant at the Warrant Agency, together with (i) a written assignment of
this Warrant duly executed by the Holder or its duly authorized agent or
attorney, with (if the Holder is a natural person) signatures guaranteed by
a bank or trust company or a broker or dealer registered with the NASDAQ,
(ii) an opinion in reasonably acceptable form and scope to the Company of
counsel reasonably satisfactory to the Company that such transfer is in
compliance with all applicable federal or state securities laws, and (iii)
funds sufficient to pay any transfer taxes payable upon such transfer. Upon
surrender and, if required, such payment, the Company shall execute and
deliver a new Warrant or Warrants in the name of the assignee
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or assignees and in the denominations specified in the instrument of assignment
(which shall be whole numbers of shares only) and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. The Company shall permit the Warrant
Securityholders to inspect the warrant registration books from time to time
during normal business hours at the Warrant Agency.
2.4. DIVISION OR COMBINATION OF WARRANTS. This Warrant may be
divided or combined with other Warrants upon presentment hereof and of any
Warrant or Warrants with which this Warrant is to be combined at the Warrant
Agency, together with a written notice specifying the names and denominations
(which shall be whole numbers of shares only) in which the new Warrant or
Warrants are to be issued, signed by the holders hereof and thereof or their
respective duly authorized agents or attorneys. Subject to compliance with
Section 2.3 as to any transfer or assignment which may be involved in the
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
2.5. LOSS, THEFT, DESTRUCTION OF WARRANT CERTIFICATES. Upon
receipt of evidence satisfactory to the Company of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company (it being understood and agreed that if
the holder of such Warrant is the Person named in the first paragraph of this
Warrant, then a written agreement of indemnity given by such Person alone shall
be satisfactory to the Company and no further security shall be required) or,
in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing
the right to purchase the same aggregate number of shares of Common Stock,
which new Warrant shall bear any legend required to be borne by the Warrant
being replaced.
2.6. EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay
all expenses, stamp, documentary and similar taxes (other than transfer taxes)
and other charges payable in connection with the preparation, issuance and
delivery of the Warrants.
ARTICLE III
CERTAIN RIGHTS
3.1. DETERMINATION OF FAIR MARKET VALUE. Subject to Section
3.2 hereof, each determination of Fair Market Value hereunder shall be made in
good faith by the Company. Upon each determination of Fair Market Value by the
Company hereunder, the Company shall promptly give notice thereof to all
Warrantholders, setting forth in reasonable detail the calculation of such Fair
Market Value and the method and basis of determination thereof (the "Company
Determination").
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3.2. CONTEST AND APPRAISAL RIGHTS. (a) If the holders
of Warrants entitling such holders to purchase a majority of the Common
Stock subject to purchase upon exercise of Warrants at the time outstanding
and fully vested (exclusive of Warrants then owned by the Company or any
Subsidiary (as defined in the Credit Agreement) or Affiliate (as defined in
the Credit Agreement) thereof) (the "Required Interest") disagree with the
Company Determination and by notice to the Company given within 30 days
after receipt of notice of the Company Determination (an "Appraisal Notice")
elect to dispute the Company Determination, such dispute shall be resolved
as set forth in subsection (b) of this Section.
(b) The Company shall within 30 days after an
Appraisal Notice shall have been given pursuant to subsection (a) of this
Section engage an investment bank or other qualified appraisal firm
reasonably acceptable to the Required Interest (the "Appraiser") to make an
independent determination of Fair Market Value (the "Appraiser
Determination"). The Appraiser Determination shall be final and binding on
the Company and all Warrantholders. The costs of conducting the appraisal
shall be borne solely by the Company.
3.3. FINANCIAL STATEMENTS AND OTHER INFORMATION.
Promptly upon transmission thereof, the Company will deliver to the Holder
copies of any and all financial statements, proxy statements, notices and
other reports as it may send to its public stockholders and copies of all
registration statements and all reports which it files with the Securities
and Exchange Commission (or any governmental body or agency succeeding to
its functions).
ARTICLE IV
ANTIDILUTION PROVISIONS
SECTION 4.1. GENERAL. The Exercise Price and the number
of shares of Common Stock (or other securities or property) issuable upon
exercise of this Warrant shall be subject to adjustment from time to time
upon the occurrence of certain events as provided in this Article IV;
provided that notwithstanding anything to the contrary herein, the Exercise
Price shall not be adjusted to an amount less than the par value of the
Common Stock, as such par value is reduced from time to time in accordance
with Section 1.5.
SECTION 4.2. COMMON STOCK REORGANIZATION. If the Company
shall subdivide its outstanding shares of Common Stock (or any class
thereof) into a greater number of shares or consolidate its outstanding
shares of Common Stock (or any class thereof) into a smaller number of
shares (any such event being called a "Common Stock Reorganization"), then
(a) the Exercise Price shall be adjusted, effective immediately after the
effective date of such Common Stock Reorganization, to a price determined by
multiplying the Exercise Price in effect immediately prior to such effective
date by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such
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effective date before giving effect to such Common Stock Reorganization and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such Common Stock Reorganization, and (b) the number of
shares of Common Stock subject to purchase upon exercise of this Warrant shall
be adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock subject to purchase immediately before such
Common Stock Reorganization by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding after giving effect to such Common
Stock Reorganization and the denominator of which shall be the number of shares
of Common Stock outstanding immediately before such Common Stock
Reorganization.
SECTION 4.3. COMMON STOCK DISTRIBUTION. (a) If the Company shall issue,
sell or otherwise distribute any shares of Common Stock, other than pursuant to
this Warrant or a Common Stock Reorganization (which is governed by Section 4.2
hereof) (any such event, including any event described in paragraphs (b) and
(c) below, being herein called a "Common Stock Distribution"), for a
consideration per share less than the Fair Market Value of the Company per
share of outstanding Common Stock on a Fully Diluted Basis on the date of such
Common Stock Distribution (before giving effect to such Common Stock
Distribution), then, effective upon such Common Stock Distribution, the
Exercise Price shall be reduced (but in no event increased), if such
consideration per share shall be less than such Fair Market Value per share, to
the lowest of the prices (calculated to the nearest one thousandth of one cent)
determined as provided in clauses (i), (ii) and (iii) below:
(i) if the Company shall receive any consideration for the Common
Stock issued, sold or distributed, in such Common Stock Distribution, the
consideration per share of Common Stock received by the Company upon such
issue, sale or distribution;
(ii) by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such Common Stock
Distribution multiplied by the then existing Exercise Price plus (2) the
consideration, if any, received by the Company upon such Common Stock
Distribution by (B) the total number of shares of Common Stock outstanding
immediately after such Common Stock Distribution; and
(iii) by multiplying the Exercise Price in effect immediately prior to
such Common Stock Distribution by a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such Common Stock Distribution multiplied by such Fair Market Value
per share on the date of such Common Stock Distribution, plus (B) the
consideration, if any, received by the Company upon such Common Stock
Distribution, and the denominator of which shall be the product of (1) the
total number of shares of Common Stock outstanding immediately after such
Common Stock Distribution multiplied by (2) such Fair Market Value per share
on the date of such Common Stock Distribution.
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If any Common Stock Distribution shall require an
adjustment to the Exercise Price pursuant to the foregoing provisions of
this paragraph (a), including by operation of paragraph (b) or (c) below,
then, effective at the time such adjustment is made, the number of shares of
Common Stock subject to purchase upon exercise of this Warrant shall be
increased to a number determined by multiplying the number of shares of
Common Stock subject to purchase immediately before such Common Stock
Distribution by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately after giving effect to such
Common Stock Distribution and the denominator of which shall be the sum of
the number of shares outstanding immediately before giving effect to such
Common Stock Distribution (both calculated on a Fully Diluted Basis) plus
the number of shares of Common Stock which the aggregate consideration
received by the Company with respect to such Common Stock Distribution would
purchase at the Fair Market Value of the Company per share of outstanding
Common Stock on a Fully Diluted Basis on the date of such Common Stock
Distribution (before giving effect to such Common Stock Distribution). In
computing adjustments under this paragraph, fractional interests in Common
Stock shall be taken into account to the nearest one-thousandth of a share.
The provisions of this paragraph (a), including by
operation of paragraph (b) or (c) below, shall not operate to increase the
Exercise Price or reduce the number of shares of Common Stock subject to
purchase upon exercise of this Warrant.
(b) If the Company shall issue, sell, distribute or
otherwise grant in any manner (including by assumption) any rights to
subscribe for or to purchase, or any warrants or options for the purchase of
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (such rights, warrants or options being herein called "Options"
and such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the rights to
convert or exchange any such Convertible Securities in respect of such
Options are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities in respect of such
Options (determined by dividing (i) the aggregate amount, if any, received
or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the
case of Options to acquire Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issuance or
sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Fair Market Value of the Company per share of
outstanding Common Stock on a Fully Diluted Basis on the date of granting
such Options (before giving effect to such grant), then, for purposes of
paragraph (a) above, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total maximum amount of such Convertible Securities
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issuable upon the exercise of such Options shall be deemed to have been issued
as of the date of granting of such Options and thereafter shall be deemed to be
outstanding and the Company shall be deemed to have received as consideration
such price per share, determined as provided above, therefor. Except as
otherwise provided in paragraph (d) below, no additional adjustment of the
Exercise Price shall be made upon the actual exercise of such Options or upon
conversion or exchange of such Convertible Securities.
(c) If the Company shall issue, sell or otherwise distribute
(including by assumption) any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable, and the price
per share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the aggregate amount received or receivable by the
Company as consideration for the issuance, sale or distribution of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Fair Market Value of the Company per share of outstanding Common
Stock on a Fully Diluted Basis on the date of such issuance, sale or
distribution (before giving effect to such issuance, sale or distribution),
then, for purposes of paragraph (a) above, the total maximum number of shares
of Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the date of the issuance,
sale or distribution of such Convertible Securities and thereafter shall be
deemed to be outstanding and the Company shall be deemed to have received as
consideration such price per share, determined as provided above, therefor.
Except as otherwise provided in paragraph (d) below, no additional adjustment
of the Exercise Price shall be made upon the actual conversion or exchange of
such Convertible Securities.
(d) If (i) the purchase price provided for in any Option
referred to in paragraph (b) above or the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph (b) or (c) above or the rate at which any Convertible
Securities referred to in paragraph (b) or (c) above are convertible into or
exchangeable for Common Stock shall change at any time (other than under or by
reason of provisions designed to protect against dilution upon an event which
results in a related adjustment pursuant to this Article IV), or (ii) any of
such Options or Convertible Securities shall have terminated, lapsed or
expired, then the Exercise Price then in effect shall forthwith be readjusted
(effective only with respect to any exercise of this Warrant after such
readjustment) to the Exercise Price which would then be in effect had the
adjustment made upon the issuance, sale, distribution or grant of such Options
or Convertible Securities been made based upon such changed purchase price,
additional consideration or conversion rate, as the case may be (in the case of
any event referred to in clause (i) of this paragraph (d)) or had such
adjustment not been made (in the case of any event referred to in clause (ii)
of this paragraph (d)).
(e) If the Company shall pay a dividend or make any other
distribution
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upon any capital stock of the Company payable in Common Stock, Options or
Convertible Securities, then, for purposes of paragraph (a) above, such Common
Stock, Options or Convertible Securities shall be deemed to have been issued or
sold without consideration.
(f) If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for cash, the
consideration received therefor shall be deemed to be the amount received by
the Company therefor, after deduction therefrom of any expenses incurred in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued sold or distributed for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the Fair Market Value of such consideration, after
deduction of any expenses incurred in connection therewith. If any shares of
Common Stock, Options or Convertible Securities shall be issued in connection
with any merger in which the Company is the surviving corporation, the amount
of consideration therefor shall be deemed to be the Fair Market Value of such
portion of the assets and business of the non-surviving corporation as shall be
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. If any Options shall be issued in connection with the issuance
and sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration.
SECTION 4.4. SPECIAL DIVIDENDS. If the Company shall issue or
distribute to any holder or holders of shares of Common Stock evidences of
indebtedness, any other securities of the Company or any cash, property or
other assets (excluding a Common Stock Reorganization or a Common Stock
Distribution), whether or not accompanied by a purchase, redemption or other
acquisition of shares of Common Stock (any such nonexcluded event being herein
called a "Special Dividend"), (a) the Exercise Price shall be decreased,
effective immediately after the effective date of such Special Dividend, to a
price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the Fair Market Value of the Company
per share of outstanding Common Stock as of such effective date less any cash
and the then Fair Market Value of any evidences of indebtedness, securities or
property or other assets issued or distributed in such Special Dividend with
respect to one share of Common Stock, and the denominator of which shall be
such Fair Market Value per share and (b) the number of shares of Common Stock
subject to purchase upon exercise of this Warrant shall be increased to a
number determined by multiplying the number of shares of Common Stock subject
to purchase immediately before such Special Dividend by a fraction, the
numerator of which shall be the Exercise Price in effect immediately before
such Special Dividend and the denominator of which shall be the Exercise Price
in effect immediately after such Special Dividend. A reclassification of
Common Stock (other than a change in par value, or from par value to no par
value or from no par value to par value) into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Company to
the holders of such Common Stock of such shares of such other class of stock
and, if the outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as part of such reclassification, a
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Common Stock Reorganization.
SECTION 4.5. CAPITAL REORGANIZATIONS. If there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger of which the Company is the continuing corporation
and which does not result in any reclassification of, or change (other than a
Common Stock Reorganization) in, outstanding shares of Common Stock, or any
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, or any recapitalization of the Company (any such
event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Holder shall no longer have
the right to purchase Common Stock, but shall have instead the right to
purchase, upon exercise of this Warrant, the kind and amount of shares of stock
and other securities and property (including cash) which the Holder would have
owned or have been entitled to receive pursuant to such Capital Reorganization
if this Warrant had been exercised immediately prior to the effective date of
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall (a) execute and deliver to each Warrantholder and to the
Warrant Agency an agreement as to the Warrantholder's rights in accordance with
this Section 4.5, providing, to the extent of any right to purchase equity
securities hereunder, for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Article IV and (b) provide
each Regulation Y Holder with an opinion of counsel reasonably satisfactory to
such Regulation Y Holder and such other assurances as any Regulation Y Holder
may reasonably request to the effect that the ownership and exercise by any
Regulation Y Holder of this Warrant after giving effect to such Capital
Reorganization shall not be prohibited by the BHC Act or the regulations
thereunder. The provisions of this Section 4.5 shall similarly apply to
successive Capital Reorganizations.
SECTION 4.6. ADJUSTMENT RULES. Any adjustments pursuant to this
Article IV shall be made successively whenever an event referred to herein
occurs, except that, notwithstanding any other provision of this Article IV, no
adjustment shall be made to the number of shares of Common Stock to be
delivered to each Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares previously required to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together
with any adjustments so carried forward shall amount to 1% or more of the
number of shares to be so delivered. No adjustment shall be made pursuant to
this Article IV in respect of (a) the issuance of options or warrants to
acquire shares of Common Stock to employees, officers or directors of the
Company pursuant to employee stock ownership plans or other benefit plans, or
the exercise of any such options or warrants, provided that the aggregate
amount of all such Common Stock and Common Stock for which such options or
warrants are exercisable does not exceed 20% of the Common Stock on a Fully
Diluted Basis on the date hereof and (b) the issuance from time to time of any
Warrants or shares of Common Stock upon the exercise of any of the Warrants.
If the Company takes a record of the holders of its Common Stock for any
purpose referred to in this Article IV, then (i) such record date shall be
deemed to be the date of the issuance, sale, distribution or grant in question
and (ii) if the Company shall legally abandon
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such action prior to effecting such action, no adjustment shall be made
pursuant to this Article IV in respect of such action.
SECTION 4.7. PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT. As
a condition precedent to the taking of any action which would require an
adjustment pursuant to this Article IV, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Common Stock which any Warrantholder is
entitled to receive upon exercise of a Warrant and (b) the ownership and
exercise of any Warrant by any Regulation Y Holder shall not be prohibited by
the BHC Act or the regulations thereunder.
SECTION 4.8. NOTICE OF ADJUSTMENT. Not less than 10 nor more than 30
days prior to the record date or effective date, as the case may be, of any
action which requires or might require an adjustment or readjustment pursuant
to this Article IV, the Company shall give notice to each Warrantholder of such
event, describing such event in reasonable detail and specifying the record
date or effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give notice to each
Warrantholder of such adjustment and computation promptly after such adjustment
becomes determinable.
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.1 REGISTRATION ON REQUEST. (a) Subject to Section 5.1(g),
at any time or from time to time on or after January 1, 1998, upon the written
request of the holder or holders of a majority of all outstanding Conversion
Shares and Warrants (such majority determined, for purposes of this Section
5.1, by calculating the number of Conversion Shares for which such Warrants are
then exercisable) (the "Initiating Holders"), requesting that the Company
effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities and specifying the intended method
of disposition thereof, the Company will promptly give written notice of such
requested registration to all holders of Warrants and Registrable Securities,
and thereupon the Company will use its best efforts to effect the registration
under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders for disposition in
accordance with the intended method of disposition stated in such
request;
(ii) all other Registrable Securities the holders of which shall
have made a written request to the Company for registration thereof
within 30 days after the giving
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of such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities); and
(iii) all shares of Common Stock which the Company may elect
to register in connection with the offering of Registrable Securities
pursuant to this Section 5.1, whether for its own account or for the
account of a holder of Common Stock,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Common Stock, if any, to be so registered, provided that
the Warrant Securityholders as a class shall be entitled to not more than two
registrations upon request pursuant to this Section 5.1.
(b) Registrations under this Section 5.1 shall be on such
appropriate registration form of the Commission (i) as shall be selected by the
Company and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
(c) The Company will pay all Registration Expenses in
connection with the registrations requested pursuant to this Section 5.1,
provided that, in addition, the Company shall pay all Registration Expenses in
connection with any registration upon request pursuant to which less than 50%
of the Registrable Shares requested to be registered by such Initiating Holders
are registered, but no such registration shall be counted as a requested
registration for purposes of this Section 5.1.
(d) A registration requested pursuant to this Section 5.1
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective; provided that a registration which
does not become effective after the Company has filed a registration statement
with respect thereto solely by reason of the refusal to proceed by the
Initiating Holders (other than a refusal to proceed based upon the advice of
counsel relating to a matter with respect to the Company) shall be deemed to
have been effected by the Company at the request of the Initiating Holders
unless the Initiating Holders shall have elected to pay all Registration
Expenses in connection with such registration, (ii) if, after it has become
effective, such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency or
court for any reason, other than by reason of some act or omission by any
Warrantholder or Warrant Securityholder, or (iii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of
some act or omission by any Warrantholder or Warrant Securityholder.
(e) If a requested registration pursuant to this Section 5.1
involves an underwritten offering, the underwriter or underwriters thereof
shall be selected by the holders
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<PAGE> 15
of at least a majority (by a number of shares) of the Registrable Securities as
to which registration has been requested and shall be reasonably acceptable to
the Company.
(f) If a requested registration pursuant to this
Section 5.1 involves an underwritten offering, and the managing underwriter
shall advise the Company (with a copy of any such notice to each holder of
Registrable Securities requesting registration) that, in its opinion, the
number of securities requested to be included in such registration (including
securities proposed to be sold for the account of the Company) exceeds the
number which can be sold in such offering within a price range acceptable to
the Initiating Holders, the Company will include in such registration, to the
extent of the number which the Company is so advised can be sold in such
offering, (i) first, Registrable Securities requested to be included in such
registration by the holder or holders of Registrable Securities, pro rata among
such holders requesting such registration on the basis of the number of such
securities requested to be included by such holders, (ii) second, all shares
proposed to be included by the Company in such registration and (iii) third,
all shares other than Registrable Shares (any such shares with respect to any
registration, "Other Shares") requested to be included in such registration by
the holder or holders thereof.
(g) The Company may suspend any registration requested
pursuant to this Section 5.1 one time per registration for a single period of
up to 90 days upon notice to the Initiating Holders that, in the good faith
determination of the Board of Directors of the Company, the registration and
sale at such time of the Registrable Securities requested to be so registered
would not be in the best interests of the Company. No registration shall be
requested pursuant to this Section 5.1 during the period from the date of the
notice to the Warrant Securityholders pursuant to Section 5.2(a) of the
Company's intention to register securities until the expiration of the lockup
period specified in Section 5.4(b), or, if earlier, the date of the Company's
notice pursuant to the proviso to the second sentence of Section 5.2(a).
SECTION 5.2 INCIDENTAL REGISTRATION. (a) If the Company
at any time proposes to register any of its securities under the Securities Act
(other than (x) by a registration on Form S-4 or S-8 or any successor or
similar forms or (y) pursuant to Section 5.1) whether for its own account or
for the account of the holder or holders of any Other Shares, it will each such
time give prompt written notice to all Warrant Securityholders of its intention
to do so and of such holders' rights under this Section 5.2. Upon the written
request of any such holder made within 20 days after the receipt of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the holders thereof, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register; provided that if, at any
time after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall
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determine for any reason either not to register or to delay registration of
such securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any Warrant
Securityholder or Warrant Securityholders entitled to do so to request that
such registration be effected as a registration under Section 5.1, and (ii) in
the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
5.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 5.1, nor shall any such registration hereunder be deemed
to have been effected pursuant to Section 5.1. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities pursuant to this Section 5.2.
(b) If the Company at any time proposes to register any of
its securities under the Securities Act as contemplated by Section 5.2 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by any holder of Registrable Securities as provided
in this Section 5.2, use its best efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such holder
among the securities to be distributed by such underwriters, provided that if
the managing underwriter of such underwritten offering shall inform the Company
and holders of the Registrable Securities requesting such registration and all
other holders of any other shares of Common Stock which shall have exercised,
in respect of such underwritten offering, registration rights comparable to the
rights under this Section 5.2 by letter of its belief that inclusion in such
distribution of all or a specified number of such securities proposed to be
distributed by such underwriters would interfere with the successful marketing
of the securities being distributed by such underwriters (such letter to state
the basis of such belief and the approximate number of such Registrable
Securities and such Other Shares proposed so to be registered which may be
distributed without such effect), then the Company may, upon written notice to
all holders of such Registrable Securities and holders of such Other Shares,
reduce pro rata (if and to be extent stated by such managing underwriter to be
necessary to eliminate such effect) the number of such Registrable Securities
and Other Shares the registration of which shall have been requested by each
holder thereof so that the resultant aggregate number of such Registrable
Securities and Other Shares so included in such registration, together with the
number of securities to be included in such registration for the account of the
Company, shall be equal to the number of shares stated in such managing
underwriter's letter.
SECTION 5.3 REGISTRATION PROCEDURES. (a) If and whenever the
Company is required to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 5.1 and 5.2, the Company
shall, as expeditiously as possible:
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(i) prepare and (within 60 days after the end of the period
within which requests for registration may be given to the Company or
in any event as soon thereafter as possible; provided that, in the
case of a registration pursuant to Section 5.1, such filing to be made
within 60 days after the initial request of an Initiating Holder of
Registrable Securities or in any event as soon thereafter as possible)
file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements
as may be required by the Securities Act) and thereafter use its best
efforts to cause such registration statement to become and remain
effective; provided further that the Company may discontinue any
registration of its securities which are not Registrable Securities at
any time prior to the effective date of the registration statement
relating thereto; provided further that before filing such
registration statement or any amendments thereto, the Company will
furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration copies of all
such documents proposed to be filed, which documents will be subject
to the review of such counsel;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of (x) in the
case of a registration pursuant to Section 5.1, the expiration of 120
days after such registration statement becomes effective, or (y) in
the case of a registration pursuant to Section 5.2, the expiration of
90 days after such registration statement becomes effective;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and each underwriter, if any, of the
securities being sold by such seller such number of conformed copies
of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of
the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under blue sky or similar laws of such jurisdictions as any seller
thereof and any underwriter of the securities being sold by such
seller shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such seller and underwriter to
consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such
purpose be
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required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified, to subject itself to
taxation in any such jurisdiction or to consent to general service of process
in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller and the underwriters, if any, of
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement), signed by the independent public
accountants who have certified the Company' financial statements
included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities;
(vii) notify the holders of Registrable Securities and the managing
underwriter or underwriters, if any, promptly and confirm such advice in
writing promptly thereafter:
(A) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the registration statement has been filed, and, with respect to the
registration statement or any post-effective amendment thereto, when
the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
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(C) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration or the
initiation of any proceedings by any Person for that purpose;
and
(D) of the receipt by the Company of any notification
with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue
sky laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose;
(viii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon the
Company' discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the
request of any such seller promptly prepare and furnish to such seller
and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(ix) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement
at the earliest possible moment;
(x) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calendar
quarter after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act;
(xi) make available for inspection by a representative of the
holders of Registrable Securities participating in the offering, any
underwriter participating in any disposition pursuant to the
registration and any attorney or accountant retained by such selling
holders or underwriter (each, an "Inspector"), all financial and other
records, pertinent corporate documents and properties of the Company
(the "Records"), and cause the Company' officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such registration; provided that
the Company shall not be required to comply with this subdivision (xi)
if there is a reasonable likelihood, in the judgment of the Company,
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that such delivery could result in the loss of any attorney-client privilege
related thereto; and provided further that Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors (other
than to any holder of Registrable Securities participating in the offering,
and if disclosed to any such holder shall not be disclosed by such holder)
unless (x) such Records have become generally available to the public or (y)
the disclosure of such Records may be necessary or appropriate (A) to comply
with any law, rule, regulation or order applicable to any such Inspectors or
holder of Registrable Securities, (B) in response to any subpoena or other
legal process or (C) in connection with any litigation to which such
Inspectors or any holder of Registrable Securities is a party (provided that
the Company is provided with reasonable notice of such proposed disclosure
and a reasonable opportunity to seek a protective order or other appropriate
remedy with respect to such Records);
(xii) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from
and after a date not later than the effective date of such Registration
Statement;
(xiii) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of the
Common Stock is then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-1 of the Securities
and Exchange Commission or, failing that, to secure NASDAQ authorization for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such Registrable Securities with the NASD; and
(xiv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing for purposes of preparing
the relevant registration statement and amendments and supplements thereto.
(b) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in subdivision (viii) of
Section 5.3(a), such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(viii) of
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Section 5.3(a). In the event the Company shall give any such notice, the
periods specified in subdivision (ii) of Section 5.3(a) shall be extended by
the length of the period from and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received such notice to the date on which each such seller has received the
copies of the supplemented or amended prospectus contemplated by subdivision
(viii) of Section 5.3(a).
(c) If any such registration or comparable statement
refers to any holder of Registrable Securities by name or otherwise as the
holder of any securities of the Company, then such holder shall have the
right to require, in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to such holder.
SECTION 5.4 UNDERWRITTEN OFFERINGS. (a) If requested by
the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 5.1, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to be satisfactory in substance and form to
the Company, each such holder and the underwriters, and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of such type, including, without
limitation, indemnities to the effect and to the extent provided in Section
5.5. The holders of the Registrable Securities will cooperate with the
Company in the negotiation of the underwriting agreement.
(b) Each holder of the Registrable Securities agrees
by acquisition of its Registrable Securities not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any public sale
or distribution of or otherwise dispose of any equity securities of the
Company, during the ten days prior to and the 90 days after the effective
date of any underwritten registration pursuant to Section 5.1 or 5.2 has
become effective, except as part of such underwritten registration, whether
or not such holder participates in such registration, and except as
otherwise permitted by the managing underwriter of such underwriting (if
any). Each holder of the Registrable Securities agrees that the Company may
instruct its transfer agent to place stop transfer notations in its records
to enforce this Section 5.4(b).
(c) The Company agrees (x) not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any public sale
or distribution of or otherwise dispose of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
securities during the ten days prior to and the 90 days after the effective
date of any registration pursuant to Section 5.1 or 5.2 has become
effective, except (i) as part of such registration, (ii) pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto
or (iii) as otherwise permitted by the managing underwriter of such offering
(if any), and (y) to use all reasonable efforts to cause each holder of its
equity securities or any securities convertible into or exchangeable or
exercisable for any of such securities, in each case purchased from the
Company at any time after the date of this Agreement (other than in a
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public offering) to agree not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of such securities during such period except as part of such
underwritten registration; provided that no holder of Registrable Securities
included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters other than
representations and warranties regarding such holder and such holder's intended
method of distribution.
(d) No Person may participate in any underwritten offering
hereunder unless such Person (i) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved, subject to the terms
and conditions hereof, by the Person or a majority of the Persons entitled to
approve such arrangements and (ii) completes and executes all agreements,
questionnaires, indemnities and other documents (other than powers of attorney)
required under the terms of such underwriting arrangements.
SECTION 5.5 INDEMNIFICATION. (a) The Company agrees to
indemnify and hold harmless each holder of Registrable Securities whose
Registrable Securities are covered by any registration statement, its directors
and officers and each other Person, if any, who controls such holder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which any such indemnified party may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such indemnified party for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such holder
specifically for use in the preparation thereof. In addition, the Company
shall indemnify any underwriter of such offering and each other Person, if any,
who controls any such underwriter within the meaning of the Securities Act in
substantially the same manner and to substantially the same extent as the
indemnity herein provided to each Indemnified Party. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such holder or any such director, officer, underwriter or controlling
person and shall survive the transfer of such securities by such holder.
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(b) Each prospective seller of Registrable Securities
hereunder shall indemnify and hold harmless (in the same manner and to the
same extent as set forth in subdivision (a) of this Section 5.5) the
Company, each director of the Company, each officer of the Company and each
other person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereof, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such seller specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in
full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling person and shall
survive the transfer of such securities by such seller. The amount payable
by any prospective seller of Registrable Securities with respect to the
indemnification set forth in this subsection (b) in connection with any
offering of securities will not exceed the amount of net proceeds received
by such prospective seller pursuant to such offering.
(c) Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 5.5, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement
of such action; provided that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 5.5, except to
the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection with the defense
thereof. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified
party of a release from all liability in respect to such claim or
litigation. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party.
(d) If the indemnification provided for in the
preceding subdivisions of this Section 5.5 is unavailable to an indemnified
party in respect of any expense, loss, claim,
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<PAGE> 24
damage or liability referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such expense, loss, claim,
damage or liability (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the holder or
underwriter, as the case may be, on the other in connection with the statements
or omissions which resulted in such expense, loss, damage or liability, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the holder or underwriter, as the case may
be, on the other in connection with the distribution of the Registrable
Securities shall be deemed to be in the same proportion as the total net
proceeds received by the Company from the initial sale of the Registrable
Securities by the Company (including therein for the purposes of such
calculation the value of the Loans and Revolving Loan Commitments under the
Credit Agreement) to the purchaser bear to the gain realized by the selling
holder or the underwriting discounts and commissions received by the
underwriter, as the case may be. The relative fault of the Company on the one
hand and of the holder or underwriter, as the case may be, on the other shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission to state a material
fact relates to information supplied by the Company, by the holder or by the
underwriter and parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that the
foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the proviso contained in the first sentence of subdivision
(a) of this Section 5.5, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (d) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a) or
(b) of this Section 5.5 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that
it would not be just and equitable if contribution pursuant to this subdivision
(d) were determined by pro rata allocation (even if the holders and any
underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph and subdivision (c) of this
Section 5.5. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.
Notwithstanding the provisions of this subdivision (d), no holder
of Registrable Securities or underwriter shall be required to contribute any
amount in excess of the amount
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<PAGE> 25
by which (i) in the case of any such holder, the net proceeds received by such
holder from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that such holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION 5.6 RULE 144. If the Company shall have filed a registration
statement pursuant to Section 12 of the Exchange Act or a registration
statement pursuant to the Securities Act, the Company will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the Commission thereunder and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
ARTICLE VI
DEFINITIONS
The following terms, as used in this Warrant, have the following
meanings:
"Additional Shares" has the meaning set forth in the first paragraph of
this Warrant.
"Appraisal Notice" has the meaning set forth in Section 3.2(a).
"Appraiser" has the meaning set forth in Section 3.2(b).
"Appraiser Determination" has the meaning set forth in Section 3.2(b).
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in New York are authorized by law or other
governmental action to be closed, unless there shall have been an offering of
Common Stock registered under the Securities Act, in which case "Business Day"
means (a) if Common Stock is listed or admitted to trading on a national
securities exchange, a day on which the principal national
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<PAGE> 26
securities exchange on which the Common Stock is listed or admitted to trading
is open for business or (b) if Common Stock is not so listed or admitted to
trading, a day on which the New York Stock Exchange is open for business.
"Capital Reorganization" has the meaning set forth in Section
4.5.
"Cash Management Services Obligations" has the meaning set forth
in the Credit Agreement.
"Closing Price" on any day means (a) if Common Stock is listed or
admitted for trading on a national securities exchange, the reported last sales
price regular way or, if no such reported sale occurs on such day, the average
of the closing bid and asked prices regular way on such day, in each case on
the principal national securities exchange on which Common Stock is listed or
admitted to trading, or (b) if Common Stock is not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices in the over-the-counter market on such day as reported by NASDAQ
or any comparable system or, if not so reported, as reported by any New York
Stock Exchange member firm selected by the Company for such purpose.
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" has the meaning ascribed to such term in the
second paragraph of this Warrant.
"Common Stock Distribution" has the meaning set forth in Section
4.3(a).
"Common Stock Reorganization" has the meaning set forth in
Section 4.2.
"Company" has the meaning set forth in the first paragraph of
this Warrant.
"Company Determination" has the meaning set forth in Section 3.1.
"Conversion Shares" means (i) any shares of Common Stock or other
securities issued upon the exercise of any Warrants and (ii) any securities
issued with respect to any of such shares or other securities referred to in
clause (i) upon the conversion thereof into other securities or by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided that any of such securities shall cease to be Conversion Shares when
such securities shall have (x) been disposed of pursuant to a Public Sale or
(y) ceased to be outstanding.
"Convertible Securities" has the meaning set forth in Section
4.3(b).
"Credit Agreement" has the meaning set forth in the second
paragraph of this Warrant.
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<PAGE> 27
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Exercise Price" means initially $.01 per share, as adjusted from time
to time in accordance with the terms hereof.
"Fair Market Value" as at any date of determination means the fair
market value of the business or property or services in question as of such
date, as determined in good faith by the Board of Directors of the Company or
otherwise in accordance with Section 3.2 hereof. The Fair Market Value of the
Company as at any date of determination shall be the Market Price on such date
multiplied by the number of shares of Common Stock then outstanding.
"Fully Diluted Basis" means, with respect to any determination or
calculation, that such determination or calculation is performed on a fully
diluted basis determined in accordance with generally accepted accounting
principles as in effect from time to time.
"Holder" has the meaning set forth in the first paragraph of this
Warrant.
"Initial Shares" has the meaning set forth in the first paragraph of
this Warrant.
"Initiating Holders" has the meaning set forth in Section 5.1 hereof.
"Loan" has the meaning ascribed to such term in the Credit Agreement.
"Market Price" as at any date of determination means the average of the
daily Closing Prices of a share of Common Stock for the shorter of (i) the 20
consecutive Business Days ending on the most recent Business Day prior to the
Time of Determination and (ii) the period commencing on the date next
succeeding the first public announcement of the issuance, sale, distribution,
grant or exercise in question through such most recent Business Day prior to
the Time of Determination. "Time of Determination" means the time and date of
the earliest of (x) the determination of the stockholders entitled to receive
such issuance, sale, distribution or grant, and (z) the commencement of
"ex-dividend" trading in respect thereof.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Obligations" has the meaning ascribed to such term in the Credit
Agreement.
"Options" has the meaning set forth in Section 4.3(b).
"Other Shares" has the meaning set forth in Section 5.1.
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<PAGE> 28
"Person" means any natural person, corporation, limited liability
company, limited partnership, general partnership, joint stock company, joint
venture, association, company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, and any government
agency or political subdivision thereof.
"Public Sale" means any sale of Common Stock to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
(or any successor provision then in effect) adopted under the Securities Act.
"Registrable Securities" means any Warrants or Conversion Shares
until the date (if any) on which such Conversion Shares shall have been
transferred or exchanged and new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 5.1 through 5.5 hereof,
including (i) all registration, filing and NASD fees, (ii) all fees and
expenses of complying with securities or blue sky laws, (iii) all word
processing, duplicating and printing expenses, (iv) all messenger and delivery
expenses, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits of
"cold comfort" letters required by or incident to such performance and
compliance, (vi) the fees and disbursements of any one counsel and any one
accountant retained by the holder or holders of more than 50% of the
Registrable Securities being registered (or, in the case of any registration
effected pursuant to Section 5.1, as the Initiating Holders shall have selected
to represent all holders of the Registrable Securities being registered), (vii)
premiums and other costs of policies of insurance (if any) against liabilities
arising out of the public offering of the Registrable Securities being
registered if the Company desires such insurance and (viii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but not including underwriting discounts and commissions and
transfer taxes, if any, provided that, in any case where Registration Expenses
are not to be borne by the Company, such expenses shall not include (i)
salaries of the Company personnel or general overhead expenses of the Company,
(ii) auditing fees, (iii) premiums or other expenses relating to liability
insurance required by underwriters of the Company or (iv) other expenses for
the preparation of financial statements or other data, to the extent that any
of the foregoing either is normally prepared by the Company in the ordinary
course of its business or would have been incurred by the Company had no public
offering taken place.
"Regulation Y Holder" means the Holder or a holder of Warrant
Shares, if such Holder or holder of Warrant Shares is a bank holding company
within the meaning of the BHC Act or a subsidiary thereof subject to Regulation
Y under the BHC Act.
"Regulatory Change" means, with respect to any Regulation Y
Holder, (i) any change on or after the date hereof in United States federal or
state or foreign laws or
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regulations (including the BHC Act and Regulation Y thereunder); (ii) the
adoption on or after the date hereof of any interpretation or ruling applying
to such Regulation Y Holder, individually or as a member of a class, under any
United States federal or state or foreign laws or regulations by any court or
governmental or regulatory authority charged with the interpretation or
administration thereof; or (iii) the modification on or after the date hereof
of any agreement or commitment with any such governmental or regulatory
authority that is applicable to or binding upon such Regulation Y Holder.
"Required Interest" has the meaning set forth in Section 3.2(a).
"Revolving Loan Commitments" has the meaning ascribed to such term in
the Credit Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor Federal statute and the rules and regulations of the Securities and
Exchange Commission (or its successors) thereunder, all as the same shall be in
effect from time to time.
"Special Dividend" has the meaning set forth in Section 4.4.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, association or other business entity of which more than 50% of the
total voting power of shares of stock or other interests therein entitled to
vote in the election of members of the board of directors, partnership
committee, board of managers or trustees or other managerial body thereof is at
the time owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or a combination thereof. Unless
otherwise specified, "Subsidiary" means a Subsidiary of the Company and
"Subsidiaries" means all Subsidiaries of the Company.
"Warrant Agency" has the meaning set forth in Section 2.1.
"Warrant Securityholder" means at any time any Warrantholder or any
holder of Conversion Shares.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"Warrantholder" means a holder of a Warrant.
"Warrants" has the meaning set forth in the second paragraph of this
Warrant.
All references herein to "days" shall mean calendar days unless
otherwise specified.
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ARTICLE VII
MISCELLANEOUS
7.1. NOTICES. Notices and other communications provided for
herein must be in writing and may be given by mail, courier, confirmed telex or
facsimile transmission and shall, unless otherwise expressly required, be
deemed given when received or, if mailed, four Business Days after being
deposited in the United States mail with postage prepaid and properly
addressed. In the case of the Holder, such notices and communications shall be
addressed to its address as shown on the books maintained by the Warrant
Agency, unless the Holder shall notify the Warrant Agency that notices and
communications should be sent to a different address (or telex or facsimile
number), in which case such notices and communications shall be sent to the
address (or telex or facsimile number) specified by the Holder.
7.2. WAIVERS; AMENDMENTS. No failure or delay of the Holder
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on the Company in any case shall entitle
the Company to any other or future notice or demand in similar or other
circumstances. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Company and the holders of Warrants entitling
such holders to purchase a majority of the Common Stock subject to purchase
upon exercise of such Warrants at the time outstanding (exclusive of Warrants
then owned by the Company or any Subsidiary (as defined in the Credit
Agreement) or Affiliate (as defined in the Credit Agreement) thereof);
provided, however, that no such amendment, modification or waiver shall,
without the written consent of the holders of all Warrants at the time
outstanding, (a) change the number of shares of Common Stock subject to
purchase upon exercise of this Warrant, the Exercise Price or provisions for
payment thereof or (b) amend, modify or waive the provisions of this Section or
Article III, IV, V or Section 1.5.
Any such amendment, modification or waiver effected pursuant to
and in accordance with the provisions of this Section or the applicable
provisions of the Credit Agreement shall be binding upon the holders of all
Warrants and Warrant Shares, upon each future holder thereof and upon the
Company. In the event of any such amendment, modification or waiver, the
Company shall give prompt notice thereof to all holders of Warrants and Warrant
Shares and, if appropriate, notation thereof shall be made on all Warrants
thereafter surrendered for registration of transfer or exchange.
7.3. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW).
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7.4. TRANSFER; COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All
covenants, stipulations, promises and agreements in this Warrant contained by
or on behalf of the Company or the Holder shall bind its successors and
assigns, whether so expressed or not. This Warrant shall be transferable and
assignable by the Holder hereof in whole or from time to time in part to any
other Person, subject to the restrictions on transferability contained herein
and under the applicable securities laws, and the provisions of this Warrant
shall be binding upon and inure to the benefit of the Holder hereof and its
successors and assigns.
7.5. SEVERABILITY. In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
7.6. SECTION HEADINGS. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
7.7. TAX BASIS. The Company and the Holder agree pursuant to
Proposed Treasury Regulation Section 1.1273-2 that, for Federal income tax
purposes, the aggregate issue price of the Loans (as defined in the Credit
Agreement) is $284,990,000 and the aggregate purchase price for this Warrant is
Ten Thousand Dollars ($10,000.00). Neither the Company nor the Holder hereof
shall voluntarily take any action inconsistent with the agreement set forth in
this Section 7.7.
7.8. RIGHT TO SPECIFIC PERFORMANCE. The Company acknowledges and
agrees that in the event of any breach of the foregoing covenants and
agreements, the Holder would be irreparably harmed and could not be made whole
only by the award of monetary damages. Accordingly, the Company agrees that
the Holder, in addition to any other remedy to which the Holder may be entitled
at law or equity, will be entitled to seek and obtain an award of specific
performance of any of the foregoing covenants and agreements.
