<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997 Commission File Number 34-0-20400
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
Michigan 38-2986640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Attn: Alan S. Ker, Chief Financial Officer
26500 Northwestern Highway, Suite 400, Southfield, Michigan 48076
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (248) 358-0810
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Number of shares of common stock, no par value, outstanding as of
April 21, 1997: 6,552,768.
<PAGE> 2
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
at March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of 4
Income for the three months ended
March 31, 1997 and 1996
Condensed Consolidated Statements of 5
Cash Flows for the three months ended
March 31, 1997 and 1996
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION 13
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,470 $2,227
Accounts receivable, net of allowance for contractual
adjustments and uncollectible accounts of $8,436
and $8,157 at March 31, 1997 and
December 31, 1996, respectively 7,635 7,296
Inventory 1,174 1,053
Prepaid expenses and other 1,605 1,762
------- -------
Total current assets 11,884 12,338
Property and equipment, net 9,318 9,695
Intangible assets, net 33,320 33,547
Other assets 1,478 1,492
------- -------
Total assets $56,000 $57,072
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,219 $1,534
Accounts payable 5,130 4,348
Accrued liabilities 4,414 5,329
------- -------
Total current liabilities 10,763 11,211
Long-term debt, net of current portion 18,901 19,013
Other liabilities 6 9
------- -------
Total liabilities 29,670 30,233
------- -------
Common stock, no par; 20,000,000 shares
authorized; 6,552,768 shares issued and outstanding 32,864 32,864
Retained earnings (deficit) (6,534) (6,025)
------- -------
Total stockholders' equity 26,330 26,839
------- -------
Total liabilities and stockholders' equity $56,000 $57,072
======= =======
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements
3
<PAGE> 4
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net laboratory service revenue:
Fee-for-service $ 9,422 $10,886
Managed care 4,080 4,668
------- -------
Total net revenue 13,502 15,554
Operating expenses:
Laboratory 9,081 10,297
Selling, general and administrative 2,724 3,272
Provision for doubtful accounts 813 914
Depreciation 616 573
Amortization 340 538
------- -------
Total operating expenses 13,574 15,594
------- -------
Operating income (loss) (72) (40)
Interest expense 416 413
Other income, net (17) (33)
------- -------
Income (loss) before income taxes (471) (420)
Income taxes (benefit) 38 (100)
------- -------
Net income (loss) ($509) ($320)
======= =======
Net income per share ($0.08) ($0.05)
Average shares outstanding and
common equivalent shares 6,599 6,371
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
<PAGE> 5
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 8 ($1,448)
------ --------
Cash flows from investing activities:
Purchase of property and equipment (238) (984)
Other investing activities (75) (7)
------ --------
Net cash used in investing activities (313) (991)
------ --------
Cash flows from financing activities:
Payments on long-term debt (429) (7,723)
Long-term/Short-term borrowings - - 1,000
Proceeds from issuance of Convertible Debenture - - 12,000
Payments of financing costs (19) (907)
Other financing activities (4) 130
------ --------
Net cash provided by (used in) financing activities (452) 4,500
------ --------
Net increase (decrease) in cash and cash equivalents (757) 2,061
Cash and cash equivalents, beginning of period 2,227 999
------ --------
Cash and cash equivalents, end of period $1,470 $ 3,060
====== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
In the opinion of management, the condensed consolidated financial
statements include all adjustments, consisting of normal recurring items,
necessary for a fair presentation of financial position and results of
operations. The results of operations are not necessarily indicative of
the results which may be expected for the full year.
2. Income Taxes
The effective income tax rate of (8.1%) for the three months ended March
31, 1997 is less than the statutory rate of 34% principally due to
non-deductible goodwill and other permanent non-deductible expenses.
Under applicable accounting rules, $123,000 of tax benefits relating to
the first quarter 1997 loss could not be recorded in 1997. This loss is
treated as a net operating loss carry forward for accounting purposes and
may be used to offset future profits of the Company.
3. Earnings Per Share
Earnings per share has been computed using the weighted average number of
shares of common stock and common stock equivalents outstanding. Common
stock equivalents represent the assumed exercise of outstanding stock
options and warrants.
Statement of Financial Accounting Standards No.128 ("SFAS 128"),
"Earnings per Share", was issued in February 1997. Adoption of SFAS
128, effective for period ending after December 31, 1997, is not expected
to have a significant effect on reported earnings.
4. Intangible Assets
Certain assets classified as goodwill in the Company's financial
statements for the year ended December 31, 1996 as included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
have been reclassified to customer lists. Intangible assets consist of
the following (in thousands):
<TABLE>
March 31
1997 1996
<S> <C> <C>
Goodwill $16,120 $28,470
Covenants not to compete 346 5,427
Customer Lists 22,605 10,456
------- -------
$39,071 $44,353
Less accumulated amortization (5,751) (8,078)
------- -------
Intangible assets, net $33,320 $36,275
</TABLE> ======= =======
6
<PAGE> 7
5. Long-Term Debt
On April 30, 1997, the Company replaced its existing credit facility with
a new credit facility which includes a $9.5 million revolving line of
credit, a $3.0 million acquisition line and a $2.5 million letter of
credit facility. Borrowing levels under the revolving line of credit are
based on accounts receivable, inventory and fixed asset balances. As of
April 30, 1997, permitted borrowings under the new revolving line of
credit were $7,000,000 and $7,000,000 was outstanding under the line.
Under the credit facility the Company is required to maintain certain
financial covenants including a current ratio of 1.1 to 1 through June
29, 1997, and 1.25 to 1 thereafter; a consolidated leverage ratio of 9.5
to 1 through June 29, 1997, 7 to 1 through September 29, 1997, 5 to 1
through June 29, 1998 and 3 to 1 thereafter; a consolidated funded debt
to total capitalization ratio of .75 to 1 through September 29, 1997, .70
to 1 through December 30, 1997 and .60 to 1 thereafter; and a
consolidated debt service coverage ratio of .9 to 1 through June 30,
1997, 1 to 1 through September 30, 1997 and 1.25 to 1 thereafter.
Borrowing under the acquisition line is at the discretion of the bank.
The line of credit bears interest from .5% below to 1.00% above the prime
rate or from 2% to 3.75% above the LIBOR rate. The interest rate on the
line of credit at April 30, 1997 was 9%. Borrowings under the credit
facility are collateralized by substantially all of the assets of the
Company and its subsidiaries (including the stock of the Company's
managed care subsidiaries), except for the assets of the Company's
managed care subsidiaries. The revolving line of credit initially
expires on August 31, 1998, while the acquisition line and letter of
credit facilities initially expire on June 30, 1997, but are expected to
be renewed at that time.
6. Contingencies
The Company has from time to time experienced compliance reviews,
including reviews of its billing practices, by its third-party payors.
The Company has not yet received final determination notices or decision
letters relating to compliance reviews conducted by two of its largest
third-party payors. The ultimate effect, if any, of these compliance
revenues cannot be determined at this time and no liability has been
accrued by the Company.
In connection with the acquisition of MML, the Company has agreed to
indemnify MML and its shareholders (including certain officers, directors
and shareholders of the Company) under certain circumstances for income
tax liabilities arising from such acquisition and indemnification. On
July 13, 1995, MML and its shareholders received notices of deficiency
from the Internal Revenue Service (IRS). The IRS deficiency assessments
relating to the acquisition total approximately $4.9 million, excluding
interest and penalties which could be assessed. In October 1995, the
Company (pursuant to its rights under the related acquisition agreement)
filed petitions with the United States Tax Court contesting the
deficiency. The Company believes that the acquisition has been treated
properly for federal income tax purposes and intends to vigorously defend
its position.
In August, 1996, the Company received a thirty-day demand letter from the
IRS proposing adjustments to the Company's federal income taxes for the
years 1991-1994 totaling $3.3 million. The proposed adjustments related
to the timing of certain bad debt deductions and claim expense accruals
and the deductibility of certain sign on bonus and non-compete payments
made in connection with the MML acquisition. The Company has filed a
written protest with the IRS appeals office regarding this matter.
There can be no assurance that the Company will resolve these disputes IRS in
a manner favorable to the Company. The failure to resolve these disputes with
the IRS in a manner favorable to the Company would result in a current period
charge to earnings and would have a material adverse effect on the business,
financial condition, including working capital, and results of operations of the
Company. The ultimate effect of these matters on the Company, if any, cannot be
determined at this time. The outcome of these disputes with the IRS involves a
number of uncertainties, including those inherent in interpreting and applying
Internal Revenue Code and other federal income tax authority and precedent to
actual transactions, those relating to the valuation of various assets at the
time of the acquisition and those inherent in pursuing any legal action of the
type instituted by the Company. The Company has not accrued a liability
relating to the deficiency assessments or proposed tax adjustments.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net revenue represented by items in the statements of income.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Fee-for-service 70.0% 70.0%
Managed care 30.0% 30.0%
------ ------
Total net revenue 100.0% 100.0%
Laboratory expenses 67.2% 66.2%
Selling, general and administrative expenses 20.2% 21.0%
Provision for doubtful accounts 6.0% 5.9%
Depreciation and amortization 7.1% 7.1%
------ ------
Operating income (loss) -0.5% -0.2%
Interest expense 3.1% 2.7%
Other income, net -0.1% -0.2%
Income taxes 0.3% -0.6%
------ ------
Net income (loss) -3.8% -2.1%
=================
EBITDA* 6.6% 6.9%
=================
Net cash provided by operating activities** .1% -9.3%
=================
</TABLE>
* EBITDA represents earnings before interest, taxes, depreciation,
amortization and other (income) expense. The Company and laboratory
industry analysts use EBITDA as a method of measuring and comparing the
financial performance of clinical laboratory companies, many of which
were formed by combining with and acquiring other clinical laboratory
companies, because it eliminates the effects of goodwill amortization and
acquisition expenses on net income. EBITDA should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of the Company's liquidity.
* * Net cash provided by operating activities is determined in accordance
with generally accepted accounting principles and is included in the Company's
Condensed Consolidated Statements of Cash Flows. The amount for each period is
determined by adjusting net income for the period for non-cash expense items,
including restructuring and special charge, depreciation and amortization,
extraordinary item and deferred income taxes, and for increases and decreases in
asset and liability items other than those relating to financing and investing
activities.
8
<PAGE> 9
Net Revenue. The Company's net revenue is generated from managed care
programs, primarily laboratory, with major employers, union and
government benefit plans, and from traditional laboratory fee-for-service
business. In the Managed Care Programs, for a fixed monthly payment, the
Company is the designated provider of substantially all non-hospital
clinical laboratory testing which may be ordered by a covered person's
physician of choice and, in some cases, equipment and appliances. In the
fee-for-service business, the Company charges a fee based upon the type
of test requested by the patient's physician.
Total net revenue was $13.5 million in the first quarter of 1997,
compared to $15.6 million in the first quarter of 1996. The decrease in
total net revenue was principally due to a decline in fee-for-service
revenue resulting from fewer fee-for-service patient visits and, to a
lesser extent, declines in managed care revenues.
Managed care revenue decreased to $4.1 million for the first quarter of
1997 from $4.7 million for the first quarter of 1996, a decrease of $0.6
million, or 12.6%. The decrease in managed care revenue for the first
quarter of 1997 was primarily due to a program that expired in August
1996 and was renewed two months later at a reduced level and, to a lesser
extent, decreases in participation levels, fee reductions in programs and
program terminations. As a percentage of total net revenue, managed
care revenue remained constant at 30% for both the first quarter of 1997
and the first quarter of 1996.
Fee-for-service revenue was $9.4 million for the first quarter of 1997
compared to $10.9 million for the first quarter of 1996. Fee-for-service
revenue for the first quarter of 1997 was down 13.5% as compared to the
same quarter last year, primarily due to a 16.1% decline in
fee-for-service patient visits. The decline in patient visits is
principally due to the elimination of testing facilities, reduction of
unprofitable accounts, and lost accounts, including retired physicians
and physician practices sold to hospitals. The revenue decline was
partially offset by an increase in fee-for-service revenue per accession,
principally due to changes in payor and test mix and reduction of
unprofitable accounts.
The Company's fee-for-service net revenue may continue to be negatively
impacted in 1997 by a number of factors, including customer attrition
resulting from recent cost reduction efforts as described above, the
shift toward managed care alternatives, reductions in reimbursement
levels on certain of its laboratory tests primarily due to reimbursement
changes instituted by the Company's third-party payors, and changes in
payor and test mixes being experienced by the Company and the clinical
laboratory industry generally.
The Company's clinical laboratory testing operations are partially
affected by seasonal trends common to the clinical laboratory industry.
Testing volume is lower during the summer months and the year-end holiday
periods. These seasonal effects are partially offset by Managed Care
revenues which are not affected by seasonal trends.
