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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1996
Commission File Number 33-80731
PHYSICIAN SUPPORT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3624081
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Route 230 and Eby-Chiques Road
Mt. Joy, Pennsylvania 17552
(Address, including zip code, of principal executive offices)
(717) 653-5340
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the close of business on March 15, 1997 was approximately
$63,296,000.
As of the close of business on March 15, 1997 there were 9,720,033 shares
of the registrant's Common Stock, par value $.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement to be prepared in connection with the 1997
annual meeting of Stockholders are incorporated by reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS.
General
Physician Support Systems, Inc., was formed as a Delaware corporation in
1991 as the sucessor to a business founded in 1983. Unless the context indicates
otherwise, as used herein the "Company" or "PSS" means Physician Support
Systems, Inc. and its subsidiaries. The Company is a leading provider of
business management services to health care providers. The Company's clients
include principally hospital-affiliated physicians and hospitals. The Company's
physician clients practice medicine in an array of settings, including solo and
group practices, independent practice associations, specialty networks and other
affiliated-physician groups and practice various specialties, including
radiology, anesthesiology, emergency room medicine, pathology, cardiology,
surgery and primary care. The Company currently provides business management
services to over 450 hospitals and 4500 physicians throughout the United States.
The Company offers its clients a broad variety of business management
services, ranging from accounts receivable management to financial,
administrative and strategic support, data management and information services.
In addition, the Company employs its proprietary technology and financial and
patient encounter databases to provide a comprehensive range of managed care
services to its clients, including contract review, contract negotiation,
implementation and administration, thereby enhancing its clients' ability to
profitably participate in managed care systems. For its services, the Company
generally is compensated with a management fee based upon a percentage of its
clients' net collections, which percentage is determined after considering a
broad range of factors, including the nature of the services to be provided and,
in the case of physician clients, the physician's medical specialty.
The Company's business strategy is to build upon its reputation and
expertise in providing a broad range of cost-effective, value-added business
management services to physicians and hospitals. The Company intends to
continue its emphasis on providing its clients with a broad array of quality,
personalized services and strong performance on their behalf, utilizing
proprietary software systems.
A key aspect of the Company's strategy in 1996 was the acquisition of other
companies providing business management services to hospitals and physicians.
The Company has acquired 11 businesses since January 1996 for aggregate
consideration (including deferred payments) of approximately $37.2 million in
cash and stock valued at the time of such acquisitions at approximately $64.2
million. The Company intends to continue to devote time to identifying and
pursuing acquisition candidates, although it may commit less of its resources to
acquisitions in 1997.
In February 1996, the Company completed an initial public offering of
4,025,000 shares of common stock, par value $.001 per share (the "Common
Stock"), aggregating approximately $43.6 million in net proceeds to the Company.
Industry Background
The Health Care Financing Administration estimates that health care
spending in the United States totaled approximately $1 trillion in 1994, with
approximately $200 billion attributable to physician services and approximately
$400 billion spent on hospital services. As a large and rapidly growing
component of overall health care costs, health care providers have come under
increasing pressure due to an increasingly complex reimbursement environment,
the continued penetration of
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managed care and the ongoing prospect of health care reform legislation. Due to
these and other market forces, health care providers have, in increasing
numbers, sought to align themselves with each other and with business management
services companies in an effort to acquire enhanced management capabilities and
information systems. In addition, hospitals have come under pressure as more of
their services are provided on an outpatient basis. As the volume of outpatient
activity increases and reimbursement procedures grow in complexity, many
hospitals have chosen to outsource their accounts receivable and other business
management functions. The Company believes that by providing a broad array of
business management services to physicians and hospitals, it enables physicians
to maintain independence and ownership of their practices while providing them
with the expertise necessary to meet the challenges posed by the changing health
care environment, and it facilitates the timely collection of accounts
receivable for hospitals. In addition, as more physicians face pressure to
affiliate with other health care providers or managed care organizations, their
need for advisors experienced in analyzing and negotiating such affiliations
increases. Finally, the Company is able to service the business needs of
physician practice management groups, management service organizations,
independent physician associations and other specialty provider organizations,
many of which have developed in light of the changing health care environment.
The Company believes that the health care business management services
industry is highly fragmented. Many of the participants in the industry are
smaller firms with annual revenues of less than $2 million that have limited
capital and management resources and limited patient encounter databases. These
firms offer primarily accounts receivable management services, have a narrow
range of additional services, and often lack the ability, due to their limited
patient encounter databases, to provide comparative information to assist their
clients in managing their practices more effectively, particularly in evaluating
managed care proposals. As health care providers form larger networks such
competitors are less able to service such large, complex clients, particularly
where the provider group covers a broad geographic area. The Company believes
that, as health care providers continue to demand greater sophistication,
broader services and technology-driven products, these smaller service providers
will find it increasingly difficult to compete.
Business Management Services
In recent years, the health care business management services industry has
changed from one where the service provider was responsible primarily for
accounts receivable management to one where a comprehensive, integrated range of
services is provided. The Company provides a broad variety of business
management services, including fee schedule development and management,
capitation plan analysis and administration, patient and resource scheduling,
managed care contract negotiation, budgeting, cash management, payroll and
accounts payable, data collection, analysis and reporting, encounters database
design and analysis, patient demographic and encounter information and resource
utilization analysis.
The Company does not provide the full range of its business management
services to any one client, although generally all clients receive accounts
receivable management services. The Company generally does not charge
separately for additional business management services, although its management
fee (which is based on a percentage of its clients' net collections) does take
into account the nature of the services to be provided.
The Company believes that the level of service provided is a distinguishing
factor among health care business management service companies. Accordingly,
the Company emphasizes a personalized
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approach in providing services to its clients. Through its client
representatives, the Company is able to maintain regular contact with its
clients and respond rapidly, often in person, to questions or problems. In most
cases, the Company provides monthly and quarterly reports to its clients. These
reports indicate, among other things, the client's accounts receivable activity
for the period, financial and clinical analysis of patients seen and procedures
performed for the period, referring physician information, and a financial
analysis of payors' activity. The Company's client representatives typically
review these detailed financial reports with the clients on a regular basis. In
addition, the Company's client representatives may share industry or regional
data with the Company's clients to help clients better understand their business
relative to that of other physicians or hospitals.
Customers
The Company's clients consist of hospitals and primarily hospital-
affiliated physicians. The Company estimates that it provides services (either
directly or through its physician group clients) to over 450 hospitals and 4500
physicians. The Company's physician clients practice various specialties,
including radiology, anesthesiology, emergency room medicine, pathology,
cardiology and surgery.
In most cases, the Company enters into written agreements with its
physician clients. The Company's written agreements generally range from month-
to-month to five years in duration, renew automatically at the end of the
initial term unless notice is given by either party 30 to 90 days prior to
renewal and, in many cases, may be cancelled by either party with 30 to 90 days
written notice. In certain regions where the Company conducts business, the
industry practice is to provide business management services without a written
contract. In those cases, typically the Company does not require a written
agreement with its physician clients.
Substantially all of the Company's arrangements for business management
services provide for management fees payable to the Company based upon a
percentage of the Company's clients' net collections. Management fees are
negotiated at the outset of an engagement based upon a number of factors,
including the range of services to be provided by the Company, an analysis of
the collectability of a client's accounts receivable portfolio, an estimate of
the costs of such collection and, in the case of physician clients, the types of
physician specialists involved. No single customer or organization accounted
for 10% or more of the Company's total revenue in 1996.
A client of the Company representing less than 5% of the Company's 1996
revenues filed for protection under the United States Bankruptcy Code during
February 1997. There was no effect of this filing on the Company's results of
operations or financial position as of and for the year ended December 31, 1996.
The Company cannot determine the effect on 1997 operations of this event at this
time.
Acquisitions
Since the acquisition of the predecessor business of the Company in 1991,
the Company has grown primarily through acquisitions. During the year ended
December 31, 1996, the Company acquired 10 businesses and completed another
acquisition in February 1997. The Company acquired these businesses through
purchases of stock or assets with cash, shares of Common Stock or both.
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Acquisition Strategy. Generally, the Company looks for acquisition
--------------------
candidates that share its philosophy of focusing on high-quality service to
clients and focuses on acquisition candidates that have strong management,
demonstrate potential for revenue growth or continued profitability and are
compatible with the Company's business or provide an opportunity to expand into
other services, geographic regions or client specialties. PSS typically
encourages and expects the management of its acquisition candidates to remain
involved in the business on a long-term basis after the Company acquires the
business in order to ease the transition to the Company's ownership and utilize
the expertise and skills of the acquired company's managers long term. Although
it evaluates each acquisition candidate on a case-by-case basis, the Company
does not currently anticipate acquiring other businesses where significant
consolidation or staff reductions would be required, and PSS anticipates that if
any consolidation were necessary, it would be gradual.
Acquired Businesses. Unless otherwise indicated, each of the acquisitions
-------------------
described below was accounted for using the purchase method of accounting and
the aggregate purchase price included amounts paid in consideration of covenants
not to compete. In some cases, the purchase price is subject to adjustment,
based on the retention of clients for certain periods following the acquisition
or the satisfaction of certain other performance-based criteria. In addition, in
each case employment or consulting agreements were entered into with senior
management of the acquired companies for periods generally ranging from three to
five years following the acquisition. Generally, selling shareholders and select
senior management sign non-compete agreements of up to five years duration.
In February 1996, the Company acquired the capital stock of North Coast
Health Care Management, Inc. and substantially all of the assets of North Coast
Account Systems, Inc. and Medical Dental Invoicing Services, Inc. (the "NCHC
Group") These businesses, based in Cleveland, Ohio, provide business management
services to emergency room and other physicians in Ohio, West Virginia and
Kentucky. The aggregate purchase price for these businesses was $8.0 million in
cash and deferred payments.
In February 1996, the Company acquired substantially all of the assets of
Medical Management Support, Inc. ("MMS"), a business providing accounts
receivable management services primarily to anesthesiologists and other
physicians in the greater Seattle, Washington area. The aggregate purchase
price for the business was $2.5 million in cash.
In February 1996, the Company acquired substantially all of the assets of
Data Processing Systems, Inc. ("DPS"), which provides accounts receivable
management services to radiologists, pathologists and other physicians in the
Birmingham, Alabama area. The aggregate purchase price for the business was
$1.15 million in cash and deferred, contingent payments.
In May 1996, the Company acquired substantially all of the assets of PBS
Northwest, Inc. ("PBS"), which provides business management services primarily
to anesthesiologists and surgeons in the Portland, Oregon area. The aggregate
purchase price for the business was $3.0 million in cash.
In May 1996, the Company acquired substantially all of the assets of ALM,
Inc. ("ALM"), a company based in Leawood, Kansas, providing business management
services primarily to anesthesiologists and other physicians. The aggregate
purchase price for the business was $1.6 million in cash and deferred,
contingent payments and 11,628 shares of Common Stock.
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In June 1996, the Company acquired all of the capital stock of Synergistic
Systems, Inc. ("SSI" or "Synergistic Systems") in exchange for 944,992 shares of
Common Stock. Synergistic Systems provides business management services
primarily in California, Washington, Georgia, and Florida. This transaction has
been accounted for using the pooling of interests method of accounting and,
accordingly, the financial statements of the Company have been restated to
reflect the operations of SSI.
In August 1996, the Company acquired all of the capital stock of EE&C
Financial Services, Inc. ("EE&C") in exchange for 1,026,852 shares of Common
Stock. In addition, the Company also repaid outstanding indebtedness of EE&C in
an aggregate amount of $2,622,971 by issuing an additional 131,148 shares of
Common Stock. EE&C provides business management services to hospitals in New
York and New Jersey and other parts of the United States. This transaction has
been accounted for using the pooling of interests method of accounting and,
accordingly, the financial statements of the Company have been restated to
reflect the operations of EE&C.
In September 1996, the Company acquired all of the capital stock of EE&C
Health Services, Inc., Med-Data Interface Systems, LLC and Medical Intercept
Systems, LLC (collectively, the "MIS Group") in exchange for an aggregate of
approximately $3.7 million in cash and 285,998 shares of Common Stock. The MIS
Group provides business management services to radiology, pathology,
anesthesiology, surgery, and primary care physicians primarily in Texas,
Illinois and New Jersey.
In December 1996, the Company acquired all of the capital stock of C-Care,
Inc., H.O.P.E. Enterprises Group, Inc. and Professional Medical Recovery
Service, Inc. (collectively, the "MARS Group"). These businesses provide
patient financial services to hospitals in New Jersey, Pennsylvania and
Delaware. The aggregate purchase price for the MARS Group was $7.1 million in
cash and 175,439 shares of Common Stock.
In December 1996, the Company also acquired all of the capital stock of
Revenue Production Management, Inc. ("RPM") in exchange for 315,048 shares of
Common Stock. Revenue Production Management provides business management
services to hospitals and physicians primarily in Illinois and Missouri. This
transaction has been accounted for using the pooling of interests method of
accounting and, accordingly, the financial statements of the Company have been
restated to reflect the operations of RPM.
In February 1997, the Company acquired all of the capital stock of Physerv
Solutions, Inc. ("Physerv"), based in Michigan, which provides business
management services to anesthesiologists throughout the United States. The
aggregate purchase price was approximately $10.1 million in cash and 563,934
shares of Common Stock.
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Competition
The business of providing business management services to the health care
industry is highly competitive. The Company estimates that it competes with
several relatively sophisticated local, regional and national business
management services organizations, with smaller, less-sophisticated local
accounts receivable management services businesses and with hospitals and
physicians that self-manage their businesses and accounts receivable. The
largest independent provider of billing and accounts receivable management
services to physicians in the United States is Medaphis Corporation, which is
substantially larger than the Company and has substantially greater resources.
The Company believes that the principal competitive factors in its industry
are the quality and range of services provided to clients, including the
optimization of revenue to physician clients for each procedure performed or
service provided. In the Company's view, the fees charged for its services are
a less important factor, although it believes that its fees are competitive with
other service providers. In addressing certain complexities created by managed
care initiatives, the Company believes that one of the principal competitive
factors is having a patient financial database and other market information to
enable an assessment of managed care proposals. The Company believes that,
through use of its proprietary technology and regional and specialty expertise,
it is able to compete effectively in providing business management services in
the managed care market.
Regulation
Various state and federal laws may regulate the Company's business of
providing business management services to hospitals and physicians. The Company
also is subject to laws and regulations relating to business corporations
generally. The Company believes that its operations are in material compliance
with applicable laws. However, many aspects of the Company's business
operations have not been the subject of state or federal regulatory
interpretation, and certain areas of the Company's business are highly technical
in nature. In addition, as the Company's business expands by the addition of
services provided or geographically, it may become subject to additional federal
or state regulations based on the services it provides or the states in which it
conducts business.
Regulatory authorities have broad discretion concerning how these laws and
regulations are interpreted and how they are enforced. The Company may,
therefore, be subject to lengthy and expensive investigations of its business
operations. If the Company were found to be in violation of these laws or
regulations, the Company could be subject to criminal or civil penalties or
both, which could limit or prevent the Company from providing its business
management services.
Under regulations in effect in Pennsylvania prior to December 15, 1995,
emergency room services were required to be differentiated between non-emergency
and emergency services and were subject to different reimbursement rates. In
this regard, the Pennsylvania Department of Public Welfare ("DPW") previously
announced that it was reviewing the billing procedures of emergency room
physicians in Pennsylvania to determine whether services had been accurately
reflected in the claims submitted for Medicaid reimbursement. In connection with
the DPW's review, a former emergency room client of the Company had requested
that the Company pay approximately $66,000 and related expenses as partial
reimbursement of the client's settlement with the DPW, representing
approximately $6,000 of fees to the Company attributable to the over-
reimbursement to the client plus a $60,000 penalty. Counsel for the Company has
attempted to negotiate a settlement of this matter directly with counsel for the
former client for more than a year. Counsel for the former client has not
responded to the Company's most recent offer of compromise.
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In connection with this matter, the Company, along with Counsel, met with
DPW officials. As a result of this meeting, the Company volunteered
to work with its physician clients to develop a process to resolve this matter.
This process is ongoing. There have been confidential settlement agreements
executed between certain physician clients and the DPW. Under these agreements
to date, the Company has not been required to make payments to the physician
clients or the DPW, and the Company has been given a release by the DPW under
these executed agreements. Although the Company believes that its current
practices comply with applicable regulatory guidelines, similar issues may exist
with respect to past billing at some or all of its current and former emergency
room clients. The Company believes that it is insured against such claims and
believes that the amounts involved will not be material.
In accordance with Medicare regulations, physicians and hospitals are
permitted to assign Medicare claims to a billing and collection service only in
certain limited circumstances. The Medicare statutes that restrict assignment
of Medicare claims are supplemented by Medicare regulations and provisions in
the Medicare Carrier's Manual (the "Manual"). The Medicare regulations and the
Manual provide that a billing service that prepares and send bills for the
provider or physician and does not receive and negotiate the checks made payable
to the provider or physician does not violate the restrictions on assignment of
Medicare claims. The Company believes that its practices do not violate the
restrictions on assignment of Medicare claims and that it operates in a manner
consistent with these provisions.
The Social Security Act imposes criminal penalties for paying or receiving
remuneration (which is deemed a kickback, bribe or rebate) in connection with
Medicare or Medicaid programs. Violation of this law is a felony, punishable by
fines and imprisonment. These anti-kickback laws and rules have been broadly
interpreted to prohibit the payment, solicitation, offering or receipt of any
form of remuneration in return for the referral of Medicare or Medicaid patients
or any item or service that is covered by Medicare or Medicaid reimbursement.
The Company believes that its business operations do not put it in a position to
make or induce the referral of patients or services reimbursed under government
programs and, therefore, believes that its practices do not violate the federal
anti-kickback statute. If, however, the Company were found in violation of
these laws, the Company could be subject to substantial civil monetary fines,
criminal sanctions or both.
The Company also may be subject to criminal, civil and administrative
penalties under federal and state law prohibitions against submitting false
claims for payments. Generally, criminal penalties subjecting participants to
fines and imprisonment require that the entity act knowingly, willfully or with
fraudulent intent. Civil statutes provide for monetary penalties. The Company
also may be subject to criminal laws regarding failure to disclose known
overpayments under Medicare or Medicaid.
Various states prohibit a physician from sharing or "splitting" fees with
persons not authorized to practice medicine. The Company believes that its
charges to its clients do not violate applicable fee splitting prohibitions. If
this belief is incorrect and the Company is determined to be engaged in fee
splitting arrangements with its clients, those clients would be subject to
charges of professional misconduct and penalties ranging from censure and
reprimand to revocation of their medical licenses. In addition, the Company
could be deprived of access to the courts to collect fees due from those
clients, thereby materially and adversely affecting the Company's revenues and
prospects.
Credit collection practices and activities are regulated by both federal
and state law. The Federal Fair Debt Collection Practices Act (the "Federal
Fair Debt Act") sets forth various provisions designed to eliminate abusive,
deceptive and unfair debt collection practices by debt collectors. The Federal
Fair Debt Act also provides for, among other things, a civil right of action
against any debt collector who fails to comply with the provisions thereof.
Various states have also promulgated laws and regulations that
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govern credit collection practices. In general, these laws and regulations
prohibit certain fraudulent and oppressive credit collection practices and also
may impose license or registration requirements upon collection agencies. In
addition, state credit collection laws and regulations generally provide for
criminal fines, civil penalties, injunctions and jail terms for collection
agency personnel who fail to comply with such laws and regulations and may
entitle states to recover unclaimed refunds from overcollections. The accounts
receivable management services the Company provides to its clients are not
considered debt collection services. However, as the activities of several of
the Company's subsidiaries include collection services, the Company may be
subjected to regulation as a "debt collector" under the Federal Fair Debt Act
and as a "collection agency" under certain state collection agency laws and
regulations.
Various states regulate the provision of administrative and business
services by third parties to physician-sponsored health plans. In addition,
certain federal or state consumer protection laws may apply to the Company's
billing activities insofar as PSS bills patients directly for the cost of
physician services provided.
Comprehensive federal and state regulations govern the ownership and
operation of hospitals. Hospitals are paid a predetermined amount for operating
expenses relating to each Medicare patient admission based on the patient's
diagnosis. Additional changes in the reimbursement provisions of the Medicare
and Medicaid programs may continue to reduce the rate of increase of federal
expenditures for hospital inpatient costs and charges. Such changes could have
an adverse effect on the operations of hospitals in general, and consequently
reduce the amount of the Company's revenue related to its hospital clients.
The Company anticipates that various health care reform proposals may be
introduced at the federal or state level. The Company is unable to predict
whether any such proposals will apply to the operation of the Company's business
or whether, if adopted, any such proposals would materially adversely affect the
Company.
Employees
At March 15, 1997, the Company had approximately 2,000 full-time equivalent
employees. The Company is not a party to any labor union contract and believes
that its relations with its employees are satisfactory.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located at Route 230 and Eby-
Chiques Road, Mt. Joy, Pennsylvania. The Company maintains approximately 25
additional significant offices in 14 states, 15 of which include processing
centers of varying sizes. The Company leases all of its facilities, which in the
aggregate constitute approximately 320,000 square feet of office space. Such
leases have terms remaining ranging from month-to-month to 8 years, in most
cases with options to renew.
The Company believes that its facilities are adequate for its current
needs. The Company expects to renew its current leases from time to time or to
lease new space as necessary. In addition, the Company expects to lease
additional space as necessary to accommodate possible expansion of the Company.
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ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, there are no legal proceedings pending against or
involving the Company that, in the opinion of management, could have a material
adverse effect on the business, financial condition or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its 1996 annual meeting of stockholders on November 8,
1996. In addition to electing directors, stockholders ratified the selection of
Deloitte & Touche LLP as the Company's independent auditors for 1996. A total of
6,143,329 votes were cast for, and 140,200 votes were withheld for each of
Messrs. Gilson, McCall, and Vague and for Ms. Campbell. A total of 6,143,129
votes were cast for, and 140,400 votes were withheld for each of Messrs.
Berkowitz and Potter. Messrs. Berkowitz, Gilson, McCall, Potter and Vague and
Ms. Campbell represented the slate of directors put forward by the Company. A
total of 6,283,229 votes were cast for and there were 300 abstentions with
respect to the ratification of Deloitte & Touche LLP as the Company's
independent auditors for 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company completed an initial public offering of 4,025,000 shares of
Common Stock in February 1996. The Common Stock is traded in the over-the-
counter market and prices are reported on the Nasdaq National Market System
under the symbol "PHSS."
The following table sets forth, for the periods indicated, the high and low
closing bid quotations for the Common Stock on the Nasdaq National Market System
from February 12, 1996 through December 31, 1996. The bid prices reflect inter-
dealer quotations, without retail mark-up, mark-down or commission and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
February 12 - March 31, 1996 21 5/8 14 1/2
Second Quarter 1996 25 3/4 17 1/2
Third Quarter 1996 25 1/2 13 3/8
Fourth Quarter 1996 24 14 3/4
</TABLE>
At March 15, 1997 there were 98 holders of record of Common Stock. The
Company has never paid dividends on its Common Stock and does not anticipate
doing so in the foreseeable future. In addition, under the terms of its Loan
Agreement with Corestates Bank, N.A., the Company is restricted in its ability
to pay cash dividends.
The information called for by this Item for a description of unregistered
share issuances in 1996 is incorporated herein by reference to the information
set forth under "Acquisitions -- Acquired Businesses" at Item 1 of this Annual
Report on Form 10-K. The securities issued as described at Item 1 were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data as of December 31, 1995 and 1996 and for the
fiscal years ended December 31, 1994, 1995 and 1996 have been derived from the
consolidated financial statements included elsewhere in this filing which have
been audited by Deloitte & Touche LLP, independent public accountants, whose
report thereon is also included elsewhere in this filing. The selected financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and notes thereto as of December 31, 1995 and
1996 for the fiscal years ended December 31, 1994, 1995 and 1996 included
elsewhere in this filing.
<TABLE>
<CAPTION>
Year ended December 31,
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1992 1993(1) 1994 1995 1996
---- ------ ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data: $28,475 $44,311 $55,847 $59,514 $75,191
Revenues ======= ======= ======= ======= =======
Pro forma net income (loss) 2,943 1,735 399 (941) (9,642)
Preferred stock dividends 200 213 $ 231 281 36
------- ------- ------- ------- -------
Pro forma net income (loss)
applicable to common stock $ 2,743 $ 1,522 $ 168 $(1,222) $(9,678)
======= ======= ======= ======= =======
Pro forma earnings (loss) per share $ 0.61 $ 0.34 $ 0.04 $ (0.27) $ (1.17)
======= ======= ======= ======= =======
Weighted average shares 4,526,888 4,526,888 4,526,888 4,526,888 8,269,779
========= ========= ========= ========= =========
<CAPTION>
December 31,
---------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 5,045 $ 8,003 $ 6,739 $ 5,399 $14,020
======= ======= ======= ======= =======
Total assets $36,825 $43,508 $42,302 $43,115 $91,905
======= ======= ======= ======= =======
Long-term obligations (including
related party and current portion) $23,018 $24,762 $25,835 $24,398 $25,898
======= ======= ======= ======= =======
Redeemable preferred stock $ 2,000 $ 2,000 $ 2,120 $ 2,932 $ -
======= ======= ======= ======= =======
Stockholders' equity $ 3,951 $ 6,891 $ 5,859 $ 4,073 $45,713
======= ======= ======= ======= =======
</TABLE>
(1) The results for the year ended December 31, 1993 include the results of The
Spring Anesthesia Group, Inc. from the date of acquisition, August 1, 1993,
through December 31, 1993.
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a leading provider of business management services to
hospitals and hospital-affiliated physicians. The Company's services include
preparation and follow-up on bills for medical services provided, assisting
providers in qualifying patients for state medicare eligibility, collecting past
due accounts, and providing other business management services on an outsource
basis. The Company is generally compensated with a management fee based upon
net receipts of its clients.
On February 12, 1996, the Company sold 4,025,000 shares of Common Stock for
$12 per share in its initial public offering of Common Stock. The net proceeds
of such offering of approximately $43,556,000 were used to repay all outstanding
short and long-term debt (except for the subordinated note issued in connection
with the Company's acquisition of The Spring Anesthesia Group, Inc. ("Spring")
in 1993), redeem all outstanding shares of preferred stock and acquire three
businesses (NCHC Group, MIS and DPS). See "Acquisitions."
Acquisitions
On February 15, 1996, the Company acquired 100 percent of the outstanding
common stock and substantially all the assets and liabilities of the companies
that made up the NCHC Group for approximately $8,000,000 in cash and deferred
payments.
On February 15, 1996, the Company acquired substantially all the assets and
liabilities of MMS for approximately $2,500,000 in cash.
On February 15, 1996, the Company acquired substantially all the assets and
liabilities of DPS for approximately $1,150,000 in cash and deferred payments.
The payment of the deferred payments is subject to DPS' retention of clients.
On May 8, 1996, the Company acquired substantially all the assets and
liabilities of PBS for approximately $3,000,000 in cash.
On May 21, 1996, the Company acquired substantially all the assets and
liabilities of ALM for approximately $1,600,000 in cash and deferred payments
plus 11,628 shares of Common Stock valued at approximately $250,000. The
payment of the deferred payments is subject to ALM's retention of clients.
On September 3, 1996, the Company acquired 100 percent of the outstanding
common stock and membership interests of the MIS Group for approximately
$3,697,000 in cash plus 285,998 shares of Common Stock valued at approximately
$6,184,700 plus the assumption of approximately $3,521,000 in notes payable. In
connection with this acquisition, the Company accrued approximately $2,000,000
for the costs of exiting certain redundant activities.
On December 16, 1996, the Company acquired 100 percent of the outstanding
common stock of the MARS Group for approximately $7,117,000 in cash plus 175,439
shares of Common Stock valued at approximately $2,105,000.
Each of the foregoing acquisitions was accounted for under the purchase
method of accounting, and, accordingly, the net assets acquired were recorded at
their fair values on the date of acquisition and the results of operations at
each of these companies is included in the Company's consolidated statement of
operations from the respective dates of acquisitions. Excess purchase price over
fair value of net assets acquired is being amortized on the straight-line method
over 20 years.
-12-
<PAGE>
On June 28, 1996, the Company merged with SSI by exchanging 944,992 shares
of Common Stock for all the outstanding shares of common stock of SSI.
On August 31, 1996, the Company merged with EE&C by exchanging 1,026,852
shares of Common Stock for all the outstanding shares of common stock of EE&C.
In addition, the Company also repaid outstanding indebtedness of EE&C in an
aggregate amount of $2,622,971 by issuing an additional of 131,148 shares of
common stock.
On December 31, 1996, the Company merged with RPM by exchanging 315,048
shares of Common Stock for all the outstanding shares of common stock of RPM.
Each of these transactions has been accounted for as pooling of interests,
and accordingly, all previously issued financial statements of the Company have
been restated to include SSI, EE&C and RPM.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv for approximately $10,109,000 in cash plus 563,934
shares of Common Stock valued at approximately $6,000,000. The Company intends
to merge the operations of its subsidiary Spring into Physerv as soon as is
practicable. In connection with the merger of Spring into Physerv, the Company
may recognize a charge in the quarter ending March 31, 1997 for the costs of
exiting certain redundant facilities and activities.
-13-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentages
of net revenue represented by certain items reflected in the Company's statement
of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------------------------------
Revenues 100.0% 100.0% 100.0%
--------- -------- ---------
<S> <C> <C> <C>
Salaries and wages 53.3% 57.2% 53.9%
General and administrative 36.2% 34.4% 33.9%
Depreciation and amortization 6.9% 7.5% 7.7%
Interest expense, net 0.5% 2.9% 3.2%
Other (income) expense 0.1% 0.0% 0.3%
Merger costs 4.4% 0.0% 0.0%
Restructuring and other charges 12.1% 0.0% 0.0%
--------- -------- ---------
Income (loss) before income taxes (13.6%) (2.1%) 1.1%
Income taxes 1.9% (0.8%) (1.0%)
--------- -------- ---------
Net income (loss) (15.5%) (1.2%) 2.1%
Pro forma income taxes (3.3%) 0.3% 1.4%
--------- -------- ---------
Pro forma net income (loss) (12.2%) (1.6%) 0.7%
========= ======== =========
</TABLE>
Revenues
Revenues increased approximately 26.3% to $75,191,000 for the year ended
December 31, 1996 from $59,513,000 for the year ended December 31, 1995.
Revenues increased in 1995 by 7.3% from $55,448,000 for the year ended December
31, 1994. Such increase in 1996 resulted primarily from businesses acquired
during the year ended December 31, 1996 plus increased revenues from the
addition of new clients, offset, in part, by decreased revenues from lost
clients. In addition, the Company's revenues during the year ended December 31,
1996 were adversely affected by operating inefficiencies in the processing of
physician charges at Spring, the Company's subsidiary located in Stockton,
California. See "Merger Costs and Restructuring and Other Charges." The increase
in 1995 compared to 1994 resulted primarily from the addition of new clients,
offset in part by decreased revenues from lost clients.
A client of the Company representing less than 5% of the Company's 1996
revenues filed for protection under the United States Bankruptcy Code during
February 1997. There was no effect of this filing on the Company's results of
operations or financial position as of and for the year ended December 31, 1996.
The Company cannot determine the effect on 1997 operations of this event at this
time.
Salaries and Wages
Salaries and wages increased approximately 17.8% to $40,072,000 for the
year ended December 31, 1996 from $34,016,000 for the year ended December 31,
1995. Salaries and wages increased in 1995 by 13.8% from $29,883,000 for the
year ended December 31, 1994. Such increase in 1996 resulted primarily from
businesses acquired during the year ended December 31, 1996 and increases in the
number of clients served by the Company. See "Merger Costs and Restructuring and
Other Charges." Such increase in 1995 resulted primarily from additional
personal costs associated with increased levels of revenue in 1995 compared to
1994.
-14-
<PAGE>
General and Administrative Expenses
General and administrative expenses increased approximately 33.2% to
$27,252,000 for the year ended December 31, 1996 from $20,455,000 for the year
ended December 31, 1995. General and administrative expenses increased 8.7% in
1995 from $18,814,000 for the year ended December 31, 1994. Such increase in
1996 resulted primarily from businesses acquired during the year ended December
31, 1996 and increases in the number of clients served by the Company. In
addition, the Company incurred increased general and administrative expenses
during the year ended December 31, 1996 in an attempt to increase the processing
of physician charges at Spring. See "Merger Costs and Restructuring and Other
Charges." Such increase in 1995 resulted primarily from additional costs
associated with increased levels of revenue in 1995 compared to 1994.
Depreciation and Amortization
Depreciation and amortization increased approximately 16.7% to $5,210,000
for the year ended December 31, 1996 from $4,465,000 for the year ended December
31, 1995. Depreciation and amortization expense in 1995 increased by 5.3% from
$4,242,000 for the year ended December 31, 1994. Such increase in 1996 resulted
primarily from businesses acquired during the year ended December 31, 1996. Such
increase in 1995 resulted primarily from purchases of equipment during that
year.
Interest Expense, net
Interest expense, net, decreased approximately 46.6% to $1,073,000 for the
year ended December 31, 1996 from $2,012,000 for the year ended December 31,
1995. Such expense in 1995 represented an increase of 14.4% from $1,758,000 for
the year ended December 31, 1994. Such decrease in 1996 resulted from decreased
levels of short and long-term debt after repayment of such borrowings out of
proceeds from the Company's initial public offering of Common Stock. Such
increase in 1995 resulted from increased levels of borrowings compared to 1994.
Merger Costs and Restructuring and Other Charges
In the three months ended June 30, 1996, the Company recorded a
restructuring charge of approximately $2,500,000 related to the write-off of
certain computer hardware and software and certain non-recurring expenses
associated with a limited restructuring of operations at Spring, and to the
write-off of certain computer hardware and software at SSI. In the three months
ended December 31, 1996, the Company recorded a charge of approximately
$6,578,000 related to the impairment of certain intangible assets at Spring.
-15-
<PAGE>
Three Months Ended June 30, 1996
Spring's results in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,00
related to the write-off of certain computer hardware and software, and costs
associated with the introduction of a new management team, some limited
severance activity and other transition items.
At the time of the SSI merger, the Company determined that it would replace
certain SSI computer hardware and software with its other operating software,
and accordingly recorded a charge of approximately $900,000 in the three months
ended June 30, 1996.
Three Months Ended December 31, 1996
During the three months ended December 31, 1996, the Spring operating
inefficiencies led to client dissatisfaction. The Company incurred increased
salary and general and administrative costs in an attempt to increase client
satisfaction. However, these efforts were unsuccessful, and led to the loss of
clients, loss of related revenues, and increased levels of operating expenses.
As a result, in accordance with FASB 121, the Company determined that certain
identifiable intangible assets (primarily customer contracts), and goodwill,
were not recoverable from future cash flows of Spring, and accordingly, an
impairment loss of approximately $6,578,000 was recorded. In addition, in
conjunction with the Company's acquisition on February 5, 1997 of Physerv, which
like Spring, serves only anesthesiologists, the Company has decided to fold the
remaining Spring business into Physerv, with the goal of developing a
profitable, national approach to the anesthesia market. This will entail exiting
the processing of physician charges in remote Spring locations and performing
such processing activities at more efficient central anesthesia processing
locations. As a result of this assimilation, the Company may record a charge in
the three months ending March 31, 1997 related to exiting processing activities
at Spring.
The Company incurred approximately $3,325,00 in transaction fees and other
merger related costs in connection with the SSI, EE&C and RPM mergers which are
reflected in the Company's results of operations for the year ended December 31,
1996.
Income Taxes and Pro Forma Income Taxes
The Company's historical effective rate for income taxes (benefit) changed
to 13.7% for the year ended December 31, 1996 from (39.7%) for the year ended
December 31, 1995 and from (93.3%) for the year ended December 31, 1994. The
change in the effective tax rate for the year ended December 31, 1996 was
primarily attributable to nondeductible restructuring and other charges,
nondeductible merger costs incurred in connection with the SSI, EE&C and RPM
pooling of interest transactions and the change in status of both EE&C and RPM
from cash basis "S" Corporations to accrual basis "C" Corporations. The change
in the effective tax rate for the year ended December 31, 1995 was primarily
attributable to a benefit associated with changes in state income tax rates in
1994 that did not reoccur in 1995 as well as a much greater amount of Subchapter
S earnings in 1994 compared to 1995. Such changes also resulted from differing
levels in each year of pretax income or loss and the effect on such levels of
items not deductible for federal income tax purposes.
-16-
<PAGE>
Pro forma income taxes are presented for all periods prior to August 31,
1996 for EE&C and December 31, 1996 for RPM to show what income taxes would have
been had EE&C and RPM been taxed as "C" Corporations for those periods.
Pro Forma Net Income (Loss) and Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) and pro forma net income (loss) per share
result from the accumulation of the items described above and the increase in
the weighted average number of shares outstanding resulting from the Company's
initial public offering of Common Stock and issuance of shares of Common Stock
in certain of the Company's acquisitions. See "Acquisitions".
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and cash equivalents were $14,020,000 and
$3,826,000, respectively, at December 31, 1996 compared to $5,399,000 and
$1,692,000, respectively, at December 31, 1995. Such increase in working
capital resulted primarily from the excess of accounts receivable of companies
acquired in 1996 over accounts payable and accrued expenses of those same
companies.
On December 13, 1996, the Company entered into a Loan Agreement (the
"Agreement") with Corestates Bank, N.A., which provides the Company with a
$30,000,000 revolving line of credit for acquisitions through January 1, 1999
and a $5,000,000 revolving line of credit for working capital through June 30,
1998. Under the Agreement, the Company may, at any time, borrow, repay and
reborrow amounts up to the stated limits provided certain financial ratios and
tests of the Company are within predetermined limits, and may, at any time,
convert amounts borrowed to term loans that must be repaid by January 1, 2004.
Borrowings under the Agreement may be at fixed or floating rates of interest
which range from the bank's prime rate of interest to approximately two points
below the bank's prime rate of interest. On December 31, 1996, the Company had
borrowed $12,017,000 on the acquisition line and $2,500,000 on the working
capital line at a weighted average interest rate of 6.3%.
The Company's total short and long-term debt (including amounts owed to
related parties) was $22,222,000 at December 31, 1996 (including the $5,500,000
Spring 7.6% acquisition subordinated note), compared to $21,668,000 at December
31, 1995.
The Company believes anticipated cash flow from operations, working
capital, cash and cash equivalents on hand and borrowing capacity from its lines
of credit are adequate for its anticipated financing needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Report of Independent Auditors................................................................ F-1
Consolidated Balance Sheets as of December 31, 1995 and 1996.................................. F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996............................................................ F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996............................................................ F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996............................................................ F-5
Notes to Consolidated Financial Statements.................................................... F-6
</TABLE>
-17-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 1997 Stockholders Meeting.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 1997 Stockholders Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 1997 Stockholders Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 1997 Stockholders Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Documents filed as part of this Report:
1 and 2. See "Index to Financial Statements" at Item 8 of this Annual
Report on Form 10-K. Schedules not included herein are omitted because they are
not applicable or the required information appears in the financial statements
or notes thereto.
-18-
<PAGE>
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Stock Purchase Agreement, dated September 11,
1995, among the Shareholders of North Coast Health
Care Management, Inc. and Physician Support
Systems, Inc. (1)
2.2 Asset Purchase Agreement, dated September 25,
1995, among North Coast Account Systems, Inc.,
Medical Dental Invoicing Services, Inc. and
Physician Support Systems, Inc. (1)
2.3 Amended and Restated Asset Purchase Agreement,
dated December 7, 1995, among Medical Management
Support, Inc., the shareholders of Medical
Management Support, Inc. and PSS-Medical
Management Support, Inc. (1)
2.4 Asset Purchase Agreement, dated October 16, 1995
among Data Processing Systems, Inc., McGriff,
Seibels & Williams, PSS - Data Processing Systems,
Inc. and Physicians Support Systems, Inc. (1)
2.5 Asset Purchase Agreement, dated May 8, 1996, among
PBS Northwest, Incorporated, the Shareholders of
PBS Northwest, Incorporated and PSS PBS Northwest,
Inc. (3)
2.6 Asset Purchase Agreement, dated May 17, 1996,
among ALM, Inc., the Shareholders of ALM, Inc.,
PSS ALM, Inc. and Physician Support Systems, Inc.
(4)
2.7 Agreement and Plan of Merger, dated as of June 28,
1996, among Synergistic Systems, Inc., Physician
Support Systems, Inc. and PSS Synergistic Systems,
Inc. (5)
2.8 Agreement and Plan of Merger, dated as of August
30, 1996, among Physician Support Systems, Inc.,
PSS EE&C Financial Services, Inc. and EE&C
Financial Services, Inc. (6)
2.9 Agreement and Plan of Merger, dated as of August
30, 1996, among Physician Support Systems, Inc.,
PSS EE&C Health Services, Inc., PSS Med-Data
Interface Systems, Inc., PSS Medical Intercept
Systems, Inc., EE&C Health Services, Inc.,
Med-Data Interface Systems, LLC and Medical
Intercept Systems, LLC (7)
2.10 Stock Purchase Agreement, dated as of December 13,
1996, among Physician Support Systems, Inc., PSS
C-CARE, Inc., George J. Weinroth, Herman
Mattleman, James Greenberg, Stanley Slipakoff,
Anthony J. Mckiewicz, Anthony Diluca, John C.
Miller III and Dennis Gaspari (8)
</TABLE>
-19-
<PAGE>
2.11 Agreement and Plan of Merger, dated as of December
31, 1996, among Physician Support Systems, Inc.,
PSS Revenue Production Management, Inc. and
Revenue Production Management, Inc. (9)
2.12 Stock Purchase Agreement, dated as of February 3,
1997, among Physician Support Systems, Inc., PSI
Acquisition Corp., Hamid Mirafzali, Shadan
Mirafzali, Nader J. Samii, as independent trustee
of the Neda Mirafzali Family Trust dated November
4, 1996 and Nadir J. Samii, as Independent Trustee
of the Leela Mirafzali Family Trust dated November
4, 1996 (10)
4.1 Form of Physician Support Systems, Inc. Amended and
Restated 1996 Stock Option Plan
4.2 Form of Synergistic Systems, Inc. 1996 Stock Option
Plan
4.3 Form of Certificate representing Common Stock
10.1 Employment Agreement, dated August 9, 1995,
between Bruce B. Schmoyer and Physician Support
Systems, Inc. (1)
10.2 Employment Agreement, dated as of February 14,
1996, by and between Physician Support Systems,
Inc. and David S. Geller (2)
10.3 Employment Agreement, dated as of July 8, 1996,
between Synergistic Systems, Inc. and Jean M.