J-31
<PAGE> 32
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed in its corporate name by one of its officers thereunto duly
authorized, and its corporate seal to be hereunto affixed, attested by its
Secretary or an Assistant Secretary, all as of the day and year first above
written.
MEDAPHIS CORPORATION
(CORPORATE SEAL)
By:
--------------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- ------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
J-32
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the following:
- - To the incorporation by reference in the Registration Statement No. 333-1800
of Medaphis Corporation on Form S-4 of our report dated June 29, 1996 (October
22, 1996 as to Note 18) (which expresses an unqualified opinion and includes
an explanatory paragraph relating to the 1995 consolidated financial
statements being restated), relating to the consolidated financial statements
of Medaphis Corporation as of December 31, 1995 (as restated) and 1994 and for
each of the three years in the period ended December 31, 1995 (as restated);
and
- - To the incorporation by reference in Registration Statements Nos. 33-46847,
33-64952, 33-67752, 33-71556, 33-88442, 33-88444, 33-90876, 33-90874,
33-95742, 33-95746, 33-95748, 333-03213, 333-07201, 333-07203 and 333-07627 of
Medaphis Corporation on Form S-8 of our report dated June 29, 1996 (October
22, 1996 as to Note 18) (which expresses an unqualified opinion and includes
an explanatory paragraph relating to the 1995 consolidated financial
statements being restated) relating to the consolidated financial statements
of Medaphis Corporation as of December 31, 1995 (as restated) and 1994 and for
each of the three years in the period ended December 31, 1995 (as restated).
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 14, 1997
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,270
<SECURITIES> 0
<RECEIVABLES> 173,685
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 223,165
<PP&E> 97,895
<DEPRECIATION> 0
<TOTAL-ASSETS> 795,606
<CURRENT-LIABILITIES> 127,935
<BONDS> 63,375
0
382
<COMMON> 589
<OTHER-SE> 420,335
<TOTAL-LIABILITY-AND-EQUITY> 795,606
<SALES> 559,877
<TOTAL-REVENUES> 559,877
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 553,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,062
<INCOME-PRETAX> (3,834)
<INCOME-TAX> 1,787
<INCOME-CONTINUING> (5,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,621)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE:
Investor Contact: Melissa Coley
(770) 444-5348
Media Contact: Lisa La Magna
(770) 444-4476
MEDAPHIS ANNOUNCES 1997 TURNAROUND PLAN
To Focus on Core Business of
Business Management Services and Information Products
for Healthcare Providers;
Plans Divestitures of Non-Core Businesses
REPORTS FOURTH QUARTER AND FISCAL 1996 FINANCIAL RESULTS
Charges for Discontinued Reengineering Program and Related Assets
NEW EXECUTIVES AND BOARD MEMBER
AMENDED AND RESTATED CREDIT FACILITY
Increase and Extension of Facility
ATLANTA, GEORGIA, FEBRUARY 5, 1997 -- Medaphis Corporation [Nasdaq: MEDA]
today announced its 1997 operating plan aimed at refocusing the Company on its
core business of delivering business management services and information
products to healthcare providers, divesting Healthcare Recoveries, Inc. and
assessing alternatives for BSG Corporation. The Company also announced
revenues of $142.9 million for the fourth quarter and $608.5 million for the
year ended December 31, 1996. Pro forma net loss was ($103.7) million for the
quarter and ($123.6) million for the year, which includes $138.9 million in
fourth quarter and $180.5 million in full year restructuring and other charges.
Including restructuring and other charges for the relevant periods, pro forma
net loss per share was ($1.45) for the quarter and ($1.74) for the year;
excluding these charges, pro forma net loss per share would have been ($0.34)
and ($0.15), respectively.
Medaphis today announced the following steps:
- - Implementation of the Company's 1997 operating plan which is focused on the
core business and is driven by five basic elements:
(1) exiting non-core businesses promptly;
(2) achieving improved predictability of business results through
enhanced management accountability and controls;
(3) reducing costs and increasing efficiencies in the core business;
(4) singular emphasis on excellence in customer service; and
(5) implementing cross-selling initiatives.
1
<PAGE> 2
- - Abandonment of Medaphis' reengineering program in favor of reliance on
established technology and proven platforms and processes;
- - Agreement with Medaphis' lenders to restructure its credit facilities that
initially provide for increased liquidity to $285 million, up from $250
million, with step downs over the next 18 months consistent with the 1997 core
business operating plan needs and divestiture program;
- - Strengthening of Medaphis' senior management team by the appointment of key
executives who will help spearhead the 1997 operating plan;
- - Strengthening of Medaphis' outside director presence and governance role
through the addition of a new outside director, and the departure from the
Board of one management director; and
- - As part of the strategy to focus on the healthcare provider market, it is
currently contemplated that Medaphis will seek to divest its Healthcare
Recoveries, Inc. ("HRI") operating unit. Medaphis is also assessing
alternatives for BSG Corporation ("BSG").
David E. McDowell, Chairman and Chief Executive Officer, said, "1997 will be a
year of transition for Medaphis. We have refocused our mission on our core
business and an absolute dedication to customer service. Key building blocks
have been put in place to support our effort at continuous improvement
throughout the year. The job is now ours to take our established customer
base, our business management services strength and our information products
capabilities and make them work better. I am optimistic that Medaphis can do
this. And if we achieve our goals, even with increased restructuring and other
expenses and fees, we will return to a level of operating performance that
should be profitable for the year and going forward."
1997 OPERATING PLAN
Mr. McDowell said, "Medaphis' strengths and opportunities fall squarely within
the healthcare provider market. Physicians and hospitals are increasingly
seeking business and information management solutions to meet the challenges of
managed care, compliance mandates and government and industry initiatives
designed to influence or regulate the cost, quality or manner of care.
Medaphis has a group of highly skilled and experienced employees who understand
healthcare, a collection of healthcare information products that have been
recognized as 'best-in-class,' and a base of customers that includes almost
20,000 physicians and 2,500 hospitals. We intend to leverage these strengths
to become the leading provider of business and information management services
and products to doctors and hospitals."
2
<PAGE> 3
Medaphis also intends to implement a program aimed at achieving a higher
degree of predictability in Medaphis' core operations through enhanced
management accountability and controls. Mr. McDowell noted, "Enhanced
management accountability and refined planning processes, controls and
accounting practices will form the foundation of Medaphis' turnaround plan.
The Company will make greater use of subscription fee pricing for its products,
which benefits customers and is intended to smooth Medaphis' revenue streams."
The third cornerstone of the 1997 operating plan is to reduce costs and
increase efficiencies in the core business. Going forward, the Company intends
to adopt incremental improvements to processes and procedures using established
technology and proven platforms, and deploy other 'best practices,' as opposed
to a wide-scale reengineering effort. This approach has already proven
successful in certain of the Company's large processing centers.
The 1997 operating plan will also place renewed emphasis on excellence in
customer service. Client retention rates, satisfaction surveys and similar
service benchmarks will assume renewed importance at Medaphis and will be
embedded into Medaphis' operating philosophy and reporting and compensation
plans. This reflects the Company's transition from one focused on growth
through diversification to one focused on customer service and growth within
the healthcare provider market.
The final element of the 1997 plan is to implement strategies that increase
cross-selling opportunities to Medaphis' existing and potential customers.
Medaphis provides a broad range of discrete solutions for different practice
areas and administrative functions within hospitals, physician groups and
independent physician offices. These range from products for enterprise-wide
patient care information systems, enterprise-wide patient and staff scheduling
systems, and enterprise-wide radiology information management systems to
accounts receivables management and collections and other business management
services for physicians, hospitals and healthcare enterprises. Medaphis
believes that there are significant cross-selling opportunities among its
20,000 physician and 2,500 hospital customer base to be realized. During 1997
and beyond, Medaphis will seek to sell more 'complete solutions'.
1996 FINANCIAL RESULTS, ABANDONMENT OF REENGINEERING PROGRAM, RESTRUCTURING AND
OTHER CHARGES
For the three months ended December 31, 1996, revenue was $142.9 million as
compared with $144.7 million in the year-earlier period. Including
restructuring and other charges, the net loss for the fourth quarter was
($103.7) million compared with a pro forma net loss of ($1.2) million in 1995's
fourth quarter. Pro forma net loss per share was ($1.45), compared with a pro
forma net loss per share of ($0.02) in the prior year's quarter. Excluding
restructuring and other charges, pro forma net loss per share would have been
($0.34).
3
<PAGE> 4
For the twelve month period ended December 31, 1996, revenue was $608.5
million, compared with $559.9 million in 1995. Including restructuring and
other charges, the pro forma net loss for the twelve months was ($123.6)
million compared with ($8.5) million last year. Pro forma net loss per share
was ($1.74), as compared to pro forma net loss per share of ($0.15) last year.
Excluding restructuring and other charges, pro forma net loss per share would
have been ($0.15).
Prior year results have been restated to include the operating results of all
significant 1995 and 1996 mergers accounted for as poolings of interest.
Results for the year and quarter ended December 31, 1996 were impacted by the
Company's decision to abandon its reengineering program and shut down the
Imonics operating unit. As a result, the Company reported restructuring and
other charges of approximately $138.9 million during the fourth quarter. These
charges are comprised of a write-off of $69.1 million of capitalized software
and $20.4 million of impaired assets associated primarily with the abandoned
reengineering program, $38.2 million associated with the shut down of Imonics
(including $13 million in related goodwill), and $11.2 million of legal,
severance and other fees.
The Company's decision to abandon its reengineering program was reached at the
conclusion of a comprehensive assessment of the program begun during 1996. The
conclusions of the assessment were that it was not cost effective to continue
the development and deployment of the software and technology upon which the
reengineering program was based and that the reengineering software and
technology had no alternative useful application in the Company's operations.
EXECUTIVE APPOINTMENTS AND ELECTION OF NEW INDEPENDENT DIRECTOR
Mr. McDowell strengthened Medaphis' management team with today's announcement
of several key appointments, promotions, and changes to the executive team
charged with effecting the 1997 turnaround plan.
Jerome H. Baglien has been named Senior Vice President and Chief Financial
Officer. He comes to Medaphis from Keebler (a $1.5 billion in revenue baking
and distributing company), where he had been CFO since 1993. He has eight
years Big 6 accounting experience in addition to ten years in other finance and
accounting activities. His turnaround and operating experience and expertise
includes strategic planning, operations management, mergers and acquisitions,
financing, and internal accounting controls. Mr. Baglien replaces Michael R.
Cote, who has resigned to pursue other business and personal interests.
Michael Douglas, Vice Chairman and a Director since May 1996, has resigned in
response to increasing demands on his personal life. The Company has
eliminated this position, as the Company's new management team believes that
a flatter organizational structure better suits the Company's current business
strategy. Michael Drinkwater, President of MPSC, and James F. Richards,
President of MHSC, will report directly to Mr. McDowell.
4
<PAGE> 5
Patrick B. McGinnis, currently President of Medaphis Healthcare Information
Technology ("HIT"), will be returning to his previously held position of CEO of
HRI, where he plans to lead the company as an independent organization. Mr.
McGinnis founded HRI in 1988, and served as its Chief Executive Officer and
President until it was acquired by Medaphis in 1995. The Company has
identified a new president of HIT, which it expects to announce during the
first quarter of 1997.
William R. Spalding, formerly Senior Vice President and General Counsel, has
been promoted to Executive Vice President of Strategic Planning. Mr. Spalding,
formerly a partner in the law firm of King & Spalding, will now be responsible
for the Company's long-term strategic planning, including the divestiture of
non-strategic business units, financial and capital requirements and resolution
of outstanding claims against the Company. The Company has identified a new
general counsel which it expects to announce during the first quarter of 1997.
Daniel S. Connors Jr. has joined Medaphis as Senior Vice President-Personnel
and Administration. He brings over 30 years of management experience in the
services industry, domestically and overseas. He served most recently as Vice
President Strategic Implementation with D.F. Blumberg & Associates, Inc. Prior
to that, he was President and Chief Operating Officer of Technology Service
Solutions, an IBM/Eastman Kodak joint venture company. Mr. Connors has 27
years of executive experience at IBM, where he served in various capacities,
including Director of Personnel and Director of Quality and Business Process.
Medaphis also welcomes a new member to the Board of Directors. John C. Pope,
formerly President and COO of United Airlines, now holds the position of
Director Emeritus of UAL Corporation and United Airlines. Mr. Pope has held
management positions with American Airlines and General Motors Corporation and
currently sits on boards of several other national companies.
Mr. McDowell was appointed Medaphis' Chairman and CEO on October 31, 1996. He
joined Medaphis' Board of Directors in May 1996. He previously served as
President, Chief Operating Officer and director of McKesson Corporation, a
pharmaceutical distribution company with revenue of $13.2 billion. Mr.
McDowell joined McKesson in 1992 following a 29-year career with IBM, where he
held various positions including President and General Manager of IBM's
National Service Division, responsible for IBM's customer support services.
5
<PAGE> 6
AMENDED AND RESTATED CREDIT FACILITIES
Medaphis has agreed with its senior lenders to amend and restate the Company's
existing revolving credit facilities as of February 4, 1997. The newly
restructured credit facilities have been increased from $250 million to $285
million and extended through June 30, 1998. These facilities are secured by
substantially all of the Company's assets and guaranteed by substantially all
of the Company's subsidiaries. The loan commitments under the restructured
credit facilities will be reduced to $200 million on July 31, 1997 and to $150
million on January 31, 1998.
Mr. McDowell said, "This new agreement with our lenders will help Medaphis
continue to work toward building an operating and financial structure that
improves stability and financial flexibility to the benefit of our vendors,
customers, employees and shareholders. This agreement provides additional
liquidity and flexibility to support the implementation of the Company's 1997
business plan. We intend to reduce outstanding debt during 1997 and early
1998, both through the sale of non-core assets and subsidiaries which are not
part of our strategic vision for Medaphis and cash generated from operations.
We are pleased that our extended credit facilities have been structured to meet
the goals and objectives of the Medaphis business plan over the next eighteen
months."
Certain of the other material terms of the restructured credit facilities
include adjustment of the interest rates, fees and charges and other
compensation to be paid to the lenders by the Company, including the vesting of
certain warrant arrangements for 1% of the common stock of the Company on each
of January 1, 1998 and April 1, 1998; modification of the financial reporting
requirement to the lenders, restrictions on new acquisitions and certain
litigation settlement payments; and establishment of a maximum permitted
capital expenditures covenant for the fiscal quarter ending March 31, 1997 and
additional financial covenants for fiscal quarters ending on and after June 30,
1997. The Company also paid $2,925,000 in closing fees to its bankers in
connection with the restructured agreements and was not required to pay the
fees previously contemplated with the seventh modification of the facility.
This summary of certain terms of the Company's credit facilities is subject to
the specific terms of the agreement, which the Company intends to file with the
Securities and Exchange Commission.
SETTLEMENT OF 1995 SECURITIES LITIGATION
The Company also announced that it has reached an agreement in principle to
settle on a class-wide basis the securities litigation that was filed against
the Company in June, 1995 for $4.75 million, subject to court approval and
other customary conditions. The settlement would include the putative class
action lawsuit currently pending against the Company in the United States
District Court for the Northern District of Georgia relating to the Company's
pending federal investigation into billing and collection matters in its
Calabasas and Cypress, California, offices, and the related putative class
action lawsuit currently pending in the Superior Court of Cobb County, Georgia.
The Company expects to receive approximately $3.7 million from insurance to
fund a portion of the settlement.
6
<PAGE> 7
PLANNED DIVESTITURES AND ASSESSMENTS OF NON-CORE BUSINESSES
As part of its strategy to focus on the healthcare provider market, it is
currently contemplated that Medaphis will seek to divest its Healthcare
Recoveries, Inc. operating unit. Medaphis also is assessing alternatives for
BSG Corporation including, but not limited to, seeking a buyer, a spin-off
transaction, or other alternatives that involve more independence for BSG. Mr.
McDowell said, "These actions will reset the Company on its proper course,
which is to focus on its strengths and talents in the healthcare provider
market."
HRI, based in Louisville, Kentucky, is the largest provider of subrogation and
related recovery services to healthcare payors. Its clients include health
maintenance organizations, indemnity insurers, Blue Cross and Blue Shield
organizations, and third party administrators of healthplans. Each of HRI's
clients, and its potential customers, either itself extends healthcare coverage
to insureds, members, plan participants or plan beneficiaries, or administers
the healthcare coverage claims submitted by insureds.
HRI's services are designed to assist healthcare payors in recovering the
related benefits provided to insureds who are injured in accidents or under
other circumstances where a third-party, typically a property and casualty
insurer or an individual, is ultimately responsible for such medical benefits.
HRI utilizes proprietary software and various investigative techniques to
identify those claims where its clients have a recovery right against a third
party for the medical benefits provided to an insured and which warrant further
recovery of the costs of such services from such third party. It serves 50
major healthcare payors which cover 28 million lives throughout the U.S.
BSG, based in Austin, Texas, is a leading provider of information technology
and change management services to organizations seeking to transform their
operations through the strategic use of client/server and other advanced
technologies. For the year ended December 31, 1996, BSG had revenue of
approximately $113.8 million.
BSG focuses on customers in industries where technology enabled change and
reengineering can have a significant competitive impact. BSG seeks to
establish long-term alliances with its customers, enabling them to increase
revenue, raise productivity and improve product quality. BSG operates in
multiple vertical markets, including multi-unit retail, energy, financial
services, communications, pharmaceutical, healthcare, manufacturing and
transportation. BSG has worked with more than 100 customers including Bell
Atlantic, the American Federation of Television and Radio Artists (AFTRA),
McKesson, Phoenix Newspapers, Inc. and Dunkin Donuts.
7
<PAGE> 8
Medaphis is a leading provider of business management services and information
products to healthcare providers. Based in Atlanta, Georgia, Medaphis
currently serves approximately 20,000 physicians and 2,500 hospitals across the
nation.
This press release contains statements which constitiute "forward-looking
statements" within the meaning of the Securities Act of 1993 and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform
Act of 1995. 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996). Those
forward-looking statements include the intent, belief, or current expectations
of the Company and members of its senior management team,as well as the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements include, but are
not limited to, the need to integrate recently acquired businesses, the status
of the Company's billing and accounts receivable management services
operations, continued availability of credit on terms and conditions acceptable
to the Company, the planned divestiture of non-strategic businesses, on-going
management initiatives designed to reduce costs and enhance efficiencies, the
Company's pending federal investigation and outstanding litigation, sales of
the Company's healthcare information technology products and prospective
changes in laws, regulations or policies affecting the Company's business
and/or operations. Additional factors that could have cause actual results to
differ materially from those contemplated by the forward-looking statements in
this press release may be found in the Company's public filings with the
Securities & Exchange Commission, which are incorporated by reference herein.
The Company undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
# # #
8
<PAGE> 9
MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
1996 1995 1996 1995
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 142,937 $ 144,746 $ 608,488 $ 559,877
Salaries and wages 106,631 87,756 399,474 325,868
Other operating expenses 46,681 35,540 163,850 140,296
Depreciation 10,194 3,824 26,690 14,487
Amortization 5,344 4,680 20,016 18,048
Interest expense, net 3,566 1,575 11,585 10,062
Restructuring and other charges 138,855 9,200 180,455 54,950
-------------- -------------- -------------- -------------
311,271 142,575 802,070 563,711
Income (loss) before income taxes (168,334) 2,171 (193,582) (3,834)
Income taxes (64,646) 4,287 (68,961) 1,787
-------------- -------------- -------------- -------------
Net loss (103,688) (2,116) (124,621) (5,621)
Pro forma adjustments, principally income taxes - 966 979 (2,883)
-------------- -------------- -------------- -------------
Pro forma net loss $ (103,688) $ (1,150) $ (123,642) $ (8,504)
============== ============== ============== =============
Pro forma net loss per common share $ (1.45) $ (0.02) $ (1.74) $ (0.15)
============== ============== ============== =============
Weighted average shares outstanding 71,695 58,068 71,225 56,591
============== ============== ============== =============
====================================================================================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets $ 233,363 $ 223,165
Property and equipment 99,436 97,895
Deferred income taxes 86,631 -
Intangible assets 388,920 455,611
Other 16,977 18,935
------------ ------------
$ 825,327 $ 795,606
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 203,648 $ 127,935
Long-term debt and capital lease obligations 215,752 150,565
Deferred income taxes and other long-term obligations 13,636 32,426
Convertible subordinated debentures - 63,375
Stockholders' equity 392,291 421,305
------------ ------------
$ 825,327 $ 795,606
============ ============
</TABLE>
9
<PAGE> 1
EXHIBIT 99.2
================================================================================
$285,000,000
SECOND
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of February 4, 1997
among
MEDAPHIS CORPORATION
and
THE LENDERS LISTED HEREIN
and ,
as Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.03. Other Definitional Terms; Knowledge and Awareness . . . . . . . . . . . . . . . . . . . 18
ARTICLE II. REVOLVING LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.01. Revolving Loan Commitments; Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.02. Revolving Loan Notes; Repayment of Principal and Interest . . . . . . . . . . . . . . . 20
Section 2.03. Requests for Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.04. Disbursement of Revolving Loans; Several Revolving Loan
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.05. Voluntary Reductions in Revolving Loan Commitments . . . . . . . . . . . . . . . . . . 23
Section 2.06. Mandatory Prepayments and Mandatory Reductions in Revolving
Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III. SWINGLINE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.01. Swingline Loans; Use of Proceeds, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.02. Swingline Loan Note; Repayment of Principal and Interest . . . . . . . . . . . . . . . . 25
Section 3.03. Excess Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.04. Refinancings of Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.05. Purchase and Sale of Participation Interests in Swingline Loans . . . . . . . . . . . . 26
ARTICLE IV. GENERAL CREDIT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.01. Credit Expiration Date; Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.02. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.04. Payments, Prepayments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.05. Collateral and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.06. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.07. Unavailability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.08. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.09. Sharing of Payments, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.10. Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.11. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.12. Assumptions Concerning Funding of LIBOR Advances . . . . . . . . . . . . . . . . . . . . 36
Section 4.13. Apportionment of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.14. Agreements Regarding Interest and Other Charges . . . . . . . . . . . . . . . . . . . . 36
Section 4.15. Benefits to Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.16. Amendment and Restatement; No Novation . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.17. Certain Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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ARTICLE V. CONDITIONS PRECEDENT TO CREDIT EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.01. Conditions Precedent to Initial Credit Event . . . . . . . . . . . . . . . . . . . . . 38
Section 5.02. Conditions Precedent to All Credit Events . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.01. Organization; Subsidiaries; Authorization; Valid and Binding
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.02. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.03. Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.04. Outstanding Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.05. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.06. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.07. Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.08. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.09. Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.10. Compliance with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.11. Possession of Licenses, Franchises, Etc . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.12. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.13. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.15. Margin Regulations and Investment Company Act, Etc . . . . . . . . . . . . . . . . . . 46
Section 6.16. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.17. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.18. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.19. No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.20. Payment and Dividend Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.22. Revisions or Updates of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VII. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.01. Financial Statements and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.02. Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.03. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.04. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.05. Maintenance of Corporate Existence, Properties, Franchises, Etc. . . . . . . . . . . . . 54
Section 7.06. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.07. Type of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.08. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.09. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.10. Additional Credit Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.11. Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.12. Chief Financial Officer; Additional Financial Adviser . . . . . . . . . . . . . . . . . 58
ARTICLE VIII. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 8.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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Section 8.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.03. Merger and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.04. ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.05. Dividends, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.06. Investments, Acquisitions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.07. Sale and Lease-Back Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.08. Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.09. Fiscal Year Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.11. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.12. Limitation on Payment and Dividend Restrictions . . . . . . . . . . . . . . . . . . . . 62
Section 8.13. Actions Under Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 8.14. Certain Litigation Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE IX. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.02. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE X. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.01. Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.02. Nature of Duties of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.03. Lack of Reliance on Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.04. Certain Rights of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.05. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.06. Indemnification of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.07. Agent in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.08. Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.09. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.10. Security Documents, Notice of Defaults, Etc.. . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.02. No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.03. Payment of Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.04. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 11.05. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 11.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.07. Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.08. Amendments; Exercise of Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.09. Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.12. Effectiveness; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.14. Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
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Section 11.15. Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.16. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.17. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.19. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.20. Jury Trial Waiver; Consent to Forum . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
Annex I - Lender Information
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Exhibit A-1 - [ ]
Exhibit A-2 - [ ]
Exhibit B - [ ]
Exhibit C-1 - [ ]
Exhibit C-2 - [ ]
Exhibit C-3 - [ ]
Exhibit C-4 - [ ]
Exhibit D-1 - [ ]
Exhibit D-2 - [ ]
Exhibit E-1 - [ ]
Exhibit E-2 - [ ]
Exhibit F-1 - [ ]
Exhibit F-2 - [ ]
Exhibit G - [ ]
Exhibit H - [ ]
Exhibit I - [ ]
Exhibit J - [ ]
Exhibit K - [ ]
Exhibit L - [ ]
Exhibit M - [ ]
Exhibit N - [ ]
Exhibit O - [ ]
Exhibit P - [ ]
Schedule 6.01(b) - [ ]
Schedule 6.01(c) - [ ]
Schedule 6.03 - [ ]
Schedule 6.06 - [ ]
Schedule 6.08 - [ ]
Schedule 6.12 - [ ]
Schedule 6.20 - [ ]
Schedule 8.01 - [ ]
Schedule 8.02 - [ ]
Schedule 8.03 - [ ]
Schedule 8.11 - [ ]
</TABLE>
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<PAGE> 6
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT made
and entered into as of February 4, 1997, by and among MEDAPHIS CORPORATION, a
Delaware corporation ("Borrower"), the banks and lending institutions listed on
Annex I attached hereto as the same may be amended from time to time and any
permitted assignees thereof (collectively, the "Lenders", and individually, a
"Lender"), and , a , in its
capacity as the Agent for the Lenders pursuant to Article X hereof (the
"Agent").
W I T N E S S E T H:
WHEREAS, pursuant to an Amended and Restated Credit
Agreement, dated as of August 13, 1993, as amended (the "1993 Credit
Agreement"), among Borrower, the Lenders party thereto and , as
agent for such Lenders, such Lenders agreed to provide certain credit
facilities to Borrower; and
WHEREAS, the Borrower has requested that the 1993 Credit
Agreement be amended and restated in its entirety; and
WHEREAS, the Lenders and the Agent are willing to amend
and restate the 1993 Credit Agreement in its entirety on the terms and subject
to the conditions and requirements set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties to this Agreement hereby agree
to amend and restate the 1993 Credit Agreement as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
SECTION 1.01. DEFINITIONS. For purposes of this
Agreement, the following terms shall have the indicated meanings as set forth
below:
"Acquisition" shall mean any acquisition by the Borrower
or any of its Subsidiaries of the stock of any new or additional Subsidiary
(other than a Subsidiary created by Borrower in accordance with Section
8.06(iv) hereof) or of all or substantially all or a substantial part of the
assets of, or a business division of, another Person (other than another
existing Subsidiary).
"Adjusted LIBOR" shall mean, for any Interest Period,
the rate per annum (rounded upwards to the nearest 1/16th of one percentage
point, if necessary) equal to the
<PAGE> 7
quotient obtained by dividing (i) the offered rate for Dollar deposits for a
period comparable to such Interest Period appearing on the Reuters Screen LIBO
Page (or, if no such rate appears on such screen or such screen is no longer
published, as quoted or published by such other recognized independent quote
service as may be selected by the Agent from time to time) as of 11:00 a.m.,
London time, on the day that is two (2) Business Days prior to the beginning of
such Interest Period (but if at least two such rates appear on such screen or
are so quoted at such time, the offered rate for such Interest Period shall be
the arithmetic mean of such rates) by (ii) a percentage equal to one (1) minus
the then average stated maximum amount (stated as a decimal) of all reserve
requirements applicable to any member of the Federal Reserve System in respect
of Eurocurrency liabilities as defined in Regulation D of the Board of
Governors of the Federal Reserve System (or any successor categories for such
liabilities under such Regulation D).
"Affiliate" of any Person means any other Person
directly or indirectly controlling, controlled by, or under common control
with, such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" shall mean , acting as agent for the
Lenders in the manner and to the extent described in this Agreement and
the other Credit Documents, or any successor acting as such agent pursuant to
Article X hereof.
"Agent Fees" shall mean the fees required to be paid by
the Borrower to the Agent pursuant to Section 4.03(c) hereof.
"Agreement" shall mean this Second Amended and Restated
Credit Agreement, as amended, supplemented or modified from time to time.
"Applicable Margin" shall mean (i) one percentage point
(1.0%) per annum for Loans consisting of Swingline Loans or Base Rate Advances
and (ii) two and one-half percentage points (2.5%) for Loans consisting of
LIBOR Advances; provided, however, that (x) if Borrower's Consolidated EBITDA
for its fiscal quarter ending March 31, 1997 is less than $10,000,000, the
Applicable Margin for its immediately succeeding fiscal quarter shall be
increased by one percentage point (1.0%) for all such Loans, and (y) if at any
time the aggregate outstanding principal balance of the Loans exceeds
$275,000,000 for five (5) consecutive Business Days, the Applicable Margin for
all such Loans shall be increased by one percentage point (1.0%) from (and
including) such fifth (5th) Business Day until (but excluding) the first (1st)
Business Day thereafter on which such balance is reduced to $275,000,000 or
less (but there shall be no increase in the Applicable Margin under this clause
(y) during the Borrower's fiscal quarter ending June 30, 1997 if the Applicable
Margin in effect during such period is otherwise increased pursuant to clause
(x) above).
"Asset Sale" shall mean any sale or other disposition
(or any series of related sales or other dispositions), including without
limitation any loss, damage, destruction or taking, by any Consolidated Company
to any Person other than a Consolidated Company of any property or asset
(including capital stock but excluding the issuance and sale by the Borrower of
its own capital stock) other than any sale or other disposition of assets by
any Consolidated Company
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<PAGE> 8
made in the ordinary course of its business. For purposes of this Agreement, an
Asset Sale by Borrower or one of its Subsidiaries shall be deemed to have
closed or to have occurred (as the case may be) on the Business Day on which
the Net Proceeds therefrom are received by or on behalf of such Credit Party.
"Asset Value" shall mean, with respect to any property
or asset of any Consolidated Company, an amount equal to the greater of (i) the
book value of such property or asset as established in accordance with GAAP,
and (ii) the fair market value of such property or asset as determined in good
faith by the board of directors of such Consolidated Company.
"Assigning Lenders" shall have the meaning given such
term in Section 11.05(b) hereof.
"Assignment and Acceptance Agreement" shall mean any
Assignment and Acceptance Agreement, in the form of Exhibit I attached hereto,
executed by any Assigning Lender and its assignee in connection with such
Assigning Lender's assignment of all or any portion of its rights and
obligations under this Agreement to such assignee pursuant to Section 11.05
hereof.
"Bankruptcy Code" shall mean the Bankruptcy Code of
1978, as amended (11 U.S.C. Section Section 101 et seq.).
"Base Rate" shall mean (with any change in the Base Rate
to be effective as of the date of such change) the higher of (i) the rate which
the Agent publicly announces from time to time to be its prime rate, prime
lending rate, or base rate, as in effect from time to time, and (ii) the sum of
the Federal Funds Rate, as in effect from time to time, plus one half of one
percent (0.5%) per annum. The Agent's Base Rate is a reference rate and does
not necessarily represent the lowest or best rate actually charged to any
customer; and the Agent may make commercial loans or other loans at rates of
interest at, above or below the Agent's Base Rate.
"Base Rate Advance" shall mean any Loans hereunder (or a
portion thereof) which bear interest based on the Base Rate.
"Borrower" shall mean Medaphis Corporation, a Delaware
corporation, and its successors and permitted assigns.
"Borrowing" shall mean the incurrence by the Borrower
under any of the Revolving Loan Commitments of Loans of one type concurrently
having the same Interest Period (in the case of LIBOR Advances) or the
continuation or conversion of an existing Borrowing or Borrowings in whole or
in part.
"BSG Subsidiaries" shall mean, collectively, BSG
Corporation, a Delaware corporation, Imonics Corporation, a Georgia
corporation, Rapid Systems Solutions, Inc., a Maryland corporation and their
respective Subsidiaries.
-3-
<PAGE> 9
"Business Day" shall mean any day excluding Saturday,
Sunday and any other day on which banks are required or authorized to close in
Atlanta, Georgia, and if the applicable Business Day relates to any LIBOR
Advance or the determination of any Interest Period or the calculation of the
Adjusted LIBOR therefor, any day on which trading is not carried on by and
between banks in Dollars in the London interbank market.
"Capital Expenditures" shall mean, for any fiscal period
of any Person, all expenditures made or liabilities incurred by such Person,
whether paid or due and owing, during such period for the acquisition,
purchase, alteration or improvement of items which are, in accordance with
GAAP, treated during such period as "capital expenditures", "additions to
property, plant and equipment" or other comparable items in the financial
statements of such Person prepared in accordance with GAAP, and such term shall
include that portion of any Capitalized Lease Obligations of such Person
originally incurred during such period that is capitalized under GAAP as well
as software development costs for such period, all as determined on a
consolidated basis; provided, however, that this term shall not include the
expenditures made by Borrower or MPSC on or after January 1, 1997 to complete
the construction of MPSC's Greenville, Texas office facility to the extent that
such expenditures (i) do not exceed $2,500,000 in the aggregate, (ii) are not
financed or refinanced with the proceeds of Revolving Loans and (iii) are
financed with the proceeds of other Indebtedness permitted to be incurred under
Section 8.01 hereof.
"Capitalized Lease Obligations" shall mean, with respect
to any Person, any Indebtedness of such Person represented by obligations under
a lease that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such Indebtedness for purposes hereof
shall be the capitalized amount of such obligations as determined in accordance
with GAAP.
"Cash Management Agreements" shall mean, individually
and collectively, as the context shall require:
(A) The following agreements between Borrower, on the
one hand, and , ,
and/or , on the other hand, and all amendments
thereto, supplements thereof, and replacements therefor, and
whether now or hereafter in effect: (i) Automated Clearing
House (ACH) Agreement dated October 11, 1995; (ii) Domestic
Wire Transfer Agreement dated December 15, 1995; (iii) Stop
Payment Agreement (Direct Connection/
Connection) dated December 12, 1995; (iv)
Connection Services Agreement dated January 1, 1996; and
(v) Wholesale Lockbox Service Agreements dated December
15, 1995; and
(B) Any other agreement entered into from time to time
between the Borrower and/or any of its Subsidiaries, on the
one hand, and and/or any of its
Affiliates (including, without limitation, ,
and/or ), on the other
hand, pertaining to Cash Management Services.
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<PAGE> 10
"Cash Management Services Obligations" shall mean any
and all obligations of Borrower and/or any of its Subsidiaries to
and/or any of its Affiliates (including, without limitation,
and/or ) under any of the Cash Management Agreements or otherwise
relating to any of the Cash Management Services.
"Cash Management Services" shall mean cash management
services for operating, collection, payroll and trust accounts of Borrower
and/or its Subsidiaries provided by and/or its
Affiliates (including, without limitation
and/or ), including, without limitation, automatic clearing house
services, control disbursement services, electronic funds transfer services,
information reporting services, lockbox services, stop payment services, and
wire transfer services.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean (i) any and all of the property
which is pledged or collaterally assigned to the Agent or in which the Agent is
otherwise granted a Lien to secure the Obligations pursuant to any and all of
the Security Documents, and (ii) any and all cash and non-cash proceeds of the
foregoing.
"Commitment Fees" shall mean the fees required to be
paid by the Borrower to the Lenders pursuant to Section 4.03(b) hereof.
"Compliance Certificate" shall mean a certificate of the
chief financial officer, vice president-finance or treasurer of the Borrower
in substantially the form of Exhibit G attached hereto.
"Consolidated Companies" shall mean, collectively, the
Borrower and all of its Subsidiaries.
"Consolidated EBIT" shall mean, for any fiscal period of
the Borrower, an amount equal to the sum of the Consolidated Net Income (Loss)
plus, to the extent subtracted in determining such Consolidated Net Income
(Loss), (i) provisions for taxes based on income and (ii) Consolidated Interest
Expense (including any portion of such expenses attributable to discontinued
operations).
"Consolidated EBITAR" shall mean, for any fiscal period
of the Borrower, an amount equal to the sum of Consolidated EBIT plus
amortization expenses and Consolidated Rental Expense to the extent deducted in
determining such Consolidated EBIT (including any portion of such expenses
attributable to discontinued operations).
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"Consolidated EBITDA" shall mean, for any fiscal period
of the Borrower, an amount equal to the sum of Consolidated EBIT plus (i)
depreciation and amortization expenses to the extent deducted in determining
such Consolidated EBIT (including any portion of such expenses attributable to
discontinued operations), as determined on a consolidated basis in accordance
with GAAP, and (ii) the historical Consolidated EBITDA of any Person for such
period which accrued prior to the date such Person became a Subsidiary of the
Borrower or was merged into or consolidated with the Borrower or any of its
Subsidiaries or such Person's assets were acquired by the Borrower or any of
its Subsidiaries (and the underlying records of such Person shall be audited to
the extent Borrower is required pursuant to Regulation S-X of the SEC to
present audited financial information for such Person in documents filed by it
with the SEC). If the Borrower or any of its Subsidiaries sells any Subsidiary
or business division during any fiscal quarter of Borrower, then for the
purpose of determining Borrower's compliance with Section 7.09(a)'s minimum
Consolidated EBITDA covenant and Section 7.09(c)'s maximum Funded Debt Ratio
covenant for such quarter, the Borrower's Consolidated EBITDA for the relevant
testing period specified in such covenant shall be calculated by excluding the
Consolidated EBITDA attributable to such Subsidiary or division for such
period.
"Consolidated Interest Expense" shall mean, for any
fiscal period of the Borrower, the total interest expense of the Consolidated
Companies (including, without limitation, interest expense attributable to
Capitalized Lease Obligations, amortization of deferred financing costs, all
capitalized interest, all commissions, discounts and other fees and charges
owed with respect to bankers acceptance financing, and total interest expenses
(whether shown as interest expense or as loss and expenses on sale of
receivables) under any receivables purchase facility), net of the total
interest income of the Consolidated Companies for such period, all as
determined on a consolidated basis in accordance with GAAP, but such term shall
not include (i) any lease payments under the Synthetic Lease Transaction or
(ii) accounting treatments for or amortization of any original issue discount
arising as a result of the Warrants or any shares of Borrower's stock issued
thereunder.
"Consolidated Net Income (Loss)" shall mean, for any
fiscal period of the Borrower, the sum of (i) the net income (or loss) of the
Consolidated Companies on a consolidated basis for such period (taken as a
single accounting period) determined in conformity with GAAP, plus (ii) (to the
extent excluded from such net income or loss) the net income (or loss) for such
period from discontinued operations of the Consolidated Companies together with
any taxes deducted in computing the same for such period (taken as a single
accounting period), less (iii) (to the extent otherwise included in the
foregoing sums) (x) any gains or losses, together with any related provisions
for taxes, realized upon any sale of assets other than in the ordinary course
of business, and (y) any income or loss of any Person acquired prior to the
date such Person becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries or all or
substantially all of such Person's assets are acquired by the Borrower or any
of its Subsidiaries.
"Consolidated Net Worth" shall mean, as of any date and
with respect to any Person, such Person's total shareholders' equity (including
capital stock, additional paid-in capital and retained earnings, after
deducting treasury stock) which would appear as such on a
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<PAGE> 12
balance sheet of such Person as of such date prepared in accordance with
GAAP, all as determined on a consolidated basis.
"Consolidated Rental Expense" shall mean, for any fiscal
period of the Borrower, the rental expense of the Consolidated Companies for
such period determined on a consolidated basis in accordance with GAAP.
"Contractual Obligation" of any Person shall mean any
provision of any agreement, instrument, security, or undertaking to which such
Person is a party or by which it or any of the property owned by it is bound.
"Copyright Assignments" shall mean any and all Copyright
Collateral Assignment Agreements now or hereafter executed by any Credit Party
in favor of the Agent pursuant to Section 4.05 hereof, each substantially in
the form of Exhibit C-3 attached hereto, and any modification or replacement
thereof or therefor.
"Credit Documents" shall mean, collectively, this
Agreement, the Notes, the Warrants, Intercompany Notes, the Security Documents
and the Post-Closing Requirements Agreement.
"Credit Event" shall mean each Borrowing of a Revolving
Loan or a Swingline Loan hereunder.
"Credit Expiration Date" shall mean June 30, 1998, as
such date may be extended, accelerated or amended from time to time pursuant to
this Agreement.
"Credit Parties" shall mean, collectively, Borrower,
each of the Guarantors, and every other Person who from time to time hereafter
executes a Security Document with respect to all or any portion of the
Obligations.
"Customer Advances" shall mean any and all advances of
money made by MPSC in the ordinary course of its business to its customers.
"Default" shall mean any condition or event which, with
notice or lapse of time or both, would constitute an Event of Default.
"Dollar" and "U.S. Dollar" and the sign "$" shall mean
lawful money of the United States of America.
"Domestic Subsidiaries" shall mean any and all
Subsidiaries of Borrower which are organized under the laws of the United
States of America or any State thereof.
"Environmental Laws" means all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or
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hazardous substances or wastes into the environment (including without
limitation ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes, and any and all
regulations, codes, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended and in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any
Person, each trade or business (whether or not incorporated) which is a member
of a group of which that Person is a member and which is under common control
within the meaning of the regulations promulgated under Section 414 of the
Code.
"Event of Default" shall have the meaning provided in
Article IX.
"Facility Fee" shall mean the fee required to be paid by
Borrower to the Lenders pursuant to Section 4.03(a) hereof.
"Federal Funds Rate" means, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
member banks of the Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Board of Governors of the Federal Reserve System
or the Federal Reserve Bank of New York on the Business Day next succeeding
such day, provided that (i) if the day for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the immediately preceding Business Day as so published
on the next succeeding Business Day, and (ii) if such rate is not published for
any day, the Federal Funds Rate for such day shall be the average of the
quotations for such day on such transactions received by the Agent from three
(3) federal funds brokers of recognized standing selected by the Agent.
"Fixed Charge Coverage Ratio" shall mean, as determined
for each fiscal quarter of the Borrower and calculated on the basis of the
4-quarter period ending therewith, the ratio of (A) Consolidated EBITAR to (B)
the sum of Consolidated Interest Expense plus Consolidated Rental Expense;
provided, however, (i) with respect to Borrower's fiscal quarter ending on June
30, 1997 the Fixed Charge Coverage Ratio shall be calculated based on
Consolidated EBITAR, Consolidated Interest Expense and Consolidated Rental
Expenses for the 2-quarter period ending therewith multiplied by two (2), and
(ii) with respect to Borrower's fiscal quarter ending on September 30, 1997,
the Fixed Charge Coverage Ratio shall be calculated based on the Consolidated
EBITAR, Consolidated Interest Expense and Consolidated Rental Expenses for the
3-quarter period ending therewith multiplied by four-thirds (4/3rds).