Laboratory Expenses. Laboratory expenses decreased from $10.3 million
for the first quarter of 1996 to $9.1 million for the first quarter of
1997, a decrease of $1.2 million, or 11.8%. This decrease is principally
due to fewer patient visits and the Company's reengineering and cost
reduction efforts. As a percentage of net revenue, laboratory expenses
increased from approximately 66.2% for the first quarter of 1996 to 67.3%
for the first quarter of 1997. The Company attributes this increase
principally to patient visits declining at a faster rate than laboratory
expenses.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $3.3 million for the first quarter
of 1996 to $2.7 million for the first quarter of 1997, a decrease of $.6
million, or 16.8%. As a percentage of net revenue, selling, general and
administrative expenses decreased from 21.0% for the first quarter of
1996 to 20.2% for the first quarter of 1997. These decreases are
primarily due to the reengineering and cost reduction programs initiated
during 1996 and 1997.
Provision for Doubtful Accounts. The provision for doubtful accounts
decreased from $.9 million in the first quarter of 1996 to $.8 million in
the first quarter of 1997. The decrease of $.1 million, or 11%, was
principally due to the decline in fee-for-service revenue. As a
percentage of net revenue, the provision for doubtful accounts increased
from 5.9% in the year earlier quarter to 6.0% for the current quarter,
mainly due to increases in direct patient billings.
EBITDA. EBITDA was $.9 million or 6.6% of net revenue for the first
quarter of 1997, compared to $1.1 million, or 6.9% of net revenue for the
first quarter of 1996. The Company attributes these decreases
principally to the decline in fee-for-service patient visits discussed
above.
Income Taxes. The effective income tax rate of (8.1%) for the three
months ended March 31, 1997 is less than the statutory rate of 34%
principally due to non-deductible goodwill and other permanent
non-deductible expenses. Under applicable accounting rules, $123,000 of
tax benefits relating to the first quarter 1997 loss could not be
recorded in 1997. This loss is treated as a net operating loss carry
forward for accounting purposes and may be used to offset future profits
of the Company.
Liquidity and Capital Resources
The Company's working capital ratio remained constant at 1.1 to 1 at
March 31, 1997 and December 31, 1996. Working capital remained constant
at $1.1 million at March 31, 1997 and December 31, 1996. Included in
cash and cash equivalents at March 31, 1997 is $533,000 million in cash
deposits of one of the Company's wholly owned managed care subsidiaries,
which is generally permitted to make distributions to the Company only
out of the subsidiary's earned surplus and to the extent certain other
regulatory requirements are satisfied.
Net cash flow from operating activities was $8,000 for the first quarter
of 1997 compared to ($1.4) million for the year-earlier quarter,
principally due to payments made on current liabilities from proceeds of
convertible debenture offering which occurred in the first quarter of
1996. Days outstanding in accounts receivable were 68 days at March 31,
1997, compared to 97 days at March 31, 1996. The days outstanding have
reduced significantly due to reengineering and process improvements, and,
to a lesser extent, increased accounts receivable allowances. The
Company is continuing its efforts to reduce days outstanding, principally
by working its aged and unbilled accounts receivable.
The ratio of debt to capital was 43.3% at March 31, 1997 and December 31,
1996.
On April 30, 1997, the Company replaced its existing credit facility with
a new credit facility which includes a $9.5 million revolving line of credit, a
$3.0 million acquisition line and a $2.5 million letter of credit facility.
Borrowing levels under the revolving line of credit are based on accounts
receivable, inventory and fixed asset balances. As of April 30, 1997, permitted
borrowings under the new revolving line of credit were $7,000,000 and $7,000,000
was outstanding under the line. Under the credit facility the Company is
required to maintain certain financial covenants including a current ratio of
1.1 to 1 through June 29, 1997, and 1.25 to 1 thereafter; a consolidated
leverage ratio of 9.5 to 1 through June 29, 1997, 7 to 1 through September 29,
1997, 5 to 1 through June 29, 1998 and 3 to 1 thereafter; a consolidated funded
debt to total capitalization ratio of .75 to 1 through September 29, 1997, .70
to 1 through December 30, 1997 and .60 to 1 thereafter; and a consolidated debt
service coverage ratio of .9 to 1 through June 30, 1997, 1 to 1 through
September 30, 1997 and 1.25 to 1 thereafter. Borrowing under the acquisition
line is at the discretion of the bank. The line of credit bears interest from
.5% below to 1.00% above the prime rate or from 2% to 3.75% above the LIBOR
rate. The
10
<PAGE> 11
interest rate on the line of credit at April 30, 1997 was 9%. Borrowings
under the credit facility are collateralized by substantially all of the
assets of the Company and its subsidiaries (including the stock of the
Company's managed care subsidiaries), except for the assets of the
Company's managed care subsidiaries. The revolving line of credit
initially expires on August 31, 1998, while the acquisition line and
letter of credit facilities initially expire on June 30, 1997, but are
expected to be renewed at that time.
The Company expects to incur capital expenditures of approximately $1.0
million during the remainder of 1997 for new data processing and
laboratory equipment.
The Company expects to fund its working capital needs, capital
expenditures required for the operation of its business and debt service
requirements from its operating cash flow, including cash flow from its
managed care subsidiaries and capitalized leases. The Company believes
that it will continue to generate operating cash flow in future periods
as a result of the revenue enhancement initiatives and the reengineering
and cost reduction efforts implemented to date and in the future. The
foregoing statement may be a "forward looking statement" within the
meaning of the Securities Exchange Act of 1934. The Company's ability to
generate additional operating cash flow involves a number of
uncertainties. For example, the Company's revenue enhancement
initiatives may not be successful in generating new revenues or, if
successful, such new revenues may not be at the level required to offset
decreases in revenues, particularly if third party reimbursement levels
continue to decrease or the Company continues to experience declines in
patient visits or fee-for-service revenue per patient visit as described
above under "Results of Operations - Net Revenue". In addition, the
Company's operating cash flow could be negatively affected by a number of
other factors, including the impact of reengineering/cost reduction
efforts on revenues, potential offsetting increases in operating
expenses, variations in cost savings from, and timing of, the Company's
reengineering/cost reduction efforts from those anticipated, the impact
on revenues and expenses of governmental and third-party payor
requirements and reimbursement levels, the impact on the Company of
recent and continuing changes in the health care industry, and the
competitive nature of the laboratory industry. From time to time the
Company's managed care subsidiaries may not be able to make cash
distributions to the Company at levels required to fully fund the
Company's operating cash flow requirement without violating applicable
regulatory requirements. In the event that the Company is not able to
generate additional operating cash flow or to receive cash distributions
from its managed care subsidiaries to the extent required to fund the
Company's operating cash flow requirements, the Company may need to
obtain additional financing to meet its operating cash needs.
The Company has from time to time experienced compliance reviews,
including reviews of its billing practices, by its third-party payors.
The Company has not yet received final determination notices or decision
letters relating to compliance reviews conducted by two of its largest
third-party payors. The ultimate effect, if any, of these compliance
reviews can not be determined at this time and no liability has been
accrued by the Company.
In connection with the acquisition of the Company's predecessor (the
"Predecessor"), the Company has agreed to indemnify the Predecessor and
its shareholders (including certain officers, directors and shareholders
of the Company) under certain circumstances for income tax liabilities
arising from such acquisition and indemnification. On July 13, 1995, the
Predecessor and its shareholders received notices of deficiency from the
Internal Revenue Service (IRS). The IRS deficiency assessments relating
to the acquisition total approximately $4.9 million, excluding interest
and penalties which could be assessed. In October 1995, the Company
(pursuant to its rights under the related acquisition agreement) filed
petitions with the United States Tax Court contesting the deficiency.
The Company believes that the acquisition has been treated properly for
federal income tax purposes and intents to vigorously defend its
position.
In August, 1996, the Company received a thirty-day demand letter from
the IRS proposing adjustments to the Company's federal income taxes for
the years 1991-1994 totaling $3.3 million. The proposed adjustments
principally relate to the timing of certain bad debt deductions and claim
expense accruals and the deductibility of certain sign on bonus and
non-compete payments made in connection with the Predecessor acquisition.
The Company has filed a written protest with the IRS appeals office
regarding this matter.
11
<PAGE> 12
There can be no assurance that the Company will resolve these disputes
with the IRS in a manner favorable to the Company. The failure to
resolve the disputes with the IRS in a manner favorable to the Company
would result in a current period charge to earnings and would have a
material adverse effect on the business, financial condition, including
working capital, and results of operations of the Company. The ultimate
effect of these matters on the Company, if any, cannot be determined at
this time. The foregoing statement may be a "forward looking statement"
within the meaning of the Securities Exchange Act of 1934. The outcome
of these disputes with the IRS involves a number of uncertainties,
including those inherent in interpreting and applying the Internal
Revenue Code and other federal income tax authority and precedent to
actual transactions, those relating to the valuation of various assets at
the time of the acquisition and those inherent in pursuing any legal
action of the type instituted by the Company. The Company has not
accrued a liability relating to the deficiency assessments or proposed
tax adjustment.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not
Applicable.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On April 30, 1997, the Company replaced its existing credit
facility with a new credit facility. For a description of the
new credit facility, see Part I- Financial Information, Item 1
Financial Statements, and Note 5 to Notes to Condensed
Consolidated Financial Statements. Certain covenants in the
Company's new credit facility, including a covenant requiring
the Company to maintain a current ratio and a debt service
coverage ratio, may restrict the Company's ability to pay cash
dividends.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Revolving Credit and Loan Agreement dated April 30, 1997
between the Company and its subsidiaries and NBD Bank.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On January 4, 1997, a current report on Form 8-K was filed
disclosing information under Item 4 regarding the change in the
Company's independent accountants.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
(Registrant)
Date: May 14, 1997 By: /s/Eugene E. Jennings
-----------------------
Eugene E. Jennings
President and
Chief Executive Officer
Date: May 14, 1997 By: /s/ Alan S. Ker
------------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
4.1 -- Revolving Credit and Loan Agreement dated April
30, 1997 between the Company and its subsidiaries
and NBD Bank
27 -- Financial Data Schedule
<PAGE> 1
EXHIBIT 4.1
[EXECUTION COPY]
REVOLVING CREDIT
AND LOAN AGREEMENT
This REVOLVING CREDIT AND LOAN AGREEMENT (this "Agreement") is entered
into on April 30, 1997, among NBD BANK ("NBD" or "Bank"), as lender, with
offices at 611 Woodward Avenue, Detroit, Michigan 48226; Universal Standard
Medical Laboratories, Inc., a Michigan corporation ("USML"); Universal Standard
Managed Care of Michigan, Inc., a Michigan corporation ("Michigan Managed
Care"); Universal Standard Managed Care of Ohio, Inc., an Ohio corporation
("Ohio Managed Care"); Universal Standard Managed Care, Inc., a Delaware
corporation ("Delaware Managed Care"); T.P.A., Inc., a Michigan corporation
("Processing"); and A/R Credit, Inc., a Michigan corporation ("AR Credit"), all
of whose addresses are 26500 Northwestern Highway, Southfield, Michigan 48076.
RECITALS
USML, Delaware Managed Care, Ohio Managed Care, Michigan Managed Care,
Processing, and AR Credit (each, an "Obligor" and collectively, the "Obligors")
have requested and, subject to the terms and conditions of this Agreement, NBD
has agreed to make loans (each, a "Loan" and collectively, the "Loans")
available to USML, Michigan Managed Care, Ohio Managed Care, and Delaware
Managed Care (each, a "Borrower" and collectively, the "Borrowers") as follows:
(a) A revolving line of credit to USML, more fully described
below, of up to a maximum principal amount of $9,500,000, or such
lesser amount as is available under a borrowing formula.
(b) A joint and several discretionary acquisition facility to
USML and Delaware Managed Care, more fully described below, in the
aggregate principal amount of up to $3,000,000.
(c) A joint and several standby letter of credit facility to
Borrowers, more fully described below, of up to the maximum
outstanding face amount of $2,500,000.
AGREEMENT
In consideration of the above recitals (which are incorporated into
this Agreement) and the covenants contained in this Agreement, NBD and Obligors
agree as follows:
1.1 DEFINED TERMS. For purposes of this Agreement, the following
terms have the meanings specified below:
"Acceptable Appraisal" means an appraisal of USML's equipment conducted
by Norman Levy and Associates (or another appraiser agreed to in writing by
NBD) on a forced sale basis
<PAGE> 2
that has been delivered to NBD, that is less than one year old, and that is
satisfactory to NBD in form and substance; provided, however, that with respect
to the period ending November 18, 1997, the appraisal conducted by Norman Levy
and Associates dated November 19, 1996 is an Acceptable Appraisal.
"Adjusted Acquisition Facility Floating Rate" means the per annum rate
of interest equal to the sum of (a) the Prime Rate in effect from time to time,
plus, (b) the applicable Acquisition Facility Floating Rate Margin, as defined
in Section 2.5(d). The Adjusted Acquisition Facility Floating Rate changes
simultaneously with any change in the Prime Rate.
"Adjusted Line of Credit Floating Rate" means the per annum rate of
interest equal to the sum of (a) the Prime Rate in effect from time to time,
plus, (b) the applicable Line of Credit Floating Rate Margin, as defined in
Section 2.5(d). The Adjusted Line of Credit Floating Rate changes
simultaneously with any change in the Prime Rate.