Campbell (5)
10.4 Employment Agreement, dated as of August 30, 1996,
between EE&C Financial Services, Inc. and Peter D.
Cooper (6)
10.5 Employment Agreement, dated as of August 30, 1996,
between PSS EE&C Health Services, Inc. and James
Robertson (7)
-20-
<PAGE>
10.6 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and George J. Weinroth
10.7 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Anthony J.
Mackiewicz
10.8 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Stanley Slipakoff
10.9 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Anthony Diluca
10.10 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Raymond E. Clutts
10.11 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Paul A. Grabowski
10.12 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Neil J. Greene
10.13 Employment Agreement, dated as of February 3,
1997, between Physician Support Systems, Inc. and
Hamid Mirafzali (10)
10.14 Agreement of Lease dated August 30, 1991 between
Physician Support Systems, Inc. and Prospect
Realty Company (1)
10.15 Office Lease Agreement dated July 20, 1994 between
Spring Anesthesia Group, Inc. and American Savings
Bank, F.A. (1)
10.16 Loan Agreement dated December 13, 1996 between
CoreStates Bank, N.A. and Physician Support
Systems, Inc. and its subsidiaries
10.17 Agreement dated as of December 18, 1995 among
Medical Management Sciences, Inc., Managed
Imaging, Inc. and Physician Support Systems, Inc.
(1)
10.18 Promissory Note of PSS Investment, Inc. dated
August 12, 1993 (assumed by The Spring Anesthesia
Group, Inc. pursuant to a merger) (1)
-21-
<PAGE>
<TABLE>
<S> <C>
10.19 Registration Rights Agreement, dated as of June
28, 1996, among Physician Support Systems, Inc.
and each stockholder of Synergistic Systems, Inc.
and Jean M. Campbell, as representative of the
shareholders (5)
10.20 Registration Rights Agreement, dated as of August
30, 1996, among Physician Support Systems, Inc.,
Eltman, Eltman & Cooper, P.C., each of the
shareholders of EE&C Financial Services, Inc. and
Peter D. Cooper, as representative of the
shareholders (6)
10.21 Registration Rights Agreement, dated as of August
30, 1996, among Physician Support Systems, Inc.,
each of the shareholders of EE&C Health Services,
Inc., Med-Data Interface Systems, LLC and Medical
Intercept Systems, LLC and Peter D. Cooper, as
representative of the shareholders (7)
10.22 Registration Rights Agreement, dated as of
December 13, 1996, among Physician Support Systems
Inc., George J. Weinroth, Herman Mattleman, James
Greenberg, Stanley Slipakoff, Anthony J.
Mackiewicz, Anthony Diluca, John C. Miller III and
Dennis Gaspari (8)
10.23 Registration Rights Agreement, dated as of
December 31, 1996, among Physician Support
Systems, Inc. and the former stockholders of
Revenue Production Management, Inc. (9)
10.24 Registration Rights Agreement, dated as of
February 3, 1997, among Physician Support Systems,
Inc., Hamid Mirafzali, Shadan Mirafzali, Nader J.
Samii, as Independent Trustee of the Neda
Mirafzali Family Trust, and Nader J. Samii, as
Independent Trustee of the Leela Mirafzali Family
Trust (10)
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
_________________________
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 No. 33-80731, incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated May 14, 1996, as amended, incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 4, 1996, as amended, incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 8, 1996, as amended, incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 13, 1996, as amended, incorporated hereby by reference.
(7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 16, 1996, as amended, incorporated hereby by reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated December 30, 1996, as amended, incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated January 8, 1997, as amended, incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 18, 1997, incorporated herein by reference.
-22-
<PAGE>
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended December 31,
1996:
<TABLE>
<CAPTION>
Item Reported Financial Statements Filed Date of Report
- -------------------------------- --------------------------- -----------------
<S> <C> <C>
Acquisition of C-CARE, Inc., No (1) December 30, 1996
H.O.P.E. Enterprises Group,
Inc. and Professional Medical
Recovery Service, Inc.
</TABLE>
(1) The financial statements required with respect to the acquisition were
filed by Amendment to the Form 8-K dated February 28, 1997.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
March 31, 1997.
PHYSICIAN SUPPORT SYSTEMS, INC.
By /s/ DAVID S. GELLER
-------------------
David S. Geller
Senior Vice President
Pursuant to the requirements of the Securities Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on March 31, 1997.
Signature Title
--------- -----
/s/PETER W. GILSON President, Chief Executive Officer
- ------------------------------ and Director (principal executive
Peter W. Gilson officer)
/s/ HAMILTON F. POTTER III Executive Vice President, Chief
- ------------------------------ Operating Officer and Director
Hamilton F. Potter III
/s/ DAVID S. GELLER Senior Vice President, Chief
- ------------------------------ Financial Officer and Secretary
David S. Geller (principal financial and
accounting officer)
/s/ MORTIMER BERKOWITZ III Director
- ------------------------------
Mortimer Berkowitz III
/s/ JEAN CAMPBELL Director
- ------------------------------
Jean Campbell
/s/ RICHARD W. VAGUE Director
- ------------------------------
Richard W. Vague
-24-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PHYSICIAN SUPPORT SYSTEMS, INC.
Mt. Joy, Pennsylvania
We have audited the accompanying consolidated balance sheets of Physician
Support Systems, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Physician Support Systems, Inc. and
Subsidiaries as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
March 20, 1997
New York, New York
F-1
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,691,758 $ 3,826,018
Accounts receivable (net of allowances of
$2,309,548 and $2,014,752 respectively)............... 10,970,430 17,458,338
Accounts receivable -- unbilled........................ 6,580,002 11,149,811
Prepaid expenses....................................... 948,990 1,475,566
Due from related parties............................... 2,396,114 -
Other current assets................................... 220,544 516,123
----------- ------------
Total current assets........................... 22,807,838 34,425,856
Property and equipment -- net............................. 5,876,158 9,092,630
Intangible assets -- net.................................. 11,965,026 44,556,022
Due from related parties.................................. 1,983,450 1,054,038
Other assets.............................................. 482,203 2,776,902
----------- ------------
$43,114,675 $91,905,448
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable....................................... $ 3,029,488 $ 2,135,924
Accrued expenses....................................... 7,935,195 16,805,042
Short-term borrowings.................................. 746,365 -
Current portion of long-term debt...................... 2,804,159 -
Current portion of other long-term liabilities......... 372,297 969,623
Current portion of due to related parties.............. 2,231,316 463,736
Deferred income taxes.................................. 289,818 31,347
----------- ------------
Total current liabilities...................... 17,408,638 20,405,672
----------- ------------
Long-term debt............................................ 14,971,783 20,017,027
----------- ------------
Other long-term liabilities............................... 1,814,942 3,676,052
----------- ------------
Due to related parties.................................... 915,988 771,695
----------- ------------
Deferred income taxes..................................... 998,049 1,322,263
----------- ------------
Commitments and contingencies
Redeemable preferred stock................................ 2,932,032 -
----------- ------------
Stockholders' equity (deficiency):
Preferred stock, par value $.01 per share:
authorized 10,000,000 shares; none outstanding
Common stock, par value $.001 per share:
authorized 100,000,000 shares; outstanding 4,526,888
and 9,156,101 shares, respectively................... 4,527 9,156
Additional paid-in capital............................. 479,696 55,194,229
Retained earnings (accumulated deficit)................ 3,589,020 (9,490,646)
----------- ------------
4,073,243 45,712,739
----------- ------------
$43,114,675 $91,905,448
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues....................................... $55,447,832 $59,513,733 $ 75,190,943
----------- ----------- ------------
Operating expenses:
Salaries and wages........................... 29,882,898 34,016,350 40,071,578
General and administrative................... 18,813,647 20,455,088 27,251,773
Depreciation and amortization................ 4,241,958 4,464,739 5,209,539
Interest expense............................. 1,758,050 2,011,951 1,073,383
Interest (income)............................ (13,475) (186,077) (668,806)
Other (income) expense....................... 163,982 (22,732) 110,604
Merger costs................................. - - 3,325,000
Restructuring and other charges.............. - - 9,077,734
----------- ----------- ------------
Income (loss) before income taxes (benefit).... 600,772 (1,225,586) (10,259,862)
Income taxes (benefit)......................... (560,446) (486,737) 1,409,101
----------- ----------- ------------
Net income (loss).............................. 1,161,218 (738,849) (11,668,963)
Proforma income taxes (benefit)................ 762,390 202,528 (2,026,651)
----------- ----------- ------------
Proforma net income (loss)..................... 398,828 (941,377) (9,642,312)
Preferred stock dividends...................... 230,800 280,980 36,320
----------- ----------- ------------
Proforma net income (loss) applicable
to common stock.............................. $ 168,028 $(1,222,357) $ (9,678,632)
=========== =========== ============
Proforma earnings (loss) per share............. $ 0.04 $ (0.27) $ (1.17)
====== ======= =======
Weighted average shares outstanding............ 4,526,888 4,526,888 8,269,779
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Common Stock Paid-in (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............. 4,526,888 $4,527 $ 479,696 $ 6,424,330 $ 6,908,553
Net income........................... - - - 1,161,218 1,161,218
Redeemable preferred stock
issued in lieu of cash dividends.... - - - (120,000) (120,000)
Redeemable preferred stock
distributions....................... - - - (106,000) (106,000)
Common stock dividends............... - - - (1,966,475) (1,966,475)
--------- ------ ------------ ------------ ------------
Balance, December 31, 1994............. 4,526,888 4,527 479,696 5,393,073 5,877,296
Net loss............................. - - - (738,849) (738,849)
Redeemable preferred stock
issued in lieu of cash dividends.... - - - (262,032) (262,032)
Accrued preferred stock
dividends........................... - - - (81,275) (81,275)
Common stock dividends............... - - - (721,897) (721,897)
--------- ------ ------------ ------------ ------------
Balance, December 31, 1995............. 4,526,888 4,527 479,696 3,589,020 4,073,243
Issuance of common stock in
initial public offering............. 4,025,000 4,025 43,552,192 - 43,556,217
Issuance of common stock in
acquisitions........................ 473,065 473 8,539,501 - 8,539,974
Issuance of common stock in
exchange for stockholder note....... 131,148 131 2,622,840 - 2,622,971
Net loss............................. - - - (11,668,963) (11,668,963)
Redeemable preferred stock
distributions....................... - - - (36,320) (36,320)
Common stock dividends............... - - - (1,374,383) (1,374,383)
--------- ------ ------------ ------------ ------------
Balance, December 31, 1996............. 9,156,101 $9,156 $55,194,229 $ (9,490,646) $ 45,712,739
========= ====== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 1,161,218 $ (738,849) $(11,668,963)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization......................... 4,241,957 4,464,806 5,209,539
Deferred income taxes................................. (853,532) (570,346) 250,963
Loss on disposal of property and equipment............ 206,974 10,716 110,604
Provision for doubtful accounts receivable............ 1,061,375 1,148,081 (1,420,709)
Other long-term liabilities........................... 675,266 154,448 608,625
Accrued preferred stock dividends..................... - (81,275) -
Restructuring and other charges....................... - - 6,753,535
Changes in operating assets and liabilities:
Accounts receivable................................. (479,770) (2,852,645) (169,786)
Accounts receivable -- unbilled..................... (381,548) (1,066,711) (530,344)
Prepaid expenses.................................... (843,247) 435,560 (369,513)
Other current assets................................ (112,309) 227,654 (272,144)
Other assets........................................ 42,497 (20,526) (2,266,072)
Accounts payable.................................... 717,580 1,391,151 (1,618,468)
Accrued expenses.................................... 221,855 1,858,797 125,015
----------- ----------- -----------
Net cash provided by (used in) operating
activities..................................... 5,658,316 4,360,861 (5,257,718)
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired....................... - - (27,677,301)
Deferred purchase price.................................. - - (1,666,667)
Capital expenditures..................................... (1,866,060) (1,283,425) (1,774,356)
Proceeds from disposal of property and equipment......... 163,651 - -
----------- ----------- ------------
Net cash (used in) investing activities............. (1,702,409) (1,283,425) (31,118,324)
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock............... - - 43,556,217
Proceeds from long-term borrowings....................... 1,019,928 800,000 18,610,778
Proceeds from short-term borrowings...................... - 600,000 -
Principal payments on long-term debt..................... (1,649,708) (1,541,894) (19,670,145)
Principal payments on capital lease obligations.......... (403,669) (302,078) (538,355)
Principal payments on short-term borrowings.............. - - (746,365)
Due to (from) related parties............................ (920,555) (3,577,241) 1,640,907
Common stock dividends................................... (1,966,475) (721,897) (1,374,383)
Issuance of redeemable preferred stock................... - 550,000 -
Redemption of redeemable preferred stock................. - - (2,932,032)
Redeemable preferred stock distributions................. (106,000) - (36,320)
----------- ----------- -----------
Net cash provided by (used in) financing activities. (4,026,479) (4,193,110) 38,510,302
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents....... (70,572) (1,115,674) 2,134,260
Cash and cash equivalents, beginning of period............. 2,878,004 2,807,432 1,691,758
----------- ----------- -----------
Cash and cash equivalents, end of period................... $ 2,807,432 $ 1,691,758 $ 3,826,018
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
1. Basis of Presentation and Summary of Significant Accounting Policies
a. Description of the Business -- Physician Support Systems, Inc. (a
Delaware corporation) and Subsidiaries (the "Company") are engaged in the
business of providing business management services to hospitals and hospital-
affiliated physicians.
b. Principles of Consolidation -- The consolidated financial statements
include the accounts of Physician Support Systems Inc. and its subsidiaries,
including the retroactive effect of all mergers which have been accounted for
under the pooling of interests method of accounting. All significant
intercompany balances and transactions have been eliminated in consolidation.
c. Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
d. Revenue Recognition -- The Company earns business management fees
primarily as a percentage of amounts collected on behalf of its clients from
patients and third-party payors. For clients where the amount and timing of
collection of their accounts receivable can be reliably estimated, the Company
estimates the fees that it will invoice those clients upon collection of their
accounts receivable and recognizes such revenues when substantially all services
to be performed by the Company have been completed.
Accounts receivable primarily represents amounts invoiced to clients. The
Company provided 1,581,732, 1,148,417 and (127,025) for doubtful accounts in the
years ended December 31, 1994, 1995 and 1996, and wrote off 583,560, 336 and
1,173,626 against its allowance for doubtful accounts in the years ended
December 31, 1994, 1995 and 1996, respectively. Also included in accounts
receivable at December 31, 1995 are reimbursements for professional fees
incurred in connection with a proposed business transaction.
Accounts receivable -- unbilled represents amounts recognized for services
rendered but not yet invoiced and is based on the Company's estimate of fees
that will be invoiced to clients when accounts receivable from patients and
third-party payors are collected. This amount is calculated by applying the
Company's management fee percentage to an estimate of what clients will
ultimately collect from patients and third-party payors on their accounts
receivable. The Company revises its estimate of accounts receivable - unbilled
each month based on its clients' charges and collections for that month.
Separately, the Company provides for additional costs necessary to complete the
clients' collection process.
e. Cash and Cash Equivalents -- The Company considers its highly liquid
overnight investments to be cash equivalents.
f. Cash in Escrow -- The Company holds cash collected on behalf of its
clients in escrow and remits amounts due to these clients weekly and monthly.
Approximately $4,052,368 and $3,335,619 of cash in escrow was offset against
amounts due to clients on the Company's balance sheet at December 31, 1995 and
1996, respectively.
g. Property and Equipment -- Depreciation and amortization are computed on a
straight-line basis over the shorter of estimated useful lives of the assets or
lease terms. Expenditures which increase value or extend useful lives are
capitalized, while maintenance and repairs are charged to operations as
incurred.
F-6
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
h. Intangible Assets -- Amortization is computed on a straight-line basis
over the estimated lives of intangible assets. From time to time the Company
compares the carrying value of its intangible assets to an estimate of the
Company's fair value in order to evaluate the reasonableness of the carrying
value and remaining amortization period of the goodwill. See Note 15. Fair value
is computed using projections of future cash flows.
i. Income Taxes -- Deferred income tax assets and liabilities are computed
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Income taxes/benefit is the
tax payable/receivable for the period plus or minus the change during the period
in deferred income tax assets and liabilities.
j. Fair Value of Financial Instruments -- Management considers that the
carrying amount of financial instruments, including cash, receivables, accounts
payable and accrued expenses, and current maturities of long-term debt,
approximates fair value. Interest on long-term debt is primarily payable at
variable rates which approximates fair market value.
k. Pro Forma Income Taxes -- The Company has acquired certain entities in
merger transactions accounted for as pooling of interests, which prior to the
merger 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 income taxes represent the income tax provision (benefit)
that would have been recognized for periods prior to the mergers had the
acquired entities been taxed as "C" corporations.
l. Pro Forma Earnings (Loss) Per Share -- Proforma earnings (loss) per share
is calculated using the weighted average number of common shares outstanding
during each of the periods retroactively restated to give effect to the 1,400-
for-one stock split. See Note 14.
m. Reclassifications -- Certain reclassifications have been made in the 1995
financial statements to conform to the 1996 presentation.
2. Business Combinations
On February 15, 1996, the Company acquired 100 percent of the outstanding
common stock and substantially all of the assets and liabilities of the North
Coast Health Care Management Group ("NCHC") for approximately $8,000,000 in cash
and deferred payments.
On February 15, 1996, the Company acquired substantially all of the assets
and liabilities of Medical Management Support, Inc. ("MMS") for approximately
$2,500,000 in cash.
On February 15, 1996, the Company acquired substantially all of the assets
and liabilities of Data Processing Systems, Inc. ("DPS") for approximately
$1,150,000 in cash and deferred payments. The payment of the deferred payments
is subject to DPS' retention of clients.
On May 8, 1996, the Company acquired substantially all of the assets and
liabilities of PBS Northwest, Inc. ("PBS") for approximately $3,000,000 in cash.
On May 21, 1996, the Company acquired substantially all of the assets and
liabilities of ALM, Inc. ("ALM") for approximately $1,600,000 in cash and
deferred payments plus 11,628 shares of common stock valued at approximately
$250,000. The payment of the deferred payments is subject to ALM's retention of
clients.
F-7
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
On September 3, 1996, the Company acquired 100 percent of the outstanding
common stock and membership interests of Medical Intercept Systems Group ("MIS")
for approximately $3,697,000 in cash plus 285,998 shares of common stock valued
at approximately $6,184,700 plus the assumption of approximately $3,521,000 in
notes payable. In connection with this acquisition, the Company accrued
approximately $2,000,000 for the costs of exiting certain redundant activities.
On December 16, 1996, the Company acquired 100 percent of the outstanding
common stock of the MARS Group ("MARS") for approximately $7,117,000 in cash
plus 175,439 shares of common stock valued at approximately $2,105,000.
Each of the foregoing acquisitions has been accounted for under the purchase
method of accounting, and, accordingly, the net assets acquired were recorded at
their fair values on the dates of acquisition and the results of operations of
each of these companies are included in the Company's consolidated statement of
operations from the respective dates of acquisition. Excess purchase price over
fair value of net assets acquired of approximately $39,752,000 is being
amortized on the straight-line method over 20 years.
On June 28, 1996, the Company merged with Synergistic Systems, Inc. ("SSI")
by exchanging 944,992 shares of common stock of the Company for all the
outstanding shares of common stock of SSI.
On August 31, 1996, the Company merged with EE&C Financial Services, Inc.
("EE&C") by exchanging 1,026,852 shares of common stock of the Company for all
the outstanding shares of common stock of EE&C. In addition, the Company also
repaid outstanding indebtedness of EE&C in an aggregate amount of $2,622,971 by
issuing an additional 131,148 shares of common stock.
On December 31, 1996, the Company merged with Revenue Production Management.
Inc. ("RPM") by exchanging 315,048 shares of common stock of the Company for all
the outstanding shares of common stock of RPM.
Each of the foregoing transactions has been accounted for as a pooling of
interests, and accordingly, all previously issued financial statements of the
Company have been restated to include SSI, EE&C and RPM. A reconciliation of
revenues, net income (loss) per share of the Company as previously reported, and
combined, is as follows:
<TABLE>
<CAPTION>
($000S)
-----------------------------------------------
As
Previously
Reported SSI EE&C RPM Combined
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Revenues $18,773 $9,589 $21,818 $5,268 $ 55,448
Pro forma net income (loss) (1,067) 341 717 408 399
Preferred stock dividends 231 231
Pro forma earnings (loss) per
share $ (0.58) $ 0.04
======= ========
Weighted average shares 2,240 4,527
======= ========
</TABLE>
F-8
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Revenues $19,584 $9,831 $23,620 $6,479 $ 59,514
Pro forma net income (loss) (1,274) 25 34 274 (941)
Preferred stock dividends 281 281
Pro forma earnings (loss) per share $ (0.69) $ (0.27)
======= ========
Weighted average shares 2,240 4,527
======= ========
Quarter ended March 31, 1996
Revenues $ 6,399 $2,652 $5,776 $1,903 $ 16,730
Pro forma net income (loss) (58) 24 149 170 285
Preferred stock dividends 36 36
Pro forma earnings (loss) per share $ (0.02) $ (0.04)
======= ========
Weighted average shares 4,398 6,669
======= ========
Quarter ended June 30, 1996
Revenues $10,337 (*) $5,451 $1,752 $ 17,540
Pro forma net income (loss) (2,331) (617) 67 (2,881)
Pro forma earnings (loss) per share $ (0.32) $ (0.33)
======= ========
Weighted average shares 7,262 8,604
======= ========
Quarter ended September 30, 1996
Revenues $17,943 (*) (*) $1,832 $ 19,775
Pro forma net income (loss) (406) 51 (355)
Pro forma earnings (loss) per share $ (0.05) $ (0.04)
======= ========
Weighted average shares 8,510 8,825
======= ========
</TABLE>
(*) Included in "As Previously Reported"
In connection with the SSI, EE&C and RPM mergers, the Company incurred
approximately $3,325,000 in transaction fees and other merger related costs
which are reflected in the Company's results of operations for the year ended
December 31, 1996.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv Solutions, Inc. ("Physerv") for approximately
$10,109,000 in cash plus 563,934 shares of common stock valued at approximately
$6,000,000. The Company intends to merge the operations of its subsidiary The
Spring Anesthesia Group, Inc. ("Spring") into Physerv as soon as is practicable.
The unaudited consolidated results of operations of the Company on a pro
forma basis as if the Company had sold 4,025,000 shares of common stock for $12
per share, repaid all outstanding short and long-term debt (except for the
Spring acquisition subordinated note), redeemed all outstanding shares of
preferred stock and consummated the purchase acquisitions of NCHC, MMS, DPS,
PBS, ALM, MIS, MARS and Physerv on January 1, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996
---- ----
<S> <C> <C>
Revenue ........................... $ 90,726,000 $100,724,000
Proforma net income (loss) ........ (2,068,000) (9,482,000)
Proforma earnings (loss) per share. (0.21) (0.99)
Weighted average shares ........... 9,720,000 9,617,000
</TABLE>
F-9
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
Estimated ------------------
Useful Life 1995 1996
----------- ---- ----
<S> <C> <C> <C>
Furniture and fixtures................................ 7 $ 1,563,366 $ 2,086,138
Equipment............................................. 5 7,381,137 11,222,168
Computer software..................................... 5 2,861,106 3,440,130
Leasehold improvements................................ 10 856,381 1,702,829
----------- -----------
12,661,990 18,451,265
Less accumulated depreciation and amortization........ 6,785,832 9,358,635
----------- -----------
$ 5,876,158 $ 9,092,630
=========== ===========
</TABLE>
4. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
Estimated ------------------
Useful Life 1995 1996
----------- ---- ----
<S> <C> <C> <C>
Physician contracts................................... 6 - 10 $ 9,883,290 $ 8,433,290
Noncompetition agreements............................. 5 3,727,042 3,895,000
Excess purchase price over fair value of net
assets acquired...................................... 20 6,076,005 40,071,903
Other................................................. 5 441,458 244,159
----------- -----------
20,127,795 52,644,352
Less accumulated amortization......................... 8,162,769 8,088,330
----------- -----------
$11,965,026 $44,556,022
=========== ===========
</TABLE>
5. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Estimated costs to complete the collection
process for accounts receivable-unbilled............. $ 1,185,082 $ 2,286,714
Accrued payroll, benefits and related liabilities..... 2,477,920 3,189,971
Accrued restructuring charges......................... 387,891 4,628,374
Accrued professional fees............................. 2,046,128 2,664,960
Other................................................. 1,838,174 4,035,023
----------- -----------
$ 7,935,195 $16,805,042
=========== ===========
</TABLE>
No item included in other accrued expense totaled more than 5% of accrued
expenses at December 31, 1995 or 1996.
F-10
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
6. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Bank term note, 7.6% until August 11, 1996, national
commercial rate plus 1.5% thereafter payable monthly,
$133,333 to $150,000 through August 1, 1998..................... $ 5,166,667 $ -
Subordinated notes, 13%, payable $1,500,000 on August 30,
1997 and 1998................................................... 3,000,000 -
Subordinated notes, 9% on the first $1,350,000 due August 30,
1997, 0% on the remainder, payable on August 30, 1998........... 1,830,763 -
Bank term notes, various interest rates, payable monthly
through May 2000................................................ 2,278,512 -
Acquisition Line borrowings, overnight market rate
(6.18% at December 31, 1996).................................... - 12,017,027
Working Capital Line borrowings, Intermediate Market
Rate (6.83% at December 31, 1996)............................... - 2,500,000
Spring acquisition subordinated note, 7.6%, payable on
August 12, 2003................................................. 5,500,000 5,500,000
----------- -----------
17,775,942 20,017,027
Less current portion............................................. 2,804,159 -
----------- -----------
$14,971,783 $20,017,027
=========== ===========
</TABLE>
On December 13, 1996, the Company entered into a Loan Agreement (the
"Agreement") with its bank which was comprised of a $30,000,000 Acquisition
Revolving Credit Facility (the "Acquisition Line") and a $5,000,000 Working
Capital Line of Credit (the "Working Capital Line"). Under the Agreement, the
Company may borrow, repay and reborrow amounts on the Acquisition Line through
January 1, 1999. At any time prior to January 1, 1999, the Company may convert
any Acquisition Line borrowings into a term loan ("Term Loan") with a repayment
term of no more than 5 years from the date of conversion. On January 1, 1999,
all borrowings under the Acquisition line automatically convert into a Term Loan
that will be payable in monthly installments through January 1, 2004.
Acquisition Line borrowings may, at the Company's option, bear interest at the
Overnight Market Rate (federal funds rate plus 0.87%) or the Adjusted LIBOR Rate
(London Interbank Offered Rate plus 0.85%). Interest on Term Loans may, at the
Company's option, bear interest at the Intermediate Market Rate (Overnight
Market rate plus 0.30%) or a fixed rate of interest quoted by the bank at the
time of a Term Loan conversion. The Company may borrow under the Working
Capital Line through June 30, 1998, with Working Capital Line borrowings bearing
interest at the lesser of the bank's prime rate or the Overnight Market Rate
plus 0.65%.
F-11
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
7. Other Long-Term Liabilities
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1996
---- ----
<S> <C> <C>
Capitalized lease obligations.............................. $1,026,885 $2,910,952
Pension liability (Note 11)................................ 31,578 67,578
Deferred purchase price.................................... - 350,000
Deferred rent.............................................. 828,776 1,123,999
Other...................................................... 300,000 193,146
---------- ----------
2,187,239 4,645,675
---------- ----------
Less current portion:
Capitalized lease obligations........................... 322,297 909,239
Other................................................... 50,000 60,384
---------- ----------
372,297 969,623
---------- ----------
$1,814,942 $3,676,052
========== ==========
</TABLE>
The following is a schedule of future minimum lease payments under capital
leases and the present value of the minimum lease payments as of December 31,
1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997................................................ $1,157,135
1998................................................ 1,077,155
1999................................................ 857,412
2000................................................ 210,859
2001................................................ 15,990
----------
Total minimum lease payments.......................... 3,318,551
Less amount representing interest..................... 407,599
----------
Present value of minimum lease payments (of which
$909,239 is due within one year).................... $2,910,952
==========
</TABLE>
F-12
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
8. Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1994 1995 1996
---------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal................................ $ 240,698 $ 22,969 $ 434,438
State.................................. 82,186 53,955 237,152
--------- ---------- -----------
322,884 76,924 671,590
--------- ---------- -----------
Deferred:
Federal................................ (565,112) (487,457) 667,040
State.................................. (318,218) (76,204) 70,471
--------- ---------- -----------
(883,330) (563,661) 737,511
--------- ---------- -----------
Recorded provision for income taxes...... (560,446) (486,737) 1,409,101
Pro forma income taxes................... 762,390 202,528 (2,026,651)
--------- ---------- -----------
Total income taxes....................... $ 201,944 $ (284,209) $ (617,550)
========= ========== ===========
Deferred income tax assets and liabilities consist of the following:
<CAPTION>
December 31,
----------------
1995 1996
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards....... $1,219,821 $ 781,473
Valuation reserve for state net
operating loss carryforwards.......... (89,374) (156,776)
Operating improvement reserves......... 145,858 1,781,803
Landlord allowances.................... 238,493 366,893
Bad debt reserve....................... 217,466 821,815
Vacation accrual....................... 277,515 483,960
Other.................................. 4,124 66,154
---------- -----------
2,013,903 4,145,322
---------- -----------
Deferred income tax liabilities:
Physician contracts.................... 667,625 -
Unbilled accounts receivable, net...... 2,149,427 3,528,231
Depreciation and amortization.......... 484,718 263,795
S Corporation cash to accrual
conversions........................... - 1,706,906
---------- -----------
3,301,770 5,498,932
---------- -----------
Net deferred income tax liability........ $1,287,867 $ 1,353,610
========== ===========
</TABLE>
F-13
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
The net deferred income tax liability is classified in the consolidated
balance sheet as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Net current liability.................... $ 289,818 $ 31,347
Net long-term liability.................. 998,049 1,322,263
---------- -----------
Net deferred income tax liability........ $1,287,867 $ 1,353,610
========== ===========
</TABLE>
A reconciliation of the statutory Federal income tax rate and the effective
rate of the provision for income taxes consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Statutory Federal income tax rate................... 34.0% (34.0)% (34.0)%
State income taxes, net of Federal income tax
benefits........................................... (4.5) (3.6) 1.8
Merger costs........................................ - - 11.0
Restructuring and other charges..................... - - 16.0
Nondeductible items................................. 19.3 10.3 1.7
Change in state tax laws allowing previously
disallowed prior years state net operating loss
deduction.......................................... (27.2) - -
State net operating loss carryforwards valuation
allowance.......................................... 11.5 1.6 0.7
Effect of changes in state income tax rates on
deferred income tax assets and liabilities......... (18.8) - -
Subchapter S earnings not subject to tax............ (107.8) (14.0) (0.8)
Cash to accrual adjustment.......................... - - 17.3
------ ------ ------
Effective income tax rate........................... (93.5) (39.7) 13.7
Pro forma tax adjustment............................ 126.9 16.5 (19.7)
------ ------ ------
Pro forma income tax rate........................... 33.4% (23.2)% (6.0)%
====== ====== ======
</TABLE>
F-14
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
9. Supplemental Cash Flow Information
Supplemental cash flow information consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Supplemental investing activity:
Fair value of assets acquired ........... $ -- $ -- $ 51,532,204
Stock issued in acquisitions ............ -- -- ( 8,539,975)
Cash acquired ........................... -- -- ( 713,180)
Liabilities assumed ..................... -- -- (10,339,749)
Deferred purchase price ................. -- -- ( 2,262,000)
Costs of exiting certain redundant
facilities and activities ............. -- -- ( 2,000,000)
---------- ---------- ------------
Net cash paid for acquisition ........... $ -- $ -- $ 27,677,301
========== ========== ============
Supplemental disclosure of cash flow
information:
Cash paid for interest .................. $1,474,097 $ 463,387 $ 4,313,118
========== ========== ============
Capital lease obligations incurred in
acquisition of equipment .............. $ 639,500 $ 251,490 $ 1,976,561
========== ========== ============
Cash paid for taxes ..................... $ 381,877 $ 232,976 $ 808,406
========== ========== ============
</TABLE>
F-15
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
10. Related Party Transactions
The Company has the following amounts receivable from related parties:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Notes receivable - shareholders ...................... $1,983,450 $1,054,038
Due from affiliated companies ........................ 2,396,114 -
---------- ----------
$4,379,564 $1,054,038
========== ==========
<CAPTION>
The Company has the following amounts due to related parties:
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Payable to shareholders - due on demand ............. $1,852,706 $ 315,000
Unsecured note due to an affiliated
company with interest
at 11% matures December 31, 1996 .................... 255,746 -
Payable to a shareholder due in monthly
installments with interest
at 7.5% due December 2004 ........................... 1,038,852 920,431
---------- ----------
3,147,304 1,235,431
Less current portion 2,231,316 463,736
---------- ----------
$ 915,988 $ 771,695
========== ==========
</TABLE>
Legal services provided by a related party were $2,869,885, $3,400,182, and
$2,549,657 for the years ended December 31, 1994, 1995 and 1996, respectively.
The schedule of repayments of notes payable to related parties by year and in
the aggregate is as follows:
<TABLE>
<S> <C>
Year Ending
December 31,
-------------
1997 ........................... $ 463,736
1998 ........................... 130,792
1999 ........................... 153,759
2000 ........................... 132,320
2001 ........................... 99,193
Thereafter 255,631
-----------
$ 1,235,431
===========
</TABLE>
11. Employee Benefit Plans
Spring provides pension benefits to eligible employees under a noncontributory
defined benefit pension plan (the "Plan"). Benefits are earned on the basis of
credited service and employees' highest five consecutive plan years' average
compensation. The Plan was frozen effective July 1, 1993. Accordingly, no
further benefits accrue to eligible employees after July 1, 1993, the
accumulated benefit obligation becomes equal to the projected benefit obligation
as of that date, and all benefits become vested as of that date. The Company
makes contributions to the plan as necessary to satisfy the minimum funding
requirements of ERISA.
F-16
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
The following table summarizes the significant assumptions used in determining
the pension obligations as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
<S> <C>
Discount rate -- pre-retirement................. 7.0%
Discount rate -- post-retirement................ 5.0%
Expected long-term rate of return on assets..... 7.0%
</TABLE>
Assets of the plan consist primarily of investments in stocks and corporate
and government bonds.
Pension cost includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1995 1996
---------- ----------- -------------
<S> <C> <C> <C>
Service cost -- benefits earned during
the period............................ $ -- $ -- $ --
Interest cost on projected benefit
obligation............................ (142,660) (132,450) (113,819)
Return on plan assets -- actual........ 69,574 236,165 197,607
Net amortization and deferral.......... 66,166 (115,681) (92,452)
--------- ---------- -----------
Net pension cost.................... $ (6,920) $ (11,966) $ (8,664)
========= ========== ===========
</TABLE>
The funded status of the pension plan at December 31, 1995 and 1996 was as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
---- ----
<S> <C> <C>
Projected benefit obligation (100%
vested)............................... $(1,981,163) $(1,382,710)
Plan assets at fair value.............. 1,938,358 1,425,602
----------- -----------
Projected benefit obligation (in
excess of) less than plan assets...... (42,805) 42,892
Unrecognized net (gain) loss........... 11,227 (83,134)
---------- -----------
Accrued pension cost................ $ (31,578) $ (40,242)
========== ===========
</TABLE>
The Company maintains several non-contributory 401(k) plans for the benefit of
its employees. For the years ended December 31, 1994, 1995 and 1996, the
Company's contributions to its 401(k) plans were $70,823, $83,475 and $102,794
respectively. In order to maintain its compliance with ERISA, the Company
intends to consolidate all its 401(k) plans into one plan prior to December 31,
1998.
F-17
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
12. Commitments and Contingencies
a. Operating Leases -- Future minimum annual rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997................................. $ 3,723,081
1998................................. 3,363,605
1999................................. 3,284,637
2000................................. 2,752,749
2001................................. 2,766,683
Thereafter........................... 4,982,689
-----------
$20,873,444
===========
</TABLE>
Rent expense was approximately $2,183,727, $2,417,817 and $3,420,316 for the
years ended December 31, 1994, 1995 and 1996, respectively.
b. Letter of Credit -- The Company has a letter of credit from a bank in the
amount of approximately $163,945 at December 31, 1996 in connection with one of
its self-insured employee medical plans.
c. Litigation - The Company is involved in certain litigation in the normal
course of business. In the opinion of management, liabilities arising from such
litigation will not have a material adverse effect on the Company's financial
position.
13. Redeemable Preferred Stock
On August 30, 1991, the Company sold 2,000 shares of 10% Preferred Stock,
Series A (the "Series A Stock") and 2,000 shares of 10% Preferred Stock, Series
B (the "Series B Stock") (together, the "10% Preferred Stock"), stated value
$500 per share, for $2,000,000. On February 28, 1994, February 28, 1995 and
August 31, 1995, the Company issued stock dividends of 120 shares, 127.2 shares
and 134.832 shares, respectively, of 10% Preferred Stock, Series A and 120
shares, 127.2 shares and 134.832 shares, respectively, of 10% Preferred Stock,
Series B in lieu of cash dividends. On December 21, 1995, the Company sold 1,100
shares of 10% Redeemable Preferred Stock, Series A, stated value $500 per share,
for $550,000.
On February 15, 1996, the Company redeemed all outstanding shares of preferred
stock (see Note 14).
At December 31, 1995 and 1996, redeemable preferred stock consisted of the
following:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1996
---------- -----
<S> <C> <C>
Par value $.01 per share, authorized 10,000 shares:
Series A, stated value $500 per share,
outstanding 3,482,032 and 0 shares, respectively .......... $1,741,016 $ -
Series B, stated value $500 per share,
outstanding 2,482,032 and 0 shares, respectively .......... 1,191,016 -
---------- -----
$2,932,032 $ -
========== =====
</TABLE>
F-18
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
14. Common Stock
a. Sale of Common Stock -- On February 12, 1996, the Company authorized the
issuance of up to 10,000,000 shares of preferred stock, increased the number of
authorized shares of common stock from 5,000 to 100,000,000, changed the par
value of its common stock from $.01 to $.001 per share and effected a 1,400-for-
one stock split. All numbers of common shares and per share data in the
accompanying financial statements have been retroactively adjusted to effect the
stock split. In addition, on February 12, 1996, the Company sold 4,025,000
shares of common stock for $12 per share in its initial public offering of
common stock. The net proceeds of such offering of approximately $43,556,000
were used to repay all outstanding short and long-term debt except for the
Spring acquisition subordinated note, redeem all outstanding shares of preferred
stock and acquire NCHC, MMS and PPS.
b. Physician Support Systems, Inc. Stock Option Plan -- On February 9, 1996,
the Company adopted the Physician Support System, Inc. Stock Option Plan (the
"Original Plan"). On October 2, 1996, the Company amended and restated the
Original Plan by adopting the Physician Support System, Inc. Amended and
Restated Stock Option Plan, which was further amended in December 1996 (the
"Plan"). A total of 849,750 authorized but unissued shares of common stock are
reserved for issuance under the Plan. All options issued under the Plan through
December 31, 1996 have an exercise price of not less than 100% of the fair
market value of a share of the Company's common stock on the date of the grant,
vest over five years and must be exercised within ten years from the date of the
grant. Through December 31, 1996, the Company has issued 483,998 options (of
which 19,000 were forfeited as of December 31, 1996) under the Plan at exercise
prices ranging from $12.00 to $22.00.
c. Synergistic Systems, Inc. Stock Option Plan -- On December 23, 1996,
Synergistic Systems, Inc. adopted the Synergistic Systems, Inc. Stock Option
Plan (the "SSI Plan"). The Company has reserved a total of 90,000 authorized but
unissued shares of common stock for issuance under the SSI Plan. All options
issued under the SSI Plan through December 31, 1996 have an exercise price of
not less than 100% of the fair market value of a share of the Company's common
stock on the date of the grant, vest over five years and must be exercised
within ten years from the date of the grant. Through December 31, 1996, the
Company has issued 87,750 options under the SSI Plan at exercise prices ranging
from $15.60 to $19.12, which include options granted by SSI prior to being
acquired by the Company which were assumed by the Company.
A summary of the combined status, and changes during the year ended December
31, 1996 of the Plan and the SSI Plan is presented below:
<TABLE>
<CAPTION>
Shares Exercise Price
------- --------------
<S> <C> <C>
Outstanding at January 1, 1996 ......... - -
Granted ................................ 571,748 $12.00 - 22.00
Exercised .............................. - -
Forfeited .............................. 19,000 $12.00 - 22.00
------- --------------
Outstanding at December 31, 1996 552,748 $12.00 - 21.75
======= ==============
Options exercisable at December 31, 1996 - $ -
======= ==============
</TABLE>
The following table summarizes information related to options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Weighted-Average
Range of Outstanding at Remaining Weighted-Average
Exercise Prices December 31, 1996 Contractual Life Exercise Price
--------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
$12.00-15.875 218,250 4.31 years $14.15
$18.75-21.75 334,498 4.73 years $20.70
</TABLE>
F-19
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
The Company has chosen to continue to apply the provisions of Accounting
Principles Board Opinion No. 25 ("APB 25") to the measurement of compensation
cost related to stock based compensation awards. APB 25 measures such
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company has chosen to adopt only the disclosure provisions of Financial
Accounting Standards Board Statement No. 123 ("SFAS 123"), which measures
compensation cost related to stock based compensation awards based on the fair
value of the equity instrument awarded. If compensation cost had been determined
under SFAS 123, pro forma net income (loss) and pro forma earnings (loss) per
share would have been reduced to the pro forma amounts below for the year ended
December 31, 1996:
<TABLE>
<S> <C>
Pro forma net income (loss):
As reported .................................... $(9,642,312)
Pro-forma ...................................... $(9,944,279)
Pro forma earnings (loss) per share:
As reported .................................... $ (1.17)
Pro forma ...................................... $ (1.20)
</TABLE>
In calculating pro forma net income (loss) under SFAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for the
period ended December 31, 1996:
<TABLE>
<S> <C>
Expected volatility ............................... 71.97%
Expected lives .................................... 5 years
Risk-free interest rate ........................... 5.00%
Expected dividend yield ........................... 0.00%
Weighted-average fair value of options granted
during the year ended December 31 (per option) .. $12.05
</TABLE>
The pro forma effect of applying SFAS 123 is not necessarily indicative of the
effect on reported net income for future years.