"Foreign Subsidiary" shall mean any Subsidiary of the
Borrower which is not a Domestic Subsidiary.
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<PAGE> 14
"Funded Debt" shall mean (i) the Revolving Loans and
(ii) all other Indebtedness for money borrowed, Indebtedness secured by
Purchase Money Liens, capitalized leases, conditional sales contracts and
similar title retention debt instruments, including any current
maturities of such Indebtedness, which by its terms matures more than one (1)
year from such date of calculation, all as determined for the Consolidated
Companies on a consolidated basis. The calculation of Funded Debt shall
include all Funded Debt of the Consolidated Companies plus all Funded Debt of
other Persons to the extent guaranteed by a Consolidated Company or to the
extent supported by a letter of credit issued for the account of a Consolidated
Company. The calculation of Funded Debt shall also include the redemption
amount with respect to any capital stock of the Borrower or its Subsidiaries
required to be redeemed within twelve (12) months from the date of any
calculation thereof.
"Funded Debt Ratio" shall mean, as determined for each
fiscal quarter of Borrower, the ratio of (i) Funded Debt as of the end of such
period to (ii) Consolidated EBITDA for the 4-quarter period ending with such
period; provided, however, (i) with respect to Borrower's fiscal quarter ending
on June 30, 1997 the Funded Debt Ratio shall be calculated based on
Consolidated EBITDA for the 2-quarter period ending therewith multiplied by two
(2), and (ii) with respect to Borrower's fiscal quarter ending on September 30,
1997, the Funded Debt Ratio shall be calculated based on Consolidated EBITDA
for the 3-quarter period ending therewith multiplied by four-thirds (4/3rds).
"GAAP" shall mean, as in effect from time to time,
United States generally accepted accounting principles (which the parties
acknowledge and agree shall include the requirement that such principles be
consistently applied).
"Guarantors" shall mean, collectively, the Domestic
Subsidiaries of Borrower which are designated as such on Schedule 6.01(b)
attached hereto and any other Domestic Subsidiary which may be now or hereafter
required to guarantee some or all of the Obligations pursuant to Section 7.10
hereof.
"Guaranty" shall mean any contractual obligation,
contingent or otherwise, of a Person with respect to any Indebtedness or other
obligation or liability of another Person, including without limitation, any
such Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including Contractual Obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received.
"Guaranty Agreement" shall mean the Guaranty Agreement
executed by the Guarantors in favor of the Agent and the Lenders pursuant to
Section 4.05 and as may be
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<PAGE> 15
supplemented pursuant to Section 7.10 hereof, substantially in the form of
Exhibit B attached hereto, and any modification, supplement or replacement
thereof or therefor.
"HRI" shall mean Healthcare Recoveries, Inc., a Delaware
corporation.
"Indebtedness" of any Person shall mean, without
duplication:
(i) all obligations of such Person which in accordance
with GAAP would be shown on the balance sheet of such Person
as a liability (including, without limitation, obligations for
borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments);
(ii) the principal component of all rental obligations
under leases required to be capitalized under GAAP;
(iii) all Guaranties of such Person (including
contingent reimbursement obligations under undrawn letters of
credit); and
(iv) Indebtedness of others secured by any Lien upon
property owned by such Person, whether or not assumed.
"Initial Guarantors" shall mean, collectively, all of
the Initial Subsidiaries (other than any Foreign Subsidiaries).
"Initial Lenders" shall mean, collectively, the Lenders
which are the initial signatories to this Agreement.
"Initial Subsidiaries" shall mean, collectively, the
Subsidiaries of Borrower which are described on Schedule 6.01(b) as initially
attached hereto.
"Intercompany Loans" shall mean, collectively, all loans
or other extensions of credit by Borrower to any Subsidiary or by any
Subsidiary to another Subsidiary.
"Intercompany Notes" shall mean the Intercompany Notes
issued by each Guarantor and payable to the order of the Borrower or any
Subsidiary evidencing any and all Intercompany Loans made by any payee
thereunder to the maker thereunder, each in the form of Exhibit K attached
hereto, and any extension, renewal, modification or replacement thereof or
therefor.
"Interest Period" shall mean, in the case of the
determination of any Adjusted LIBOR rate, a one (1), two (2), three (3) or six
(6) month period as selected by Borrower; provided, however, that (i) in the
event an Interest Period would end on a day which is not a Business Day, the
Interest Period shall be deemed to end on the immediately succeeding Business
Day, unless such extension would cause such Interest Period to end in the next
calendar
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<PAGE> 16
month, in which case the Interest Period shall be deemed to end on the
immediately preceding Business Day, (ii) any Interest Period which begins on a
day for which there is no numerically corresponding day in the calendar month
in which such Interest Period ends shall, subject to part (iii) below, expire
on the immediately preceding Business Day, and (iii) Borrower shall not be
entitled to select any Interest Period applicable to any Loan which extends
beyond the Credit Expiration Date.
"Interest Rate Contracts" shall mean, with respect to
any Person, any interest rate cap agreements, interest rate collar agreements,
interest rate swap agreements and other similar agreements or arrangements
entered into by such Person in the ordinary course of its business.
"Lender" and "Lenders" shall mean the Initial Lenders
and the other banks or lending institutions (if any) listed on Annex I attached
hereto as the same may be amended from time to time, and each assignee thereof
of which Borrower and the Agent receives notice pursuant to Section 11.05
hereof.
"Lessor Waiver and Consent" shall mean any and all
Lessor Waivers and Consents now or hereafter executed by any lessors of any of
the Borrower's or any Guarantor's facilities in favor of the Agent pursuant to
Section 4.05 hereof, each substantially in the form of Exhibit L attached
hereto (or in such other form as is reasonably acceptable to the Agent), and
any modification or replacement thereof or therefor.
"LIBOR Advance" shall mean any Loans hereunder (or
portion thereof) which bear interest based on Adjusted LIBOR.
"Lien" shall mean any mortgage, pledge, security
interest, security deposit, encumbrance, lien or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction), but excluding the filing of or agreement to file any
cautionary financing statements in connection with any true leases, true
consignments or other transactions in which a Lien is not otherwise granted.
"Loans" shall mean, collectively, the Revolving Loans
and the Swingline Loans.
"Margin Regulations" shall mean Regulation G, Regulation
T, Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System, as the same may be in effect from time to time.
"Material Adverse Effect" shall mean a material adverse
effect upon, or a material adverse change in, any of the (i) business, results
of operations, properties, prospects or financial condition of the Consolidated
Companies taken as a whole, (ii) legality, validity, binding effect or
enforceability of any Credit Document (other than any Lessor Waiver and
Consent), or (iii) ability of the Credit Parties taken as a whole to perform
their obligations under the Credit Documents.
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<PAGE> 17
"Material Subsidiary" shall mean (i) each of the
Subsidiaries specified on Schedule 6.01(c) attached hereto and (ii) each other
Subsidiary of the Borrower, whether now existing or hereafter established or
acquired, that at any time from the date of this Agreement through the Credit
Expiration Date has or acquires total assets having an aggregate Asset Value in
excess of $1,000,000.
"Material Subsidiary Asset Sale" shall mean any Asset
Sale of any capital stock (or all or substantially all of the assets or any
business division) of any Material Subsidiary; provided, however, that this
term shall not include the sale of the Borrower's Decision Support Division as
described on Schedule 8.03 attached hereto.
"MPSC" shall mean Medaphis Physician Services
Corporation, a Georgia corporation, and its successors and permitted assigns.
"Multiemployer Plan" shall have the meaning given such
term in Section 4001(a)(3) of ERISA.
"Net Proceeds" shall mean, with respect to any Asset
Sale, all cash, including (i) cash receivables (once received) by way of
deferred payment pursuant to a promissory note, a receivable or otherwise
(other than interest payable thereon) and (ii) with respect to Asset Sales
resulting from the loss, damage, destruction or taking of property, the
proceeds of insurance settlements or condemnation awards (other than the
portion of the proceeds of such settlement or awards that are used to repair,
replace, improve or restore the item of property in respect of which such
settlement or award was paid provided that the recipient of such proceeds
enters into a binding contractual obligation to effect such repair,
replacement, improvement or restoration within six (6) months of such loss,
damage or destruction and completes such repair, replacement, improvement or
restoration within twelve (12) months of such loss, damage, destruction or
taking) as and when received in cash, in either case, received by any
Consolidated Company as a result of or in connection with such transaction, net
of all reasonable sale expenses, fees and commissions incurred in connection
therewith and also net of any taxes paid or payable (as estimated in good faith
and on a consolidated basis) within the succeeding sixteen-month period in
connection therewith, and also net of any payment required to be made with
respect to the outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness (other than the Loans) secured by a Permitted Lien
upon the assets sold in such Asset Sale.
"1993 Credit Agreement" shall have the meaning given
such term in the preamble to this Agreement.
"1993 Loans" shall mean, collectively, any and all loans
made under the 1993 Credit Agreement and which remain outstanding immediately
prior to the making of the initial Loans made under this Agreement.
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<PAGE> 18
" " shall mean ,
a national banking association, and its successors and assigns.
"Notes" shall mean, collectively, the Revolving Loan
Notes and the Swingline Loan Note.
"Notice of Revolving Loan Borrowing" shall have the
meaning given such term in Section 2.03.
"Notice of Revolving Loan Conversion/Continuation" shall
have the meaning given such term in Section 2.03.
"Obligations" shall mean, collectively, (i) all amounts
now or hereafter owing to any or all of the Agent or the Lenders by Borrower or
any other Credit Party pursuant to the terms of this Agreement, any Note, or
any other Credit Document (other than the Warrants), including without
limitation, the unpaid principal balance of any and all Loans and all interest,
fees, expenses and other charges relating thereto or accruing thereon, as well
as any and all other indebtedness, liabilities, and obligations of Borrower or
any other Credit Party, whether direct or indirect, absolute or contingent, or
liquidated or unliquidated, which may be now existing or may hereafter arise
under any of the Credit Documents (other than the Warrants), and together with
any and all renewals, extensions, modifications or refinancings of any of the
foregoing, (ii) all Cash Management Services Obligations, limited, however, as
to this clause (ii) to a maximum aggregate amount of $3,000,000, and excluding
from this clause (ii) any amounts arising from any failure of
and/or any of its Affiliates (including and/or ).
to comply in any material respect with the Guide to the Federal Reserve's
Payments System Risk Policy as in effect from time to time; and (iii) all
obligations of Borrower to the Swingline Lender under the Swingline Account
Agreement.
"O.C.G.A." shall mean the Official Code of Georgia
Annotated as amended from time to time.
"Officer's Certificate" shall mean a certificate signed
in the name of Borrower by its president, chief executive officer, chief
financial officer, vice president-finance or treasurer.
"Other Asset Sale" shall mean any Asset Sale which is
not a Material Subsidiary Asset Sale.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation, or any successor thereto.
"Permitted Lien" shall mean any Lien of a kind which is
not prohibited under Section 8.02 hereof.
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<PAGE> 19
"Person" shall mean any individual, partnership, firm,
corporation, association, joint venture, trust or other entity, or any
government or political subdivision or agency, department or instrumentality
thereof.
"Plan" shall mean any "employee benefit plan" (as
defined in Section 3(3) of ERISA), including, but not limited to, any defined
benefit pension plan, profit sharing plan, money purchase pension plan, savings
or thrift plan, stock bonus plan, employee stock membership plan, Multiemployer
plan, or any plan, fund, program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization, accident, sickness,
disability, or life insurance benefits.
"Pledge Agreements" shall mean the Borrower Pledge
Agreement and the Subsidiary Pledge Agreement executed by Borrower and certain
of the Subsidiaries in favor of the Agent pursuant to Section 4.05 hereof, in
the forms of Exhibit D-1 and Exhibit D-2 attached hereto, respectively, and any
modifications, supplements or replacements thereof or therefor.
"Pledged Deposit Agreements" shall mean any and all
pledged deposit/blocked account agreements entered into among the Agent, any
Credit Party and any Credit Party's depository institution pursuant to Section
4.05 hereof, each substantially in the form of Exhibit M attached hereto (or in
such other form as is acceptable to the Agent), and any modification or
replacement thereof or therefor.
"Post-Closing Requirements Agreement" shall mean the
Post-Closing Requirements Agreement, in the form of Exhibit P attached hereto,
among Borrower, its Domestic Subsidiaries and the Agent.
"Proprietary Information" shall mean all information
about the Borrower or any of its Affiliates which has been furnished from and
after December 11, 1996 to the Agent and the Lenders, and regardless of the
manner in which it is furnished; provided, however, that Proprietary
Information does not include information which (x) is or becomes publicly
available (other than as a result of a breach of Section 11.18 of this
Agreement or of the terms of any other confidentiality agreement between the
Agent or any Lender, as the case may be, and the Borrower), (y) was possessed
by or available to the Agent or any Lender on a nonconfidential basis prior to
its disclosure to the Agent or such Lender by the Borrower or any of its
Affiliates or (z) becomes available to the Agent or any Lender on a
nonconfidential basis from a Person which, to the knowledge of the Agent or
such Lender, as the case may be, is not bound by a confidentiality agreement
with the Borrower or any of its Affiliates and is not otherwise prohibited from
transmitting such information.
"Pro Rata Share" shall mean, when used with reference to
any Lender and any described aggregate or total amount, an amount equal to the
result obtained by multiplying such described aggregate or total amount by a
fraction, the numerator of which shall be such Lender's Revolving Loan
Commitment on such date and the denominator of which shall be the sum of the
Revolving Loan Commitments of all of the Lenders on such date, and if the
Revolving Loan Commitments of the Lenders have been terminated such term shall
mean an amount equal to the
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<PAGE> 20
result obtained by multiplying such aggregate or total amount by a fraction,
the numerator of which shall be the aggregate unpaid principal balance of the
Revolving Loans (but not Swingline Loans) owing to such Lender on such date and
the denominator of which shall be the aggregate unpaid principal balance of all
of the Revolving Loans (but not Swingline Loans) owing to all of the Lenders of
such date.
"Purchase Money Indebtedness" shall mean (i) any
Indebtedness incurred for the sole purpose of paying all or any part of the
purchase price of any fixed assets, (ii) any other Indebtedness incurred for
the sole purpose of financing or refinancing all or any part of the purchase
price of any fixed assets, (iii) any Capitalized Lease Obligations, and (iv)
any renewals, extensions or refinancings thereof (but not any increases in the
principal amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean a Lien upon fixed
assets which secures the Purchase Money Indebtedness relating thereto but only
if such Lien shall at all times be confined solely to the fixed assets the
purchase price of which was financed or refinanced through the incurrence of
the Purchase Money Indebtedness secured by such Lien and only if such Lien
secures solely such Purchase Money Indebtedness.
"Real Estate Collateral" shall mean (i) the real
property described on Schedule 4 attached to the Post-Closing Requirements
Agreement, (ii) any additional real property on which the Agent obtains a Lien
after the date of this Agreement pursuant to Section 4.05 or Section 7.10
hereof, and (iii) any and all related buildings or other improvements now or
hereafter located on any of the foregoing, any and all equipment or fixtures
now or hereafter located on any of the foregoing and used in connection with
the operation or maintenance thereof, and all intangible property rights now or
hereafter arising therefrom and all proceeds of any of the foregoing.
"Real Estate Collateral Documents" shall mean the
mortgages, deeds of trust, security deeds, or other Security Documents which
the Agent acquires any or all of its Liens on any or all of the Real Estate
Collateral, and any and all other mortgages, deeds of trust, security deeds,
leasehold deeds or other similar Security Documents executed after the date
hereof by a Credit Party pursuant to Section 4.05 or Section 7.10 of this
Agreement.
"Required Lenders" shall mean, at any time, Lenders
holding, in the aggregate, not less than sixty-six and two-thirds percent
(66.667%) of the aggregate dollar amount of the Revolving Loan Commitments then
in effect, and if the Revolving Loan Commitments of the Lenders have expired or
have been terminated such term shall mean Lenders holding, in the aggregate,
not less than sixty-six and two-thirds percent (66.667%) of the then aggregate
unpaid principal balance of the Loans then outstanding; provided, however, that
for purposes of determining the outstanding Obligations held by any Lender at
any one time there shall be included or excluded (as the case may be) any
outstanding participation interest in any outstanding Swingline Loans purchased
or sold by such Lender (as the case may be) pursuant to Section 3.05 hereof.
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"Requirement of Law" for any person shall mean the
articles or certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
"Revolving Loan Commitment" shall mean, at any time and
for any Lender, the amount of its Revolving Loan Commitment as shown on Annex I
attached hereto (as such annex may be amended from time to time) and as such
Revolving Loan Commitment may be reduced pursuant to this Agreement.
"Revolving Loan Notes" shall mean the Revolving Loan
Notes issued by the Borrower and payable to the order of the Lenders as
evidence of the Revolving Loans, each in the form of Exhibit A-1 attached
hereto, and any extension, renewal, modification or replacement thereof or
therefor.
"Revolving Loans" shall mean, collectively, the advances
made by the Lenders to Borrower pursuant to Section 2.01 hereof.
"SEC" shall mean the Securities and Exchange Commission,
or any successor thereto.
"Security Agreements" shall mean the Borrower Security
Agreement and the Subsidiary Security Agreement executed by the Borrower and
the Guarantors in favor of the Agent pursuant to Section 4.05 hereof, in the
forms of Exhibit C-1 and Exhibit C-2 attached hereto, respectively, and any
modifications, supplements or replacements thereof or therefor.
"Security Documents" shall mean, collectively, the
Guaranty Agreement, the Pledge Agreements, the Security Agreements, the
Trademark Security Agreements, the Copyright Assignments, the Pledged Deposit
Agreements, the Real Estate Collateral Documents, and each other guaranty,
security or other collateral document, whether now existing or hereafter
executed and delivered, guaranteeing or securing any or all of the Obligations
and any supplements thereto executed pursuant to or in connection with any of
the foregoing.
"Subordinated Debt" shall mean any and all Indebtedness
for borrowed money of Borrower or any Subsidiary which is subordinated in right
of payment to all Obligations on written subordination terms and conditions
which are satisfactory in all respects to the Required Lenders.
"Subsidiary" means, as applied to Borrower, (i) the
Initial Subsidiaries and any other corporation of which more than 50% of the
outstanding stock (other than directors' qualifying shares) having ordinary
voting power to elect a majority of its board of directors (or other governing
body), regardless of the existence at the time of a right of the holders of any
class or classes (however designated) of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or
any partnership of which more than
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<PAGE> 22
50% of the outstanding partnership interests is, at the time, owned by Borrower
or by one or more Subsidiaries of Borrower, or by Borrower and one or more
Subsidiaries of Borrower, and (ii) any other entity which is controlled or
capable of being controlled by Borrower, or by one or more Subsidiaries of
Borrower, or by Borrower and one or more Subsidiaries of Borrower.
" " shall mean
, a , and its successors and
assigns.
"Swingline Account Agreement" shall mean the Financial
Management Account Investment/Commercial Loan Access Agreement, a copy of which
as in effect on the date hereof is attached hereto as Exhibit N, between
Borrower and the Swingline Lender, as amended, modified, supplemented or
replaced from time to time.
"Swingline Lender" shall mean .
"Swingline Loan Facility" shall mean the loan facility
provided by the Swingline Lender to the Borrower pursuant to Article III
hereof.
"Swingline Loan Limit" shall mean, at any time, the
amount shown as such on Annex I attached hereto (as such annex may be amended
from time to time).
"Swingline Loan Note" shall mean the Swingline Loan Note
issued by the Borrower and payable to the order of the Swingline Lender as
evidence of the Swingline Loans made hereunder and which note shall be in the
form of Exhibit A-2 attached hereto, and any extension, renewal, modification
or replacement thereof or therefor.
"Swingline Loan Rate" shall mean the higher of (x) the
rate which the Swingline Lender publicly announces from time to time to be the
Swingline Lender's prime rate, prime lending rate or base rate, as in effect
from time to time and (y) the sum of the Federal Funds Rate, as in effect from
time to time plus one-half of one percent (0.5%) per annum. The Swingline Loan
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer.
"Swingline Loans" shall mean, collectively, the advances
made by the Swingline Lender to Borrower pursuant to Section 3.01 hereof.
"Swingline Termination Date" shall mean the Business Day
which immediately precedes the Credit Expiration Date.
"Synthetic Lease Transaction" shall mean, collectively,
the loan and lease transactions arising under the Participation Agreement,
dated as of April 21, 1995, as amended, from time to time, among the Borrower,
, and and the other
Operative Documents described therein.
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<PAGE> 23
"Taxes" shall mean any present or future taxes, levies,
imposts, duties, fees, assessments, deductions, withholdings or other charges
of whatever nature, including without limitation income, gross receipts,
excise, property, sales, transfer, license, payroll, withholding, social
security, and franchise taxes, now or hereafter imposed or levied by the United
States of America or any state, local or foreign government or by any
department, agency or other political subdivision or taxing authority thereof
or therein and all interest, penalties, additions to tax, and other similar
liabilities with respect thereto.
"Trademark Security Agreements" shall mean any and all
Trademark Security Agreements now or hereafter executed by any Credit Party in
favor of the Agent pursuant to Section 4.05 hereof, each substantially in the
form of Exhibit C-4 attached hereto, and any modification or replacement
thereof or therefor.
" " shall mean , a
, and its successors and assigns.
"Warrant Shares" means the shares of common stock of the
Borrower issuable upon the exercise of the Warrants.
"Warrants" has the meaning set forth in Section 7.11
hereof.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS.
Unless otherwise defined or specified herein, all accounting terms shall be
construed herein, all accounting determinations hereunder shall be made, all
financial statements required to be delivered hereunder shall be prepared, and
all financial records shall be maintained in accordance with GAAP; provided,
however, that compliance with any and all financial covenants and calculations
set forth in Section 7.09 hereof, and in the definitions used in such covenants
and calculations, shall be calculated, made and applied in accordance with GAAP
as in effect on the date of this Agreement applied on a basis consistent with
the preparation of the financial statements referred to in Section 7.01 hereof
unless and until the parties hereto enter into a written amendment agreement
with respect thereto pursuant to Section 11.08 hereof.
SECTION 1.03. OTHER DEFINITIONAL TERMS; KNOWLEDGE AND
AWARENESS.
(a) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Any pronoun used herein shall be deemed to cover all genders and all singular
terms used herein shall include the plural and vice versa. Unless otherwise
expressly indicated herein, all references herein to a period of time which
runs "from" or "through" a particular date shall be deemed to include such
date, and all references herein to a period of time which runs "to" or "until"
a particular date shall be deemed to exclude such date. Unless otherwise
defined or specified herein, all other terms used herein shall have the
meanings, if any, given such terms in the Uniform Commercial Code as in effect
on this date in the State of Georgia as the same may be hereafter amended or
supplemented from time to time.
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<PAGE> 24
(b) Whenever any provision in this Agreement or any of
the other Credit Documents refers to the "knowledge" of a Person, or to any
fact or circumstance having "come to the attention" of such Person, or to such
Person having become "aware" of a fact or circumstance, or of a Person having
"learned" of a fact or circumstance, or where words of similar import are used
in this Agreement or any of the other Credit Documents with respect to a
Person's knowledge or awareness of any fact or circumstance, such words are
intended to signify that such Person either has actual knowledge of such fact
or circumstance, or has received a notice or notification of it, or from all of
the facts and circumstances known to such Person at the time in question such
Person has reason to know that the fact or circumstance in question exists, and
where such Person is a corporation or other organization, such knowledge or
awareness of such organization shall be effective for a particular transaction
or matter from the time when it is brought to the attention of the individual
within the organization who is responsible for or directly involved in
conducting that transaction or handling that matter and in any event from the
time when it would have been brought to such individual's attention if the
organization had exercised reasonable due diligence (and, for purposes hereof,
an organization exercises due diligence if it maintains reasonable routines for
communicating significant information to the individual within the organization
who is responsible for or directly involved in conducting the transaction or
handling the matter and there is reasonable compliance with such routines, but
such due diligence does not require that each and every individual acting for
an organization communicate information unless such communication is part of
such individual's regular duties or unless such individual has a reason to know
of the transaction or matter at issue and that such transaction or matter would
be materially affected by the information).
ARTICLE II.
REVOLVING LOANS
SECTION 2.01. REVOLVING LOAN COMMITMENTS; USE OF
PROCEEDS.
(a) Subject to and upon the terms and conditions set
forth in this Agreement, each Lender severally agrees, upon the Borrower's
request, to advance to the Borrower, from time to time prior to the Credit
Expiration Date, Revolving Loans in an aggregate principal amount outstanding
at any one time not to exceed such Lender's Revolving Loan Commitment as in
effect at such time (as such Revolving Loan Commitment may be reduced pursuant
to this Agreement).
(b) The proceeds of the Revolving Loans shall be used
to (i) refinance the 1993 Loans as described in Section 4.16 hereof, (ii)
finance or refinance any Acquisition made after the date hereof to the extent
consented to in writing by all of the Lenders, (iii) refinance the Swingline
Loans pursuant to Section 3.04 hereof, and (iv) finance the working capital and
general corporate needs of the Consolidated Companies; provided, however, that
(x) neither Borrower nor any Guarantor may re-advance any Revolving Loan
proceeds to any Subsidiary who is not a Guarantor and (y) Borrower's use of any
Revolving Loan proceeds to settle or satisfy certain litigation is limited to
the extent provided in Section 8.14 hereof.
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<PAGE> 25
(c) Notwithstanding anything in this Agreement to the
contrary, Borrower shall not be entitled to obtain any new LIBOR Advances on or
after the date hereof. In addition, notwithstanding anything herein to the
contrary, no outstanding Borrowing may be converted into, or combined as, a
Borrowing consisting of LIBOR Advances on or after the date hereof. LIBOR
Advance provisions are contained in this Agreement solely to accommodate any
LIBOR Advances which are outstanding under the 1993 Credit Agreement as of the
date hereof and which are continued hereunder for the remainder of their
respective Interest Periods.
(d) If at any time the aggregate outstanding principal
amount of all of the Revolving Loans made by any Lender shall exceed the amount
of the Revolving Loan Commitment of such Lender, the Borrower shall immediately
upon receipt of notice thereof from the Agent or such Lender, or immediately
upon the Borrower's acquiring actual knowledge thereof, prepay the Revolving
Loans of such Lender to the extent necessary to eliminate such excess.
(e) Notwithstanding anything herein to the contrary,
the sum of the aggregate outstanding principal balance of all Loans (including
Swingline Loans) made by all Lenders (including the Swingline Lender) at any
one time shall not exceed the aggregate amount of all Revolving Loan
Commitments as then in effect, and the sum of the aggregate outstanding
principal balance of all Revolving Loans made by all Lenders at any one time
(other than any Revolving Loans the proceeds of which are used to refinance any
Swingline Loans pursuant to Section 3.04 hereof) shall not exceed (i) the
aggregate amount of the Revolving Loan Commitments as then in effect less (ii)
the Swingline Loan Limit as then in effect. If at any time the aggregate
outstanding principal balance of the Loans or the Revolving Loans exceeds the
applicable limit stated in the immediately preceding sentence, the Borrower
shall immediately upon receipt of notice thereof from the Agent or such Lender,
or immediately upon the Borrower's acquiring actual knowledge thereof, prepay
the Revolving Loans to the extent necessary to eliminate such excess.
SECTION 2.02. REVOLVING LOAN NOTES; REPAYMENT OF
PRINCIPAL AND INTEREST.
(a) The Borrower's obligation to pay to each Lender
the principal of and interest on the Revolving Loans made by such Lender shall
be evidenced by the records of the Agent and such Lender and by the Revolving
Loan Note payable to such Lender.
(b) The entire outstanding principal balance of each
Lender's Revolving Loans shall be due and payable, together with all remaining
accrued and unpaid interest thereon, on the Credit Expiration Date. Pending
such maturity, (i) accrued interest on the portion of each Lender's Revolving
Loans consisting of Base Rate Advances shall be payable to such Lender in
arrears on the first (1st) day of each calendar quarter, commencing with the
quarter following the quarter in which such Lender's initial Revolving Loan is
made and continuing to be due on the first (1st) day of each calendar quarter
thereafter, and (ii) accrued interest on the portion of each Lender's Revolving
Loans consisting of LIBOR Advances shall be payable to such Lender in arrears
on the last day of each Interest Period applicable thereto and, in the case of
any LIBOR
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<PAGE> 26
Advance having an Interest Period in excess of three (3) months, on
each day which occurs every three (3) months after the initial date of such
Interest Period.
SECTION 2.03. REQUESTS FOR REVOLVING LOANS.
(a) Whenever Borrower desires to make a Borrowing of
Revolving Loans (other than one resulting from a continuation or conversion
pursuant to Section 2.03(b) below), it shall give the Agent prior written or
telecopied notice (or telephonic notice promptly confirmed in writing or by
telecopy) of such Borrowing (a "Notice of Revolving Loan Borrowing"), such
Notice of Revolving Loan Borrowing to be given prior to 11:00 a.m. (Eastern
Time) (i) on the requested date of such Borrowing in the case of Base Rate
Advances, and (ii) three Business Days prior to the requested date of such
Borrowing in the case of LIBOR Advances. Any such notices received after 11:00
a.m. shall be deemed received on the next Business Day. Each Notice of
Revolving Loan Borrowing shall be irrevocable and shall specify the principal
amount of the Borrowing (which must be in an amount of not less than $1,000,000
or a greater integral multiple of $100,000), the date of the Borrowing (which
shall be a Business Day) and (subject to Section 2.01(c) above) whether the
Borrowing is to consist of Base Rate Advances or LIBOR Advances (and, in the
latter case, the Interest Period to be applicable thereto). If the Borrower
shall fail to specify in any Notice of Revolving Loan Borrowing (x) an
applicable Interest Period in the case of a LIBOR Advance, then such notice
shall be deemed to be a request for an Interest Period of one month, or (y)
whether such Borrowing shall consist of Base Rate Advances or LIBOR Advances,
then such notice shall be deemed to be a request for Base Rate Advances
hereunder. Each Notice of Revolving Loan Borrowing shall be given by the
Borrower's chief financial officer, vice president-finance or treasurer or such
other Person who may be expressly and specifically designated in writing by any
of such officers at such time to be a representative of the Borrower with
authority to give Notices of Revolving Loan Borrowing on behalf of the
Borrower. The Agent and the Lenders shall have no liability to the Borrower or
any of its Subsidiaries for refusing to honor any Notice of Revolving Loan
Borrowing (or purported Notice of Revolving Loan Borrowing) given by any Person
who the Agent is not satisfied is so authorized to give any such notice.
(b) Subject to the provisions of Section 2.01(c)
above, whenever the Borrower desires to convert all or a portion of any
outstanding Borrowing under the Revolving Loan Commitments consisting of Base
Rate Advances into a Borrowing consisting of LIBOR Advances, or to continue
outstanding any Borrowing under the Revolving Loan Commitments consisting of
LIBOR Advances for a new Interest Period, the Borrower shall give the Agent at
least three (3) Business Days' prior written or telecopied notice (or
telephonic notice promptly confirmed in writing or by telecopy) of each such
Borrowing to be converted into or continued as LIBOR Advances. Such notice (a
"Notice of Revolving Loan Conversion/Continuation") shall be given prior to
11:00 a.m. (Eastern Time) on the date specified above, and any such notice
received after 11:00 a.m. shall be deemed received on the next Business Day.
Each such Notice of Revolving Loan Conversion/Continuation shall be irrevocable
and shall specify the aggregate principal amount of the Borrowing to be
converted or continued (which must meet Section 2.01(c)'s minimum amount
requirements), the date of the requested conversion or continuation, whether
the Borrowing is being converted into or continued as LIBOR Advances and the
Interest
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<PAGE> 27
Period to be applicable thereto. If upon the expiration of any
Interest Period in respect of any Borrowing consisting of LIBOR Advances the
Borrower shall have failed to deliver a Notice of Revolving Loan
Conversion/Continuation with respect thereto, the Borrower shall be deemed to
have elected to convert or continue such Borrowing as a Borrowing consisting of
Base Rate Advances hereunder. If the Borrower shall fail to specify in any
Notice of Revolving Loan Conversion/Continuation (i) an applicable Interest
Period with respect thereto, then such notice shall be deemed to be a request
for an Interest Period of one month or (ii) whether or not the Borrowing is
being converted into or continued as a LIBOR Advance, then such notice shall be
deemed to be a request for a Base Rate Advance hereunder. So long as any
Default or Event of Default shall have occurred and be continuing, no Borrowing
may be converted into or continued as (upon the expiration of the current
Interest Period applicable thereto) a LIBOR Advance. No conversion of any
Borrowing of LIBOR Advances shall be permitted except on the last day of the
Interest Period in respect thereof. Each Notice of Revolving Loan
Conversion/Continuation shall be given by a representative of Borrower who is
authorized to give Notices of Revolving Loan Borrowing on behalf of Borrower
pursuant to Section 2.03(a) above. The Agent and the Lender shall have no
liability to the Borrower or any of its Subsidiaries for refusing to honor any
Notice of Revolving Loan Conversion/Continuation (or purported Notice of
Revolving Loan Conversion/Continuation) given by any Person who the Agent is
not satisfied is so authorized to give any such notice.
(c) The Agent shall promptly (and in any event by the
close of its business on the date of its receipt thereof) give each Lender
notice by telephone (confirmed in writing) or by telex, telecopy or facsimile
transmission of the matters covered by the notices given to the Agent pursuant
to this Section 2.03 with respect to the Revolving Loan Commitments.
SECTION 2.04. DISBURSEMENT OF REVOLVING LOANS; SEVERAL
REVOLVING LOAN COMMITMENTS.
(a) No later than 12:00 p.m. (Eastern Time) on the
date of each Borrowing of Revolving Loans (other than resulting from the
continuation or conversion pursuant to Section 2.03(b) hereof and subject to
the provisions of Section 4.16(b) below), each Lender will make available its
pro rata share of the amount of such Borrowing in Dollars and in immediately
available funds to the Agent, and the Agent, in turn, will make available to
the Borrower the amount so made available by such Lender by depositing such
amounts to the account of the Borrower with the Agent or by otherwise making
the amount available to the Borrower as specified in the Notice of Revolving
Loan Borrowing therefor.
(b) Unless the Agent shall have been notified by any
Lender prior to the date of a Borrowing of Revolving Loans that such Lender
does not intend to make available to the Agent such Lender's portion of the
Revolving Loans to be advanced on such date, the Agent may assume that such
Lender has made such amount available to the Agent on such date and the Agent
may make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Lender
on the date of such advance, the Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest at the
Federal Funds Rate. If such Lender does not pay such corresponding
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<PAGE> 28
amount forthwith upon the Agent's demand therefor, the Agent shall promptly
notify the Borrower, and the Borrower shall within two (2) Business Days after
receiving such notice pay such corresponding amount to the Agent together
with interest until so repaid at the interest rate then in effect for Base
Rate Advances. Nothing in this subsection shall be deemed to relieve any
Lender from its obligation to fulfill its Revolving Loan Commitments
hereunder or to prejudice any rights which the Agent, any other Lender or
the Borrower may have against any Lender as a result of any default by such
Lender hereunder.
(c) All Borrowings of Revolving Loans under this
Agreement from each Lender shall constitute part of a single loan transaction
between Borrower and such Lender.
(d) Except as provided in Section 4.16(b) below, all
Revolving Loans shall be made by the Lenders on the basis of their respective
Pro Rata Shares of the Revolving Loan Commitments. No Lender shall be
responsible for any default by any other Lender in its obligations hereunder to
fund Revolving Loans, but each Lender shall remain obligated to make the
Revolving Loans otherwise required to be made by it hereunder regardless of the
failure of any other Lender to fulfill its obligations hereunder.
SECTION 2.05. VOLUNTARY REDUCTIONS IN REVOLVING LOAN
COMMITMENTS. Upon at least one (1) Business Day's prior written notice to the
Agent and each Lender, Borrower may, at its option, terminate the Revolving
Loan Commitments of all Lenders in full or reduce all of the Lenders' Revolving
Loan Commitments in increments of not less than $1,000,000 or any greater
integral multiple of $100,000; provided, however, that (i) the amount of any
such partial reduction shall be applied on a pro rata basis to all of the
Lenders' Revolving Loan Commitments, (ii) the aggregate outstanding principal
balance of all of the Lenders' Loans or Revolving Loans shall not exceed any
applicable limit specified in Section 2.01(d) or (e) hereof after giving effect
to any such termination or reduction (and Borrower shall immediately prepay any
such Loans to the extent necessary to eliminate such excess as required under
Section 2.01(d) or (e) above), and (iii) any such termination or reduction
shall be irrevocable. In the event any such termination or reduction is made
by Borrower in accordance with this Section 2.05, the Agent will promptly issue
to Borrower and each Lender a revised Annex I to this Agreement reflecting such
termination or reduction, which revised Annex I shall supersede and replace the
prior version thereof and shall be substituted by each party in lieu thereof.
SECTION 2.06. MANDATORY PREPAYMENTS AND MANDATORY
REDUCTIONS IN REVOLVING LOAN COMMITMENTS.
(a) If on any date shown below the aggregate amount of
the Revolving Loan Commitments exceeds the dollar amount set forth below
opposite such date, the aggregate amount of the Revolving Loan Commitments
shall be automatically and permanently reduced on such date by an amount such
that, after giving effect to such reduction, the aggregate amount of the
Revolving Loan Commitments shall equal the dollar amount set forth below
opposite such date:
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<PAGE> 29
<TABLE>
<CAPTION>
Maximum Revolving
Date Loan Commitments
---- -----------------
<S> <C>
July 31, 1997 $200,000,000
January 31, 1998 $150,000,000
</TABLE>
Notwithstanding anything herein to the contrary, the Required Lenders may
extend the July 31, 1997 Revolving Loan Commitment reduction to a date no later
than September 30, 1997 as provided for in Section 11.08 hereof.
(b) On the date of the closing of any Material
Subsidiary Asset Sale (or if such date is not a Business Day, on the
immediately following Business Day) and on the fifth (5th) Business Day after
the end of each fiscal quarter in which any Other Asset Sale is closed, a
mandatory prepayment shall be made by Borrower on all of the Loans in an amount
equal to 100% of the Net Proceeds of such Asset Sale.
(c) In the case of any and all Material Subsidiary
Asset Sales closed after the date of this Agreement, the aggregate amount of
the Revolving Loan Commitments shall be automatically and permanently reduced
by an amount equal to 100% of the aggregate Net Proceeds of such Material
Subsidiary Asset Sales. Each such reduction shall be effective on the date
that the related Material Subsidiary Asset Sale is closed.
(d) In the case of any and all Other Asset Sales, no
mandatory reduction in the Revolving Loan Commitments shall be required
hereunder until the aggregate amount of the Net Proceeds of the Other Asset
Sales closed in any particular fiscal quarter of the Borrower exceeds
$5,000,000 in the case of the fiscal quarter ending March 31, 1997 and $500,000
in the case of each succeeding fiscal quarter (the applicable amount for any
particular quarter being herein called the "Base Amount"), and thereafter the
aggregate amount of the Revolving Loan Commitments shall be automatically and
permanently reduced by the amount by which the aggregate amount of the Net
Proceeds of all Other Asset Sales closed in such quarter exceeds the Base
Amount for such quarter, which reduction shall be effective on the tenth (10th)
Business Day after the end of such quarter.
(e) Any reduction of the Revolving Loan Commitments
required under this Section shall apply as a proportional and permanent
reduction of the Revolving Loan Commitments of each of the Lenders. If the
aggregate outstanding principal balance of the Loans or the Revolving Loans
exceeds any applicable limit specified in Section 2.01(d) or (e) hereof after
giving effect to any such reduction of the Revolving Loan Commitments, Borrower
shall immediately prepay such Loans to the extent necessary to eliminate such
excess.
(f) In the event any mandatory reduction in the
Revolving Loan Commitments is made in accordance with this Section, the Agent
will issue to the Borrower and each Lender a revised Annex I to this Agreement
reflecting such reduction, which revised Annex
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<PAGE> 30
I shall supersede and replace the prior version thereof and shall be
substituted by each party in lieu thereof.
ARTICLE III
SWINGLINE LOANS
SECTION 3.01. SWINGLINE LOANS; USE OF PROCEEDS, ETC.
(a) As an integral part of the transactions
contemplated hereby, and subject to and upon the terms and conditions set forth
in this Agreement, the Swingline Lender shall make, upon Borrower's request,
Swingline Loans to the Borrower from time to time prior to the Swingline
Termination Date (or any earlier date on which the Revolving Loan Commitments
expire or are terminated hereunder) in an aggregate principal amount
outstanding at any one time not to exceed the Swingline Loan Limit. The
Swingline Lender will, on request by the Agent, confirm to the Agent the
aggregate outstanding principal balance of the Swingline Loans from time to
time.
(b) The proceeds of the Swingline Loans shall be used
for the same purposes for which Borrower could obtain Revolving Loans
hereunder.
(c) All Swingline Loans shall bear interest at the
Swingline Loan Rate plus the Applicable Margin with respect thereto.
(d) So long as is the
Swingline Lender, and so long as the Swingline Account Agreement has not
been terminated pursuant to Section 7.B thereof, all Swingline Loans shall be
requested or deemed requested by Borrower pursuant to the Swingline Account
Agreement and all Borrowings of the Swingline Loans under this Agreement shall
be made in accordance with the Swingline Account Agreement.
SECTION 3.02. SWINGLINE LOAN NOTE; REPAYMENT OF
PRINCIPAL AND INTEREST.
(a) The Borrower's obligation to pay the Swingline
Lender the principal of and interest on the Swingline Loans shall be evidenced
by the records of such Lender and by the Swingline Loan Note payable to such
Lender.
(b) In addition to any principal payment or prepayment
which may be required at any time under Section 2.01 or 2.06 hereof, and
subject to any acceleration of maturity pursuant to Section 9.02 hereof, the
aggregate outstanding principal balance of the Swingline Loans, together with
all unpaid accrued interest thereon, shall be due and payable in full on the
Swingline Termination Date. Pending such maturity, accrued interest on the
Swingline Loans shall be payable to the Swingline Lender in arrears on the
first (1st) day of each calendar month, commencing with the month following the
month in which such Lender's initial Swingline Loan is made, and continuing to
be due on the first (1st) day of each month thereafter.