"Adjusted LIBOR Rate" means, for any Advance Period and the applicable
LIBOR Rate Advance, the per annum rate of interest equal to the sum of (a) the
applicable LIBOR Margin, as defined in Section 2.5(d), plus (b) the per annum
rate (rounded up, if necessary, to the nearest one-hundredth of one percent
(1/100%)) determined by multiplying (i) the LIBOR Rate for such LIBOR Rate
Advance and related Advance Period, by (ii) a fraction, the numerator of which
is the number one and the denominator of which is the number one minus that
percentage (expressed as a decimal) which is in effect on the first day of such
Advance Period as the stated maximum rate of all reserve requirements
(including any basic, marginal, emergency, supplemental, special or other
reserves) as prescribed by the Board of Governors of the Federal Reserve System
(or any successor agency) for determining the maximum reserve requirement with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank of such
System, without benefit of credit or prorations, exemptions or offsets which
might otherwise be available to the Bank from time to time under Regulation D.
"Advance" means a disbursement by the Bank under Sections 2.1 and 2.2,
including the conversion of an Advance by the Bank from one Type of Advance to
another Type of Advance and the extension of any Advance for an additional
Advance Period. Loans and advances made under Section 2.3 are not Advances.
"Advance Period" means, with respect to each Advance, the period
commencing on the Funding Date of such Advance and ending at the end of the
period specified by a Borrower in compliance with its request under Section 2.5
for such Advance; provided, however, that:
(a) any Advance Period that would otherwise end on a day that
is not a Business Day will be extended to the next succeeding Business Day,
except that, with respect to each LIBOR Rate Advance, if the next succeeding
Business Day falls in another calendar month, such Advance Period will end on
the next preceding Business Day;
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<PAGE> 3
(b) with respect to each LIBOR Rate Advance, any Advance Period
which begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Advance Period) shall, subject to clause (c) below, end on the last
Business Day of a calendar month; and
(c) any Advance Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Affiliate" of any person means any other person that, directly or
indirectly, controls or is controlled by or is under common control with such
person. For purposes of this definition "control" (including the correlative
meanings of the terms "controlled by" and "under common control with"), with
respect to any person, means possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Borrowing Base" means as of the date of determination, the sum of (1)
the following applicable percentage of Qualified Accounts, multiplied by, a
person's Qualified Accounts reported in a Collateral Activity Report delivered
in accordance with Section 6.4(b), plus, (2) the following applicable
percentage of Qualified Inventory, multiplied by, a person's Qualified
Inventory reported on a Collateral Activity Report delivered in accordance with
Section 6.4(b), plus, (3) the following applicable percentage of Qualified
Equipment, multiplied by, a person's Qualified Equipment reported in a
Collateral Activity Report delivered in accordance with Section 6.4(b), plus,
(4) the following applicable percentage of Qualified Edit Accounts, multiplied
by, a person's Qualified Edit Accounts reported on a Collateral Activity Report
delivered in accordance with Section 6.4(b):
Qualified Accounts up to 80%
Qualified Inventory up to 50%
Qualified Equipment up to 80%
Qualified Edit Accounts up to 80%
Notwithstanding anything to the contrary contained in this Agreement
(a) Advances under the Line of Credit Loan against Qualified Inventory may not
exceed $500,000 at any time and (b) Advances under the Line of Credit Loan
against Qualified Edit Accounts may not exceed $1,000,000 at any time. All
Qualified Accounts and Qualified Edit Accounts reported in the Borrowing Base
must be net of reserves for contractual reimbursement levels and bad debt
expense, and these reserves must be satisfactory to NBD in its Reasonable
Credit Judgment.
"Business Day" means a day other than a Saturday, Sunday or other day
on which the Bank is not open to the public for carrying on substantially all
of its banking functions; provided, however, that for purposes of determining
the LIBOR Rate or an applicable Advance Period for
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<PAGE> 4
a LIBOR Rate Advance, references to Business Day include only those days on
which dealings in Dollar deposits are carried out by the Bank in the London
interbank market.
"Capital Lease" of any person means any lease which, in accordance
with GAAP, is or should be capitalized on the books of such person.
"Claims" means any demand, claim, action or cause of action, damage,
liability, loss, cost, debt, expense, obligation, tax, assessment, charge,
lawsuit, contract, agreement, undertaking or deficiency, of any kind or nature,
whether known or unknown, fixed, actual, accrued or contingent, liquidated or
unliquidated (including interest, penalties, attorneys' fees and other costs
and expenses incident to proceedings or investigations relating to any of the
foregoing or the defense of any of the foregoing), whether or not litigation
has commenced.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations thereunder.
"Consolidated" or "consolidated" means, when used with reference to any
financial term in this Agreement, the aggregate for the Obligors of the amounts
signified by such term for all such persons determined on a consolidated basis
in accordance with GAAP. All financial covenants in this Agreement are
calculated on a Consolidated basis for the Obligors.
"Consolidated Current Ratio" means the ratio of Obligors' Consolidated
Current Assets to Obligors' Consolidated Current Liabilities.
"Consolidated Debt Service Ratio" means, for any period on a
consolidated basis of the Obligors, the ratio of (a) EBITDA plus lease expense
for all operating leases to (b) the sum of (i) all interest paid (including
amounts paid that are deemed to be interest) on all Indebtedness, (ii) all
amounts paid with respect to all operating leases, (iii) all dividends paid,
(iv) the current portion of all Consolidated Funded Debt, (v) all federal
income tax paid less federal income tax refunded, plus (vi) all cash paid to
fund the "equity" portion of all amounts paid to acquire capital assets.
"Consolidated Funded Debt" means the sum of (1) all interest bearing
Indebtedness (including Obligations) owed by any Obligor that is not
subordinated to the Obligations, (2) all Indebtedness of any Obligor under
Capital Leases, and (3) the current portion of all subordinated Indebtedness of
any Obligor (including the current portion of the Indebtedness arising under
the Public Debt Documents).
"Consolidated Funded Debt Ratio" means the ratio of (a) Obligors'
Consolidated Funded Debt to (b) Obligors' Consolidated Total Capitalization.
"Consolidated Leverage Ratio" means the ratio of (a) Obligors'
Consolidated ratio of Total Liabilities less the long term portion of the
Indebtedness arising under the Public Debt Documents to (b) EBITDA, calculated
on a trailing four quarter basis.
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<PAGE> 5
"Consolidated Net Earnings" means, with respect to any fiscal period of
Obligors, the Obligors' Consolidated net earnings as reflected on the financial
statements supplied to the Bank under this Agreement.
"Contingent Liabilities" of any person means, as of any date, all
obligations of others for which such person is contingently liable, as
guarantor, surety or in any other capacity, or in respect of which obligations
such person assures a creditor against loss or agrees to take any action to
prevent any such loss (other than endorsements of negotiable instruments for
collection in the ordinary course of business), including all reimbursement
obligations of such person in respect of any letters of credit, surety bonds or
similar obligations and all obligations of such person to advance funds to, or
to purchase assets, property or services from, any other person in order to
maintain the financial condition of such other person.
"Current Assets" means, as of any date of determination, the total
assets that would properly be classified as current assets of the Obligors on a
Consolidated basis in accordance with GAAP.
"Current Liabilities" means, as of any date of determination, the total
liabilities that would properly be classified as current liabilities of the
Obligors on a Consolidated basis under GAAP.
"Default" means any of the events or conditions described in Article
VII that might become an Event of Default with notice or lapse of time or both.
"Default Rate" means the rate per annum that is 3% per annum in excess
of (a) the Adjusted LIBOR Rate, with respect to LIBOR Rate Advances, (b) the
Adjusted Line of Credit Floating Rate as in effect from time to time, with
respect to Floating Rate Advances under the Line of Credit,(c) the Adjusted
Acquisition Facility Floating Rate as in effect from time to time, with respect
to Floating Rate Advances under the Acquisition Facility, and (d) the otherwise
applicable interest rate.
"Dollars" and "$" mean the lawful money of the United States of
America.
"EBITDA" means for any period Consolidated Net Earnings, plus, to the
extent deducted in calculating Consolidated Net Earnings, the sum of interest
expense, taxes, depreciation, and amortization during such period. For
purposes of calculating EBITDA, the $2,407,000 special charge taken by the
Obligors in the second quarter of 1996 is not counted and the $2,848,000
special charge taken by the Obligors in the fourth quarter of 1996 is also not
counted.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 9601 et seq.), the Federal
Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act
(42 U.S.C. Section 2601 et seq.), and the Occupational Safety and Health Act
(29 U.S.C. Section 6451 et seq.), as such
5
<PAGE> 6
laws have been amended or supplemented from time to time, and any similar
present or future Federal, state of local statute, ordinance, rule or
regulation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person, trade
or business, would be treated as a single employer under Section 414 of the
Code.
"Event of Default" means any of the events or conditions described in
Article VII.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"Floating Rate Advance" has the meaning given this term in Section
2.5(b)(i).
"Funding Date" means any Business Day designated by a Borrower as a
day on which an Advance is to be made, or an Advance is to be converted from
one Type of Advance to another Type of Advance, or an Advance Period for an
Advance is to be extended, in each case in accordance with this Agreement.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods, so as to
properly reflect the financial condition, and the results of operations and
changes in financial position, of the Obligors.
"Governmental Authority" means the government of the United States or
any foreign government or any state, province, municipality or other political
subdivision thereof or therein or any court, agency, instrumentality,
regulatory authority or commission of any of the foregoing, including any
taxing authority.
"Governmental Regulations" means any and all laws, statutes,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards, or any similar requirement, of any Governmental
Authority.
"Hazardous Materials" include, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances or related materials defined in any Environmental
Law and in the regulations adopted and publications promulgated pursuant
thereto, or any other Governmental Regulation.
"Indebtedness" of any person means (a) all obligations of such person
for borrowed money, (b) all obligations of such person as lessee under any
Capital Lease, (c) all obligations
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<PAGE> 7
that are secured by any Lien existing on any asset or property of such person
whether or not the obligation secured thereby has been assumed by such person,
(d) the unpaid purchase price for goods, property or services acquired by such
person, except for trade accounts payable arising in the ordinary course of
business, (e) all obligations of such person to purchase goods, property or
services in excess of normal business requirements where payment therefor is
required regardless of whether delivery of such goods or property or the
performance of such services is ever made or tendered (generally referred to as
"take or pay contracts"), (f) all obligations of such person in respect of any
interest rate or currency swap, rate cap or other similar interest rate or
currency risk management transaction, and (g) all Contingent Liabilities of
such person.
"Indemnity Payment" means with respect to a LIBOR Rate Advance the
amount determined in accordance with Section 2.11.
"Interest Payment Date" means (a) with respect to Floating Rate
Advances, the last Business Day of each month and the Termination Date, and (b)
with respect to LIBOR Rate Advances, the last day of the Advance Period
applicable to such LIBOR Rate Advance, unless the Advance Period is 6 months,
in which case it means the 3-month anniversary of (in case of a LIBOR Rate
Advance) the Funding Date and the last day of the Advance Period.
"Investment" means any advance, loan, extension of credit or capital
contribution to, or any investment in the capital stock or other equity
interest, or debt securities or other obligations of, any person.
"IRS Disputes" means all Claims arising from or related to the matters
identified in item number 4 on Exhibit 4.6.
"Justice Department Dispute" means all Claims arising from or related
to the matters identified in item number 5 on Exhibit 4.6.
"LIBOR Rate" means, for any LIBOR Rate Advance and the related
Advance Period, the per annum rate of interest equal to the offered rate for
deposits in Dollars for the applicable Advance Period commencing on the first
day of such Advance Period (a "Reset Date") which appears on the Telerate
Screen page 3750 (British Bankers' Association LIBOR setting) at approximately
11:00 am., London Time, on the day that is two Business Days preceding such
Reset Date, except as provided below. If two or more such offered rates appear
on the Telerate Screen on the applicable date, the LIBOR Rate will be the
arithmetic mean of such offered rates. If the source referred to in the first
sentence of this definition is not reasonably available to the Bank, the LIBOR
Rate for a particular LIBOR Rate Advance and the related Advance Period will be
the per annum rate of interest at which deposits in Dollars for such Advance
Period and in an aggregate amount comparable to the principal amount of the
LIBOR Rate Advance of the Bank is offered to the Bank by other prime banks in
the London interbank market, at approximately 11:00 am., London time, on the
day that is two Business Days preceding the applicable Reset Date, as
determined by the Bank.
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<PAGE> 8
"LIBOR Rate Advance" has the meaning given this term in Section
2.5(b)(ii).
"Lien" means any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, or any other type of lien,
charge, encumbrance, preferential arrangement or other claim or right.
"Loan Document" means any one of the Loan Documents.
"Loan Documents" means this Agreement, the Notes, the documents and
agreements delivered to the Bank in accordance with Articles II and III of this
Agreement, and all other agreements and other documents or instruments now or
hereafter executed by or on behalf of any one or more of the Obligors and
delivered to the Bank in connection with this Agreement.
"Material Adverse Effect" means any event, occurrence or state of
facts that is reasonably likely to have a material adverse effect on the
business, properties, assets, operations or condition (financial or otherwise)
of the relevant person.
"Material Adverse Event" means any event, occurrence or state of
facts that is reasonably likely to have a material adverse effect on the
business, properties, assets, operations or condition (financial or otherwise)
of (1) the Obligors on a Consolidated basis, (2) USML, or (3) Delaware Managed
Care and its subsidiaries on a consolidated basis.