F-20
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1994, 1995 and 1996
15. Merger Costs and Restructuring and Other Charges
Spring's results in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,000
related to the write-off of certain computer hardware and software, and costs
associated with the introduction of a new management team, some limited
severance activity and other transaction items. During the three months ended
December 31, 1996, the Spring operating inefficiencies led to client
dissatisfaction. The Company incurred increased salary and general and
administrative costs in an attempt to increase client satisfaction. However,
these efforts were unsuccessful, and led to the loss of clients and loss of
related revenues. As a result, in accordance with FASB 121, the Company has
determined that certain identifiable intangible assets (primarily customer
contracts), and goodwill, were not recoverable from future cash flows of Spring,
and accordingly, an impairment loss of approximately $6,578,000 was recorded. In
addition, in conjunction with the Company's acquisition on February 5, 1997 of
Physerv, which like Spring, serves only anesthesiologists, the Company has
decided to fold the remaining Spring business into Physerv, in order to develop
a profitable, national approach to the anesthesia market. This will entail
exiting the processing of physician charges in remote Spring locations and
performing such processing activities at more efficient central anesthesia
processing locations. As a result of this assimilation, the Company may record a
charge in the three months ending March 31, 1997 related to exiting processing
activities at Spring.
At the time of the SSI merger, the Company determined that it would replace
certain SSI computer hardware and software with its proprietary operating
software, and accordingly recorded a charge of approximately $900,000 in the
three months ended June 30, 1996.
The Company incurred approximately $3,325,000 in transaction fees and other
merger related costs in connection with the SSI, EE&C and RPM mergers which are
reflected in the Company's results of operations for the year ended December 31,
1996.
F-21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated September 11,
1995, among the Shareholders of North Coast Health
Care Management, Inc. and Physician Support
Systems, Inc. (1)
2.2 Asset Purchase Agreement, dated September 25,
1995, among North Coast Account Systems, Inc.,
Medical Dental Invoicing Services, Inc. and
Physician Support Systems, Inc. (1)
2.3 Amended and Restated Asset Purchase Agreement,
dated December 7, 1995, among Medical Management
Support, Inc., the shareholders of Medical
Management Support, Inc. and PSS-Medical
Management Support, Inc. (1)
2.4 Asset Purchase Agreement, dated October 16, 1995
among Data Processing Systems, Inc., McGriff,
Seibels & Williams, PSS - Data Processing Systems,
Inc. and Physicians Support Systems, Inc. (1)
2.5 Asset Purchase Agreement, dated May 8, 1996, among
PBS Northwest, Incorporated, the Shareholders of
PBS Northwest, Incorporated and PSS PBS Northwest,
Inc. (3)
2.6 Asset Purchase Agreement, dated May 17, 1996,
among ALM, Inc., the Shareholders of ALM, Inc.,
PSS ALM, Inc. and Physician Support Systems, Inc.
(4)
2.7 Agreement and Plan of Merger, dated as of June 28,
1996, among Synergistic Systems, Inc., Physician
Support Systems, Inc. and PSS Synergistic Systems,
Inc. (5)
2.8 Agreement and Plan of Merger, dated as of August
30, 1996, among Physician Support Systems, Inc.,
PSS EE&C Financial Services, Inc. and EE&C
Financial Services, Inc. (6)
2.9 Agreement and Plan of Merger, dated as of August
30, 1996, among Physician Support Systems, Inc.,
PSS EE&C Health Services, Inc., PSS Med-Data
Interface Systems, Inc., PSS Medical Intercept
Systems, Inc., EE&C Health Services, Inc.,
Med-Data Interface Systems, LLC and Medical
Intercept Systems, LLC (7)
2.10 Stock Purchase Agreement, dated as of December 13,
1996, among Physician Support Systems, Inc., PSS
C-CARE, Inc., George J. Weinroth, Herman
Mattleman, James Greenberg, Stanley Slipakoff,
Anthony J. Mckiewicz, Anthony Diluca, John C.
Miller III and Dennis Gaspari (8)
</TABLE>
<PAGE>
2.11 Agreement and Plan of Merger, dated as of December
31, 1996, among Physician Support Systems, Inc.,
PSS Revenue Production Management, Inc. and
Revenue Production Management, Inc. (9)
2.12 Stock Purchase Agreement, dated as of February 3,
1997, among Physician Support Systems, Inc., PSI
Acquisition Corp., Hamid Mirafzali, Shadan
Mirafzali, Nader J. Samii, as independent trustee
of the Neda Mirafzali Family Trust dated November
4, 1996 and Nadir J. Samii, as Independent Trustee
of the Leela Mirafzali Family Trust dated November
4, 1996 (10)
4.1 Form of Physician Support Systems, Inc. Amended and
Restated 1996 Stock Option Plan
4.2 Form of Synergistic Systems, Inc. 1996 Stock Option
Plan
4.3 Form of Certificate representing Common Stock
10.1 Employment Agreement, dated August 9, 1995,
between Bruce B. Schmoyer and Physician Support
Systems, Inc. (1)
10.2 Employment Agreement, dated as of February 14,
1996, by and between Physician Support Systems,
Inc. and David S. Geller (2)
10.3 Employment Agreement, dated as of July 8, 1996,
between Synergistic Systems, Inc. and Jean M.
Campbell (5)
10.4 Employment Agreement, dated as of August 30, 1996,
between EE&C Financial Services, Inc. and Peter D.
Cooper (6)
10.5 Employment Agreement, dated as of August 30, 1996,
between PSS EE&C Health Services, Inc. and James
Robertson (7)
<PAGE>
10.6 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and George J. Weinroth
10.7 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Anthony J.
Mackiewicz
10.8 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Stanley Slipakoff
10.9 Employment Agreement, dated as of December 13,
1996, between C-Care, Inc. and Anthony Diluca
10.10 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Raymond E. Clutts
10.11 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Paul A. Grabowski
10.12 Employment Agreement, dated as of December 31,
1996, between Revenue Production Management, Inc.
and Neil J. Greene
10.13 Employment Agreement, dated as of February 3,
1997, between Physician Support Systems, Inc. and
Hamid Mirafzali (10)
10.14 Agreement of Lease dated August 30, 1991 between
Physician Support Systems, Inc. and Prospect
Realty Company (1)
10.15 Office Lease Agreement dated July 20, 1994 between
Spring Anesthesia Group, Inc. and American Savings
Bank, F.A. (1)
10.16 Loan Agreement dated December 13, 1996 between
CoreStates Bank, N.A. and Physician Support
Systems, Inc. and its subsidiaries
10.17 Agreement dated as of December 18, 1995 among
Medical Management Sciences, Inc., Managed
Imaging, Inc. and Physician Support Systems, Inc.
(1)
10.18 Promissory Note of PSS Investment, Inc. dated
August 12, 1993 (assumed by The Spring Anesthesia
Group, Inc. pursuant to a merger) (1)
<PAGE>
<TABLE>
<S> <C>
10.19 Registration Rights Agreement, dated as of June
28, 1996, among Physician Support Systems, Inc.
and each stockholder of Synergistic Systems, Inc.
and Jean M. Campbell, as representative of the
shareholders (5)
10.20 Registration Rights Agreement, dated as of August
30, 1996, among Physician Support Systems, Inc.,
Eltman, Eltman & Cooper, P.C., each of the
shareholders of EE&C Financial Services, Inc. and
Peter D. Cooper, as representative of the
shareholders (6)
10.21 Registration Rights Agreement, dated as of August
30, 1996, among Physician Support Systems, Inc.,
each of the shareholders of EE&C Health Services,
Inc., Med-Data Interface Systems, LLC and Medical
Intercept Systems, LLC and Peter D. Cooper, as
representative of the shareholders (7)
10.22 Registration Rights Agreement, dated as of
December 13, 1996, among Physician Support Systems
Inc., George J. Weinroth, Herman Mattleman, James
Greenberg, Stanley Slipakoff, Anthony J.
Mackiewicz, Anthony Diluca, John C. Miller III and
Dennis Gaspari (8)
10.23 Registration Rights Agreement, dated as of
December 31, 1996, among Physician Support
Systems, Inc. and the former stockholders of
Revenue Production Management, Inc. (9)
10.24 Registration Rights Agreement, dated as of
February 3, 1997, among Physician Support Systems,
Inc., Hamid Mirafzali, Shadan Mirafzali, Nader J.
Samii, as Independent Trustee of the Neda
Mirafzali Family Trust, and Nader J. Samii, as
Independent Trustee of the Leela Mirafzali Family
Trust (10)
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
_________________________
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 No. 33-80731, incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated May 14, 1996, as amended, incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 4, 1996, as amended, incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 8, 1996, as amended, incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 13, 1996, as amended, incorporated hereby by reference.
(7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 16, 1996, as amended, incorporated hereby by reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated December 30, 1996, as amended, incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated January 8, 1997, as amended, incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 18, 1997, incorporated herein by reference.
<PAGE>
EXHIBIT 4.1
PHYSICIAN SUPPORT SYSTEMS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the 1996 Stock Option Plan (the "Plan") of Physician Support
Systems, Inc., a Delaware corporation (the "Company"), is to attract and retain
employees (including officers), directors and independent contractors of the
Company, or any Subsidiary or Affiliate which now exists or hereafter is
organized or acquired, and to furnish additional incentives to such persons by
encouraging them to acquire a proprietary interest in the Company. Pursuant to
Section 6 of the Plan, there may be granted Options, including "incentive stock
options" and "nonqualified stock options". The Plan is intended to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Exchange Act and
shall be interpreted in a manner consistent with the requirements thereof.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Administrator" means the Board or, if and so long as a Committee
has been established and is in existence, the Committee.
(b) "Affiliate" means any entity if, at the time of granting of
an Option, (i) the Company, directly, owns at least 20% of the combined voting
power of all classes of stock of such entity or at least 20% of the ownership
interests in such entity or (ii) such entity, directly or indirectly, owns at
least 20% of the combined voting power of all classes of stock of the Company.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the applicable laws of descent and distribution to receive
such benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company which
will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than an Exempt Person), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's
then outstanding voting securities;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii), or (iv) of this Section 2(e)) whose election by
the Board or nomination for election by the Company's
<PAGE>
stockholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at
least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinbefore defined), other
than an Exempt Person, acquired 50% or more of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the committee, consisting exclusively of two or
more Non-Employee Directors (as defined in Rule 16b-3), if and as the same may
be established by the Board to administer the Plan; provided, however, that to
the extent required for the Plan to comply with the applicable provisions of
Section 162(m) of the Code, "Committee" means either such committee or a
subcommittee of that committee, as the case may be, which shall be constituted
to comply with the applicable requirements of Section 162(m) of the Code and the
regulations promulgated thereunder.
(h) "Company" means Physician Support Systems, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(j) "Exempt Person" means (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, (3)
any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of Stock, or
(4) any person or group of persons who, immediately prior to the adoption of
this Plan, owned more than 50% of the combined voting power of the Company's
then outstanding voting securities.
(k) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as
-2-
<PAGE>
shall be established from time to time by the Administrator. Notwithstanding the
foregoing, the per share Fair Market Value of Stock as of a particular date
shall mean (i) if the shares of Stock are then listed on a national securities
exchange, the closing sales price per share of Stock on the national securities
exchange on which the stock is principally traded, for the last preceding date
on which there was a sale of such Stock on such exchange, or (ii) if the shares
of Stock are then traded on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
reported per share closing price of the Stock on the day prior to such date or,
if there was no such price reported for such date, on the next preceding date
for which such a price was reported, or (iii) if the shares of Stock are then
traded in an over-the-counter market other than on the NASDAQ National Market
System, the average of the closing bid and asked prices for the shares of Stock
in such over-the-counter market for the last preceding date on which there was a
sale of such Stock in such market, or (iv) if the shares of Stock are not then
listed on a national securities exchange or traded in an over-the-counter
market, such value as the Administrator, in its sole discretion, shall determine
in good faith.
(l) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "NQSO" means any Option not designated as an ISO.
(n) "Option" means a right, granted to an Optionee under Section 6(b)
of the Plan, to purchase shares of Stock. An Option may be either an ISO or an
NQSO, provided that ISOs may be granted only to employees of the Company or a
Subsidiary.
(o) "Optionee" means a person who, as an employee, director or
independent contractor of the Company, a Subsidiary or an Affiliate, has been
granted an Option.
(p) "Plan" means this Physician Support Systems, Inc. 1996 Stock
Option Plan, as amended from time to time.
(q) "Rule 16b-3" means Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(r) "Stock" means the common stock, par value $.001 per share, of the
Company.
(s) "Stock Option Agreement" means any written agreement, contract, or
other instrument or document evidencing an Option.
(t) "Subsidiary" means any corporation in which the Company, directly
or indirectly, owns stock possessing 50% or more of the total combined voting
power of all classes of stock of such corporation.
3. Administration.
The Plan shall be administered by the Administrator. The Administrator
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to
-3-
<PAGE>
it under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Options; to determine the
persons to whom and the time or times at which Options shall be granted; to
determine the type and number of Options to be granted, the number of shares of
Stock to which Options may relate and the terms, conditions, restrictions and
performance criteria relating to any Options; to determine whether, to what
extent, and under what circumstances Options may be settled, canceled,
forfeited, exchanged, or surrendered; to make adjustments in the terms and
conditions of, and the criteria and performance objectives included in, Options
in recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; to designate Affiliates; to construe and
interpret the Plan and any Options; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
Stock Option Agreements (which need not be identical for each Optionee); and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Administrator may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Administrator shall be made by a majority of its members either present in
person or participating by conference telephone at a meeting or by written
consent. The Administrator may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Administrator or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Administrator or such person may have under the Plan. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all persons, including the Company, and any Subsidiary, Affiliate or
Optionee (or any person claiming any rights under the Plan from or through any
Optionee) and any stockholder.
No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
4. Eligibility.
Options may be granted to employees (including officers), directors and
independent contractors of the Company and its present or future Subsidiaries
and Affiliates, in the discretion of the Administrator. In determining the
person to whom Options shall be granted and the type of Options granted
(including the number of shares to be covered by such Options), the
Administrator shall take into account such factors as the Administrator shall
deem relevant in connection with accomplishing the purposes of the Plan. No
person shall be granted during any calendar year one or more Options under the
Plan for, in the aggregate, more than 300,000 shares of Common Stock.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 849,750 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in the open market, in private transactions or otherwise. The number of
shares of Stock available for issuance under the Plan shall be reduced by the
number of shares of Stock subject to outstanding Options. If any shares subject
to an Option are forfeited,
-4-
<PAGE>
canceled, exchanged or surrendered or if an Option otherwise terminates or
expires without a distribution of shares to the Optionee, the shares of Stock
with respect to such Option shall, to the extent of any such forfeiture,
cancellation, exchange, surrender, termination or expiration, again be available
for Options under the Plan.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of an Optionee under the Plan, then the Administrator shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (i) the number and kind of shares of Stock which may thereafter be issued
in connection with Options, (ii) the number and kind of shares of Stock issued
or issuable in respect of outstanding Options, and (iii) the exercise price,
grant price, or purchase price relating to any Option; provided that, with
respect to ISOs, such adjustment shall be made in accordance with Section 424(h)
of the Code.
6. Specific Terms of Options.
(a) General. The term of each Option shall be for such period as may
-------
be determined by the Administrator. The Administrator may make rules relating
to Options, and may impose on any Option or the exercise thereof, at the date of
grant or thereafter, such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Administrator shall determine.
(b) Options. The Administrator is authorized to grant Options to
-------
Optionees on the following terms and conditions:
(i) Type of Option. The Stock Option Agreement evidencing the
grant of an Option under the Plan shall designate the Option as an ISO
(in the event its terms, and the individual to whom it is granted,
satisfy the requirements for ISOs under the Code), or an NQSO.
(ii) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Administrator;
provided that, except as may otherwise be required by the Code, in the
case of an ISO, such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option
and, in the case of an ISO granted to the holder of more than 10% of
the Stock outstanding at the date of grant of such Option, such
exercise price shall be not less than 110% of the Fair Market Value on
such date of grant. In no event shall the exercise price for the
purchase of shares of Stock be less than par value. The exercise
price for Stock subject to an Option may be paid in cash or by an
exchange of Stock previously owned by the Optionee, or a combination
of both, in an amount having a combined value equal to such exercise
price. Any shares of Stock exchanged upon the exercise of any Option
shall be valued at the Fair Market Value on the date on which such
shares are exchanged. An Optionee also may elect to pay all or a
portion of the aggregate exercise price by having shares of Stock with
a Fair Market Value on the date of exercise equal to the aggregate
exercise price withheld by the Company or sold by a broker-dealer in
-5-
<PAGE>
accordance with applicable law.
(iii) Term and Exercisability of Options. The date on which the
Administrator adopts a resolution expressly granting an Option shall
be considered the day on which such Option is granted. Options shall
be exercisable over the exercise period (which shall not exceed ten
years from the date of grant or five years from the date of grant in
the case of an ISO granted to a holder of more than 10% of Stock
outstanding as of such date), at such times and upon such conditions
as the Administrator may determine, as reflected in the Stock Option
Agreement. An Option may be exercised to the extent of any or all
full shares of Stock as to which the Option has become exercisable, by
giving written notice of such exercise to the Company's Secretary and
paying the exercise price as described in Section 6(b)(ii).
(iv) Termination of Employment, etc. An Option may not be
exercised unless the Optionee is then in the employ of, is then a
director of, or then maintains an independent contractor relationship
with, the Company or any Subsidiary or Affiliate (or a company or a
parent or subsidiary company of such company issuing or assuming the
Option in a transaction to which Section 424(a) of the Code applies),
and unless the Optionee has continuously maintained any of such
relationships, since the date of grant of the Option; provided that,
the Stock Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified terminations, to
a date not later than the expiration date of such Option. The
Administrator may establish a period during which the Beneficiaries of
an Optionee who died while an employee, director or independent
contractor of the Company or any Subsidiary or Affiliate or during any
extended period referred to in the immediately preceding proviso may
exercise those Options which were exercisable on the date of the
Optionee's death; provided that no Option shall be exercisable after
its expiration date.
(v) Nontransferability. Options shall not be transferrable by an
Optionee except by will or the laws of descent and distribution and
shall be exercisable during the lifetime of an Optionee only by such
Optionee or his guardian or legal representative.
(vi) Other Provisions. Options may be subject to such other
conditions as the Administrator may prescribe in its discretion.
7. Change in Control Provisions.
In the event of a Change in Control, any and all Options then outstanding
shall become fully exercisable and vested, whether or not theretofore vested and
exercisable.
8. General Provisions.
(a) Compliance with Legal and Exchange Requirements. The Plan, the
-----------------------------------------------
granting and exercising of Options thereunder, and the other obligations of the
Company under the Plan and any Stock Option Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be
-6-
<PAGE>
required. The Company, in its discretion, may postpone the issuance or delivery
of Stock under any Option until completion of such stock exchange listing or
registration or qualification of such Stock or other required action under any
state, federal or foreign law, rule or regulation as the Company may consider
appropriate, and may require any Optionee to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Stock in compliance with applicable laws, rules and
regulations.
(b) No Right to Continued Employment, etc. Nothing in the Plan or
--------------------------------------
in any Option granted or Stock Option Agreement entered into pursuant to the
Plan shall confer upon any Optionee the right to continue in the employ of, or
to continue as a director of or an independent contractor to, the Company, any
Subsidiary or any Affiliate, as the case may be, or to be entitled to any
remuneration or benefits not set forth in the Plan or such Stock Option
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary or Affiliate to terminate such Optionee's employment,
directorship or independent contractor relationship.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized
-----
to withhold from any Option granted, any payment relating to an Option under the
Plan (including from a distribution of Stock), or any other payment to an
Optionee, amounts of withholding and other taxes due in connection with any
transaction involving an Option, and to take such other action as the
Administrator may deem advisable to enable the Company and an Optionee to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Option. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of an Optionee's tax obligations.
(d) Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part; provided that, no amendment which requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3 or Sections 422 and 424
of the Code and the regulations promulgated thereunder shall be effective unless
the same shall be approved by the requisite vote of the stockholders of the
Company entitled to vote thereon. Notwithstanding the foregoing, no amendment
shall affect adversely any of the rights of any Optionee, without such
Optionee's consent, under any Option theretofore granted under the Plan.
(e) No Rights to Options; No Stockholder Rights. No Optionee shall
-------------------------------------------
have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a stock certificate to such Optionee for such
shares.
(f) Unfunded Status of Options. The Plan is intended to constitute an
--------------------------
"unfunded" plan for incentive and deferred compensation. Nothing contained in
the Plan or any Option shall give any such Optionee any rights that are greater
than those of a general creditor of the Company.
(g) No Fractional Shares. No fractional shares of Stock shall be
--------------------
issued or delivered pursuant to the Plan or any Option. The Administrator shall
determine whether cash, other Options, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
-7-
<PAGE>
(h) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect upon its adoption by
--------------
the Board.
(j) Plan Termination. The Board may terminate the Plan at any time
----------------
with respect to any shares of Stock that are not subject to Options. Unless
terminated earlier by the Board, the Plan shall terminate ten years after the
effective date and no Options shall be granted under the Plan after such date.
Termination of the Plan under this Section 8(j) will not affect the rights and
obligations of any Optionee with respect to Options grated prior to termination.
December 1996
-8-
<PAGE>
Exhibit 4.2
SYNERGISTIC SYSTEMS, INC.
STOCK OPTION PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the Stock Option Plan (the "Plan") of Synergistic Systems,
Inc., a [Delaware] corporation (the "Company"), is to attract and retain
employees (including officers) of the Company and to furnish additional
incentives to such persons by encouraging them to acquire a proprietary interest
in the Company's parent corporation. Pursuant to Section 6 of the Plan, there
may be granted Options, including "incentive stock options" and "nonqualified
stock options".
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Administrator" means the Board.
(b) "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the applicable laws of descent and distribution to receive
such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means a change in control of the Company which
will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than an Exempt Person), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's
then outstanding voting securities;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii), or (iv) of this Section 2(d)) whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still
in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any
<PAGE>
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinbefore defined), other
than an Exempt Person, acquired 50% or more of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Company" means Synergistic Systems, Inc., a corporation organized
under the laws of the State of [Delaware], or any successor corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(h) "Exempt Person" means (1) the Company, (2) Parent, (3) any trustee
or other fiduciary holding securities under an employee benefit plan of the
Company, (4) any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of
Stock, or (5) any person or group of persons who, immediately prior to the
adoption of this Plan, owned more than 50% of the combined voting power of the
Company's or the Parent's then outstanding voting securities.
(i) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Administrator. Notwithstanding the foregoing, the per share Fair Market Value
of Stock as of a particular date shall mean (i) if the shares of Stock are then
listed on a national securities exchange, the closing sales price per share of
Stock on the national securities exchange on which the stock is principally
traded, for the last preceding date on which there was a sale of such Stock on
such exchange, or (ii) if the shares of Stock are then traded on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the reported per share closing price of the Stock
on
2
<PAGE>
the day prior to such date or, if there was no such price reported for such
date, on the next preceding date for which such a price was reported, or (iii)
if the shares of Stock are then traded in an over-the-counter market other than
on the NASDAQ National Market System, the average of the closing bid and asked
prices for the shares of Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Stock in such market, or (iv)
if the shares of Stock are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the Administrator, in its
sole discretion, shall determine in good faith.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "NQSO" means any Option not designated as an ISO.
(l) "Option" means a right, granted to an Optionee under Section 6(b)
of the Plan, to purchase shares of Stock. An Option may be either an ISO or an
NQSO, provided that ISOs may be granted only to employees of the Company.
(m) "Optionee" means a person who, as an employee of the Company has
been granted an Option.
(n) "Parent" means Physician Support Systems, a corporation organized
under the laws of the State of Delaware, or any successor corporation.
(o) "Plan" means this Synergistic Systems, Inc. Stock Option Plan, as
amended from time to time.
(p) "Stock" means the common stock, par value $.001 per share, of the
Parent.
(q) "Stock Option Agreement" means any written agreement, contract, or
other instrument or document evidencing an Option.
3. Administration.
The Plan shall be administered by the Administrator. The Administrator
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the persons to whom and
the time or times at which Options shall be granted; to determine the type and
number of Options to be granted, the number of shares of Stock to which Options
may relate and the terms, conditions, restrictions and performance criteria
relating to any Options; to determine whether, to what extent, and under what
circumstances Options may be settled, canceled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives included in, Options in recognition of
unusual or non-recurring events affecting the Company or the financial
statements of the Company, or in response to changes in applicable laws,
regulations,
3
<PAGE>
or accounting principles; to construe and interpret the Plan and any Options; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Stock Option Agreements (which need
not be identical for each Optionee); and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Administrator may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Administrator shall be made by a majority of its members either present in
person or participating by conference telephone at a meeting or by written
consent. The Administrator may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Administrator or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Administrator or such person may have under the Plan. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all persons, including the Company and Optionee (or any person
claiming any rights under the Plan from or through any Optionee) and any
stockholder.
No member of the Board shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
4. Eligibility.
Options may be granted to employees (including officers) of the Company in
the discretion of the Administrator. In determining the person to whom Options
shall be granted and the type of Options granted (including the number of shares
to be covered by such Options), the Administrator shall take into account such
factors as the Administrator shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 90,000 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be acquired by the Company
in the open market, in private transactions or otherwise. The number of shares
of Stock available for issuance under the Plan shall be reduced by the number of
shares of Stock subject to outstanding Options. If any shares subject to an
Option are forfeited, canceled, exchanged or surrendered or if an Option
otherwise terminates or expires without a distribution of shares to the
Optionee, the shares of Stock with respect to such Option shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Options under the Plan.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is
4
<PAGE>
appropriate in order to prevent dilution or enlargement of the rights of an
Optionee under the Plan, then the Administrator shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with Options, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Options, and (iii) the exercise price, grant
price, or purchase price relating to any Option; provided that, with respect to
ISOs, such adjustment shall be made in accordance with Section 424(h) of the
Code.
6. Specific Terms of Options.
(a) General. The term of each Option shall be for such period as may
-------
be determined by the Administrator. The Administrator may make rules relating
to Options, and may impose on any Option or the exercise thereof, at the date of
grant or thereafter, such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Administrator shall determine.
(b) Options. The Administrator is authorized to grant Options to
-------
Optionees on the following terms and conditions:
(i) Type of Option. The Stock Option Agreement evidencing the
grant of an Option under the Plan shall designate the Option as an ISO
(in the event its terms, and the individual to whom it is granted,
satisfy the requirements for ISOs under the Code), or an NQSO.
(ii) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Administrator;
provided that, except as may otherwise be required by the Code, in the
case of an ISO, such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option
and, in the case of an ISO granted to the holder of more than 10% of
the Stock outstanding at the date of grant of such Option, such
exercise price shall be not less than 110% of the Fair Market Value on
such date of grant. In no event shall the exercise price for the
purchase of shares of Stock be less than par value. The exercise
price for Stock subject to an Option may be paid in cash or by an
exchange of Stock previously owned by the Optionee, or a combination
of both, in an amount having a combined value equal to such exercise
price. Any shares of Stock exchanged upon the exercise of any Option
shall be valued at the Fair Market Value on the date on which such
shares are exchanged.
(iii) Term and Exercisability of Options. Unless otherwise
determined by the Administrator, the date on which the Administrator
adopts a resolution expressly granting an Option shall be considered
the day on which such Option is granted. Options shall be exercisable
over the exercise period (which shall not exceed ten years from the
date of grant or five years from the date of grant in the case of an
ISO granted to a holder of more than 10% of Stock outstanding as of
such date), at such times and upon such conditions as the
Administrator may
5
<PAGE>
determine, as reflected in the Stock Option Agreement. An Option may
be exercised to the extent of any or all full shares of Stock as to
which the Option has become exercisable, by giving written notice of
such exercise to the Company's Secretary and paying the exercise price
as described in Section 6(b)(ii).
(iv) Termination of Employment, etc. An Option may not be
exercised unless the Optionee is then in the employ of the Company (or
a company or a parent or subsidiary company of such company issuing or
assuming the Option in a transaction to which Section 424(a) of the
Code applies), and unless the Optionee has continuously maintained
such relationship, since the date of grant of the Option; provided
that, the Stock Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified terminations, to
a date not later than the expiration date of such Option. The
Administrator may establish a period during which the Beneficiaries of
an Optionee who died while an employee, director or independent
contractor of the Company or any Subsidiary or Affiliate or during any
extended period referred to in the immediately preceding proviso may
exercise those Options which were exercisable on the date of the
Optionee's death; provided that no Option shall be exercisable after
its expiration date.
(v) Nontransferability. Options shall not be transferrable by an
Optionee except by will or the laws of descent and distribution and
shall be exercisable during the lifetime of an Optionee only by such
Optionee or his guardian or legal representative.
(vi) Limitation on Shares Subject to Option. No single Optionee
shall be granted an option or options to acquire more than 50,000
shares of Stock in any year during the term of the Plan.
(vii) Other Provisions. Options may be subject to such other
conditions as the Administrator may prescribe in its discretion.
7. Change in Control Provisions.
In the event of a Change in Control, any and all Options then outstanding
shall become fully exercisable and vested, whether or not theretofore vested and
exercisable.
8. General Provisions.
(a) Compliance with Legal and Exchange Requirements. The Plan, the
-----------------------------------------------
granting and exercising of Options thereunder, and the other obligations of the
Company under the Plan and any Stock Option Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in
its discretion, may postpone the issuance or delivery of Stock under any Option
until completion of such stock exchange listing or registration or qualification
of such
6
<PAGE>
Stock or other required action under any state, federal or foreign law, rule or
regulation as the Company may consider appropriate, and may require any Optionee
to make such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Stock in compliance
with applicable laws, rules and regulations.
(b) No Right to Continued Employment, etc. Nothing in the Plan or in
--------------------------------------
any Option granted or Stock Option Agreement entered into pursuant to the Plan
shall confer upon any Optionee the right to continue in the employ of the
Company or to be entitled to any remuneration or benefits not set forth in the
Plan or such Stock Option Agreement or to interfere with or limit in any way the
right of the Company to terminate such Optionee's employment.
(c) Taxes. The Company is authorized to withhold from any Option
-----
granted, any payment relating to an Option under the Plan (including from a
distribution of Stock), or any other payment to an Optionee, amounts of
withholding and other taxes due in connection with any transaction involving an
Option, and to take such other action as the Administrator may deem advisable to
enable the Company, the Parent and an Optionee to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of an
Optionee's tax obligations.
(d) Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part; provided that, no amendment which requires stockholder approval in
order for the Plan to continue to comply with Sections 422 and 424 of the Code
and the regulations promulgated thereunder shall be effective unless the same
shall be approved by the requisite vote of the stockholders of the Company
entitled to vote thereon. Notwithstanding the foregoing, no amendment shall
affect adversely any of the rights of any Optionee, without such Optionee's
consent, under any Option theretofore granted under the Plan.
(e) No Rights to Options; No Stockholder Rights. No Optionee shall
-------------------------------------------
have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a stock certificate to such Optionee for such
shares.
(f) Unfunded Status of Options. The Plan is intended to constitute an
--------------------------
"unfunded" plan for incentive and deferred compensation. Nothing contained in
the Plan or any Option shall give any such Optionee any rights that are greater
than those of a general creditor of the Company.
(g) No Fractional Shares. No fractional shares of Stock shall be
--------------------
issued or delivered pursuant to the Plan or any Option. The Administrator shall
determine whether cash, other Options, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
7
<PAGE>
(h) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect upon its adoption by
--------------
the Board.
(j) Plan Termination. The Board may terminate the Plan at any time
----------------
with respect to any shares of Stock that are not subject to Options. Unless
terminated earlier by the Board, the Plan shall terminate ten years after the
effective date and no Options shall be granted under the Plan after such date.
Termination of the Plan under this Section 8(j) will not affect the rights and
obligations of any Optionee with respect to Options grated prior to termination.
8
<PAGE>
EXHIBIT 4.3
[LOGO OF PHYSICIAN SUPPORT SYSTEMS INC. APPEARS HERE]
[SEAL APPEARS HERE] PHYSICIAN SUPPORT SYSTEMS, INC. [SEAL APPEARS HERE]
INCORPORATED UNDER THE CUSIP 71940V 10 5
LAWS OF THE STATE OF
DELAWARE
SEE REVERSE FOR
THIS CERTIFIES THAT CERTAIN DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.001, OF
- --------------------- -----------------------
- --------------------- PHYSICIAN SUPPORT SYSTEMS, INC. -----------------------
- --------------------- -----------------------
(hereinafter called the Corporation), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This certificate is not valid
until countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers.
Dated
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
TREASURER PRESIDENT
[SEAL APPEARS HERE]
COUNTERSIGNED
THE BANK OF NEW YORK
NEW YORK, N.Y. TRANSFER AGENT
BY
[SIGNATURE APPEARS HERE]
AUTHORIZED SIGNATURE
<PAGE>
[LOGO OF PHYSICIAN SUPPORT SYSTEMS INC. APPEARS HERE]
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be contrued as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- CUSTODIAN
TEN ENT -- as tenants by the entireties ---------- ----------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-----------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, hereby sell, assign and transfer unto
----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
named Corporation with full power of substitution in the premises.
Dated
------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ---------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS, WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT, dated as of December 13, 1996, between C-Care, Inc.,
a New Jersey corporation (the "Company"), and George J. Weinroth ("Employee").
PSS C-Care, Inc., a Delaware corporation ("PSS Sub") and a wholly-owned
subsidiary of Physician Support Systems, Inc., a Delaware corporation ("PSS"),
is acquiring all of the issued and outstanding capital stock of each of the
Company, H.O.P.E. Enterprises Group, Inc., a New Jersey corporation, and
Professional Medical Recovery Service, Inc., a New Jersey corporation (each a
"MARS Company" and, collectively, the "MARS Companies"), pursuant to the Stock
Purchase Agreement, dated as of December 13, 1996, among PSS, PSS Sub, Employee,
Herman Mattleman, James Greenberg, Stanley Slipakoff, Anthony J. Mackiewicz,
Anthony Diluca, John C. Miller III and Dennis Gaspari (the "Stock Purchase
Agreement").
Employee acknowledges and agrees that this Agreement is being entered into
in connection with the sale of all of his shares of capital stock of the MARS
Companies to PSS Sub pursuant to the Stock Purchase Agreement.
The Company desires to employ Employee, and Employee desires to be employed
by the Company, on the terms and subject to the conditions set forth herein.
As a material inducement to PSS and PSS Sub to consummate the transactions
contemplated by the Stock Purchase Agreement, PSS, PSS Sub and the Company
desire that Employee enter into the covenants set forth in Section 5 hereof, and
Employee agrees to enter into such covenants. Employee's execution of this
Agreement is a condition to PSS's obligation to consummate such transactions.
Based upon the mutual covenants and consideration set forth herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on December 31, 1999, unless extended on terms
agreed upon between Employee and the Company (such term being hereinafter
referred to as the "Employment Period"). Notwithstanding the foregoing, the
Employment Period shall automatically be extended for two succeeding one-year
periods unless Employee or the Company gives notice to the other party at least
180 days but not more than 280 days prior to the expiration of the initial
Employment Period or the first one-year extension, as the case may be, of such
party's intention not to extend the Employment Period. If such notice is given,
the Employment Period shall terminate at the end of the initial Employment
Period or at the end of the first one-year extension, as the case may be. The
Employment Period may be earlier terminated pursuant to the provisions of this
Agreement.
Section 2. Duties.
------
2.1. Scope. During the Employment Period, Employee shall perform senior
-----
management services requiring substantially the same time commitment and
encompassing substantially the same responsibilities as Employee has, in good
faith and in the ordinary course of business, performed for
<PAGE>
the MARS Companies prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, shall, along with other management staff of PSS
and its affiliates, perform transition and integration services in connection
with the acquisition of the MARS Companies by PSS, and shall include such other
management services (including management services for PSS and its other
affiliates) as Employee and the Company may from time to time agree
(collectively, the "Services"). During the Employment Period, the Employee shall
hold the office of President and Chief Executive Officer of the Company and
report to the Board of Directors of the Company.
2.2. Performance. (a) During the Employment Period, Employee will render
-----------
the Services to the Company in conformity with professional standards and in a
prudent and workmanlike manner. Employee shall promote the interests of the
Company and its affiliates in carrying out Employee's duties and shall not
deliberately take any action which could, or deliberately not take any action
which non-action could, reasonably be expected to have a material adverse effect
upon the business of the Company, PSS or their respective affiliates.
(b) The Services shall principally be rendered at the Company's principal
offices in Camden, New Jersey, or at a location within 100 miles of Camden (the
"Employment Area"), with such travel as shall be reasonably required in the
performance of the Services; provided that Employee shall not be required to
spend more than 25% of his time in the performance of the Services on travel
requiring an overnight stay outside of the Employment Area.
(c) Employee shall, to the same extent as the directors and officers of
PSS's other subsidiaries, be indemnified by PSS from any and all liabilities
(including reasonable attorney's fees and costs) incurred by reason of the fact
that: (i) on and after the date hereof, Employee is an employee of the Company
and (ii) Employee is a member of the Board of Directors and is an officer of the
Company (to the extent Employee serves as such a director); provided that such
indemnity shall be pursuant to, and to the maximum extent permitted by, the
certificate of incorporation and bylaws of PSS, PSS Sub and the Company. As a
director and/or officer of the Company (to the extent Employee serves in such
capacity), Employee shall, to the same extent as the directors and officers of
PSS and PSS's other subsidiaries, be covered by liability insurance against
liabilities as to which Employee is permitted to be indemnified to the maximum
extent permitted by the certificate of incorporation and bylaws of PSS, PSS Sub
and the Company.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall pay to
------
the Employee an annual base salary of $220,000 (the "Salary"), payable in equal
installments in accordance with the Company's normal payroll practices, which
Salary shall be adjusted annually, based upon the increase, if any, in the
Consumer Price Index, as published by the United States Department of Commerce,
and shall be subject to annual review for increase at the sole discretion of the
Board of Directors of the Company. Notwithstanding the foregoing, Employee's
Salary shall automatically increase for the remainder of the Employment Period
by an amount equal to 33-1/3% of the amount the Salary would otherwise have been
if (i) Peter D. Cooper ceases to be actively involved in the business of PSS or
any of its affiliates for any reason and (ii) as a result thereof, Employee is
asked to perform broader responsibilities (e.g., manage more employees or
----
clients or otherwise work longer hours).
-2-
<PAGE>
3.2. Employee Stock Options. (a) As additional compensation for the
----------------------
Services, Employee shall be entitled to an annual grant of stock options under
PSS's Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"),
awarded by PSS's Board of Directors or a committee thereof administering the
Stock Option Plan, based upon Employee's achievement of certain performance
objectives for each calendar year of the Employment Period (beginning with
calendar year 1997). The terms and amount of such grant, and such performance
objectives, for calendar year 1997 are set forth on Annex A attached hereto.
Such performance objectives for each subsequent year of the Employment Period
shall be identified to Employee prior to each anniversary of the Commencement
Date.
(b) Employee shall be granted additional stock options under the Stock
Option Plan to compensate Employee for Employee's contribution to the
establishment and growth of the business of the Company. The amount of such
additional grants shall be at the discretion of PSS's Board of Directors or
committee thereof administering the Plan and shall be consistent with the
objectives of the Stock Option Plan and PSS's senior management compensation
policies and consistent with the compensation intent expressed herein.
3.3. Reimbursement. Pursuant to the Company's standard reimbursement
-------------
policies, the Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee directly related to the performance by Employee of
the services hereunder. Employee shall account for such expenses in accordance
with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by PSS to its senior management employees.
The Company reserves the right to expand, restrict, designate or eliminate the
benefits provided to Employee so long as such expansion, restriction,
designation or elimination applies generally to all of PSS's senior management
employees. Employee shall be entitled to vacations consistent with PSS's
vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates during Employee's
employment with the Company to provide services or (ii) are known to Employee as
a result of his employment with the Company as prospective clients and accounts
of the Company or its affiliates, as the case may be (collectively, "Prospective
Accounts," and, with Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as otherwise provided in this Section
--------------
5.2, Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or of its affiliates to
any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received
-3-
<PAGE>
assurances that the confidential or proprietary information shall be kept
confidential), nor shall Employee make use of any such confidential or
proprietary information for his own purpose or for the benefit of any person,
firm, corporation or other entity, except the Company or its affiliates. As used
herein, the term "confidential or proprietary information" means all information
which is or becomes known to Employee and relates to matters such as trade
secrets, research and development activities, business or financing plans,
acquisition opportunities, computer software, books and records, customer or
potential customer lists (including, without limitation, any list of Client
Accounts or any part thereof), vendor lists, suppliers, distribution channels,
pricing information and private processes as they may exist from time to time;
provided that the term "confidential or proprietary information" shall not
include information that is or becomes generally available to the public (other
than as a result of a disclosure in violation of this Agreement by Employee or a
person who received such information from Employee).
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain, at
the Company's expense, an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the confidential or
proprietary information. During the Employment Period, and for matters arising
from events or circumstances occurring during the Employment Period, the Company
will provide for the defense of matters arising under this provision.
(c) Employee agrees that Employee will promptly and fully disclose to the
Company (i) all inventions, ideas, trade secrets or know-how (whether patentable
or copyrightable or not) made or conceived by Employee (either solely or jointly
with others) during the Employment Period and which shall in any way relate to
the business conducted or contemplated to be conducted by the Company or any of
its affiliates; and (ii) all tangible work product (whether in the nature of
developed ideas, know-how, trade secrets and similar intellectual property) and
inventions (whether patentable or copyrightable or not) made or conceived by
Employee (either solely or jointly with others) during the Employment Period
which relates in any way to the business conducted or contemplated to be
conducted by the Company or any of its affiliates; and all such inventions,
ideas, trade secrets and know-how shall be and remain the sole and exclusive
property of the Company. At the request of the Company, Employee shall, during
the Employment Period, without charge to the Company, but at the expense of the
Company, assist the Company in any reasonable way to vest in it title to all
such inventions, ideas, trade secrets and know-how and to obtain any patents,
trademarks or copyrights thereon in all countries throughout the world. In this
regard, Employee shall execute and deliver any and all documents that the
Company may reasonably request, including applications for patents, copyrights
and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and recognizes
--------------------
Employee's possession of confidential or proprietary information and the highly
competitive nature of the business of the Company and its affiliates and
accordingly agrees that, in consideration of PSS causing the consummation of the
transactions contemplated by the Stock Purchase Agreement, the Company's
entering into this Agreement, and the premises contained herein, Employee will
not, from and after the Commencement Date and for the period ending three years
after the date of termination of the Employment Period, either individually or
as an officer, director, employee, partner, agent or principal of another
business firm, (i) directly or indirectly engage in the United States in any
business which is competitive with the business conducted by the MARS Companies
(including seeking or accepting employment with a
-4-
<PAGE>
client of any MARS Company or any of its affiliates) (a "Competitive Business"),
(ii) assist others in engaging in any Competitive Business in the manner
described in the foregoing clause (i), (iii) solicit, professionally contact or
provide medical billing, accounts receivable, accounting, collection agency,
financial or consulting services to any Client Account or (iv) induce employees
of the MARS Companies, PSS or any affiliate of PSS to terminate their employment
with the MARS Companies, PSS or such affiliate, as the case may be, or hire any
employees of the MARS Companies, PSS or any other affiliate of PSS to work with
any Seller or any company or business affiliated with any Seller.