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<PAGE> 31
SECTION 3.03. EXCESS SWINGLINE LOANS. If at any time
the aggregate outstanding principal amount of all of the Swingline Loans shall
exceed the amount of the Swingline Loan Limit then in effect, the Borrower
shall immediately upon receipt of notice thereof from the Agent or any Lender,
or immediately upon the Borrower's acquiring actual knowledge thereof, prepay
the Swingline Loans to the extent necessary to eliminate such excess.
SECTION 3.04. REFINANCINGS OF SWINGLINE LOANS. If and
to the extent that any Swingline Loan made in accordance with the terms hereof
is not repaid when due, or if requested by the Swingline Lender upon the
occurrence of any Event of Default (which request shall be deemed made upon the
occurrence of any Event of Default described in Section 9.01(ii) or (iii)
hereof), and notwithstanding any other provisions of this Agreement to the
contrary, there shall occur a deemed request by the Borrower for the
disbursement by all of the Lenders of Revolving Loans (according to each
Lender's respective Pro Rata Share thereof determined prior to any termination
of the Revolving Loan Commitments pursuant to Section 9.02 hereof) equal to the
aggregate principal balance of the Swingline Loans then outstanding, and each
Lender shall pay to the Swingline Lender, upon written request therefor by and
for the account of the Swingline Lender, an amount equal to the principal
amount of the then-outstanding Swingline Loans multiplied by such Lender's Pro
Rata Share (determined as provided above), which amount shall be considered an
outstanding Revolving Loan made by such Lender (including )
to Borrower. If such request is made on any Business Day by the
Swingline Lender by 11:00 a.m. (Eastern Time) on such day, each Lender's
payment thereof shall be made to the Swingline Lender in immediately available
funds by 1:00 p.m. (Eastern Time) on the same Business Day (but if such request
is made after 11:00 a.m., Eastern Time, on such Business Day, then each
Lender's payment thereof shall be made to the Swingline Lender in immediately
available funds by 10:00 a.m., Eastern Time, on the immediately following
Business Day), and if such payment is not in fact made available to the
Swingline Lender by any Lender by such deadline, the Swingline Lender shall be
entitled to recover such amount on demand from such Lender together with
interest thereon until so received at the Federal Funds Rate. Each Lender
(other than the Swingline Lender) hereby irrevocably agrees to make its Pro
Rata Share of the aforesaid Revolving Loans, in the manner specified in this
paragraph, notwithstanding that the amount of such Revolving Loans may not
satisfy any minimum borrowing requirement specified elsewhere in this
Agreement, or that all of the conditions specified in Section 5.02 hereof have
not been satisfied or shall not exist at such time, or that a Default or Event
of Default then exists, or that on the date of such Revolving Loans the
Revolving Loan Commitments have terminated or that the Borrower is otherwise
not entitled to obtain any Revolving Loans hereunder; provided, however, that
under no circumstances shall any Lender be obligated to make any Revolving
Loans under this Section 3.04 if after giving effect thereto, the aggregate
outstanding principal balance of the Revolving Loans made by such Lender would
exceed the amount of its Revolving Loan Commitment (as determined prior to any
termination thereof under Section 9.02 hereof).
SECTION 3.05. PURCHASE AND SALE OF PARTICIPATION
INTERESTS IN SWINGLINE LOANS. In the event that any Lender is prevented from
making a Revolving Loan required to be made under Section 3.04 above on the
date otherwise required under such Section (including, without limitation, as a
result of the commencement of any proceeding under the Bankruptcy Code with
respect to the Borrower or any other Credit Party), then such Lender shall
forthwith
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purchase (as of the date such Revolving Loan would otherwise be required to be
made, but adjusted for any payments received by the Swingline Lender from or on
behalf of the Borrower on or after such date and prior to such purchase) from
the Swingline Lender such participation interest in the outstanding Swingline
Loans as shall be necessary to cause such Lender to share in such Swingline
Loans ratably based upon its Pro Rata Share (determined before giving effect to
any termination of the Revolving Loan Commitments pursuant to Section 9.02
hereof); provided, however, that (i) all interest payable on the Swingline
Loans shall be for the account of the Swingline Lender until the date as of
which the Revolving Loans to refinance the same are requested in writing by the
Swingline Lender under Section 3.04 above, (ii) at the time any purchase of any
participation interest pursuant to this Section is actually made, the
purchasing Lender shall be required to pay to the Swingline Lender interest on
the principal amount of the participation interest purchased for each day from
and including the day upon which such Revolving Loans would otherwise have been
made as requested in writing by the Swingline Lender under Section 3.04 above
to but excluding the date of payment for such participation interest, at a rate
per annum equal to the Federal Funds Rate, and (iii) under no circumstances
shall any Lender be obligated to purchase from the Swingline Lender
participation interests under this Section 3.05 if after giving effect thereto,
the aggregate outstanding principal balance of (a) the Revolving Loans made by
such Lender plus (b) the participation interests purchased by such Lender from
the Swingline Lender hereunder exceed the amount of such Lender's Revolving
Loan Commitment (as determined prior to any termination thereof under Section
9.02 hereof).
ARTICLE IV.
GENERAL CREDIT TERMS
SECTION 4.01. CREDIT EXPIRATION DATE; EXTENSIONS. Each
Lender's obligation hereunder to make any Loans shall expire on the Credit
Expiration Date. If requested to do so by the Borrower, all of the Lenders
may, in their sole discretion (which must be exercised unanimously pursuant to
Section 11.08(a)(iv) hereof), grant one or more successive extensions of the
Credit Expiration Date, and, in the event any such extension is requested by
Borrower and granted by the Lenders, the Agent shall issue to the Borrower and
each of the Lenders a written notification of such extension (any Lender's
failure to respond affirmatively to any such extension request shall be
considered to be a denial thereof). Notwithstanding anything herein or in any
other Credit Documents to the contrary, each Lender may grant or withhold its
consent to any requested extension of the Credit Expiration Date in its sole
and absolute discretion and none of the Lenders shall be under any obligations
(either express or implied) to grant any such extension.
SECTION 4.02. INTEREST.
(a) The Borrower agrees to pay interest in respect of
all unpaid principal amounts of the Revolving Loans from the respective dates
such principal amounts were advanced until the respective dates such principal
amounts are repaid at a rate per annum equal to the applicable rate indicated
below:
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(i) For Base Rate Advances -- the Base Rate in effect
from time to time plus the Applicable Margin with respect
thereto; and
(ii) For LIBOR Advances -- the relevant Adjusted LIBOR
plus the Applicable Margin with respect thereto.
(b) The Borrower also agrees to pay interest in
respect of all unpaid principal amounts of the Swingline Loans from the
respective date such principal amounts were advanced until the respective dates
such principal amounts are repaid at a rate per annum equal to the Swingline
Loan Rate in effect from time to time plus the Applicable Margin with respect
thereto.
(c) After the occurrence and during the continuation
of any Event of Default, the outstanding principal balance of the Obligations
(and, to the extent permitted by applicable law, all accrued interest thereon)
shall bear interest at a rate per annum equal to two percentage points (2.0%)
above the otherwise applicable rate under paragraph (a) above.
(d) Interest on each Loan shall accrue from and
including the date of such Loan to but excluding the date of any repayment
thereof; provided, however, if a Loan is repaid on the same day it is made, one
day's interest shall be paid on such Loan.
(e) The Agent, upon determining the Adjusted LIBOR for
any Interest Period, shall promptly notify by telephone (confirmed in writing)
or in writing the Borrower and the other Lenders thereof. Any such
determination shall, absent manifest error, be final, conclusive and binding
for all purposes.
SECTION 4.03. FEES.
(a) In consideration of each Lender's entering into
this Agreement, the Borrower shall pay to the Agent (for the account of and
distribution to such Lender), in immediately available funds on the date of the
initial Loans hereunder, a Facility Fee in an amount equal to one percent
(1.0%) of the total amount of such Lender's initial Revolving Loan Commitment,
which fee shall be non-refundable and shall be deemed fully earned upon the
Agent's and the Lenders' execution and delivery of this Agreement and the
making of the initial Loans hereunder.
(b) In consideration of the Lenders' making their
respective Revolving Loan Commitments hereunder available to the Borrower, the
Borrower agrees to pay to the Agent (for the account of and distribution to the
Lenders in accordance with their respective Pro Rata Shares) in immediately
available funds a non-refundable Commitment Fee from the date of this Agreement
to the date of the Credit Expiration Date computed on the daily average unused
portion of the Revolving Loan Commitments in effect during the period from
which such payment is made (as such Revolving Loan Commitments may be reduced
pursuant to this Agreement), at a rate per annum equal to one-half of one
percent (0.50%), which Commitment Fee shall be payable by Borrower to the Agent
(for the account of the Lenders as aforesaid)
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quarterly in arrears commencing on the first (1st) day of the first (1st)
calendar quarter following the date of this Agreement and continuing to be due
on the first (1st) day of each calendar quarter thereafter so long as the
Revolving Loan Commitments are in effect as well as on the Credit Expiration
Date. For purposes of this paragraph (b), Swingline Loans shall not constitute
a usage of the Revolving Loan Commitment of the Swingline Lender or any other
Lender.
(c) Borrower also shall pay to the Agent (for its own
account) in immediately available funds a periodic Agent Fee in the amount and
at the times previously agreed in writing by the Borrower with the Agent (which
agreement shall survive the execution and delivery of this Agreement and the
making of the Loans).
(d) No Facility Fee, Commitment Fee or Agent Fee
payable hereunder is, or shall be deemed to be, interest or a charge for the
use of money, but rather shall constitute an "other charge" within the meaning
of O.C.G.A. Section 7-4-2(a)(1).
SECTION 4.04. PAYMENTS, PREPAYMENTS AND COMPUTATIONS.
(a) Except as may be otherwise specifically provided
herein, all payments by the Borrower with respect to the Loans or any other
Obligations under this Agreement or any of the other Credit Documents shall be
made without defense, set-off or counterclaim to the Agent not later than 11:00
a.m. (Eastern Time) on the date when due and shall be made in lawful money of
the United States of America in immediately available funds.
(b) Whenever any payment to be made hereunder or under
any of the Notes or the other Credit Documents shall be stated to be due on a
day which is not a Business Day, the due date thereof (except as otherwise set
forth herein with respect to LIBOR Advances) shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension.
(c) All computation of interest or fees due hereunder
or under any of the other Credit Documents shall be made on the basis of a year
of 360 days and the actual number of days elapsed.
(d) Any of the Loans may be prepaid in whole or in
part at any time without premium or penalty; provided, however, that:
(i) Any prepayment made on any Loan shall be applied,
first, to interest accrued thereon through the date thereof
and then to the principal balance thereof;
(ii) Any prepayment of any one type of Loans shall be
applied to all of the Lenders' Loans of that type in
accordance with their respective pro rata shares thereof;
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(iii) Any prepayment of the LIBOR Advances made at any
one time must be in an aggregate principal amount of not less
than $2,000,000 or any greater integral multiple of $500,000,
and any prepayment of the Base Rate Advances made at any one
time must be in an aggregate principal amount of not less than
$1,000,000 or any greater integral multiple of $100,000;
provided, however, that the aforesaid minimum principal
prepayment requirements shall not apply to prepayments of the
Swingline Loans;
(iv) A prepayment of a LIBOR Advance may be made
without penalty by Borrower only on the last day of the
Interest Period applicable thereto and, if any such prepayment
is made on the day that is not the last day of the applicable
Interest Period, Borrower shall pay to the Agent, for the
account of the Lender who made such LIBOR Advance and upon
demand if requested by such Lender, such additional
compensation as may be required under Section 4.11 hereof; and
(v) If, at the time a Lender receives a principal
prepayment on any one type of its Loans hereunder, such Lender
has both Base Rate Advances and LIBOR Advances outstanding
with respect to such Loans, such prepayment shall be applied
as directed in writing by the Borrower, but in the absence of
such direction such prepayment shall be applied, first, to
prepay such Base Rate Advances and then to prepay such LIBOR
Advances (with the portion allocated to LIBOR Advances to be
applied to those having the Interest Periods first maturing
unless otherwise directed in writing by the Borrower).
(e)(i) All payments to the Agent or any Lender under
this Agreement, the Notes or any other Credit Document shall be made free and
clear of and without deduction or withholding for any Taxes in respect of this
Agreement, the Notes or any other Credit Documents or any payments of
principal, interest, fees or other amounts payable hereunder or thereunder (but
excluding, except as provided in paragraph (ii) hereof, any Taxes imposed on
the overall net income of any Lender). If any Taxes are so levied or imposed
on any Lender or the Agent, Borrower agrees (x) to pay to such Lender or the
Agent the full amount of such Taxes and such additional amounts as may be
necessary (as specified in such Lender's or the Agent's certificate, described
in the last sentence of this paragraph (i), delivered to the Borrower) so that
every net payment of all amounts due hereunder and under the Notes and the
other Credit Documents from the Borrower, after withholding or deduction for or
on account of such Taxes (including any additional sum payable under this
Section), will not be less than the full amount provided for herein had no such
deduction or withholding been required, (y) to make such withholding or
deduction and (z) to pay the full amount deducted to the relevant government
authority in accordance with applicable law. Borrower will furnish to the
Agent, within thirty (30) days after the date payment of any Taxes is due
pursuant to applicable law, certified copies of tax receipts evidencing such
payment by the Borrower. Borrower will indemnify and hold harmless the Agent
and each of the Lenders and reimburse the Agent and each of the Lenders upon
written request for the amount of any Taxes described in the first sentence of
this paragraph (i) and which are so levied and imposed and paid by the Agent or
such Lender and any liability (including penalties, interests and expenses)
arising therefrom or with respect thereto. A
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certificate as to the amount of such payment by the Agent or any Lender,
absent manifest error, shall be final, conclusive and binding for all purposes.
(ii) Borrower also shall reimburse the Agent and each
Lender, upon request of the Agent or such Lender, for any Taxes imposed on the
overall net income of the Agent or such Lender in respect of any amounts paid
by or on behalf of Borrower to or on behalf of the Agent or such Lender
pursuant to paragraph (i) of this subsection (e).
(iii) Each Lender that is organized under the laws of
any jurisdiction other than the United States of America or any State thereof
(including the District of Columbia) agrees to furnish to the Borrower and the
Agent, prior to the time it becomes a Lender hereunder, two copies of either
U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form
1001 or any successor forms thereto (wherein such Lender claims entitlement to
complete exemption from or a reduced rate of U.S. Federal withholding tax on
interest paid by the Borrower hereunder) and to provide to the Borrower and the
Agent a new Form 4224 or Form 1001 or any successor forms thereto if any
previously delivered form is found to be incomplete or incorrect in any
material respect or upon the obsolescence of any previously delivered forms;
provided, however, that no Lender shall be required to furnish a form under
this paragraph (iii) if it is not entitled to claim an exemption from or a
reduced rate of withholding under applicable law. A Lender that is not
entitled to claim an exemption from or a reduced rate of withholding under
applicable law, promptly upon written request of the Borrower, shall so inform
the Borrower and the Agent in writing.
SECTION 4.05. COLLATERAL AND GUARANTIES.
(a) The Obligations shall be guaranteed by all the
present and future Domestic Subsidiaries of the Borrower pursuant to the
Guaranty Agreement.
(b) Subject to the terms and conditions of the Post
Closing Requirements Agreement, the Obligations also shall be secured by all
Collateral covered by the Real Estate Collateral Documents and the Security
Agreements; provided, however, that so long as no Event of Default is then in
existence, Borrower and its Domestic Subsidiaries shall not be required to
deliver to the Agent or any Lender any instrument or chattel paper having an
outstanding principal balance of less than $500,000 (other than instruments or
chattel paper evidencing Intercompany Loans which shall be required to be
delivered to the Agent). The Borrower and its Domestic Subsidiaries also shall
execute and deliver any and all financing statements, fixture filings, notice
filings and such other documents as the Agent may reasonably request from time
to time in order to perfect or maintain the perfection of the Agent's Lien
under such Security Documents.
(c) The Obligations also shall be secured pursuant to
the Pledge Agreements by the perfected pledge and collateral assignment to the
Agent of (i) all of the issued and outstanding shares of the capital stock of
all the present and future direct or indirect Domestic Subsidiaries of the
Borrower and (ii) sixty-six percent (66%) (or such lesser percentage as may be
owned) of the issued and outstanding shares of the capital stock of each of the
present or
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future direct or indirect Foreign Subsidiaries of the Borrower. In any such
case, Borrower shall, or in the case of any indirect Subsidiary Borrower shall
cause the direct parent company of such Domestic Subsidiary or Foreign
Subsidiary to, execute and deliver a Pledge Agreement in favor of the Agent
together with any and all financing statements, stock certificates, undated
blank stock transfer powers and such other documents as the Agent may from time
to time reasonably request in order to perfect or maintain the perfection of
the Agent's Liens under such Pledge Agreement.
(d) Without limiting the generality of the foregoing,
Borrower and each Domestic Subsidiary shall execute and deliver to the Agent
the Copyright Assignments and the Trademark Security Agreements to secure the
Obligations as well as such other documents as the Agent may reasonably require
in order to perfect and maintain the perfection of the Agent's Liens on any and
all Collateral covered thereby.
(e) In the event that any Person shall become a
Subsidiary of Borrower after the date hereof, and if and to the extent required
by the Required Lenders under Section 7.10 hereof, Borrower shall execute (or
cause such other Subsidiary as may be the direct parent company of the new
Subsidiary to execute) an amendment or supplement to the appropriate Pledge
Agreement sufficient to subject the stock of such new or additional Subsidiary
to the Lien of such Pledge Agreement, and Borrower also shall cause each new or
additional Subsidiary which is a Domestic Subsidiary to execute an amendment or
supplement to each of the Guaranty Agreement so as to become a Guarantor
thereunder and the appropriate Security Agreement so as to subject all of its
personal property to the Lien thereof as well as any and all financing
statements and other documents as the Agent may reasonably request from time to
time in order to perfect or maintain the perfection of the Agent's Liens
thereunder.
(f) Borrower shall use commercially reasonable efforts
to cause the lessors of the facilities of the Borrower and its Domestic
Subsidiaries listed on Schedule 2 to the Post Closing Requirements Agreement,
and the lessors of such comparable facilities as the Required Lenders may
reasonably deem appropriate in the future for any new Domestic Subsidiary or
operations hereafter acquired or established to execute Lessor Waivers and
Consents in favor of the Agent. All deposit accounts of the Borrower and each
of its Domestic Subsidiaries listed on Schedule 3 to the Post Closing
Requirements Agreement shall be either (1) maintained after February 28, 1997
(or, with the written consent of the Required Lenders, March 31, 1997), with
one or more of the following: (i) the Agent, (ii) the Swingline Lender, (iii)
any other Lender, and/or (iv) any other commercial bank which (x) is not a
creditor of the Borrower or any such Subsidiary (other than in connection with
the relevant deposit account or accounts) and (y) has executed and delivered to
the Agent a Pledged Deposit Agreement with the Agent and the appropriate Credit
Party, or (2) closed on or before the applicable deadline specified above.
Notwithstanding anything herein or in any other Credit Document to the
contrary, Borrower's and its Domestic Subsidiaries' obligations hereunder and
under the other Credit Documents to obtain any Lessor Waivers and Consents with
respect to any offices or facilities leased by Borrower or any of its Domestic
Subsidiaries on the date hereof or any Pledged Deposit Agreements with respect
to any deposit accounts maintained by Borrower or any of its Domestic
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Subsidiaries on the date hereof shall be subject to the terms and conditions of
the Post-Closing Requirements Agreement.
(g) In the event that after the date of this Agreement
the Borrower or any of its Domestic Subsidiaries acquires ownership of any
additional real property (other than real property leased by it as a lessee) or
any additional United States patents, registered trademarks, registered service
marks, federally-registered copyrights or any applications thereof, the
Borrower shall promptly give written notice of such acquisition to the Agent,
and if requested by the Agent at the direction of the Required Lenders,
Borrower shall execute and deliver (or cause such Subsidiary to execute and
deliver) any and all Real Estate Collateral Documents or collateral
assignments, security agreements, pledge agreements, financing statements,
fixture filings, notice filings or other documents as the Agent may reasonably
request from time to time in order for the Agent to acquire a Lien on the
property so acquired by such Credit Party as additional security for the
Obligations or to perfect or maintain the perfection of such Lien.
SECTION 4.06. CAPITAL ADEQUACY. Without limiting any
other provisions of this Agreement, in the event that any Lender determines
after the date hereof that the introduction or change after the date of this
Agreement of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, or any change
therein or in the interpretation or application thereof after the date of this
Agreement, or compliance by any Lender with any request or directive regarding
capital adequacy (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) from a central bank or
governmental authority or body having jurisdiction which is introduced or
changed after the date of this Agreement, does or shall have the effect of
reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder to a level below that which such Lender could have
achieved but for such law, treaty, rule, regulation, guideline or order or such
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy and assuming the full utilization of such Lender's
capital immediately before such adoption, change or compliance) by an amount
reasonably deemed by such Lender to be material, then such Lender shall
promptly after its determination of such occurrence notify the Borrowers and
the Agent thereof. The Borrower agrees to pay to the Agent, for the account of
such Lender, as an additional fee from time to time, within ten (10) days after
written notice and demand by such Lender, such amount as such Lender certifies
to be the amount that will compensate it for such reduction in connection with
its obligations hereunder. A certificate of such Lender claiming compensation
under this Section 4.06 shall be conclusive in the absence of manifest error
and shall set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to it hereunder and
the method by which such amounts were determined. In determining such amount,
the Lender involved may use reasonable averaging and attribution methods.
SECTION 4.07. UNAVAILABILITY. If (i) any Lender
determines that the making or maintenance by it of any LIBOR Advance hereunder
would violate any applicable law, rule or regulation or the interpretation or
application thereof (whether or not have the force of law), or (ii) any Lender
determines that deposits of a type and maturity appropriate to fund interest
rate options and Interest Periods hereunder are not available in the London
interbank market or that
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Adjusted LIBOR does not fully reflect such Lender's cost of maintaining
particular interest rate options and/or Interest Periods hereunder, then the
availability of the Adjusted LIBOR-based interest rate option and/or Interest
Periods hereunder may be suspended by such Lender (by written notice to the
Borrower and the Agent) for new Interest Periods until such time as market
conditions or legal considerations permit it to be reinstated.
SECTION 4.08. INCREASED COSTS. If, due to either (i)
the introduction of or any change (other than a change by way of imposition of
or increase in reserve requirements already included in computing the Adjusted
LIBOR) in or in the interpretation of any law or regulation after the date
hereof or (ii) the compliance with any guideline or request from any central
bank or other governmental authority issued after the date hereof (whether or
not having the force of law), there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any LIBOR Advance
hereunder, then within ten (10) days after written notice and demand by such
Lender, Borrower shall from time to time pay to the Agent (for the account of
such Lender) additional amounts as are sufficient to compensate such Lender for
such increased cost. Each such notice and demand shall be accompanied by a
certificate of such Lender setting forth in reasonable detail the basis for
computing the additional amount claimed by such Lender, and each such
certificate shall, in the absence of manifest error, be conclusive evidence of
the amount of such cost.
SECTION 4.09. SHARING OF PAYMENTS, ETC. If any Lender
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, from proceeds of Collateral or otherwise) on account
of the Obligations owing to it (other than (i) pursuant to Section 4.03, 4.06,
4.08 or 4.16(b) hereof, (ii) payments or prepayments of principal or interest
on any of the Swingline Loans received by the Swingline Lender or (iii)
payments of Cash Management Services Obligations) in excess of its ratable
share of payments on account of the Obligations obtained by all the Lenders,
such Lender shall forthwith purchase from the other Lenders such participations
in the Obligations owing to them as shall be necessary to cause such purchasing
Lender to share the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from Lender shall be
rescinded and such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (x) the amount of such
Lender's required payment to (y) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 4.09 may, to the fullest extent permitted by law,
exercise all of its rights of payment (including any right of set-off or
banker's lien) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
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SECTION 4.10. LOAN ACCOUNTS.
(a) Each Lender shall open and maintain on its books a
separate loan account in the name of the Borrower and each such loan account
shall show as debits thereto such Lender's Loans made to the Borrower under
this Agreement and as credits thereto all payments received by such Lender and
applied thereto so that the balance of the loan account of the Borrower with
each Lender at all times shall reflect the principal amount of the Loans then
outstanding from such Lender to the Borrower.
(b) The Agent shall maintain on its books a control
account for the Borrower in which shall be recorded (i) the amount of each
Revolving Loan made hereunder to the Borrower, (ii) the amount of any
principal, interest or fees due or to become due from the Borrower on the
Revolving Loans, and (iii) the amount of any sum received by the Agent
hereunder in respect of any such principal, interest or fees due on the
Revolving Loans and each Lender's share thereof.
(c) The entries made in the accounts pursuant to
paragraph (a) or (b) above shall be prima facie evidence, in the absence of
manifest error, of the existence and amounts of the Obligations of the Borrower
therein recorded and any payments thereon, and in case of discrepancy between
such accounts, in the absence of manifest error, the control account maintained
by the Agent pursuant to paragraph (b) above shall be controlling with respect
to Revolving Loans and the account maintained by the Swingline Lender, with
respect to the Swingline Loans pursuant to paragraph (a) above shall be
controlling with respect to the Swingline Loans.
(d) The Agent on behalf of the Lenders shall account
to the Borrower (with a copy to each Lender) on a monthly basis with a
statement of borrowings, charges, and payments made pursuant to this Agreement
with respect to the Revolving Loans and the Revolving Loan Commitments, and
each such account rendered by the Agent shall be deemed final, binding and
conclusive unless the Agent is notified by the Borrower or any Lender in
writing within thirty (30) days after the date the account is so rendered that
the Borrower or such Lender disputes any item thereof (but any such notice by
the Borrower or any Lender shall be deemed an objection only to those items
specifically set forth in such notice). Failure by the Agent to render any
such account shall in no way affect its or any Lender's rights hereunder or
under any of the other Credit Documents.
(e) The Swingline Lender also shall account to the
Borrower on a monthly basis with a statement of borrowings, charges and
payments made pursuant to this Agreement with respect to the Swingline Loans
and the Swingline Loan Limit, and each such statement rendered by the Swingline
Lender shall be deemed final, binding and conclusive unless the Swingline
Lender is notified by the Borrower in writing within thirty (30) days after the
date the account is so rendered that the Borrower disputes any item thereof
(but any such notice by the Borrower shall be deemed an objection only to those
items specifically set forth in such notice). Failure by the Swingline Lender
to render any such account shall in no way affect its or any other Lender's
rights hereunder or under any of the other Credit Documents.
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SECTION 4.11. FUNDING LOSSES. The Borrower shall
compensate each Lender, upon its written request to the Borrower (which request
shall set forth the basis for requesting such amounts in reasonable detail and
which request shall be made in good faith and, absent manifest error, shall be
final, conclusive and binding upon all of the parties hereto), for all losses,
expenses and liabilities (including, without limitation, any interest paid by
such Lender to lenders of funds borrowed by it to make or carry its LIBOR
Advances hereunder, in either case to the extent not recovered by such Lender
in connection with the re-employment of such funds and including loss of
anticipated profits), which the Lender may sustain: (i) if for any reason
(other than a default by such Lender) a Borrowing of any LIBOR Advance does not
occur on the date specified therefor in a Notice of Revolving Loan Borrowing or
a Notice of Revolving Loan Conversion/Continuation, (ii) if any repayment
(including any voluntary or mandatory prepayment) of any LIBOR Advance occurs
on a date which is not the last day of an Interest Period applicable thereto,
or (iii) if, for any reason, the Borrower defaults in its obligation to repay
any LIBOR Advance when due as required by the terms of this Agreement.
SECTION 4.12. ASSUMPTIONS CONCERNING FUNDING OF LIBOR
ADVANCES. The calculation of all amounts payable to a Lender under this
Agreement with respect to any LIBOR Advance shall be made as though that Lender
had actually funded its relevant LIBOR Advances through the purchase of
deposits in the relevant market bearing interest at the rate applicable to such
LIBOR Advance in an amount equal to the amount of the LIBOR Advance and having
a maturity comparable to the relevant Interest Period and through the transfer
of such LIBOR Advance from an offshore office of that Lender to a domestic
office of that Lender in the United States of America; provided, however that
each Lender may fund each of its LIBOR Advances in any manner it sees fit and
the foregoing assumption shall be used only for calculation of amounts which
may be payable under this Agreement.
SECTION 4.13. APPORTIONMENT OF PAYMENTS. All aggregate
principal and interest payments in respect of Loans and all aggregate payments
in respect of Facility Fees and Commitment Fees received by the Agent shall be
apportioned among all outstanding Revolving Loan Commitments and Loans to which
such payments relate, proportionately to the Lenders' respective Pro Rata
Shares of such Revolving Loan Commitments and outstanding Loans. The Agent
shall promptly distribute to each Lender at its address set forth beside its
name on Annex I attached hereto or such other address as any Lender may request
its share of all such payments received by the Agent.
SECTION 4.14. AGREEMENTS REGARDING INTEREST AND OTHER
CHARGES. Pursuant to O.C.G.A. Section 7-4-2, Borrower, the Agent and the
Lenders hereby agree that the only charges imposed or to be imposed by the
Agent or the Lenders upon Borrower for the use of money in connection with the
Loans is and will be the interest required to be paid under the provisions of
Sections 2.02(b), 3.02(b) and 4.02 hereof as well as the related provisions of
the Notes. In no event shall the amount of interest due and payable under this
Agreement, the Notes or any of the other Credit Documents exceed the maximum
rate of interest allowed by applicable law (including, without limitation,
O.C.G.A. Section 7-4-18) and, in the event any such payment is made by
Borrower or any other Credit Party or received by the Agent or any Lender, such
excess sum
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shall be credited as a payment of principal. It is the express intent hereof
that the Borrower not pay and the Agent and the Lenders not receive, directly
or indirectly or in any manner, interest in excess of that which may be
lawfully paid under applicable law.
SECTION 4.15. BENEFITS TO GUARANTORS. In consideration
for the execution and delivery by the Guarantors of the Guaranty Agreement and
any and all other Credit Documents executed by them, the Borrower agrees to
make the benefit of all Credit Events hereunder available to the Guarantors.
SECTION 4.16. AMENDMENT AND RESTATEMENT; NO NOVATION.
(a) This Agreement constitutes an amendment and restatement of the 1993 Credit
Agreement effective from and after the date hereof. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
are not intended by the parties to be, and shall not constitute, a novation of
any indebtedness or other obligations owing to the Lenders or the Agent under
the 1993 Credit Agreement based on any facts or events occurring or existing
prior to the execution and delivery of this Agreement. On the date hereof, the
credit facilities and the terms and conditions thereof described in the 1993
Credit Agreement shall be amended and replaced by the credit facilities and the
terms and conditions thereof described herein, and all loans and other
obligations of the Borrower outstanding as of such date under the 1993 Credit
Agreement shall be deemed to be loans and obligations outstanding under the
corresponding facilities described herein (such that all Revolving Loans and
all Cash Management Loans outstanding under the 1993 Credit Agreement shall
become Revolving Loans and Swingline Loans under this Agreement, respectively),
without further action by any Person.
(b) Borrower hereby requests that, on the date on
which all of the conditions set forth in Sections 5.01 and 5.02 hereof are
satisfied, make such payments to the other
Lenders so that, after giving effect thereto, the aggregate outstanding
principal balance of each Lender's Revolving Loans (including those of )
equals its Pro Rata Share of the aggregate outstanding principal
balance of all Lenders' Revolving Loans (and such payments shall constitute
Revolving Loans made hereunder by and shall constitute prepayments of the other
Lenders' Base Rate Advances under the 1993 Credit Agreement). Also
notwithstanding anything in this Agreement to the contrary, (i) each Lender
shall hold, immediately after the effectiveness of this Agreement, LIBOR
Advances having the same outstanding principal amounts and Interest Periods as
were outstanding and held by such Lender under the 1993 Credit Agreement
immediately prior to the effectiveness of this Agreement, (ii) thereafter, so
long as such LIBOR Advances remain outstanding, each Base Rate Advance shall be
made in such amounts by the Lenders so that, after giving effect thereto, the
aggregate outstanding principal balance of each Lender's Revolving Loans
(including its share of the aforesaid LIBOR Advances) equals its Pro Rata Share
of the aggregate outstanding principal balance of all Lenders' Revolving Loans
(including all of the aforesaid LIBOR Advances), and (iii) upon the repayment
of each such LIBOR Advance, the Borrower shall request that the Lenders (other
than ) make additional Revolving Loans,
the proceeds of which shall be paid to , so
that after giving effect thereto the aggregate outstanding principal balance of
each Lender's Revolving Loans (including its share of any remaining LIBOR
Advances)
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equals it Pro Rata Share of the aggregate outstanding principal balance of
all Lenders' Revolving Loans (including all remaining LIBOR Advances).
SECTION 4.17. CERTAIN ASSET SALES. Notwithstanding
anything in this Agreement or any of the other Credit Documents to the
contrary, Borrower or its Subsidiaries may sell (including by way of an initial
public offering) all of the stock (or all or substantially all the assets) of
HRI and/or any or all of the BSG Subsidiaries without the prior written consent
of any or all of the Lenders or the Agent and the Agent's Liens under the
Security Documents on such Collateral (and any Collateral of such Subsidiary
the stock of which is so sold) and all of such Subsidiary's obligations under
the Guaranty Agreement and the other Credit Documents shall be released by the
Agent if (i) the entire sale price for such transaction is payable in cash or
other immediately available funds, (ii) the Net Proceeds of such sale price are
applied as required under Section 2.06(b) hereof (and, pending such
application, the Agent's and the Lenders' Liens shall attach thereto pursuant
to the Security Documents and such proceeds shall be Collateral for the
Obligations), (iii) no other Default or Event of Default then exists or will be
caused by such transaction, and (iv) on the date of the closing of such sale
Borrower's chief executive officer or chief financial officer executes and
delivers to the Agent a properly completed certificate in the form of Exhibit H
attached hereto.
ARTICLE V.
CONDITIONS PRECEDENT TO CREDIT EVENTS
The respective obligations of the Agent and the Lenders
to make any Loan to Borrower hereunder are subject to the satisfaction of the
following conditions precedent:
SECTION 5.01. CONDITIONS PRECEDENT TO INITIAL CREDIT
EVENT. At the time of the initial Credit Event under this Agreement, the Agent
and the Initial Lenders shall have received the following (all documents to be
in form and substance satisfactory to the Agent and the Initial Lenders):
(a) this Agreement duly completed and executed;
(b) the duly completed and executed Notes;
(c) the duly executed and completed Security Agreement
of Borrower (together with the insurance certificates and loss
payable endorsements required thereunder);
(d) the duly executed and completed Guaranty
Agreement, Security Agreement, Intercompany Notes, Trademark
Security Agreements, and Copyright Assignments of the initial
Guarantors (together with the insurance certificates and loss
payable endorsements required thereunder);
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(e) the duly executed and completed Pledge Agreements
covering all (or, in the case of any Foreign Subsidiary, 66%
or such lesser percentage as may be owned) of the capital
stock of the Initial Subsidiaries owned by the Credit Parties,
together with any and all stock certificates and duly executed
undated blank stock transfer powers for all of the shares
covered by the Pledge Agreements;
(f) the Warrants for each Lender duly executed and
completed by the Borrower;
(g) satisfactory evidence of the recording of such
Uniform Commercial Code financing statements in the Office of
the Clerk of the Superior Court of Cobb County, Georgia as
well as written reports of examinations of the public records
of Cobb County, Georgia and the Georgia Superior Court Clerks'
Cooperative Authority, together with copies of all recorded
Lien documents shown in such reports;
(h) the favorable opinions of
and counsels for the Borrower and the
Initial Guarantors, in the forms of Exhibit E-1 and Exhibit
E-2 attached hereto, respectively (subject to such changes
therein as may be acceptable to the Agent and the Initial
Lenders);
(i) certificates of each of the Borrower and the
Initial Guarantors in substantially the forms of Exhibit F-1,
and Exhibit F-2, respectively, attached hereto, duly executed
and appropriately completed;
(j) copies of the Certificate or Articles of
Incorporation of each of the Borrower and each of the Initial
Guarantors (certified in each case by the Secretary of State
or other appropriate official of the state of such Credit
Party's incorporation), together with current good standing
certificates or certificates of existence for each such Credit
Party issued by the Secretary of State or other appropriate
official of such Credit Party's jurisdiction of incorporation
and of such other jurisdictions where such Credit Party
presently is qualified to do business as a foreign corporation
and which the Agent may reasonably request;
(k) copies of all documents and instruments, including
all consents, authorizations and filings, required under any
Requirement of Law or by any Contractual Obligation of
Borrower or any Initial Guarantor, in connection with the
execution, delivery, performance, validity and enforceability
of the Credit Documents and the other documents to be executed
and delivered hereunder, and such consents, authorizations,
filings and orders shall be reasonably satisfactory in form
and substance to the Agent and the Initial Lenders and shall
be in full force and effect and all applicable waiting periods
shall have expired;
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(l) all corporate proceedings and all other legal
matters in connection with the authorization, legality,
validity and enforceability of the Credit Documents shall be
reasonably satisfactory in form and substance to Agent and the
Initial Lenders;
(m) payment of the Facility Fee due pursuant to
Section 4.03(a) hereof;
(n) a Financial Condition Certificate duly executed
and completed by Borrower in the form of Exhibit O attached
hereto;
(o) the Post-Closing Requirements Agreement duly
executed and delivered by Borrower and its Domestic
Subsidiaries; and
(p) such other documents, certificates, approvals or
filings as the Agent or any Initial Lender may reasonably
request.
SECTION 5.02. CONDITIONS PRECEDENT TO ALL CREDIT
EVENTS. At the time of (and after giving effect to) the making of any Loan
under this Agreement, the following conditions shall have been satisfied or
shall exist:
(a) there shall then exist no Default or Event of
Default (and the making of such Loan shall not result in a
violation of Section 2.01(e) hereof);
(b) all representations and warranties by Borrower or
the other Credit Parties contained herein or in the other
Credit Documents (other than those representations and
warranties which are, by their terms, expressly limited to the
date made or given) shall be true and correct in all material
respects with the same effect as though such representations
and warranties had been made on and as of the date of such
Loan;
(c) since the date of the most recent financial
statements described in Section 6.02 or received pursuant to
Section 7.01, and except as disclosed in (i) the report on
Form 10-Q as filed by the Borrower with the SEC for its fiscal
quarter ending September 30, 1996, (ii) the Borrower's October
22, 1996 press release regarding its revised third quarter
1996 financial results or (iii) any other written materials
delivered by the Borrower or the Borrower's, the Agent's or
the Lenders' advisers (including without limitation )
to all Lenders on or after August 14, 1996 and prior to the
execution and delivery of this Agreement, there shall have
been no change which has had or could reasonably be expected
to have a Material Adverse Effect;
(d) except as set forth on Schedule 6.03 attached
hereto, there shall be no action or proceeding instituted or
pending before any court or other governmental authority or,
to the knowledge of Borrower, threatened (i) which has had or
reasonably could be expected to have a Material Adverse Effect
or (ii) seeking to prohibit or restrict any Credit Party's
ownership or operation of any material portion of its business
or assets or to compel any Credit Party to dispose of or hold
separate all or any material portion of
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its businesses or assets, which, in any case, has had or
reasonably could be expected to have a Material Adverse
Effect; and
(e) the Loan to be made and the use of proceeds
thereof shall not contravene, violate or conflict with, or
involve any Credit Party, the Agent or any Lender in a
violation of, any law, rule, injunction, or regulation, or
determination of any court of law or other governmental
authority.
Each request for a Loan and the acceptance by Borrower
of the proceeds thereof shall constitute a representation and warranty by
Borrower, as of the date of such Loan, that the conditions specified in
Sections 5.01 (in the case of the initial Credit Event) and 5.02 (in the case
of each Credit Event) have been satisfied.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
Borrower (as to itself and all of its Subsidiaries)
represents and warrants to the Agent and the Lenders as follows:
SECTION 6.01. ORGANIZATION; SUBSIDIARIES;
AUTHORIZATION; VALID AND BINDING OBLIGATIONS.
(a) Borrower is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware.
Each Subsidiary is duly organized and validly existing in good standing under
the laws of the jurisdiction in which it is incorporated or organized, as the
case may be.
(b) As of the date of this Agreement, there exist no
Subsidiaries other than those identified on Schedule 6.01(b) attached hereto
(and Borrower hereby covenants that no other Subsidiaries will be created or
acquired without (i) giving the Agent and each Lender not less than five (5)
days' prior written notice of the creation of any such Subsidiary or not less
than thirty (30) days' prior written notice of the acquisition of any such
Subsidiary, and (ii) compliance with any requirement under Section 7.10 that
such Subsidiary become an additional Credit Party).
(c) As of the date of this Agreement, and except as
disclosed on Schedule 6.01(c) attached hereto the Borrower has no Material
Subsidiaries.
(d) Each of the Borrower and its Subsidiaries is duly
qualified as a foreign corporation or limited liability company, as the case
may be, and in good standing in each jurisdiction where the ownership of
property or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect, and Borrower has and each Subsidiary has the
corporate or other power to own its respective property and to carry on its
respective business as now being conducted.
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(e) Each of the Borrower and its Subsidiaries has all
requisite corporate or other power and authority to execute and deliver the
Credit Documents to which it is a party and to perform its obligations under
such Credit Documents. The Credit Documents to which Borrower or any
Subsidiary is a party have been duly authorized by all requisite corporate or
other action on the part of such Credit Party and duly executed and delivered
by authorized officers or other legal representatives of such Credit Party.
(f) Each of the Credit Documents to which Borrower or
any Subsidiary is a party constitutes a valid obligation of such Credit Party,
legally binding upon and enforceable against such Credit Party in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally or by general principles of
equity. The Borrower has reserved and shall keep available for issuance upon
the exercise of the Warrants the Warrant Shares deliverable upon exercise of
all Warrants from time to time outstanding. The issuance of the Warrant Shares
has been duly and validly authorized and, when issued will be duly and validity
issued, fully paid and nonassessable and free of preemptive rights.