"Medicaid Account" means all accounts due or coming due in the future
to, or alleged to be due or coming due to, USML from the State of Michigan or
any other state in which the USML conducts business, any agency,
instrumentality, bureau or department of these states, the carriers of any of
them or any other payors of funds pursuant to a state's Medicaid program or
plan established under the Title XIX of the Social Security Act, 42 U.S.C.
Section 1396 et seq. as payment for services rendered or goods, supplies or
equipment provided (whether provided directly by USML or indirectly through one
or more related or unrelated persons or entities) to Medicaid recipients.
"Medicare Account" means all accounts due or coming due in the future
to, or alleged to be due or coming due, directly or indirectly, to, USML from
the Department of Health and Human Services, its carriers or other payors of
funds pursuant to the Medicare program established by Title XVIII of the Social
Security Act, 42 U.S.C. Section 1395 et seq. as payment for services rendered
or goods, supplies or equipment provided (whether provided by USML indirectly
or through one or more related or unrelated persons) to Medicare beneficiaries.
"Multiemployer Plan" means any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Note" means any one of the Notes.
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<PAGE> 9
"Notes" means a collective reference to the Line of Credit Note and the
Acquisition Facility Notes.
"Obligations" means the principal of and interest on the Advances and
the Acquisition Facility Loans, all reimbursement obligations under the Standby
Letter of Credit Facility, and all other indebtedness, obligations and
liabilities of each Obligor to NBD, its parent corporation, its subsidiaries,
and its Affiliates (including NBD Equipment Finance, Inc. ["NBD Equipment
Finance"]) (each, an "NBD Affiliate" and collectively, the "NBD Affiliates"),
or any one or more of them, whether arising out of or in connection with this
Agreement or any other Loan Document (including the Guaranties) or any other
document, agreement, or otherwise, whether now existing or hereafter incurred,
direct or indirect, absolute or contingent, matured or unmatured, joint or
several, whether arising before or after any bankruptcy proceeding involving
one or more of the Obligors, whether for principal, interest, reimbursement
obligations, fees, expenses or otherwise, and the due performance and
compliance with the terms and conditions of this Agreement, the other Loan
Documents, and all other present and future agreements by any Obligor.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Dividends" means dividends (including Required Dividends)
that Obligors are allowed to make under applicable law that are made while no
Default or Event of Default exists and that do not cause a Default or Event of
Default to occur.
"Permitted Liens" means:
(a) Liens for taxes, assessments or governmental charges,
liens incident to construction, common carriers, and public warehouse
storage, which are either not delinquent or are being contested in
good faith by an Obligor by appropriate proceedings, which will
prevent foreclosure of such liens, and against which adequate reserves
have been provided, and upon demand by NBD in the case of liens or
encumbrances that are or may become senior in priority to NBD's liens
and encumbrances in the Collateral, with adequate security being
posted with NBD.
(b) Liens or deposits in connection with workers'
compensation, unemployment, or other insurance, social security laws,
or to secure customs' duties, public or statutory obligations in lieu
of surety, stay or appeal bonds, or to secure performance of contracts
or bids (other than contracts for the payment of money borrowed), or
deposits required by law or governmental regulations or by any court
order, decree, judgment or rule as condition to the transaction of
business or the exercise of any right, privilege or license; or other
liens or deposits of a like nature made in the ordinary course of
business.
(c) Liens granted to NBD.
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<PAGE> 10
(d) Liens to secure indebtedness that is otherwise
permitted by this Agreement and that is used to finance the cost of
equipment acquired by an Obligor after the date of this Agreement that
such Obligor uses in its business if: (i) each such Lien is created to
secure only the indebtedness incurred to finance the cost (including
sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in
connection with such purchase) of such equipment; (ii) the
indebtedness secured by such Lien is incurred by such Obligor within
30 days of the acquisition of such equipment by such Obligor; (iii)
such Lien does not extend to or cover any property other than such
item of equipment; (iv) each such Lien arises when no Event of Default
exists; and (v) the aggregate principal amount of the indebtedness
secured by Liens permitted by this clause (d) incurred in any single
acquisition of equipment does not exceed $150,000 and the aggregate
principal amount of all indebtedness secured by Liens permitted by
this clause (d) does not exceed $500,000 at any one time outstanding.
(e) Liens listed on Exhibit 1.1.
"Person" or "person" includes an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a joint
stock company, an unincorporated organization, a joint venture, a trade or
business (whether or not incorporated), a government (foreign or domestic) and
any agency or political subdivision thereof, or any other entity.
"Plan" means any pension plan (as defined in Section 3(2) of ERISA,
other than a Multiemployer Plan) which is subject to Title IV of ERISA or to
the minimum funding standards of Section 412 of the Code that is maintained by
any Obligor or any of its ERISA Affiliates or to which any Obligor or any of
its ERISA Affiliates has liability.
"Premises" means all property now or hereafter owned, leased or used
any Obligor, including land (including soil, ground water and surface water
located on, in or under the Premises), buildings, equipment and inventory.
"Prime Rate" means the prime rate of interest as announced by Bank at
its principal office at Detroit, Michigan, as in effect from time to time,
which rate may not be the lowest rate charged by the Bank to any of its
customers. The Prime Rate changes simultaneously with any change in such
announced rate.
"Prohibited Transaction" means any transaction involving any Plan
that is proscribed by Section 406 of ERISA or Section 4975 of the Code for
which no prohibited transaction exemption is available.
"Qualified Account" means USML's accounts (including Qualified
Medicare Accounts and Qualified Medicaid Accounts) listed on a Collateral
Activity Report delivered to NBD in accordance with Section 6.4(b) that NBD, in
its Reasonable Credit Judgment, determines to be a Qualified Account. Without
limiting the generality of the immediately preceding sentence, no account will
be a Qualified Account unless it meets all of the following minimum
requirements:
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(i) The account is valued at its face amount (less the
reserves for contractual reimbursement levels and bad debt expense)
and represents a complete, bona fide transaction for Qualified
Inventory sold, delivered, and accepted by the account debtor or
services provided to an account debtor (but excluding any amounts in
the nature of a service charge added to the amount due on an invoice
because the invoice has not been paid when due) that requires no
further act under any circumstances on the part of USML or any other
person or entity to make such account payable by the account debtor,
and the account arises from an arm's-length transaction in the
ordinary course of USML's business between USML and an account debtor
that is not an Affiliate, partner, officer, or employee of USML, or
any partner, officer, or employee of USML.
(ii) The account is not unpaid more than 90 days from the
billing date of the original invoice issued in connection with such
account.
(iii) The account is not owing from an account debtor whose
accounts are Tainted. "Tainted" means (A) that 50% or more of the
total accounts owing from a particular account debtor are 90 days or
more past due from date of invoice or (B) that 50% or more of the
total accounts owing from a particular account debtor are not
Qualified Accounts for any reason.
(iv) The goods the sale of which gave rise to the account
were shipped or delivered or provided to the account debtor on an
absolute and final sale basis and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return
basis, or on the basis of any other similar understanding, and no part
of such goods have been returned or rejected.
(v) The account is not evidenced by chattel paper or an
instrument of any kind.
(vi) The account debtor with respect to the account (A) is
not insolvent, (B) is not the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action,
threatened or pending, which might have a Material Adverse Effect on
its business, and (C) is not, in NBD's Reasonable Credit Judgment,
deemed ineligible for credit for other reasons (including, without
limitation, unsatisfactory past experience of Borrower or NBD with the
account debtor or unsatisfactory reputation of the account debtor).
(vii) The account debtor is located within of the
continental United States of America.
(viii) (A) Except with respect to Qualified Medicare
Accounts and Qualified Medicaid Accounts, the account debtor is not
the government of the United States of America, or any department,
agency or instrumentality thereof, or (B) if the account debtor is an
entity mentioned in the preceding clause, to the extent allowed under
applicable law the Federal Assignment of Claims Act (or applicable
similar legislation)
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has been fully complied with so as to validly perfect NBD's
first-priority security interest to NBD's satisfaction.
(ix) The account is a valid, legally enforceable
obligation of the account debtor with respect thereto and is not
subject to any dispute, condition, contingency, setoff, recoupment,
reduction, claim for credit, allowance, adjustment, counterclaim or
defense on the part of such account debtor, (in excess of contractual
adjustments already recorded) and no facts exist that may provide a
basis for any of the foregoing in the present or future.
(x) The account is subject to a first-priority Lien and
security interest in NBD's favor and is not subject to any other lien,
claim, encumbrance, or security interest whatsoever.
(xi) The account is evidenced by an invoice or other
documentation in form acceptable to NBD and arises from a contract
that is reasonably satisfactory in form and substance to NBD.
(xii) The owner of the account has observed and complied in
all material respects with (A) all laws of the United States of
America (including the Fair Labor Standards Act), (B) all laws of the
state in which the account debtor or the account is located which, if
not observed and complied with, would deny to such person access to
the courts of such state, and (C) all other Governmental Regulations.
(xiii) No representation or warranty contained in this
Agreement, any other Loan Document, any other agreement between such
person and NBD, or in any Collateral Activity Report with respect to
such account has been breached.
(xiv) The account is not subject to any provision
prohibiting its assignment or requiring notice of or consent to such
assignment and is not a bonded account.
(xv) The account does not represent any manufacturer's or
supplier's credits, discounts, incentive plans, or other similar
arrangements entitling such person to discounts on future purchases.
(xvi) The Qualified Inventory giving rise to the account
was not, at the time of sale thereof, subject to any lien or
encumbrance except in NBD's favor.
(xvii) The account is payable in freely transferrable United
States Dollars.
In addition to the foregoing requirements, USML's accounts that are
otherwise qualified will be reduced to the extent of (1) any accounts
payable or other obligations (including, without limitation, NBD's
good faith estimate of any contingent liabilities) owed by USML to
such account debtor ("Contras") and (2) that portion of an account
representing
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<PAGE> 13
a retainage or holdback by the account debtor; provided that NBD, in
its sole discretion may determine that none of the accounts in respect
to such account debtor are Qualified Accounts if Contras represent 30%
or more of the amount owing to USML from such account debtor. Contras
include (i) any amount that any Obligor is determined to owe to the
Internal Revenue Service in connection with the IRS Disputes
(regardless of whether or not such decision is being appealed), and,
(ii) after an Event of Default or a Default has occurred, all amounts
owing to the United States Government (and its departments, divisions,
and instrumentalities) and to all states (and their departments,
divisions, and instrumentalities) in which the relevant Obligor or
Obligors conduct business. Notwithstanding clause (i) of the
immediately preceding sentence, if the Obligors enter into a
settlement with the Internal Revenue Service regarding the IRS
Disputes, then 50% of the first $1,000,000 of the settlement amount
with the Internal Revenue Service and 100% of the settlement amount
that is in excess of $1,000,000 will be Contras; provided, however,
that if any Obligor defaults under any agreement relating to any
settlement with respect to the IRS Disputes, then 100% of the
settlement amount will be Contras. By way of example, if the Obligors
entered into a settlement with the Internal Revenue Service with
respect to the IRS Disputes for $1,500,000, then $1,000,000 would be
Contras provided that no Obligor was in default under any agreement
related to such settlement, and the Contras would be $1,500,000 if any
Obligor was in default under any agreement related to such settlement.
Any account that is at any time a Qualified Account and that
subsequently fails to meet any of the requirements set forth above
ceases to be a Qualified Account and must be removed from the
Borrowing Base immediately.
Notwithstanding anything else in this Agreement or the other Loan
Documents to the contrary, in accordance with and to the extent required
by 42 USC Sections 1395g (Medicare) and 1396a(a)(32) (Medicaid), the
regulations promulgated thereunder and the court decisions with respect
thereto, payments on Qualified Medicare Accounts or Qualified Medicaid
Accounts will not be (i) made to any party other than the provider of
services to which they are due or (ii) directly enforceable by NBD
against the federal government or any agency or instrumentality thereof,
notwithstanding that NBD has obtained a perfected security interest in
such Qualified Medicare Accounts or Qualified Medicaid Accounts.
Notwithstanding anything else in this Agreement to the contrary, in
accordance with and to the extent required by the Health Care
Corporation Act (MCLA Sections 550.1101 et seq.) and other applicable
law, payments (including payments made by Blue Cross and Blue Shield of
Michigan) will not be made to any party other than the provider of
services to which they are due. In the event that Medicare, Medicaid or
Blue Cross law changes with respect to the rights of NBD to collect and
receive payment on the Qualified Medicare or Medicaid Accounts or on
amounts owed from Blue Cross, the Obligors agree to use their best
efforts to collect or assist NBD in collecting payment.
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<PAGE> 14
"Qualified Edit Accounts" means an account that NBD, in its Reasonable
Credit Judgment, determines is a Qualified Edit Account and that at a minimum
meets all terms and conditions to be a Qualified Account except that
(i) The account is not unpaid more than 30 days from the
date on which the services relating to the account were provided to
the account debtor or its insured.
(ii) An item of information, such as the appropriate
insurance carrier, correct name, or correct address of the patient, is
missing in order to send an invoice for the Qualified Inventory sold
or the services provided.