Notwithstanding clauses (i), (ii) and (iii) of the immediately preceding
sentence, Employee may participate in, operate or expand, any business in which
Employee has an interest, including a software development business; provided
that such business does not directly or indirectly compete with the businesses
of any MARS Company, PSS or any of their respective affiliates, in each case as
conducted as of the date hereof or as of the time that Employee proposes to
enter into such business.
5.4. MGSW&M. Employee shall use his best efforts, in compliance with the
------
applicable rules of professional conduct with respect to the practice of law, to
cause the law firm of Mattleman, Greenberg, Shmerelson, Weinroth & Miller
("MGSW&M") to cease providing, or offering to provide, medical billing, accounts
receivable management, accounting or collection services and shall use his
reasonable best efforts to cause any and all Client Accounts that had previously
been receiving any such services from MGSW&M to thereafter receive such services
from the MARS Companies.
5.5. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.3 (the "Restrictive Covenant") by injunctive or
other equitable remedies (as provided in Section 8.4) as well as seek damages as
a result of Employee's breach of the Restrictive Covenant. Employee recognizes
that the right to service each Client Account is a valuable asset of the Company
or its affiliates and that the precise value of the loss of such asset may be
difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the Employment
-----
Period and all of the obligations of the Company hereunder for Cause. For the
purposes of this Agreement, the Company shall have "Cause" to terminate the
Employee's employment hereunder in the event of (i) the Employee's conviction
of, or plea of guilty or nolo contendere to (A) a felony or (B) a fraudulent or
deliberately dishonest act which results in a material adverse effect on the
Company, (ii) the Employee's material breach of this Agreement or (iii) the
Employee's gross negligence or bad faith in the performance of the Services.
-5-
<PAGE>
6.3. Good Reason. Employee, at his option, may terminate the Employment
-----------
Period for Good Reason; provided that, in the case of a termination for Good
Reason pursuant to clause (i) or (ii) of the definition thereof, Employee shall
give the Company notice of such termination at least 30 days prior to the
effective date of such termination during which time the Company shall have the
right to remedy such transfer of location or such substantial adverse
alteration, if any, in Employee's title, position or status, as the case may be.
If such transfer of location or such substantial adverse alteration, as the case
may be, is remedied by the Company prior to the effective date of such
termination, the Employment Period shall not terminate for Good Reason. For the
purposes of this Agreement, "Good Reason" shall mean (i) the transfer by PSS or
the Company of the location where Employee is to primarily perform the Services
to a location outside of the Employment Area, (ii) the substantial adverse
alteration in Employee's title, position or status, (iii) the significant change
by PSS or the Company of the primary lines of business of the Company (other
than expansions or extensions of the existing lines of business of the Company
or changes consistent with then-current industry practice), (iv) the termination
by PSS or the Company of the Company's employment of Anthony J. Mackiewicz
without Cause (as defined in Mr. Mackiewicz's employment agreement with the
Company) or (v) the termination by Mr. Mackiewicz of his employment agreement
with the Company for "good reason" (as defined in such agreement).
6.4. Payments in the Event of Termination. (a) If the Employment Period
------------------------------------
is terminated or expires pursuant to Section 1, Section 6.1 or Section 6.2, the
Company shall pay the Employee any Salary earned to the date of such termination
or expiration, as the case may be.
(b) If the Employment Period is terminated by the Company (other than
pursuant to Section 1, 6.1 or 6.2), the Company shall pay Employee an amount
equal to the sum of (A) any Salary earned to the date of termination plus (B) an
amount equal to his Salary (as in effect on the date of termination) for the
then-remaining term of the Employment Period (assuming no extension thereof).
(c) If the Employment Period is terminated pursuant to Section 6.3, the
Company shall pay Employee an amount equal to the sum of (A) any Salary earned
to the date of the termination plus (B) (i) in the case of a termination for
Good Reason pursuant to clause (iv) or (v) of the definition thereof, $25,000
and (ii) in the case of a termination for Good Reason pursuant to clause (i),
(ii) or (iii) of the definition thereof, an amount equal to his Salary (as in
effect on the date of termination) for the then-remaining term of the Employment
Period (assuming no extension thereof).
6.5. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company shall terminate, except as specifically set forth in Section 6.4.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
maintaining the Company's professional relationship with all Client Accounts.
To such end, Employee shall cooperate and assist the Company, at the Company's
direction and instruction, to retain and transition each Client Account during
the transition period between the receipt of notice of the termination of
employment and the final day of employment.
Section 8. Miscellaneous.
-------------
8.1. Assignment; Benefit. This Agreement is personal in its nature and
-------------------
the parties shall not, without the prior written consent of the other, assign or
transfer this Agreement or any
-6-
<PAGE>
rights or obligations hereunder; provided that the provisions hereof shall inure
to the benefit of, and be binding upon, each successor of the Company, whether
by merger, consolidation or transfer of all or substantially all of its assets.
8.2. Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopy (with confirmation of receipt) or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
C-Care, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
George J. Weinroth
C-Care, Inc. t/a The MARS Group
319 Cooper Street
Camden, New Jersey 08102
Telecopy: 215-625-3778
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 8.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
8.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section
-7-
<PAGE>
5, the Company's damages may exceed the value of the consideration received by
Employee in the connection with the purchase of his shares of capital stock of
the MARS Companies pursuant to the Stock Purchase Agreement.
8.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
8.6. Acknowledgment. Employee acknowledges that Employee has read
--------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the consummation of the transactions contemplated by
the Stock Purchase Agreement, including Employee's employment with the Company.
8.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. EACH PARTY HERETO SUBMITS
TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT IN THE
CITY OF PHILADELPHIA, PENNSYLVANIA IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF THIS AGREEMENT.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
C-CARE, INC.
By:_____________________________________
Name:
Title:
________________________________________
George J. Weinroth
With respect to is obligations hereunder:
PHYSICIAN SUPPORT SYSTEMS, INC.
By:_____________________________________
Name:
Title:
-9-
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT, dated as of December 13, 1996, between C-Care, Inc.,
a New Jersey corporation (the "Company"), and Anthony J. Mackiewicz
("Employee").
PSS C-Care, Inc., a Delaware corporation ("PSS Sub") and a wholly-owned
subsidiary of Physician Support Systems, Inc., a Delaware corporation ("PSS"),
is acquiring all of the issued and outstanding capital stock of each of the
Company, H.O.P.E. Enterprises Group, Inc., a New Jersey corporation, and
Professional Medical Recovery Service, Inc., a New Jersey corporation (each a
"MARS Company" and, collectively, the "MARS Companies"), pursuant to the Stock
Purchase Agreement, dated as of December 13, 1996, among PSS, PSS Sub, Employee,
George J. Weinroth, Herman Mattleman, James Greenberg, Stanley Slipakoff,
Anthony Diluca, John C. Miller III and Dennis Gaspari (the "Stock Purchase
Agreement").
Employee acknowledges and agrees that this Agreement is being entered into
in connection with the sale of all of his shares of capital stock of the MARS
Companies to PSS Sub pursuant to the Stock Purchase Agreement.
The Company desires to employ Employee, and Employee desires to be employed
by the Company, on the terms and subject to the conditions set forth herein.
As a material inducement to PSS and PSS Sub to consummate the transactions
contemplated by the Stock Purchase Agreement, PSS, PSS Sub and the Company
desire that Employee enter into the covenants set forth in Section 5 hereof, and
Employee agrees to enter into such covenants. Employee's execution of this
Agreement is a condition to PSS's obligation to consummate such transactions.
Based upon the mutual covenants and consideration set forth herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on December 31, 1999, unless extended on terms
agreed upon between Employee and the Company (such term being hereinafter
referred to as the "Employment Period"). Notwithstanding the foregoing, the
Employment Period shall automatically be extended for two succeeding one-year
periods unless Employee or the Company gives notice to the other party at least
180 days but not more than 280 days prior to the expiration of the initial
Employment Period or the first one-year extension, as the case may be, of such
party's intention not to extend the Employment Period. If such notice is given,
the Employment Period shall terminate at the end of the initial Employment
Period or at the end of the first one-year extension, as the case may be. The
Employment Period may be earlier terminated pursuant to the provisions of this
Agreement.
Section 2. Duties.
------
2.1. Scope. During the Employment Period, Employee shall
-----
perform senior management services requiring substantially the same time
commitment and encompassing substantially the same responsibilities as Employee
has, in good faith and in the ordinary course of business, performed for
<PAGE>
the MARS Companies prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, shall, along with other management staff of PSS
and its affiliates, perform transition and integration services in connection
with the acquisition of the MARS Companies by PSS, and shall include such other
management services (including management services for PSS and its other
affiliates) as Employee and the Company may from time to time agree
(collectively, the "Services"). During the Employment Period, the Employee shall
hold the office of Chief Operating Officer of the Company and report to the
President and to the Board of Directors of the Company.
2.2. Performance. (a) During the Employment Period, Employee
-----------
will render the Services to the Company in conformity with professional
standards and in a prudent and workmanlike manner. Employee shall promote the
interests of the Company and its affiliates in carrying out Employee's duties
and shall not deliberately take any action which could, or deliberately not take
any action which non-action could, reasonably be expected to have a material
adverse effect upon the business of the Company, PSS or their respective
affiliates.
(b) The Services shall principally be rendered at the Company's
principal offices in Camden, New Jersey, or at a location within 100 miles of
Camden (the "Employment Area"), with such travel as shall be reasonably required
in the performance of the Services; provided that Employee shall not be required
to spend more than 25% of his time in the performance of the Services on travel
requiring an overnight stay outside of the Employment Area.
(c) Employee shall, to the same extent as the directors and officers
of PSS's other subsidiaries, be indemnified by PSS from any and all liabilities
(including reasonable attorney's fees and costs) incurred by reason of the fact
that: (i) on and after the date hereof, Employee is an employee of the Company
and (ii) Employee is a member of the Board of Directors and is an officer of the
Company (to the extent Employee serves as such a director); provided that such
indemnity shall be pursuant to, and to the maximum extent permitted by, the
certificate of incorporation and bylaws of PSS, PSS Sub and the Company. As a
director and/or officer of the Company (to the extent Employee serves in such
capacity), Employee shall, to the same extent as the directors and officers of
PSS and PSS's other subsidiaries, be covered by liability insurance against
liabilities as to which Employee is permitted to be indemnified to the maximum
extent permitted by the certificate of incorporation and bylaws of PSS, PSS Sub
and the Company.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the
------
Company shall pay to the Employee an annual base salary of $150,000 (the
"Salary"), payable in equal installments in accordance with the Company's normal
payroll practices, which Salary shall be adjusted annually, based upon the
increase, if any, in the Consumer Price Index, as published by the United States
Department of Commerce, and shall be subject to annual review for increase at
the sole discretion of the Board of Directors of the Company. Notwithstanding
the foregoing, Employee's Salary shall automatically increase for the remainder
of the Employment Period by an amount equal to 33-1/3% of the amount the Salary
would otherwise have been if (i) Peter D. Cooper ceases to be actively involved
in the business of PSS or any of its affiliates for any reason and (ii) as a
result thereof, Employee is asked to perform broader responsibilities (e.g.,
----
manage more employees or clients or otherwise work longer hours).
-2-
<PAGE>
3.2. Employee Stock Options. (a) As additional compensation for the
----------------------
Services, Employee shall be entitled to an annual grant of stock options under
PSS's Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"),
awarded by PSS's Board of Directors or a committee thereof administering the
Stock Option Plan, based upon Employee's achievement of certain performance
objectives for each calendar year of the Employment Period (beginning with
calendar year 1997). The terms and amount of such grant, and such performance
objectives, for calendar year 1997 are set forth on Annex A attached hereto.
Such performance objectives for each subsequent year of the Employment Period
shall be identified to Employee prior to each anniversary of the Commencement
Date.
(b) Employee shall be granted additional stock options under the Stock
Option Plan to compensate Employee for Employee's contribution to the
establishment and growth of the business of the Company. The amount of such
additional grants shall be at the discretion of PSS's Board of Directors or
committee thereof administering the Plan and shall be consistent with the
objectives of the Stock Option Plan and PSS's senior management compensation
policies and consistent with the compensation intent expressed herein.
3.3. Reimbursement. Pursuant to the Company's standard reimbursement
-------------
policies, the Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee directly related to the performance by Employee of
the services hereunder. Employee shall account for such expenses in accordance
with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by PSS to its senior management employees.
The Company reserves the right to expand, restrict, designate or eliminate the
benefits provided to Employee so long as such expansion, restriction,
designation or elimination applies generally to all of PSS's senior management
employees. Employee shall be entitled to vacations consistent with PSS's
vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates during Employee's
employment with the Company to provide services or (ii) are known to Employee as
a result of his employment with the Company as prospective clients and accounts
of the Company or its affiliates, as the case may be (collectively, "Prospective
Accounts," and, with Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as otherwise provided in this
--------------
Section 5.2, Employee shall not, during or after the Employment Period, disclose
any confidential or proprietary information of the Company or of its affiliates
to any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received
-3-
<PAGE>
assurances that the confidential or proprietary information shall be kept
confidential), nor shall Employee make use of any such confidential or
proprietary information for his own purpose or for the benefit of any person,
firm, corporation or other entity, except the Company or its affiliates. As used
herein, the term "confidential or proprietary information" means all information
which is or becomes known to Employee and relates to matters such as trade
secrets, research and development activities, business or financing plans,
acquisition opportunities, computer software, books and records, customer or
potential customer lists (including, without limitation, any list of Client
Accounts or any part thereof), vendor lists, suppliers, distribution channels,
pricing information and private processes as they may exist from time to time;
provided that the term "confidential or proprietary information" shall not
include information that is or becomes generally available to the public (other
than as a result of a disclosure in violation of this Agreement by Employee or a
person who received such information from Employee).
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain, at
the Company's expense, an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the confidential or
proprietary information. During the Employment Period, and for matters arising
from events or circumstances occurring during the Employment Period, the Company
will provide for the defense of matters arising under this provision.
(c) Employee agrees that Employee will promptly and fully disclose to the
Company (i) all inventions, ideas, trade secrets or know-how (whether patentable
or copyrightable or not) made or conceived by Employee (either solely or jointly
with others) during the Employment Period and which shall in any way relate to
the business conducted or contemplated to be conducted by the Company or any of
its affiliates; and (ii) all tangible work product (whether in the nature of
developed ideas, know-how, trade secrets and similar intellectual property) and
inventions (whether patentable or copyrightable or not) made or conceived by
Employee (either solely or jointly with others) during the Employment Period
which relates in any way to the business conducted or contemplated to be
conducted by the Company or any of its affiliates; and all such inventions,
ideas, trade secrets and know-how shall be and remain the sole and exclusive
property of the Company. At the request of the Company, Employee shall, during
the Employment Period, without charge to the Company, but at the expense of the
Company, assist the Company in any reasonable way to vest in it title to all
such inventions, ideas, trade secrets and know-how and to obtain any patents,
trademarks or copyrights thereon in all countries throughout the world. In this
regard, Employee shall execute and deliver any and all documents that the
Company may reasonably request, including applications for patents, copyrights
and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes Employee's possession of confidential or proprietary information and
the highly competitive nature of the business of the Company and its affiliates
and accordingly agrees that, in consideration of PSS causing the consummation of
the transactions contemplated by the Stock Purchase Agreement, the Company's
entering into this Agreement, and the premises contained herein, Employee will
not, from and after the Commencement Date and for the period ending three years
after the date of termination of the Employment Period, either individually or
as an officer, director, employee, partner, agent or principal of another
business firm, (i) directly or indirectly engage in the United States in any
business which is competitive with the business conducted by the MARS Companies
(including seeking or accepting employment with a
-4-
<PAGE>
client of any MARS Company or any of its affiliates) (a "Competitive Business"),
(ii) assist others in engaging in any Competitive Business in the manner
described in the foregoing clause (i), (iii) solicit, professionally contact or
provide medical billing, accounts receivable, accounting, collection agency,
financial or consulting services to any Client Account or (iv) induce employees
of the MARS Companies, PSS or any affiliate of PSS to terminate their employment
with the MARS Companies, PSS or such affiliate, as the case may be, or hire any
employees of the MARS Companies, PSS or any other affiliate of PSS to work with
any Seller or any company or business affiliated with any Seller.
Notwithstanding clauses (i), (ii) and (iii) of the immediately preceding
sentence, Employee may participate in, operate or expand, any business in which
Employee has an interest, including a software development business; provided
that such business does not directly or indirectly compete with the businesses
of any MARS Company, PSS or any of their respective affiliates, in each case as
conducted as of the date hereof or as of the time that Employee proposes to
enter into such business.
5.4. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.3 (the "Restrictive Covenant") by injunctive or
other equitable remedies (as provided in Section 8.4) as well as seek damages as
a result of Employee's breach of the Restrictive Covenant. Employee recognizes
that the right to service each Client Account is a valuable asset of the Company
or its affiliates and that the precise value of the loss of such asset may be
difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the Employment
-----
Period and all of the obligations of the Company hereunder for Cause. For the
purposes of this Agreement, the Company shall have "Cause" to terminate the
Employee's employment hereunder in the event of (i) the Employee's conviction
of, or plea of guilty or nolo contendere to (A) a felony or (B) a fraudulent or
deliberately dishonest act which results in a material adverse effect on the
Company, (ii) the Employee's material breach of this Agreement or (iii) the
Employee's gross negligence or bad faith in the performance of the Services.
6.3. Good Reason. Employee, at his option, may terminate the
-----------
Employment Period for Good Reason; provided that, in the case of a termination
for Good Reason pursuant to clause (i) or (ii) of the definition thereof,
Employee shall give the Company notice of such termination at least 30 days
prior to the effective date of such termination during which time the Company
shall have the right to remedy such transfer of location or such substantial
adverse alteration, if any, in Employee's title, position or status, as the case
may be. If such transfer of location or such substantial adverse alteration, as
the case may be, is remedied by the Company prior to the effective date of such
termination, the Employment Period shall not terminate for Good
-5-
<PAGE>
Reason. For the purposes of this Agreement, "Good Reason" shall mean (i) the
transfer by PSS or the Company of the location where Employee is to primarily
perform the Services to a location outside of the Employment Area, (ii) the
substantial adverse alteration in Employee's title, position or status, (iii)
the significant change by PSS or the Company of the primary lines of business of
the Company (other than expansions or extensions of the existing lines of
business of the Company or changes consistent with then-current industry
practice), (iv) the termination by PSS or the Company of the Company's
employment of George J. Weinroth without Cause (as defined in Mr. Weinroth's
employment agreement with the Company) or (v) the termination by Mr. Weinroth of
his employment agreement with the Company for "good reason" (as defined in such
agreement).
6.4. Payments in the Event of Termination. (a) If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 1, Section 6.1 or Section
6.2, the Company shall pay the Employee any Salary earned to the date of such
termination or expiration, as the case may be.
(b) If the Employment Period is terminated by the Company (other than
pursuant to Section 1, 6.1 or 6.2), the Company shall pay Employee an amount
equal to the sum of (A) any Salary earned to the date of termination plus (B) an
amount equal to his Salary (as in effect on the date of termination) for the
then-remaining term of the Employment Period (assuming no extension thereof).
(c) If the Employment Period is terminated pursuant to Section 6.3, the
Company shall pay Employee an amount equal to the sum of (A) any Salary earned
to the date of the termination plus (B) (i) in the case of a termination for
Good Reason pursuant to clause (iv) or (v) of the definition thereof, $25,000
and (ii) in the case of a termination for Good Reason pursuant to clause (i),
(ii) or (iii) of the definition thereof, an amount equal to his Salary (as in
effect on the date of termination) for the then-remaining term of the Employment
Period (assuming no extension thereof).
6.5. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company shall terminate, except as specifically set forth in Section 6.4.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
maintaining the Company's professional relationship with all Client Accounts.
To such end, Employee shall cooperate and assist the Company, at the Company's
direction and instruction, to retain and transition each Client Account during
the transition period between the receipt of notice of the termination of
employment and the final day of employment.
Section 8. Miscellaneous.
-------------
8.1. Assignment; Benefit. This Agreement is personal in its nature and
-------------------
the parties shall not, without the prior written consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that
the provisions hereof shall inure to the benefit of, and be binding upon, each
successor of the Company, whether by merger, consolidation or transfer of all or
substantially all of its assets.
8.2. Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopy (with confirmation of receipt) or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
-6-
<PAGE>
If to the Company, at:
C-Care, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
Anthony J. Mackiewicz
C-Care, Inc. t/a The MARS Group
319 Cooper Street
Camden, New Jersey 08102
Telecopy: 215-625-3778
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 8.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
8.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the connection with the purchase of his shares of
capital stock of the MARS Companies pursuant to the Stock Purchase Agreement.
8.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
-7-
<PAGE>
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
8.6. Acknowledgment. Employee acknowledges that Employee has read
--------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the consummation of the transactions contemplated by
the Stock Purchase Agreement, including Employee's employment with the Company.
8.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. EACH PARTY HERETO SUBMITS
TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT IN THE
CITY OF PHILADELPHIA, PENNSYLVANIA IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF THIS AGREEMENT.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
C-CARE, INC.
By:_____________________________________
Name:
Title:
________________________________________
Anthony J. Mackiewicz
With respect to is obligations hereunder:
PHYSICIAN SUPPORT SYSTEMS, INC.
By:_____________________________________
Name:
Title:
-9-
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT, dated as of December 13, 1996, between C-Care, Inc.,
a New Jersey corporation (the "Company"), and Stanley Slipakoff ("Employee").
PSS C-Care, Inc., a Delaware corporation ("PSS Sub") and a wholly-owned
subsidiary of Physician Support Systems, Inc., a Delaware corporation ("PSS"),
is acquiring all of the issued and outstanding capital stock of each of the
Company, H.O.P.E. Enterprises Group, Inc., a New Jersey corporation, and
Professional Medical Recovery Service, Inc., a New Jersey corporation (each a
"MARS Company" and, collectively, the "MARS Companies"), pursuant to the Stock
Purchase Agreement, dated as of December 13, 1996, among PSS, PSS Sub, Employee,
George J. Weinroth, Herman Mattleman, James Greenberg, Anthony J. Mackiewicz,
Anthony Diluca, John C. Miller III and Dennis Gaspari (the "Stock Purchase
Agreement").
Employee acknowledges and agrees that this Agreement is being entered into
in connection with the sale of all of his shares of capital stock of the MARS
Companies to PSS Sub pursuant to the Stock Purchase Agreement.
The Company desires to employ Employee, and Employee desires to be employed
by the Company, on the terms and subject to the conditions set forth herein.
As a material inducement to PSS and PSS Sub to consummate the transactions
contemplated by the Stock Purchase Agreement, PSS, PSS Sub and the Company
desire that Employee enter into the covenants set forth in Section 5 hereof, and
Employee agrees to enter into such covenants. Employee's execution of this
Agreement is a condition to PSS's obligation to consummate such transactions.
Based upon the mutual covenants and consideration set forth herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on December 31, 1999, unless extended on terms
agreed upon between Employee and the Company (such term being hereinafter
referred to as the "Employment Period"). Notwithstanding the foregoing, the
Employment Period shall automatically be extended for two succeeding one-year
periods unless Employee or the Company gives notice to the other party at least
180 days but not more than 280 days prior to the expiration of the initial
Employment Period or the first one-year extension, as the case may be, of such
party's intention not to extend the Employment Period. If such notice is given,
the Employment Period shall terminate at the end of the initial Employment
Period or at the end of the first one-year extension, as the case may be. The
Employment Period may be earlier terminated pursuant to the provisions of this
Agreement.
Section 2. Duties.
------
2.1. Scope. During the Employment Period, Employee shall perform
-----
senior management services requiring substantially the same time commitment and
encompassing substantially the same responsibilities as Employee has, in good
faith and in the ordinary course of business, performed for
<PAGE>
the MARS Companies prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, shall, along with other management staff of PSS
and its affiliates, perform transition and integration services in connection
with the acquisition of the MARS Companies by PSS, and shall include such other
management services (including management services for PSS and its other
affiliates) as Employee and the Company may from time to time agree
(collectively, the "Services"). During the Employment Period, the Employee shall
hold the office of Vice President of the Company and report to the President and
to the Chief Operating Officer of the Company.
2.2. Performance. (a) During the Employment Period, Employee will
-----------
render the Services to the Company in conformity with professional standards and
in a prudent and workmanlike manner. Employee shall promote the interests of the
Company and its affiliates in carrying out Employee's duties and shall not
deliberately take any action which could, or deliberately not take any action
which non-action could, reasonably be expected to have a material adverse effect
upon the business of the Company, PSS or their respective affiliates.
(b) The Services shall principally be rendered at the Company's
principal offices in Camden, New Jersey, or at a location within 100 miles of
Camden (the "Employment Area"), with such travel as shall be reasonably required
in the performance of the Services; provided that Employee shall not be required
to spend more than 25% of his time in the performance of the Services on travel
requiring an overnight stay outside of the Employment Area.
(c) Employee shall, to the same extent as the directors and officers of
PSS's other subsidiaries, be indemnified by PSS from any and all liabilities
(including reasonable attorney's fees and costs) incurred by reason of the fact
that: (i) on and after the date hereof, Employee is an employee of the Company
and (ii) Employee is a member of the Board of Directors and is an officer of the
Company (to the extent Employee serves as such a director); provided that such
indemnity shall be pursuant to, and to the maximum extent permitted by, the
certificate of incorporation and bylaws of PSS, PSS Sub and the Company. As a
director and/or officer of the Company (to the extent Employee serves in such
capacity), Employee shall, to the same extent as the directors and officers of
PSS and PSS's other subsidiaries, be covered by liability insurance against
liabilities as to which Employee is permitted to be indemnified to the maximum
extent permitted by the certificate of incorporation and bylaws of PSS, PSS Sub
and the Company.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall
------
pay to the Employee an annual base salary of $150,000 (the "Salary"), payable in
equal installments in accordance with the Company's normal payroll practices,
which Salary shall be adjusted annually, based upon the increase, if any, in the
Consumer Price Index, as published by the United States Department of Commerce,
and shall be subject to annual review for increase at the sole discretion of the
Board of Directors of the Company.
3.2. Employee Stock Options. As additional compensation for the
----------------------
Services, Employee shall be entitled to a grant of stock options under PSS's
Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"), awarded
by PSS's Board of Directors or a committee thereof administering the Stock
Option Plan, based upon Employee's achievement of certain performance
-2-
<PAGE>
objectives for calendar year 1997. The terms and amount of such grant, and such
performance objectives, for calendar year 1997 are set forth on Annex A attached
hereto.
3.3. Reimbursement. Pursuant to the Company's standard
-------------
reimbursement policies, the Company shall reimburse Employee for all reasonable
out-of-pocket expenses incurred by Employee directly related to the performance
by Employee of the services hereunder. Employee shall account for such expenses
in accordance with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by PSS to its senior management employees.
The Company reserves the right to expand, restrict, designate or eliminate the
benefits provided to Employee so long as such expansion, restriction,
designation or elimination applies generally to all of PSS's senior management
employees. Employee shall be entitled to vacations consistent with PSS's
vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates during Employee's
employment with the Company to provide services or (ii) are known to Employee as
a result of his employment with the Company as prospective clients and accounts
of the Company or its affiliates, as the case may be (collectively, "Prospective
Accounts," and, with Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as otherwise provided in this
--------------
Section 5.2, Employee shall not, during or after the Employment Period, disclose
any confidential or proprietary information of the Company or of its affiliates
to any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the Company
or its affiliates. As used herein, the term "confidential or proprietary
information" means all information which is or becomes known to Employee and
relates to matters such as trade secrets, research and development activities,
business or financing plans, acquisition opportunities, computer software, books
and records, customer or potential customer lists (including, without
limitation, any list of Client Accounts or any part thereof), vendor lists,
suppliers, distribution channels, pricing information and private processes as
they may exist from time to time; provided that the term "confidential or
proprietary information" shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by Employee or a person who received such
information from Employee).
-3-
<PAGE>
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain, at
the Company's expense, an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the confidential or
proprietary information. During the Employment Period, and for matters arising
from events or circumstances occurring during the Employment Period, the Company
will provide for the defense of matters arising under this provision.
(c) Employee agrees that Employee will promptly and fully disclose to
the Company (i) all inventions, ideas, trade secrets or know-how (whether
patentable or copyrightable or not) made or conceived by Employee (either solely
or jointly with others) during the Employment Period and which shall in any way
relate to the business conducted or contemplated to be conducted by the Company
or any of its affiliates; and (ii) all tangible work product (whether in the
nature of developed ideas, know-how, trade secrets and similar intellectual
property) and inventions (whether patentable or copyrightable or not) made or
conceived by Employee (either solely or jointly with others) during the
Employment Period which relates in any way to the business conducted or
contemplated to be conducted by the Company or any of its affiliates; and all
such inventions, ideas, trade secrets and know-how shall be and remain the sole
and exclusive property of the Company. At the request of the Company, Employee
shall, during the Employment Period, without charge to the Company, but at the
expense of the Company, assist the Company in any reasonable way to vest in it
title to all such inventions, ideas, trade secrets and know-how and to obtain
any patents, trademarks or copyrights thereon in all countries throughout the
world. In this regard, Employee shall execute and deliver any and all documents
that the Company may reasonably request, including applications for patents,
copyrights and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes Employee's possession of confidential or proprietary information and
the highly competitive nature of the business of the Company and its affiliates
and accordingly agrees that, in consideration of PSS causing the consummation of
the transactions contemplated by the Stock Purchase Agreement, the Company's
entering into this Agreement, and the premises contained herein, Employee will
not, from and after the Commencement Date and for the period ending three years
after the date of termination of the Employment Period, either individually or
as an officer, director, employee, partner, agent or principal of another
business firm, (i) directly or indirectly engage in the United States in any
business which is competitive with the business conducted by the MARS Companies
(including seeking or accepting employment with a client of any MARS Company or
any of its affiliates) (a "Competitive Business"), (ii) assist others in
engaging in any Competitive Business in the manner described in the foregoing
clause (i), (iii) solicit, professionally contact or provide medical billing,
accounts receivable, accounting, collection agency, financial or consulting
services to any Client Account or (iv) induce employees of the MARS Companies,
PSS or any affiliate of PSS to terminate their employment with the MARS
Companies, PSS or such affiliate, as the case may be, or hire any employees of
the MARS Companies, PSS or any other affiliate of PSS to work with any Seller or
any company or business affiliated with any Seller. Notwithstanding clauses (i),
(ii) and (iii) of the immediately preceding sentence, Employee may participate
in, operate or expand, any business in which Employee has an interest, including
a software development business; provided that such business does not directly
or indirectly compete with the businesses of any MARS Company, PSS or any of
their respective affiliates, in each case as conducted as of the date hereof or
as of the time that Employee proposes to enter into such business.
-4-
<PAGE>
5.4. Remedies. Employee acknowledges that the Company may elect
--------
to specifically enforce Section 5.3 (the "Restrictive Covenant") by injunctive
or other equitable remedies (as provided in Section 8.4) as well as seek damages
as a result of Employee's breach of the Restrictive Covenant. Employee
recognizes that the right to service each Client Account is a valuable asset of
the Company or its affiliates and that the precise value of the loss of such
asset may be difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the
-----
Employment Period and all of the obligations of the Company hereunder for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
the Employee's employment hereunder in the event of (i) the Employee's
conviction of, or plea of guilty or nolo contendere to (A) a felony or (B) a
fraudulent or deliberately dishonest act which results in a material adverse
effect on the Company, (ii) the Employee's material breach of this Agreement or
(iii) the Employee's gross negligence or bad faith in the performance of the
Services.
6.3. Good Reason. Employee, at his option, may terminate the
-----------
Employment Period for Good Reason; provided that, in the case of a termination
for Good Reason pursuant to clause (i) or (ii) of the definition thereof,
Employee shall give the Company notice of such termination at least 30 days
prior to the effective date of such termination during which time the Company
shall have the right to remedy such transfer of location or such substantial
adverse alteration, if any, in Employee's title, position or status, as the case
may be. If such transfer of location or such substantial adverse alteration, as
the case may be, is remedied by the Company prior to the effective date of such
termination, the Employment Period shall not terminate for Good Reason. For the
purposes of this Agreement, "Good Reason" shall mean (i) the transfer by PSS or
the Company of the location where Employee is to primarily perform the Services
to a location outside of the Employment Area, or (ii) the substantial adverse
alteration in Employee's title, position or status.
6.4. Payments in the Event of Termination. (a) If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 1, Section 6.1 or Section
6.2, the Company shall pay the Employee any Salary earned to the date of such
termination or expiration, as the case may be.
(b) If the Employment Period is terminated by the Company (other than
pursuant to Section 1, 6.1 or 6.2), the Company shall pay Employee an amount
equal to the sum of (A) any Salary earned to the date of termination plus (B) an
amount equal to his Salary (as in effect on the date of termination) for the
then-remaining term of the Employment Period (assuming no extension thereof).
-5-
<PAGE>
(c) If the Employment Period is terminated pursuant to Section 6.3, the
Company shall pay Employee an amount equal to the sum of (A) any Salary earned
to the date of the termination plus (B) an amount equal to his Salary (as in
effect on the date of termination) for the then-remaining term of the Employment
Period (assuming no extension thereof).
6.5. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company shall terminate, except as specifically set forth in Section 6.4.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
maintaining the Company's professional relationship with all Client Accounts.
To such end, Employee shall cooperate and assist the Company, at the Company's
direction and instruction, to retain and transition each Client Account during
the transition period between the receipt of notice of the termination of
employment and the final day of employment.
Section 8. Miscellaneous.
-------------
8.1. Assignment; Benefit. This Agreement is personal in its
-------------------
nature and the parties shall not, without the prior written consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
8.2. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and sufficient if delivered personally
or sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
C-Care, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
Stanley Slipakoff
C-Care, Inc. t/a The MARS Group
319 Cooper Street
Camden, New Jersey 08102
Telecopy: 215-625-3778
-6-
<PAGE>
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 8.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
8.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the connection with the purchase of his shares of
capital stock of the MARS Companies pursuant to the Stock Purchase Agreement.
8.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
8.6. Acknowledgment. Employee acknowledges that Employee has read
--------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the consummation of the transactions contemplated by
the Stock Purchase Agreement, including Employee's employment with the Company.
8.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
8.8. Counterparts. This Agreement may be executed in any number
------------
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
8.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICT OF LAWS
-7-
<PAGE>
PRINCIPLES. EACH PARTY HERETO SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
ANY STATE OR FEDERAL COURT IN THE CITY OF PHILADELPHIA, PENNSYLVANIA IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
C-CARE, INC.
By:
-------------------------------------
Name:
Title:
----------------------------------------
Stanley Slipakoff
With respect to is obligations hereunder:
PHYSICIAN SUPPORT SYSTEMS, INC.
By:
-------------------------------------
Name:
Title:
-9-
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT, dated as of December 13, 1996, between C-Care, Inc.,
a New Jersey corporation (the "Company"), and Anthony Diluca ("Employee").
PSS C-Care, Inc., a Delaware corporation ("PSS Sub") and a wholly-owned
subsidiary of Physician Support Systems, Inc., a Delaware corporation ("PSS"),
is acquiring all of the issued and outstanding capital stock of each of the
Company, H.O.P.E. Enterprises Group, Inc., a New Jersey corporation, and
Professional Medical Recovery Service, Inc., a New Jersey corporation (each a
"MARS Company" and, collectively, the "MARS Companies"), pursuant to the Stock
Purchase Agreement, dated as of December 13, 1996, among PSS, PSS Sub, Employee,
George J. Weinroth, Herman Mattleman, James Greenberg, Anthony J. Mackiewicz,
Stanley Slipakoff, John C. Miller III and Dennis Gaspari (the "Stock Purchase
Agreement").
Employee acknowledges and agrees that this Agreement is being entered into
in connection with the sale of all of his shares of capital stock of the MARS
Companies to PSS Sub pursuant to the Stock Purchase Agreement.
The Company desires to employ Employee, and Employee desires to be employed
by the Company, on the terms and subject to the conditions set forth herein.
As a material inducement to PSS and PSS Sub to consummate the transactions
contemplated by the Stock Purchase Agreement, PSS, PSS Sub and the Company
desire that Employee enter into the covenants set forth in Section 5 hereof, and
Employee agrees to enter into such covenants. Employee's execution of this
Agreement is a condition to PSS's obligation to consummate such transactions.
Based upon the mutual covenants and consideration set forth herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on December 31, 1999, unless extended on terms
agreed upon between Employee and the Company (such term being hereinafter
referred to as the "Employment Period"). Notwithstanding the foregoing, the
Employment Period shall automatically be extended for two succeeding one-year
periods unless Employee or the Company gives notice to the other party at least
180 days but not more than 280 days prior to the expiration of the initial
Employment Period or the first one-year extension, as the case may be, of such
party's intention not to extend the Employment Period. If such notice is given,
the Employment Period shall terminate at the end of the initial Employment
Period or at the end of the first one-year extension, as the case may be. The
Employment Period may be earlier terminated pursuant to the provisions of this
Agreement.
Section 2. Duties.
------
2.1. Scope. During the Employment Period, Employee shall perform senior
-----
management services requiring substantially the same time commitment and
encompassing substantially the same responsibilities as Employee has, in good
faith and in the ordinary course of business, performed for
<PAGE>
the MARS Companies prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, shall, along with other management staff of PSS
and its affiliates, perform transition and integration services in connection
with the acquisition of the MARS Companies by PSS, and shall include such other
management services (including management services for PSS and its other
affiliates) as Employee and the Company may from time to time agree
(collectively, the "Services"). During the Employment Period, the Employee shall
hold the office of Vice President of the Company and report to the President and
to the Chief Operating Officer of the Company.
2.2. Performance. (a) During the Employment Period, Employee will
-----------
render the Services to the Company in conformity with professional standards and
in a prudent and workmanlike manner. Employee shall promote the interests of the
Company and its affiliates in carrying out Employee's duties and shall not
deliberately take any action which could, or deliberately not take any action
which non-action could, reasonably be expected to have a material adverse effect
upon the business of the Company, PSS or their respective affiliates.
(b) The Services shall principally be rendered at the Company's principal
offices in Camden, New Jersey, or at a location within 100 miles of Camden (the
"Employment Area"), with such travel as shall be reasonably required in the
performance of the Services; provided that Employee shall not be required to
spend more than 25% of his time in the performance of the Services on travel
requiring an overnight stay outside of the Employment Area.
(c) Employee shall, to the same extent as the directors and officers of
PSS's other subsidiaries, be indemnified by PSS from any and all liabilities
(including reasonable attorney's fees and costs) incurred by reason of the fact
that: (i) on and after the date hereof, Employee is an employee of the Company
and (ii) Employee is a member of the Board of Directors and is an officer of the
Company (to the extent Employee serves as such a director); provided that such
indemnity shall be pursuant to, and to the maximum extent permitted by, the
certificate of incorporation and bylaws of PSS, PSS Sub and the Company. As a
director and/or officer of the Company (to the extent Employee serves in such
capacity), Employee shall, to the same extent as the directors and officers of
PSS and PSS's other subsidiaries, be covered by liability insurance against
liabilities as to which Employee is permitted to be indemnified to the maximum
extent permitted by the certificate of incorporation and bylaws of PSS, PSS Sub
and the Company.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall pay
------
to the Employee an annual base salary of $125,000 (the "Salary"), payable in
equal installments in accordance with the Company's normal payroll practices,
which Salary shall be adjusted annually, based upon the increase, if any, in the
Consumer Price Index, as published by the United States Department of Commerce,
and shall be subject to annual review for increase at the sole discretion of the
Board of Directors of the Company.
3.2. Employee Stock Options. As additional compensation for the
----------------------
Services,to Employee shall be entitled to a grant of stock options under PSS's
Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"), awarded
by PSS's Board of Directors or a committee thereof administering the Stock
Option Plan, based upon Employee's achievement of certain performance
-2-
<PAGE>
objectives for calendar year 1997. The terms and amount of such grant, and such
performance objectives, for calendar year 1997 are set forth on Annex A attached
hereto.
3.3. Reimbursement. Pursuant to the Company's standard reimbursement
-------------
policies, the Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee directly related to the performance by Employee of
the services hereunder. Employee shall account for such expenses in accordance
with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by PSS to its senior management employees.
The Company reserves the right to expand, restrict, designate or eliminate the
benefits provided to Employee so long as such expansion, restriction,
designation or elimination applies generally to all of PSS's senior management
employees. Employee shall be entitled to vacations consistent with PSS's
vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates during Employee's
employment with the Company to provide services or (ii) are known to Employee as
a result of his employment with the Company as prospective clients and accounts
of the Company or its affiliates, as the case may be (collectively, "Prospective
Accounts," and, with Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as otherwise provided in this Section
--------------
5.2, Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or of its affiliates to
any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the Company
or its affiliates. As used herein, the term "confidential or proprietary
information" means all information which is or becomes known to Employee and
relates to matters such as trade secrets, research and development activities,
business or financing plans, acquisition opportunities, computer software, books
and records, customer or potential customer lists (including, without
limitation, any list of Client Accounts or any part thereof), vendor lists,
suppliers, distribution channels, pricing information and private processes as
they may exist from time to time; provided that the term "confidential or
proprietary information" shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by Employee or a person who received such
information from Employee).
-3-
<PAGE>
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain, at
the Company's expense, an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the confidential or
proprietary information. During the Employment Period, and for matters arising
from events or circumstances occurring during the Employment Period, the Company
will provide for the defense of matters arising under this provision.