SECTION 6.02. FINANCIAL STATEMENTS. Borrower has
furnished the Agent and each Initial Lender with copies of (i) the consolidated
balance sheet of the Borrower and its Subsidiaries as at December 31, 1995, and
the related consolidated statements of income and cash flows for the twelve
(12) month period then ended, including in each case the related schedules and
notes, and (ii) the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as of November 30, 1996, and the related unaudited
consolidated statements of income and cash flows for the year-to-date period
then ended. The foregoing financial statements fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as at the dates
thereof and the results of their financial condition for such periods in
conformity with GAAP (subject, in the case of interim financial statements, to
normal year-end adjustments). Since December 31, 1995, and except as disclosed
in (x) the report on Form 10-Q as filed by the Borrower with the SEC for the
Borrower's fiscal quarter ending September 30, 1996, (y) the Borrower's October
22, 1996 press release regarding its financial results for its third quarter
ending September 30, 1996, or (z) any other written materials delivered by the
Borrower or the Borrower's, the Agent's or the Lenders' advisers (including
without limitation ) to all Lenders on or after August 14, 1996
and prior to the execution and delivery of this Agreement, there has been no
Material Adverse Effect.
SECTION 6.03. ACTIONS PENDING. Except as may be
disclosed on Schedule 6.03 attached hereto, there is no action, suit,
investigation or proceeding pending or, to the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, or any properties or
rights of Borrower or any of its Subsidiaries, by or before any court,
arbitrator or administrative or governmental body which has had or could
reasonably be expected to result in any Material Adverse Effect.
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SECTION 6.04. OUTSTANDING INDEBTEDNESS. Neither
Borrower nor any of its Subsidiaries has outstanding any Indebtedness except as
has been disclosed on the financial statements described in Section 6.02 above
or as may be permitted by Section 8.01.
SECTION 6.05. TITLE TO PROPERTIES. Each of the
Borrower and its Subsidiaries has good and marketable title to all of its
respective properties and assets (other than properties and assets disposed of
in the ordinary course of business), subject to no Lien of any kind except
Liens granted under the Security Documents or permitted pursuant to Section
8.02. All leases necessary in any material respect for the conduct of the
respective businesses of Borrower and its Subsidiaries are valid and subsisting
and are in full force and effect, there has not been asserted against Borrower
any claim of default and there exists no default or event or condition which,
with notice or lapse of time or both, would constitute a default under such
leases which claim or default has had or could reasonably be expected to have a
Material Adverse Effect.
SECTION 6.06. TAXES. Except as may be disclosed on
Schedule 6.06 attached hereto, Borrower has and each of its Subsidiaries has
filed all federal, state and other income tax returns which, to the knowledge
of the Borrower, are required to be filed, and each has paid all taxes as shown
on such returns and on all assessments received by it to the extent that such
taxes have become due, except such taxes as are not due or which are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP as required by Section 7.06
below.
SECTION 6.07. CONFLICTING AGREEMENTS AND OTHER MATTERS.
Neither the execution nor delivery of this Agreement, nor fulfillment of or
compliance with the terms and provisions of this Agreement, will conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, or result in any violation of, or result in the creation of
any Lien (other than Liens granted under the Credit Documents) upon any of the
properties or assets of Borrower or any of its Subsidiaries pursuant to, the
charter or by-laws of Borrower or any of its Subsidiaries, any award of any
arbitrator or any agreement, instrument, order, judgment, decree, statute, law,
rule or regulation to which Borrower or any of its Subsidiaries is subject.
Neither Borrower nor any of its Subsidiaries is a party to, or otherwise
subject to any provision contained in, any instrument evidencing indebtedness
of Borrower or such Subsidiary, any agreement (other than the Credit Documents)
relating thereto or any other contract or agreement (including its Articles or
Certificate of Incorporation or By-Laws) which limits the amount of, or
otherwise imposes restrictions on the incurring of, Indebtedness of Borrower of
the type to be created under this Agreement or evidenced by the Notes.
SECTION 6.08. ERISA. Except as disclosed on Schedule
6.08 attached hereto:
(a) None of the Consolidated Companies nor any of
their respective ERISA Affiliates maintains or contributes to, or has during
the past two years maintained or contributed to, any Plan that is subject to
Title IV of ERISA;
(b) Each Plan maintained by the Consolidated Companies
has at all times been maintained, by its terms and in its operation, in
compliance with all applicable laws, and the
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Consolidated Companies are subject to no tax or penalty with respect to any
Plan of such Consolidated Company or any ERISA Affiliate thereof, including
without limitation, any tax or penalty under Title I or Title IV of ERISA or
under Chapter 43 of the Code, or any tax or penalty resulting from a loss of
deduction under Sections 162, 404, or 419 of the Code, where the failure to
comply with such laws, and such taxes and penalties, together with all other
liabilities referred to in this Section 6.08 (taken as a whole), has had or
could reasonably be expected to have a Material Adverse Effect;
(c) The Consolidated Companies are subject to no
liabilities (including withdrawal liabilities) with respect to any Plans of
such Consolidated Companies or any of their ERISA Affiliates, including without
limitation, any liabilities arising from Title I or IV of ERISA, other than
obligations to fund benefits under an ongoing Plan and to pay current
contributions, expenses and premiums with respect to such Plans, where such
liabilities, together with all other liabilities referred to in this Section
6.08 (taken as a whole), has had or could reasonably be expected to have a
Material Adverse Effect; and
(d) The Consolidated Companies and, with respect to
any Plan which is subject to Title IV of ERISA, each of their respective ERISA
Affiliates, have made full and timely payment of all amounts (i) required to be
contributed under the terms of each Plan and applicable law, and (ii) required
to be paid as expenses (including PBGC or other premiums) of each Plan, where
the failure to pay such amounts (when taken as a whole, including any penalties
attributable to such amounts) has had or could reasonably be expected to have a
Material Adverse Effect, and no Plan subject to Title IV of ERISA has an
"amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of
ERISA), determined as if such Plan terminated on any date on which this
representation and warranty is deemed made, in any amount which, together with
all other liabilities referred to in this Section 6.08 (taken as a whole), has
had or could reasonably be expected to have a Material Adverse Effect if such
amount were then due and payable, and the Consolidated Companies are subject to
no liabilities with respect to post-retirement medical benefits in any amounts
which, together with all other liabilities referred to in this Section 6.08
(taken as a whole), have had or could reasonably be expected to have a Material
Adverse Effect if in such amounts were then due and payable.
SECTION 6.09. GOVERNMENTAL CONSENT. Except for (i) any
recording or filing which may be required by applicable law to perfect or
maintain the perfection of the Agent's Liens in the Collateral and (ii) any
registration or other filings with the SEC which may be required by applicable
law to permit the Borrower to comply with the Lenders' registration rights
under the Warrants, no consent, approval or authorization of, or declaration or
filing with, any governmental authority is required for the valid execution,
delivery and performance by any Credit Party of the Credit Documents executed
by such Person or the consummation of any of the transactions contemplated by
the Credit Documents.
SECTION 6.10. COMPLIANCE WITH LAWS AND REGULATIONS.
Each of the Borrower and its Subsidiaries complies with all federal, state,
local, and other laws, ordinances and other governmental rules or regulations
to which any of them is subject, including without limitation, Environmental
Laws and laws and regulations relating to equal employment opportunity and
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employee safety and Borrower will promptly comply and will cause each of its
Subsidiaries promptly to comply with all such laws and regulations which may be
legally imposed on Borrower or any Subsidiary in the future, except where the
failure to so comply has not had or could not reasonably be expected to have a
Material Adverse Effect.
SECTION 6.11. POSSESSION OF LICENSES, FRANCHISES, ETC.
Borrower and its Subsidiaries possess all material licenses, franchises,
certificates, permits and other authorizations from any governmental or
regulatory authorities that are necessary in any material respect for the
ownership, maintenance and operation of their respective material properties
and assets, and neither Borrower nor any Subsidiary is in violation of any
thereof in any material respect.
SECTION 6.12. INTELLECTUAL PROPERTY RIGHTS. Except as
set forth on Schedule 6.12, the Consolidated Companies have obtained and hold
in full force and effect all material patents, trademarks, service marks, trade
names, copyrights, licenses and other such rights which are necessary for the
operation of their respective businesses as presently conducted and, to the
best of Borrower's knowledge, no product, process, method, service or other
item presently sold or employed by any Consolidated Company in connection with
its business infringes any patent, trademark, service mark, trade name,
copyright, license or other such right owned by any other person and there is
not presently pending or, to the knowledge of Borrower, threatened any claim or
litigation against or affecting any Consolidated Company contesting such
Person's right to sell or use any such product, process, method, substance or
other item except where such non-possession, infringement or contest has not
had or could not reasonably be expected to have a Material Adverse Effect.
SECTION 6.13. ENVIRONMENTAL COMPLIANCE. Borrower and
each of its Subsidiaries have obtained all material permits, licenses and other
authorizations which are required under Environmental Laws, and Borrower and
each of its Subsidiaries are in compliance in all material respects with all
terms and conditions of such permits, licenses and authorizations and are also
in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Laws.
Neither Borrower nor any of its Subsidiaries is aware of, or has received
notice of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans which, with respect to
Borrower or any Subsidiary, may interfere with or prevent compliance or
continued compliance in all material respects with Environmental Laws, or may
give rise to any material common law or legal liability, or otherwise form the
basis of any material claim, action, demand, suit, proceeding, hearing, study
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or, threatened release into the environment, of
any pollutant, contaminant, chemical, or industrial, toxic or hazardous
substance or waste. Except as set forth on Schedule 6.03 attached hereto,
there is no civil, criminal or administrative action, suit, demand, claim,
hearing, notice or demand proceeding pending or, to the knowledge of the
Borrower, threatened against Borrower or any Subsidiary relating in any way to
Environmental Laws that has had, and that could reasonably be expected to have,
a Material Adverse Effect.
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SECTION 6.14. SOLVENCY. After giving effect to the
transactions contemplated by the Credit Documents, (i) the assets of each of
Borrower and its Material Subsidiaries, at a fair valuation, will exceed its
debts, (ii) each such Credit Party's capital will not be unreasonably small to
conduct its business, (iii) no such Credit Party will have incurred debts, or
have intended to incur debts, beyond its ability to pay such debts as they
mature, and (iv) the then-current fair salable value of each such Credit
Party's assets will be greater than the amount that will be required to pay its
probable liabilities (including debts) as they become absolute and matured.
For purposes of this Section, "debt" means any liability on a claim, and
"claim" means (x) the right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, or (y) the right
to an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured. For purposes of this Section 6.14, the Borrower may
assume that the Loans will be refinanced on the Credit Expiration Date.
SECTION 6.15. MARGIN REGULATIONS AND INVESTMENT COMPANY
ACT, ETC. No part of the proceeds of any Loan will be used for any purpose
which violates, or which would be inconsistent or not in compliance with, the
provisions of the applicable Margin Regulations. No Credit Party is an
"investment company" or a company "controlled" by an "investment company" (as
each of the quoted terms is defined or used in the Investment Company Act of
1940, as amended). No Credit Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or any foreign,
federal or local statute or regulation limiting its ability to incur
indebtedness for money borrowed, to guarantee such indebtedness or to pledge
any of its assets to secure such indebtedness, as contemplated by this
Agreement or by any other Credit Document.
SECTION 6.16. LABOR MATTERS. Neither Borrower nor any
Subsidiary of Borrower has experienced any strike, labor dispute, slow down or
work stoppage due to labor disagreements, and, to the best knowledge of
Borrower, there is no strike, dispute, slow down or work stoppage threatened
against Borrower or any Subsidiary. Except as set forth on Schedule 6.03
attached hereto, there are no claims or lawsuits which have been asserted or
instituted against Borrower on the basis that it did not perform in respect of
any undertakings made towards its employees or their representatives and no
basis for such claim or lawsuits exists except for such claims or lawsuits that
have not had, and could not reasonably be expected to have, a Material Adverse
Effect. Borrower has acted in all material respects in accordance with any
agreements entered into with representatives of its employees relating to their
relations with and obligations towards their employees.
SECTION 6.17. BROKERS. There are and will be no claims
against the Agent or any Lender for brokerage commissions, finder's fees or
investment banking fees in connection with the transactions contemplated by
this Agreement.
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SECTION 6.18. DISCLOSURE. Neither this Agreement nor
any other document, certificate or statement furnished to the Agent or any
Lender by or on behalf of Borrower or any other Credit Party in connection
herewith contains, in light of the circumstances under which furnished, any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not materially
misleading. There is no fact peculiar to Borrower or any of its Subsidiaries
which could reasonably be expected to have a Material Adverse Effect and which
has not been set forth in this Agreement or in the other documents,
certificates and statements furnished to the Agent or any Lender by or on
behalf of Borrower in connection with the transactions contemplated hereby.
SECTION 6.19. NO BURDENSOME RESTRICTIONS. None of the
Consolidated Companies is a party to or bound by any Contractual Obligation or
Requirement of Law which has resulted in or could reasonably be expected to
result in any Material Adverse Effect.
SECTION 6.20. PAYMENT AND DIVIDEND RESTRICTIONS.
Except as set forth on Schedule 6.20 attached hereto, or as provided in Section
8.05 hereof, none of the Consolidated Companies is a party to or subject to
any agreement or understanding restricting or limiting the payment of dividends
or other distributions by any such Consolidated Company.
SECTION 6.21. INSURANCE. Each of Borrower and its
Subsidiaries maintains insurance with respect to its respective properties and
businesses, with financially sound and reputable insurers, having coverages
against losses or damages of the kinds customarily insured against by reputable
companies engaged in the same or similar businesses, such insurance being in
amounts no less than those amounts which are customary for such companies under
similar circumstances. Each of Borrower and its Subsidiaries has paid all
insurance premiums due and owing with respect to such insurance policies and
coverages and such policies and coverages, are in full force and effect.
SECTION 6.22. REVISIONS OR UPDATES OF SCHEDULES.
Should any of the information or disclosures provided on any of the Schedules
attached hereto become incorrect in any material respect, the Borrower shall
provide promptly to the Agent and the Lenders in writing such revisions to such
Schedule as may be necessary to correct same, provided that no Schedule shall
be deemed to have been amended, modified or superseded by any such correction,
nor shall any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule be deemed to have been cured
thereby, unless and until the Required Lenders in their sole and absolute
discretion shall have accepted in writing such revisions to such Schedule.
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<PAGE> 53
ARTICLE VII.
AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, and unless
the Required Lenders expressly consent in writing to the contrary, Borrower
hereby expressly covenants and agrees (for itself and its Subsidiaries) that:
SECTION 7.01. FINANCIAL STATEMENTS AND NOTICES.
Borrower shall promptly deliver to the Agent and each Lender:
(a) within thirty (30) days after the end of each
month, commencing with the month of December, 1996 (but the
financial statements for the month of December, 1996, shall
not be due until February 14, 1997), consolidated and
consolidating statements of income and statements of cash
flows of Borrower and its Subsidiaries for such period and for
the period from the beginning of such fiscal year to the end
of such period, and consolidated and consolidating balance
sheets of Borrower and its Subsidiaries as of the end of such
period, setting forth in the case of each monthly statement in
comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP (subject to changes resulting from normal
year-end adjustments) but not audited and accompanied by
accounts receivable aging schedules for Borrower and each
Subsidiary in form and substance satisfactory to the Required
Lenders which schedules shall segregate such information for
Borrower and each Subsidiary and shall show the aggregate
dollar value of the accounts receivable for each such Person
and the age of individual items thereof as of the last day of
the relevant fiscal month;
(b) within forty-five (45) days after the end of each
fiscal quarter of Borrower, consolidated and consolidating
statements of income and statements of cash flows of Borrower
and its Subsidiaries for such period and for the period from
the beginning of such fiscal year to the end of such period,
and consolidated and consolidating balance sheets of Borrower
and its Subsidiaries as at the end of such period, setting
forth in the case of each quarterly statement in comparative
form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail, prepared in accordance
with GAAP (subject to changes resulting from normal year-end
adjustments), but not audited, and accompanied by (i)
schedules (in form and substance reasonably satisfactory to
the Required Lenders) of the Capitalized Lease Obligations,
the Intercompany Loans and all other Indebtedness for borrowed
money of each of the Borrower and its Subsidiaries outstanding
as of the end of such quarter, (ii) a schedule (in form and
substance reasonably satisfactory to the Required Lenders) of
all equipment or other fixed assets purchased as well as all
other capital expenditures made during such quarter by the
Borrower and any of its Subsidiaries, and (iii) a duly
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<PAGE> 54
completed and executed Compliance Certificate dated as of the
date of the delivery of such financial statements;
(c) within ninety (90) days after the end of each
fiscal year of Borrower, consolidated and consolidating
statements of income and statements of cash flows of Borrower
and its Subsidiaries for such year, and consolidated and
consolidating balance sheets of Borrower and its Subsidiaries
as at the end of such year, setting forth in each case in
comparative form corresponding figures from the preceding
annual audit, all in reasonable detail, prepared in accordance
with GAAP and reasonably satisfactory in scope to the Required
Lenders and audited in accordance with generally accepted
auditing standards and certified to Borrower by independent
public accountants of recognized standing selected by Borrower
and reasonably acceptable to the Required Lenders whose
certificate shall be unqualified, which financial statements
shall be accompanied by (i) a schedule (in form and substance
reasonably satisfactory to the Required Lenders) of the
Capitalized Lease Obligations, the Intercompany Loans and all
other Indebtedness for borrowed money of each of the Borrower
and its Subsidiaries outstanding as of the last day of such
fiscal year, and (ii) a duly completed and executed Compliance
Certificate dated as of the date of the delivery of such
financial statements;
(d) promptly upon receipt thereof, a copy of each
other report submitted to the Borrower or any Subsidiary by
its independent public accountants in connection with any
annual, interim or special audit made by them of the books of
the Borrower or any such Subsidiary (including, without
limitation any management report prepared in connection with
such accountants' annual audit of the Borrower and its
Subsidiaries);
(e) within twenty (20) days after delivery of each of
the quarterly and annual financial statements described in
paragraphs (b) and (c) above, Borrower also shall deliver to
each of the Lender and the Agent a management report
describing the operations and financial condition of the
Borrower and its Subsidiaries as of and for the quarter or
year then ended, which report shall include comparisons
between the current period and the comparable period of the
preceding fiscal year;
(f) not less than thirty (30) days after the beginning
of each fiscal year of Borrower, Borrower also shall provide
each of the Lenders and the Agent with a copy of the
Borrower's business plan for that fiscal year which shall
include month-by-month projections for each of the Borrower
and its Subsidiaries separately and for the Borrower on a
consolidated basis;
(g) prior to the closing of any Acquisition which
requires the Required Lenders' consent under Section 8.03 or
8.06 hereof or for which the proceeds of any Loan will be used
to pay all or any part of the purchase price thereof,
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Borrower will provide each of the Lenders and the Agent with a
copy of the term sheet, letter of intent and executive summary
of Borrower's "due diligence" findings for such Acquisition,
and to the extent that other relevant information regarding
any such Acquisition is prepared and distributed by Borrower
to its Board of Directors or any committee thereof, a copy of
such other information will be sent by Borrower to the Agent
and the Lenders at the time it is so made available to
Borrower's Board of Directors or any committee thereof;
(h) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and
reports as it shall send to its public stockholders, if any,
and copies of all registration statements and all reports
which it files with the SEC (or any governmental body or
agency succeeding to the functions of the SEC);
(i) promptly upon obtaining knowledge of any Default
or Event of Default, an Officer's Certificate specifying the
nature and period of existence thereof and what action
Borrower proposes to take with respect thereto;
(j) immediately upon becoming aware that the holder of
any evidence of indebtedness or any security of Borrower or
any Subsidiary has given notice or taken any other action with
respect to a claimed default or event of default with respect
to such indebtedness or security or event which, with the
giving of notice or passage of time, or both, would constitute
a default with respect to such indebtedness or security, an
Officer's Certificate specifying the notice given or action
taken by such holder and the nature of the claimed default or
event and what action Borrower or the Subsidiary is taking or
proposes to take with respect thereto;
(k) promptly after learning thereof, any (i) notice
that Borrower or any Subsidiary is not in compliance in all
material respects with all terms and conditions of any permit,
license or authorization which is required under Environmental
Laws, or that Borrower or any Subsidiary is not in compliance
in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained
in any applicable Environmental Laws; (ii) notice of any past,
present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans which, with
respect to Borrower or any Subsidiary, may materially
interfere with or prevent compliance in all material respects
or continued compliance in all material respects with any
applicable Environmental Laws; and (iii) notice or claim of
any civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against
Borrower or any Subsidiary relating in any way to any
applicable Environmental Laws;
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<PAGE> 56
(l) promptly after (i) the occurrence thereof, notice
of the institution by any Person of any action, suit or
proceeding or any governmental investigation or any
arbitration, before any court or arbitrator or any
governmental or administrative body, agency, or official,
against Borrower, any Subsidiary, or any material property of
any of them, in which the amount in controversy is stated to
be more than $1,000,000 individually or in the aggregate or,
where no amount in controversy is stated, which might, if
adversely determined, have a Material Adverse Effect or (ii)
the receipt of actual knowledge thereof, notice of the threat
of any such action, suit, proceeding, investigation or
arbitration, each such notice under this subsection to
specify, if known, the amount of damages being claimed or
other relief being sought, the nature of the claim, the Person
instituting the action, suit, proceeding, investigation or
arbitration, and any other significant features of the claim;
(m)(i) promptly after the occurrence thereof with
respect to any Plan of any Consolidated Company or any ERISA
Affiliate thereof, or any trust established thereunder, notice
of (x) a "reportable event" described in Section 4043 of ERISA
and the regulations issued from time to time thereunder (other
than a "reportable event" not subject to the provisions for
30-day notice to the PBGC under such regulations), or (y) any
other event which could subject any Consolidated Company to
any tax, penalty or liability under Title I or Title IV of
ERISA or Chapter 43 of the Code, or any tax or penalty
resulting from a loss of deduction under Sections 162, 404 or
419 of the Code, where any such taxes, penalties or
liabilities exceed or could exceed $250,000 in the aggregate;
(ii) promptly after such notice must be provided to
the PBGC, or to a Plan participant, beneficiary or alternative
payee, any notice required under Section 101(d), 302(f)(4),
303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or under
Section 401(a)(29) or 412 of the Code with respect to any Plan
of any Consolidated Company or any ERISA Affiliate thereof;
(iii) promptly after receipt, any notice received by
any Consolidated Company or any ERISA Affiliate thereof
concerning the intent of the PBGC or any other governmental
authority to terminate a Plan of such Company or ERISA
Affiliate thereof which is subject to Title IV of ERISA, to
impose any liability on such Company or ERISA Affiliate under
Title IV of ERISA or Chapter 43 of the Code;
(iv) promptly upon the filing thereof with the
Internal Revenue Service ("IRS") or the United States
Department of Labor ("DOL"), a copy of IRS Form 5500 or annual
report for each Plan of any Consolidated Company or ERISA
Affiliate thereof which is subject to Title IV of ERISA; and
(v) upon the request of the Agent, (x) true and
complete copies of any and all documents, government reports
and IRS determination or opinion letters
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or rulings for any Plan of any Consolidated Company from IRS,
PBGC or DOL, (y) any reports filed with the IRS, PBGC or DOL
with respect to a Plan of the Consolidated Companies or any
ERISA Affiliate thereof, or (z) a current statement of
withdrawal liability for each Multiemployer Plan of any
Consolidated Company or any ERISA Affiliate thereof;
(n) in the event David E. McDowell no longer serves as
chief executive officer or chairman of the Board of Directors
of Borrower, the Borrower shall give the Agent and each Lender
at least seven (7) Business Days prior written notice of the
appointment of his permanent successor, describing such
successor's qualifications for the position in sufficient
detail to enable the Required Lenders to determine whether the
successor is qualified or otherwise reasonably acceptable to
them in accordance with Section 9.01(xiv) hereof;
(o) promptly upon the existence or occurrence thereof,
notice of the existence or occurrence of (i) any Contractual
Obligation or Requirement of Laws described in Section 6.19,
(ii) any failure of any Consolidated Company to hold in full
force and effect those material trademarks, service marks,
patents, trade names, copyrights, licenses and similar rights
necessary for the normal conduct of its business which failure
has had or could reasonably be expected to have a Material
Adverse Effect, or (iii) any strike, labor dispute, slow down,
or work stoppage as described in Section 6.16 hereof which has
had or could reasonably be expected to have a Material Adverse
Effect;
(p) within thirty (30) days after the formation or
acquisition of any Subsidiary not already listed on Schedule
6.01(c), or any other event resulting in the creation of any
such new Subsidiary, notice of the formation or acquisition of
such Subsidiary or such occurrence, including a description of
the assets of such entity, the activities in which it will be
engaged, and such other information as the Agent may request
with respect thereto;
(q) not less than thirty (30) days prior written
notice of any proposed Material Subsidiary Asset Sale,
together with a written accounting on the date of the closing
of each Material Subsidiary Asset Sale of the Net Proceeds
thereof;
(r) within ten (10) Business Days after the end of
each fiscal quarter of Borrower, a written accounting of any
and all Other Asset Sales made during such quarter;
(s) promptly upon the occurrence thereof, notice of
the transfer of any assets from any Credit Party to any other
Consolidated Company that is not a Credit Party (in any
transaction or series of related transactions), excluding
sales or other transfers of assets in the ordinary course of
business (other than the Intercompany Loans), where the Asset
Value of such Assets is greater than $50,000;
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(t) on the last Business Day of each calendar week,
commencing with the calendar week in which the date of this
Agreement occurs, cash flow projections for the following
two-week period and a written comparison of each prior
period's projections to actual results in the form previously
submitted by Borrower to the Lenders; provided, however, that
as soon as available and in any event commencing on the
calendar week beginning March 31, 1997 such cash flow
projections shall be given for the following thirteen-week
period;
(u) within thirty (30) days after the end of each
month, commencing with the month of February, 1997, a full
reconcilement of cash spent by Borrower and its Subsidiaries,
during such period and for the period from the beginning of
such fiscal year to the end of such month, with respect to
reserves relating to prior restructuring charges (including
charges relating to Capitalized Lease Obligations and other
written-off equipment), which reconcilement shall be in such
detail as is reasonably satisfactory to the Lenders, and in
the event Borrower fails to deliver such reconcilement for any
month, the Lenders may cause their own financial analyst
( or such other financial analyst as may
be selected by the Lenders for such purpose) to prepare the
same at the Borrower's expense; and
(v) with reasonable promptness, such other information
relating to the operations, management, business and financial
condition of Borrower or its Subsidiaries or any Plan, as the
Agent or any Lender may reasonably request in writing from
time to time.
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<PAGE> 59
SECTION 7.02. INSPECTION OF PROPERTY.
(a) Borrower will permit any Person designated by the
Agent or any Lender in writing to visit and inspect any of the properties of
Borrower and its Material Subsidiaries, to examine the corporate books and
records of Borrower and its Material Subsidiaries and such other documents as
the Agent or any Lender may reasonably request and make copies thereof or
extracts therefrom, and to discuss the affairs, finances and accounts of any of
such corporations with the officers of Borrower and Borrower's Material
Subsidiaries and with Borrower's independent public accountants, all at such
reasonable times and as often as the Agent or such Lender may reasonably
request; provided, however, that if no Default or Event of Default has occurred
and is then continuing, the Agent or such Lender (as the case may be) shall be
required to provide Borrower's chief financial officer (with a copy to
Borrower's general counsel) with not less than five (5) days' prior written
notice of its intent to make or require such a visit, inspection, examination
or discussion.
(b) Borrower also shall provide the Lenders and the
Agent with reasonable access to Borrower's investment bankers for updates
(which may be provided by telephonic conference calls) at reasonable intervals
on the status of any proposed Material Subsidiary Asset Sales.
SECTION 7.03. BOOKS AND RECORDS. Borrower shall, and
shall cause each Material Subsidiary to, keep its books, records and accounts
in accordance with GAAP and practices applied on a basis consistent with
preceding years. Without limiting the generality of the immediately preceding
sentence, Borrower shall, and shall cause each Subsidiary to, keep complete and
accurate books and records for the Intercompany Loans. On the date of this
Agreement, Borrower shall cause all Intercompany Loans which may be then
outstanding to be evidenced by promissory notes from the borrowers thereof to
the lender or lenders thereof in the form and substance satisfactory to the
Required Lenders, and Borrower shall cause all such promissory notes to be
delivered to the Agent on or before the date hereof as collateral security for
the Obligations pursuant to the Security Agreements.
SECTION 7.04. MAINTENANCE OF INSURANCE. Borrower shall
maintain and cause each Subsidiary to maintain, with financially sound and
responsible insurers reasonably acceptable to the Required Lenders, insurance
with respect to its properties and business against such casualties and
contingencies (including worker's compensation and public liability, larceny,
embezzlement or other criminal misappropriation) and in such amounts as is
customary in the case of similarly situated corporations engaged in the same or
similar businesses. From time to time, upon written request by the Agent at
reasonable intervals, Borrower will deliver an Officer's Certificate specifying
the details of such insurance in effect.
SECTION 7.05. MAINTENANCE OF CORPORATE EXISTENCE,
PROPERTIES, FRANCHISES, ETC. Except to the extent otherwise permitted hereby,
Borrower and each Subsidiary will do or cause or cause to be done all things
reasonably necessary to preserve, renew and keep in full force and effect the
corporate existence of Borrower and its Subsidiaries and the patents,
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trademarks, service marks, trade names, service names, copyrights, licenses,
permits, franchises and other rights, including distributorship and franchise
agreements, that continue to be useful in some material respect to the business
of Borrower or such Subsidiary, and at all times maintain, preserve and protect
all patents, trademarks, service marks, trade names, service names, copyrights,
licenses, permits, franchises and other rights, including distributorship and
franchise agreements, that continue to be useful in some material respect to
the business of Borrower or such Subsidiary, and preserve all the remainder of
its property useful in the conduct of its business and keep the same in good
repair, working order and condition (ordinary wear and tear excepted), and from
time to time, make, or cause to be made, all needful and proper repairs,
renewals, replacements, betterments and improvements thereto so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
SECTION 7.06. PAYMENT OF TAXES AND CLAIMS. Borrower
and each Subsidiary will pay and discharge or cause to be paid and discharged
all taxes, assessments and governmental charges or levies imposed upon it or
upon its respective income and profits or upon any of its property, real,
personal or mixed or upon any part thereof, before the same shall become in
default as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might become a Lien or charge upon such properties
or any part thereof, provided that Borrower and its Subsidiaries shall not be
required to pay and discharge or cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be
timely contested in good faith by appropriate proceedings and it shall have set
aside on its books adequate reserves with respect to any such tax, assessment,
charge, levy or claim, so contested; and provided, further, that payment with
respect to any such tax, assessment, charge, levy or claim shall be made before
any property of Borrower or any Subsidiary shall be seized or sold in
satisfaction thereof.
SECTION 7.07. TYPE OF BUSINESS. Borrower will remain,
and shall cause each of its Subsidiaries to remain, substantially in the
business of providing business management services to physicians, hospitals and
other healthcare providers or organizations or in such other types of business
which are reasonably related or incidental thereto.
SECTION 7.08. COMPLIANCE WITH LAWS, ETC. Borrower
shall comply, and cause each of its Subsidiaries to comply, in all material
respects, with all Requirements of Law and Contractual Obligations applicable
to or binding on any of them, except where the failure to so comply would not
have a Material Adverse Effect.
SECTION 7.09. FINANCIAL COVENANTS. Borrower shall
comply with the following financial covenants:
(a) Minimum Consolidated EBITDA. Borrower's
Consolidated EBITDA for each period shown below shall be not
less than the amount shown below for such period under the
heading "Covenant Amount"; provided, however, that in the
event that a Material Subsidiary Asset Sale of HRI and/or all
of the BSG Subsidiaries occurs during or prior to any period
shown below, the amount of the Minimum Consolidated EBITDA
required hereunder for such period shall be reduced by the
amount shown below for such
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period under the heading "HRI" in the case of a Material
Subsidiary Asset Sale of HRI and/or "BSG" in the case of a
Material Subsidiary Asset Sale of all of the BSG Subsidiaries:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Covenant
Period Amount HRI BSG
----------------------------------------------------------------------------
<S> <C> <C> <C>
Two (2) fiscal quarters $ 30,000,000 $ 5,365,000 $ 6,242,000
ending June 30, 1997
----------------------------------------------------------------------------
Three (3) fiscal quarters $ 55,500,000 $ 8,813,000 $10,657,000
ending September 30, 1997
----------------------------------------------------------------------------
Four (4) fiscal quarters $ 87,000,000 $12,955,000 $16,804,000
ending December 31, 1997
----------------------------------------------------------------------------
Four (4) fiscal quarters $102,500,000 $16,401,000 $23,335,000
ending March 31, 1998
----------------------------------------------------------------------------
</TABLE>
(b) Minimum Consolidated Net Worth. Borrower's
Consolidated Net Worth as of the end of each fiscal quarter
ending on or after June 30, 1997 shall not be less than the
sum of (i) its Consolidated Net Worth as of the end of its
fiscal year ending December 31, 1996 less (ii) $12,000,000 plus
(iii) 100% of its cumulative positive Consolidated Net Income
after taxes for each fiscal quarter ending on or after June 30,
1997, less (iv) any amortization of any original issue discount
arising as a result of the Warrants or any shares of Borrower's
stock issued thereunder.
(c) Maximum Funded Debt Ratio. Borrower's Funded
Debt Ratio for each period shown below shall not exceed the
ratio shown below for such period:
<TABLE>
<S> <C>
Fiscal quarter ending June 30, 1997 - 5.0:1.0
Fiscal quarter ending September 30, 1997 - 3.4:1.0
Fiscal quarter ending December 31, 1997 - 2.8:1.0
Fiscal quarter ending March 31, 1998 - 2.2:1.0
</TABLE>
(d) Minimum Fixed Charge Coverage Ratio. Borrower's
Fixed Charge Coverage Ratio for each period shown below shall
be not less than the ratio shown below for such period:
<TABLE>
<S> <C>
Fiscal quarter ending June 30, 1997 - 0.85:1.0
Fiscal quarter ending September 30, 1997 - 1.05:1.0
Fiscal quarter ending December 31, 1997 - 1.20:1.0
Fiscal quarter ending March 31, 1998 - 1.45:1.0
</TABLE>
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<PAGE> 62
(e) Maximum Capital Expenditures. Borrower's Capital
Expenditures for each fiscal quarter shown below shall not
exceed the amount shown below for such period (but any unused
capacity in one quarter in any one fiscal year may be carried
forward to future quarters in such fiscal year):
<TABLE>
<S> <C>
Fiscal quarter ending March 31, 1997 - $12,000,000
Fiscal quarter ending June 30, 1997 - $12,000,000
Fiscal quarter ending September 30, 1997 - $ 8,000,000
Fiscal quarter ending December 31, 1997 - $ 8,000,000
Fiscal quarter ending March 31, 1998 - $11,000,000
</TABLE>
SECTION 7.10. ADDITIONAL CREDIT PARTIES. Promptly
after (a) any Person not listed on Schedule 6.01(b) becomes a Subsidiary after
the date hereof, or (b) the domestication of any Foreign Subsidiary as a
Domestic Subsidiary, Borrower shall execute and deliver, or cause to be
executed and delivered, (i) a supplement to the appropriate Pledge Agreement
from the direct parent company of such Subsidiary in substantially the same
form of Schedule 2 to such Pledge Agreement with respect to all capital stock
of such Subsidiary (but such pledge shall be limited to sixty-six percent (66%)
of such stock (or such lesser percentage as may be owned) if such Subsidiary is
a non-domesticated Foreign Subsidiary), (ii) a supplement to the Guaranty
Agreement from such Subsidiary (but not if it is a non-domesticated Foreign
Subsidiary) in substantially the form as Schedule 1 to the Guaranty Agreement,
(iii) if required under Section 4.05 hereof, a supplement to the appropriate
Security Agreement from such Subsidiary (but not if it is a non-domesticated
Foreign Subsidiary) in substantially the form of Schedule 2 to such Security
Agreement attached to this Agreement and (iv) if required under Section 4.05
hereof, Real Estate Collateral Documents evidencing the pledge by such
Subsidiary of all of its owned real property, together with the related
documents of the kind described in Sections 5.01(e), (g), (h), (j), (k), (l),
and (p) of this Agreement, all in form and substance reasonably satisfactory to
the Required Lenders.
SECTION 7.11. WARRANTS. On the date hereof, the
Borrower shall issue warrants (collectively, the "Warrants") for an aggregate
of two percent (2.0%) of the outstanding shares of its common stock to the
Lenders (with each Lender to receive its Pro Rata Share of such Warrants),
which Warrants shall vest as follows for all Lenders (with each Lender to
receive its Pro Rata Share of such vested Warrants): (i) Warrants for one
percent (1.0%) of the total outstanding shares of Borrower's common stock shall
vest on January 1, 1998 if on such date the Revolving Loan Commitments are
still in effect or any Obligations for the payment of money (other than (x)
indemnity obligations which are not yet due and payable or (y) Cash Management
Services Obligations) are still outstanding, and (ii) Warrants for an
additional one percent (1.0%) of the total outstanding shares of Borrower's
common stock shall vest on April 1, 1998 if on such date the Revolving Loan
Commitments are still in effect or any Obligations for the payment of money
(other than (x) indemnity obligations which are not yet due and payable or (y)
Cash Management Services Obligations) are still outstanding. All Warrants
shall be in the form of Exhibit J attached hereto. The Warrants shall be duly
executed and registered in such name or names and in such denominations as each
Lender shall have notified the Borrower and shall be deemed earned in
accordance with the terms and conditions of the Warrants.
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(b) The Borrower shall keep available for issuance
upon exercise of the Warrants the Warrant Shares deliverable upon exercise of
all Warrants from time to time outstanding. The Borrower will comply in all
respects with its obligations under the Warrants and shall take all steps as
shall be necessary to insure that the Lenders and any subsequent holders
thereof receive all of the benefits which they are intended to receive
thereunder.
SECTION 7.12. CHIEF FINANCIAL OFFICER; ADDITIONAL
FINANCIAL ADVISER.
(a) By March 31, 1997, Borrower shall hire a chief
financial officer on a permanent basis.
(b) If by June 30, 1997, the aggregate amount of
Revolving Loan Commitments has not been reduced to $200,000,000 or less,
Borrower shall, upon the written request of the Agent acting at the direction
of the Required Lenders and provided that Borrower has not already
independently done so, retain within fifteen (15) days after receipt of such
request an additional financial adviser of recognized national standing
selected by Borrower who will render customary financial advisory services to
Borrower, including without limitation the reassessment of the pricing and
feasibility of Borrower's planned Asset Sales.
ARTICLE VIII.
NEGATIVE COVENANTS
For so long as this Agreement is in effect, and unless
the Required Lenders expressly consent in writing to the contrary, Borrower
hereby expressly covenants and agrees (for itself and its Subsidiaries) as
follows:
SECTION 8.01. INDEBTEDNESS. Borrower will not, and
will not permit any Subsidiary to, create, incur, assume or suffer to exist any
Indebtedness, except
(a) Indebtedness evidenced by or arising under this
Agreement or any of the other Credit Documents;
(b) Unsecured current liabilities (not resulting from
any borrowing) incurred in the ordinary course of business for
current purposes, not represented by a promissory note or
other evidence of indebtedness;
(c) Indebtedness described in Schedule 8.01 attached
hereto and Guaranties permitted under Section 8.11 hereof;
(d) Capitalized Lease Obligations;
(e) Purchase Money Indebtedness (other than
Capitalized Lease Obligations) which at no time exceeds in
aggregate outstanding principal amount for all such
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Indebtedness combined a sum equal to the greater of (i)
$10,000,000 or (ii) ten percent (10%) of Borrower's
Consolidated Net Worth as of the end of its most
recently-completed monthly accounting period for which
financial statements have been delivered to Borrower pursuant
to Section 7.01 hereof;
(f) Indebtedness of the Borrower or any Subsidiary as
a counterparty on Interest Rate Contracts;
(g) Indebtedness of the Borrower or any Subsidiary as
an account party for any letter of credit issued by any
financial institution if such letter of credit is issued
solely as security for performance or payment by the Borrower
or such Subsidiary under any contract which is not otherwise
prohibited by this Agreement and which has been entered into
in the ordinary course of business of the Borrower or such
Subsidiary;
(h) Any Subordinated Debt incurred by the Borrower or
any Subsidiary in amounts and on other terms and conditions
which are satisfactory in all respects to the Required
Lenders;
(i) Intercompany Loans to the extent permitted under
Section 8.06 hereof; and
(j) Renewals or extensions of any Indebtedness
described in paragraphs (c), (d), (e), (f), (g), (h) or (i)
above provided that the principal amount thereof is not
increased beyond any applicable limit set forth above.
SECTION 8.02. LIENS. Borrower will not, and will not
permit any Subsidiary to, create, assume or suffer to exist any Lien upon any
of its property or assets, whether now owned or hereafter acquired, except
(a) Liens for taxes (including ad valorem taxes),
assessments or other governmental charges or levies not yet
due or which are being actively contested in good faith by
appropriate proceedings, if adequate reserves with respect
thereto are maintained on the books of Borrower or its
Subsidiaries, as the case may be, in accordance with GAAP;
(b) Statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law created in the ordinary course of business for
amounts not yet due or which are being contested in good faith
by appropriate proceedings, if adequate reserves with respect
thereto are maintained on the books of Borrower or its
Subsidiaries, as the case may be, in accordance with GAAP;
(c) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security
benefits or obligations or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and
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return-of-money bonds and other similar obligations, provided
that such Liens were not incurred in connection with the
borrowing of money or the obtaining of advances;
(d) Purchase Money Liens securing Purchase Money
Indebtedness to the extent permitted under Section 8.01 above;
(e) Zoning ordinances, easements, licenses,
restrictions on the use of real property and minor
irregularities in title thereto which do not materially impair
the use of such property in the operation of the business of
Borrower or any Subsidiary or the value of such property;
(f) Inchoate liens arising under ERISA to secure
current service pension liabilities as they are incurred under
the provisions of Plans from time to time in effect;
(g) Rights reserved to or vested in any municipality
or governmental, statutory or public authority to control or
regulate any property of Borrower or any Subsidiary, or to use
such property in a manner which does not materially impair the
use of such property for the purposes for which it is held by
Borrower or any Subsidiary; and
(h) Liens created under the Security Documents or
identified in Schedule 8.02 attached hereto and made a part
hereof by reference.