"Qualified Equipment" means that portion of USML's equipment that
Norman Levy and Associates (or other appraiser agreed to in writing by NBD) has
appraised in an Acceptable Appraisal that is listed on a Collateral Activity
Report delivered to NBD in accordance with Section 6.4(b) that NBD, in its
Reasonable Credit Judgment, determines to be Qualified Equipment. Without
limiting the generality of the immediately preceding sentence, no equipment
will be Qualified Equipment unless it meets all the following minimum
requirements:
(i) The equipment is listed in an Acceptable Appraisal
that has been delivered to NBD, or during the one year period before
the date on which another Acceptable Appraisal must be delivered to
NBD, the equipment was purchased to replace equipment in an Acceptable
Appraisal and the cost of such purchased equipment is equal to or
greater than the appraised fair market value of the equipment replaced
as listed in an Acceptable Appraisal.
(ii) The equipment is valued at the lower of forced sale
value or market.
(iii) The equipment is in USML's possession.
(iv) The equipment is not subject to any royalty,
copyright, trademark, tradename, or licensing arrangement, or any law,
rule, or regulation that could limit or impair NBD's ability to
exercise its rights with respect to such equipment.
(v) If the equipment is located on premises not owned by
USML and is valued at more than $20,000 in the aggregate (in the
Acceptable Appraisal), the landlord or owner of such premises must
have waived its distraint, lien, and similar rights with respect to
such equipment and must have agreed in a written agreement
satisfactory to NBD (A) to give NBD notice of any default by such
person and the option to cure such default, (B) to permit NBD to enter
such premises to repossess or remove the equipment at any time, and
(C) to grant NBD such other rights as NBD may reasonably request.
(vi) The equipment meets all standards imposed by any
governmental or agency, department, or division having regulatory
authority over such equipment or its use or sale.
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<PAGE> 15
(vii) No representation or warranty in this Agreement, any
other Loan Document, any other agreement between any Obligor and NBD,
or any Collateral Activity Report has been breached with respect to
such equipment.
(viii) The equipment is not obsolete, is of good and
merchantable quality, and is readily salable.
(ix) The equipment is subject to a first-priority Lien and
security interest in NBD's favor and is not subject to any other lien
or encumbrance.
Any equipment that is at any time Qualified Equipment and that
subsequently fails to meet any of the requirements set forth above
ceases to be Qualified Equipment and must be removed from the
Borrowing Base immediately.
"Qualified Medicaid Account" means USML's Medicaid Accounts that are
listed on a Collateral Activity Report delivered to NBD in accordance with
Section 6.4(b) that NBD, in its Reasonable Credit Judgment, determines to be a
Qualified Medicaid Account and that meet all requirements to be a Qualified
Account.
"Qualified Medicare Account" means USML's Medicare Accounts that are
listed on a Collateral Activity Report delivered to NBD in accordance with
Section 6.4(b) that NBD, in its Reasonable Credit Judgment, determines to be a
Qualified Medicare Account that meet all requirements to be a Qualified
Account.
"Qualified Inventory" means that portion of USML's inventory
consisting of laboratory supplies still in USML's warehouse and in their
original unopened shipment containers that is listed on a Collateral Activity
Report delivered to NBD in accordance with Section 6.4(b) that NBD, in its
Reasonable Credit Judgment, determines to be Qualified Inventory. Without
limiting the generality of the immediately preceding sentence, no inventory
will be Qualified Inventory unless it meets all the following minimum
requirements:
(i) The inventory has not been opened, shipped,
delivered, provided to, purchased or sold by a person on a bill and
hold, consignment sale, guaranteed sale, or sale or return basis, or
any other similar basis or understanding.
(ii) No negotiable warehouse receipt, bill of lading or
other document of title has been issued for the inventory.
(iii) No account has arisen with respect to such inventory.
(iv) The inventory has not been billed to a customer on a
"progress billing" basis.
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<PAGE> 16
(v) The inventory is valued at the lower of cost or
market, on a first-in-first-out basis, or whatever other reasonable
valuation is set by NBD.
(vi) The inventory is in USML's possession.
(vii) The inventory is not subject to any royalty,
copyright, trademark, tradename, or licensing arrangement, or any law,
rule, or regulation that could limit or impair NBD's ability to
exercise its rights with respect to such inventory.
(viii) If the inventory is located on premises not owned by
such person, the landlord or owner of such premises must have waived
its distraint, lien, and similar rights with respect to such inventory
and must have agreed in a written agreement satisfactory to NBD (A) to
give NBD notice of any default by such person and the option to cure
such default, (B) to permit NBD to enter such premises to repossess or
remove the inventory at any time, and (C) to grant NBD such other
rights as NBD may reasonably request.
(ix) The inventory is not packaging, labels, or manuals.
(x) The inventory is not inactive or slow moving
inventory.
(xi) The inventory meets all standards imposed by any
governmental agency, department, or division having regulatory
authority over such inventory or its use or sale including, without
limitation, standards set forth in the Fair Labor Standards Act.
(xii) No representation or warranty in this Agreement, any
other Loan Document, any other agreement between any Obligor and NBD,
or any Collateral Activity Report has been breached with respect to
such inventory.
(xiii) The inventory is new, not obsolete, of good and
merchantable quality, and is readily salable.
(xiv) The inventory is subject to a first-priority Lien and
security interest in NBD's favor and is not subject to any other Lien
or encumbrance.
Any inventory that is at any time Qualified Inventory and that
subsequently fails to meet any of the requirements set forth above
ceases to be Qualified Inventory and must be removed from the
Borrowing Base immediately.
"Reasonable Credit Judgment" means the judgment that would be
exercised with respect to the matter under consideration by a reasonably
prudent asset-based lender under similar circumstances.
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<PAGE> 17
"Reportable Event" means a reportable event as that term is defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under Section 110 of ERISA.
"Responsible Officer" means the president, any vice president, the
chief financial officer, or the controller of the applicable Obligor reasonably
acceptable to NBD.
"Restricted Payment" means (i) the declaration, payment or setting
apart of any sum for payment of any dividend (except a dividend payable in
common stock of an Obligor, Permitted Dividends, and Required Dividends) on, or
any distribution (except a distribution in common stock of an Obligor,
Permitted Dividends, and Required Dividends) in respect of, any shares of
capital stock of an Obligor, (ii) the redemption, repurchase, retirement or
other acquisition of (or the setting apart of any sum in respect of any of the
foregoing actions) any shares of capital stock of an Obligor or any warrants,
rights or options to purchase or acquire shares of any capital stock of an
Obligor (other than an exchange of capital stock of an Obligor for other shares
of capital stock of the applicable Obligor), and (iii) a prepayment of any
Indebtedness.
"Subsidiary" of any person means any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and
of record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof.
"Tangible Net Worth" means:
(i) the amount of all assets which, under GAAP would
appear on the consolidated balance sheet of the Obligors, but
excluding intangible items such as goodwill, treasury shares,
reserves, patents, trademarks, research and development expenses and
the like, and excluding any write-up or increase in the book value of
assets resulting from a reevaluation thereof, a change in accounting
methods, standards, practices or rules, or for any other reason;
less,
(ii) the Obligors' Consolidated Total Liabilities.
"Termination Date" means the earlier to occur of (a) August 31, 1998
and (b) at NBD's option, the date on which an Event of Default occurs.
"Total Capitalization" means the sum of (i) Obligors' Consolidated
Tangible Net Worth, (ii) Obligors' Consolidated Funded Debt, and (iii) the long
term portion of Obligors' Consolidated Indebtedness that is subordinated to the
Obligations on terms and conditions satisfactory to NBD.
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<PAGE> 18
"Total Liabilities" of any person means, as of any date, all
obligations which, in accordance with GAAP, are or should be classified as
liabilities on a balance sheet of such person.
"Type of Advance" has the meaning given such term in Section 2.5.
"UCC" means the Uniform Commercial Code, as amended from time to time,
as in effect in the State of Michigan.
1.2 CERTAIN RULES OF CONSTRUCTION. For purposes of this
Agreement:
(a) Certain References. The words "herein," "hereof" and
"hereunder," and words of similar import, refer to this Agreement as a whole
and not to any particular provision of this Agreement, and references to
Articles, Sections, Exhibits or Schedules, and similar references, are to
Articles or Sections of, or Exhibits or Schedules to, this Agreement unless
otherwise specified.
(b) General Rules. Unless the context otherwise
requires: (i) the singular includes the plural, and vice versa; (ii) all
definitions and references to an agreement, instrument or document shall mean
such agreement, instrument or document together with all exhibits and schedules
thereto and any and all amendments, restatements, replacements, supplements or
modifications thereto or thereof as the same may be in effect at the time such
definition or reference is applicable for any purpose; (iii) all references to
any person shall include such person's successors and assigns; (iv) "include",
"includes", and "including" are to be treated as if followed by "without
limitation" whether or not they are followed by these words or words with a
similar meaning; and (v) reasonable attorneys' fees include allocated costs of
in-house counsel.
(c) Accounting Terms and Determinations. Except as
otherwise provided in this Agreement, all accounting terms used in this
Agreement must be interpreted, all accounting determinations hereunder must be
made, and all financial statements required to be delivered hereunder must be
prepared in accordance with GAAP; provided that, if any Obligor adopts a change
in accounting principles from those used in preparing the financial statements
of any Obligors as at September 30, 1996 that affects in any material respect
(as determined by NBD) the computation of or compliance with any of the
provisions of this Agreement, then, unless this Agreement has been amended to
modify such provisions to take account of such change in accounting principles,
all financial restrictions, provisions and ratios must continue to be computed
based upon accounting principles in effect prior to adoption of such change.
(d) Uniform Commercial Code. All other terms contained
in this Agreement shall have, when the context so indicates, the meanings
provided for by the Uniform Commercial Code as entered in the State of Michigan
to the extent the same are used or defined therein.
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<PAGE> 19
(e) Headings. The headings of the various subdivisions
hereof are for convenience of reference only and in no way modify or affect the
interpretation of any of the terms or provisions of this Agreement.
ARTICLE II
CREDIT AND TERM LOANS; ADVANCES
2.1 LINE OF CREDIT. From time to time prior to the Termination
Date and subject to the terms and conditions set forth in this Agreement, NBD
agrees to make Loans to USML in such amounts as USML may request, provided that
the aggregate principal amount of all borrowings made by USML under this line
of credit at any one time outstanding may not exceed the lesser of (a)
$9,500,000 (the "Line Limit") and (b) the Borrowing Base (the "Line of Credit"
or the "Credit").
All such Loans are evidenced by a single promissory note of USML (the
"Line of Credit Note"), payable to the order of NBD and dated as of the date of
this Agreement, in substantially the form of Exhibit 2.1 attached to this
Agreement. The Line of Credit Note must be executed by USML and delivered to
NBD prior to or simultaneously with the initial Loan under this Line of Credit.
Although the Line of Credit Note is expressed to be payable in the
maximum amount of the Line of Credit Loan, USML is obligated to pay only the
unpaid balance of amounts advanced to USML together with interest thereon.
Should NBD ever loan USML, under this Line of Credit, any sums exceeding the
limits set forth above, USML must immediately make principal reduction payments
of such excess to NBD as are required to reduce the outstanding balance under
the Line of Credit Loan to those limits.
2.2 ACQUISITION FACILITY.
(a) From time to time from the date of this Agreement up to and
including June 30, 1997 (the "Advance Period"), USML and Delaware Managed Care
(each, an "Acquisition Facility Borrower" and collectively, the "Acquisition
Facility Borrowers") may, in NBD's sole discretion, obtain Loans from NBD, in
such amounts as an Acquisition Facility Borrower may from time to time request,
to fund the acquisition of businesses made since the date of this Agreement
(the "Acquisition Facility"). The aggregate total amount of all Advances made
under the Acquisition Facility may not exceed the principal sum of $3,000,000.
(b) At the time of each request for an Advance by an Acquisition
Facility Borrower under the Acquisition Facility, an Acquisition Facility
Borrower must deliver to NBD copies of all documents relating to the
acquisition of a business and such other information as NBD may request.
Subject to the terms and conditions of this Agreement and in NBD's sole
discretion, the proceeds of such requested Advance will be made available to
such Acquisition Facility Borrower.
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(c) Simultaneous with each Advance under the Acquisition Facility,
an Acquisition Facility Borrower must execute and deliver to Bank a promissory
note satisfactory in form and substance to the Bank (such notes are referred to
collectively as "Facility Notes" and individually as a "Facility Note").
Advances under the Acquisition Facility bear interest at the Adjusted
Acquisition Facility Floating Rate. Advances under the Acquisition Facility
are not available at the Adjusted Libor Rate. The maturity date for all
Advances under the Acquisition Facility cannot exceed 5 years from the date of
each such Advance and the minimum monthly principal payment of each Advance
will be equal to the amount of the Advance divided by 60. Interest is payable
monthly.
(d) NBD must have a first-priority, properly-perfected, security
interest in the assets purchased by an Acquisition Facility Borrower.
2.3 STANDBY LETTER OF CREDIT FACILITY. For the period from the
date of this Agreement through June 30, 1997, NBD agrees to issue Standby
Letters of Credit for a Borrower's account subject to all of the terms and
conditions of this Agreement and on the following terms and conditions:
(a) NBD agrees to issue for a Borrower's account from time to time
standby letters of credit (together with all replacements thereof and
amendments thereto, each, a "Standby Letter of Credit" and collectively, the
"Standby Letters of Credit").