(c) Employee agrees that Employee will promptly and fully disclose to the
Company (i) all inventions, ideas, trade secrets or know-how (whether patentable
or copyrightable or not) made or conceived by Employee (either solely or jointly
with others) during the Employment Period and which shall in any way relate to
the business conducted or contemplated to be conducted by the Company or any of
its affiliates; and (ii) all tangible work product (whether in the nature of
developed ideas, know-how, trade secrets and similar intellectual property) and
inventions (whether patentable or copyrightable or not) made or conceived by
Employee (either solely or jointly with others) during the Employment Period
which relates in any way to the business conducted or contemplated to be
conducted by the Company or any of its affiliates; and all such inventions,
ideas, trade secrets and know-how shall be and remain the sole and exclusive
property of the Company. At the request of the Company, Employee shall, during
the Employment Period, without charge to the Company, but at the expense of the
Company, assist the Company in any reasonable way to vest in it title to all
such inventions, ideas, trade secrets and know-how and to obtain any patents,
trademarks or copyrights thereon in all countries throughout the world. In this
regard, Employee shall execute and deliver any and all documents that the
Company may reasonably request, including applications for patents, copyrights
and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and recognizes
--------------------
Employee's possession of confidential or proprietary information and the highly
competitive nature of the business of the Company and its affiliates and
accordingly agrees that, in consideration of PSS causing the consummation of the
transactions contemplated by the Stock Purchase Agreement, the Company's
entering into this Agreement, and the premises contained herein, Employee will
not, from and after the Commencement Date and for the period ending three years
after the date of termination of the Employment Period, either individually or
as an officer, director, employee, partner, agent or principal of another
business firm, (i) directly or indirectly engage in the United States in any
business which is competitive with the business conducted by the MARS Companies
(including seeking or accepting employment with a client of any MARS Company or
any of its affiliates) (a "Competitive Business"), (ii) assist others in
engaging in any Competitive Business in the manner described in the foregoing
clause (i), (iii) solicit, professionally contact or provide medical billing,
accounts receivable, accounting, collection agency, financial or consulting
services to any Client Account or (iv) induce employees of the MARS Companies,
PSS or any affiliate of PSS to terminate their employment with the MARS
Companies, PSS or such affiliate, as the case may be, or hire any employees of
the MARS Companies, PSS or any other affiliate of PSS to work with any Seller or
any company or business affiliated with any Seller. Notwithstanding clauses
(i), (ii) and (iii) of the immediately preceding sentence, (x) Employee may
participate in, operate or expand, any business in which Employee has an
interest, including a software development business; provided that such business
does not directly or indirectly compete with the businesses of any MARS Company,
PSS or any of their respective affiliates, in each case as conducted as of the
date hereof or as of the time that Employee proposes to enter into such business
and (y) if (i) the Employment Period is
-4-
<PAGE>
terminated by the Company without Cause (defined below in Section 6.2), (ii) the
Employment Period is terminated by Employee for Good Reason (defined below in
Section 6.3) or (iii) the Employment Period expires pursuant to Section 1,
Employee may be employed by a Client Account that has not generated revenue to
the MARS Companies of more than $100,000 in the aggregate during the twelve
calendar months immediately preceding the date of determination.
5.4. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.3 (the "Restrictive Covenant") by injunctive or
other equitable remedies (as provided in Section 8.4) as well as seek damages as
a result of Employee's breach of the Restrictive Covenant. Employee recognizes
that the right to service each Client Account is a valuable asset of the Company
or its affiliates and that the precise value of the loss of such asset may be
difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the Employment
-----
Period and all of the obligations of the Company hereunder for Cause. For the
purposes of this Agreement, the Company shall have "Cause" to terminate the
Employee's employment hereunder in the event of (i) the Employee's conviction
of, or plea of guilty or nolo contendere to (A) a felony or (B) a fraudulent or
deliberately dishonest act which results in a material adverse effect on the
Company, (ii) the Employee's material breach of this Agreement or (iii) the
Employee's gross negligence or bad faith in the performance of the Services.
6.3. Good Reason. Employee, at his option, may terminate the
-----------
Employment Period for Good Reason; provided that, in the case of a termination
for Good Reason pursuant to clause (i) or (ii) of the definition thereof,
Employee shall give the Company notice of such termination at least 30 days
prior to the effective date of such termination during which time the Company
shall have the right to remedy such transfer of location or such substantial
adverse alteration, if any, in Employee's title, position or status, as the case
may be. If such transfer of location or such substantial adverse alteration, as
the case may be, is remedied by the Company prior to the effective date of such
termination, the Employment Period shall not terminate for Good Reason. For the
purposes of this Agreement, "Good Reason" shall mean (i) the transfer by PSS or
the Company of the location where Employee is to primarily perform the Services
to a location outside of the Employment Area, or (ii) the substantial adverse
alteration in Employee's title, position or status.
6.4. Payments in the Event of Termination. (a) If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 1, Section 6.1 or Section
6.2, the Company shall pay the Employee any Salary earned to the date of such
termination or expiration, as the case may be.
-5-
<PAGE>
(b) If the Employment Period is terminated by the Company (other than
pursuant to Section 1, 6.1 or 6.2), the Company shall pay Employee an amount
equal to the sum of (A) any Salary earned to the date of termination plus (B) an
amount equal to his Salary (as in effect on the date of termination) for the
then-remaining term of the Employment Period (assuming no extension thereof).
(c) If the Employment Period is terminated pursuant to Section 6.3, the
Company shall pay Employee an amount equal to the sum of (A) any Salary earned
to the date of the termination plus (B) an amount equal to his Salary (as in
effect on the date of termination) for the then-remaining term of the Employment
Period (assuming no extension thereof).
6.5. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company shall terminate, except as specifically set forth in Section 6.4.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
maintaining the Company's professional relationship with all Client Accounts.
To such end, Employee shall cooperate and assist the Company, at the Company's
direction and instruction, to retain and transition each Client Account during
the transition period between the receipt of notice of the termination of
employment and the final day of employment.
Section 8. Miscellaneous.
-------------
8.1. Assignment; Benefit. This Agreement is personal in its nature
-------------------
and the parties shall not, without the prior written consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
8.2. Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing and sufficient if delivered personally or
sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
C-Care, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
-6-
<PAGE>
Anthony Diluca
C-Care, Inc. t/a The MARS Group
319 Cooper Street
Camden, New Jersey 08102
Telecopy: 215-625-3778
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 8.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
8.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the connection with the purchase of his shares of
capital stock of the MARS Companies pursuant to the Stock Purchase Agreement.
8.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
8.6. Acknowledgment. Employee acknowledges that Employee has read
--------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the consummation of the transactions contemplated by
the Stock Purchase Agreement, including Employee's employment with the Company.
8.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
-7-
<PAGE>
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. EACH PARTY HERETO SUBMITS
TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT IN THE
CITY OF PHILADELPHIA, PENNSYLVANIA IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF THIS AGREEMENT.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
C-CARE, INC.
By:_____________________________________
Name:
Title:
________________________________________
Anthony Diluca
With respect to is obligations hereunder:
PHYSICIAN SUPPORT SYSTEMS, INC.
By:_____________________________________
Name:
Title:
-9-
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT, dated as of December 31,
1996, between Revenue Production Management, Inc.,
an Illinois corporation (the "Company"), and
Raymond E. Clutts (the "Employee").
--------------------------------------------------
Physician Support Systems, Inc., a Delaware corporation ("PSS"), is
acquiring all of the issued and outstanding capital stock of the Company in a
merger transaction involving PSS, a wholly-owned subsidiary of PSS, and the
Company (the "Merger"), pursuant to the Agreement and Plan of Merger, dated as
of December 31, 1996 (the "Merger Agreement"), among PSS Revenue Production
Management, Inc., a wholly owned subsidiary of PSS, PSS and the Company.
Employee acknowledges and agrees that this Agreement is being entered into in
connection with the sale of all of his shares of capital of the Company.
The Company desires to employ Employee, and Employee desires to be
employed by the Company, on the terms and subject to the conditions set forth
herein.
As a material inducement to PSS to consummate the Merger, PSS and the
Company desire that Employee enter into the covenants set forth in Section 5
hereof, and Employee agrees to enter into such covenants. Employee's execution
of this Agreement is a condition to PSS's obligation to consummate the Merger.
Based upon the mutual covenants and consideration set forth herein,
the sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on the third anniversary of the Commencement Date,
unless extended on terms agreed upon between Employee and the Company (such term
being hereinafter referred to as the "Employment Period"). Notwithstanding the
foregoing, the Employment Period shall automatically be extended for two
succeeding one-year periods unless Employee gives notice to the Company at least
180 days prior to the expiration of the initial Employment Period or the first
one-year extension, as the case may be, of such party's intention not to extend
the Employment Period. If such notice is given, the Employment Period shall
terminate at the end of the initial Employment Period or at the end of the first
one-year extension, as the case may be. The Employment Period may be earlier
terminated pursuant to the provisions of this Agreement.
Section 2. Duties.
------
2.1. Scope. (a) During the Employment Period, Employee shall
-----
perform senior management services requiring substantially the same time
commitment and encompassing substantially the same responsibilities as Employee
has, in good faith and in the ordinary course of business, performed for the
Company prior to the Merger, shall, along with other management staff of PSS and
its affiliates, perform transition and integration services in connection with
<PAGE>
the acquisition of the Company by PSS, and shall include such other services as
Employee and the Company may, from time to time, agree (collectively, the
"Services"). During the Employment Periods, the Employee shall hold the office
of President of the Company and report to the Board of Directors of the Company.
(b) Employee shall have the right to cause the Company to
continue to maintain its clients services and development bonus programs. The
programs shall be administered and maintained in accordance with the Company's
past practice and with the concurrence of the Company's Board of Directors.
2.2. Performance. (a) During the Employment Period,
-----------
Employee will render the Services to the Company in conformity with professional
standards and in a prudent and workmanlike manner. Employee shall have complete
discretion in the performance of the Services, subject to the Company's
policies, standards and regulations, Employee's fiduciary duties to the Company
and the general authority and direction of the Boards of Directors of the
Company and PSS. Employee shall promote the interests of the Company in carrying
out Employee's duties and shall not deliberately take any action which could, or
deliberately fail to take any action which failure could, reasonably be expected
to have a material adverse effect upon the business of the Company, PSS or their
respective affiliates.
(b) The Services shall principally be rendered at the
Company's principal offices in Evanston, Illinois, or at a location within 50
miles of Evanston, with such travel as shall be reasonably required in the
performance of the Services; provided that Employee shall not be required to
relocate out of the Chicago metropolitan area, and that Employee shall not be
required to spend more than 25% of his time in the performance of the Services
outside the Chicago metropolitan area.
(c) The Company acknowledges and agrees that Employee may
from time to time during the period that Employee is employed by the Company
perform legal services as an attorney outside of Employee's employment with the
Company; provided that (i) such services could not reasonably be expected to
impair the relationship between the Company or its affiliates on the one hand
and a Client Account (defined below in Section 5.1) on the other, (ii) such
services do not interfere with Employee's performance of the Services, and (iii)
Employee is in compliance with his obligations under this Agreement.
(d) Employee shall to the same extent as directors and
officers of PSS's other subsidiaries, be indemnified from any and all
liabilities (including reasonable attorney's fees and costs) incurred by reason
of the fact that: (i) on and after the date hereof, Employee is an employee of
the Company and (ii) Employee is a member of the Company's Board of Directors
(to the extent Employee serves as such a director); provided that such indemnity
shall be pursuant to PSS's or the Company's, as the case may be, certificate of
incorporation and bylaws. To the same extent as directors and officers of PSS's
other subsidiaries, Employee shall as a director and officer of the Company be
covered by liability insurance against liabilities as to which Employee is
permitted to be indemnified by PSS's or the Company's, as the case may be,
certificate of incorporation or bylaws.
2
<PAGE>
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company
------
shall pay to the Employee an annual base salary of $200,000 (the "Salary"),
payable in equal installments in accordance with the Company's normal payroll
practices, which Salary, shall be adjusted annually, based upon the increase, if
any, in the Consumer Price Index, as published by the United States Department
of Commerce. As additional compensation for the Services, the Company shall pay
to Employee an annual bonus of $20,000 (the "Bonus"), payable in four equal
quarterly installments at the end of each quarter.
3.2 Transitional Services. For services provided in
---------------------
connection with the transition of ownership and coordination, realignment and
integration of the Company's and PSS's activities including, without limitation,
employee and customer relations services, information systems hardware and
software transition and integration services and new customer marketing
programs, and integration of the Company's business and operations with PSS's
other hospital billing businesses, the Company shall cause PSS to pay to
Employee $112,500 for these transitional services, payable in four equal monthly
installments beginning on January 15, 1997 and ending on April 15, 1997.
Notwithstanding the foregoing, PSS shall not be obligated to pay any such
installment if, at the time such installment is otherwise due, Employee has
ceased to be an employee of the Company, unless the Employment Period is
terminated by the Company other than pursuant to Section 6.1 or 6.2. PSS shall
not withhold any amounts from the transitional service bonus for payment of
federal, state and local taxes thereon. To the extent any such taxes are due,
such taxes shall be paid by Employee.
3.3. Employee Stock Options. As additional compensation for
----------------------
the Services, Employee shall be entitled to grants of stock options under PSS's
Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"), awarded
by PSS's Board of Directors or a committee thereof administering the Stock
Option Plan. The terms and amounts of such grants are set forth on Annex A
hereto. Employee shall also be eligible to receive additional stock option
grants under the Stock Option Plan based upon achievement of performance
objectives during the Employment Period for calendar years after 1997. Such
additional grants shall be at the discretion of the Compensation Committee of
PSS's board of directors and any such performance objectives shall be developed
by the Compensation Committee in consultation with Employee.
3.4. Reimbursement. Pursuant to the Company's standard
-------------
reimbursement policies, the Company shall reimburse Employee for all reasonable
out-of-pocket expenses incurred by Employee directly related to the performance
by Employee of the services hereunder. Employee shall account for such expenses
in accordance with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) at least as favorable as those generally provided by PSS to
its senior management employees. The Company reserves the right to expand,
restrict, designate or eliminate the benefits provided to Employee so long as
such expansion, restriction, designation or elimination applies generally to all
of PSS's
3
<PAGE>
senior management employees. Employee shall be entitled to vacations consistent
with the Company's vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that,
-------
after the Commencement Date, (a) all clients and/or accounts serviced by the
Company, any of its affiliates, Employee or the Company's or its affiliates'
other employees during Employee's employment with the Company, including all
clients and/or accounts acquired by Employee due to such Employee's efforts
during the term of such Employee's employment with the Company, are the clients
and accounts of the Company or its affiliates, as the case may be (collectively,
"Existing Accounts"), and (b) all businesses or individuals who (i) have been
contacted by Employee or the Company or any of its affiliates with a view toward
having such business or entity retain the Company or any of its affiliates to
provide services or (ii) are known to Employee as a result of his employment
with the Company are prospective clients and accounts of the Company or its
affiliates, as the case may be (collectively, "Prospective Accounts," and, with
Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as provided in this
--------------
Section 5.2, Employee shall not, during or after the Employment Period, disclose
any confidential or proprietary information of the Company or of its affiliates
to any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the
Company. As used herein, the term "confidential or proprietary information"
means all information which is or becomes known to Employee and relates to
matters such as trade secrets, research and development activities, business or
financing plans, acquisition opportunities, computer software, books and
records, customer or potential customer lists (including, without limitation,
any list of Client Accounts or any part thereof), vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time; provided that the term "confidential or proprietary
information" shall not include information that is or becomes generally
available to the public (other than as a result of a disclosure in violation of
this Agreement by Employee or a person who received such information from
Employee).
(b) If Employee is requested or required by law or judicial order
to disclose any confidential or proprietary information, Employee shall provide
the Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. During
the Employment Period, and for matters arising from events or circumstances
occurring during the Employment Period, the
4
<PAGE>
Company will provide for and control the defense of matters arising under this
provision at the Company's sole cost and expense and with counsel chosen by the
Company.
(c) Employee agrees that Employee will promptly and fully disclose
to the Company (i) all inventions, ideas, trade secrets or know-how (whether
patentable or copyrightable or not) made or conceived by Employee (either solely
or jointly with others) during the Employment Period and which shall in any way
relate to the business conducted or contemplated to be conducted by the Company
or any of its affiliates; and (ii) all tangible work product (whether in the
nature of developed ideas, know-how, trade secrets and similar intellectual
property) and inventions (whether patentable or copyrightable or not) made or
conceived by Employee (either solely or jointly with others) during the
Employment Period which relates in any way to the business conducted or
contemplated to be conducted by the Company or any of its affiliates; and all
such inventions, ideas, trade secrets and know-how shall be and remain the sole
and exclusive property of the Company. At the request of the Company, Employee
shall, during the Employment Period, without charge to the Company, but at the
expense of the Company, assist the Company in any reasonable way to vest in it
title to all such inventions, ideas, trade secrets and know-how and to obtain
any patents, trademarks or copyrights thereon in all countries throughout the
world. In this regard, Employee shall execute and deliver any and all documents
that the Company may reasonably request, including applications for patents,
copyrights and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes Employee's possession of confidential or proprietary information and
the highly competitive nature of the business of the Company and its affiliates
and accordingly agrees that, in consideration of PSS causing the Merger to be
consummated, the Company's entering into this Agreement, and the premises
contained herein, Employee will not, from and after the Commencement Date and
for the period ending on the later of (a) five years after the date of this
Agreement or (b) three years after the date of termination of the Employment
Period, either individually or as an officer, director, employee, partner, agent
or principal of another business firm (i) directly or indirectly engage in the
United States in any competitive business (including seeking or accepting
employment with a Client Account), (ii) assist others in engaging in any
competitive business in the manner described in the foregoing clause (i), (iii)
solicit, professionally contract or provide medical billing, accounts
receivable, accounting, financial or consulting services to any Client Account
or (iv) induce employees of the Company or any of its affiliates to terminate
their employment with the Company or such affiliates or hire any employees of
the Company or any of its affiliates to work with Employee or any business firm
affiliated with Employee. Notwithstanding the foregoing, after the termination
or expiration of the Employment Period, Employee may (i) work or consult for a
governmental agency, (ii) work or consult for not-for-profit healthcare industry
groups, (iii) teach at a public or private college, university or professional
or vocational training school, and (iv) work in a management, administrative or
legal counsel capacity in a healthcare business (other than entities which, as
the primary component of their business, provide medical billing, accounts
receivable management or practice management services to healthcare providers);
provided that (1) in no event shall Employee engage in any such activity if such
activity (x) is otherwise prohibited pursuant to clauses (i) or (ii) of the
immediately preceding sentence or (y) adversely affects, or conflicts with, the
business or operations of the Company, PSS or any of their respective affiliates
and (2) in the case of working or consulting for a governmental agency, Employee
5
<PAGE>
shall recuse himself from any decision-making role in matters affecting the
business or operations of PSS or its affiliates.
5.4. Remedies. Employee acknowledges that the Company may
--------
elect to specifically enforce Section 5.1, 5.2 or 5.3 by injunctive or other
equitable remedies (as provided in Section 9.4) or, in the alternative, seek
damages as a result of Employee's breach of the agreements set forth in such
section. Employee recognizes that the right to service each Client Account is a
valuable asset of the Company or its affiliates and that the precise value of
the loss of such asset may be difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during
-------------------
the Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the
-----
Employment Period and all of the obligations of the Company hereunder for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
the Employee's employment hereunder in the event of (i) the Employee's
conviction of, or plea of guilty or nolo contendere to (A) a felony or (B) a
fraudulent or deliberately dishonest act which results in a material adverse
effect on the Company, (ii) the Employee's material breach of this Agreement or
(iii) the Employee's gross negligence or bad faith in the performance of the
Services. Notwithstanding the foregoing, the Employment Period may not be deemed
to have been terminated for Cause pursuant to Section 6.2(ii) until 45 days
after Employee receives written notice from the Company that the Company is
terminating the Employment Period pursuant to such Section. During such 45-day
period, Employee has the right, together with Employee's counsel, to meet with
the Company's Board of Directors to discuss such termination by giving written
notice to the Company within 15 days after Employee receives such termination
notice. If such meeting is requested by Employee, such meeting shall take place
at the Company's principal place of business at a date and time to be mutually
agreed upon in good faith by the Company and Employee, which date shall not be
less than 10 days or more than 20 days after the Company's receipt of such
meeting request.
6.3. Payments in the Event of Termination. (a) If the
------------------------------------
Employment Period is terminated or expires pursuant to Section 1 or Section 6,
the Company shall pay the Employee any Salary, Bonus, accrued vacation and any
other remuneration earned to the date of such termination or expiration, as the
case may be.
6
<PAGE>
(b) Notwithstanding anything to the contrary set forth in Section
6.3(a), if the Employment Period is terminated pursuant to Section 6.1 prior to
the first anniversary of the Commencement Date, the Company shall pay the
Employee or his estate, as the case may be, an amount equal to the sum of any
unpaid Salary, Bonus, and any other remuneration to which Employee would
otherwise have been entitled during the first year of the Employment Period had
the Employment Period not been so terminated. At the Company's option and in
lieu of its obligations pursuant to the immediately preceding sentence, the
Company may purchase insurance on Employee's life with a death benefit at least
equal to the Company's obligations pursuant to the immediately preceding
sentence. Employee or his estate shall be the beneficiary of any such life
insurance.
(c) If the Employment Period is terminated by the Company (other
than pursuant to Section 6.1 or 6.2), the Company shall continue to (i) pay
Employee his Salary and Bonus through the remainder of the Employment Period
(assuming no early termination or expiration) and (ii) provide Employee with the
employee benefits that Employee would otherwise have been entitled pursuant to
Section 4 of this Agreement.
6.4. Termination Obligations. In the event of termination
-----------------------
of the Employment Period in accordance with this Section 6, all obligations of
the Company pursuant to this Agreement shall terminate, except as specifically
set forth in Section 6.3.
Section 7. PSS Change in Control. In the event that, during the
---------------------
first eighteen months after the date hereof, (i) (x) PSS is acquired by, merges
with or into, or sells substantially all of its assets to, another entity and
(1) after the consummation of such transaction the former stockholders of PSS do
not own at least 50% of the voting equity of such other entity or (2) in
connection with such merger or sale, a majority of the PSS Board of Directors is
replaced or (y) as the result of a tender offer, proxy contest or other
transaction or series of transactions which result in a majority of the PSS
Board of Directors is replaced (in each case, a "PSS Change of Control") and
(ii) as a result of a PSS Change of Control, Peter D. Cooper terminates his
employment with PSS (or its affiliates) or such other entity, Employee shall
have the right to terminate the Employment Period by giving written notice to
the Company within 30 days of the date on which Peter D. Cooper terminates such
employment, such termination of the Employment Period to become effective 60
days after the date on which such notice is given. The Company shall have the
right to rescind such termination within 30 days of its receipt of Employee's
termination notice by notifying Employee in writing that the Company agrees to
pay Employee (i) a one-time bonus equal to Employee's Salary for the prior year,
and (ii) an annual salary for the remainder of the Employment Period equal to
two times Employee's Salary for the prior year.
7
<PAGE>
Section 8. Transition. In the event of termination of the Employment
----------
Period, Employee shall for a reasonable period of time use Employee's best
efforts to assist the Company in maintaining the Company's professional
relationship with all Client Accounts. To such end, Employee shall cooperate
and assist the Company, at the Company's reasonable direction and instruction,
to retain and transition each Client Account during the transition period
between the receipt of notice of the termination of employment and the final day
of employment.
Section 9. Miscellaneous.
-------------
9.1. Assignment; Benefit. This Agreement is personal in its
-------------------
nature and the parties shall not, without the prior written consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
9.2. Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by telecopy (with confirmation of receipt) or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company, at:
Revenue Production Management, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
21398 West Prescott Court
Kildeer, Illinois 60047
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 9.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
9.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any
8
<PAGE>
departure herefrom, shall be effective unless it is in writing and signed by the
parties hereto. Such amendment, alteration, modification, waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
9.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the Merger.
9.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
9.6. Acknowledgments. Employee acknowledges that Employee has read
---------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the Merger to be consummated and to Employee's
employment with the Company. Employee agrees and acknowledges that he has been
paid in full for all services rendered to the Company prior to the date hereof
and has no outstanding claims against the Company for any amounts arising
because of such employment. Solely for purposes of the immediately preceding
sentence, the stockholder notes listed in Section 3.1(f) of the Disclosure
Schedule (defined in the Merger Agreement) are not claims against the Company
for amounts arising because of such employment.
9.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
9.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. ANY PROCEEDING ARISING
OUT OF THIS AGREEMENT SHALL BE BROUGHT IN COOK COUNTY, ILLINOIS. IN CONNECTION
WITH ANY SUCH PROCEEDING, THE PREVAILING PARTY SHALL
9
<PAGE>
BE ENTITLED TO RECOVER FROM THE OTHER PARTY HIS OR ITS REASONABLE ATTORNEY'S
FEES AND EXPENSES.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
REVENUE PRODUCTION MANAGEMENT, INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Raymond E. Clutts
11
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT, dated as of December 31,
1996, between Revenue Production Management, Inc.,
an Illinois corporation (the "Company"), and Paul
A. Grabowski (the "Employee").
--------------------------------------------------
Physician Support Systems, Inc., a Delaware corporation ("PSS"), is
acquiring all of the issued and outstanding capital stock of the Company in a
merger transaction involving PSS, a wholly-owned subsidiary of PSS, and the
Company (the "Merger"), pursuant to the Agreement and Plan of Merger, dated as
of December 31, 1996 (the "Merger Agreement"), among PSS Revenue Production
Management, Inc., a wholly owned subsidiary of PSS, PSS and the Company.
Employee acknowledges and agrees that this Agreement is being entered into in
connection with the sale of all of his shares of capital of the Company.
The Company desires to employ Employee, and Employee desires to be
employed by the Company, on the terms and subject to the conditions set forth
herein.
As a material inducement to PSS to consummate the Merger, PSS and the
Company desire that Employee enter into the covenants set forth in Section 5
hereof, and Employee agrees to enter into such covenants. Employee's execution
of this Agreement is a condition to PSS's obligation to consummate the Merger.
Based upon the mutual covenants and consideration set forth herein,
the sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on the third anniversary of the Commencement Date,
unless extended on terms agreed upon between Employee and the Company (such term
being hereinafter referred to as the "Employment Period"). Notwithstanding the
foregoing, the Employment Period shall automatically be extended for two
succeeding one-year periods unless Employee gives notice to the Company at least
180 days prior to the expiration of the initial Employment Period or the first
one-year extension, as the case may be, of such party's intention not to extend
the Employment Period. If such notice is given, the Employment Period shall
terminate at the end of the initial Employment Period or at the end of the first
one-year extension, as the case may be. The Employment Period may be earlier
terminated pursuant to the provisions of this Agreement.
Section 2. Duties.
------
2.1. Scope. (a) During the Employment Period, Employee shall perform
-----
senior management services requiring substantially the same time commitment and
encompassing substantially the same responsibilities as Employee has, in good
faith and in the ordinary course of business, performed for the Company prior to
the Merger, shall, along with other management staff of PSS and its affiliates,
perform transition and integration services in connection with the
<PAGE>
acquisition of the Company by PSS, and shall include such other services as
Employee and the Company may, from time to time, agree (collectively, the
"Services"). During the Employment Periods, the Employee shall hold the office
of Chief Executive Officer of the Company and report to the Board of Directors
of the Company.
(b) Employee shall have the right to cause the Company to continue to
maintain its clients services and development bonus programs. The programs
shall be administered and maintained in accordance with the Company's past
practice and with the concurrence of the Company's Board of Directors.
2.2. Performance. (a) During the Employment Period, Employee will
-----------
render the Services to the Company in conformity with professional standards and
in a prudent and workmanlike manner. Employee shall have complete discretion in
the performance of the Services, subject to the Company's policies, standards
and regulations, Employee's fiduciary duties to the Company and the general
authority and direction of the Boards of Directors of the Company and PSS.
Employee shall promote the interests of the Company in carrying out Employee's
duties and shall not deliberately take any action which could, or deliberately
fail to take any action which failure could, reasonably be expected to have a
material adverse effect upon the business of the Company, PSS or their
respective affiliates.
(b) The Services shall principally be rendered at the Company's
principal offices in Evanston, Illinois, or at a location within 50 miles of
Evanston, with such travel as shall be reasonably required in the performance of
the Services; provided that Employee shall not be required to relocate out of
the Chicago metropolitan area, and that Employee shall not be required to spend
more than 25% of his time in the performance of the Services outside the Chicago
metropolitan area.
(c) The Company acknowledges and agrees that Employee may from time
to time during the period that Employee is employed by the Company perform legal
services as an attorney outside of Employee's employment with the Company;
provided that (i) such services could not reasonably be expected to impair the
relationship between the Company or its affiliates on the one hand and a Client
Account (defined below in Section 5.1) on the other, (ii) such services do not
interfere with Employee's performance of the Services, and (ii) Employee is in
compliance with his obligations under this Agreement.
(d) Employee shall to the same extent as directors and officers of
PSS's other subsidiaries, be indemnified from any and all liabilities (including
reasonable attorney's fees and costs) incurred by reason of the fact that: (i)
on and after the date hereof, Employee is an employee of the Company and (ii)
Employee is a member of the Company's Board of Directors (to the extent Employee
serves as such a director); provided that such indemnity shall be pursuant to
PSS's or the Company's, as the case may be, certificate of incorporation and
bylaws. To the same extent as directors and officers of PSS's other
subsidiaries, Employee shall as a director and officer of the Company be covered
by liability insurance against liabilities as to which Employee is
2
<PAGE>
permitted to be indemnified by PSS's or the Company's, as the case may be,
certificate of incorporation or bylaws.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall pay
------
to the Employee an annual base salary of $200,000 (the "Salary"), payable in
equal installments in accordance with the Company's normal payroll practices,
which Salary, shall be adjusted annually, based upon the increase, if any, in
the Consumer Price Index, as published by the United States Department of
Commerce. As additional compensation for the Services, the Company shall pay to
Employee an annual bonus of $20,000 (the "Bonus"), payable in four equal
quarterly installments at the end of each quarter.
3.2 Transitional Services. For services provided in connection with
---------------------
the transition of ownership and coordination, realignment and integration of the
Company's and PSS's activities including, without limitation, employee and
customer relations services, information systems hardware and software
transition and integration services and new customer marketing programs, and
integration of the Company's business and operations with PSS's other hospital
billing businesses, the Company shall cause PSS to pay to Employee $137,500 for
these transitional services, payable in four equal monthly installments
beginning on January 15, 1997 and ending on April 15, 1997. Notwithstanding the
foregoing, PSS shall not be obligated to pay any such installment if, at the
time such installment is otherwise due, Employee has ceased to be an employee of
the Company, unless the Employment Period is terminated by the Company other
than pursuant to Section 6.1 or 6.2. PSS shall not withhold any amounts from
the transitional service bonus for payment of federal, state and local taxes
thereon. To the extent any such taxes are due, such taxes shall be paid by
Employee.
3.3. Employee Stock Options. As additional compensation for the
----------------------
Services, Employee shall be entitled to grants of stock options under PSS's
Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"), awarded
by PSS's Board of Directors or a committee thereof administering the Stock
Option Plan. The terms and amounts of such grants are set forth on Annex A
attached hereto. Employee shall also be eligible to receive additional stock
option grants under the Stock Option Plan based upon achievement of performance
objectives during the Employment Period for calendar years after 1997. Such
additional grants shall be at the discretion of the Compensation Committee of
PSS's board of directors and any such performance objectives shall be developed
by the Compensation Committee in consultation with Employee.
3.4. Reimbursement. Pursuant to the Company's standard reimbursement
-------------
policies, the Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee directly related to the performance by Employee of
the services hereunder. Employee shall account for such expenses in accordance
with the Company's reasonable record-keeping requirements.
3
<PAGE>
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) at least as favorable as those generally provided by PSS to
its senior management employees. The Company reserves the right to expand,
restrict, designate or eliminate the benefits provided to Employee so long as
such expansion, restriction, designation or elimination applies generally to all
of PSS's senior management employees. Employee shall be entitled to vacations
consistent with the Company's vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates to provide
services or (ii) are known to Employee as a result of his employment with the
Company are prospective clients and accounts of the Company or its affiliates,
as the case may be (collectively, "Prospective Accounts," and, with Existing
Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as provided in this Section 5.2,
--------------
Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or of its affiliates to
any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the
Company. As used herein, the term "confidential or proprietary information"
means all information which is or becomes known to Employee and relates to
matters such as trade secrets, research and development activities, business or
financing plans, acquisition opportunities, computer software, books and
records, customer or potential customer lists (including, without limitation,
any list of Client Accounts or any part thereof), vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time; provided that the term "confidential or proprietary
information" shall not include information that is or becomes generally
available to the public (other than as a result of a disclosure in violation of
this Agreement by Employee or a person who received such information from
Employee).
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt
4
<PAGE>
notice of any such request for such information or requirement so that the
Company may seek an appropriate protective order or waiver of Employee's
compliance with the provisions of this clause. Employee will not oppose action
by, and will cooperate with, the Company to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the confidential or proprietary information. During the Employment Period, and
for matters arising from events or circumstances occurring during the Employment
Period, the Company will provide for and control the defense of matters arising
under this provision at the Company's sole cost and expense and with counsel
chosen by the Company.
(c) Employee agrees that Employee will promptly and fully disclose to
the Company (i) all inventions, ideas, trade secrets or know-how (whether
patentable or copyrightable or not) made or conceived by Employee (either solely
or jointly with others) during the Employment Period and which shall in any way
relate to the business conducted or contemplated to be conducted by the Company
or any of its affiliates; and (ii) all tangible work product (whether in the
nature of developed ideas, know-how, trade secrets and similar intellectual
property) and inventions (whether patentable or copyrightable or not) made or
conceived by Employee (either solely or jointly with others) during the
Employment Period which relates in any way to the business conducted or
contemplated to be conducted by the Company or any of its affiliates; and all
such inventions, ideas, trade secrets and know-how shall be and remain the sole
and exclusive property of the Company. At the request of the Company, Employee
shall, during the Employment Period, without charge to the Company, but at the
expense of the Company, assist the Company in any reasonable way to vest in it
title to all such inventions, ideas, trade secrets and know-how and to obtain
any patents, trademarks or copyrights thereon in all countries throughout the
world. In this regard, Employee shall execute and deliver any and all documents
that the Company may reasonably request, including applications for patents,
copyrights and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes Employee's possession of confidential or proprietary information and
the highly competitive nature of the business of the Company and its affiliates
and accordingly agrees that, in consideration of PSS causing the Merger to be
consummated, the Company's entering into this Agreement, and the premises
contained herein, Employee will not, from and after the Commencement Date and
for the period ending on the later of (a) five years after the date of this
Agreement or (b) three years after the date of termination of the Employment
Period, either individually or as an officer, director, employee, partner, agent
or principal of another business firm (i) directly or indirectly engage in the
United States in any competitive business (including seeking or accepting
employment with a Client Account), (ii) assist others in engaging in any
competitive business in the manner described in the foregoing clause (i), (iii)
solicit, professionally contract or provide medical billing, accounts
receivable, accounting, financial or consulting services to any Client Account
or (iv) induce employees of the Company or any of its affiliates to terminate
their employment with the Company or such affiliates or hire any employees of
the Company or any of its affiliates to work with Employee or any business firm
affiliated with Employee. Notwithstanding the foregoing, after the termination
or expiration of the Employment Period, Employee may (i) work or consult for a
governmental agency, (ii) work or consult for not-for-profit healthcare industry
groups, (iii) teach at a public or private college, university or professional
or
5
<PAGE>
vocational training school, and (iv) work in a management, administrative or
legal counsel capacity in a healthcare business (other than entities which, as
the primary component of their business, provide medical billing, accounts
receivable management or practice management services to healthcare providers);
provided that (1) in no event shall Employee engage in any such activity if such
activity (x) is otherwise prohibited pursuant to clauses (i) or (ii) of the
immediately preceding sentence or (y) adversely affects, or conflicts with, the
business or operations of the Company, PSS or any of their respective affiliates
and (2) in the case of working or consulting for a governmental agency, Employee
shall recuse himself from any decision-making role in matters affecting the
business or operations of PSS or its affiliates.
5.4. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.1, 5.2 or 5.3 by injunctive or other equitable
remedies (as provided in Section 9.4) or, in the alternative, seek damages as a
result of Employee's breach of the agreements set forth in such section.
Employee recognizes that the right to service each Client Account is a valuable
asset of the Company or its affiliates and that the precise value of the loss of
such asset may be difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the Employment
-----
Period and all of the obligations of the Company hereunder for Cause. For the
purposes of this Agreement, the Company shall have "Cause" to terminate the
Employee's employment hereunder in the event of (i) the Employee's conviction
of, or plea of guilty or nolo contendere to (A) a felony or (B) a fraudulent or
deliberately dishonest act which results in a material adverse effect on the
Company, (ii) the Employee's material breach of this Agreement or (iii) the
Employee's gross negligence or bad faith in the performance of the Services.
Notwithstanding the foregoing, the Employment Period may not be deemed to have
been terminated for Cause pursuant to Section 6.2(ii) until 45 days after
Employee receives written notice from the Company that the Company is
terminating the Employment Period pursuant to such Section. During such 45-day
period, Employee has the right, together with Employee's counsel, to meet with
the Company's Board of Directors to discuss such termination by giving written
notice to the Company within 15 days after Employee receives such termination
notice. If such meeting is requested by Employee,
6
<PAGE>
such meeting shall take place at the Company's principal place of business at a
date and time to be mutually agreed upon in good faith by the Company and
Employee, which date shall not be less than 10 days or more than 20 days after
the Company's receipt of such meeting request.
6.3. Payments in the Event of Termination. (a) If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 1 or Section 6, the Company
shall pay the Employee any Salary, Bonus, accrued vacation and any other
remuneration earned to the date of such termination or expiration, as the case
may be.
(b) Notwithstanding anything to the contrary set forth in Section
6.3(a), if the Employment Period is terminated pursuant to Section 6.1 prior to
the first anniversary of the Commencement Date, the Company shall pay the
Employee or his estate, as the case may be, an amount equal to the sum of any
unpaid Salary, Bonus, and any other remuneration to which Employee would
otherwise have been entitled during the first year of the Employment Period had
the Employment Period not been so terminated. At the Company's option and in
lieu of its obligations pursuant to the immediately preceding sentence, the
Company may purchase insurance on Employee's life with a death benefit at least
equal to the Company's obligations pursuant to the immediately preceding
sentence. Employee or his estate shall be the beneficiary of any such life
insurance.
(c) If the Employment Period is terminated by the Company (other than
pursuant to Section 6.1 or 6.2), the Company shall continue to (i) pay Employee
his Salary and Bonus through the remainder of the Employment Period (assuming no
early termination or expiration) and (ii) provide Employee with the employee
benefits that Employee would otherwise have been entitled pursuant to Section 4
of this Agreement.
6.4. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company pursuant to this Agreement shall terminate, except as specifically set
forth in Section 6.3.
Section 7. PSS Change in Control. In the event that, during the
---------------------
first eighteen months after the date hereof, (i) (x) PSS is acquired by, merges
with or into, or sells substantially all of its assets to, another entity and
(1) after the consummation of such transaction the former stockholders of PSS do
not own at least 50% of the voting equity of such other entity or (2) in
connection with such merger or sale, a majority of the PSS Board of Directors is
replaced or (y) as the result of a tender offer, proxy contest or other
transaction or series of transactions which result in a majority of the PSS
Board of Directors is replaced (in each case, a "PSS Change of Control") and
(ii) as a result of a PSS Change of Control, Peter D. Cooper terminates his
employment with PSS (or its affiliates) or such other entity, Employee shall
have the right to terminate the Employment Period by giving written notice to
the Company within 30 days of the date on which Peter D. Cooper terminates such
employment, such termination of the Employment Period to become effective 60
days after the date on which such notice is given. The Company shall have the
right to rescind such termination within 30 days of its receipt of Employee's
termination notice by notifying Employee in writing that the Company agrees to
pay Employee (i) a one-time bonus equal to Employee's Salary for the prior year,
and (ii) an
7
<PAGE>
annual salary for the remainder of the Employment Period equal to two times
Employee's Salary for the prior year.
Section 8. Transition. In the event of termination of the Employment
----------
Period, Employee shall for a reasonable period of time use Employee's best
efforts to assist the Company in maintaining the Company's professional
relationship with all Client Accounts. To such end, Employee shall cooperate
and assist the Company, at the Company's reasonable direction and instruction,
to retain and transition each Client Account during the transition period
between the receipt of notice of the termination of employment and the final day
of employment.
Section 9. Miscellaneous.
-------------
9.1. Assignment; Benefit. This Agreement is personal in its nature
-------------------
and the parties shall not, without the prior written consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
9.2. Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing and sufficient if delivered personally or
sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
Revenue Production Management, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
1302 East Crabtree
Arlington Heights, Illinois 60004
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 9.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8
<PAGE>
9.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
9.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the Merger.
9.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
9.6. Acknowledgments. Employee acknowledges that Employee has read
---------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the Merger to be consummated and to Employee's
employment with the Company. Employee agrees and acknowledges that he has been
paid in full for all services rendered to the Company prior to the date hereof
and has no outstanding claims against the Company for any amounts arising
because of such employment. Solely for purposes of the immediately preceding
sentence, the stockholder notes listed in Section 3.1(f) of the Disclosure
Schedule (defined in the Merger Agreement) are not claims against the Company
for amounts arising because of such employment.
9.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
9.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9
<PAGE>
9.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. ANY PROCEEDING ARISING
OUT OF THIS AGREEMENT SHALL BE BROUGHT IN COOK COUNTY, ILLINOIS. IN CONNECTION
WITH ANY SUCH PROCEEDING, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM
THE OTHER PARTY HIS OR ITS REASONABLE ATTORNEY'S FEES AND EXPENSES.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
REVENUE PRODUCTION MANAGEMENT, INC.
By:_______________________________________
Name:
Title:
------------------------------------------
Paul A. Grabowski
11
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT, dated as of December 31,
1996, between Revenue Production Management, Inc.,
an Illinois corporation (the "Company"), and Neil
J. Greene (the "Employee").
--------------------------------------------------
Physician Support Systems, Inc., a Delaware corporation ("PSS"), is
acquiring all of the issued and outstanding capital stock of the Company in a
merger transaction involving PSS, a wholly-owned subsidiary of PSS, and the
Company (the "Merger"), pursuant to the Agreement and Plan of Merger, dated as
of December 31, 1996 (the "Merger Agreement"), among PSS Revenue Production
Management, Inc., a wholly owned subsidiary of PSS, PSS and the Company.
Employee acknowledges and agrees that this Agreement is being entered into in
connection with the sale of all of his shares of capital of the Company.
The Company desires to employ Employee, and Employee desires to be
employed by the Company, on the terms and subject to the conditions set forth
herein.