SECTION 8.03. MERGER AND SALE OF ASSETS. Borrower will
not, and will not permit any Subsidiary to, merge, consolidate or exchange
shares with any other corporation, or sell, lease or transfer or otherwise
dispose of all or substantially all of its assets (or any of its business
divisions) to any Person, other than sales, leases, transfers or other
dispositions of inventory or obsolete or unnecessary equipment in the ordinary
course of business, except
(a) any Subsidiary may merge or consolidate with
Borrower (provided that Borrower shall be the surviving
corporation therefrom) or with any one or more other
wholly-owned Subsidiaries;
(b) any Subsidiary may sell, lease, transfer or
otherwise dispose of all or any substantial part of its assets
to Borrower or another wholly-owned Subsidiary;
(c) the Other Asset Sales described on Schedule 8.03
attached hereto provided that the Net Proceeds thereof are
applied in accordance with Section 2.06 hereof; and
(d) all of the stock (or all or substantially of the
assets) of HRI and/or any or all of the BSG Subsidiaries may
be sold if and to the extent permitted by Section 4.17 hereof.
SECTION 8.04. ERISA MATTERS. Borrower shall not, nor
permit any Subsidiary to, take or fail to take any action with respect to any
Plan of any Consolidated Company or, with respect to its ERISA Affiliates, any
Plan which is subject to Title IV of ERISA or to continuation
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health care requirements for group health plans under the Code, including
without limitation (i) establishing any such Plan, (ii) amending any such Plan
(except where required to comply with applicable law), (iii) terminating or
withdrawing from any such Plan, or (iv) incurring an amount of unfunded benefit
liabilities, as defined in Section 4001(a)(18) of ERISA, or any withdrawal
liability under Title IV of ERISA with respect to any such Plan, without first
obtaining the written approval of the Required Lenders, where such actions or
failures could result in a Material Adverse Effect.
SECTION 8.05. DIVIDENDS, ETC. Borrower shall not
declare or pay any cash dividend on its capital stock or make any cash payment
to purchase, redeem, retire, or acquire any of its Subordinated Debt or capital
stock or any option, warrant or other right to acquire such Subordinated Debt
or capital stock.
SECTION 8.06. INVESTMENTS, ACQUISITIONS, ETC. Borrower
shall not, and shall not permit any Subsidiary to, make or have outstanding any
loan or advance to, or own, purchase or acquire any stock, obligations (other
than accounts receivable generated in the ordinary course of business) or
securities of, or any interest in, or make any capital contribution to, or
acquire all or substantially all of the assets of or any business division of,
any other Person, except that the Borrower and any Subsidiary may: (i) acquire
and own stock, obligations or securities received in settlement of debt created
in the ordinary course of business which is owing to the Borrower or such
Subsidiary; (ii) own, purchase or acquire (A) commercial paper, banker's
acceptances or certificates of deposit issued by any Lender (or its parent
holding company) or by any other United States commercial bank or enter into
repurchase agreements with such Lenders or banks with respect to obligations
described in this clause (ii), (B) obligations of reputable issuers located in
the United States which obligations have a short-term rating of A-1 or better
by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., (C)
obligations of the United States government or any agency thereof, and (D)
obligations guaranteed by the United States government or any agency thereof,
in each case such obligations described in this clause (ii) to be due within
one year and one day from the date of acquisition; (iii) endorse negotiable
instruments for collection or deposit in the ordinary course of business; (iv)
own stock of or other equity interests in the Initial Subsidiaries and any
other Subsidiary created by Borrower after the date hereof other than in
connection with an Acquisition (provided that Borrower complies with all
applicable requirements of Sections 6.01 and 7.10 hereof); (v) subject to the
provisions of Section 2.01(b) hereof, make Intercompany Loans to or hold any
obligations or securities of any of the Borrower's Subsidiaries so long as such
Intercompany Loans are evidenced by an Intercompany Note executed by such
Subsidiary and such Intercompany Note is delivered to the Agent as collateral
security for the Obligations pursuant to the terms of the Security Agreements,
(vi) make advances in the ordinary course of such Credit Party's business to
its officers and employees to cover travel, entertainment or moving expenses to
be incurred by them in connection with such Credit Party's business, and (vii)
in the case of MPSC only, Customer Advances so long as the aggregate
outstanding principal balances of all Customer Advances at any one time does
not exceed $1,000,000.
SECTION 8.07. SALE AND LEASE-BACK TRANSACTIONS.
Borrower will not, and will not permit any Subsidiary to, enter into or permit
to remain in effect any arrangement with any
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lender or investor or to which such lender or investor is a party providing for
the leasing by Borrower or any Subsidiary of real or personal property which
has been or is to be sold or transferred by Borrower or any Subsidiary to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or rental
obligations of Borrower or any Subsidiary.
SECTION 8.08. TRANSACTIONS WITH AFFILIATES. Borrower
will not, and will not permit any Subsidiary to, directly or indirectly
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, in the ordinary course of business or
otherwise, any Affiliate (other than another Consolidated Company), except upon
terms not less favorable to Borrower or the Subsidiary than if the relationship
of Affiliate did not exist.
SECTION 8.09. FISCAL YEAR CHANGE. Borrower shall not
change its fiscal year.
SECTION 8.10. USE OF PROCEEDS. Borrower shall not use
the proceeds of any of the Revolving Loans or the Swingline Loans for any
purpose other than as and to the extent permitted by Sections 2.01(b) or
Section 3.01(b) hereof, respectively.
SECTION 8.11. GUARANTIES. Borrower and its
Subsidiaries shall not become or remain liable with respect to any Guaranty,
except for (i) endorsements of instruments or items of payment for deposit or
collection in the ordinary course of business, (ii) any Guaranty Agreements
executed pursuant to this Agreement, (iii) any other Guaranties described on
Schedule 8.11 attached hereto, (iv) any Guaranties by any Consolidated Company
of any Indebtedness of another Consolidated Company if such Indebtedness is
permitted under Section 8.01 hereof, and (v) any Guaranties by any Consolidated
Company of any Contractual Obligations of another Consolidated Company incurred
in the ordinary course of the latter's business (other than Contractual
Obligations which constitute Indebtedness which is not permitted to be incurred
by the latter Consolidated Company under Section 8.01 hereof); provided,
however, that no Subsidiary of Borrower shall enter into after the date of this
Agreement any Guaranty of any Capitalized Lease Obligations of Borrower or
another of its Subsidiaries to any Lender or any Affiliate of a Lender without
the prior written consent of all Lenders.
SECTION 8.12. LIMITATION ON PAYMENT AND DIVIDEND
RESTRICTIONS. Borrower shall not create or otherwise cause or suffer to exist
or to become effective any consensual encumbrance or restriction on the ability
of any Consolidated Company to (i) pay dividends or make any other
distributions on such Consolidated Company's stock, (ii) pay any Indebtedness
owed to the Borrower or any other Consolidated Company, or (iii) transfer any
of its property or assets to the Borrower or any other Consolidated Company,
except any such consensual encumbrance or restriction existing under the Credit
Documents, and except with respect to clause (ii) above, restrictions contained
in agreements relating to Purchase Money Indebtedness and Capitalized Lease
Obligations that relate solely to the assets so financed and typical
non-assignment provisions contained in contracts, leases and licenses entered
into by Borrower or any other Consolidated Company in the ordinary course of
its business.
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SECTION 8.13. ACTIONS UNDER CERTAIN DOCUMENTS.
Borrower shall not cause or suffer to exist or become effective any
modification, replacement, cancellation or rescission of any of the
Subordinated Debt or any indentures, agreements or other documents evidencing
or governing the same, nor shall Borrower make any payment on any of the
Subordinated Debt (or redeem or purchase the same) in violation of any
subordination provisions governing such Indebtedness.
SECTION 8.14. CERTAIN LITIGATION PAYMENTS. Borrower
shall not use the proceeds of any of the Loans or the Collateral to pay more
than $1,500,000 in aggregate payments to or for the account of the claimants or
their counsel to settle or otherwise satisfy or resolve any of the litigation
described in item 2 of Schedule 6.03 attached hereto.
ARTICLE IX.
EVENTS OF DEFAULT
SECTION 9.01. EVENTS OF DEFAULT. Each of the following
events shall constitute an Event of Default under this Agreement:
(i) failure by Borrower to pay any of the Obligations
(whether principal, interest, fees or other amounts) when and
as the same become due and payable (whether at maturity, on
demand, or otherwise), and, in the case of any failure to pay
any interest, fees or other amounts (other than the principal
of the Loans) due hereunder, the continuation of such failure
for ten (10) days after the due date of such payment; or
(ii) Borrower or any Subsidiary shall (1) apply for or
consent to the appointment of or the taking of possession by a
receiver, custodian, trustee or liquidator of Borrower or any
Subsidiary or of all or a substantial part of the property of
Borrower or any Subsidiary, (2) admit in writing the inability
of Borrower or any Subsidiary, or be generally unable, to pay
the debts of Borrower or any Subsidiary as such debts become
due, (3) make a general assignment for the benefit of the
creditors of Borrower or any Subsidiary, (4) commence a
voluntary case under the Bankruptcy Code (as now or hereafter
in effect), (5) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of
debts, (6) fail to controvert in a timely or appropriate
manner, or acquiesce in writing to, any petition filed against
Borrower or any Subsidiary in an involuntary case under the
Bankruptcy Code, or (7) take any action for the purpose of
effecting any of the foregoing; or
(iii) a proceeding or case shall be commenced, without
the application of Borrower or any Subsidiary, in any court of
competent jurisdiction, seeking (1) the liquidation,
reorganization, dissolution, winding-up or composition or
readjustment of debts of Borrower or any Subsidiary, (2) the
appointment of a
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trustee, receiver, custodian, liquidator or the like of
Borrower or any Subsidiary or of all or any substantial part
of the assets of Borrower or any Subsidiary, or (3) similar
relief in respect of Borrower or any Subsidiary under any law
relating to bankruptcy, insolvency, reorganization, winding-up
or composition and adjustment of debts, and such proceeding or
case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be
entered and continue in effect, for a period of sixty (60)
days from commencement of such proceeding or case or the date
of such order, judgment or decree, or any order for relief
against Borrower or any Subsidiary shall be entered in an
involuntary case or proceeding under the Bankruptcy Code; or
(iv) any representation or warranty made by Borrower
herein or by Borrower or any other Credit Party in any of the
other Credit Documents shall be false or misleading in any
material respect on the date as of which made (or deemed
made); or
(v) any default shall occur in the performance or
observance of any term, condition or provision contained in
Section 6.01(b), 7.01(i), 7.01(j), 7.01(l), 7.02, 7.09, 7.10
or Article VIII of this Agreement; or
(vi) any default shall occur in the performance or
observance of any term, condition or provision contained in
this Agreement and not referred to in clauses (i) through (v)
above, which default shall continue for thirty (30) days after
the earlier of the date Borrower acquires knowledge thereof or
the Agent or any Lender gives Borrower written notice thereof;
(vii) any material provision of this Agreement or any
other Credit Document shall at any time for any reason cease
to be valid and binding in accordance with its terms on
Borrower or any Guarantor, or the validity, enforceability, or
priority thereof shall be contested by Borrower or any
Guarantor, or Borrower or any Guarantor shall terminate or
repudiate (or attempt to terminate or repudiate) any Credit
Document executed by it; provided, however, that this
paragraph (vii) shall not apply to the termination or release
of any Credit Document (or the termination of the application
thereof to a particular Credit Party or its assets) which
results solely from a sale or other disposition of such Credit
Party or its assets to the extent such sale or disposition
permitted under Section 4.17 hereof or to the extent otherwise
consented to by the Required Lenders (or all of the Lenders if
otherwise required under Section 11.08 of this Agreement); or
(viii) the occurrence of an Event of Default under (and
after giving effect to any notice and/or cure rights expressly
provided in) any of the other Credit Documents; or
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(ix) default in the payment of principal of or
interest on any other obligation of Borrower or any Subsidiary
for money borrowed (or any obligation under conditional sale
or other title retention agreement or any obligation secured
by purchase money mortgage or deed to secure debt or any
obligation under notes payable or drafts accepted representing
extensions of credit or on any Capitalized Lease Obligation),
or default in the performance of any other agreement, term or
condition contained in any indenture or agreement under which
any such obligation is created, guaranteed or secured if the
effect of such default is to entitle the holder or holders of
such obligation (or a trustee on behalf of such holder or
holders) to cause such obligation to become due prior to its
stated maturity; provided that in each and every case noted
above the aggregate then outstanding principal balance of the
obligation involved (or all such obligations combined) must
equal or exceed $1,000,000; or
(x) default in the payment of principal of or
interest on any obligation of Borrower or any Subsidiary for
money borrowed from any Lender or any Affiliate of a Lender
(other than an Obligation) or on any Capitalized Lease
Obligation with a Lender or any Affiliate of a Lender, or
default in the performance of any other agreement, term, or
condition contained in any agreement under which any such
obligation is created, guaranteed or secured if the effect of
such default is to entitle such Lender or Affiliate to then
cause such obligation to become due prior to its stated
maturity (the parties intend that a default may constitute an
Event of Default under this paragraph (x) even if such default
would not constitute an Event of Default under paragraph (ix)
immediately above); or
(xi) a judgment or order for the payment of money, in
excess of $1,000,000 or otherwise having a Material Adverse
Effect, except to the extent fully covered by insurance
meeting the requirements of Section 7.04 hereof and as to
which the insurer has not denied coverage in writing shall be
rendered against the Borrower or any of its Subsidiaries, and
such judgment or order shall not be released, vacated, stayed
or fully bonded-off within thirty (30) days after the date of
its issue or entry; or
(xii) the acquisition after the date of this Agreement
by any Person (other than a present officer of the Borrower),
or by any two or more Persons acting in concert (other than
the present officers of the Borrower), of beneficial ownership
(within the meaning of Rule 13d-3 of the SEC under the
Securities Exchange Act of 1934) of forty percent (40%) or
more of the outstanding voting stock of the Borrower; or
(xiii) a Plan of a Consolidated Company or a Plan
subject to Title IV of ERISA of any of its ERISA Affiliates:
(1) shall fail to be funded in accordance with the minimum
funding standard required by applicable law, the terms of such
Plan, Section 412 of the Code or Section 302 of ERISA for any
plan year or a
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waiver of such standard is sought or granted with respect to
such Plan under applicable law, the terms of such Plan or
Section 412 of the Code or Section 303 of ERISA; or (2) is
being, or has been, terminated or is the subject of
termination proceedings under applicable law or the terms of
such Plan; or (3) shall require a Consolidated Company to
provide security under applicable law, the terms of such Plan,
Section 401 or 412 of the Code or Section 306 or 307 of ERISA;
or (4) results in a liability to a Consolidated Company under
applicable law, the terms of such Plan or Title IV of ERISA;
and in any of the cases described in clauses (1), (2), (3) or
(4) above there shall result from any such failure, waiver,
termination or other event a liability to the PBGC or a Plan
that has had or could reasonably be expected to have a
Material Adverse Effect; or
(xiv) David E. McDowell shall no longer continue to
serve as the chairman of Borrower's Board of Directors and as
Borrower's chief executive officer unless, in the event of his
resignation, discharge, retirement, disappearance, disability
or death, he is replaced by Borrower's Board of Directors with
a chairman and chief executive officer who is reasonably
acceptable to the Required Lenders; or
(xv) if the Borrower shall at any time own and control
less than the percentage of the outstanding capital stock of
any Guarantor owned or acquired by the Borrower on the date
that such Person became a Guarantor hereunder unless either
(1) such Guarantor is dissolved or is merged into or
consolidated with another Consolidated Company or (2) such
Guarantor is HRI or any of the BSG Subsidiaries and the shares
of such Guarantor are sold in a transaction not requiring the
Required Lenders' consent under Section 4.17 hereof.
SECTION 9.02. REMEDIES. Upon the occurrence of an
Event of Default, the Agent shall, upon the written request of the Required
Lenders, exercise one or more of the following remedies:
(i) by written notice to Borrower, terminate the
Lenders' respective remaining Revolving Loan Commitments,
whereupon the Revolving Loan Commitments shall terminate
immediately and any remaining accrued but unpaid Commitment
Fees shall become forthwith due and payable without any other
notice or demand of any kind; and
(ii) by written notice to Borrower, declare the
principal of and any accrued interest on the Notes and all
other Obligations, to be, and whereupon the same shall become,
immediately due and payable, and the same shall thereupon
become due and payable without further demand, presentment,
protest or notice of any kind, all of which are hereby
expressly waived by Borrower; and
(iii) exercise all or any of its rights and remedies as
it may otherwise have under any of the other Credit Documents
or any applicable law;
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provided, however, that upon the occurrence of an Event of Default specified in
Section 9.01(ii) or Section 9.01(iii) above, the result which would occur upon
the giving of notice pursuant to Section 9.02(i) and (ii) shall occur
automatically without the giving of any such notice. No failure or delay on
the part of the Agent or the Lenders to exercise any right or remedy hereunder
or under the Credit Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy hereunder preclude any
further exercise thereof or the exercise of any further right or remedy
hereunder or under the Credit Documents. No exercise by the Agent or the
Lenders of any remedy under the other Credit Documents shall operate as a
limitation on any rights or remedies of the Agent or the Lenders under this
Agreement, except to the extent of moneys actually received by the Agent or the
Lenders under the other Credit Documents.
ARTICLE X.
THE AGENT
SECTION 10.01. APPOINTMENT OF AGENT. is
hereby appointed by the Lenders to be the Agent with full power and
authority to act as herein specified. Each Lender hereby irrevocably
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and the other Credit Documents and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated
to or required of the Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto. The Agent may perform any of its
duties hereunder by or through its agents or employees.
SECTION 10.02. NATURE OF DUTIES OF AGENT. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement and the other Credit Documents. Neither the Agent nor any of
its officers, directors, employees or agents shall be liable for any action
taken or omitted by it as such hereunder or in connection herewith, unless
caused by its or their gross negligence or willful misconduct. The duties of
the Agent shall be mechanical and administrative in nature; the Agent shall not
have by reason of this Agreement any fiduciary duties to any Lender; and
nothing in this Agreement, express or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of this
Agreement or the other Credit Documents except as expressly set forth herein or
therein.
SECTION 10.03. LACK OF RELIANCE ON AGENT.
(a) Independently and without reliance upon the Agent,
each Lender, to the extent it deems appropriate, has made and shall continue to
make (i) its own independent investigation of the financial condition and
affairs of the Borrower and the other Credit Parties in connection with the
taking or not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of the Borrower and the other Credit Parties,
and, except as expressly provided in this Agreement, the Agent shall have no
duty or responsibility, either initially or on a continuing basis, to provide
any Lender with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at any time or
times thereafter.
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(b) The Agent shall not be responsible to any Lender
for any recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, priority or sufficiency of this Agreement, the
Notes, the Security Documents, or any other Credit Documents, or the financial
condition of the Borrower or any other Credit Party, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Notes, the Security Documents
or the other Credit Documents, or the financial condition of the Borrower or
any other Credit Party, or the existence or possible existence of any Default
or Event of Default.
SECTION 10.04. CERTAIN RIGHTS OF AGENT. If the Agent
shall request instructions from the Required Lenders with respect to any act or
action (including the failure to act) in connection with this Agreement or any
other Credit Document, the Agent shall be entitled to refrain from such act or
taking such action unless and until the Agent shall have received instructions
from the Required Lenders; and the Agent shall not incur liability to any
Person by reason of so refraining. Without limiting the foregoing, but subject
to the terms of Section 11.08 hereof, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders.
Section 10.05. Reliance by Agent. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cable gram, radiogram, order or other documentary,
teletransmission or telephone message believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person.
The Agent may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
SECTION 10.06. INDEMNIFICATION OF AGENT. To the extent
that Agent is not reimbursed and indemnified by the Borrower, the Lenders will
reimburse and indemnify the Agent, ratably according to their respective Pro
Rata Shares of the Lenders' total outstanding Revolving Loan Commitments (or,
if the Revolving Loan Commitments are no longer outstanding, according to their
respective pro rata shares of the total outstanding Obligations), for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in performing its duties
hereunder, in any way relating to or arising out of this Agreement or any of
the other Credit Documents; provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suites, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct.
SECTION 10.07. AGENT IN ITS INDIVIDUAL CAPACITY. With
respect to its Revolving Loan Commitments under this Agreement or any of the
other Credit Documents, the Loans made by it, and the Notes issued to it, the
Agent shall have the same rights and powers hereunder as
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any other Lender and may exercise the same as though it were not performing the
duties specified herein; and the terms "Lenders", "Required Lenders", or any
similar terms used herein shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent may accept
deposits from, lend money to, and generally engage in any kind of banking,
trust, financial advisory or other business with the Borrower or any affiliate
of the Borrower as if it were not performing the duties specified herein, and
may accept fees and other consideration from the Borrower for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
SECTION 10.08. HOLDERS OF NOTES. The Agent may deem
and treat the payee of any Note as the owner thereof for all purposes hereof
unless and until a written notice of the assignment or transfer thereof shall
have been filed with the Agent pursuant to Section 11.05 below. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Note or
any Note issued in exchange therefor.
SECTION 10.09. SUCCESSOR AGENT.
(a) The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower and may be removed at any time
with or without cause by the Required Lenders. Upon any such resignation or
removal, the Required Lenders shall have the right, upon five days' notice to
the Borrower, to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Agent, then, upon
five days' notice to the Borrower, the retiring Agent may, on behalf of the
Borrower, appoint a successor Agent, which shall be a bank which maintains an
office in the United States, or a commercial bank organized under the laws of
the United States of America or any State thereof, or any Affiliate of such
bank, having a combined capital and surplus of at least $100,000,000. Unless
any such successor Agent is already a Lender hereunder, such Agent's long-term
debt, if rated by Standard & Poor's Corporation or Moody's Investors Service,
Inc., must have a rating of not less than "BBB-" or "Baa 3", respectively, at
the time of its appointment, except to the extent permitted by the Borrower.
Each such successor Agent must be acceptable to the Borrower; provided,
however, that (i) Borrower agrees not to unreasonably withhold or delay such
acceptance and (ii) Borrower shall have no such acceptance right at any time
when a Default or Event of Default has occurred and is continuing.
(b) 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 under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article X shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
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SECTION 10.10. SECURITY DOCUMENTS, NOTICE OF DEFAULTS,
ETC.
(a) Each Lender hereby authorizes the Agent to enter
into each of the Security Documents and to take all actions contemplated
thereby. All rights and remedies under the Security Documents may be exercised
by the Agent for the benefit of the Lenders and the other beneficiaries thereof
upon the terms thereof. With the consent of the Required Lenders, the Agent
may assign its rights and obligations as Agent under any of the Security
Documents to any affiliate of the Agent or to any trustee, which assignee in
each such case must assume all obligations of the Agent, and thereafter shall
be entitled to all the rights of the Agent, under the applicable Security
Document and all rights hereunder of the Agent with respect to the applicable
Security Document.
(b) In each circumstance where, under any provision of
any Security Document, the Agent shall have the right to grant or withhold any
consent, exercise any remedy, make any determination or direct any action by
the Agent under such Security Document, the Agent shall act in respect of such
consent, exercise of remedies, determination or action, as the case may be,
with the consent of and at the direction of the Required Lenders; provided,
however, that no such consent of the Required Lenders shall be required with
respect to any consent, determination or other matter that is, in the Agent's
judgment, ministerial or administrative in nature. In each circumstance where
any consent of or direction from the Required Lenders is required, the Agent
shall send to the Lenders a written notice setting forth a description in
reasonable detail of the matter as to which consent or direction is requested
and the Agent's proposed course of action with respect thereto. In the event
the Agent shall not have received a response from any Lender within ten (10)
Business Days after the giving of such notice, such Lender shall be deemed to
have agreed to the course of action proposed by the Agent.
(c) The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall promptly give notice thereof to the other Lenders. The
Agent shall take such action with respect to such Default or Event of Default
as shall be reasonably directed by the Required Lenders; provided that unless
and until the Agent shall receive such directions, the Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable and in
the best interest of the Lenders.
(d) All references in this Article X or in any
Security Document to any Lender shall be deemed to include, without limitation,
such Lender (or any Affiliate thereof) which is the holder of any Cash
Management Services Obligations.
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ARTICLE XI.
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and
other communications hereunder shall be in electronic, telephonic (confirmed in
writing) or written (including telecopier or similar writing) form and shall be
given to the party to whom sent, addressed to it, if directed to the Agent, to:
<TABLE>
<S> <C>
Attn:
Telecopy:
and if directed to Borrower, to:
Medaphis Corporation
2840 Cumberland Parkway
Suite 300
Atlanta, Georgia 30339
Attn: Chief Financial Officer
Telecopy: (770) 444-4503
with a copy to: Medaphis Corporation
2840 Cumberland Parkway
Suite 300
Atlanta, Georgia 30339
Attn: General Counsel
Telecopy: (770) 444-4502
</TABLE>
and if directed to any Lender, to its address as shown on Annex I attached
hereto, or to such other address or telephone or telecopier number as any such
party may hereafter specify for the purpose by notice to the other parties.
Each such notice, request or communication shall be effective (i) if given by
telecopy, when such communication is transmitted to the telecopy number herein
specified, (ii) if given by mail, three (3) Business Days after such
communication is deposited in the United States mail with first class postage
prepaid, return receipt requested, addressed as aforesaid, (iii) if sent for
overnight delivery by Federal Express or other reputable national overnight
delivery service, one (1) Business Day after such communication is entrusted to
such service for overnight delivery and with recipient signature required,
addressed as aforesaid, or (iv) if given by any other means, when delivered at
the address of the party to whom such notice is being delivered.
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SECTION 11.02. NO WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of the Agent or any Lender in exercising any right
or remedy hereunder and no course of dealing between any Credit Party and the
Agent or any Lender shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy hereunder or under the Notes preclude
any other or further exercise thereof or the exercise of any other right or
remedy hereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Agent or any
Lender would otherwise have. No notice to or demand on any Credit Party not
required hereunder or under the Note in any case shall entitle any Credit Party
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or any Lender to any other or
further action in any circumstances without notice or demand.
SECTION 11.03. PAYMENT OF EXPENSES; INDEMNITY.
(a) Borrower shall:
(i) whether or not the transactions hereby
contemplated are consummated, pay all reasonable out-of-pocket
costs and expenses of the Agent incurred in connection with
the administration (both before and after the execution hereof
and including advice of counsel as to the rights and duties of
the Agent with respect thereto) of, or in connection with the
preparation, execution and delivery of, preservation of rights
under, enforcement of, or any refinancing, renegotiation or
restructuring of, this Agreement or any other Credit Document
or any instruments referred to therein or any amendment,
waiver or consent relating thereto, including, without
limitation, the reasonable fees and disbursements of counsel
for the Agent (including further, without limitation, the
allocated cost of in-house counsel) and
(ii) pay and hold each Lender harmless from and against
any and all present and future stamp, documentary, property,
ad valorem or other similar non-income taxes with respect to
this Agreement, any of the Notes or any other Credit
Documents, any Collateral described therein, or any payments
due thereunder, and save each Lender harmless from and against
any and all liabilities with respect to or resulting from any
delay or omission to pay such taxes.
(b) In addition to the other amounts payable by
Borrower under this Agreement (including, without limitation, subsection (a)
above), Borrower hereby agrees to pay and indemnify each of the Agent and the
Lenders from and against all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses,
including further, without limitation, the allocated cost of in-house counsel)
which the Agent or such Lender may (other than as a result of the gross
negligence or willful misconduct of such Person) incur or be subjected to as a
consequence, directly or indirectly, of (i) any actual or proposed use of any
proceeds of the Loans or any Credit Party's entering into or performing under
any Credit Document, (ii) any breach by the Borrower or any of its Subsidiaries
of any warranty, term or condition in, or the occurrence of any other default
under, this Agreement or
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any of the other Credit Documents, including without limitation all reasonable
attorney's fees or expenses resulting from the settlement or defense of any
claims or liabilities arising as a result of any such breach or default, (iii)
allegations of participation or interference by the Agent or any Lender in the
management, contractual relations or other affairs of the Borrower or any
Subsidiary, (iv) the Agent's or any Lender's holding any Lien on or
administering any of the Collateral, (v) allegations that the Agent or any
Lender has joint liability with the Borrower or any Subsidiary to any third
party for any reason, or (vi) any suit, investigation or proceeding as to which
the Agent or any Lender is involved as a consequence, directly or indirectly,
of its execution of this Agreement or any of the other Credit Documents, the
making of any Loan, the holding of any Lien on any of the Collateral or any
other event or transaction contemplated by this Agreement or any of the Credit
Documents.
(c) Notwithstanding anything to the contrary in this
Section 11.03, (i) Borrower shall be obligated to pay, without limitation, the
respective reasonable attorney's fees, adviser fees (including, without
limitation, the allocated cost of in-house counsel), and other expenses of each
of , , and relating to this
Agreement and all related transactions and (ii) Borrower shall be obligated to
pay each other Lender's reasonable attorney's fees (including, without
limitation, the allocated cost of in-house counsel), other adviser's fees and
other expenses incurred from and after December 11, 1996 with respect to this
Agreement and all related transactions; provided, however, that so long as no
Default or Event of Default has occurred and is then continuing, Borrower's
liability for the attorney's fees (including, without limitation, the allocated
cost of in-house counsel), other adviser's fees and other expenses incurred by
any Lender in any one calendar month shall not exceed $15,000.
SECTION 11.04. RIGHT OF SET-OFF.
(a) To the fullest extent permitted by law, upon the
occurrence and during the continuance of any Event of Default, each Lender is
hereby authorized at any time and from time to time, without prior notice to
Borrower (any such notice being expressly waived by Borrower), to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of Borrower against any of the Obligations
of Borrower now or hereafter existing under this Agreement, or any of the other
Credit Documents, irrespective of whether such Lender shall have made any
demand hereunder or thereunder and although such obligations may be unmatured.
Each Lender shall endeavor in good faith to give prompt notice of any such
set-off to the Borrower, the Agent and each other Lender as promptly as
practical after such set-off has occurred.
(b) Each Lender agrees promptly to notify Borrower or
the Agent after any set-off and application, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
Subject to the provisions of subsection (a), the rights of each Lender under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Lender may have.
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(c) The proceeds of any Lender's exercise of any
set-off rights as aforesaid shall be shared with the Agent and the other
Lenders to the extent required under Section 4.09 above.
SECTION 11.05. ASSIGNMENTS AND PARTICIPATIONS.
(a) No Lender may assign all or any portion of its
rights and obligations under this Agreement to another Person without first
obtaining the prior written consent of the Agent to the proposed assignment,
and the consent of the Agent to any such assignment shall not be unreasonably
withheld or delayed.
(b) If the Agent gives its written consent to an
assignment, then the following provisions shall apply to such assignment:
(i) Each such assignment shall be for a fixed
percentage of all or a certain portion of the rights and
obligations of the assigning Lender (the "Assigning Lender")
under this Agreement;
(ii) The amount of the Assigning Lender's Revolving
Loan Commitments (determined as of the date of the Assignment
and Acceptance Agreement with respect to such assignment)
being assigned shall be not less than $5,000,000 (or such
lesser sum as may equal 100% of the Assigning Lender's
Revolving Loan Commitment as in effect immediately prior to
such assignment); and
(iii) The Assigning Lender shall pay the Agent an
administrative fee of $2,500 upon the occurrence of such
assignment.
(c) From and after the Effective Date (as defined in
the related Assignment and Acceptance Agreement) of each assignment,
(i) the assignee shall be a party hereto and, to the
extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance
Agreement, shall have the rights and obligations of a Lender
hereunder; and
(ii) the Assigning Lender shall, to the extent that
rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance Agreement,
relinquish its rights and be released from its obligations
under this Agreement, and, in the case of an Assignment and
Acceptance Agreement covering all or the remaining portion of
an Assigning Lender's rights and obligations under this
Agreement, such Assigning Lender shall cease to be a party
hereto, but the provisions of this Agreement shall inure to
its benefit as to any actions taken or omitted be taken by it
or on its behalf while it was a Lender under this Agreement.
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(d) By executing and delivering an Assignment and
Acceptance Agreement, the Assigning Lender and the assignee represent and
warrant to each other, the Borrower, the Agent and the other Lenders as
follows:
(i) other than as expressly provided in such
Assignment and Acceptance Agreement, such Assigning Lender
makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement
or any of the other Credit Documents or with respect to the
execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any of the other
Credit Documents;
(ii) the Assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any of the other Credit
Parties or the performance or observance by the Borrower or
the other Credit Parties of their respective obligations under
this Agreement or any of the other Credit Documents;
(iii) the assignee has received a copy of this Agreement
and the Security Documents, together with copies of such
financial statements 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
Agreement;
(iv) such assignee will, independently and without
reliance upon the Agent, the Assigning Lender or any other
Lender and based on such documents and information as it shall
be appropriate at the time, continue to make its own credit
decision in taking or not taking any action under this
Agreement or the other Credit Documents;
(v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf hereunder and to
exercise such powers under this Agreement as are delegated to
the Agent by the terms hereof, together with such powers as
are incidental thereto; and
(vi) such assignee shall perform in accordance with the
terms hereof all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender,
including without limitation its obligation hereunder to fund
its portion of any Loans it is required to fund hereunder.
(e) Upon its receipt of an Assignment and Acceptance
Agreement executed by an Assigning Lender and an assignee, together with the
Note subject to such assignment, and provided such assignment satisfies all
other requirements of this Section 11.05, the Agent shall:
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(i) accept such Assignment and Acceptance Agreement;
(ii) give notice thereof to the Borrower and the other
Lenders within five (5) days after its receipt of such notice,
and the Borrower (at its own expense) shall execute and
deliver to the Agent in exchange for the surrendered Note a
new Note payable to the order of such assignee in an amount
equal to the Revolving Loan Commitment assumed by such
assignee pursuant to such Assignment and Acceptance Agreement
and, if the assigning Lender has retained a Revolving Loan
Commitment hereunder, a new Note payable to the order of the
Assigning Lender in an amount equal to the Revolving Loan
Commitment retained by such Assigning Lender hereunder (such
new Note shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Note, shall
be dated the date of the surrendered Note and shall otherwise
be in substantially the form of Exhibit A-1 and Exhibit A-2
attached hereto, as appropriate, and the Note surrendered by
the Assigning Lender shall be returned by the Agent to the
Borrower marked "cancelled"); and
(iii) promptly issue to the Borrower and each of the
Lenders a revised Annex I to this Agreement reflecting such
assignment, which revised Annex I shall supersede and replace
the prior version thereof and shall be substituted by each
party in lieu thereof.
(f) Any Lender may grant participation interests to
participants of any and all of such Lender's rights or obligations under this
Agreement and any other Credit Document; provided, however, that unless
otherwise consented to in writing by the Agent: (i) the Agent and the Borrower
shall continue to deal solely with such Lender, (ii) the participant shall not
have any direct rights under this Agreement or any other Credit Document,
except as provided below, and (iii) the participant's rights against such
Lender with respect to its participation shall be those set forth in the
agreement executed by such Lender in favor of such participant, except that no
holder of a participation shall be entitled to require such Lender to take or
omit to take any action under this Agreement or any other Credit Documents
other than action directly affecting the principal amount of, or any payment
date for interest or principal on, the Loans or any reduction in the rate of
interest or fees payable with respect to the Loans or the Revolving Loan
Commitments or extending the Credit Expiration Date. No participant shall have
any direct rights against any Credit Party but shall only have rights derived
from the Lender which granted such participant's participation interest. Each
Lender shall promptly notify the Agent of each such participation interest
granted by such Lender.
(g) Any Lender may at any time assign all or any
portion of its rights in this Agreement and the Notes issued to it to a Federal
Reserve Bank; provided, that no such assignment shall release such Lender from
any of its obligations hereunder.
(h) If (i) any Taxes referred to in Section 4.04(e)
have been levied or imposed so as to require withholdings or deductions by
Borrower and payment by Borrower of additional amounts to any Lender as a
result thereof, or (ii) any Lender shall make demand for payment of
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any material additional amounts as compensation for increased costs pursuant to
Section 4.08 or for its reduced rate of return pursuant to Section 4.06, then
and in such event, upon request from Borrower delivered to such Lender and the
Agent, such Lender shall assign, in accordance with and subject to the
provisions of Section 11.05 hereof, all of its rights and obligations under
this Agreement and the other Credit Documents to another Lender (or another
Person selected by Borrower who is an Eligible Assignee acceptable to the
Agent), in consideration for the payment by such assignee to such Lender of the
principal of, and interest on, all outstanding Loans of such Lender accrued
through the date of such assignment, and the assumption by such assignee of
such Lender's Revolving Loan Commitments hereunder, together with the payment
to such Lender of any and all other amounts owing to such Lender under any
provisions of this Agreement or the other Credit Documents accrued through the
date of such assignment.
SECTION 11.06. FURTHER ASSURANCES. Upon notice from
the Agent, Borrower will, at any and all times, execute and deliver all such
further documents, assignments, recordings, filings, transfers and assurances
(other than Lessor Waivers and Consents) as may be reasonably necessary for the
better assuring and confirming of all of the rights, revenues and other funds
pledged or assigned to or mortgaged for the payment of its obligations
hereunder, or intended so to be. Borrower hereby authorizes and empowers the
Agent to file any financing or continuation statement or any amendments thereto
with respect to any of the Collateral and the Agent's Liens therein or in
accordance with the Uniform Commercial Code of the State of Georgia or any
other applicable jurisdiction without the signature of Borrower.
SECTION 11.07. BENEFIT OF AGREEMENT. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto; provided
that Borrower may not assign or transfer any of its interest hereunder without
the prior written consent of the Required Lenders and the Lenders may not
assign or transfer any of their interests hereunder except in accordance with
Section 11.05 hereof.
SECTION 11.08. AMENDMENTS; EXERCISE OF DISCRETION.
(a) Except for any revisions of Annex I hereto made in
accordance with Section 2.05, 2.06, 3.05 or 11.05 hereof, no amendment or
waiver of any provision of this Agreement or the other Credit Documents, nor
consent to any departure by the Borrower or any other Credit Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided that no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders, do any of the following: (i) waive any of the
conditions specified in Section 5.01 hereof, (ii) increase the Revolving Loan
Commitments of any or all of the Lenders, increase the Swingline Loan Limit or
subject any or all of the Lenders to any additional obligations, (iii) reduce
the principal of, or interest or fees on, any of the Loans or Revolving Loan
Commitments, (iv) extend the Credit Expiration Date or the Swingline
Termination Date or postpone any date fixed for payment of any principal,
interest or fees due hereunder or under any of the Notes (other than the
extension of the July 31, 1997 Revolving Loan Commitment reduction set forth in
Section 2.06(a) hereof to a date not later than September 30, 1997 which may be
granted by the Required Lenders in
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writing in their discretion), (v) change the percentage of any of the Revolving
Loan Commitments (except to the extent permitted under Sections 2.05, 2.06,
3.05 or 11.05 hereof), (vi) change the definition of "Required Lenders" as used
herein, or otherwise change the number or identity of Lenders which shall be
required for the Agent or the Lenders (or any of them) to take or refrain from
taking any action hereunder, (vii) except as required by Section 4.17 hereof,
release any of the Credit Parties from liability for any of the Obligations or
release any material portion of the Collateral, or (viii) amend this Section
11.08(a), (ix) waive or amend, or consent to any departure from, any of the
provisions of Sections 2.01(c) hereof, (x) waive or amend Section 8.06's
prohibition on Acquisitions or consent to any Acquisition by Borrower or any of
its Subsidiaries, or (xi) waive or amend, or consent to any departure from, the
provisions of Section 8.11 which prohibit any Subsidiary of Borrower from
entering into after the date of this Agreement any Guaranty of any Capitalized
Lease Obligations of Borrower or another of its Subsidiaries to any Lender or
any Affiliate of any Lender.
(b) Unless otherwise specifically indicated, if any
agreement, certificate or other writing, or any action taken or to be taken, is
by the terms of this Agreement required to be satisfactory to the Agent, the
Required Lenders or any Lender, the determination of such satisfaction shall be
made by the Agent, the Required Lenders or such Lender (as the case may be) in
such Person's or Persons' sole and exclusive judgment.
(c) Notwithstanding anything in this Section 11.08 to
the contrary, no amendment, waiver or consent shall affect the rights or duties
of the Agent under this Agreement or any other Credit Document unless it is
consented to in writing by the Agent.
SECTION 11.09. TIME OF ESSENCE. Time is of the essence
of this Agreement and each of the other Credit Documents.
SECTION 11.10. GOVERNING LAW. This Agreement is
intended to be performed in the State of Georgia, and shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Georgia.
SECTION 11.11. COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
SECTION 11.12. EFFECTIVENESS; SURVIVAL.
(a) This Agreement shall become effective on the date
on which all of the parties hereto shall have signed a copy hereof (whether the
same or different copies) and the Agent shall have received the same.
(b) All representations and warranties made herein, in
the certificates, reports, notices, and other documents delivered pursuant to
this Agreement shall survive the execution and delivery of this Agreement, the
other Credit Documents, and such other agreements and
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documents, the making of the Loans hereunder, the execution and delivery of the
Notes and the exercise or expiration of the Warrants.
SECTION 11.13. SEVERABILITY. In case any provision in
or Obligation under this Agreement or the other Credit Documents shall be
invalid, illegal or unenforceable, in whole or in part, in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
SECTION 11.14. INDEPENDENCE OF COVENANTS. All
covenants hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or be otherwise within the limitation
of, another covenant, shall not avoid the occurrence of a Default or an Event
of Default if such action is taken or condition exists.
SECTION 11.15. HEADINGS DESCRIPTIVE. The headings of
the several sections and subsections of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.
SECTION 11.16. TERMINATION OF AGREEMENT. At such time
as (i) none of the Lenders is obligated any longer under this Agreement
(whether by the terms hereof or as a result of a release of such obligations by
the Borrower) to make any further Loans, and (ii) all Obligations for the
payment of money (other than (x) indemnity obligations not yet due and payable
and (y) Cash Management Services Obligations) have been paid and satisfied in
full, this Agreement and the other Credit Documents shall terminate and each
Lender shall surrender to the Borrower any Note which such Lender then holds,
and each Lender and the Agent shall promptly release, or cause to be released,
all Liens granted by any Credit Party under the Credit Documents as security
for any of the Obligations; provided, however, that any and all indemnity
obligations of Borrower or any Subsidiary to the Agent or the Lenders arising
hereunder or under any of the other Credit Documents shall survive the
termination of this Agreement or such other Credit Documents.
SECTION 11.17. ENTIRE AGREEMENT. This Agreement and
the other Credit Documents constitute the entire agreement among the Credit
Parties, the Agent and the Lenders with respect to Revolving Loan Commitments,
the Loans, the other Obligations and the Collateral and supersede all prior
agreements, representations and understandings related to such subject matters.