(b) The total aggregate face amount of outstanding Standby Letters
of Credit and unreimbursed draws under Standby Letters of Credit that have been
drawn on may not exceed $2,500,000.
(c) Each Standby Letter of Credit must have an expiry date of not
later than one year from the date of issuance, but may contain a usual and
customary provision providing for automatic one year extensions unless NBD
gives 60 days prior written notice that it will not extend the expiry date.
(d) A Borrower must execute NBD's standard documentation relating
to the issuance of standby letters of credit (for convenience, such
documentation, together with all other documentation related to the Standby
Letters of Credit, as may be amended or restated from time to time, is referred
to collectively as the "Standby Letter of Credit Documents" and individually as
a "Standby Letter of Credit Document").
(e) A Borrower must (i) pay to NBD on any date on which NBD pays a
draft presented under a Standby Letter of Credit, a sum equal to the amount so
paid plus a disbursement fee of $200 plus any and all expenses that NBD may pay
or incur relative to the Standby Letter of Credit, (ii) immediately pay to NBD
any and all expenses incurred by NBD in enforcing or protecting any rights
under this Agreement or any of the Standby Letter of Credit Documents or the
other Loan Documents, and (iii) immediately upon demand by NBD pay to NBD
interest on any and all amounts remaining unpaid by a Borrower under the
Standby Letter
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<PAGE> 21
of Credit Documents at any time from the date any such amount becomes payable
until payment in full, at per annum rate equal to the Prime Rate plus 3%. If a
Borrower fails to make any payment due NBD under this Agreement or the Standby
Letter of Credit Documents, NBD may charge any Borrower's account for such
amount.
(f) All of each Borrower's present and future Obligations to NBD
under the Standby Letter of Credit Documents are secured by all collateral
security (including the Collateral) heretofore, simultaneously herewith, or
hereafter granted to NBD by each Obligor or any other party for the purpose of
securing any of any Obligor's present or future Obligations to NBD.
(g) Standby Letters of Credit may only be issued in favor of Ford
Motor Company, Chrysler Corporation, and such other companies as NBD may agree
to in writing (which companies may include, without limitation, General Motors
Corporation, Blue Cross and Blue Shield of Michigan and Michigan Educational
Special Services Association, and only to ensure claims payments in connection
with payments previously made by these companies to the Obligors.
(h) Obligors must maintain collected and available funds in an
account at NBD or certificate of deposit issued by NBD (in either case, the
"Deposit Account") in an amount not less than 110% of the aggregate amount of
all accrued claims (both reported and unreported) under the managed care
contracts with the beneficiaries of outstanding Standby Letters of Credit.
2.4 [Intentionally Omitted]
2.5 REQUESTS FOR ADVANCES; INTEREST COMPUTATION FOR ADVANCES.
(a) New Advances. Each Advance under Sections 2.1 and
2.2 (but not 2.3) will bear interest at one of the interest rates set forth
below, at a Borrower's discretion (except that Advances under Section 2.2 must
bear interest at the Adjusted Acquisition Facility Floating Rate), subject to
the terms and conditions contained in this Agreement. In order to request an
Advance, a Borrower must give notice to the Bank of each proposed Advance, with
such prior notice as required by Section 2.5(b) for the appropriate Type of
Advance. Each such request is effective upon receipt by the Bank, must be in
writing (in the form of Exhibit 2.5) or by telephone, and must specify the
Funding Date, the amount of the requested Advance, the Type of Advance and the
Advance Period being requested. For purposes of determining required notice
periods, (a) with respect to Floating Rate Advances, requests received by the
Bank after 11:00 am., Detroit time, will be treated as received prior to 11:00
am., Detroit time, on the next succeeding Business Day and (b) with respect to
Libor Rate Advances, requests received by the Bank after 1:00 pm., Detroit
time, will be treated as received prior to 1:00 p.m., Detroit time, on the next
succeeding Business Day.
(b) Types of Advances. Each Advance by the Bank under
Sections 2.1 and 2.2 (but not Section 2.3) may be at any one of the following
interest rates (except that Advances
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<PAGE> 22
under Section 2.2 must bear interest at the Adjusted Acquisition Facility
Floating Rate), subject to the limitations specified below ("Type of Advance"):
(i) Floating Rate Advances. USML may obtain
Advances under the Line of Credit at the Adjusted Line of Credit Floating Rate
and USML and Delaware Managed Care may obtain Advances under the Acquisition
Facility at the Adjusted Acquisition Facility Floating Rate (each, a "Floating
Rate Advance" and collectively, "Floating Rate Advances"). Each Floating Rate
Advance will be due and payable as provided in Sections 2.1 and 2.2. The
applicable Borrower may choose a Funding Date that is the Business Day on which
a written request for a Floating Rate Advance is received by the Bank, if the
request is received by the Bank no later than 11:00 am., Detroit time.
(ii) LIBOR Advances. USML may obtain Advances at
the Adjusted LIBOR Rate ("LIBOR Rate Advances") under the Line of Credit for
principal amounts which are in integral multiples of $500,000 and are in an
amount not less than $1,000,000. USML may choose an Advance Period of 1, 3, or
6 months. USML may choose a Funding Date no sooner than 3 Business Days after
the day a written request for a LIBOR Rate Advance is received by the Bank, if
the request is received by the Bank no later than 1:00 p.m., Detroit time, on
the day on which the request is received.
(c) Extensions at Maturity. Subject to the terms and conditions
of this Agreement, USML may cause all or any part of an outstanding Advance
under the Line of Credit to be extended at its maturity as the same or
different Type of Advance, provided USML notifies the Bank in writing, or by
telephone to be immediately confirmed in writing, of the proposed extension,
with prior notice as required by Section 2.5(b) for the appropriate Type of
Advance. This notice must be in the form of Exhibit 2.5 and must specify the
maturity date of the Advance being extended, the amount of the requested
Advance, the Type of Advance and the Advance Period being requested. No
Advance may be extended beyond the Termination Date.
(d) Adjustments to Interest Rates.
(i) (A) The "LIBOR Margin" and the "Line of Credit
Floating Rate Margin" for Advances under the Line of Credit are as set forth
below in the "Line of Credit Pricing Matrix", which are determined based on
Obligors' Consolidated Debt Service Coverage Ratio.
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<PAGE> 23
LINE OF CREDIT PRICING MATRIX
<TABLE>
<CAPTION>
Consolidated Line of Credit
Debt Service Floating Rate LIBOR
Coverage Ratio Margin Margin
-------------- -------------- --------------
<S> <C> <C>
2.01 or more:1.00 (.50)% 2.00%
2.00 - 1.51:1.00 .50% 3.00%
1.50 or less:1.00 1.00% 3.75%
</TABLE>
(B) The "Acquisition Facility Floating Rate
Margin" for Advances under the Acquisition Facility is as set forth below in
the "Acquisition Facility Pricing Matrix", which is determined based on
Obligors' Consolidated Debt Service Coverage Ratio.
ACQUISITION FACILITY PRICING MATRIX
<TABLE>
<CAPTION>
Consolidated Acquisition Facility
Debt Service Floating
Coverage Ratio Rate Margin
-------------- --------------------
<S> <C>
2.01 or more:1.00 .50%
2.00 - 1.51:1.00 1.50%
1.50 or less:1.00 2.25%
</TABLE>
(ii) The LIBOR Margin, the Line of Credit Floating Rate Margin, and
the Acquisition Facility Floating Rate Margin will be set on the first business
day of the month following Bank's receipt of the financial statements called
for by Sections 6.4(e) and (f) of this Agreement for each calendar quarter and
will be based on the Consolidated Debt Service Coverage Ratio reported by
Obligors on the last day of the immediately preceding calendar quarter and will
remain in effect until the first business day of the month following Bank's
receipt of the financial statement with respect to the next quarter end called
for by Sections 6.4(e) and (f) of this Agreement. If the financial statements
required by this Agreement are not delivered to NBD within the time provided in
Section 6.4(e) or (f) (whichever is applicable), then the Line of Credit
Floating Rate Margin is 1%, the LIBOR Margin is 3.75%, and the Acquisition
Facility Floating Rate Margin is 2.25%. Obligors reported to Bank that their
Consolidated Debt Service Coverage Ratio was .81 to 1 as of March 31, 1997.
Accordingly, the initial LIBOR Margin is 3.75%, the initial Line of Credit
Floating Rate Margin is 1%, and the initial Acquisition Facility Floating Rate
Margin is 2.25%.
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(e) Default Interest. Upon the occurrence of an Event of Default
and during the continuation thereof, the principal amount of the Obligations
(including the Advances and Loans under the Acquisition Facility) will bear
interest at the applicable Default Rate.
2.6 REPAYMENT OF ADVANCES.
(a) Interest. The Borrowers must pay interest to the
Bank, on the unpaid principal amount of each Advance, for the period commencing
on the date such Advance is made until such Advance is paid in full, on each
Interest Payment Date and on the Termination Date (whether at stated maturity,
by acceleration or otherwise) and thereafter on demand, at the applicable
interest rate for the Type of Advance.
(b) Principal Payments; Rollover; Final Payment. The
Borrowers may, at their option, make payments of principal on their outstanding
Advances on the last day of each Advance Period for such Advance. Unless the
Borrower requests a different Type of Advance (i.e., a LIBOR Rate Advance) in
accordance with Section 2.5(c), or makes a payment of all outstanding principal
and interest due for an Advance upon its maturity, each Advance (or portion
thereof not so extended or paid) will automatically, and without request by the
Borrowers, be converted to a Floating Rate Advance (with an Advance Period
ending on the Termination Date) upon its maturity. In addition,
notwithstanding any request by the Borrowers to the contrary, each Type of
Advance that matures after the occurrence and during the continuance of a
Default or Event of Default will automatically be converted to a Floating Rate
Advance (with an Advance Period ending on the Termination Date) upon its
maturity. Unless earlier payment is required under this Agreement, Borrowers
must pay to the Bank, the outstanding principal amount of all outstanding
Advances, and all applicable Indemnity Payments, on the Termination Date.
(c) Optional Prepayment. Subject to Section 2.12, the
Borrowers may at any time and from time to time prepay all or a portion of the
Floating Rate Advances upon at least 10 Business Days' prior written notice
specifying the proposed prepayment date, the aggregate principal amount being
repaid, and identifying the Advance being prepaid; provided, however, that 10
Business Days' prior written notice need not be given in connection with
prepayments of Floating Rate Advances arising from cash flow generated in the
ordinary course of Borrower's business. Subject to Section 2.12, and subject
to the following conditions, Borrowers may prepay any LIBOR Rate Advance upon
at least 10 Business Days' prior written notice specifying the proposed
prepayment date, the aggregate principal being repaid and identifying the
Advance being prepaid, provided, that, LIBOR Rate Advances and may only be
prepaid in whole, and not in part, and must, in any case, be accompanied by the
Indemnity Payment applicable thereto. Any notice under this Section will be an
irrevocable commitment by the Borrowers to repay the amount specified to be
prepaid pursuant to such notice.
(d) Mandatory Prepayments. If at any time the aggregate
outstanding principal amount of the Line of Credit Loan exceeds the limits set
forth in Section 2.1, then the Borrowers, jointly and severally, must
immediately pay to the Bank an amount not less than the amount of such excess,
in each case for application to the outstanding principal amount of the Line of
Credit
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Loan. Each such prepayment will be applied first against the Floating Rate
Advances, and then to the outstanding principal amount of any other Type of
Advance together with the appropriate Indemnity Payment.
2.7 PAYMENT METHOD AND RELATED MATTERS.
(a) Payments by Borrowers. All payments to be made by
the Borrowers under this Agreement must be made in Dollars and in immediately
available funds to the Bank at the Bank's address set forth on page 1 of this
Agreement, not later than 3:00 p.m., Detroit time, on the date on which such
payment is due. Payments received after 3:00 pm., Detroit time, will be deemed
to be payments made prior to 3:00 pm., Detroit time, on the next succeeding
Business Day.
(b) No Setoff or Deduction. All payments of principal of
and interest on the Advances and other Obligations must be paid by the
Borrowers without setoff, counterclaim or other deduction.
(c) Payment on Non-Business Day; Payment Computations.
Except as otherwise provided in this Agreement (including the definition of
Advance Period), whenever any installment of principal of, or interest on, any
Advance or any other Obligation becomes due and payable on a day that is not a
Business Day, the maturity thereof will be extended to the next succeeding
Business Day and, in the case of any installment of principal, interest will be
payable thereon at the rate per annum determined in accordance with this
Agreement during such extension. Computations of interest and other amounts
due under this Agreement will be made on the basis of a year of 360 days, for
the actual number of days elapsed, including the first day, but excluding the
last day of the relevant period.