As a material inducement to PSS to consummate the Merger, PSS and the
Company desire that Employee enter into the covenants set forth in Section 5
hereof, and Employee agrees to enter into such covenants. Employee's execution
of this Agreement is a condition to PSS's obligation to consummate the Merger.
Based upon the mutual covenants and consideration set forth herein,
the sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on the fourth anniversary of the Commencement Date,
unless extended on terms agreed upon between Employee and the Company (such term
being hereinafter referred to as the "Employment Period"). Notwithstanding the
foregoing, the Employment Period shall automatically be extended for one one-
year period unless Employee gives notice to the Company at least 180 days prior
to the expiration of the initial Employment Period of such party's intention not
to extend the Employment Period. If such notice is given, the Employment Period
shall terminate at the end of the initial Employment Period. The Employment
Period may be earlier terminated pursuant to the provisions of this Agreement.
Section 2. Duties.
------
2.1. Scope. (a) During the Employment Period, Employee shall
-----
perform senior management services requiring substantially the same time
commitment and encompassing substantially the same responsibilities as Employee
has, in good faith and in the ordinary course of business, performed for the
Company prior to the Merger, and shall include such other services as Employee
and the Company may, from time to time, agree (collectively, the "Services").
During
<PAGE>
the Employment Periods, the Employee shall hold the office of Vice President of
the Company and report to the Board of Directors of the Company.
(b) Employee shall have the right to cause the Company to
continue to maintain its clients services and development bonus programs. The
programs shall be administered and maintained in accordance with the Company's
past practice and with the concurrence of the Company's Board of Directors.
2.2. Performance. (a) During the Employment Period, Employee
-----------
will render the Services to the Company in conformity with professional
standards and in a prudent and workmanlike manner. Employee shall have complete
discretion in the performance of the Services, subject to the Company's
policies, standards and regulations, Employee's fiduciary duties to the Company
and the general authority and direction of the Boards of Directors of the
Company and PSS. Employee shall promote the interests of the Company in carrying
out Employee's duties and shall not deliberately take any action which could, or
deliberately fail to take any action which failure could, reasonably be expected
to have a material adverse effect upon the business of the Company, PSS or their
respective affiliates.
(b) The Services shall principally be rendered at the Company's
principal offices in Evanston, Illinois, or at a location within 50 miles of
Evanston, with such travel as shall be reasonably required in the performance of
the Services; provided that Employee shall not be required to relocate out of
the Chicago metropolitan area, and that Employee shall not be required to spend
more than 25% of his time in the performance of the Services outside the Chicago
metropolitan area.
(c) The Company acknowledges and agrees that Employee may from time
to time during the period that Employee is employed by the Company perform legal
services as an attorney outside of Employee's employment with the Company;
provided that (i) such services could not reasonably be expected to impair the
relationship between the Company or its affiliates on the one hand and a Client
Account (defined below in Section 5.1) on the other, (ii) such services do not
interfere with Employee's performance of the Services, and (iii) Employee is in
compliance with his obligations under this Agreement.
(d) Employee shall to the same extent as directors and officers of
PSS's other subsidiaries, be indemnified from any and all liabilities (including
reasonable attorney's fees and costs) incurred by reason of the fact that: (i)
on and after the date hereof, Employee is an employee of the Company and (ii)
Employee is a member of the Company's Board of Directors (to the extent Employee
serves as such a director); provided that such indemnity shall be pursuant to
PSS's or the Company's, as the case may be, certificate of incorporation and
bylaws. To the same extent as directors and officers of PSS's other
subsidiaries, Employee shall as a director and officer of the Company be covered
by liability insurance against liabilities as to which Employee is permitted to
be indemnified by PSS's or the Company's, as the case may be, certificate of
incorporation or bylaws.
2
<PAGE>
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall
------
pay to the Employee an annual base salary of $125,000 (the "Salary"), payable in
equal installments in accordance with the Company's normal payroll practices,
which Salary, shall be adjusted annually, based upon the increase, if any, in
the Consumer Price Index, as published by the United States Department of
Commerce.
3.2. Employee Stock Options. As additional compensation for the
----------------------
Services, Employee shall be entitled to grants of stock options under PSS's
Amended and Restated 1996 Stock Option Plan (the "Stock Option Plan"), awarded
by PSS's Board of Directors or a committee thereof administering the Stock
Option Plan. The terms and amounts of such grants are set forth on Annex A
attached hereto. Employee shall also be eligible to receive additional stock
option grants under the Stock Option Plan based upon achievement of performance
objectives during the Employment Period for calendar years after 1997. Such
additional grants shall be at the discretion of the Compensation Committee of
PSS's board of directors and any such performance objectives shall be developed
by the Compensation Committee in consultation with Employee.
3.3. Reimbursement. Pursuant to the Company's standard
-------------
reimbursement policies, the Company shall reimburse Employee for all reasonable
out-of-pocket expenses incurred by Employee directly related to the performance
by Employee of the services hereunder. Employee shall account for such expenses
in accordance with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) at least as favorable as those generally provided by PSS to
its senior management employees. The Company reserves the right to expand,
restrict, designate or eliminate the benefits provided to Employee so long as
such expansion, restriction, designation or elimination applies generally to all
of PSS's senior management employees. Employee shall be entitled to vacations
consistent with the Company's vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after
-------
the Commencement Date, (a) all clients and/or accounts serviced by the Company,
any of its affiliates, Employee or the Company's or its affiliates' other
employees during Employee's employment with the Company, including all clients
and/or accounts acquired by Employee due to such Employee's efforts during the
term of such Employee's employment with the Company, are the clients and
accounts of the Company or its affiliates, as the case may be (collectively,
"Existing Accounts"), and (b) all businesses or individuals who (i) have been
contacted by Employee or the Company or any of its affiliates with a view toward
having such business or entity retain the Company or any of its affiliates to
provide services or (ii) are known to Employee as a result of his employment
with the Company are prospective clients and accounts of the
3
<PAGE>
Company or its affiliates, as the case may be (collectively, "Prospective
Accounts," and, with Existing Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as provided in this Section 5.2,
--------------
Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or of its affiliates to
any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the
Company. As used herein, the term "confidential or proprietary information"
means all information which is or becomes known to Employee and relates to
matters such as trade secrets, research and development activities, business or
financing plans, acquisition opportunities, computer software, books and
records, customer or potential customer lists (including, without limitation,
any list of Client Accounts or any part thereof), vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time; provided that the term "confidential or proprietary
information" shall not include information that is or becomes generally
available to the public (other than as a result of a disclosure in violation of
this Agreement by Employee or a person who received such information from
Employee).
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. During
the Employment Period, and for matters arising from events or circumstances
occurring during the Employment Period, the Company will provide for and control
the defense of matters arising under this provision at the Company's sole cost
and expense and with counsel chosen by the Company.
(c) Employee agrees that Employee will promptly and fully disclose to
the Company (i) all inventions, ideas, trade secrets or know-how (whether
patentable or copyrightable or not) made or conceived by Employee (either solely
or jointly with others) during the Employment Period and which shall in any way
relate to the business conducted or contemplated to be conducted by the Company
or any of its affiliates; and (ii) all tangible work product (whether in the
nature of developed ideas, know-how, trade secrets and similar intellectual
property) and inventions (whether patentable or copyrightable or not) made or
conceived by Employee (either solely or jointly with others) during the
Employment Period which relates in any way to the business conducted or
contemplated to be conducted by the Company or any of its affiliates; and all
such inventions, ideas, trade secrets and know-how shall be and remain the sole
and exclusive property of the Company. At the request of the Company, Employee
shall, during the Employment Period, without charge to the Company, but at the
expense of the
4
<PAGE>
Company, assist the Company in any reasonable way to vest in it title to all
such inventions, ideas, trade secrets and know-how and to obtain any patents,
trademarks or copyrights thereon in all countries throughout the world. In this
regard, Employee shall execute and deliver any and all documents that the
Company may reasonably request, including applications for patents, copyrights
and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes Employee's possession of confidential or proprietary information and
the highly competitive nature of the business of the Company and its affiliates
and accordingly agrees that, in consideration of PSS causing the Merger to be
consummated, the Company's entering into this Agreement, and the premises
contained herein, Employee will not, from and after the Commencement Date and
for the period ending on the later of (a) five years after the date of this
Agreement or (b) two years after the date of termination of the Employment
Period, either individually or as an officer, director, employee, partner, agent
or principal of another business firm (i) directly or indirectly engage in the
United States in any competitive business (including seeking or accepting
employment with a Client Account), (ii) assist others in engaging in any
competitive business in the manner described in the foregoing clause (i), (iii)
solicit, professionally contract or provide medical billing, accounts
receivable, accounting, financial or consulting services to any Client Account
or (iv) induce employees of the Company or any of its affiliates to terminate
their employment with the Company or such affiliates or hire any employees of
the Company or any of its affiliates to work with Employee or any business firm
affiliated with Employee; provided that, if the Employment Period is terminated
by the Company pursuant to Section 6.2, Employee's obligations pursuant to this
Section 5.3 shall terminate two years after the date on which the Company makes
final payment to Employee in respect of Salary (unless the Company continues to
pay Employee his Salary as if the Employment Period had not been terminated in
which case, Employee's obligations pursuant to this Section 5.3 shall terminate
on the earlier of (x) two years after the date on which the Company ceases to
make such Salary payments to Employee and (y) six years after the date of this
Agreement). Notwithstanding the foregoing, after the termination or expiration
of the Employment Period, Employee may (i) work or consult for a governmental
agency, (ii) work or consult for not-for-profit healthcare industry groups,
(iii) teach at a public or private college, university or professional or
vocational training school, and (iv) work in a management, administrative or
legal counsel capacity in a healthcare business (other than entities which, as
the primary component of their business, provide medical billing, accounts
receivable management or practice management services to healthcare providers);
provided that (1) in no event shall Employee engage in any such activity if such
activity (x) is otherwise prohibited pursuant to clauses (i) or (ii) of the
immediately preceding sentence or (y) adversely affects, or conflicts with, the
business or operations of the Company, PSS or any of their respective affiliates
and (2) in the case of working or consulting for a governmental agency, Employee
shall recuse himself from any decision-making role in matters affecting the
business or operations of PSS or its affiliates.
5.4. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.1, 5.2 or 5.3 by injunctive or other equitable
remedies (as provided in Section 8.4) or, in the alternative, seek damages as a
result of Employee's breach of the agreements set forth in such section.
Employee recognizes that the right to service each Client Account is a valuable
asset of the Company or its affiliates and that the precise value of the loss of
such asset may be difficult to measure in monetary sums.
5
<PAGE>
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the
-------------------
Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability; and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the
-----
Employment Period and all of the obligations of the Company hereunder for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
the Employee's employment hereunder in the event of (i) the Employee's
conviction of, or plea of guilty or nolo contendere to (A) a felony or (B) a
fraudulent or deliberately dishonest act which results in a material adverse
effect on the Company, (ii) the Employee's material breach of this Agreement or
(iii) the Employee's gross negligence or bad faith in the performance of the
Services. Notwithstanding the foregoing, the Employment Period may not be deemed
to have been terminated for Cause pursuant to Section 6.2(ii) until 45 days
after Employee receives written notice from the Company that the Company is
terminating the Employment Period pursuant to such Section. During such 45-day
period, Employee has the right, together with Employee's counsel, to meet with
the Company's Board of Directors to discuss such termination by giving written
notice to the Company within 15 days after Employee receives such termination
notice. If such meeting is requested by Employee, such meeting shall take place
at the Company's principal place of business at a date and time to be mutually
agreed upon in good faith by the Company and Employee, which date shall not be
less than 10 days or more than 20 days after the Company's receipt of such
meeting request.
6.3. Payments in the Event of Termination. (a) If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 1 or Section 6, the Company
shall pay the Employee any Salary, accrued vacation and any other remuneration
earned to the date of such termination or expiration, as the case may be.
(b) Notwithstanding anything to the contrary set forth in Section
6.3(a), if the Employment Period is terminated pursuant to Section 6.1 prior to
the first anniversary of the Commencement Date, the Company shall pay the
Employee or his estate, as the case may be, an amount equal to the sum of any
unpaid Salary, and any other remuneration to which Employee would otherwise have
been entitled during the first year of the Employment Period had the Employment
Period not been so terminated. At the Company's option and in lieu of its
obligations pursuant to the immediately preceding sentence, the Company may
purchase insurance on Employee's life with a death benefit at least equal to the
Company's obligations pursuant to the immediately preceding sentence. Employee
or his estate shall be the beneficiary of any such life insurance.
6
<PAGE>
(c) If the Employment Period is terminated by the Company (other than
pursuant to Section 6.1 or 6.2), the Company shall continue to (i) pay Employee
his Salary through the remainder of the Employment Period (assuming no early
termination or expiration) and (ii) provide Employee with the employee benefits
that Employee would otherwise have been entitled pursuant to Section 4 of this
Agreement.
6.4. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company pursuant to this Agreement shall terminate, except as specifically set
forth in Section 6.3.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall for a reasonable period of time use Employee's best
efforts to assist the Company in maintaining the Company's professional
relationship with all Client Accounts. To such end, Employee shall cooperate
and assist the Company, at the Company's reasonable direction and instruction,
to retain and transition each Client Account during the transition period
between the receipt of notice of the termination of employment and the final day
of employment.
Section 8. Miscellaneous.
-------------
8.1. Assignment; Benefit. This Agreement is personal in its
-------------------
nature and the parties shall not, without the prior written consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
8.2. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and sufficient if delivered personally
or sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
Revenue Production Management, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
381 Foxford Drive
Buffalo Grove, Illinois 60089
7
<PAGE>
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 8.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
8.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
8.4. Specific Performance. In the event of a breach or threatened
--------------------
breach by Employee of the provisions of Section 5, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in the event of a
breach or threatened breach by Employee of the provisions of Section 5. Without
limiting the generality of the foregoing, Employee acknowledges that, in the
event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the Merger.
8.5. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
8.6. Acknowledgments. Employee acknowledges that Employee has read
---------------
this Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the Merger to be consummated and to Employee's
employment with the Company. Employee agrees and acknowledges that he has been
paid in full for all services rendered to the Company prior to the date hereof
and has no outstanding claims against the Company for any amounts arising
because of such employment. Solely for purposes of the immediately preceding
sentence, the stockholder notes listed in Section 3.1(f) of the Disclosure
Schedule (defined in the Merger Agreement) are not claims against the Company
for amounts arising because of such employment.
8.7. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
8
<PAGE>
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED
---------------------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. ANY PROCEEDING ARISING
OUT OF THIS AGREEMENT SHALL BE BROUGHT IN COOK COUNTY, ILLINOIS. IN CONNECTION
WITH ANY SUCH PROCEEDING, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM
THE OTHER PARTY HIS OR ITS REASONABLE ATTORNEY'S FEES AND EXPENSES.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
REVENUE PRODUCTION MANAGEMENT, INC.
By:
------------------------------------
Name:
Title:
---------------------------------------
Neil J. Greene
10
<PAGE>
================================================================================
Exhibit 10.16
LOAN AGREEMENT
Dated: December 13, 1996
Between
CORESTATES BANK, N.A., as Agent
For the Several Lenders
and
PHYSICIAN SUPPORT SYSTEMS, INC.
and its Subsidiaries
<PAGE>
================================================================================
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
Section Page
------- ----
SECTION 1. DEFINITIONS
1.1 General Provisions........................ 1
------------------
1.2 Defined Terms............................. 2
-------------
SECTION 2. AMOUNT AND TERMS OF LOANS
2.1 Revolving Credit.......................... 14
----------------
2.2 Revolving Credit Note..................... 14
---------------------
2.3 Term Loans................................ 15
----------
2.4 Term Loan Notes........................... 16
---------------
2.5 Interest Rate Elections................... 16
-----------------------
2.6 Line of Credit............................ 18
--------------
2.7 Line of Credit Note....................... 19
-------------------
2.8 Fees...................................... 20
----
2.9 Loan Account.............................. 21
------------
2.10 Computation of Interest................... 21
-----------------------
2.11 Maximum Legal Rate........................ 21
------------------
2.12 Payments.................................. 21
--------
2.13 Application of Payments................... 22
-----------------------
2.14 Late Charges.............................. 22
------------
2.15 Mandatory Payments........................ 22
------------------
2.16 Voluntary Prepayments..................... 22
---------------------
2.17 Limitations on Revolving Credit Advances.. 23
----------------------------------------
2.18 Borrower's Obligations.................... 23
----------------------
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification............ 24
------------------------------
3.2 Power and Authority....................... 24
-------------------
3.3 Enforceability............................ 24
--------------
3.4 Conflict with Other Instruments........... 24
-------------------------------
3.5 Litigation................................ 25
----------
3.6 Title to Assets........................... 25
---------------
3.7 Licenses; Intellectual Property........... 25
-------------------------------
3.8 Default................................... 25
-------
3.9 Taxes..................................... 25
-----
3.10 Financial Condition....................... 26
-------------------
3.11 ERISA..................................... 26
-----
3.12 Regulation U.............................. 27
------------
3.13 No Notices; No Violations................. 27
-------------------------
3.14 Labor..................................... 28
-----
3.15 Environmental Matters..................... 28
---------------------
SECTION 4. CONDITIONS OF BORROWING
4.1 Initial Advance........................... 28
---------------
4.2 Subsequent Advances....................... 30
-------------------
SECTION 5. AFFIRMATIVE COVENANTS
5.1 Financial Statements; Reports............. 30
-----------------------------
5.2 Liabilities............................... 31
-----------
5.3 ERISA..................................... 31
-----
5.4 Notices................................... 32
-------
5.5 Use of Proceeds........................... 32
---------------
5.6 Corporate Existence; Properties........... 32
-------------------------------
5.7 Insurance................................. 33
---------
5.8 Books and Records......................... 33
-----------------
5.9 Location of Business...................... 33
--------------------
5.10 Funded Debt to Cash Flow.................. 33
------------------------
5.11 Fixed Charge Coverage Ratio............... 34
---------------------------
5.12 Current Ratio............................. 34
-------------
5.13 Deposit Accounts.......................... 34
----------------
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6. NEGATIVE COVENANTS
6.1 Debt.................................... 34
----
6.2 Liens................................... 34
-----
6.3 Investments............................. 35
-----------
6.4 Mergers, Consolidations................. 36
-----------------------
6.5 Disposition of Assets................... 36
---------------------
6.6 Continuance of Business................. 36
-----------------------
6.7 Use of Proceeds......................... 37
---------------
SECTION 7. EVENTS OF DEFAULT, REMEDIES
7.1 Events of Default....................... 37
-----------------
7.2 Acceleration............................ 39
------------
7.3 Right of Setoff......................... 40
---------------
7.4 Remedies Cumulative..................... 40
-------------------
SECTION 8. MISCELLANEOUS
8.1 No Waiver; Cumulative Remedies.......... 40
------------------------------
8.2 Notices................................. 41
-------
8.3 Reimbursement of Agent.................. 41
----------------------
8.4 Payment of Expenses and Taxes........... 42
-----------------------------
8.5 Survival of Representations and
Warranties.............................. 42
-------------------------------
8.6 Participations and Assignments.......... 42
------------------------------
8.7 Successors.............................. 42
----------
8.8 Construction............................ 43
------------
8.9 Severability............................ 43
------------
8.10 Indemnity............................... 43
---------
8.11 Waiver of Trial by Jury; Jurisdiction... 43
-------------------------------------
8.12 Actions Against Lenders; Release........ 44
--------------------------------
8.13 Counterparts............................ 44
------------
8.14 Entire Agreement........................ 45
----------------
8.15 Margin Stock............................ 45
------------
SECTION 9. RIDERS AND JOINDERS
9.1 Riders.................................. 45
------
9.2 Joinders................................ 45
--------
SECTION 10. THE AGENT
10.1 Appointment and Authorization........... 45
-----------------------------
10.2 Agent's Rights as Lender................ 46
------------------------
10.3 Actions; Lenders' Instructions.......... 46
------------------------------
10.4 Preference Repayments................... 47
---------------------
10.5 Consultation with Experts............... 47
-------------------------
10.6 Liability of Agent...................... 47
------------------
10.7 Credit Decision......................... 48
---------------
10.8 Successor Agent......................... 48
---------------
10.9 Setoff or Counterclaim.................. 48
----------------------
10.10 Amendments............................. 49
----------
10.11 Payments Received...................... 49
-----------------
10.12 Advances............................... 49
--------
10.13 Indemnification........................ 49
---------------
10.14 Liquidation............................ 50
-----------
10.15 Forwarding Information................. 51
----------------------
10.16 Termination............................ 51
-----------
10.17 Notices................................ 52
-------
10.18 No Joint Venture....................... 52
----------------
10.19 Definitions............................ 52
-----------
10.20 Corporate Records...................... 52
</TABLE>
Table of Schedules . . . . . . . . . . . . . . . . . . . . . . .
Table of Exhibits. . . . . . . . . . . . . . . . . . . . . . . .
(ii)
<PAGE>
LOAN AGREEMENT
--------------
LOAN AGREEMENT made and entered into December 13, 1996, between
PHYSICIAN SUPPORT SYSTEMS, INC., and its subsidiaries which executed the
signature pages hereto or which join in this Agreement, and CORESTATES BANK,
N.A., as a Lender and as Agent for the Lenders listed on Rider A attached
hereto.
SECTION 1. DEFINITIONS.
1.1 General Provisions. Unless expressly provided otherwise in
-------------------
this Agreement or in the Loan Documents, or unless the context requires
otherwise:
(a) all accounting terms used in this Agreement and in the Loan
Documents shall have the meanings given to them in accordance with
Generally Accepted Accounting Principles;
(b) all terms used herein and in the Loan Documents that are
defined in the Pennsylvania Uniform Commercial Code, as amended from time
to time, shall have the meanings set forth therein;
(c) unless otherwise specified, all capitalized terms defined in
this Agreement shall have the defined meanings when used in the Loan
Documents and in any other documents made or delivered pursuant to this
Agreement;
(d) the singular shall mean the plural, the plural shall mean the
singular, and the use of any gender shall include all genders;
(e) all references to any particular party defined herein shall
be deemed to refer to each and every Person defined herein as such party
individually, and to all of them, collectively, jointly and severally, as
though each were named wherever the applicable defined term is used;
(f) all references to "Sections," "Subsections," "Paragraphs" and
"Subparagraphs" shall refer to provisions of this Agreement;
(g) all references to time herein shall mean Eastern Standard
Time or Eastern Daylight Time, as then in effect; and
1
<PAGE>
(h) all references to sections, subsections, paragraphs or other
provisions of statutes or regulations shall be deemed to include successor,
amended, renumbered and replacement provisions.
1.2 Defined Terms As used herein, the following terms shall have the
-------------
meanings indicated, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall mean any accumulated
funding deficiency as defined in ERISA (S)302(a).
"Adjusted LIBOR Rate" shall mean, for and with respect to any
applicable LIBOR Period, a rate per annum equal to the sum of (i) LIBOR,
plus (ii) eighty-five (85) basis points (0.85%).
----
"Advance" and "Advances" shall mean, individually and
collectively as appropriate, any and all Revolving Credit Advances and Line
of Credit Advances.
"Affiliate" shall mean, as to any Person:
(a) if such Person is an individual, any (i) relative no
more remote than first cousin of such Person or of a general partner
of such Person, (ii) partnership in which such Person is a general
partner, (iii) general partner of such Person, or (iv) corporation of
which such Person is a director, officer, or person in control;
(b) if such Person is a corporation, any (i) director of
such Person, (ii) officer of such Person, (iii) person in control of
such Person, (iv) partnership in which such Person is a general
partner, (v) general partner of or joint venturer with such Person, or
(vi) relative no more remote than first cousin of a general partner,
director, officer, or person in control of such Person; or
(c) if such Person is a partnership, any (i) general partner
in such Person, (ii) relative no more remote than first cousin of a
general partner in such Person, (iii) partnership in which such Person
is a general partner, (iv) general partner of such Person, or (v)
person in control of such Person.
As used in this definition, "control" shall mean possession, directly or
2
<PAGE>
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any
--------
event, any Person which owns or holds directly or indirectly twenty-five
percent (25%) or more of the voting securities or twenty-five percent (25%)
or more of the partnership or other equity interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
control such corporation or other Person.
"Agent" shall mean CoreStates Bank, N.A., as agent for the
Lenders, and any successor agent hereunder.
"Agreement" shall mean this loan agreement and any future
amendments, restatements, modifications or supplements hereof or hereto.
"Bankruptcy Code" shall mean the United States Bankruptcy Code,
Title 11 of the United States Code, as amended, or any successor law
thereto, and any rules promulgated in connection therewith.
"Borrowers" shall mean, collectively, Physician Support Systems,
Inc., a Delaware corporation, and all Subsidiaries which have executed the
signature pages of this Agreement or which have joined in this Agreement.
"Borrowing Notice" shall mean a written request by any Borrower
to the Agent for a Revolving Credit Advance pursuant hereto containing any
and all information required hereby and made pursuant to such forms as the
Agent may require from time to time.
"Business Day" shall mean a day other than a Saturday, Sunday or
legal holiday under the laws of the Commonwealth of Pennsylvania.
"Capital Expenditures" shall mean, collectively, any purchase,
acquisition, or lease, the cost or payment with respect to which is
required to be capitalized pursuant to and in accordance with Generally
Accepted Accounting Principles.
"Capital Lease Obligations" shall mean, collectively, the
obligations of any Person to pay rent or other amounts under any lease of
or other arrangement conveying the right to use real or personal property,
or a combination thereof, which obligations are required to be classified
and accounted for as capital leases on a balance sheet of
3
<PAGE>
such Person pursuant to and in accordance with Generally Accepted
Accounting Principles, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with Generally Accepted
Accounting Principles.
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor law thereto, and any regulations promulgated thereunder.
"Commitment" shall mean, individually, each Lender's commitment
to make Line of Credit Advances and Revolving Credit Advances hereunder as
set forth on Rider A attached hereto, as such Commitments may be reduced,
increased, or terminated pursuant to Section 2 hereof.
"Contamination" shall mean the presence of any Hazardous
Substance which may require Remedial Actions under applicable law.
"Controlled Group Member" shall mean:
(a) any corporation included with PSS in a controlled group
of corporations within the meaning of Code (S)414(b);
(b) any trade or business (whether or not incorporated)
which is under common control with PSS within the meaning of Code
(S)414(c); and
(c) any member of an affiliated service group of which PSS
is a member within the meaning of Code (S)414(m).
"Conversion Date" shall mean January 1, 1999.
"Conversion Notice" shall mean a notice in the form of Exhibit
-------
"A" attached hereto given by any Borrower to the Agent in accordance with
---
Section 2.3 hereof.
"Current Assets" shall mean the aggregate amount carried as
current assets on the books of PSS and its Subsidiaries on a consolidated
basis after eliminating all intercompany items.
4
<PAGE>
"Current Liabilities" shall mean the aggregate amount carried as
liabilities on the books of PSS and its Subsidiaries on a consolidated
basis for accounts payable, accrued salaries, accrued expenses, current
taxes, current rent or lease payments, and current installments of long-
term debt which are due on demand or within one year after the date as of
which Current Liabilities are to be determined, and any other debt due on
demand or within one year after the date as of which Current Liabilities
are to be determined after eliminating all intercompany items.
"Default" shall mean any event specified in Subsection 7.1,
whether or not any requirement for notice or lapse of time has been
satisfied.
"Employee Pension Plan" shall mean any pension plan which (i) is
maintained by PSS or any Controlled Group Member, and (ii) is qualified
under Code (S)401.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any regulations issued thereunder by the United
States Department of Labor or the PBGC.
"Event of Default" shall mean any event specified in Subsection
7.1, provided that any requirement for notice or lapse of time has been
satisfied.
"Fixed Charges" shall mean, with respect to PSS and its
Subsidiaries on a consolidated basis, for any applicable period and without
duplication, the sum of (i) the total amount of interest due and payable in
respect of all outstanding indebtedness, (ii) amounts due and payable in
respect of Capital Lease Obligations to the extent that such amounts are in
the nature of interest, (iii) all scheduled payments of principal on all
outstanding indebtedness, (iv) amounts paid in respect of Capital Lease
Obligations to the extent that such amounts are in the nature of principal,
(v) dividends paid, and (vi) funds disbursed for the repurchase of capital
stock, as measured over the preceding four fiscal quarters of Borrower.
"Funded Debt" shall mean, with respect to PSS and its
Subsidiaries on a consolidated basis, at any applicable date and without
duplication, the excess of (a) sum of (i) the principal amount of all
indebtedness for borrowed money and indebtedness incurred in connection
5
<PAGE>
with the acquisition of assets or capital stock, (ii) all Capital Lease
Obligations, and (iii) all guaranteed obligations, letter of credit
obligations and deferred purchase price obligations, over (b) the principal
----
amount of all Subordinated Indebtedness.
"Generally Accepted Accounting Principles" shall mean, at any
particular time, generally accepted accounting principles as in effect at
such time, provided, however, that, if employment of more than one
-----------------
principle shall be permissible at such time in respect of a particular
accounting matter, "Generally Accepted Accounting Principles" shall refer
to the principles which are then employed by PSS with the agreement of its
independent certified public accountants.
"Hazardous Substances" shall mean any chemical, solid, liquid,
gas, or other substance having the characteristics identified in, listed
under, or designated pursuant to:
(a) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. (S)9601(14), as a
"hazardous substance;"
(b) the Clean Water Act, 33 U.S.C. (S)1321(b)(2)(A), as a
"hazardous substance;"
(c) the Clean Water Act, 33 U.S.C. (S)(S)1317(a) and
1362(13), as a "toxic pollutant;"
(d) Table 1 of Committee Print Numbered 95-30 of the
Committee on Public Works and Transportation of the United States
House of Representatives, as a "toxic pollutant;"
(e) the Clean Air Act, 42 U.S.C. (S)7412(a)(1), as a
"hazardous air pollutant;"
(f) the Toxic Substances Control Act, 15 U.S.C. (S)2606(f),
as an "imminently hazardous chemical substance or mixture;"
(g) the Resource, Conservation and Recovery Act, 42 U.S.C.
(S)(S)6903(5) and 6921, as a "hazardous waste;" or
6
<PAGE>
(h) any other laws, regulations or governmental
publications, as presenting an imminent and substantial danger to the
public health or welfare or to the environment, or as otherwise
requiring special handling, collection, storage, treatment, disposal,
or transportation.
The term "Hazardous Substances" shall also include: (w) petroleum, crude
oil, gasoline, natural gas, liquified natural gas, synthetic fuel, and all
other petroleum, oil, or gasoline based products; (x) radioactive
substances, mixtures, wastes, compounds, materials, elements, products or
matters; (y) asbestos, asbestos-containing materials, polychlorinated
biphenyls, and (z) any other substance, mixture, waste, compound, material,
element, product or matter that presents an imminent and substantial danger
to the public health or welfare or to the environment upon its Release.
"Intermediate Market Rate" shall be equal to the Overnight Market
Rate plus thirty (30) basis points.
----
"Lenders" shall mean, collectively, the financial institutions
listed on Rider A attached hereto, as such Rider may be amended from time
to time.
"Line of Credit" shall mean the revolving line of credit facility
in the maximum amount of $5,000,000 described in Subsection 2.6.
"Line of Credit Advance" or "Line of Credit Advances" shall mean,
individually and collectively as appropriate, any or all advances made
under the Line of Credit.
"Line of Credit Commitment" shall mean, as at any applicable
time, the Borrower's maximum credit availability under the Line of Credit,
as established under Subsection 2.6 whether or not then fully extended.
"Line of Credit Note" shall mean the promissory note described in
Subsection 2.7 and any future amendments, restatements, modifications or
supplements thereof or thereto.
"Line of Credit Termination Date" shall mean June 30, 1998,
unless extended in writing by the Agent.
7
<PAGE>
"Loan Account" shall mean, collectively, the account or accounts
of the Borrower on the books of Agent in which are recorded the Loans and
the payments of principal and interest made by the Borrower to Agent
thereon.
"Loan Documents" shall mean, collectively, this Agreement, the
Notes and all other agreements executed and delivered to the Lenders or the
Agent by the Borrowers in connection therewith and any modifications,
amendments, restatements, substitutions and replacements of or for any of
the foregoing.
"Loans" shall mean, collectively, all Advances and the Term
Loans.
"London Interbank Offered Rate" shall mean, for and with respect
to any LIBOR Loan and any LIBOR Period applicable thereto, the rate
(rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the
composite London Interbank Offered Rate for dollar ($) deposits
approximately equal in principal amount to the amount of such LIBOR Loan
and for a maturity comparable to such LIBOR Period appearing on the
Telerate Screen Page 3750 at approximately 11:00 A.M., London time, on the
date that is two (2) LIBOR Business Days prior to the commencement of such
LIBOR Period; provided, however, that if such rate shall for any reason not
-------- -------
be available on the Telerate Screen Page 3750 at such time, the London
Interbank Offered Rate shall be the arithmetic average of the rates at
which dollar ($) deposits approximately equal in principal amount to the
amount of such LIBOR Loan and for a maturity comparable to such LIBOR
Period are offered to the principal London office of any bank designated by
Agent in immediately available funds in the London interbank market at
approximately 11:00 A.M., London time, two (2) LIBOR Business Days prior to
the commencement of such Interest Period. As used herein, the term
"Telerate Screen Page 3750" shall mean the display designated as the page
for LIBOR on the Dow Jones Telerate Service (or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks).
"LIBOR" shall mean, for each LIBOR Loan and LIBOR Period
applicable thereto, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100th of 1%) determined by the Agent according to the
following formula:
8
<PAGE>
X
R = -----
1-Y
where R = LIBOR
X = London Interbank Offered Rate for such LIBOR Loan for
the applicable LIBOR Period
Y = the average of the daily rates (expressed as a decimal
fraction) of maximum reserve requirements which are, at
any time, applicable during such LIBOR Period
(including, without limitation, basic, special,
supplemental, marginal and emergency reserves) under
any regulations of the Board of Governors of the
Federal Reserve System or other banking authority,
domestic or foreign, as now and from time to time
hereafter in effect, prescribed for eurocurrency
funding (currently referred to as Eurocurrency
Liabilities in Regulation D of such Board) to which the
Agent (including any branch, Affiliate, or other
fronting office making or holding a LIBOR Loan) is
subject, as now and from time to time hereafter in
effect.
"LIBOR Business Day" shall mean any Business Day on which
commercial banks are open for international business (including dealing in
Dollar ($) deposits) in London, England and Philadelphia, Pennsylvania.
"LIBOR Loan" shall mean any Loan or portion thereof which bears
interest at the Adjusted LIBOR Rate pursuant hereto.
"LIBOR Period" shall mean, with respect to any Loan or portion
thereof bearing interest at the Adjusted LIBOR Rate pursuant hereto, the
period commencing on the date on which the Loan or portion thereof begins
to bear interest at the Adjusted LIBOR Rate in accordance herewith and
ending thirty (30), sixty (60), ninety (90), or one hundred eighty (180)
days thereafter, as appropriate, as selected by any Borrower pursuant to
Section 2.5, subject to the following:
9
<PAGE>
(i) if the last day of the LIBOR Period selected by such
Borrower pursuant to Section 2.5 does not fall on a Business Day:
(A) the LIBOR Period shall be automatically extended
until the next succeeding Business Day unless such Business Day
falls in another calendar month, in which case such LIBOR Period
shall end on the next preceding Business Day;
(B) interest shall, to the extent applicable, continue
to accrue at the Adjusted LIBOR Rate; and
(C) the next LIBOR Period elected, or deemed to have
been elected, by such Borrower with respect to the LIBOR Loan to
which the LIBOR Period relates, if any, shall commence on the day
following the Business Day described in clause (i)(A) above; and
(ii) any LIBOR Period that begins on the last Business Day
of the calendar month (or on a date for which there is no numerically
corresponding day in the calendar month in which such LIBOR Period
ends) shall end on the last Business Day of a calendar month and the
next LIBOR Period with respect to the LIBOR Loan to which the LIBOR
Period relates, if any, shall commence on such Business Day.
"Market Rate Loan" and "Market Rate Loans" shall mean,
individually and collectively, as appropriate, any and all loans made by
the Lenders to the Borrowers bearing interest at the Overnight Market Rate
or the Intermediate Market Rate.
"Minimum LIBOR Loan Amount" shall mean One Million Dollars
($1,000,000).
"Multiemployer Plan" shall mean a multiemployer pension plan as
defined in ERISA (S)3(37) to which PSS or any Controlled Group Member is or
has been required to contribute subsequent to September 25, 1980.
"Net Cash Flow" shall mean, for any applicable period, the
consolidated net income of PSS for its most recently completed four fiscal
quarters plus (a) the sum of (i) interest expense taken into
----
10
<PAGE>
account in connection with the determination of that income, (ii) income
tax expense taken into account in connection with the determination of that
income, (iii) depreciation and amortization expense taken into account in
connection with the determination of that income, (iv) merger costs taken
into account in connection with the determination of that income, and (v)
restructuring changes taken into account in connection with the
determination of that income, minus (b) Capital Expenditures for such four
-----
fiscal quarters.
"Notes" shall mean, collectively, the Line of Credit Note, the
Revolving Credit Note, and the Term Notes.
"Obligations" shall mean all liabilities, duties and obligations
of the Borrowers to the Lenders with respect to any covenants,
representations or warranties herein or in the Loan Documents, with respect
to the principal of and interest on the Loans, and all other present and
future fixed and/or contingent obligations of the Borrowers to the Lenders
under the Loan Documents, including, without limitation, obligations with
respect to interest accruing (or which would accrue but for (S)502 of the
Bankruptcy Code) after the date of any filing by any Borrower of any
petition in bankruptcy or the commencement of any bankruptcy, insolvency or
similar proceedings with respect to any Borrower.
"Overnight Market Rate" shall mean a floating per annum rate of
interest equal to the sum of (a) the interest rate quoted by Garvin as the
opening Federal Funds Rate appearing on the Telerate Screen, plus (b)
eighty-seven basis points (0.87%).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PSS" shall mean Physician Support Systems, Inc., a Delaware
corporation.
"Person" shall mean an individual, a corporation, a partnership,
a joint venture, a trust or unincorporated organization, a joint stock
company or other similar organization, a government or any political
subdivision thereof, or any other legal entity.
"Premises" shall mean the real properties, improvements thereon
and fixtures attached thereto owned or leased by any Borrower.
11
<PAGE>
"Prime Rate" shall mean the floating annual rate of interest that
is designated from time to time by Agent as the "Prime Rate" and is used by
Agent as a reference base with respect to different interest rates charged
to borrowers generally. Such rate of interest shall change simultaneously
and automatically upon Agent's designation of any change in such reference
rate, and Agent's determination and designation from time to time of the
reference rate shall not in any way preclude Agent from making loans to
other borrowers at rates which are higher or lower than or different from
the referenced rate.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, or dumping.
"Remedial Actions" shall mean:
(a) clean-up or removal of Hazardous Substances;
(b) such actions as may be necessary to monitor, assess, or
evaluate the Release or threatened Release of Hazardous Substances;
(c) proper disposal or removal of Hazardous Substances;
(d) the taking of such other actions as may be necessary to
prevent, minimize, or mitigate the damages caused by a Release or
threatened Release of Hazardous Substances to the public health or
welfare or to the environment; and
(e) the providing of emergency assistance after a Release.
Remedial Actions include, but are not limited to, such actions at the
location of a Release as: storage; confinement; perimeter protection using
dikes, trenches, or ditches; clay cover; neutralization; clean-up of
Hazardous Substances or contaminated materials; recycling or reuse;
diversion; destruction; segregation of reactive wastes; dredging or
excavations; repair or replacement of leaking containers; collection of
leachate and runoff; onsite treatment or incineration; providing
alternative water supplies; and any monitoring reasonably required to
assure that such actions protect the public health and welfare and the
environment.
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<PAGE>
"Reorganization" shall mean reorganization as defined in ERISA
(S)4241(a).
"Reportable Event" shall mean with respect to any Employee
Pension Plan, an event described in ERISA (S)4043(b).
"Required Lenders" shall mean Lenders that own, in the aggregate,
at least 66 2/3% of the Commitments.
"Revolving Credit Advance" or "Revolving Credit Advances" shall
mean, individually and collectively as appropriate, any or all advances
made under the Revolving Credit Facility.
"Revolving Credit Commitment" shall mean, as at any applicable
time, the Borrowers' maximum credit availability under the Revolving Credit
Facility, as established under Subsection 2.1 whether or not then fully
extended.
"Revolving Credit Facility" shall mean the revolving credit
facility in the maximum amount of $30,000,000 described in Subsection 2.1.
"Revolving Credit Note" shall mean the promissory note of the
Borrowers described in Subsection 2.2 and any future amendments,
restatements, modifications, or supplements thereof or thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Significant Subsidiary" shall mean (a) Spring Anesthesia Group,
Inc., Synergistic Systems, Inc., and EE&C Financial Services, Inc., and (b)
any other Subsidiary that at the Closing Date or at any date thereafter has
annual revenues in excess of $10,000,000 in any calendar year.
"Subordinated Indebtedness" shall mean (i) the indebtedness owed
by PSS to the L. David Covell Living Trust and Spring Investment Limited
Liability Company in a principal amount not to exceed $5,500,000 in the
aggregate (the "Spring Debt"), (ii) any indebtedness of PSS or any
Subsidiary that is subordinated on substantially the same basis as the
Spring Debt, and (iii) any other indebtedness of PSS or any Subsidiary, if
any, for money borrowed, whether now existing or
13
<PAGE>
hereafter incurred, which is approved by the Agent as Subordinated
Indebtedness before it is incurred by PSS or such Subsidiary.
"Subsidiary" shall mean any corporation more than fifty percent
(50%) of the outstanding shares of capital stock of which (except for
directors' qualifying shares, if required by law) are at the time owned by
PSS and/or one or more Subsidiaries.
"Term Loan" and "Term Loans" shall mean, individually and
collectively, as appropriate, any and all loans made by Lenders to the
Borrowers under Section 2.3.
"Term Note" and "Term Notes" shall mean, individually and
collectively, as appropriate, any and all promissory notes of the Borrowers
described in Section 2.4.
"Termination Date" shall mean January 1, 2004.
"Withdrawal Liability" shall mean any withdrawal liability as
defined in ERISA (S)4201.
SECTION 2. AMOUNT AND TERMS OF LOANS.