SECTION 11.18. CONFIDENTIALITY. Unless otherwise
agreed to in writing by the Borrower, the Agent and each Lender hereby agree to
keep all Proprietary Information confidential and not to disclose or reveal any
Proprietary Information to any Person other than its (or its Affiliates)
directors, officers, employees, agents or representatives who reasonably
require such information in connection with their activities concerning this
Agreement or the transactions contemplated hereby and to actual or potential
Lenders, assignees and participants who are bound by similar confidentiality
provisions; provided, however, that the Agent and any
-79-
<PAGE> 85
Lender may disclose Proprietary Information (a) as required by any applicable
laws, rules, regulations or judicial process, (b) on a confidential basis to
its attorneys, accountants and other advisors and (c) to bank regulatory
authorities or other governmental authorities.
SECTION 11.19. ADDITIONAL PROVISIONS.
(a) The Borrower hereby represents and warrants that
there are no claims, causes of action, suits, debts, Liens, obligations,
liabilities, demands, losses, costs or expenses (including attorney's fees) of
any kind, character, or nature whatsoever, fixed or contingent, which the
Borrower or any of its Subsidiaries may have or claim to have against any of
the Lenders or the Agent and which arise out of or are connected with any act
of commission or omission of any of the Lenders or the Agent existing or
occurring prior to the execution and delivery of this Agreement, including
without limitation, any claims, liabilities or obligations arising with respect
to the 1993 Credit Agreement or the other Credit Documents (as defined herein
or in the 1993 Credit Agreement).
(b) The Borrower hereby (a) releases, acquits and
forever discharges each of the Agent, the Lenders, and their respective agents,
employees, officers, directors, servants, representatives, attorneys,
Affiliates, successors and assigns (collectively, the "Released Parties") from
any and all liabilities, claims, suits, debts, Liens, losses, causes of action,
demands, rights, damages, costs and expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent, that the Borrower may have
or claim to have against such Released Party and which arises out of or is
connected with any action of commission or omission of any Released Party
existing or occurring prior to the execution and delivery of this Agreement,
including without limitation, any claims, liabilities or obligations relating
to or arising out of or in connection with the loans, guarantees and other
obligations of the Borrower or any of the Subsidiaries under the 1993 Credit
Agreement or the other Credit Documents (as defined herein or in the 1993
Credit Agreement) (including, without limitation, arising out of or in
connection with the initiation, negotiation, closing or administration of the
transactions contemplated thereby or related thereto), from the beginning of
time until the execution and delivery of this Agreement (collectively, the
"Released Claims") and (b) agrees forever to refrain (and to cause its
Subsidiaries to refrain) from commencing, instituting or prosecuting any
lawsuit, action or other proceeding against any of the Released Parties with
respect to any of the Released Claims. Notwithstanding anything herein to the
contrary, the Released Claims do not include the Lenders' and the Agent's
respective obligations under this Agreement and the other Credit Documents.
SECTION 11.20. JURY TRIAL WAIVER; CONSENT TO FORUM.
(a) THE BORROWER, THE AGENT AND EACH LENDER
IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE
OTHER CREDIT DOCUMENTS OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
-80-
<PAGE> 86
(b) THE BORROWER, THE AGENT AND EACH LENDER ALSO AGREE
THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF
THE OTHER CREDIT DOCUMENTS OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST BORROWER
OR ANY OTHER CREDIT PARTY IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT BY
THE AGENT, THE LENDERS OR THE BORROWER IN THE COURTS OF THE STATE OF GEORGIA
SITTING IN FULTON COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA, OR IN ANY OTHER COURT TO THE JURISDICTION OF
WHICH BORROWER OR SUCH OTHER CREDIT PARTY OR ANY OF ITS PROPERTY IS OR MAY BE
SUBJECT. THE BORROWER, THE AGENT AND EACH LENDER IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF GEORGIA SITTING IN FULTON COUNTY AND
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, AND
IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY SUCH COURT,
AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM,
IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OF THE OTHER CREDIT DOCUMENTS.
-81-
<PAGE> 87
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in their behalf as of the date
first above stated.
BORROWER:
MEDAPHIS CORPORATION
/s/ Medaphis Corporation
-82-
<PAGE> 1
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Medaphis Corporation:
We have audited the accompanying consolidated balance sheets of Medaphis
Corporation and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule included in this Exhibit. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Medaphis Corporation and
subsidiaries at December 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
The consolidated financial statements give retroactive effect to the
mergers of wholly owned subsidiaries of Medaphis Corporation with and into
Health Sciences Corporation in June 1996, BSG Corporation in May 1996, and Rapid
System Solutions, Inc. in April 1996. These acquisitions have been recorded
using the pooling of interests method of accounting.
As discussed in Note 18, the accompanying 1995 consolidated financial
statements have been restated. As a result of the restatement of the 1995
consolidated financial statements, the financial statement schedule was also
restated.
DELOITTE & TOUCHE LLP
June 29, 1996
(October 22, 1996 as to Note 18)
Atlanta, Georgia
<PAGE> 2
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
------------ -------- --------
(AS
RESTATED,
SEE NOTE 18)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue..................................................... $559,877 $398,934 $279,326
-------- -------- --------
Salaries and wages.......................................... 325,868 227,109 164,474
Other operating expenses.................................... 140,296 95,195 71,363
Depreciation................................................ 14,487 9,430 7,285
Amortization................................................ 18,048 10,691 7,878
Interest expense, net....................................... 10,062 5,926 6,573
Restructuring and other charges............................. 54,950 1,905 --
-------- -------- --------
Total expenses.................................... 563,711 350,256 257,573
Income (loss) before income taxes........................... (3,834) 48,678 21,753
income taxes................................................ 1,787 16,155 7,049
-------- -------- --------
Net income (loss)................................. (5,621) $ 32,523 $ 14,704
======== ======== ========
Pro forma adjustments, principally income taxes............. (2,883) (1,817) (1,180)
-------- -------- --------
Pro forma net income (loss)............................... $ (8,504) $ 30,706 $ 13,524
======== ======== ========
Pro forma net income (loss) per common share................ $ (0.15) $ 0.51 $ 0.26
======== ======== ========
Weighted average shares outstanding......................... 56,591 60,245 51,109
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------- ----------
(AS RESTATED,
SEE NOTE 18)
(IN THOUSANDS, EXCEPT PAR
VALUE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 19,270 $ 17,651
Restricted cash........................................... 15,340 8,683
Accounts receivable, billed............................... 84,256 62,507
Accounts receivable, unbilled............................. 89,429 93,940
Other..................................................... 14,870 11,294
---------- ----------
Total current assets.............................. 223,165 194,075
Property and equipment...................................... 97,895 49,032
Intangible assets........................................... 455,611 376,827
Other....................................................... 18,935 7,217
---------- ----------
$ 795,606 $ 627,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 23,220 $ 17,726
Accrued compensation...................................... 24,505 24,900
Accrued expenses.......................................... 69,529 51,435
Current portion of long-term debt......................... 10,681 10,752
---------- ----------
Total current liabilities......................... 127,935 104,813
Long-term debt.............................................. 150,565 148,261
Other obligations........................................... 18,926 30,433
Deferred income taxes....................................... 13,499 23,172
Convertible subordinated debentures......................... 63,375 63,375
---------- ----------
Total liabilities................................. 374,300 370,054
---------- ----------
Stockholders' Equity:
Preferred stock........................................... 382 225
Common stock, voting, $.01 par value, 100,000 authorized
in 1995 and
30,000 in 1994; issued and outstanding 58,917 in 1995
and 49,990
in 1994................................................ 589 500
Common stock, nonvoting, $.01 par value, 600 authorized;
none issued............................................ -- --
Paid-in capital........................................... 426,387 251,534
Retained earnings (deficit)............................... (6,052) 4,838
---------- ----------
Total stockholders' equity........................ 421,306 257,097
---------- ----------
$ 795,606 $ 627,151
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
------------- --------- --------
(AS RESTATED,
SEE NOTE 18)
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (5,621) $ 32,523 $ 14,704
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 32,535 20,121 15,163
Impairment loss on property and equipment................. 5,035 -- --
Deferred income taxes..................................... 1,312 15,239 6,586
Other non-cash charges.................................... 417 1,208 --
Changes in assets and liabilities, excluding effects of
acquisitions:
Increase in restricted cash............................ (3,253) (1,963) (508)
Increase in accounts receivable, billed................ (21,549) (8,038) (9,868)
Increase in accounts receivable, unbilled.............. (9,714) (24,279) (16,930)
Increase in accounts payable........................... 4,738 5,341 3,625
Increase (decrease) in accrued compensation............ (396) 5,704 3,789
Increase (decrease) in accrued expenses................ 25,725 (3,844) 2,181
Other, net............................................. (5,841) 2,197 (489)
--------- --------- --------
Net cash provided by operating activities......... 23,388 44,209 18,253
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired.......................... (76,077) (153,385) (68,563)
Purchases of property and equipment......................... (50,986) (13,063) (7,178)
Software development costs.................................. (35,611) (9,519) (3,478)
Other....................................................... 650 (1,969) (559)
--------- --------- --------
Net cash used for investing activities............ (162,024) (177,936) (79,778)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 151,825 4,933 97,703
Proceeds from borrowings.................................... 140,780 122,100 71,432
Payments of long-term debt.................................. (138,244) (6,108) (78,435)
Dividends to shareholders of acquired companies............. (6,751) (8,528) (3,090)
Other....................................................... (7,355) (675) 157
--------- --------- --------
Net cash provided by financing activities......... 140,255 111,722 87,767
--------- --------- --------
CASH AND CASH EQUIVALENTS
Net change.................................................. 1,619 (22,005) 26,242
Balance at beginning of year (see Note 2)................... 17,651 39,656 14,731
--------- --------- --------
Balance at end of year...................................... $ 19,270 $ 17,651 $ 40,973
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
--------------------------------------------------------------------------------
COMMON PREFERRED RETAINED TOTAL
COMMON STOCK PREFERRED STOCK PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ --------- --------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992..................... 40,164 $401 11,420 $272 $115,987 $(28,784) $ 87,876
Issuance of common
stock................. 6,482 64 -- -- 85,443 -- 85,507
Exercise of stock
options............... 476 5 -- -- 1,387 -- 1,392
Issuance and conversion
of preferred stock at
acquired companies.... 38 1 8,032 (50) 3,950 -- 3,901
Pre-merger dividends to
former owners......... -- -- -- -- -- (3,440) (3,440)
Net income............... -- -- -- -- -- 14,704 14,704
Other.................... (9) -- -- -- 451 (541) (90)
------ ---- ------ ---- -------- -------- --------
Balance at December 31,
1993..................... 47,151 471 19,452 222 207,218 (18,061) 189,850
Changes in HRI's
stockholders' equity
in the six months
ended June 30, 1994
(see Note 2).......... (9) -- -- -- (76) (554) (630)
Issuance of common
stock................. 19 -- -- -- 14 -- 14
Issuance of common stock
in acquisitions....... 2,108 21 -- -- 38,775 -- 38,796
Exercise of stock
options............... 734 8 -- -- 2,162 -- 2,170
Issuance and conversion
of preferred stock at
acquired companies.... -- -- 2,739 3 3,465 -- 3,468
Pre-merger dividends to
former owners......... -- -- -- -- -- (8,378) (8,378)
Net income............... -- -- -- -- -- 32,523 32,523
Other.................... (13) -- -- -- (24) (692) (716)
------ ---- ------ ---- -------- -------- --------
Balance at December 31,
1994..................... 49,990 500 22,191 225 251,534 4,838 257,097
Issuance of common
stock................. 4,239 42 -- -- 121,580 -- 121,622
Issuance of common stock
in acquisitions....... 20 -- -- -- 459 -- 459
Exercise of stock
options............... 555 6 -- -- 12,516 -- 12,522
Issuance and conversion
of preferred stock at
acquired companies.... 3,344 33 (2,737) 157 37,398 -- 37,588
Pre-merger dividends to
former owners......... -- -- -- -- -- (4,517) (4,517)
Net loss, as restated.... -- -- -- -- -- (5,621) (5,621)
Other.................... 769 8 -- -- 2,900 (752) 2,156
------ ---- ------ ---- -------- -------- --------
Balance at December 31,
1995, as restated........ 58,917 $589 19,454 $382 $426,387 $ (6,052) $421,306
====== ==== ====== ==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements give
retroactive effect to the mergers of wholly-owned subsidiaries of Medaphis
Corporation with and into Health Data Sciences Corporation in June 1996, BSG
Corporation in May 1996, and Rapid System Solutions, Inc. in April 1996. These
acquisitions have been recorded using the pooling-of-interests method of
accounting.
CONSOLIDATION. All significant intercompany transactions have been
eliminated. Certain amounts in the prior years' consolidated financial
statements have been reclassified to conform to the current year presentation.
NATURE OF OPERATIONS. Medaphis Corporation ("Medaphis" or the "Company")
provides business management services and systems primarily to the healthcare
industry throughout the United States. The Company historically has not
experienced any significant losses related to individual customers or groups of
customers in any geographical area.
PERVASIVENESS OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Fees for the Company's business management services
are primarily based on a percentage of net collections on clients' patient
accounts, and revenue is recognized as such business management services are
performed. Accounts receivable, billed, principally represents amounts invoiced
to clients. Accounts receivable, unbilled, represents amounts recognized for
services rendered but not yet invoiced and is based on the Company's estimate of
the fees that will be invoiced when collections on patient accounts are
received.
Revenue from software licenses is generally recognized upon shipment of the
products and when no significant contractual obligations remain outstanding.
When the Company receives payment prior to shipment or fulfillment of
significant vendor obligations, such payments are recorded as deferred revenue
and are recognized as revenue upon shipment or fulfillment of significant vendor
obligations. The license agreements typically provide for partial payments
subsequent to shipment; such terms result in an unbilled receivable at the date
the revenue is recognized. Costs related to insignificant vendor obligations are
accrued upon recognition of the license revenue. Software maintenance revenue is
deferred and recognized ratably over the term of the maintenance agreement,
which is typically one year.
Revenues from systems integration contracts are recorded based on the terms
of the underlying contracts which are primarily time and material or fixed price
contracts. Revenue from time and material type contracts is recognized as
services are rendered and costs are incurred based on contractual rates. Revenue
from fixed price contracts is recorded using the percentage of completion
method. Expected losses are charged to operations in the period such losses are
determined. Revenue for which customers have not yet been invoiced is reflected
as accounts receivable, unbilled in the accompanying consolidated balance
sheets.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all highly
liquid investments with an initial maturity of no more than three months.
RESTRICTED CASH. Restricted cash represents amounts collected on behalf of
certain clients, a portion of which is held in trust until remitted to such
clients.
PROPERTY AND EQUIPMENT. Property and equipment, including equipment under
capital leases, is stated at cost. Depreciation is computed using the straight
line method over the estimated useful lives of the assets, generally four to ten
years for furniture and fixtures, five to seven years for equipment, and 20
years for buildings.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS. Intangible assets are composed principally of goodwill,
clients lists and software development costs.
Goodwill and Clients Lists. Goodwill represents the excess of the cost of
the businesses acquired over the fair value of net identifiable assets at the
date of the acquisition and is amortized using the straight line method,
generally over 25 to 40 years. Client lists are amortized using the straight
line method over their estimated useful lives, generally seven to 20 years.
The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of intangible assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of intangible assets may not be recoverable, the Company assesses the
recoverability of intangible assets by determining whether the carrying value of
such intangible assets will be recovered through undiscounted expected future
cash flows after related interest charges. If the Company determines that the
carrying values of specific intangible assets are not recoverable, the Company
would record a charge to reduce the carrying value of such assets to their fair
values. It is reasonably possible that those estimates of future cash flows will
be reduced significantly in the future based on the results of the Company's
re-engineering and consolidation plan. As a result, the carrying amount of
intangible assets may be reduced materially in the near future. In 1994, a
charge of approximately $1.9 million associated with the write-off of a
non-compete agreement was recorded by one of the Company's subsidiaries prior to
that subsidiary's merger with the Company because the non-compete agreement was
deemed to have no value. No impairment losses were recorded by the Company in
1995 or 1993.
Software Development Costs. Intangible assets include software development
costs incurred in the development or the enhancement of software utilized in
providing the Company's business management systems and services. Software
development costs are capitalized upon the establishment of technological
feasibility for each product or process and capitalization ceases when the
product or process is available for general release to customers or is put into
service. Capitalized software development costs which were primarily associated
with the Company's re-engineering and consolidation project were approximately
$36.3 million and $9.5 million in 1995 and 1994, respectively. The Company
recorded research and development expenses of approximately $2.8 million, $4.6
million and $3.7 million in 1995, 1994 and 1993, respectively.
Software development costs are amortized using the straight line method
over the remaining estimated economic life of the assets, which is generally
three to seven years. Amortization expense related to the Company's capitalized
software costs totaled $5.1 million, $2.9 million and $2.6 million in 1995, 1994
and 1993, respectively.
INCOME TAXES. Deferred income taxes are recognized for the tax
consequences of "temporary differences" between financial statement carrying
amounts and the tax bases of existing assets and liabilities. The measurement of
deferred tax assets and liabilities is predominantly determined by reference to
the tax laws and changes to such laws. Management includes the consideration of
future events to assess the likelihood that tax benefits will be realized in the
future.
PRO FORMA PROVISION FOR INCOME TAXES. The Company has acquired certain
entities in merger transactions accounted for as poolings of interests, which
prior to the mergers had elected "S" corporation status for income tax purposes.
As a result of the mergers, these acquired entities terminated their "S"
corporation elections. Pro forma provision for income taxes, taken together with
reported income tax expense, presents the combined pro forma tax expense of such
entities as if they had been "C" corporations during the periods presented.
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE. Pro forma net income per
common share is based on the weighted average number of shares of common stock
and common stock equivalents outstanding during the period. Common stock
equivalents include the dilutive effect of the assumed exercise of certain
outstanding stock options and conversion of convertible preferred stock. Fully
diluted pro forma net income per common share is not presented as it is not
materially different from primary pro forma net income per common share. The
Company's convertible subordinated debentures were not considered common stock
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equivalents at issuance and are included in the computation of fully diluted pro
forma net income per common share.
2. BUSINESS COMBINATIONS
From January 1, 1993 through December 31, 1995, the Company acquired either
substantially all of the assets or all of the outstanding capital stock of each
of the following businesses which were accounted for using the purchase method
of accounting:
<TABLE>
<CAPTION>
COMPANY ACQUIRED CONSIDERATION ACQUISITION DATE
---------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Receivables Management Division of MedQuist, Inc......... $ 17,300 December 1995
The Halley Exchange, Inc................................. * December 1995
Billing and Professional Services, Inc................... * October 1995
Medical Office Consultants, Inc.......................... * May 1995
Computers Diversified, Inc............................... 15,500 April 1995
Medical Management, Inc.................................. 8,000 March 1995
Decision Support Group................................... * January 1995
Imonics Corporation...................................... 32,200 December 1994
John Rex, Inc. ("Anescor")............................... 6,000 December 1994
AdvaCare, Inc............................................ 101,600 November 1994
Marmac Management, Inc................................... * September 1994
Central Billing Services, Inc............................ 19,700 September 1994
Omni Medical Systems, Inc................................ * August 1994
Physician Billing, Inc................................... 13,000 July 1994
Medical Management Resources, Inc........................ 11,000 July 1994
Consolidated Medical Services, Inc....................... * June 1994
Northwest Creditors Service, Inc......................... 6,600 June 1994
Managed Practice Division of Datamedic Corporation....... 5,000 April 1994
Practice Management Division of CyCare Systems, Inc...... 24,000 November 1993
Gottlieb's Financial Services, Inc....................... 31,000 September 1993
Medical Management of New England, Inc................... 14,200 July 1993
</TABLE>
- ---------------
* Consideration not material.
Each of the foregoing acquisitions has been recorded using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based on their estimated fair value
as of the date of acquisition. The allocation of the purchase price of the 1995
acquisitions is preliminary and will be adjusted when the necessary information
is available. The operating results of the acquired businesses are included in
the Company's consolidated statements of income from the respective dates of
acquisition.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the foregoing acquisitions, the Company acquired eight
businesses in 1996 and 1995 which were accounted for using the
pooling-of-interests method of accounting. Following is a list of the businesses
acquired and the shares exchanged:
<TABLE>
<CAPTION>
SHARES
COMPANY ACQUIRED EXCHANGED ACQUISITION DATE
---------------- --------- ----------------
<S> <C> <C>
Health Data Sciences Corporation ("HDS").................. 6,215,000 June 1996
BSG Corporation ("BSG")................................... 7,539,000 May 1996
Rapid Systems Solutions, Inc. ("Rapid Systems")........... 1,135,000 April 1996
Intelligent Visual Computing, Inc. ("IVC")................ * February 1996
Medical Management Sciences, Inc. ("MMS")................. 4,000,000 December 1995
Consort Technologies, Inc. ("Consort").................... 825,000 November 1995
Healthcare Recoveries, Inc. ("HRI")....................... 3,265,000 August 1995
Automation Atwork Companies ("Atwork").................... 8,000,000 March 1995
</TABLE>
- ---------------
* Consideration not material
Since these acquisitions have been recorded using the pooling-of-interests
method of accounting, no adjustment has been made to the historical carrying
amounts of assets acquired and liabilities assumed. The accompanying
consolidated financial statements have been restated to include the financial
position and operating results of Atwork, HRI, MMS, Rapid Systems, BSG and HDS
for all periods prior to the mergers. No restatement has been made for the
financial position and operating results of Consort and IVC prior to the
beginning of the fiscal year of their acquisitions due to their immateriality.
Prior to its merger with the Company, HRI reported on a fiscal period
ending June 30. HRI's financial position and operating results as of and for the
period ended June 30, 1994 were combined with the Company's financial position
and operating results as of and for the year ended December 31, 1993. HRI's
financial position and operating results for 1995 and 1994, which were restated
to a calendar year basis, were combined with the Company's financial position
and operating results as of and for the years ended December 31, 1995 and 1994.
Accordingly, HRI's operating results for the six months ended June 30, 1994 were
duplicated in each of the years ended December 31, 1994 and 1993. HRI's revenues
and net income for that six-month period were $7,822,000 and $755,000,
respectively. Consolidated retained earnings has been reduced by $554,000 which
represents HRI's net income applicable to common stockholders for the six months
ended June 30, 1994 in order to eliminate the duplication of income applicable
to common stockholders for that period in the retained earnings balance. The
beginning cash and cash equivalents balance in the accompanying 1994
consolidated statement of cash flows does not equal the December 31, 1993 cash
and cash equivalents balance as a result of the combination, in the 1993
consolidated balance sheet, of HRI's financial position as of June 30, 1994 with
the financial position of the Company as of December 31, 1993.
Prior to its merger with the Company, HDS reported on a fiscal period
ending March 31. HDS's financial position and operating results as of and for
the years ended March 31, 1996, 1995 and 1994 were combined with the Company's
financial position and operating results as of and for the years ended December
31, 1995, 1994 and 1993, respectively.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of revenue, pro forma net income (loss) and pro forma net
income (loss) per common share of the Company, as originally reported and as
restated, Rapid Systems, BSG, HDS and combined, including the pro forma
provision for Rapid Systems and BSG income taxes, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Medaphis, as originally reported.................... $467,747 $319,138 $228,745
Restatement adjustments (Note 18)................... (4,426) -- --
-------- -------- --------
Medaphis, as restated............................... 463,321 319,138 228,745
Rapid Systems....................................... 14,722 8,558 4,335
BSG................................................. 69,663 49,174 26,495
HDS................................................. 12,171 22,064 19,751
-------- -------- --------
Combined............................................ $559,877 $398,934 $279,326
======== ======== ========
Pro forma net income (loss):
Medaphis, as originally reported.................... $ 444 $ 22,935 $ 13,069
Restatement adjustments (Note 18)................... (5,124) -- --
-------- -------- --------
Medaphis, as restated............................... (4,680) 22,935 13,069
Rapid Systems....................................... 972 773 647
BSG................................................. (1,045) 1,329 (6,010)
HDS................................................. (3,173) 6,037 6,087
Pro forma provision for Rapid Systems and BSG income
taxes............................................ (578) (368) (269)
-------- -------- --------
Combined............................................ $ (8,504) $ 30,706 $ 13,524
======== ======== ========
Pro forma net income (loss) per common share:
Medaphis, as originally reported.................... $ 0.01 $ 0.50 $ 0.34
======== ======== ========
Medaphis, as restated............................... $ (0.09) $ 0.50 $ 0.34
======== ======== ========
Combined............................................ $ (0.15) $ 0.51 $ 0.26
======== ======== ========
</TABLE>
A summary of revenue and pro forma net income for each of the three
pooling-of-interests transactions consummated after the first quarter of 1995
for interim year-to-date periods preceding the dates of consummation are as
follows (In thousands):
<TABLE>
<CAPTION>
INTERIM PERIOD
PRECEDING PRO FORMA
COMPANY ACQUIRED CONSUMMATION REVENUE NET INCOME
---------------- ------------------ ------- ----------
<S> <C> <C> <C>
HRI........................................... June 30, 1995 $10,183 $1,012
Consort....................................... September 30, 1995 $ 2,805 $ 455
MMS........................................... September 30, 1995 $14,625 $ 185
</TABLE>
The following unaudited pro forma financial information presents the
results of the Company for the years ended December 31, 1995 and 1994, as if the
above referenced acquisitions recorded using the purchase and the
pooling-of-interest methods of accounting had occurred on January 1, 1994. The
pro forma information does not purport to be indicative of the results that
would have been obtained if the operations had actually been combined during the
period presented and is not necessarily indicative of operating results to be
expected in future periods.
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue..................................................... $582,556 $529,075
Net income (loss)........................................... (5,349) 26,497
Net income (loss) per common share.......................... $ (0.09) $ 0.42
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 2,873 $ 2,873
Buildings................................................... 9,839 7,841
Furniture and fixtures...................................... 19,485 16,038
Equipment................................................... 100,866 47,599
Other....................................................... 6,055 3,424
-------- -------
139,118 77,775
Less accumulated depreciation............................... 41,223 28,743
-------- -------
$ 97,895 $49,032
======== =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $361,096 $303,057
Client lists................................................ 51,862 52,146
Software development costs.................................. 82,219 43,558
Other....................................................... 2,159 2,159
-------- --------
497,336 400,920
Less accumulated amortization............................... 41,725 24,093
-------- --------
$455,611 $376,827
======== ========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued costs of businesses acquired........................ $13,582 $18,305
Funds due clients........................................... 12,757 6,893
Deferred revenue............................................ 11,590 12,050
Accrued legal costs......................................... 8,264 296
Accrued restructuring and severance costs................... 7,801 --
Interest.................................................... 2,917 2,340
Other....................................................... 12,618 11,551
------- -------
$69,529 $51,435
======= =======
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under Senior Credit Facility..................... $128,000 $120,714
Capital lease obligations, weighted average effective
interest rates of
8.4% and 9.1%............................................. 23,670 14,232
Deferred purchase price relating to acquisitions............ -- 15,672
Other....................................................... 9,576 8,395
-------- --------
161,246 159,013
Less current portion........................................ 10,681 10,752
-------- --------
$150,565 $148,261
======== ========
</TABLE>
At December 31, 1995, the Company had a $250 million revolving credit
agreement ("Senior Credit Facility") which was composed of a $240 million
revolving credit line and a $10 million cash management line with a seven-bank
syndicate to finance future acquisitions, working capital and other general
corporate needs. The Company has the option of making "LIBOR" based loans or
"base rate" loans under the Senior Credit Facility. LIBOR based loans bear
interest at LIBOR for the then current interest period plus amounts varying from
1 1/4% to 1 3/4% based on the Company's financial performance. Base rate loans
bear interest equal to prime. At December 31, 1995, the Company had LIBOR based
loans outstanding at interest rates ranging from 7.1% to 7.2%. The Senior Credit
Facility contains, among other things, financial covenants which require the
Company to maintain certain financial ratios. The Company was in compliance with
all covenants as of December 31, 1995.
The Senior Credit Facility expires in March 1997 and can be extended one
year at each anniversary date through March 2000 with the consent of the banks.
Borrowings under the Senior Credit Facility are secured by the stock of the
Company's subsidiaries.
In April 1995, the Company used the net proceeds of its fourth public
offering to repay indebtedness of approximately $121 million then outstanding
under the Senior Credit Facility.
The Company's capital leases consist principally of leases for equipment.
As of December 31, 1995 and 1994, the net book value of equipment subject to
capital leases totaled $20.3 million and $11.4 million, respectively.
The carrying amounts of long-term debt and capital lease obligations
reflected in the consolidated balance sheets approximate fair value of such
instruments due to the variable rate nature of the long-term debt and the fixed
rates on the capital lease obligations which approximate market rates.
The aggregate maturities of long-term debt and capital lease obligations
are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 10,681
1997........................................................ 141,669
1998........................................................ 6,106
1999........................................................ 1,748
2000........................................................ 230
Thereafter.................................................. 812
</TABLE>
7. CONVERTIBLE SUBORDINATED DEBENTURES
The Company issued $63.4 million of 6 1/2% convertible subordinated
debentures to finance the acquisition of CompMed, Inc. The debentures are due on
January 1, 2000. The debenture holders may convert the debentures into shares of
the Company's common stock at a conversion price of $14.00 per share. In 1995,
the
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company gave notice of its intent to redeem the debentures on January 1, 1996.
Such notice triggered the conversion right of the debenture holders through the
date of the redemption. All of the debenture holders exercised their conversion
right effective January 1, 1996 and as a result, approximately 4.5 million
shares were issued in the conversion in 1996. The fair value of these
convertible subordinated debentures was approximately $170 million at December
31, 1995, based on the market price of Medaphis common stock into which the
debentures were converted on January 1, 1996. Pro forma net loss per common
share, assuming the debentures had been converted on January 1, 1995, and
assuming the repayment of indebtedness outstanding under the Senior Credit
Facility associated with the Company's April 1995 public offering had occurred
on January 1, 1995 (see Note 6) would have been $(0.07) per share.
8. LEASE COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases which expire at various dates through 2008. Rent expense was $22.4
million, $13.3 million and $10.0 million for the years ended December 31, 1995,
1994 and 1993, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1996........................................................ $20,809
1997........................................................ 17,133
1998........................................................ 14,896
1999........................................................ 9,445
2000........................................................ 6,961
Thereafter.................................................. 9,525
</TABLE>
9. INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 66 $ 264 $ 59
State................................................... 1,795 439 301
Deferred:
Federal................................................. 413 13,977 4,019
State................................................... (928) 1,988 1,023
Valuation allowance....................................... 441 (513) 1,647
------- ------- -------
Income taxes.............................................. 1,787 16,155 7,049
Pro forma provision for income taxes...................... 3,389 1,817 1,180
------- ------- -------
$ 5,176 $17,972 $ 8,229
======= ======= =======
</TABLE>
In 1995 and 1996 the Company acquired Atwork, Consort, MMS and Rapid
Systems and a subsidiary of BSG in merger transactions which were accounted for
under the pooling-of-interests method of accounting. Prior to the mergers, these
entities had elected "S" corporation status for income tax purposes. As a result
of the mergers, the entities terminated their "S" corporation elections. Pro
forma net income and pro forma net income per common share are presented in the
consolidated statements of income as if each of these entities had been a "C"
corporation during the periods presented.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the amount determined by applying the federal
statutory rate to income before income taxes and income tax expense is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at federal statutory rate............... $(1,342) $17,037 $7,614
State taxes, net of federal benefit........................ 361 2,475 1,483
Goodwill................................................... 1,298 380 202
Deal costs................................................. 5,623 -- --
Other items not deductible for tax purposes................ 371 272 73
Research and development tax credits....................... -- (596) (314)
Valuation allowance........................................ 441 (513) (726)
Other...................................................... (1,576) (1,083) (103)
------- ------- ------
$ 5,176 $17,972 $8,229
======= ======= ======
</TABLE>
In 1995, the effects of changes in the Company's assessment of the tax
consequences of certain matters comprise substantially all of "other" in the
above rate reconciliation.
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards. The components of deferred taxes as of December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards............................ $ 58,888 $ 49,504
Research and development credits............................ 1,078 1,078
Valuation allowance......................................... (18,310) (13,415)
Accounts receivable, unbilled............................... (31,841) (28,232)
Depreciation and amortization............................... (37,674) (17,263)
Accrued expenses............................................ 21,166 1,558
Other deferred tax liabilities.............................. (6,806) (16,402)
-------- --------
$(13,499) $(23,172)
======== ========
</TABLE>
The valuation allowance relates primarily to the uncertainty of the
realizability of net operating loss carryforwards assumed in certain business
combinations. The change in the valuation allowance during 1995 relates
primarily to the finalization of the purchase price allocation of an entity
acquired in 1994.
As of December 31, 1995, the Company had federal net operating loss
carryforwards for income tax purposes of approximately $144 million which expire
at various dates between 1999 and 2010. The Internal Revenue Code may impose
substantial limitations on the use of net operating loss carryforwards upon the
occurrence of an "ownership change." The Company has experienced three ownership
changes which have established maximum annual limitations on income against
which net operating losses incurred prior to the ownership changes may be
offset. However, because the limitation operates in a cumulative manner and in
previous years the Company did not utilize net operating losses, the Company has
approximately $85 million in cumulative unutilized net operating losses
available in 1996. In future years, currently unavailable net operating losses
will become available to offset income prior to the date of their expiration.
10. CAPITAL STOCK
On May 3, 1995, the Company's Board of Directors declared a two-for-one
stock split of the outstanding shares of common stock. The stock split was
effected in the form of a stock dividend payable on May 31, 1995 to stockholders
of record as of May 24, 1995. The effect of the stock split has been
retroactively applied to all periods presented in the accompanying consolidated
financial statements.
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 12, 1995, the Company completed a fourth public offering of its
common stock in which 4,244,000 shares were sold at $31.75 per share. The
Company sold 4,000,000 shares of its common stock and 244,000 shares of common
stock were sold on behalf of certain of the Company's stockholders. The net
proceeds to the Company were approximately $121 million.
On December 2, 1993, the Company completed a third public offering of its
common stock in which 6,900,000 shares were sold at $14.00 per share. The
Company sold 6,442,000 shares of its common stock and 458,000 shares of common
stock were sold on behalf of certain of the Company's stockholders. The net
proceeds to the Company were approximately $85.5 million.
On March 16, 1994, the stockholders of the Company approved an amendment to
the Company's Amended and Restated Certificate of Incorporation, thereby
increasing the number of authorized shares of the Company's voting common stock
from 30 million to 100 million shares.
Prior to the Company's merger with BSG, BSG had two classes of preferred
stock outstanding. Dividends were noncumulative and payable at 8% per year at
the discretion of BSG's board of directors. The preferred shares were
convertible, at the option of the holder on a one-to-one basis into common
shares of BSG, and the preferred shareholders had the right to vote on an as
converted basis. In connection with BSG's merger with the Company on May 6,
1996, all preferred shares were converted into common shares of BSG which were
subsequently exchanged for common shares of the Company.
Prior to the Company's merger with HDS, HDS had three classes of preferred
stock outstanding. The preferred stock carried no guaranteed dividend features
and had no mandatory redemption features. The preferred shares were convertible,
at the option of the holder on a one-to-one basis into common shares of HDS. In
connection with HDS's merger with the Company on June 29, 1996, all preferred
shares were converted into common shares of HDS which were subsequently
exchanged for common shares of the Company.
Prior to the Company's merger with HDS, HDS had a class of mandatorily
redeemable preferred stock (the "HDS Redeemable Preferred Stock") outstanding.
The HDS Redeemable Preferred Stock consisted of 830,000 shares which were
redeemable at $10 per share. In June 1995, HDS redeemed all the remaining shares
of outstanding HDS Redeemable Preferred Stock for $10 per share. As of December
31, 1994, $6.6 million related to the HDS Redeemable Preferred Stock was
classified in other obligations on the accompanying balance sheets.
Prior to the Company's merger with HRI, HRI had a class of redeemable
convertible preferred stock (the "HRI Redeemable Preferred Stock") which was
convertible, at the holder's option into common stock of HRI. The HRI Redeemable
Preferred Stock required certain mandatory redemptions at future dates or upon
liquidation, dissolution or merger of HRI. Pursuant to HRI's merger with the
Company, all outstanding shares of the HRI Redeemable Preferred Stock were
converted into common stock of HRI which were subsequently exchanged in the
merger for common stock of the Company. As of December 31, 1994, $13.3 million
related to the HRI Redeemable Preferred Stock was classified in other
obligations on the accompanying balance sheets.
11. COMMON STOCK OPTIONS AND STOCK AWARDS
The Company has several stock option plans including a Non Qualified Stock
Option Plan, a Non Qualified Stock Option Plan for Employees of Acquired
Companies and several stock option plans assumed as a result of the BSG Merger
(collectively the "Stock Option Plans"). Stock options outstanding at December
31, 1995 under the Stock Option Plans permit employees to purchase up to
9,465,295 shares of the Company's common stock. Granted options expire 10 to 11
years after the date of grant and generally vest over a five year period.
Subsequent to the merger of BSG with and into the Company, the Company has
offered to issue options under the Company's Non Qualified Stock Option Plan for
Employees of Acquired Companies in exchange for options outstanding under the
BSG option plans. Options outstanding under the Stock Option Plans at December
31, 1995 were granted at prices ranging from $0.65 to $59.44 per share, of which
2,605,762 were exercisable at that date. Options were exercised during 1995 with
grant prices ranging
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from $0.22 to $21.36 per share. As of December 31, 1995, 2,084,154 shares were
available for future grants under these plans.
Activity related to the Stock Option Plans is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Options outstanding as of January 1......................... 6,434 5,456 2,405
Granted:
To employees.............................................. 1,543 1,028 1,009
Relating to acquisitions.................................. 2,481 914 2,249
Canceled.................................................... (434) (366) (62)
Exercised................................................... (559) (598) (145)
----- ----- -----
Options outstanding as of December 31....................... 9,465 6,434 5,456
===== ===== =====
</TABLE>
The Company has a Senior Executive Non Qualified Stock Option Plan which
permits certain of the Company's executive officers to purchase up to an
aggregate of 550,746 shares of the Company's common stock at $2 per share. All
options available for grant under this plan have been granted, expire January
16, 2001 and are currently exercisable. As of December 31, 1995, 230,000 options
issued under this plan have been exercised (none during 1995 or 1994).
In 1994, the disinterested members of the Company's Board of Directors
approved the Medaphis Corporation Restricted Stock Plan (the "Restricted Plan")
for executive officers. The plan was approved by the Company's stockholders at
the annual shareholders' meeting in 1995. The Restricted Plan authorized the
award of 249,000 shares of $0.01 par value of common stock to certain of the
executive officers of the Company. The restricted stock vests ratably over a
four year period from the date of award. Vesting may be accelerated if certain
performance goals are achieved. One of these performance goals was achieved
based on 1995 results of operations, and accordingly, 50% of the awards made
under this plan have vested.
In 1994, the Company adopted a Non-Employee Director Stock Option Plan
("Director Plan") for non-employees who serve on the Company's Board of
Directors. The plan was approved by the Company's stockholders at the annual
stockholders' meeting in 1995. The Director Plan provides for an initial grant
of 10,000 options at a strike price corresponding to the date on which the
non-employee director is elected or appointed to the Board of Directors.
Additionally, each non-employee director receives an annual grant of 2,000
options at each subsequent annual meeting in which the non-employee director is
a member of the Board of Directors. All options granted under the Director Plan
vest over a five year period and expire 11 years from the date of grant. As of
December 31, 1995, 48,000 options were outstanding under the Director Plan at
strike prices ranging from $15.74 to $29.83 per share. No exercises occurred in
1995 and as of December 31, 1995 52,000 shares were available for future grants
under this plan.
On March 4, 1996 the disinterested members of the Company's Board of
Directors approved the Medaphis Corporation Re-engineering, Consolidation and
Business Improvement Cash Incentive Plan ("Re-engineering Incentive Plan") and
the Company granted 155,749 units pursuant to the provisions of the plan to
certain key employees of the Company. The Re-engineering Incentive Plan provides
for the payment of cash bonuses to participants if certain performance goals
related to the Company's re-engineering and consolidation project are achieved
and certain general business improvement milestones are satisfied. Awards under
the plan are based on units awarded to each participant. If the performance
goals specified in the Re-engineering Incentive Plan are achieved and the awards
vest, the value of each unit will equal the average price of the Company's
common stock during the ten trading days immediately preceding such vesting
date. At the point it becomes probable that the performance goals and milestones
will be met, the Company will begin to accrue for the full amount of these
bonuses. All awards made under the plan, to the extent they remain unvested,
terminate on December 31, 1997.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EMPLOYEE BENEFIT PLANS
The Company has various defined contribution plans whereby employees
meeting certain eligibility requirements can make specified contributions to the
plans, a percentage of which are matched by the Company. The Company's
contribution expense was $3.3 million, $1.9 million and $0.7 million for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company maintains a noncontributory money purchase pension plan which
covers substantially all employees who are retained by the Company primarily to
service specific physician clients. Contributions are determined annually by the
Company not to exceed the maximum amount deductible for federal income tax
purposes. The Company's contribution to the plan was $1.0 million in 1995, $0.7
million in 1994 and $1.1 million in 1993.
13. RESTRUCTURING AND OTHER CHARGES
During July 1994, the Company began a comprehensive re-engineering and
consolidation project in order to enhance its ability to provide more effective
and efficient business management services to its clients.
In January 1995, Management approved a restructuring plan relating to the
consolidation project. Substantially all of the Company's local business offices
at the commitment date were leased. Business offices will be exited in
accordance with the guidelines established in the Company's restructuring plan.
The Company will negotiate lease buyouts and subleasing arrangements with
lessors, where possible, to mitigate its remaining contractual obligations under
lease agreements. The re-engineering project is expected to be substantially
completed during 1997.
A description of the type and amount of exit costs recorded at the
commitment date and subsequently incurred are as follows:
<TABLE>
<CAPTION>
INCURRED RESERVE
THROUGH BALANCE
INITIAL DECEMBER 31, DECEMBER 31,
RESERVE 1995 1995
------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease termination costs.............................. $ 6,726 $ 736 $ 5,990
Incremental costs associated with discontinued client
contracts.......................................... 5,488 797 4,691
Other................................................ 2,823 1,035 1,788
------- ------ -------
$15,037 $2,568 $12,469
======= ====== =======
</TABLE>
In January 1995, management of Medaphis Physician Services Corporation
formalized an involuntary severance benefit plan. The Company recorded a charge
of approximately $5.0 million in 1995 in accordance with Statement of Financial
Accounting Standards No. 112 to reflect the expense for employees' rights to
involuntary severance benefits that have accumulated to date. Involuntary
severance costs charged against the liability were approximately $745,000 for
the year ended December 31, 1995.