2.8 TAXES OR RESERVES. Notwithstanding anything to the contrary
contained elsewhere in this Agreement, if after the date of this Agreement, any
change in condition or applicable law, regulation or interpretation thereof
(including any request, guideline or policy not having the force of law and
including, without limitation, Regulation D, as promulgated by the Board of
Governors of the Federal Reserve System of the United States, or any similar
regulation substituted therefor) by any authority charged with the
administration or interpretation thereof occur that:
(i) subjects the Bank to any tax with respect to its
LIBOR Rate Advances (other than any tax on the overall net income of
the Bank); or
(ii) changes the basis of taxation of payments to the Bank
of principal of or interest on its LIBOR Rate Advances or other fees
and amounts payable hereunder, or any combination of the foregoing
(other than any tax on the overall net income of the Bank); or
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(iii) imposes, modifies or deems applicable any reserve or
deposit requirements against any assets held by, deposits with or for
the account of, or loans or commitments by the Bank with respect to
LIBOR Rate Advances; or
(iv) imposes upon the Bank any other condition with
respect to its LIBOR Rate Advances or this Agreement;
and if the result of any of the foregoing is to increase the actual cost to the
Bank (taking into consideration any costs figured into the calculation of the
Adjusted LIBOR Rate pursuant to the definition of the Adjusted LIBOR Rate and
any payments required under this Section 2.8 and Section 2.9) of making or
maintaining its LIBOR Rate Advances hereunder, or to reduce the amount of any
payment (whether of principal, interest or otherwise) receivable by the Bank or
to require the Bank to make any payment, in respect of any such Advance, in
each case by or in an amount which the Bank in its reasonable judgment
determines is material, then:
(A) the Bank must promptly notify Borrowers in writing of
the happening of such event;
(B) the Bank must promptly deliver to Borrowers a
certificate stating the amount of such increased cost, reduction or
payment and that such increased cost, reduction or payment has been
imposed on substantially all other similarly situated Borrowers of
LIBOR Rate loans; and
(C) Borrowers must pay to the Bank, within 10 Business
Days after delivery of the certificate referred to in clause (B)
above, the amount or amounts as will compensate the Bank for such
additional cost, reduction or payment.
2.9 CAPITAL. If, after the date of this Agreement, the Bank
determines that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the capital of the Bank (or the Person
controlling the Bank) as a consequence of the Bank's obligations or the
financial accommodations provided by the Bank hereunder to a level below that
which the Bank (or the Person controlling the Bank) could have achieved but for
such adoption, change or compliance (taking into consideration the policies of
the Bank (or the Person controlling the Bank) with respect to capital adequacy)
by an amount deemed by the Bank (or such Person), in its sole discretion, to be
material, then from time to time, Borrowers must pay to the Bank within 10
Business Days of receiving notice thereof, such additional amount or amounts as
will compensate the Bank (or such Person) for such reduction, provided that NBD
is charging substantially all other similarly situated Borrowers substantially
similar additional amounts.
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2.10 ILLEGALITY AND IMPOSSIBILITY.
(a) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if any change after the date of this Agreement in
law or regulation or in the interpretation thereof by any governmental
authority charged with the administration thereof makes it unlawful (based on
the opinion of any counsel, whether in-house, special or general, for the Bank)
for the Bank to make or maintain any LIBOR Rate Advance or to give effect to
its obligations as contemplated hereby with respect to any LIBOR Rate Advance,
then, by written notice to USML, the Bank may:
(i) declare that LIBOR Rate Advances will not
thereafter be made by the Bank hereunder, whereupon Borrowers will be
prohibited from requesting LIBOR Rate Advances from the Bank hereunder
unless such declaration is subsequently withdrawn; the Bank agrees
promptly to withdraw any such declaration if and to the extent that
the making or maintenance by the Bank of its LIBOR Rate Advances
ceases to be unlawful; and
(ii) require that all outstanding LIBOR Rate
Advances made by it to USML be forthwith converted into Floating Rate
Advances, in which case the Borrowers must pay to the Bank on the date
of such conversion all interest accrued on such LIBOR Rate Advance to
such date and the amounts payable under Section 2.11.
(b) For purposes of this Section 2.10, a notice to USML
by the Bank under subparagraph (a) above is effective on the last day of the
then current Advance Period, or, if there are then two or more current Advance
Periods, on the last day of each such Advance Period, respectively; otherwise,
such notice is effective on the date of receipt by USML.
2.11 LIBOR RATE INDEMNITY. If USML fails to make any payment of
principal or interest in respect of any LIBOR Rate Advance when due or make any
payment or prepayment of the principal of any LIBOR Rate Advance, for any
reason, on any date other than the last day of the Advance Period applicable
thereto, or if USML fails to borrow any LIBOR Rate Advance after requesting the
same in accordance with this Agreement, or if any LIBOR Rate Advance is
converted to a Floating Rate Advance in accordance with this Agreement on other
than the last day of the Advance Period of such LIBOR Rate Advance, the
Borrowers must reimburse the Bank on demand by the Bank for any resulting loss
or expense incurred by the Bank, including any loss incurred in obtaining,
liquidating, or employing deposits from third parties, and must pay the Bank on
demand a $150 administrative fee for each LIBOR Advance that is paid on a date
other than the last day of the Advance Period for that Advance (each, an
"Indemnity Payment" and collectively, "Indemnity Payments"); provided, however,
that no such $150 fee is due in connection with LIBOR Rate Advances that must
be prepaid in accordance with Section 2.10 of this Agreement. A statement as
to the amount of such loss or expense, prepared in good faith and in reasonable
detail and submitted by the Bank to the Borrowers is presumptive evidence of
the amount of the Bank's loss or expense.
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2.12 PREPAYMENT OF LOANS. Upon 10 Business Days prior written
notice to NBD, Floating Rate Advances under the Acquisition Facility may be
prepaid in whole or in part at the Borrower's option at any time; provided,
however, that 10 Business Days' prior written notice may not be given in
connection with prepayments of Floating Rate Advances arising in the ordinary
course of Borrower's business. Borrowers may prepay the Line of Credit Loan by
giving the Bank the same notice provided in the immediately preceding sentence
and, if such prepayment results in 50% or more of the then outstanding balance
of the Line of Credit Loan being repaid and arises in whole or in part from a
Person in the business of lending money or investing in companies, then the
Borrowers must accompany such prepayment with a prepayment premium equal to the
sum of (a) 2% of the Line Limit if the prepayment is made within one year from
the date of this Agreement or 1% of the Line Limit if the prepayment is made
later than one year from the date of this Agreement, plus, (b) all applicable
Indemnity Payments. If the principal prepayments are made on Acquisition
Facility Loans, they will be applied in the inverse order of maturity.
2.13 CROSS-DEFAULTS AND CROSS-COLLATERALIZATION. A default under
any Loan is a default under all other Loans and under all Obligations. All
Collateral secures all Obligations.
ARTICLE III
CONDITIONS OF BORROWING
Notwithstanding any other terms of this Agreement and without limiting
the discretionary nature of the Loans under the Acquisition Facility, NBD is
not required to make any Loan to any Borrower under this Agreement unless all
of the following conditions are met:
3.1 REPRESENTATIONS TRUE. Each Obligor's representations and
warranties in this Agreement (and in the Loan Documents and all agreements
referred to or executed in connection with this Agreement) are true as of the
date of each Loan or advance under this Agreement with the same effect as
though such representations and warranties had been made by each Obligor at
such time.
3.2 NO DEFAULT. No Event of Default or Default exists under this
Agreement or any other Loan Document and no suit or proceeding at law or in
equity or of any governmental body has been instituted or, to the knowledge of
any Obligor, threatened which, in either case, would constitute a Material
Adverse Event.
3.3 COUNSEL OPINION. Simultaneously with the execution of this
Agreement, NBD must have received from Obligors' counsel a satisfactory legal
opinion, in substantially the form attached to this Agreement as Exhibit 3.3,
as to such matters as the Bank may reasonably request.
3.4 COLLATERAL FOR OBLIGATIONS. To secure all of the Obligations
each Obligor (other than Michigan Managed Care and Ohio Managed Care) must have
granted to NBD a first lien and security interest in all of its present and
future personal property, in accordance with the terms of (i) a Continuing
Security Agreement, executed and delivered to NBD by each Obligor
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(other than Michigan Managed Care and Ohio Managed Care), in substantially the
form attached to this Agreement as Exhibit 3.4(a), but completed as appropriate
for each applicable Obligor (each, a "Security Agreement" and collectively, the
"Security Agreements") and (ii) a Stock Pledge Agreement, executed by USML and
Delaware Managed Care, in substantially the form attached to this Agreement as
Exhibit 3.4(b), but completed as appropriate for USML and Delaware Managed
Care. (All of the property described in the agreements referred to in this
Section 3.4, together with all other present and future collateral granted to
NBD by any Obligor or any Guarantor to secure any present or future obligation
to NBD or an NBD Affiliate is, for convenience, collectively called the
"Collateral".)
3.5 GUARANTIES. As further security for the payment of the
Obligations, and the performance and observance of the terms and conditions of
this Agreement and the other Loan Documents, Borrowers have offered to obtain,
and NBD agrees to accept (b) written guaranties from each of the Obligors
(other than Michigan Managed Care and Ohio Managed Care) (in their capacity as
guarantors and together with any other present or future guarantor of any of
the Obligations, each a "Guarantor" and collectively, the "Guarantors") in
substantially the form attached to this Agreement as Exhibit 3.5, but completed
as appropriate (each, a "Guaranty" and collectively, the "Guaranties") under
which each Obligor (other than Michigan Managed Care and Ohio Managed Care)
guarantees to NBD payment and performance of all of the Obligations of each
other Obligor to NBD whether under this Agreement, the Notes, the other Loan
Documents, the agreements and documents referred to in this Agreement or
otherwise. The Guaranties executed by the Obligors are secured by the
Collateral.
3.6 LANDLORD/MORTGAGEE WAIVER. Simultaneously with the execution
of this Agreement, the Obligors must deliver to NBD Landlord/Mortgagee Waivers
for the real property described in the Preliminary Closing List, in
substantially the form attached hereto as Exhibit 3.6, but completed as
appropriate.
3.7 PUBLIC DEBT DOCUMENTS. Prior to the execution of this
Agreement, the Obligors delivered to NBD copies of all documents related to the
recent $12,000,000 subordinated public debt offering (each, a "Public Debt
Document" and collectively, the "Public Debt Documents").
3.8 CONDITIONS PRECEDENT. NBD must have received fully executed
copies of all documents listed on the Preliminary Closing List (the
"Preliminary Closing List") attached to this Agreement as Exhibit 3.8, and
Obligors must have satisfied to NBD's satisfaction all issues and matters
identified in the Preliminary Closing List.
3.9 COLLATERAL MONITORING FEE; FACILITY FEE; AND OTHER FEES.
(a) Obligors must pay Bank a $5,000 quarterly collateral
monitoring fee per fiscal quarter (the "Collateral Monitoring Fee"),
payable in arrears, beginning with the fiscal quarter ending September
30, 1997.
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(b) Obligors must pay Bank a $140,000 facility fee (the
"Facility Fee") of which $3,295 was paid prior to the execution of
this Agreement. The remaining $136,705 is due on the execution of
this Agreement. The Facility Fee has been fully earned by Bank.
Prior to the date of this Agreement, the Obligors gave NBD a $25,000
deposit for NBD's due diligence expenses relating to the Obligors.
Fifteen Thousand Dollars of this amount was paid to Norman Levy &
Associates for conducting an appraisal, $6,705 was charged as an
expense for NBD's audit, and the $3,295 balance has been applied to
the Facility Fee as provided above.
(c) Prior to or simultaneously with each Advance under
the Acquisition Facility, the Acquisition Facility Borrowers must pay
NBD a facility fee (the "Acquisition Facility Fee") equal to 1% of the
principal amount of each Advance.
(d) Except as provided in the next sentence, an
Acquisition Facility Borrower must pay NBD an additional facility fee
(the "Additional Acquisition Facility Fee") equal to 1% of the
outstanding principal amount of each Advance under the Acquisition
Facility on each anniversary date of the Advance. No Additional
Acquisition Facility Fee is due with respect to an Advance under the
Acquisition Facility on a particular anniversary date if the
outstanding principal balance of the Advance in question is paid down
to at least the percentages shown in the chart below:
Anniversary Date Paydown of at least
1 30%
2 60%
3 90%
4 100%
(e) Each Standby Letter of Credit will accrue a
commission at the per annum rate of 1.5% of the face amount of the
Standby Letter of Credit, payable annually in advance at the time of
issuance or extension. In addition, a Borrower must also pay all
other usual and customary fees charged by NBD in connection with
issuance of Standby Letters of Credit.
(f) USML must pay Bank a commitment fee (the "Commitment
Fee") of .50% per annum of the difference between (i) the Line Limit
and (ii) the daily average outstanding principal balance of the Line
of Credit, payable quarterly in arrears within 15 days of each
quarter-end and on the Termination Date (for the period from the last
day for which the Commitment Fee was paid to the Termination Date).