2.1 Revolving Credit
----------------
(a) Subject to, and in accordance with, the terms and conditions
of this Agreement, each Lender severally (but not jointly) agrees to extend
credit to the Borrowers by making loans to them, from time to time during
the period commencing on the Closing Date and ending on the Business Day
preceding the Conversion Date, in an aggregate amount that shall not
exceed, at any one time outstanding, Thirty Million Dollars ($30,000,000).
No Lender shall be required to extend loans in excess of such Lender's
Commitment.
(b) During the period referred to in Paragraph 2.1(a), the
Borrowers may use the Revolving Credit Commitment by borrowing, repaying
and reborrowing. Subject to the provisions of Section 2.5(b), the
Borrowers shall notify the Agent in writing of each proposed borrowing
under the Revolving Credit Facility not later than 10:00 A.M. on the day of
such proposed borrowing. Each such borrowing and repayment shall be either
(i) in integral multiples of Five Hundred Thousand Dollars ($500,000) or
(ii) equal to the remaining credit availability under the
14
<PAGE>
Revolving Credit Commitment. The Borrowers authorize and direct the Lenders
to disburse the proceeds of each such borrowing by direct deposit to demand
deposit account number 0015355336 of PSS with the Agent.
(c) The Borrowers may by written notice to the Agent permanently
reduce or terminate the Revolving Credit Commitment, provided that the
Borrowers concurrently therewith pay to the Agent for the account of the
Lenders the amount by which the aggregate outstanding Revolving Credit
Advances exceeds the Revolving Credit Commitment as so reduced or
terminated, together with any amounts due under Subsection 2.16.
2.2 Revolving Credit Note.2 Revolving Credit Note". On the date
----------------------- ---------------------
hereof, the Borrowers shall execute and deliver to the Agent a promissory note,
which shall evidence the Borrowers' obligations to repay the principal of,
interest on, and other amounts due in connection with the Revolving Credit
Facility and which shall:
(a) be dated the Closing Date and be payable to the Agent's order
in the principal amount of Thirty Million Dollars ($30,000,000);
(b) bear interest on the unpaid principal amount of any
outstanding Revolving Credit Advances from the dates of such advances at an
annual rate selected by the Borrowers pursuant to Section 2.5;
(c) be payable, with respect to LIBOR Loans, as to interest at
the expiration of the LIBOR Period applicable thereto; provided, however,
-------- -------
for LIBOR Loans having a LIBOR Period in excess of three (3) months,
interest shall be payable at the expiration of each three (3) month period
during the LIBOR Period and at the expiration of the LIBOR Period;
(d) be payable as to interest with respect to Market Rate Loans
monthly, commencing January 1, 1997, and continuing on the first day of
each month thereafter until payment in full of the unpaid principal amount
thereof and all accrued but unpaid interest thereon; and
(e) be payable in full as to the entire unpaid principal balance,
all accrued interest and other sums due thereunder on the sooner of (i) the
Conversion Date; (ii) upon written demand after the occurrence of an Event
of Default; or (iii) immediately and
15
<PAGE>
automatically upon any Event of Default described in Paragraphs (e) or (f)
of Subsection 7.1.
2.3 Term Loans
----------
(a) At any time on or before the Conversion Date, any Borrower,
at its option, may elect to convert all or any portion of any outstanding
Revolving Credit Advance into a term loan (a "Term Loan"), by giving
written notice thereof to the Agent in form of Exhibit "A" attached hereto
-----------
(a "Conversion Notice"). A Conversion Notice shall state (i) the amount of
the Revolving Credit Advance converted to a Term Loan, (ii) the interest
rate with respect to such Term Loan selected by such Borrower pursuant to
Section 2.5(i), and (iii) the maturity date of such Term Loan (which shall
not be later than five (5) years from the date of conversion or the
Termination Date, whichever comes first) (the "Maturity Date"). No portion
-------------
of any Revolving Credit Advance that is a LIBOR Loan may be converted into
a Term Loan prior to the expiration of the applicable LIBOR Period.
(b) The Revolving Credit Commitment will be reduced by the
outstanding principal balance of each Term Loan. As the outstanding
principal balance of any Term Loan is repaid, the Revolving Credit
Commitment shall increase by the amount of principal repaid on such Term
Loan.
2.4 Term Loan Notes On the date that any Revolving Advance or
---------------
portion thereof is converted to a Term Loan (a "Change Date"), the Borrowers
shall execute and deliver to the Agent a promissory note of the Borrowers in the
form of Exhibit "B" attached hereto, which shall evidence the Borrowers'
-----------
obligations to repay the principal of, interest on, and all other amounts due in
connection with such Term Loan, and which shall:
(a) be dated the Change Date and be payable to the Agent's order
in the principal amount of such Term Loan;
(b) bear interest on the unpaid principal amount of such Term
Loan from the Change Date at an annual rate selected by any Borrower
pursuant to Section 2.5;
(c) be payable as to interest the first day of each calendar
month until payment in full of the unpaid principal amount of, and all
accrued but unpaid interest thereon; and
16
<PAGE>
(d) be payable as to principal in equal, consecutive monthly
installments commencing on the first day of the next succeeding calendar
month and continuing on the first day of each calendar month thereafter and
in one final payment on the Maturity Date equal to the unpaid principal
balance thereof. Each monthly payment will be equal to the original
principal balance of such Term Note divided by the number of months from
the Change Date to the Maturity Date.
2.5 Interest Rate Elections.
-----------------------
(a) Any Borrower, subject to any prior continuing interest rate
elections made pursuant to Section 2.5(b), at any time and from time to
time, may notify the Agent that it is electing to have interest accrue at
the Overnight Market Rate on a specific portion (up to and including 100%)
of the aggregate unpaid amount of any Revolving Credit Advance. All
Revolving Credit Advances for which an interest rate option is not
specifically designated by a Borrower, pursuant to the terms hereof, or not
requested in conformity with the terms hereof, shall be bear interest at
the Overnight Market Rate.
(b) Subject to the notice provisions set forth in this Section
2.5(b), at any time and from time to time, any Borrower may notify (which
notice shall be irrevocable) the Agent that it is electing to have interest
accrue for a LIBOR Period specified in writing by such Borrower at the
Adjusted LIBOR Rate on a specific portion (up to and including 100%) of the
aggregate unpaid amount of any Revolving Credit Advance (including any
Revolving Credit Advance to be made by the Lenders to the Borrowers on the
date of election) equal to the amount specified by the Borrower. A
Borrower shall notify the Agent not later than 10:00 A.M. two (2) LIBOR
Business Days before the date on which the Borrowers desire any Revolving
Credit Advance to bear interest at the Adjusted LIBOR Rate.
Notwithstanding anything contained herein to the contrary, any LIBOR Loan
shall be in minimum denominations equal to the Minimum LIBOR Loan Amount
and in multiples thereof if in excess thereof.
(c) Following an interest rate election made by any Borrower with
respect to any Revolving Credit Advance pursuant to Sections 2.5(a) or
2.5(b), but subject to all other conditions of this Agreement, such
Borrower may, in accordance with the provisions of Sections 2.5(a) and
2.5(b), from time to time, elect to convert or continue the type of
interest rate borne by such Revolving Credit Advance. In the event that a
Borrower fails to provide the Agent with
17
<PAGE>
any notice of conversion or continuance, as described above, such Revolving
Credit Advance shall immediately and automatically become a Market Rate
Loan and shall commence bearing interest at the Overnight Market Rate.
Notwithstanding anything contained herein to the contrary, no Borrower
shall convert any LIBOR Loan to a Market Rate Loan until the expiration of
the LIBOR Period then in effect with respect thereto.
(d) Each LIBOR Period shall end prior to the Termination Date and
the Borrower's election of LIBOR Periods hereunder shall not violate the
provisions of this Section 2.5(d).
(e) In the event that the Agent shall determine (which
determination shall be conclusive and binding upon the Borrowers) that, by
reason of circumstances affecting the interbank eurodollar market or
otherwise, adequate and reasonable means do not exist for ascertaining
LIBOR, the Borrowers' right to elect to have interest accrue on any
Revolving Credit Advance at the Adjusted LIBOR Rate shall be suspended
until such time that the Agent determines that adequate and reasonable
means exist for ascertaining LIBOR.
(f) Notwithstanding anything contained herein to the contrary, if
any applicable law, treaty, regulation or directive, or any change in or in
the application or interpretation of such law, treaty, regulation or
directive, or any other event shall make it unlawful for any Lender to make
or maintain LIBOR Loans:
(i) The obligation of the Lenders to make or maintain LIBOR
Loans shall be cancelled automatically and immediately; and
(ii) Such LIBOR Loans shall convert automatically and
immediately to Market Rate Loans and bear interest at the Overnight
Market Rate.
(g) The Borrowers shall not prepay, in whole or in part, any
LIBOR Loans prior to the expiration of the appropriate LIBOR Period
applicable thereto. The Borrowers shall indemnify the Lenders and hold the
Lenders harmless from and against any and all direct and indirect costs and
losses (including losses resulting from redeployment of prepaid or
reborrowed funds at rates lower than the cost of such funds to the
Lenders), but not lost profits, that the Lenders may sustain or incur as a
result of (i) any prepayment of a LIBOR Loan, (ii) the conversion of a
LIBOR Loan to a Market Rate Loan prior to the expiration of the LIBOR
Period applicable thereto, (iii) a Revolving Credit Advance
18
<PAGE>
being converted from a LIBOR Loan to a Market Rate Loan by reason of the
circumstances described in Section 2.5(e) or (f), or (iv) a LIBOR Loan not
being made after notice thereof is provided to the Agent pursuant hereto.
Such agreement to indemnify shall include, without limitation, any interest
payable by the Lenders to lenders of funds obtained by the Lenders in order
to make or maintain LIBOR Loans pursuant hereto.
(h) Following the occurrence of an Event of Default, the
Borrowers may not elect to have any Revolving Credit Advance made or
maintained as, or converted into, a LIBOR Loan after the expiration of any
LIBOR Period then in effect for that Revolving Credit Advance.
(i) With respect to any Term Loan, any Borrower may elect in a
Conversion Notice to have the Term Loan bear interest at the Intermediate
Market Rate or a fixed rate of interest quoted by the Agent at the request
of such Borrower for up to a five (5) year term.
2.6 Line of Credit.
--------------
(a) Subject to, and in accordance with, the terms and conditions
of this Agreement, each Lender severally (but not jointly) agrees to extend
credit to the Borrowers by making loans to them, from time to time during
the period commencing on the Closing Date and ending on the Business Day
preceding the Line of Credit Termination Date, in an aggregate amount that
shall not exceed, at any one time outstanding, Five Million Dollars
($5,000,000). No Lender shall be required to extend loans in excess of
such Lender's Commitment.
(b) During the period referred to in Paragraph 2.6(a), the
Borrowers may use the Line of Credit by borrowing, repaying and
reborrowing. The Borrowers shall notify the Agent orally or in writing of
each proposed borrowing under the Line of Credit not later than 2:00 p.m.,
on the day of such proposed borrowing. Each such borrowing and repayment
shall be either (i) in integral multiples of Ten Thousand Dollars ($10,000)
or (ii) equal to the remaining credit availability under the Line of Credit
Commitment. The Borrowers authorize and direct the Lender to disburse the
proceeds of each such borrowing by direct deposit to demand deposit account
number 0015355336 of PSS with the Agent.
(c) The Line of Credit Termination Date may be extended or
renewed by the Required Lenders, in their sole discretion, on a day-to-day
basis or otherwise, based on a letter to such effect from the
19
<PAGE>
Agent to the Borrowers or by a written agreement between the parties
hereto.
(d) The Borrowers may by written notice to the Agent permanently
reduce or terminate the Line of Credit Commitment, provided that the
Borrowers concurrently therewith pay to the Agent for the account of the
Lenders the amount by which the aggregate outstanding Line of Credit
Advances exceeds the Line of Credit Commitment as so reduced or terminated,
together with any amounts due under Subsection 2.16.
2.7 Line of Credit Note. On the date hereof, the Borrowers shall
-------------------
execute and deliver to the Agent a promissory note, which shall evidence the
Borrowers' obligations to repay the principal of, interest on, and other amounts
due in connection with the Line of Credit, and which shall:
(a) be dated the Closing Date and be payable to the Agent's order
in the principal amount of Five Million Dollars ($5,000,000);
(b) bear interest on the unpaid principal amount of any funds
advanced and outstanding under the Line of Credit from the dates of such
advances at an annual rate equal to the lesser of (i) the Agent's Prime
Rate or (ii) the Overnight Market Rate plus sixty-five basis points
(0.65%);
(c) be payable as to interest monthly, commencing on January 1,
1997, and continuing on the same day of each month thereafter until payment
in full of the unpaid principal amount thereof, and all accrued but unpaid
interest thereon; and
(d) be payable in full as to the entire unpaid principal balance,
all accrued interest and other sums due thereunder on the sooner of (i) the
Line of Credit Termination Date; (ii) upon written demand after the
occurrence of an Event of Default, or (iii) immediately and automatically
upon any Event of Default described in Paragraphs (e) or (f) of Subsection
7.1.
2.8 Fees. In connection with the Revolving Credit Facility, the
----
Borrowers shall pay to the Lenders the following fees, all of which shall be
non-refundable:
20
<PAGE>
(a) An unused commitment fee payable within fifteen days after
the end of each calendar quarter, commencing April 15, 1997, in an amount
equal to the product of (i) the Revolving Credit Commitment minus the daily
-----
average during such calendar quarter of the outstanding principal balance
of all outstanding Revolving Credit Advances, and (ii) .0625%;
(b) A commitment fee of $37,500 payable on the Closing Date with
respect to the Revolving Credit Facility;
(c) An unused commitment fee payable within fifteen days after
the end of each calendar quarter, commencing April 15, 1997, in an amount
equal to the product of (i) the Line of Credit Commitment minus the daily
-----
average principal balance during such calendar quarter of the outstanding
principal balance of all outstanding Line of Credit Advances, and (ii)
.0625%; and
(d) A commitment fee of $6,250 payable on the Closing Date with
respect to the Line of Credit.
The fees payable under paragraphs (a) and (c) of this Subsection 2.8 shall be
adjusted on a pro rata basis if the Line of Credit Commitment or the Revolving
Credit Commitment is reduced or terminated during any calendar quarter.
2.9 Loan Account. The Agent shall record in one or more Loan
------------
Accounts, the Loans, all advances to and all payments made by the Borrowers on
account of the Loans, and all other appropriate debits and credits. Each month
the Agent shall render to PSS a statement setting forth the debit balance of the
Loan Account as of the close of the preceding month, together with a statement
of the amount of interest and other charges due the Lenders as of that time.
Each statement shall be considered correct and accepted by the Borrowers and
conclusively binding upon the Borrowers unless the Borrowers notify the Agent to
the contrary in writing within ten (10) days from the receipt of the statement.
2.10 Computation of Interest. Interest shall be calculated on the
-----------------------
basis of a 365/366-day year for actual days elapsed. Any change in the interest
rate on the Notes resulting from a change in the Prime Rate, the Overnight
Market Rate, or the Intermediate Market Rate shall become effective as of the
opening of business on the day on which such change in the Prime Rate, the
Overnight Market Rate, or the Intermediate Market Rate shall occur.
2.11 Maximum Legal Rate. The Borrowers shall not be obligated to
------------------
21
<PAGE>
pay and Lenders shall not collect interest on any Obligation at a rate in excess
of the maximum permitted by law or the maximum that will not subject Lenders to
any civil or criminal penalties. If, because of the acceleration of maturity,
the payment of interest in advance or any other reason, the Borrowers are
required, under the provisions of any Loan Document or otherwise, to pay
interest at a rate in excess of such maximum rate, the rate of interest under
such provisions shall immediately and automatically be reduced to such maximum
rate, and any payment made in excess of such maximum rate, together with
interest thereon at the rate provided herein from the date of such payment,
shall be immediately and automatically applied to the reduction of the unpaid
principal balance of the Obligation as of the date on which such excess payment
was made. If the amount to be so applied to reduction of the unpaid principal
balance exceeds the unpaid principal balance, the amount of such excess shall be
refunded by Lenders to the Borrowers.
2.12 Payments. All payments (including prepayments) by
--------
the Borrowers hereunder shall be made at 51 South Duke Street, Lancaster,
Pennsylvania 17602 or such other place or places as the Agent may direct, prior
to 2:00 P.M. on the date of payment, in lawful money of the United States of
America, and in immediately available funds, and, when due or upon instruction
from PSS, may be made by debit to PSS's account number 0015355336 with the
Agent.
2.13 Application of Payments. All payments shall be applied first to
-----------------------
the payment in full of any costs incurred in the collection of any Obligation,
including (without limitation) reasonable attorneys' fees, then to the payment
in full of any late charges, then to the payment in full of accrued and unpaid
interest and then to the reduction of the unpaid principal balance on the Line
of Credit and then to the unpaid principal balance on the Revolving Credit
Facility.
2.14 Late Charges. If the Borrowers shall fail to pay any
------------
installment of interest or principal due under the Loans or any other sum due to
the Lenders under any of the Loan Documents within fifteen (15) days after the
date it is due, the Borrowers shall pay to the order of the Lenders,
immediately, without notice or demand, a late charge equal to two percent (2.0%)
of the amount overdue to defray part of the additional expense incurred by the
Lenders in connection with the delinquency and collection of the overdue amount.
The provision for such late charge shall not be construed to permit the
Borrowers to make any payment after its due date, obligate the Lenders to accept
any overdue installment, or affect the Lenders' rights and remedies upon the
occurrence of a Default or an Event of Default.
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<PAGE>
2.15 Mandatory Payments. If the unpaid principal balance of the
------------------
Line of Credit Note exceeds the Line of Credit Commitment at any time, the
Borrowers shall immediately pay to the Agent for application to the Line of
Credit Note an amount equal to such excess.
2.16 Voluntary Prepayments.
---------------------
(a) Subject to Subsection 2.5 and paragraphs (b) and (c) below,
the Borrowers at any time and from time to time may voluntarily prepay any
Loan (whether a Term Loan or an Advance), in whole or in part, upon
notification to the Agent of such prepayment not later than 2:00 P.M. on
the date of prepayment, in integral multiples of One Hundred Thousand
Dollars ($100,000). Any partial prepayments of principal shall be applied
against scheduled payments of principal in the inverse order of maturity
and shall not postpone or reduce any regularly scheduled payment of
principal or interest thereon.
(b) If the Borrowers prepay, in whole or in part, any LIBOR Loan
prior to the expiration of the appropriate LIBOR Period applicable thereto,
then the Borrowers shall indemnify the Lenders and hold the Lenders
harmless from and against any and all direct and indirect costs and losses
(including losses from redeployment of prepaid or unborrowed funds at rates
lower than the cost of such funds to Lenders), but not lost profits, that
any Lender may sustain or incur as a result of such prepayment of a LIBOR
Loan. Such agreement to indemnify shall include, without limitation, any
interest payable by the Lenders to lenders of funds obtained by the Lenders
in order to make or maintain LIBOR Loans pursuant hereto.
(c) The Borrowers may prepay any Term Loan in whole, but not in
part, at any time, but any prepayment of principal of any Term Loan bearing
interest at a fixed rate of interest shall be accompanied by a payment of
all accrued and unpaid interest on the principal so prepaid plus a
prepayment premium equal to the amount, if any, by which (i) each
installment of principal being prepaid is discounted to a present value at
a rate per annum equal to the yield to maturity of the "Applicable Treasury
Bond Obligation(s)" exceeds (ii) the principal amount being prepaid. The
"Applicable Treasury Bond Obligation(s)" shall mean the debt obligation(s)
of the United States Treasury having a maturity date nearest in time to the
maturity date(s) of the principal being prepaid and the maturity date and
yield to maturity of such Applicable Treasury Bond Obligation(s) as shall
be determined by the
23
<PAGE>
Agent in its sole discretion on the basis of quotations published in the
Wall Street Journal (or a comparable source chosen by the Agent) on the
-------------------
date of prepayment.
2.17 Limitations on Revolving Credit Advances. Except for the
----------------------------------------
repayment on the Closing Date of certain obligations owed to the Bank of New
York, Revolving Credit Advances may only be used to finance acquisitions by the
Borrowers or their wholly-owned Subsidiaries of companies engaged in businesses
with lines of business similar to the lines of business in which Borrowers are
currently engaged. If, in connection with any such acquisition, (a) a Borrower
requests a Revolving Credit Advance, and (b) the sum of (i) the aggregate amount
of all Revolving Credit Advances outstanding at such time and (ii) such
requested Revolving Credit Advances exceeds $10,000,000, then such acquisition
must be approved by the Agent, which approval shall not be unreasonably withheld
or delayed.
2.18 Borrower's Obligations. Except for PSS, the maximum liability
----------------------
of each Borrower hereunder shall be limited to the greater of (i) that amount of
the Advances that were advanced or contributed to that Borrower or used to pay
obligations of that Borrower, and (ii) such amount as will not cause such
Borrower's obligations hereunder to be unenforceable.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
To induce Agent and the Lenders to enter into this Agreement and to
make the Loans, each Borrower represents and warrants to Agent and the Lenders
that:
3.1 Organization and Qualification. Each Borrower is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified as a foreign corporation
and in good standing under the laws of each jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification and in
which the failure to so qualify would have a material adverse effect on the
business or financial condition of PSS or such Subsidiary.
3.2 Power and Authority. Each Borrower has the corporate power to
-------------------
execute, deliver and perform under, the Loan Documents and to borrow under this
Agreement and has taken all necessary corporate action to authorize the
borrowings hereunder on the terms and conditions of this Agreement and the
execution and delivery of, and performance under, the Loan Documents. No consent
of any other party (including stockholders of the Borrowers) and no
24
<PAGE>
consent, license, approval or authorization of, or registration or declaration
with, any governmental authority, bureau or agency is required in connection
with the execution, delivery, performance, validity or enforceablility of the
Loan Documents.
3.3 Enforceability. The Loan Documents, when executed and delivered
--------------
to Agent pursuant to the provisions of this Agreement, will constitute valid
obligations of each Borrower legally binding upon it and enforceable in
accordance with their respective terms, except as enforceability of the
foregoing may be limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors' rights and
general equitable principles.
3.4 Conflict with Other Instruments. The execution and delivery of,
-------------------------------
and performance under, the Loan Documents will not violate or contravene any
provision of any existing law or regulation or decree of any court, governmental
authority, bureau or agency having jurisdiction in the premises or of the
Articles of Incorporation or of the By-Laws of any Borrower or of any material
mortgage, indenture, security agreement, contract, undertaking or other
agreement to which any Borrower is a party or which purports to be binding upon
it or any of its properties or assets, and will not result in the creation or
imposition of any lien, charge, encumbrance on, or security interest in, any of
its properties or assets pursuant to the provisions of any such mortgage,
indenture, security agreement, contract, undertaking or other agreement.
3.5 Litigation. No actions, suits or proceedings before any court
----------
or governmental department or agency (whether or not purportedly on behalf of
PSS or any Significant Subsidiary) are pending or, to the knowledge of the
Borrowers, threatened (a) with respect to any of the transactions contemplated
by this Agreement or (b) against or affecting PSS or any Significant Subsidiary
or any of its properties that could reasonably be expected to have a material
adverse effect upon the financial condition, business or operations of PSS or
any Significant Subsidiary or the Borrowers' ability to perform any of their
obligations under the Loan Documents.
3.6 Title to Assets. Except as disclosed in writing to the Agent or
---------------
in PSS's most recent audited financial statements, no assets of any Borrower or
any Subsidiary are subject to any mortgages, pledges, charges, liens, security
interests or other encumbrances that would be required to be disclosed in
audited financial statements of PSS in accordance with Generally Accepted
Accounting Principles.
25
<PAGE>
3.7 Licenses; Intellectual Property. PSS and each Significant
-------------------------------
Subsidiary owns or has a valid right to use the licenses, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions, and intellectual property rights being used to conduct
its business as now operated; and the conduct of the business of each Borrower
as now operated does not conflict with valid licenses, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions, and intellectual property rights of others. No claim is
pending or, to the Borrowers' knowledge, threatened to the effect that any such
intellectual property owned or licensed by the Borrowers or which the Borrower
otherwise has the right to use, is invalid or unenforceable by the Borrower, as
the case may be. Except as disclosed to the Agent, the Borrower has no
obligation to compensate any Person for the use of any such rights, and no
Person has been granted any license or other rights to use in any manner any of
the rights of the Borrower or any Subsidiary, whether requiring the payment of
royalties or not.
3.8 Default. No Default or Event of Default hereunder has occurred
-------
and is continuing.
3.9 Taxes. PSS and each Significant Subsidiary has filed or caused
-----
to be filed all tax returns (including, without limitation, those relating to
federal and state income taxes) required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it (other than those being contested in good faith by appropriate proceedings
for which adequate reserves have been provided on its books). No tax liens have
been filed against any assets of the Borrower or any Subsidiary, and no claims
are being asserted with respect to such taxes which could have a material
adverse effect upon the financial condition, business or operations of the
Borrower or any Subsidiary.
3.10 Financial Condition. All consolidated and consolidating balance
-------------------
sheets, profit and loss statements, and other financial statements of PSS, dated
as of September 30, 1996, all of which have heretofore been delivered to the
Lenders, and all financial statements and data of PSS which will hereafter be
furnished to the Lenders, do or will (when furnished) present fairly in all
material respects the consolidated financial position of PSS and the results of
its operations as of the dates and for the periods for which the same are
furnished. All such financial statements have been prepared in accordance with
Generally Accepted Accounting Principles applied on a consistent basis. Neither
PSS nor any Significant Subsidiary possesses any "loss contingency" (as that
term is defined in Financial Accounting Standards Board, Statement of Financial
Accounting
26
<PAGE>
Standards Board, Statement of Financial Accounting Standards No. 5 - "FASB 5")
which is not accrued, reflected, or reserved against in its balance sheet or
disclosed in the footnotes to such balance sheet. There has been no material
adverse change in the business, properties, operations or condition (financial
or otherwise) of PSS or any Significant Subsidiary since the date of the
financial statements which were most recently furnished by the Borrowers to the
Lenders.
3.11 ERISA.
-----
(a) Except as specifically disclosed to the Lenders in writing
prior to the date of this Agreement:
(i) there is no Accumulated Funding Deficiency with respect
to any Employee Pension Plan;
(ii) no Reportable Event has occurred with respect to any
Employee Pension Plan;
(iii) no violations of the Code have occurred that could
potentially cause the loss of the tax qualified status of any Employee
Pension Plan other than violations that are cureable without material
expense to the Borrower;
(iv) neither PSS nor any Controlled Group Member has
incurred Withdrawal Liability with respect to any Multiemployer Plan;
and
(v) no Multiemployer Plan is in Reorganization.
(b) No liability (whether or not such liability is being
litigated) has been asserted against PSS or any Controlled Group Member in
connection with any Employee Pension Plan or any Multiemployer Plan by the
PBGC, by the trustee of a trust established pursuant to ERISA (s) 4049, by
a trustee appointed pursuant to ERISA (s)4042(b) or (c), or by a sponsor or
an agent of a sponsor of a Multiemployer Plan, and no lien has been
attached and no person has threatened to attach a lien on any of PSS's or
its Controlled Group Members' property as a result of failure to comply
with ERISA or as a result of the termination of any Employee Pension Plan.
(c) Each Employee Pension Plan, as most recently amended,
27
<PAGE>
including amendments to any trust agreement, group annuity or insurance
contract, or other governing instrument, is the subject of a favorable
determination letter by the Internal Revenue Service with respect to its
qualifications under (s)Code 401(a) and such Employee Pension Plan's
related trusts are exempt from taxation under (s)Code 501(a). PSS has
furnished Lenders with a copy of the most recent actuarial report for each
Employee Pension Plan which is a defined benefit pension plan and each such
report is accurate in all material respects. Neither PSS nor any Controlled
Group Member has an unfulfilled obligation to contribute to any
Multiemployer Plan other than for periodic contributions on account of
current services of current employees that are not past due.
3.12 Regulation U. Neither PSS nor any Significant Subsidiary is
------------
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and (except for a tender offer for the
stock of a company whose stock is publicly traded) no part of the proceeds of
the Loans will be used to purchase or carry any margin stock or to reduce or
retire any indebtedness incurred for such purpose or to extend credit to others
for such purpose.
3.13 No Notices; No Violations. Neither PSS nor any Significant
-------------------------
Subsidiary has received any notice from any federal, state or local authority or
any insurance or inspection body to the effect that any of its properties,
facilities, equipment or business procedures or practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, judicial or
administrative determination, or any other requirements of any such authority or
body, and PSS and all Significant Subsidiaries, and all such properties,
facilities, equipment, procedures and practices, are, to the Borrowers'
knowledge, in compliance in all material respects with all such laws,
ordinances, determinations, regulations and requirements.
3.14 Labor. Neither PSS nor any Significant Subsidiary is involved
-----
in any strike, lock-out, boycott or any other material labor trouble, nor is it
involved in labor negotiations.
28
<PAGE>
3.15 Environmental Matters.
---------------------
(a) To the best of Borrowers' knowledge, the Premises have never
been and are not being used to make, store, handle, treat, dispose of,
generate, or transport Hazardous Substances in violation of any applicable
law. To the best of Borrowers' knowledge, there has never been a Release
of Hazardous Substances on or from the Premises or any other property owned
or used by the Borrower in violation of any applicable law or that caused
or might cause Contamination, and no Contamination exists on any such
property.
(b) Neither PSS nor any of the Significant Subsidiaries has ever
received any notification, citation, or complaint of any kind from any
governmental authority alleging any violation of any law or regulation by
PSS or such Subsidiary relating or pertaining to the making, storing,
handling, treating, disposing, generating, transporting, or Release of any
Hazardous Substances, and neither PSS nor any Significant Subsidiary nor,
to the best of Borrowers' knowledge, any property owned or used by PSS or
any Significant Subsidiary is under any investigation with respect to any
such matters.
(c) To the best of the Borrowers' knowledge, there are no
underground storage tanks on the Premises or any other property owned or
used by PSS or any Significant Subsidiary.
SECTION 4. CONDITIONS OF BORROWING.
4.1 Initial Advance. As a condition precedent to the Lenders'
---------------
obligation to make the initial Advance, the following conditions shall all be
satisfied at the Closing Date:
(a) Loan Documents. Each Borrower shall have delivered or
--------------
caused to be delivered to the Agent duly executed copies of each of the
Loan Documents.
29
<PAGE>
(b) Borrower's Authorizations.
-------------------------
(x) PSS shall have delivered to Agent
(i) a copy, certified by the Secretary of PSS, of the
resolutions of the Board of Directors of PSS authorizing and approving
the execution and delivery of and performance under this Agreement and
the other Loan Documents, the borrowings provided for hereunder;
(ii) PSS's articles of incorporation certified by the
corporate Secretary of PSS;
(iii) a good standing or subsistence certificate with
respect to PSS certified by the Secretary of State of the state of
PSS's incorporation as of a date within ten (10) days of the Closing
Date; and
(iv) a copy of PSS's By-Laws, as currently in effect,
certified by PSS's Secretary or Assistant Secretary; and
(y) The President and Secretary of PSS shall have duly executed
and delivered to the Agent certificates of incumbency, in form and
substance satisfactory to the Agent.
(z) A copy of the resolutions of the respective Boards of
Directors of each Borrower (except PSS) authorizing and approving the
execution and delivery of and performance under this Agreement and the
other Loan Documents, and the borrowings provided for hereunder.
(c) Legal Opinions. Counsel for PSS shall have delivered to the
--------------
Agent an opinion acceptable to Agent, dated the Closing Date and addressed
to the Agent.
(d) Representations. The representations and warranties
---------------
contained in Section 3 hereof shall be true and correct as of the Closing
Date and no Default or Event of Default shall be in existence or shall
occur as a result of any Advance made on the Closing Date.
(e) Legal Matters. All legal matters incident to the
-------------
transactions contemplated by this Agreement shall be satisfactory to
30
<PAGE>
Stevens & Lee, counsel for the Agent.
4.2 Subsequent Advances. As a condition precedent to the Lenders'
-------------------
obligation to make any Advance after the Closing Date, the following conditions
shall all be satisfied on the date of such Advance:
(a) Representations. The representations and warranties
---------------
contained in Subsections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8, and 3.10 (except for
the last sentence of Subsection 3.10 to the extent such matter has
theretofore been disclosed to the Agent) shall be true and correct on the
date such Advance is made.
(b) No Default. No Default or Event of Default shall exist on
----------
the date of such Advance or shall occur as the result of making such
Advance.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrowers covenant and agree that from and after the effective
date of this Agreement and so long as any of the indebtedness hereunder remains
outstanding and unpaid, in whole or in part, or the credit commitments hereunder
remain available, the Borrowers will observe the following covenants, unless the
Agent shall otherwise consent in writing:
5.1 Financial Statements; Reports. The Borrowers will furnish to
-----------------------------
Lender:
(a) Annual Reports: as soon as PSS files its annual report on
--------------
Form 10-K with the SEC or ninety (90) days after its fiscal year end,
whichever is later, the annual audit report of PSS containing a
consolidated balance sheet of PSS and Subsidiaries, as at the end of such
fiscal year, and related consolidated statements of income, stockholders'
equity, and cash flows of PSS and its Subsidiaries, for such fiscal year,
setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, all in reasonable detail, prepared in
accordance with Generally Accepted Accounting Principles applied on a
consistent basis and certified without exception or qualification by
independent public accountants selected by PSS and satisfactory to the
Agent, together with a consolidating balance sheet as at such year end and
consolidating income statement for such fiscal year of PSS and its
Subsidiaries;
31
<PAGE>
(b) Quarterly Statements. As soon as PSS files its quarterly
--------------------
reports on Form 10-Q with the SEC or forty-five (45) days after the end of
each fiscal quarter, whichever is later, a consolidated balance sheet of
PSS and its Subsidiaries, as of the end of such quarterly period, the
related consolidated statements of income for such quarterly period and for
the period from the end of the preceding fiscal year to the end of such
quarterly period, and the related consolidated statements of cash flows for
the period from the end of the preceding year to the end of such quarterly
period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and prepared in accordance with Generally Accepted
Accounting Principles applied on a consistent basis (subject to normal
year-end adjustments) and certified as to accuracy by the chief financial
officer of PSS, together with a consolidating balance sheet as at such
quarter end and consolidating statements of income for such quarterly
period and for the period from the preceding year end to the end of such
quarterly period of PSS and its Subsidiaries;
(c) Reports to Investors: promptly after the sending or making
--------------------
available or filing the same, copies of all reports and financial
statements required to be or actually delivered or sent by PSS to its
shareholders generally;
(d) Securities Filings: promptly upon sending, making available,
------------------
or filing the same, such reports and financial statements as PSS shall send
or make available to the shareholders of PSS or file with the SEC and any
press releases made by PSS; and
(e) Other Information: from time to time, such additional
-----------------
financial and other information as Agent may reasonably request.
5.2 Liabilities. PSS and any Significant Subsidiaries will pay and
-----------
discharge, at or before their maturity, all their respective material
obligations and liabilities (including, without limitation, tax liabilities and
all employee wages as provided in the Fair Labor Standards Act, 29 U.S.C. 206-
207 and any successor statute), except those which may be contested in good
faith, and maintain adequate reserves for any of the same in accordance with
Generally Accepted Accounting Principles.
32
<PAGE>
5.3 ERISA.
-----
(a) PSS will furnish to Lenders (i) within thirty (30) days
after it has reason to know that it or any Controlled Group Member has
incurred Withdrawal Liability, or that any Multiemployer Plan is in
Reorganization or that any Reportable Event has occurred with respect to
any Employee Pension Plan or that the PBGC has instituted or will institute
proceedings under Title IV of ERISA to terminate any Employee Pension Plan
or to appoint a trustee to administer any Employee Pension Plan, a
statement setting forth the details as to such Withdrawal Liability,
Reorganization, Reportable Event, termination or appointment proceedings
and the action which it (or the Multiemployer Plan sponsor or Employee
Pension Plan sponsor other than PSS) proposes to take with respect thereto,
together with a copy of any notice of Withdrawal Liability or
Reorganization given to PSS or any Controlled Group Member and a copy of
the notice of such Reportable Event given to PBGC if a copy of such notice
is available to PSS or any of its Controlled Group Members; and (ii)
promptly after receipt thereof, a copy of any notice PSS or any of its
Controlled Group Members or the sponsor of any Employee Pension Plan
received from PBGC or the Internal Revenue Service which sets forth or
proposes any action or determination with respect to such Employee Pension
Plan.
(b) PSS will notify Lenders of (i) any excise taxes which have
been assessed or which PSS or any of its Controlled Group Members have
reason to believe may be assessed against PSS or any of its Controlled
Group Members by the Internal Revenue Service with respect to any Employee
Pension Plan or Multiemployer Plan or (ii) any revocation of qualification
under Code (S)(S)401 which has occurred or which PSS or any of its
Controlled Group Members have reason to believe may occur with respect to
any Employee Pension Plan or Multiemployer Plan.
5.4 Notices. The Borrowers will promptly give notice in writing to
-------
the Lenders of the occurrence of any of the following:
(a) any Event of Default or Default under this Agreement; or
(b) any material adverse change in the properties, operations,
business or condition (financial or otherwise) of PSS or any Significant
Subsidiary since the date of the most recent financial
33
<PAGE>
statements furnished by the Borrowers to the Lenders or the likely
occurrence thereof.
5.5 Use of Proceeds. Except for the repayment on the Closing Date of
---------------
obligations owed to Bank of New York, the Borrowers shall use the proceeds of
the Revolving Credit Facility solely for the purpose of financing acquisitions
in accordance with Subsection 2.17. The Borrowers shall use the proceeds of the
Line of Credit solely for working capital purposes.
5.6 Corporate Existence; Properties. PSS and each Significant
-------------------------------
Subsidiary will maintain, and cause each other Subsidiary to maintain:
(a) its corporate existence and its qualification to do
business and good standing in each jurisdiction in which qualification is
necessary for the proper conduct of its businesses; and
(b) all material licenses, permits and other authorizations
necessary for the ownership and operation of its properties and businesses.
5.7 Insurance. PSS and each Significant Subsidiary shall carry at
---------
all times, in coverage, form and amount consistent with prudent business
practices, hazard insurance (with fire, extended and vandalism and malicious
mischief coverage and coverage against such other hazards as are customarily
insured against by companies in the same or similar business), commercial
general liability insurance, worker's compensation insurance, and comprehensive
automobile liability insurance, and pay all premiums on the policies for such
insurance when and as they become due and do all other things necessary to
maintain such policies in full force and effect. The Borrowers shall from time
to time, upon request by the Agent, promptly furnish or cause to be furnished to
the Agent evidence, in form and substance satisfactory to the Agent, of the
maintenance of all insurance required to be maintained by this Section.
5.8 Books and Records. PSS will maintain, and will cause each
-----------------
Subsidiary to maintain, accurate and complete records and books of account with
respect to all its operations in accordance with Generally Accepted Accounting
Principles, and will permit, and will cause each Subsidiary to permit, officers
or representatives of the Agent and the Lenders to examine and make excerpts
from such books and records and to visit and inspect its properties, both real
and personal, at all reasonable times and upon reasonable prior notice.
34
<PAGE>
5.9 Location of Business. The Borrowers will notify Agent in advance
--------------------
of any change in the location of the principal executive offices of PSS.
5.10 Funded Debt to Cash Flow. PSS will maintain on a consolidated
------------------------
basis at each fiscal quarter end beginning December 31, 1996, a ratio of Funded
Debt to Net Cash Flow of not greater than the following ratios based on the
aggregate outstanding Revolving Credit Advances and Term Loans:
<TABLE>
<CAPTION>
Outstanding Revolving Credit Maximum Ratio
Advances and Term Loans -------------
-----------------------
<S> <C>
$10,000,000 or less 2.00 to 1.0
$10,000,001 to $20,000,000 2.50 to 1.0
$20,000,001 to $30,000,000 2.75 to 1.0
</TABLE>
5.11 Fixed Charge Coverage Ratio. PSS will maintain on a consolidated
---------------------------
basis at each fiscal quarter end beginning December 31, 1996, a ratio of Net
Cash Flow to Fixed Charges of not less than 3.0 to 1.0.
5.12 Current Ratio. PSS will maintain on a consolidated basis at each
-------------
fiscal quarter end beginning December 31, 1996, a ratio of Current Assets to
Current Liabilities of not less than 1.20 to 1.0.
5.13 Deposit Accounts. PSS shall maintain its primary collection and
----------------
disbursement deposit accounts with the Agent.
SECTION 6. NEGATIVE COVENANTS.
The Borrowers covenant and agree that from and after the effective
date of this Agreement and so long as any of the indebtedness hereunder remains
outstanding and unpaid, in whole or in part, or the credit commitments hereunder
remain available, the Borrowers will observe the following covenants unless the
Agent shall otherwise consent in writing:
6.1 Debt. Except for the indebtedness incurred under this Agreement,
----
the Borrowers will not, nor will they permit any Subsidiary to, create, incur,
assume or suffer or permit to exist any indebtedness for borrowed money or any
indebtedness constituting the deferred portion of the purchase price of any
business permitted to be acquired by PSS or any Subsidiary, except:
35
<PAGE>
(a) any such indebtedness not in excess of $2,000,000 in the
aggregate principal amount at any one time outstanding; and
(b) Subordinated Indebtedness.
6.2 Liens. PSS will not, nor will it permit any Subsidiary to,
-----
create, assume, or suffer to exist, any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind upon any of its assets, whether now owned or
hereafter acquired, securing (a) indebtedness for borrowed money, (b)
indebtedness incurred in connection with the acquisition of businesses permitted
to be acquired by PSS or any Subsidiary, (c) guaranteed obligations, (d) letter
of credit obligations, or (e) deferred purchase price obligations, except,
purchase money liens on and security interests in assets acquired by any
Borrower or any Subsidiary, provided that such liens and security interests
attach only to the property so acquired and do not encumber any other property
of the Borrowers or any Subsidiary.