In January 1995, the Company assessed the recoverability of its long lived
assets and recorded an impairment loss of approximately $5.0 million related to
property and equipment that will be disposed of as a result of the restructuring
plan.
In connection with the Atwork, HRI, Consort and MMS mergers, the Company
incurred transaction fees, costs and expenses of approximately $6.0 million,
$2.0 million, $1.2 million and $2.5 million, respectively. In accordance with
the requirements of pooling of interests accounting, these costs have been
reflected in the operating results for 1995.
The Company recorded a charge of $12 million in 1995 for the administrative
fees, costs and expenses it anticipates incurring in connection with the Federal
Investigation and various putative class action lawsuits
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which have been filed against the Company, certain of its officers and directors
and its lead underwriters from its April 1995 public offering.
In connection with the Halley acquisition, the Company recorded a $1.8
million charge related to the cost of purchased research and development
activities related to acquired technology for which technological feasibility
had not yet been established and which had no alternative future uses.
Prior to the Company's merger with MMS, MMS terminated a merger agreement
with an unrelated third party. In connection with the termination of this
agreement, MMS agreed to pay costs associated with the planned merger and
potential initial public offering of the combined entity. Such costs amounted to
approximately $3.7 million and were recorded as a charge in 1995.
14. CERTAIN LEGAL MATTERS
The United States Attorney's Office for the Central District of California
is conducting an investigation (the "Federal Investigation") of Medaphis'
billing and collection practices in its offices located in Calabasas and
Cypress, California (the "Designated Offices"). Medaphis first became aware of
the Federal Investigation when it received search warrants and grand jury
subpoenas on June 13, 1995. Although the precise scope of the Federal
Investigation is not known to the Company at this time, Medaphis believes that
the U.S. Attorney's Office is investigating allegations of billing fraud and
that the inquiry is focused upon Medaphis' billing and collection practices in
the Designated Offices. Numerous federal and state civil and criminal laws
govern medical billing and collection activities. In general, these laws provide
for various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs. Although the Designated Offices
represent less than 2% of Medaphis' annual revenue, there can be no assurance
that the Federal Investigation will be resolved promptly, that additional
subpoenas or warrants will not be received by Medaphis or that the Federal
Investigation will not have a material adverse effect upon the Company. The
Company recorded a charge of $12 million in 1995 solely for the administrative
fees, costs and expenses it anticipates incurring in connection with the Federal
Investigation and the putative class action lawsuits described below. The charge
is intended to cover only the anticipated administrative expenses of the Federal
Investigation and the lawsuits and does not include any provision for fines,
penalties, damages, assessments, judgements or sanctions that may arise out of
such matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its officers and directors and the lead underwriters associated with
Medaphis' public offering of common stock in April 1995 were named as defendants
in putative shareholder class action lawsuits filed in the United States
District Court for the Northern District of Georgia. In general, these lawsuits
allege violations of the federal securities laws in connection with Medaphis'
filings under the federal securities acts, including the registration statement
filed in connection with Medaphis' public offering of common stock in April
1995. On October 13, 1995, the named plaintiffs in these lawsuits filed a
consolidated class action complaint (the "Consolidated Complaint"). On January
3, 1996, the court denied defendants' motion to dismiss the Consolidated
Complaint which argued that the Complaint failed to state a claim upon which
relief may be granted. On April 11, 1996, certain of the named plaintiffs to the
Consolidated Complaint voluntarily dismissed with prejudice all of their claims.
As a result of these dismissals, the Consolidated Complaint no longer contains
any claims based on the Securities Act of 1933, and the Company's underwriters
and outside directors are no longer named as defendants. On June 26, 1996, the
court denied the plaintiffs' motion to certify a plaintiffs' class. The Company
believes that it has meritorious defenses to this action and intends to assert
them vigorously.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CASH FLOW INFORMATION
Supplemental disclosures of cash flow information and non-cash investing
and financing activities were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-cash investing and financing activities:
Liabilities assumed in acquisitions.................... $11,454 $108,781 $23,799
Additions to capital lease obligations................. 17,646 5,356 2,352
Common stock issued in conjunction with acquisitions... 459 38,796 --
Cash paid for:
Interest............................................... 11,129 6,796 4,504
Income taxes........................................... 3,155 517 541
</TABLE>
16. LINES OF BUSINESS
The Company operates in two major lines of business: Services (providing
healthcare business management services to physicians, hospitals and payors) and
Technology Systems (principally systems integration services and computer
software and hardware sales). Total revenue by segment includes only sales to
unaffiliated customers as reported in the Company's consolidated statements of
income. Operating profit is total revenue less operating expenses. Corporate
items include interest income and expense and other general corporate expenses.
Corporate assets consist primarily of cash and cash equivalents, deferred
financing costs, fixed assets, miscellaneous prepaids and receivables and real
estate purchased in an acquisition. Information concerning operations in these
lines of business is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Services............................................. $401,666 $291,452 $208,808
Technology systems................................... 159,751 108,203 71,155
Corporate and eliminations........................... (1,540) (721) (637)
-------- -------- --------
$559,877 $398,934 $279,326
======== ======== ========
Operating Profit(1)
Services............................................. $ 54,010 $ 48,339 $ 32,541
Technology systems................................... 19,255 14,720 811
Corporate............................................ (12,087) (6,550) (5,026)
-------- -------- --------
$ 61,178 $ 56,509 $ 28,326
======== ======== ========
Interest expense, net.................................. $ 10,062 $ 5,926 $ 6,573
Restructuring and other charges........................ 54,950 1,905 --
-------- -------- --------
Income before income taxes............................. $ (3,834) $ 48,678 $ 21,753
======== ======== ========
Identifiable Assets
Services............................................. $548,410 $496,074 $281,519
Technology systems................................... 234,499 125,652 55,929
Corporate............................................ 12,697 5,425 29,833
-------- -------- --------
$795,606 $627,151 $367,281
======== ======== ========
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Depreciation and Amortization
Services............................................. $ 21,194 $ 14,454 $ 10,883
Technology systems................................... 10,782 5,483 4,162
Corporate............................................ 559 184 118
-------- -------- --------
$ 32,535 $ 20,121 $ 15,163
======== ======== ========
Capital Expenditures
Services............................................. $ 28,304 $ 8,724 $ 3,726
Technology systems................................... 21,133 3,613 3,285
Corporate............................................ 1,549 726 167
-------- -------- --------
$ 50,986 $ 13,063 $ 7,178
======== ======== ========
</TABLE>
- ---------------
(1) Does not include any allocation of interest income and expense and general
corporate expenses. Also excludes restructuring and other charges in 1995
and 1994 as follows: Services, $45.2 million and $1.9 million; Technology
Systems, $9.75 million and zero.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ ------------
QUARTER ENDED
-------------------------------------------------
(AS
RESTATED,
SEE NOTE 18)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Revenue........................................ $133,093 $141,286 $140,752 $144,746
Pro forma net income (loss).................... (11,857) 7,226 (2,723) (1,150)
Pro forma net income (loss) per common share... $ (0.23) $ 0.10 $ (0.05) $ 0.02
Weighted average shares outstanding............ 50,932 69,053 57,696 58,068
1994
Revenue........................................ $ 85,194 $ 89,829 $ 98,119 $125,792
Pro forma net income........................... 7,122 5,088 5,288 13,208
Pro forma net income per common share.......... $ 0.12 $ 0.09 $ 0.09 $ 0.21
Weighted average shares outstanding............ 59,666 59,533 59,921 61,787
</TABLE>
18. RESTATEMENT OF 1995 CONSOLIDATED FINANCIAL STATEMENTS
The Company has restated its financial statements for the three months and
year ended December 31, 1995. The restatement results primarily from a software
licensing agreement entered into by the Company's Imonics subsidiary in December
1995 for which the Company recognized associated license fee revenue in 1995.
Subsequent to the issuance of the Company's 1995 consolidated financial
statements, management discovered unauthorized correspondence made by an Imonics
employee which created a contingency for the license fee payable under this
agreement. Such contingency precluded recognition of license fee revenue in 1995
associated with this agreement. The previously recognized license fee revenue
and certain other adjustments, previously considered immaterial and not
recorded, are included as part of the restatement
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustments to the Company's previously reported results of operations and
financial position. The significant effects of the restatement are as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Revenue..................................................... $564,303 $559,877
Salaries and wages.......................................... 323,825 325,868
Other operating expenses.................................... 138,866 140,296
Income (loss) before income taxes........................... 4,706 (3,834)
Net loss.................................................... (497) (5,621)
Pro forma net loss.......................................... (3,380) (8,504)
Pro forma net loss per common share......................... (0.06) (0.15)
AS OF DECEMBER 31, 1995:
Total current assets........................................ 228,357 223,165
Total assets................................................ 801,869 795,606
Total current liabilities................................... 125,658 127,935
Total liabilities........................................... 375,439 374,300
Total stockholders' equity.................................. $426,430 $421,306
</TABLE>
21
<PAGE> 22
MEDAPHIS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts (as
restated)............................ $3,205 $6,718 $1,278(1) $(4,976)(2) $6,225
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts......... $2,193 $4,089 $ 338(1) $(3,415)(2) $3,205
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts......... $1,212 $3,697 $ 227(1) $(2,943)(2) $2,193
</TABLE>
- ---------------
(1) Represents the allowance recorded in conjunction with acquired companies.
(2) Represents write-off of uncollectible accounts receivable.
22
<PAGE> 1
EXHIBIT 99.4
MEDAPHIS CORPORATION
QUARTERLY CONSOLIDATED SEGMENT DATA
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------- --------------------
QUARTER ENDED QUARTER ENDED
--------------------------------------------------- --------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL MARCH 31, JUNE 30,
--------- -------- ------------- ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
BSG Group............ $ 41,338 $ 37,486 $ 11,639 $ 23,350 $ 113,813 $ 23,362 $ 22,634
HIT.................. 13,367 29,269 13,516 14,396 70,548 11,879 13,899
Services............. 109,353 108,810 103,413 105,199 426,775 98,223 105,118
Corporate and
Eliminations....... (431) (372) (1,837) (8) (2,648) (371) (365)
-------- -------- -------- --------- --------- -------- --------
$163,627 $175,193 $126,731 $ 142,937 $ 608,488 $133,093 $141,286
======== ======== ======== ========= ========= ======== ========
OPERATING PROFIT:
BSG Group............ $ 13,298 $ 10,423 $(28,181) $ (11,215) $ (15,675) $ 3,067 $ 82
HIT.................. 3,456 18,647 1,942 854 24,899 2,479 2,267
Services............. 11,102 9,077 994 (4,572) 16,601 15,622 16,118
Corporate and
Eliminations....... (4,008) (4,566) (7,813) (10,980) (27,367) (2,386) (2,317)
-------- -------- -------- --------- --------- -------- --------
$ 23,848 $ 33,581 $(33,058) $ (25,913) $ (1,542) $ 18,782 $ 16,150
======== ======== ======== ========= ========= ======== ========
Interest expense,
net.................. $ 2,105 $ 2,630 $ 3,284 $ 3,566 $ 11,585 $ 3,947 $ 2,222
RESTRUCTURING AND OTHER
CHARGES:
BSG Group............ $ 200 $ 8,602 $ 14,051 $ 38,027 $ 60,880 $ -- $ --
HIT.................. (934) 5,250 (357) (2) 3,957 6,750 --
Services............. 884 3,323 5,581 88,156 97,944 25,000 --
Corporate............ -- -- 5,000 12,674 17,674 -- --
-------- -------- -------- --------- --------- -------- --------
$ 150 $ 17,175 $ 24,275 $ 138,855 $ 180,455 $ 31,750 $ --
======== ======== ======== ========= ========= ======== ========
Income before income
taxes................ $ 21,593 $ 13,776 $(60,617) $(168,334) $(193,582) $(16,915) $ 13,928
======== ======== ======== ========= ========= ======== ========
IDENTIFIABLE ASSETS:
BSG Group............ $ 91,291 $115,468 $ 83,920 $ 56,539 $ 56,539 $ 51,899 $ 54,928
HIT.................. 71,661 87,354 77,209 80,970 80,970 68,607 62,052
Services............. 678,566 688,604 690,849 594,582 594,582 535,527 565,165
Corporate............ 17,305 12,275 14,061 93,236 93,236 9,054 6,602
-------- -------- -------- --------- --------- -------- --------
$858,823 $903,701 $866,039 $ 825,327 $ 825,327 $665,087 $688,747
======== ======== ======== ========= ========= ======== ========
DEPRECIATION AND
AMORTIZATION:
BSG Group............ $ 1,761 $ 1,643 $ 2,084 $ 2,933 $ 8,421 $ 1,530 $ 1,613
HIT.................. 1,247 1,115 1,198 1,513 5,073 833 914
Services............. 6,693 7,207 7,626 10,794 32,320 5,249 5,588
Corporate............ 159 185 250 298 892 63 87
-------- -------- -------- --------- --------- -------- --------
$ 9,860 $ 10,150 $ 11,158 $ 15,538 $ 46,706 $ 7,675 $ 8,202
======== ======== ======== ========= ========= ======== ========
CAPITAL EXPENDITURES:
BSG Group............ $ 3,825 $ 5,764 $ 4,303 $ 993 $ 14,885 $ 2,092 $ 3,680
HIT.................. 735 756 642 552 2,685 461 400
Services............. 14,337 7,891 5,014 4,371 31,613 4,864 6,380
Corporate............ 578 684 322 367 1,951 2 553
-------- -------- -------- --------- --------- -------- --------
$ 19,475 $ 15,095 $ 10,281 $ 6,283 $ 51,134 $ 7,419 $ 11,013
======== ======== ======== ========= ========= ======== ========
<CAPTION>
1995
---------------------------------------
QUARTER ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31, TOTAL
------------- ------------ --------
<S> <C> <C> <C>
REVENUE:
BSG Group............ $ 28,472 $ 24,147 $ 98,615
HIT.................. 11,085 15,814 52,677
Services............. 101,739 105,231 410,311
Corporate and
Eliminations....... (544) (446) (1,726)
-------- -------- --------
$140,752 $144,746 $559,877
======== ======== ========
OPERATING PROFIT:
BSG Group............ $ 4,315 $ (2,219) $ 5,245
HIT.................. 2,729 5,827 13,302
Services............. 8,749 13,373 53,862
Corporate and
Eliminations....... (2,493) (4,035) (11,231)
-------- -------- --------
$ 13,300 $ 12,946 $ 61,178
======== ======== ========
Interest expense,
net.................. $ 2,318 $ 1,575 $ 10,062
RESTRUCTURING AND OTHER
CHARGES:
BSG Group............ $ -- $ -- $ --
HIT.................. -- 1,200 7,950
Services............. 14,000 8,000 47,000
Corporate............ -- -- --
-------- -------- --------
$ 14,000 $ 9,200 $ 54,950
======== ======== ========
Income before income
taxes................ $ (3,018) $ 2,171 $ (3,834)
======== ======== ========
IDENTIFIABLE ASSETS:
BSG Group............ $ 65,694 $ 72,925 $ 72,925
HIT.................. 69,661 71,566 71,566
Services............. 578,815 640,883 640,883
Corporate............ 8,575 10,232 10,232
-------- -------- --------
$722,745 $795,606 $795,606
======== ======== ========
DEPRECIATION AND
AMORTIZATION:
BSG Group............ $ 1,470 $ 1,233 $ 5,846
HIT.................. 1,005 1,008 3,760
Services............. 5,564 6,003 22,404
Corporate............ 115 260 525
-------- -------- --------
$ 8,154 $ 8,504 $ 32,535
======== ======== ========
CAPITAL EXPENDITURES:
BSG Group............ $ 3,825 $ 5,372 $ 14,969
HIT.................. 218 484 1,563
Services............. 11,931 9,730 32,905
Corporate............ 298 696 1,549
-------- -------- --------
$ 16,272 $ 16,282 $ 50,986
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 99.5
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. Medaphis Corporation ("Medaphis" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe harbor
provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on
various expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties which could cause
actual events or results to differ materially from those projected. Due to
those uncertainties and risks, the investment community is urged not to place
undue reliance on written or oral forward-looking statements of Medaphis. The
Company undertakes no obligation to update or revise this Safe Harbor
Compliance Statement for Forward-Looking Statements (the "Safe Harbor
Statement") to reflect future developments. In addition, Medaphis undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
Medaphis provides the following risk factor disclosure in connection
with its continuing effort to qualify its written and oral forward-looking
statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include the following:
FUTURE OPERATING RESULTS. While Medaphis has in the past expanded its
operations through acquisitions and internal growth, the 1997 business plan of
the Company does not provide for further acquisitions and, in any event, any
such acquisitions would require the unanimous consent of the Company's existing
lenders. While the Company has and continues to implement management
initiatives designed to enhance and improve its business and operations, there
can be no assurance that Medaphis will be able to achieve or sustain
profitability or revenue growth on an annual or quarterly basis in the
future, that fluctuations in quarter-to-quarter or year-to-year operating
results will not occur or that any such quarter-to-quarter or year-to-year
fluctuations will not be material. Future operating results of Medaphis will
be dependent upon, among other things, (i) successful integration of certain
recently acquired businesses, (ii) successfully exiting non-core businesses,
(iii) improvement in operations of the Company's physician billing business,
(iv) successful implementation of various management initiatives designed to
reduce costs and increase efficiencies within the Company's core business and
(v) successful growth in sales of the Company's business management services
and information products.
<PAGE> 2
The Company has recently consummated a number of significant
acquisitions, many of which the Company is in the process of integrating into
its operations. In addition, the Company recently announced its intention to
focus on its core business of delivering business management services and
information products to healthcare providers and to divest non-strategic
businesses, including Healthcare Recoveries, Inc. ("HRI"). The Company also
recently announced that it was assessing alternatives for BSG Corporation
("BSG"), including, but not limited to, seeking a buyer, a spin-off transaction
or other alternatives that involve more independence for BSG. There can be no
assurance that the Company will be able to successfully integrate any of the
recently acquired companies, that Medaphis will be able to continue to operate
recently acquired companies in a profitable manner or that any of the recently
acquired companies will not have a material adverse effect upon Medaphis'
results of operations, particularly while such acquisitions are being integrated
into the Company. Similarly, there can be no assurance that the Company will be
able to successfully exit non-core businesses in a timely fashion or at all,
that the Company will be able to divest HRI on favorable terms, that the
Company will be able to find a buyer or develop suitable alternatives for BSG
or that any such divestiture and/or assessment will not have a material
adverse effect upon the results of operations of the Company. Additionally,
there can be no assurance that any such divestiture or assessment will not have
an adverse effect upon the results of operations of HRI or BSG or the
reputation and standing of each of these businesses in their respective markets
or their ability to attract and retain key employees.
During the six months ended December 31, 1996, the Company undertook to
reorganize its Imonics operating unit, integrate the Imonics operations into BSG
and to discontinue the custom software development business previously pursued
by the Imonics unit. This process involved, among other things, recording large
restructuring and other charges during the relevant period, significant
downsizing of Imonics' employee workforce, renegotiation of Imonics' significant
client contracts and other restructuring, reorganization and exit activities.
There can be no assurance that such restructuring and reorganization activities
will not have an adverse effect upon the reputation and standing of Medaphis,
BSG and/or Rapid Systems Solutions, Inc. in the information management and
client/server information technology marketplaces or that such matters will not
have an adverse effect upon the results of operations of Medaphis in future
periods or adversely effect BSG's ability to attract and retain key employees.
The Company's expansion strategy in the past has involved both
acquisitions and internal growth. The Company recently announced that it intends
to focus on its core business of delivering business management services and
information products to healthcare providers and to divest non-strategic
-2-
<PAGE> 3
businesses. Moreover, the Company does not currently anticipate pursuing any
significant acquisitions. There can be no assurance that such shift in focus
will not have an adverse effect upon the Company's revenue and operations.
The Company is experiencing margin pressure in the billing and accounts
receivable management services operations of Medaphis Physician Services
Corporation, a wholly owned subsidiary of the Company ("MPSC"). MPSC has not
significantly contributed to the Company's overall results of operations for the
past eighteen months. Management does not expect this trend to improve
significantly until further progress is made with, among other things, ongoing
initiatives designed to reduce costs and improve efficiencies in operations. One
of the major components of the Company's 1997 operating plan is to reduce costs
and increase efficiencies in the core business. During 1996 and going forward,
the Company has and will continue to implement various initiatives within the
Company's Services Division (which includes MPSC) designed to reduce costs and
improve operational efficiency. These initiatives have included, among other
things, downsizing of management ranks and improvements in operational processes
through the implementation of best practices. Although the preliminary
indications from such management initiatives have been positive, there can be no
assurance that the Company will be able to successfully implement such
initiatives throughout MPSC's operations, that such management initiatives
ultimately will be successful, that MPSC's margins will improve or that MPSC
will contribute meaningfully to the Company's overall results of operations in
future periods.
The Company's future operations are dependent upon, among other things,
continued growth in sales of its healthcare information technology ("HIT")
products, including, but not limited to, sales of its clinical information
management system in both domestic and international markets. The markets for
these products are characterized by rapidly changing technology, evolving
industry standards and frequent new products and product enhancements. The
Company's success in its HIT business will depend upon its continued ability (i)
to enhance its existing products, (ii) to effect conversions of existing
products into foreign languages, (iii) to introduce new products on a timely and
cost effective basis to meet evolving customer requirements, (iv) to achieve
market acceptance for new product offerings and (v) to respond to emerging
industry standards and other technological changes. During the six months ended
December 31, 1996, the Company experienced slower than expected sales of certain
of its enterprise-wide and departmental scheduling products. There can be no
assurance that sales of such scheduling products will improve, that Medaphis
will be able to effectively enhance existing products, create new products or
respond to technological changes or new industry standards. Moreover, there can
be no assurance that competitors of Medaphis will not develop competitive
products, or that any such competitive products will not have an adverse effect
upon Medaphis' operating results.
The Company recently announced its operating plan for 1997. As noted
above, the operating plan involves refocusing the Company on its core business
of providing business management services and information products to healthcare
providers. The major components of the plan include (i) exiting non-core
businesses, (ii) achieving improved predictability of business results through
enhanced management accountability and controls, (iii) reducing costs and
increasing efficiencies in the core business, (iv) achieving excellence in
-3-
<PAGE> 4
customer service, and (v) implementing cross-selling initiatives. Although
management believes that the 1997 operating plan reflects the key action items
which will contribute to Medaphis' efforts to improve and enhance the
operations of the Company, there can be no assurance that the operating plan
will result in meaningful improvements to the Company's operating results in
future periods or that the plan will ultimately be successful.
ABANDONED REENGINEERING PROGRAM; EXISTING SYSTEMS AND TECHNOLOGY. The
Company recently announced that it had abandoned its reengineering program. This
decision was reached at the conclusion of a comprehensive assessment of the
program begun during 1996. The conclusions of the assessment were that it was
not cost effective to continue the development and deployment of the software
and technology upon which the reengineering program was based and that the
reengineering software and technology had no alternative useful application in
the Company's operations. In lieu of further developing and deploying the
reengineering software and technology, the Company intends to further refine,
enhance and develop certain of the Company's existing software and billing
systems and to migrate over time the Company's billing and accounts receivable
management services operations to the Company's most proven software systems and
technology, so as to reduce the number of systems and technology that must be
maintained and supported. Moreover, management intends to continue to implement
"best practices" and other established process improvements in its operations
going forward. There can be no assurance that the Company will be able to
successfully refine, enhance and develop its software and billing systems going
forward, that the costs associated with maintaining, enhancing and developing
such software and systems will not increase significantly in future periods,
that the Company will be able to successfully migrate the Company's billing and
accounts receivable management services operations to the Company's most proven
software systems and technology or that the Company's existing software and
technology will not become obsolete as a result of ongoing technological
developments in the marketplace.
CASH FLOW FROM OPERATIONS; SENIOR CREDIT FACILITY. During the year
ended December 31, 1996, the Company used approximately $8 million in cash for
operating activities. At December 31, 1996, approximately $242.7 million in
borrowings were outstanding under the Company's Senior Credit Facility. The
Senior Credit Facility was amended and restated on February 4, 1997 (the
"Amended Facility") to, among other things, increase the loan commitments from
$250 million to $285 million and extend the maturity through June 30, 1998.
The Amended Facility is secured by substantially all of the Company's assets
and is guaranteed by substantially all of the Company's subsidiaries. The loan
commitments under the Amended Facility will reduce to $200 million on July 31,
1997 and $150 million on January 31, 1998. Certain of the other material terms
of the Amended Facility include adjustment of the interest rates, fees and
charges and other compensation to be paid to the lenders by the Company,
including the vesting of certain warrant arrangements for 1% of the common
stock of the Company on each of January 1, 1998 and April 1, 1998; modification
of the financial reporting requirement to the lenders; restrictions on new
acquisitions and certain litigation settlement payments; and establishment of a
maximum permitted capital expenditures covenant for the fiscal quarter ending
March 31, 1997 and additional financial covenants for fiscal quarters ending on
and after June 30, 1997. This summary of certain terms of the Amended Facility
and the warrants are subject to the terms of the agreements which are included
as Exhibits 4.1 and 99.2 to this Current Report on Form 8-K.
While management presently anticipates that the liquidity provided in
the Amended Facility (together with anticipated results from operations based
on the 1997 business plan) will be sufficient to fund the Company's anticipated
operating and capital expenditure requirements during 1997, there can be no
assurance that there will not be material deviations in actual operations from
the 1997 business plan which would make it necessary for the Company to seek
either further modifications to the Amended Facility or other sources of
liquidity. Similarly, while the Company presently anticipates that the timing
and proceeds from the previously announced non-core business divestiture
program will be sufficient to meet the Company's principal amortization and
other obligations under the Amended Facility, there can be no assurance that
the timing or amount of the proceeds to be generated from business divestitures
for debt service purposes will not require further modifications of the Amended
Facility, some of which modifications would require the consent of all of the
lenders thereto. Finally, while the Amended Facility incorporates an extension
of maturity through June 30, 1998, the Company will be required to renegotiate
the Amended Facility prior to maturity and complete its non-core business
divestiture program in order to provide adequate liquidity for the Company's
1998 business plan. There can be no assurance that the Company's lenders will
agree to further modifications of the Amended Facility or that the Company will
complete the non-core business divestiture program as required. The Company
may also be required to consider other alternative financing arrangements
and/or equity transactions, which could prove costly and/or involve further
dilution to the Company's stockholders. There can be no assurance that any
such alternative financing arrangements and/or equity transactions will be
available to the Company on acceptable terms or at all.
-4-
<PAGE> 5
PENDING FEDERAL INVESTIGATION; PUTATIVE CLASS ACTION LAWSUITS. The
United States Attorney's Office for the Central District of California is
conducting an investigation (the "Federal Investigation") of Medaphis' billing
and collection practices in its offices located in Calabasas and Cypress,
California (the "Designated Offices"). Medaphis first became aware of the
Federal Investigation when it received search warrants and grand jury subpoenas
on June 13, 1995. Although the precise scope of the Federal Investigation is not
known to the Company at this time, Medaphis believes that the U.S. Attorney's
Office is investigating allegations of billing fraud and that the inquiry is
focused upon Medaphis' billing and collection practices in the Designated
Offices. Numerous federal and state civil and criminal laws govern medical
billing and collection activities. In general, these laws provide for various
fines, penalties, multiple damages, assessments and sanctions for violations,
including possible exclusion from Medicare, Medicaid and certain other federal
and state healthcare programs. Although the Designated Offices represent less
than 2% of Medaphis' annual revenue, there can be no assurance that the Federal
Investigation will be resolved promptly, that additional subpoenas or search
warrants will not be received by Medaphis or that the Federal Investigation will
not have a material adverse effect upon the Company. The Company recorded
charges of $12 million in the third quarter of 1995 and $2 million in the fourth
quarter of 1996, solely for the administrative fees, costs and expenses it
anticipates incurring in connection with the Federal Investigation and the
putative class action lawsuits described below which were filed following the
Company's announcement of the Federal Investigation. The charges are intended to
cover only the anticipated expenses of the Federal Investigation and the related
lawsuits and do not include any provision for fines, penalties, damages,
assessments, judgments or sanctions that may arise out of such matters.
Following the announcement of the Federal Investigation, Medaphis,
various of its current and former officers and directors and the lead
underwriters associated with Medaphis' public offering of common stock in April
1995 were named as defendants in putative shareholder class action lawsuits
filed in the United States District Court for the Northern District of Georgia.
In general, these lawsuits allege violations of the federal securities laws in
connection with Medaphis' public statements and filings under the federal
securities acts, including the registration statement filed in connection with
Medaphis' public offering of common stock in April 1995. On October 13, 1995,
the named plaintiffs in these lawsuits filed a consolidated class action
complaint (the "Consolidated Complaint"). On January 3, 1996, the court denied
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defendants' motion to dismiss the Consolidated Complaint which argued that the
complaint failed to state a claim upon which relief may be granted. On April
11, 1996, certain of the named plaintiffs to the Consolidated Complaint
voluntarily dismissed with prejudice all of their claims. As a result of these
dismissals, the Consolidated Complaint no longer contains any claims based on
the Securities Act of 1933, as amended, and the Company's underwriters and
outside directors are no longer named as defendants. On June 26, 1996, the
court denied the plaintiffs' motion to certify a plaintiffs' class. The
plaintiffs and the defendants have reached an agreement in principle to settle
this action on a class-wide basis for $4.75 million, subject to court approval
and other customary conditions (the "1995 Class Action Settlement"). The 1995
Class Action Settlement would also include the related putative class action
lawsuit currently pending in the Superior Court of Cobb County, Georgia,
described more fully below. The Company expects to receive approximately $3.7
million from insurance to fund a portion of the 1995 Class Action Settlement
and accrued approximately $1.2 million in the quarter ending December 31, 1996
to fund the anticipated balance of the 1995 Class Action Settlement and to pay
certain fees incident thereto.
On November 5, 1996, Medaphis, Randolph G. Brown, Michael R. Cote and
James S. Douglass were named as defendants in a putative shareholder class
action lawsuit filed in Superior Court of Cobb County, State of Georgia. This
lawsuit alleges violations of Georgia securities laws based on the same public
statements and filings generally described above. The lawsuit is brought on
behalf of a putative class of purchasers of Medaphis common stock during the
period from March 29, 1995 through June 15, 1995. Plaintiffs seek compensatory
damages and costs. As noted above, it is currently contemplated that this action
would be settled as part of the 1995 Class Action Settlement.
Following the Company's August 14, 1996 announcement regarding earnings
expectations and certain charges, Medaphis and certain of its current and former
officers, one of whom was also a director, were named as defendants in nineteen
putative shareholder class action lawsuits filed in the United States District
Court for the Northern District of Georgia. On November 22, 1996, the plaintiffs
in these lawsuits filed a Consolidated Amended Class Action Complaint (the "1996
Consolidated Complaint"). In general, the 1996 Consolidated Complaint alleges
violations of the federal securities laws in connection with Medaphis' filings
under the federal securities acts and public disclosures. The 1996 Consolidated
Complaint is brought on behalf of a class of all persons who purchased or
otherwise acquired Medaphis common stock between January 6, 1996 and October 21,
1996. The 1996 Consolidated Complaint also asserts claims on behalf of a
Sub-Class of all persons who acquired Medaphis common stock pursuant to the
merger between Medaphis and Health Data Sciences Corporation ("HDS"). On
December 30, 1996, the defendants filed a motion to dismiss most of the 1996
Consolidated Complaint.
On November 7, 1996, Health Systems International, Inc. filed suit in
the Superior Court for the State of California, County of Los Angeles against
Medaphis, Randolph G. Brown and "Does 1-50," who are alleged to be unnamed
Medaphis directors, officers and employees. Generally, this lawsuit alleges that
the defendants violated federal and California securities laws and common law
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by, among other things more fully described in the complaint, making material
misstatements and omissions in public and private disclosures in connection with
the acquisition of HDS. Plaintiff seeks rescissory, compensatory and punitive
damages, rescission, injunctive relief and costs. On January 10, 1997, the
defendants filed a demurrer to the complaint. The demurrer was denied on
February 5, 1997. The Company believes that it has meritorious defenses to this
action.
On November 1, 1996, Thomas W. Brown, Administrator, Thomas W. Brown
Profit Sharing Plan filed a shareholder derivative lawsuit in the United States
District Court for the Northern District of Georgia alleging that certain of
Medaphis' current and former directors breached their fiduciary duties, were
grossly negligent, and breached various contractual obligations to Medaphis by
allegedly failing to implement and maintain an adequate system of internal
accounting controls, allowing Medaphis to commit securities law violations, and
damaging Medaphis' reputation. Plaintiff seeks compensatory damages and costs.
On January 28, 1997, Medaphis and certain individual defendants filed a motion
to dismiss the complaint.
A putative class action complaint was filed by Ernest Hecht and Stephen
D. Strandberg against Steven G. Papermaster, Robert E. Pickering, Jr., David S.
Lundeen, Norman Smith, Raymond J. Noorda, Gregory A. Grosh, Medaphis and
Randolph G. Brown on November 12, 1996 in the Superior Court, Law Division,
Essex County, State of New Jersey. The alleged class consists of persons and
entities whose options to purchase BSG common stock were converted to Medaphis
stock options in connection with Medaphis' acquisition of BSG. Plaintiffs allege
failure to perform diligence, breaches of fiduciary duties of candor, loyalty
and fair dealing and negligence against the BSG defendants (Papermaster,
Pickering, Lundeen, Smith, Noorda and Grosh) and fraud and deceit against the
Medaphis defendants (Medaphis and Brown). The Company believes that it has
meritorious defenses to this action.
The Company also has received written demands from various
stockholders, including stockholders of recently acquired companies. To date,
these stockholders have not filed lawsuits.
The Securities and Exchange Commission (the "Commission") has notified
the Company that it is conducting a private investigation which generally
relates to trading in the Company's securities in relation to the Company's
August 14, 1996 and October 22, 1996 announcements of the Company's anticipated
and actual loss for the quarter ending September 30, 1996 and its restated
financial results for fiscal 1995, the Company's compliance with the
Commission's filing and reporting obligations, and the adequacy and/or accuracy
of the Company's public disclosures, record keeping, and accounting controls.
The Company intends to cooperate fully with the Commission in its
investigation.
Although the Company believes that it has meritorious defenses to the
actions against and written demands placed upon the Company, there can be no
assurance that additional lawsuits will not be filed against the Company, that
the lawsuits, the written demands and the pending governmental investigation
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will not have a disruptive effect upon the operations of the business, that the
written demands, the defense of the lawsuits and the pending investigation will
not consume the time and attention of the senior management of the Company,
that the resolution of the lawsuits, the written demands and the pending
governmental investigation will not have a material adverse effect upon the
Company.
HEALTHCARE FRAUD INITIATIVES; HEALTHCARE REFORM MEASURES. The federal
government in recent years has placed increased scrutiny on the billing and
collection practices of healthcare providers and related entities. This scrutiny
has been directed at, among other things, fraudulent billing practices. The
Department of Health and Human Services in recent years has increased the
resources of the Office of the Inspector General ("OIG") specifically to pursue
both false claims and fraud and abuse violations of the Medicare program. This
heightened examination has resulted in a number of high profile investigations,
lawsuits and settlements.
Recently, Congress enacted the Health Insurance Portability and
Accounting Act of 1996, Pub. L. No. 104-191, 1996 U.S.C.C.A.N. (110 Stat. 1936)
(the "Health Insurance Act"), which includes an expansion of certain fraud and
abuse provisions, such as expanding the application of Medicare and Medicaid
fraud penalties to other federal healthcare programs, and creating additional
criminal offenses relating to "healthcare benefit programs," which are defined
to include both public and private payor programs. The Health Insurance Act also
provides for forfeitures and asset freezing orders in connection with such
healthcare offenses. Civil monetary penalties and program exclusion authority
available to the OIG also have been expanded. The Health Insurance Act contains
provisions for instituting greater coordination of federal, state and local
enforcement agency resources and actions through the OIG. There also have been
several recent healthcare reform proposals which have included an expansion of
the anti-kickback laws to include referrals of any patients regardless of payor
source.
In addition to the provisions of the Health Insurance Act, submission
of claims for services or procedures that are not provided as claimed may lead
to civil monetary penalties, criminal fines, imprisonment and/or exclusion from
participation in Medicare, Medicaid and other federally funded healthcare
programs. Specifically, the Federal False Claims Act allows a private person to
bring suit alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and for such person to share in any amounts paid to
the government in damages and civil penalties. Successful plaintiffs can receive
up to 25-30% of the total recovery from the defendant. Such qui tam actions or
"whistleblower lawsuits" have increased significantly in recent years and have
increased the risk that a company engaged in the healthcare industry such as
Medaphis and many of its customers may become the subject of a federal or state
investigation or may ultimately be required to defend a false claims action, may
be subjected to government investigation and possible criminal fines, may be
sued by private payors, and may be excluded from Medicare, Medicaid and/or other
federally funded healthcare programs as a result of such an action. The
government on its own may also institute a Civil False Claims Act case, either
in conjunction with a criminal prosecution or as a stand alone civil case.
Whether instituted by a qui tam plaintiff or by the government, the government
can recover triple its damages together with civil penalties of $5,000 -
$ 10,000 per false claim. Under applicable case law, a party successfully sued
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under the False Claims Act may be jointly and severally liable for the damages
and penalties. Some state laws also provide for false claims actions,
including actions initiated by a qui tam plaintiff. There can be no assurance
that Medaphis will not be the subject of false claims or qui tam proceedings
relating to its billing and collection activities or that Medaphis will not be
the subject of further government scrutiny or investigations relating to its
billing and accounts receivable management services operations. See "Pending
Federal Investigation; Putative Class Action Lawsuits." Any such proceeding or
investigation could have a material adverse effect upon the Company.
In the 1995 and 1996 sessions of the United States Congress, the focus
of healthcare legislation was on budgetary and related funding mechanism issues.
A number of reports, including the 1995 Annual Report of the Board of Trustees
of the Federal Hospital Insurance Program (Medicare), have projected that the
Medicare "trust fund" is likely to become insolvent by the year 2002 if the
current growth rate of approximately 10% per annum in Medicare expenditures
continue. Similarly, federal and state expenditures under the Medicaid program
are projected to increase significantly during the same seven-year period. In
response to these projected expenditure increases, and as part of an effort to
balance the federal budget, both the Congress and the Clinton Administration
have made proposals to reduce the rate of increase in projected Medicare and
Medicaid expenditures and to change funding mechanisms and other aspects of both
programs. Congress in late 1995 passed legislation that would reduce projected
expenditure increases substantially and would make significant changes in the
Medicare and the Medicaid programs. The Clinton Administration has proposed
alternate measures to reduce, to a lesser extent, projected increases in
Medicare and Medicaid expenditures. Neither proposal became law prior to
Congress' 1996 adjournment. Medaphis anticipates that both the Clinton
Administration and the Republican majorities in Congress will introduce in 1997
legislation designed to reduce projected increases in Medicare and Medicaid
expenditures and to make other changes in the Medicare and Medicaid programs.
Medaphis anticipates that such proposed legislation would, if adopted, change
aspects of the present methods of paying physicians under such programs and
provide incentives for Medicare and Medicaid beneficiaries to enroll in health
maintenance organizations and other managed care plans. Medaphis cannot predict
the effect of any such legislation, if adopted, on its operations.
A number of states in which Medaphis has operations either have adopted
or are considering the adoption of healthcare reform proposals at the state
level. These state reform laws have, in many cases, not been fully implemented.
Medaphis cannot predict the effect of proposed state healthcare reform laws on
its operations. Additionally, certain reforms are occurring in the healthcare
market which may continue regardless of whether comprehensive federal or state
healthcare reform legislation is adopted and implemented. These market reforms
include certain employer initiatives such as creating purchasing cooperatives
and contracting for healthcare services for employees through managed care
companies (including health maintenance organizations), and certain provider
initiatives such as risk-sharing among healthcare providers and managed care
companies through capitated contracts and integration among hospitals and
physicians into comprehensive delivery systems. Consolidation of management and
billing services by integrated delivery systems may result in a decrease in
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demand for Medaphis' billing and collection services for particular physician
practices, but this decrease may be offset by an increase in demand for
Medaphis' consulting and comprehensive business management services (including
billing and collection services) for the new provider systems.
CLIENT/SERVER INFORMATION TECHNOLOGY PROJECTS. Medaphis' client/server
information technology business involves, among other things, projects
designed to reengineer significant client operations through the strategic use
of imaging, client/server and other advanced technologies. Failure to meet
expectations with respect to a major project could damage the Company's
reputation and standing in the client/server information technology
marketplace, affect its ability to attract new client/server information
technology business, result in the payment of damages to the client and
jeopardize the Company's ability to collect for services already performed on
the project.
VOLATILITY OF STOCK PRICE. Medaphis believes factors such as
announcements with respect to the Federal Investigation, the Company's
liquidity and financial resources, divestiture of businesses, the ongoing
governmental investigation, putative class action lawsuits, other lawsuits or
demands, healthcare reform measures and quarter-to-quarter and year-to-year
variations in financial results could cause the market price of Medaphis common
stock to fluctuate substantially. Any adverse announcement with respect to such
matters or any shortfall in revenue or earnings from levels expected by
securities analysts could have an immediate and material adverse effect on the
trading price of Medaphis common stock in any given period. As a result, the
market for Medaphis common stock may experience material adverse price and
volume fluctuations and an investment in the Company's common stock is not
suitable for any investor who is unwilling to assume the risk associated with
any such price and volume fluctuations.
COMPETITION. Medaphis faces intense competition in each of the areas in
which it does business. In providing business management systems and services to
physicians and hospitals, Medaphis competes with certain national information
management systems and transaction processing organizations, certain regional
companies which provide such systems or services and certain physician groups
and hospitals which provide their own business management services. In providing
subrogation and recovery services, Medaphis competes primarily with the internal
recovery operations of potential customers and with certain regional subrogation
recovery vendors. In terms of providing client/server information technology
services, Medaphis competes with national, regional and local companies
specializing in information technology and systems integration consulting
services, national and regional application development companies and the
software development and systems integration units of national computer
equipment manufacturers, large information systems facilities management and
outsourcing organizations, national "Big Six" accounting firms and the
information systems groups of large general management consulting firms. Certain
of Medaphis' competitors have longer operating histories and greater financial,
technical and marketing resources than Medaphis. There can be no assurance that
competition from current or potential competitors will not have a material
adverse effect upon Medaphis.
This Safe Harbor Statement supersedes the Safe Harbor Statement filed
as Exhibit 99 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996.
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