6.3 Investments. The Borrowers will not make or suffer to exist any
-----------
investment, except investments in the following:
(a) companies engaged in businesses similar to the lines of
business in which the Borrowers are currently engaged;
(b) marketable direct obligations of the United States of
America or any agency thereof, marketable obligations directly and fully
guaranteed by the United States of America and certificates of deposit
issued by any Lender or by any other bank with a shareholders' equity of at
least $50,000,000 organized under the laws of the United States of America
or any state thereof, provided that such obligations and certificates of
deposit have a maturity of one year or less from the date of purchase;
(c) any of the following:
(i) repurchase agreements on obligations specified in
clause (b) above maturing within 90 days, provided that the long-term
unsecured obligations of the party agreeing to repurchase such
obligations are at the time rated by each Rating Agency in one of its
two highest rating categories and the short-term debt obligations of
the party agreeing to repurchase are rated at least Prime-1 by Moody's
Investor Service, Inc. and at least A1+ by Standard & Poor's
Corporation;
36
<PAGE>
(ii) federal funds, certificates of deposit, time
deposits, money market accounts and bankers' acceptances (which shall
each have an original maturity of not more than 90 days and, in the
case of bankers' acceptances, shall in no event have an original
maturity of more than 365 days) of any United States depository
institution or trust company incorporated under the laws of the United
States or any state, provided that the long-term unsecured debt
obligations of such depository institution or trust company at the
date of acquisition thereof have been rated by each Rating Agency in
one of its two highest long-term ratings; and the short-term
obligations of such depository institution or trust company are rated
at least Prime-1 by Moody's Investor Service, Inc. and at least A1+ by
Standard & Poor's Corporation; and
(iii) commercial paper (having an original maturity of not
more than 365 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of
acquisition has been rated by each Rating Agency in its highest short-
term rating; provided that such commercial paper shall have a
remaining maturity of not more than 90 days; and
(d) assets used in the ordinary course of Borrowers'
businesses.
6.4 Mergers, Consolidations. PSS will not, nor will it permit any
-----------------------
Subsidiary to, enter into any transaction of merger or consolidation, except
that:
(a) any Subsidiary may be merged into or consolidated with the
Borrower if the Borrower shall be the surviving corporation;
(b) any Subsidiary may be merged into or consolidated with any
other Subsidiary or any other Person; and
(c) Borrower may be merged with another Person if the Borrower
will be the surviving corporation;
provided that immediately after giving effect thereto, the Borrower shall be in
compliance with all the terms of this Agreement and no Default or Event of
Default hereunder shall have occurred and be continuing.
37
<PAGE>
6.5 Disposition of Assets. No Borrower will liquidate or dissolve
---------------------
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
pledge, or otherwise transfer or dispose of all or any substantial part of its
properties, assets or business except that the Borrowers and any Subsidiaries
may sell used equipment no longer used or useful in connection with their
respective businesses.
6.6 Continuance of Business. No Borrower will, nor will it permit
-----------------------
any Subsidiary to, engage in any line of business other than those in which the
Borrowers or any such Subsidiary is currently engaged on the date of this
Agreement and lines of business similar thereto.
6.7 Use of Proceeds. Except in connection with a tender offer for
---------------
the stock of corporation whose shares are publicly traded, no Borrower will, nor
will it permit any Subsidiary to, directly or indirectly, apply any part of the
proceeds of the Loans to the purchasing or carrying of any "margin stock" within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings thereunder.
SECTION 7. EVENTS OF DEFAULT, REMEDIES.
7.1 Events of Default. The following shall constitute Events of
Default:
(a) Non-Payment. (i) Failure by the Borrowers to pay the
-----------
principal of or accrued interest on the Notes within three Business Days
after such payment is due, or (ii) the failure of the Borrowers to pay any
other amount payable to any Lender under this Agreement within fifteen (15)
days after such amount becomes due.
(b) Falsity of Representations and Warranties. Any
-----------------------------------------
representation or warranty made by the Borrowers in this Agreement or in
any other Loan Document or in any certificate, financial or other statement
furnished at any time under or in connection with this Agreement or any
other Loan Document shall prove to be false or misleading in any material
respect when made.
(c) Failure to Perform Certain Covenants. Failure by the
------------------------------------
Borrowers to observe or perform any other covenants, conditions or
provisions contained in this Agreement or in any other Loan Document,
provided that, except with respect to a violation of the covenants
38
<PAGE>
contained in Subsections 5.10 through 5.12, 6.4, and 6.5, such failure
shall continue for a period of thirty (30) days.
(d) Default Under Other Obligations. The Borrower or any
-------------------------------
Subsidiary:
(i) defaults in any payment of principal of or interest
on any obligations with respect to indebtedness for borrowed money
(other than under the Notes or any such obligation payable to any
Lender) or any obligation for the deferred purchase price of property
beyond any period of grace provided with respect thereto; or
(ii) defaults in the performance of any other agreement,
term or condition contained in any such obligation or in any agreement
relating thereto;
if the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) declares, such obligation to become due prior to its
stated maturity and if the aggregate amount of all of such obligations so
accelerated exceed $1,000,000.
(e) Voluntary Bankruptcy, Etc. The commencement by PSS or any
-------------------------
Significant Subsidiary of a voluntary case under the Bankruptcy Code, as
now constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency, reorganization, rehabilitation or other
similar law, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of PSS or any Significant
Subsidiary or for any substantial part of its property, or the making by it
of any general assignment for the benefit of creditors, or the failure of
PSS or any Significant Subsidiary generally to pay its debts as such debts
become due, or the taking of corporate action by PSS or any Significant
Subsidiary in furtherance of any of the foregoing.
(f) Involuntary Bankruptcy, Etc. The entry of a decree or
---------------------------
order for relief by a court having jurisdiction in the premises in respect of
any Borrower or any Subsidiary in an involuntary case under the Bankruptcy Code,
as now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
any Borrower or any Subsidiary or for any substantial part of its property, or
ordering the winding-up or
39
<PAGE>
liquidation of its affairs and the continuance of any such decree or order
unstayed and in effect for a period of sixty (60) days.
(g) ERISA.
-----
(i) (A)(1) Any Employee Pension Plan is terminated within
the meaning of Title IV of ERISA, or (2) a trustee is appointed by the
appropriate United States District Court to administer any Employee
Pension Plan, or (3) the PBGC institutes proceedings to terminate any
Employee Pension Plan, or (4) any Reportable Event occurs which the
Lender determines in good faith indicates a substantial likelihood
that an event described in (1), (2), or (3) above will occur, or (5)
PSS or any of its Controlled Group Members incur any Withdrawal
Liability with respect to any Multiemployer Plan or (6) any
Multiemployer Plan enter Reorganization, and (B) with respect to
events described in (1)-(4) above, only, the benefit commitments
(within the meaning of ERISA (S)(S)4001(a)(16)), exceed the market
value of the assets in the fund under the Employee Pension Plan by,
five percent (5%) or more of the consolidated net worth of PSS;
(ii) there occurs any Accumulated Funding Deficiency with
respect to any Employee Pension Plan and PSS or any of its Controlled
Group Members fails to correct such Accumulated Funding Deficiency
prior to the end of the taxable period within the meaning of Code
(S)(S)4971(c)(3); or
(iii) any Employee Pension Plan loses its tax-qualified
status and as a result thereof, PSS or any Controlled Group Member
incurs liability in the aggregate exceeding five percent (5%) of the
consolidated net worth of PSS.
(h) Default Under Other Documents. An "Event of Default" or
-----------------------------
similar event shall have occurred and be continuing under any Loan
Document.
(i) Judgments. One or more judgments not covered by insurance
---------
maintained by PSS or any Significant Subsidiary (or if covered by
insurance, with respect to which the insurer has denied coverage or
reserved its rights) are entered against PSS or any Significant Subsidiary
in the aggregate amount of One Million Dollars ($1,000,000) or more, and
PSS or any Significant Subsidiary shall not obtain the
40
<PAGE>
satisfaction, release, stay or dismissal thereof within thirty (30) days
thereof.
7.2 Acceleration
------------
(a) Upon the occurrence of an Event of Default specified in
Paragraphs 7.1(a) through 7.1(d), and 7.1(g) through 7.1(i), the Agent may,
with the approval of the Required Lenders, by written notice to the
Borrowers, terminate immediately and irrevocably the Revolving Credit
Facility, the Revolving Credit Commitment, the Line of Credit, the Line of
Credit Commitment, and any other obligation of the Lenders to make any
advances to or for the account of the Borrowers, and declare the Notes, and
all other instruments evidencing the Obligations to be due and payable,
whereupon the principal amount of the Notes and all outstanding
Obligations, together with accrued interest thereon and all other amounts
payable thereunder, shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the documents
evidencing the same to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in
Paragraphs 7.1(e) or 7.1(f), the Revolving Credit Facility, the Revolving
Credit Commitment, the Line of Credit and the Line of Credit Commitment,
and any other obligation of the Lenders to make any advances to or for the
account of the Borrowers, shall automatically and immediately terminate and
the unpaid principal balances of, all accrued, unpaid interest on, and all
other sums payable with regard to, the Notes and all instruments evidencing
the Obligations shall automatically and immediately become due and payable,
in all cases without any action on the part of the Agent or any Lender.
7.3 Right of Setoff. Upon the occurrence of an Event of Default,
---------------
the Lenders shall have the right, in addition to all other rights and remedies
available to them, to set off against the unpaid balance of the Obligations, any
debt owing to any Borrower by any Lender and any funds in any deposit account
maintained by any Borrower with any Lender except deposit accounts used solely
as payroll accounts or for the payment of health benefit expenses.
7.4 Remedies Cumulative. The Agent and the Lenders may exercise
--------------------
any of their rights and remedies set forth in this Loan Agreement and the other
Loan Documents. The remedies of the Agent and the Lenders shall be
41
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cumulative and concurrent, and may be pursued singly, successively, or together,
at their sole discretion, and may be exercised as often as the occasion
therefore shall occur; and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release thereof.
SECTION 8. MISCELLANEOUS.
8.1 No Waiver; Cumulative Remedies. No failure or delay on the
-------------------------------
part of the Agent or any Lender in exercising any right, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege
hereunder or thereunder preclude or require any other or further exercise
thereof or the exercise of any other right, power or privilege. Neither the
Agent nor any Lender shall be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by the Agent, and then only to the extent specifically set
forth in writing. A waiver with respect to one event shall not be construed as
continuing or as a bar to or a waiver of any right or remedy with respect to a
subsequent event. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
8.2 Notices. All notices, requests and demands to or upon the
--------
respective parties hereto shall be deemed to have been given or made when (a)
deposited in the United States mail, postage prepaid, certified mail, return
receipt requested, (b) when sent by telecopy transmission, or (c) when sent by
courier system providing for receipt of delivery, addressed as follows or to
such other address as may be hereafter designated in writing by the respective
parties hereto:
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<PAGE>
The Borrowers: (a) If mailed:
Physician Support Systems, Inc.
P.O. Box 127
Landisville, PA 17538
Attention: David S. Geller,
Senior Vice President and Chief Financial
Officer
(b) If sent by courier:
Physician Support Systems, Inc.
Route 230 and Eby Chicques Road
Mount Joy, PA 17552
Attention: David S. Geller,
Senior Vice President and Chief Financial
Officer
(c) If sent by telecopy:
Telecopy No.: (717) 653-8261
Agent: CoreStates Bank, N.A.
51 South Duke Street
Lancaster, PA 17602
Attention: Gary R. Johnson
Telecopy No.: (717) 295-8554
8.3 Reimbursement of Agent. The Borrowers hereby agree to reimburse
-----------------------
the Agent for its reasonable out-of-pocket expenses, including reasonable
counsel fees, incurred by the Agent in connection with the development,
preparation, execution and enforcement of this Agreement and all the Loan
Documents, including all counsel fees in connection with any bankruptcy or
insolvency proceeding involving any Borrower, this Agreement or any of the other
Loan Documents. Such expenses and counsel fees shall be paid simultaneously with
the execution of this Agreement and all such expenses hereafter incurred shall
be paid within fifteen (15) days after notice thereof is given to Borrowers by
the Agent.
8.4 Payment of Expenses and Taxes. In addition to payment of the
------------------------------
expenses and counsel fees provided for in Subsection 8.3, the Borrowers agree to
pay, and to save the Agent and the Lenders harmless from any delay in paying,
stamp and other similar taxes, if any, including, without limitation, all
levies, impositions, duties, charges or withholdings, together with any
penalties, fines or interest thereon or other additions thereto, which may be
payable or determined to be payable in connection with the execution and
delivery of this Agreement and the Loan Documents or any modification of any
thereof or any waiver or consent under or in respect of any thereof.
8.5 Survival of Representations and Warranties. All
-------------------------------------------
43
<PAGE>
representations, warranties, covenants and agreements made in this Agreement and
all other Loan Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loans hereunder. The provisions of Subsections
8.3, 8.4, 8.10, 8.11 and 8.12 hereof shall survive payment of the Obligations.
8.6 Participations and Assignments.
-------------------------------
(a) Subject to the provisions of Section 10.16(b) hereof, with
the prior written consent of PSS (which consent shall not be unreasonably
withheld or delayed), each Lender shall have the right to assign all or any
of its interest in any or all of the Loans and the Loan Documents or to
participate with other lenders in the Loans, the Loan Documents and any and
all collateral on such terms and at such times as the Lender may determine
from time to time. The Borrowers hereby grant to each such assignee and
participant the right to set off deposit accounts maintained by any
Borrower or any of the Subsidiaries with such assignee or participant or
any other obligations such assignee or participant may owe to such Borrower
or any of its Subsidiaries, to the extent of all Obligations. The Lenders
may disclose all financial, business and other information about the
Borrower or any of its Subsidiaries which the Lenders may possess at any
time to all prospective and actual assignees and participants, provided
that such prospective or actual assignees and participants agree to
preserve the confidentiality of any nonpublic information.
(b) No Borrower may assign or transfer its rights hereunder
without the prior written consent of the Required Lenders.
8.7 Successors. This Agreement shall be binding upon and inure to
-----------
the benefit of the Borrowers, the Agent, and the Lenders and their respective
successors and permitted assigns.
8.8 Construction. This Agreement, all Loan Documents, and the rights
-------------
and obligations of the parties hereunder and thereunder, shall be governed by
and construed and interpreted in accordance with, the domestic internal laws of
the Commonwealth of Pennsylvania without regard to its rules or principles
pertaining to conflict of laws. The Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.9 Severability. Any provision contained in this Agreement which is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such
44
<PAGE>
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.10 Indemnity. The Borrowers hereby agree, whether or not any of the
----------
transactions contemplated in the Loan Documents shall be consummated, to pay,
assume liability for, and indemnify, protect, defend, save and keep harmless the
Agent and the Lenders from and against, any and all liabilities, obligations,
losses, damages, settlements, claims, actions, suits, penalties, costs and
expenses (including, but not limited to, reasonable legal and investigative fees
and expenses but excluding any and all lost profits) of whatsoever kind and
nature, including, but not limited to claims based upon negligence, strict or
absolute liability, liability in tort, latent and other defects (whether or not
discoverable), and any claim for patent, trademark or copyright infringement
which may from time to time be imposed on, incurred by or asserted against the
Agent or any Lender (whether or not any such claim is also indemnified or
insured against by any other person) in any way relating to or resulting from
this Agreement or any other Loan Document, or any of the transactions
contemplated herein or therein. The provisions of this subsection shall survive
the payoff, release, foreclosure or other disposition, as applicable, of this
Agreement, the Obligations or any collateral.
8.11 Waiver of Trial by Jury; Jurisdiction.
--------------------------------------
(a) Each party to this Agreement agrees that any suit, action, or
proceeding, whether claim or counterclaim, brought or instituted by either
party hereto or any successor or assign of any party on or with respect to
this Agreement or any other Loan Document or which in any way relates,
directly or indirectly, to the Loans or any event, transaction, or
occurrence arising out of or in any way connection with the Loans, or the
dealings of the parties with respect thereto, shall be tried only by a
court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. THE BORROWERS
ACKNOWLEDGE AND AGREE THAT THIS SUBSECTION 8.11 IS A SPECIFIC AND MATERIAL
ASPECT OF THIS AGREEMENT BETWEEN THE PARTIES AND THAT THE LENDERS WOULD NOT
EXTEND THE CREDIT FACILITIES PROVIDED HEREIN TO THE BORROWERS IF THIS
WAIVER OF JURY TRIAL SECTION WERE NOT A PART OF THIS AGREEMENT.
(b) For the purpose of any suit, action or proceeding arising out
of or relating to this Agreement, the Notes, or the Loans,
45
<PAGE>
the Borrowers hereby irrevocably consent and submit to the jurisdiction and
venue of any of the Courts of the Commonwealth of Pennsylvania including,
without limitation, the Court of Common Pleas of Lancaster County and the
Federal District Court for the Eastern District of Pennsylvania. The
Borrowers irrevocably waive any objection which they may now or hereinafter
have to the laying of the venue of any suit, action or proceeding brought
in such court and any claim that such suit, action or proceeding brought in
such a court has been brought in an inconvenient forum. The provisions of
this Paragraph 8.11(b) shall not limit or otherwise affect the right of the
Agent or any Lender to institute and conduct action in any other
appropriate manner, jurisdiction or court.
8.12 Actions Against Lenders; Release.
---------------------------------
(a) Any action brought by the Borrowers or any Subsidiary against
the Agent or any Lender which is based, directly or indirectly, on this
Agreement or any other Loan Document or any matter in or related to this
Agreement or any other Loan Document, including but not limited to the
making of the Loans or the administration or collection thereof, shall be
brought only in the courts located in the Commonwealth of Pennsylvania.
(b) Upon full payment and satisfaction of the Loans and the
interest thereon, as provided in Section 2 hereof, the parties shall
thereupon automatically each be fully, finally, and forever released and
discharged from any further claim, liability or obligation in connection
with the Loans except as expressly set forth herein, except to the extent
an payment received by the Agent or any Lender is determined to be a
preference or similar voidable transfer.
8.13 Counterparts. This Agreement may be executed in any number of
-------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, but all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
8.14 Entire Agreement. This Agreement and the Loan Documents
-----------------
represent the entire agreement between the Agent, the Lenders and the Borrowers
with respect to the financing transactions to which they relate, and cannot be
changed or amended except by an agreement in writing signed by the Borrowers and
the Agent.
8.15 Margin Stock. The Lenders are not relying on any margin
-------------
46
<PAGE>
stock (within the meaning of Regulation U) as collateral in connection with the
extension or maintenance of any credit under this Agreement.
SECTION 9. RIDERS AND JOINDERS. RIDERS AND JOINDERS.
9.1 Riders. Each of the Riders attached to this Agreement and
-------
executed or initialed by Agent and by PSS are incorporated by reference into
this Agreement and are made a part hereof. The terms and conditions contained
in any Rider to this Agreement may be modified, amended, supplemented or
restated by a subsequently dated Rider executed or initialed by the Agent and
PSS, and any such subsequently dated Rider shall be incorporated by reference
into this Agreement and made a part hereof whether or not such Rider is
physically attached hereto. Each amendment, modification, and supplement to or
restatement of a Rider shall be effective as of the date of such Rider unless
otherwise expressly provided therein.
9.2 Joinders. If the parties hereto desire to have a new entity
---------
become a party to this Agreement as either a Borrower or a Lender, such party
shall execute and deliver to the Agent a joinder in the form of Rider B attached
hereto. Upon acceptance of such joinder by the Agent and PSS, such party shall
become a Borrower or Lender hereunder as the case may be. Each Subsidiary shall
join in this Agreement and become a Borrower hereunder within ten (10) days
after such Subsidiary becomes a Subsidiary.
SECTION 10. THE AGENT.
10.1 Appointment and Authorization. Each Lender appoints and
------------------------------
authorizes the Agent to take such action as agent on the Lender's behalf and to
exercise such powers under this Agreement and the Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto. The Agent shall have no duties or
responsibilities except those expressly provided herein. The Borrowers shall be
entitled to rely on any representation made by Agent that any action taken by
Agent has been approved (if necessary) by the Required Lenders, and the
Borrowers shall have no duty to inquire as to whether such action by Agent was
approved by the Required Lenders.
10.2 Agent's Rights as Lender. Agent shall have the same rights and
-------------------------
powers under this Agreement as any other Lender and may exercise or refrain from
exercising the same as though it were not the Agent, and Agent and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with any Borrower or any Affiliate as if it were not the Agent
hereunder.
47
<PAGE>
10.3 Actions; Lenders' Instructions.
-------------------------------
(a) The Agent, upon receipt of written instructions from the
Required Lenders, shall take any action specified in such instructions
which is within the Agent's rights, powers or discretion under the Loan
Documents and applicable law. Any Lender that fails to respond to the
Agent in writing within ten (10) days after written notice from Agent
requesting approval of any action that Agent proposes to take with respect
to the Loans shall be deemed to have approved such action by Agent.
(b) Each Lender which notifies the Agent to take specific
actions shall concurrently deliver copies of such notification to the other
Lenders. The Agent shall deliver copies to the Lenders of each written
notice which it delivers to any Borrower. Failure by any Lender to deliver
copies of any notices pursuant to this Section 10.3(b) shall not invalidate
any action with regard to the Borrowers.
(c) Any action taken or failure to act pursuant to such
instructions from the Required Lenders or the Agent's rights, powers or
discretion shall be binding on the Lenders.
(d) No Lender shall have any right of action against the Agent
as a result of the Agent's action or failure to take action under the Loan
Documents in accordance with the instructions of the Required Lenders.
(e) Notwithstanding anything else contained herein to the
contrary, without the prior written consent of the Required Lenders (which
consent no Lender shall unreasonably withhold, condition or delay), the
Agent, on behalf of the Lenders, shall not:
(i) agree to any change in the rate or rates of interest,
maturity or amortization schedules applicable to the Loans except as
the Borrowers are permitted to make under the terms hereof;
(ii) release any Borrower from its obligations under the
Loan Documents;
(iii) extend the Termination Date, the Line of Credit
Termination Date, or the Conversion Date; or
48
<PAGE>
(iv) quote a fixed rate of interest to any Borrower under
Section 2.5(i) with respect to any Term Loan.
(f) Notwithstanding anything else contained herein to the
contrary, a Lender's Commitment may not be increased or decreased without
the written consent of such Lender.
(g) Anything herein or otherwise to the contrary
notwithstanding,the Agent shall not grant any waiver or consent required
under the Loan Documents or requested by the Borrowers without the approval
of the Required Lenders.
10.4 Preference Repayments. If claim is ever made upon the Agent or
---------------------
any Lender for repayment or recovery of any amount or amounts received by the
Agent or any Lender in payment or on account of the Loans and the Agent or any
Lender repays all or part of such amount by reason of (a) any judgment, decree
or order of any court or administrative body having jurisdiction over the Agent
or any Lender or any of its property, or (b) any settlement or compromise of any
such claim effected by the Agent or any Lender with any such claimant (including
the Borrowers), then and in such event Lenders agree that any such judgment,
decree, order, settlement or compromise shall be binding upon Lenders,
notwithstanding any revocation hereof or the cancellation of the Loan Documents
or other instrument evidencing the Loans, and Lenders agree to immediately pay
to the Agent or the Lender repaying such amount an amount equal to the product
of (i) such Lender's Commitment and (ii) the amount of such funds repaid by the
Agent or such Lender.
10.5 Consultation with Experts. The Agent may consult with legal
-------------------------
counsel, 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.
10.6 Liability of Agent. Neither the Agent nor any of its directors,
------------------
officers, agents, or employees shall be liable for any action taken or not taken
by it in connection herewith (i) with the consent or at the request of the
Required Lenders or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement, any Loan Document, or any borrowing hereunder; (ii) the
performance or observance of any of the covenants or agreements of the
Borrowers; or (iii) the validity, effectiveness
49
<PAGE>
or genuineness of this Agreement, the Loan Documents, or any other instrument or
writing furnished in connection herewith. The Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a telecopy or similar writing)
reasonably believed by it to be genuine or to be signed by the proper party or
parties.
10.7 Credit Decision. By executing this Agreement, each Lender
---------------
acknowledges that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under the Loan Documents.
10.8 Successor Agent. With the written consent of PSS to any
---------------
successor Agent (which consent shall not be unreasonably withheld or delayed),
the Agent may resign at any time by giving written notice thereof to the
Lenders. Upon any such resignation, the Required Lenders shall have the right to
appoint a successor Agent, which successor Agent must be approved by PSS (which
approval shall not be unreasonably withheld or delayed). If no successor Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty (30) Business Days after the retiring Agent gives
notice of resignation, the retiring Agent may, on behalf of the Lenders, appoint
a successor agent, which shall be a commercial bank organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least Fifty Million Dollars ($50,000,000).
Upon the acceptance in writing for the benefit of the Lenders of its appointment
as Agent hereunder by a successor agent, the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section 10 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
10.9 Setoff or Counterclaim. The Agent and the Lenders each hereby
----------------------
agree that if any of them shall, by exercising any right of setoff or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to the Loans which is greater
than the proportion received by the others in respect of the aggregate amount of
principal and interest due to the others with respect to the Loans, the Lender
that has received such proportionately greater payment shall make
50
<PAGE>
such payments to the other Lenders as may be required so that all such payments
of principal and interest with respect to the interest of each in the Loans
shall be shared by the Lenders pro rata (in proportion to each Lender's
Commitment). The foregoing shall not impair the right of any of Lenders to
exercise any right of setoff or counterclaim it may have and to apply the amount
subject to such exercise to the payment of indebtedness of any Borrower other
than its indebtedness under the Loans; provided, however, that amounts subject
to such exercise shall be applied first to the payment of indebtedness of such
Borrower which is participated in or shared by all the Lenders prior to the
application of any such amounts to any indebtedness of the Borrower which is
owed to only some of the Lenders.
10.10 Amendments. Any provision of this Section 10 may be amended by
----------
a writing signed by all of the Lenders and Agent. Except for the provisions of
Sections 10.1, 10.8, 10.11, and 10.16, the Borrowers shall not be a beneficiary
of any provision contained in this Section 10, and the Borrowers shall have no
rights under any provisions of this Section 10.
10.11 Payments Received. Agent shall hold all payments received by it
-----------------
from the Borrowers with respect to the Loans in trust for the account of the
Lenders. Agent shall deliver to each Lender its percentage share of any payment
received by Agent on account of the Loans by wire transfer of funds to the
account designated by such Lender on the Business Day following the date on
which payment is received by the Agent. Payments shall not be deemed "received"
by Agent until Agent has collected funds with respect to such payment.
10.12 Advances. Each Lender shall on the date that any Advance is to
--------
be made to the Borrowers remit to the Agent such Lender's proportionate share of
the amount advanced to the Borrowers under or in connection with the Loans by
wire transfer in immediately available funds. The commitment of each Lender to
the Agent hereunder is absolute and binding, and is not subject to reduction or
termination. The Agent and each Lender shall make appropriate adjustments of
their respective records concerning the proportionate share of each with respect
to amounts advanced under the Loans and amounts received from the Borrowers for
credit against principal, interest and other charges due under the Loan
Documents as of the date of each transfer between the Agent and such Lender.
10.13 Indemnification. Each Lender hereby agrees to indemnify the
---------------
Agent according to its proportionate share from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs
(including, without limitation, the Out-of-Pocket Costs),
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<PAGE>
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to, or arising
out of the Loans or any action taken or omitted by the Agent under the Loan
Agreement or other Loan Documents; provided, however, that the Lenders shall not
be liable for any portion of any such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from (a) the Agent's gross negligence or willful misconduct, or (b) any breach
of the provisions of this Agreement by Agent. The Agent agrees to act in a
commercially reasonable fashion in defending or attempting to settle any such
suit, action or claim brought against it, and any payment of any amounts for
which it shall seek indemnification hereunder; and the Agent shall give the
Lenders notice of all such suits, actions and claims of which it is aware, and
shall endeavor to give the Lenders prior notice of any such payment. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for the Lender's proportionate share of any Out-of-Pocket Costs to
the extent that the Agent is not reimbursed for such Out-of-Pocket Costs by the
Borrowers.
10.14 Liquidation.
-----------
(a) If the Agent shall determine that an Event of Default has
occurred, the Agent may, after notice to, and approval of the Required
Lenders, elect to exercise its rights and remedies under this Agreement and
the other Loan Documents. Thereafter, all Collections and all other monies
received or held by the Agent in connection with the Loans shall be applied
to the following categories, in the following order (and in accordance with
the proportionate shares thereof in categories (ii) and (iii)): (i) all
Out-of-Pocket Costs and all costs and expenses incurred by the Agent and
the Lenders in connection with the enforcement of their rights under this
Agreement or any of the other Loan Documents; (ii) all accrued and unpaid
interest under the Loans; and (iii) the entire unpaid principal balance of
the Loans. The failure of the Agent or the Lenders to apply Collections as
aforesaid shall not be deemed or construed to confer any right upon the
Borrowers or to any guarantor, surety or endorser of the Loans.
(b) The Agent agrees to use its best efforts to give the Lenders
notice of all material actions to be taken with respect to all Collections
after the occurrence of an Event of Default under this Agreement; provided,
--------
however, that no failure to give the Lenders any such notice shall result
-------
in any liability of the Agent in the absence of gross negligence or willful
misconduct on the part of the Agent.
52
<PAGE>
10.15 Forwarding Information. Agent shall promptly forward to each
----------------------
Lender a copy of any financial information received by the Agent with respect to
the Borrowers that has not been contemporaneously provided to the Lenders by the
Borrowers. The Agent shall furnish to the Lenders on a weekly basis a statement
of all advances made and payments received by the Agent with respect to the
Loans.
10.16 Termination.
-----------
(a) The obligations of the Lenders to the Agent hereunder are
absolute, and the Lenders' proportionate share of the Loans may be reduced
or terminated only with the express prior written approval of the Agent and
PSS and effected either by (i) the substitution of another financial
institution which is authorized to make similar extensions of credit in the
ordinary course of business (provided that the Agent and PSS shall not
unreasonably withhold such approval); or (ii) the voluntary purchase by the
Agent of the Lenders' proportionate share (or the amount of the reduction
thereof proposed by the Lenders). The Agent shall have no obligation to
purchase the Lenders' proportionate share or any part thereof, or to find
any substitute financial institution.
(b) Neither the Agent nor any of the Lenders shall sell, pledge,
assign, grant participations in, subparticipate or otherwise transfer
(except to wholly-owned banking subsidiaries of any holding company which
owns either the Agent or any of the Lenders, by operation of law in the
case of a merger or acquisition involving the Agent or any of the Lenders,
or where so ordered pursuant to applicable banking regulations) its
respective rights under or in connection with this Agreement, the Loan
Documents and the Loans without procuring the prior written consent of the
Required Lenders. Nothing contained herein shall confer upon either the
Agent or the Lenders any interest in, or subject either to any liability
for, the assets or liabilities of the other, except as expressly provided
for herein.
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(c) In the event of (i) the insolvency of any of the Lenders or
the appointment of any public authority to be in charge of any of the
Lenders or their respective assets, or (ii) the failure on the part of any
of the Lenders to observe or perform any of the terms, covenants or
conditions required to be observed or performed by them under this
Agreement and the subsequent failure to cure such failure within thirty
(30) days after notice from the nondefaulting party to effect such cure,
the nondefaulting party shall have the right, but not the obligation, to
purchase the defaulting party's proportionate share of the Loans for a
purchase price equal to the defaulting party's proportionate share of the
outstanding principal balance of the Loans at the purchase date plus
accrued but unpaid interest at the applicable rates specified in the Loan
Documents through the date of such purchase. Such transfer shall be
accomplished by a written assignment in form acceptable to the parties.
(d) In the event of (i) the insolvency of the Agent or the
appointment of any public authority to be in charge of the Agent or its
assets or (ii) the failure of the Agent to observe or perform any of the
terms, covenants, or conditions required to be observed or performed by
Agent under this Agreement and the subsequent failure to cure such failure
within ten (10) days after notice from any of the Lenders of such failure,
then the Lenders (excluding any Lender acting as Agent) may by agreement
replace the Agent and appoint a successor Agent in accordance with the
procedures described in Paragraph 10.8 hereof.
10.17 Notices. All notices given under this Section 10 shall be
-------
deemed given (i) when sent by United States mail, postage paid, (ii) when sent
by commercial express courier that provides evidence of delivery, charges paid,
or (iii) when sent by telecopy to the Lenders and the Agent at the addresses set
forth in Rider A attached hereto.
10.18 No Joint Venture. The provisions of this Section 10 shall not
----------------
be deemed a joint venture or partnership among the Agent and the Lenders or an
extension of credit by the Agent or the Lenders to the other.
10.19 Definitions. When used in this Section 10 the following terms
-----------
shall have the following meanings:
"Out-of-Pocket Costs" means all reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) paid or incurred by or on behalf of the Agent or the
54
<PAGE>
Lenders in connection with the preparation, execution and administration or
the enforcement of any rights under this Agreement or any of the other Loan
Documents.
"Collections" means all monies or other assets received by the
Agent or any of the Lenders, by setoff or otherwise, for credit against
principal, interest or other amounts due with respect to the Loans.
10.20 Corporate Records. Each of the Lenders and the Agent agree to
-----------------
have the minutes of the appropriate committee of such institution reflect the
existence of this Agreement and to maintain a copy of this Agreement in the
institution's files relating to the Loans.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
PHYSICIAN SUPPORT SYSTEMS, INC.
By_______________________________________
David S. Geller, Senior Vice President
SPRING ANESTHESIA GROUP, INC.
By_______________________________________
David S. Geller, Senior Vice President
INDEPENDENT ANESTHESIA IPA OF CALIFORNIA, INC.
By_______________________________________
David S. Geller, Senior Vice President
INDEPENDENT ANESTHESIA IPA OF ARIZONA, INC.
By_______________________________________
David S. Geller, Senior Vice President
NORTH COAST HEALTH CARE MANAGEMENT, INC.
By________________________________________
David S. Geller, Senior Vice President
NORTH COAST ACCOUNT SYSTEMS, INC.
By________________________________________
MEDICAL MANAGEMENT SUPPORT, INC.
By_______________________________________
David S. Geller, Senior Vice President
DATA PROCESSING SYSTEMS, INC.
55
<PAGE>
By_______________________________________
David S. Geller, Senior Vice President
PSS PBS NORTHWEST, INC.
By________________________________________
David S. Geller, Senior Vice President
PSS ALM, INC.
By________________________________________
David S. Geller, Senior Vice President
SYNERGISTIC SYSTEMS, INC.
By________________________________________
David S. Geller, Senior Vice President
EE&C FINANCIAL SERVICES, INC.
By________________________________________
David S. Geller, Senior Vice President
PSS EE&C HEALTH SERVICES, INC.
By________________________________________
David S. Geller, Senior Vice President
MED-DATA INTERFACE SYSTEMS, LLC
By________________________________________
David S. Geller, Senior Vice President
MEDICAL INTERCEPT SYSTEMS, LLC
By________________________________________
David S. Geller, Senior Vice President
CORESTATES BANK, N.A., as Agent
By_______________________________________
Gary R. Johnson, Vice President
CORESTATES BANK, N.A., as Lender
By_______________________________________
Gary R. Johnson, Vice President
Exhibits
- --------
A - Form of Conversion Notice
B - Form of Term Note
C - Form of Borrowing Notice
Riders
- ------
A - Lenders and Commitments
B - Form of Joinder
56
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of PHYSICIAN SUPPORT SYSTEMS, INC., a
Delaware corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of SPRING ANESTHESIA GROUP, INC., a
California corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
57
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of INDEPENDENT ANESTHESIA IPA OF
CALIFORNIA, INC., a California corporation, and that he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of INDEPENDENT ANESTHESIA IPA OF ARIZONA,
INC., an Arizona corporation, and that he as such officer, being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
58
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of NORTH COAST HEALTH CARE MANAGEMENT,
INC., an Ohio corporation, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of NORTH COAST ACCOUNT SYSTEMS, INC., a
Delaware corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
59
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of MEDICAL MANAGEMENT SUPPORT, INC., a
Delaware corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of DATA PROCESSING SYSTEMS, INC., a
Delaware corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
60
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of PSS PBS NORTHWEST, INC., a Delaware
corporation, and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing the name
of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of PSS ALM, INC., a Delaware corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
61
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of SYNERGISTIC SYSTEMS, INC., a California
corporation, and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing the name
of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of EE&C FINANCIAL SERVICES, INC., a New
York corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
62
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of PSS EE&C HEALTH SERVICES, INC., a
Delaware corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of MED-DATA INTERFACE SYSTEMS, LLC, a
Texas limited liability company, and that he as such officer, being authorized
to do so, executed the foregoing instrument for the purposes therein contained
by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
63
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 13th day of December, 1996, before me, a notary public, the
undersigned officer, personally appeared DAVID S. GELLER, who acknowledged
himself to be a Senior Vice President of MEDICAL INTERCEPT SYSTEMS, LLC, a Texas
limited liability company, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_________________________________________
Notary Public
64
<PAGE>
EXHIBIT "A"
-----------
FORM OF CONVERSION NOTICE
CoreStates Bank, N.A.
51 South Duke Street
Lancaster, Pennsylvania 17602
Attention: ____________
Ladies and Gentlemen:
The undersigned, Physician Support Systems, Inc. (the "PSS"), refers
to the Loan Agreement dated as of December 13, 1996 (as it may be amended,
modified, extended or restated from time to time, the Loan Agreement"), among
--------------
PSS and its Subsidiaries, the Lenders party thereto, and CoreStates Bank, N.A.,
as Agent. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Loan Agreement. The Borrower
hereby gives you notice pursuant to Section 2.3 of the Loan Agreement that it
elects to convert a Revolving Credit Advance outstanding under the Loan
Agreement into a Term Loan, and in that connection sets forth below the terms on
which such conversion is requested to be made:
<TABLE>
<CAPTION>
<S> <C>
(A) Date of Conversion/1/
----------------------
(B) Principal Amount of Conversion/2/
----------------------
(C) Interest rate basis/3/
----------------------
(D) Maturity Date/4/
----------------------
</TABLE>
Very truly yours,
PHYSICIAN SUPPORT SYSTEMS, INC.
By:___________________________________
Title:________________________________
- ----------------------
/1/ Can be no later than January 1, 1999, and if the Revolving Credit
Advance is a LIBOR Loan it must be on or after the last day of the
applicable LIBOR Period.
/2/ A minimum of $1,000,000 and $500,000 increments in excess thereof (or
the remaining Revolving Credit Commitment, if less).
/3/ A fixed rate of interest quoted by the Lender or the Intermediate Money
Market Rate.
/4/ Cannot be later than January 1, 2004.
65
<PAGE>
EXHIBIT "C"
-----------
FORM OF NOTICE OF BORROWING
CoreStates Bank, N.A.
51 South Duke Street
Lancaster, Pennsylvania 17602
Attention:
----------------------
Ladies and Gentlemen:
The undersigned, Physician Support Systems, Inc., ("PSS"), refers to
the Loan Agreement dated as of December 13, 1996 (as it may be amended,
modified, extended or restated from time to time, the "Loan Agreement"), among
the PSS and its Subsidiaries, the Lenders party thereto, and CoreStates Bank,
N.A., as Agent. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement. The
Borrower hereby gives you notice that it requests a Revolving Credit Advance in
accordance with the provisions of Section 2.1 under the Credit Agreement, and in
that connection sets forth below the terms on which such Advance is requested to
be made:
REQUEST FOR REVOLVING CREDIT ADVANCE
(A) Date of Borrowing
(which is a Business Day)
----------------------
(B) Principal Amount of
Borrowing/5/
----------------------
(C) Interest rate basis/6/
----------------------
(D) Interest Period and the last
day thereof if a LIBOR Loan/7/
---------------------
Upon acceptance of any or all of the Loans made by the Lenders in response
to this request, the Borrower shall be deemed to have represented and warranted
that the conditions to lending specified in Section 4.2 of the Loan Agreement
have been satisfied.
Very truly yours,
PHYSICIAN SUPPORT SYSTEMS, INC.
By
---------------------------------------
Title:
-----------------------------------
- -------------------
/5/ A minimum of $500,000 and $500,000 increments in excess thereof (or
the remaining amount available under the Revolving Credit Facility,
if less).
/6/ LIBOR Loan or Money Market Loan.
/7/ Subject to the provisions and definitions of the Loan Agreement, but
generally one, two, three, or six months' duration.
66
<PAGE>
Dated: December 13, 1996
RIDER A
LENDERS' COMMITMENTS
<TABLE>
<CAPTION>
Lender and Address Percentage Interest in Loans
------------------ ----------------------------------
Revolving Credit
Line of Credit and Term Loans
--------------- -----------------
<S> <C> <C>
CoreStates Bank, N.A. 100% 100%
51 South Duke Street
Lancaster, Pennsylvania 17602
Attention: Gary R. Johnson
Telecopy No. 717-295-8544
</TABLE>
CORESTATES BANK, N.A.
By
----------------------------------------
Gary R. Johnson, Vice President
67
<PAGE>
RIDER "B"
JOINDER
-------
The undersigned, intending to be legally bound, hereby joins in and
becomes a party to the Loan Agreement dated ___________________, 199__ to which
this Joinder is attached as a [Lender] [Borrower], and agrees to be bound by the
terms and conditions thereof.
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed and delivered as of this _______ day of _____________________, 199__.
------------------------------------------
By
----------------------------------------
Attest:
-----------------------------------
68
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
Subsidiary State of Incorporation/Organization
- ---------- -----------------------------------
<S> <C>
Spring Anesthesia Group, Inc. California
Independent Anesthesia IPA of
California, Inc. California
Independent Anesthesia IPA of
Arizona, Inc. Arizona
EE&C Financial Services, Inc. New York
PSS EE&C Health Services, Inc. Delaware
Med-Data Interface Systems, LLC Texas
Medical Intercept Systems, LLC Texas
Synergistic Systems, Inc. California
North Coast Health Care Management, Inc. Ohio
North Coast Account Systems, Inc. Delaware
Medical Management Support, Inc. Delaware
Data Processing Systems, Inc. Delaware
PSS PBS Northwest, Inc. Delaware
PSS ALM, Inc. Delaware
PSS PAMBI, Inc. Delaware
PSS C-Care, Inc. Delaware
C-Care, Inc. New Jersey
H.O.P.E. Enterprises Group, Inc. New Jersey
Professional Medical Recovery
Service, Inc. New Jersey
Revenue Production Management, Inc. Illinois
PSI Acquisition Corp. Michigan
Physerv Solutions, Inc. Michigan
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,826,018
<SECURITIES> 0
<RECEIVABLES> 30,622,901
<ALLOWANCES> (2,014,752)
<INVENTORY> 0
<CURRENT-ASSETS> 34,425,857
<PP&E> 9,092,630
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,905,448
<CURRENT-LIABILITIES> 20,405,671
<BONDS> 0
0
0
<COMMON> 9,156
<OTHER-SE> 45,703,585
<TOTAL-LIABILITY-AND-EQUITY> 91,905,448
<SALES> 0
<TOTAL-REVENUES> 75,190,943
<CGS> 0
<TOTAL-COSTS> 84,377,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,073,383
<INCOME-PRETAX> (10,259,862)
<INCOME-TAX> 1,409,101
<INCOME-CONTINUING> (11,668,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,668,963)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> 0
</TABLE>