(g) Except as provided in the immediately following
sentence, prior to or simultaneously with execution of this Agreement,
and in addition to any other payments
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due NBD under this Agreement, Obligors must have paid NBD all of NBD's
out-of-pocket costs, including reasonable attorneys' fees, arising in
connection with preparation, negotiation, execution, delivery and
closing of this Agreement, the Loans contemplated under this
Agreement, and documents provided for or to be delivered in connection
with this Agreement. The Obligors are not obligated to reimburse NBD
for attorneys' fees through the date of this Agreement for drafting
and closing this Agreement and the other Loan Documents that exceed
the sum of (i) $31,000 plus, (ii) out-of-pocket expenses incurred by
NBD's counsel through the date of this Agreement. As provided
elsewhere in this Agreement, Obligors are responsible for all
out-of-pocket costs and all attorney's fees incurred after the date of
this Agreement.
3.10 WAIVER OF CONDITIONS. NBD may, in its sole discretion, waive
any conditions to any Loan or Advance contained in this Article III, but no
waiver is valid or enforceable unless it is in a written agreement that is
executed by an authorized officer of NBD.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce NBD to accept the Notes and to make Loans as
provided in this Agreement, each Obligor represents and warrants to NBD as
follows:
4.1 ORGANIZATION. USML, Michigan Managed Care, Processing, and AR
Credit are corporations duly organized and existing under the laws of the State
of Michigan. Delaware Managed Care is a corporation duly organized and
existing under the laws of the State of Delaware. Ohio Managed Care is a
corporation duly organized and existing under the laws of the State of Ohio.
The execution, delivery and performance of this Agreement and the issuance of
the Notes as provided in this Agreement are within each Obligor's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of any Obligor's Articles of Incorporation, Code of Regulations, or Bylaws, and
do not require the consent or approval of any governmental body, agency or
authority. Each Obligor is duly licensed or qualified to do business in all
jurisdictions in which the Obligor has substantial property or business
operations. A list of all locations at which each Obligor conducts business or
has assets located at is attached to this Agreement as Exhibit 4.1.
4.2 FINANCIAL STATEMENTS. Each Obligor's consolidated and
consolidating balance sheets and the statements of operations previously
furnished to NBD are complete and fairly present, in accordance with GAAP, each
Obligor's consolidated and consolidating financial condition as of the relevant
dates and the results of their operations for the fiscal periods ended on such
dates. Since the latest of such dates, there has been no Material Adverse
Event.
4.3 LIENS. Except for Permitted Liens, each Obligor has good and
marketable title to all its assets free and clear of all Liens.
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4.4 ABSENCE OF CONFLICTING OBLIGATIONS. The making and execution
of this Agreement and compliance with its terms and the issuance of the Notes
will not result in a breach of any of the terms and conditions of or result in
the imposition of any Lien or charge upon any property of any Obligor pursuant
to, or constituting a default under, any indenture or other agreement or
instrument to which any Obligor is a party or by which it is bound.
4.5 TAXES. Except as expressly disclosed in the financial
statements referred to in Section 4.2 above and on Exhibit 4.5, each Obligor
has no outstanding unpaid tax liabilities (except for taxes which are currently
accruing from its current operations and ownership of property, and which are
not delinquent), and no tax deficiencies have been proposed or assessed against
any Obligor. Except as set forth on Exhibit 4.5, there have been no audits of
any Obligor's federal income tax returns, which have resulted in or are likely
to result in the assessment of any material tax liability against any Obligor
and all taxes shown by any returns have been paid.
4.6 ABSENCE OF MATERIAL LITIGATION. Except as set forth on
Exhibit 4.6, no Obligor is a party to any litigation or administrative
proceeding, nor so far as is known by each Obligor is any litigation or
administrative proceeding threatened against it, which in either case would, if
adversely determined, cause any Material Adverse Event. A list of litigation
in which any Claim in excess of $150,000 is being asserted against any Obligor
is set forth on Exhibit 4.6 attached to this Agreement.
4.7 ABSENCE OF ENVIRONMENTAL PROBLEMS. Except as set forth on
Exhibit 4.7 to this Agreement, each Obligor is not aware of any environmental
problems or violations of any Environmental Law or regulations involving any
Obligor's past or present operations, facilities and property. Further, no
Obligor has received notice that it is currently in violation of any
Environmental Law or regulation and each Obligor has all necessary
environmental permits and licenses to operate its business, except for any such
permits or licenses the failure of which to obtain would not either
individually or in the aggregate have a Material Adverse Effect on (1) the
Obligors on a consolidated basis, (2) USML or (3) Delaware Managed Care and its
subsidiaries on a consolidated basis.
4.8 CORPORATE NAME. Each Obligor's corporate name is exactly as
set forth on the signature page of this Agreement and, except as set forth on
the signature page and on Exhibit 4.8 to this Agreement, no Obligor has changed
its corporate name since the date of its incorporation, nor has it used any
assumed name(s), tradenames, or tradestyles.
4.9 FINANCING STATEMENTS. Except for financing statements
covering Permitted Liens and NBD's Liens, no financing statements covering any
Collateral, proceeds of Collateral, or any other of any Obligor's property are
on file in any public office.
4.10 RECORDS. All of the records concerning all of the Collateral
are kept at each Obligor's chief executive office shown on the first page of
this Agreement, and such records may not be removed from such offices without
NBD's prior written consent.
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4.11 EMPLOYEE RETIREMENT INCOME SECURITY ACT. To each Obligor's
knowledge, no Reportable Event has occurred with respect to any Plan.
4.12 BROKER'S FEES. No Obligor has made a commitment, and has
taken no action, that could result in a claim for any brokers', finders', or
similar fees or commitments in respect to the transactions described in this
Agreement. Each Obligor agrees to pay all finders' fees or similar fees
payable to any persons or entities in connection with this Agreement and to
defend and hold NBD harmless against any and all such fees.
4.13 CHIEF EXECUTIVE OFFICE.
(a) Its chief executive office and principal place of
business is located at address set forth on page 1 of this Agreement.
(b) Each Obligor must provide Bank with 30 days prior
written notice of any change with respect to any of the foregoing.
4.14 FULL DISCLOSURE. So far as each Obligor is aware, this
Agreement and all of the Exhibits and other written material delivered by the
Obligors to NBD in connection with the transactions contemplated hereby do not
contain any statement that is false or misleading with respect to any material
fact and do not omit to state a material fact necessary in order to make the
statements therein not false or misleading. There is no additional fact that
any Obligor is aware of that has not been disclosed in writing to NBD that
materially affects adversely or, so far as any Obligor can reasonably foresee,
would cause a Material Adverse Event.
4.15 FLOOD HAZARD. No location at which any Obligor does business
falls within the boundaries of a special flood hazard area so designated by the
United States Federal Emergency Management Administration.
4.16 PROJECTIONS. In light of all material facts known to the
Obligors, no Obligor has any reason, in good faith, to believe that its and the
other Obligors' prospects are not as indicated in the 1997 fiscal year
projections concerning the Obligors attached as Exhibit 4.16 to this Agreement.
4.17 PATENTS, COPYRIGHTS, ETC. Each Obligor owns or possesses
adequate licenses or other rights to use all patents, processes, trademarks,
trade names, and copyrights necessary to conduct its business as now conducted
or presently intended to be conducted and no Obligor has reason to believe that
any such rights conflict or will conflict with the rights of others. A list of
all patents, trademarks, and copyrights that any Obligor has an interest in is
attached to this Agreement as Exhibit 4.17.
4.18 COMPLIANCE WITH LAW. To the best of its knowledge, each
Obligor is in compliance in all material respects with all Governmental
Regulations applicable to it or its business or properties. Without limiting
the generality of the foregoing, all licenses, permits,
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orders, or approvals that are required under any Governmental Regulation in
connection with the each Obligor's business or properties (collectively,
"Permits") have been obtained and are in full force and effect except for those
the failure of which to obtain would, either individually or in the aggregate,
have a Material Adverse Effect on (1) the Obligors on a consolidated basis, (2)
USML or (3) Delaware Managed Care and its subsidiaries on a consolidated basis.
No notice of any violation has been received with respect of any such Permits
and no proceeding is pending or, to the best of each Obligor's knowledge,
threatened to terminate, revoke or limit any such Permits.
4.19 STATUTORY REGULATION. No Obligor is an investment company
within the meaning of the Investment Company Act of 1940, as amended, and is
not, directly or indirectly, controlled by or acting on behalf of any person or
entity that is an investment company, within the meaning of this Act. No
Obligor is subject to (A) any governmental requirement regulating public
utilities or similar entities, and is not, within the meaning of the Public
Utility Holding Company Act of 1935, as amended, (a) a holding company; (b) a
subsidiary or affiliate of a holding company; or (c) a public utility; or (B)
regulation under the Interstate Commerce Act or the Federal Power Act or to any
other governmental requirement limiting or placing conditions upon its power or
right to borrow money.
4.20 MEDICAID AND MEDICARE ACCOUNTS.
(a) The pledge of USML's Medicare Accounts and Medicaid Accounts
is a legal, valid and binding obligation of USML enforceable in accordance with
its terms and USML will promptly execute and deliver to NBD any instruments
requested by NBD to evidence, renew, continue or perfect a security interest in
such Medicare Accounts and Medicaid Accounts in NBD's favor. To the extent
required by applicable law as in effect from time to time, USML has the
absolute right to receipt of Qualified Medicare Accounts and Qualified Medicaid
Accounts free and clear from any presently known (after due inquiry)
contractual adjustments, setoffs, or demands for reimbursements, recoupment,
"recapture" or other recovery of overpayment occurring for any period, or
similar rights of the payors thereof.
(b) USML participates in, and (to the extent payment is available
under applicable statutes, regulations and administrative practices) receives
payments under the Medicare, Medicaid and Blue Cross programs for its services
provided to Medicare beneficiaries, Medicaid recipients and Blue Cross
subscribers or enrollees and currently participates in such programs in
Michigan and there are in effect agreements providing for payments to the USML
with respect to patients enrolled in such programs or the provisions of
services, goods, supplies or equipment to providers under such programs; and
the business of USML has at all times been conducted, and will continue to be
conducted, in compliance with all applicable federal and state Governmental
Regulations, including without limitation, those relating to third party
payment programs such as Medicare, Medicaid and Blue Cross/Blue Shield and
referrals under such programs or any of them.
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(c) If the federal or state agencies or intermediaries or any Blue
Cross and Blue Shield program making payments to USML for services performed or
goods, supplies or equipment provided at any time make any contractual
adjustment, set off, claim for reimbursement, recoupment or "recapture" or
other recovery of overpayment occurring for any such period, then USML is
responsible for such claims and to pay for the same promptly, subject, however,
to USML's right to contest such claims or request reconsideration thereof, and
each Obligor hereby indemnifies NBD against any and all costs or losses
experienced by NBD (including amounts paid in settlement, interest, penalties,
court costs and reasonable attorney's fees and expenses) in such event.
ARTICLE V
NEGATIVE COVENANTS
While any of the Obligations remain unpaid, each Obligor must not
agree to and must not:
5.1 RESTRICTION ON LIENS. Except for Permitted Liens, create or
permit to be created or allow to exist any Lien on any property or assets now
owned or acquired in the future by any Obligor.
5.2 RESTRICTION ON INDEBTEDNESS. Create, incur, assume, or have
outstanding any Indebtedness except:
(a) The Obligations.
(b) Indebtedness incurred in the ordinary course of each
Obligor's business for necessary materials, supplies, etc., all of
which must be due not more than 90 days from the date of invoice and
none of which may be past due.
(c) Indebtedness identified on Exhibit 5.2(c) attached
to this Agreement.
(d) Indebtedness for Permitted Liens.
(e) A refinancing of the Indebtedness evidenced by the
Public Debt Documents on terms and conditions reasonably satisfactory
to NBD.
5.3 MERGERS; CONSOLIDATIONS; DISPOSITION OF ASSETS. Merge with or
into or consolidate with or into any other corporation or entity; or sell,
lease, transfer or otherwise dispose of all or any substantial part of its
property, assets or business (other than by sales of inventory made in the
ordinary course of business).
5.4 SALE AND LEASEBACK. Enter into an agreement under which any
Obligor leases or purchases any property that it or any other Obligor has sold
or is to sell.
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5.5 RESTRICTED PAYMENTS. Except for dividends payable in shares
of its stock, Permitted Dividends, and Required Dividends, make a Restricted
Payment.
5.6 INVESTMENTS. Make any loans or advances to, or investments
in, other persons, corporations or entities, except:
(a) Investments in (i) bank certificates of deposit and
savings accounts; (ii) obligations of the United States; and (iii)
prime commercial paper maturing within 90 days of the date of
acquisition by an Obligor.
(b) Loans and advances made to employees and agents in
the ordinary course of business, such as travel and entertainment
advances and similar items, not to exceed $50,000 in the aggregate at
any one time outstanding.
5.7 CONTINGENT LIABILITIES. Become contingently liable for any
Contingent Liabilities.
5.8 [INTENTIONALLY OMITTED.]
5.9 STOCK. Pledge, hypothecate or otherwise encumber or sell or
otherwise transfer any shares of any class of its capital stock or make any
change in any Obligor's capital structure other than pursuant to employee
plans, including without limitation, the 1992 option plan, the Directors Stock
Option plan, and the employee stock purchase plan.
5.10 [INTENTIONALLY OMITTED.]
5.11 NATURE OF BUSINESS. Make any substantial change in the nature
of its business from that engaged in on the date of this Agreement or engage in
any other businesses other than those engaged in on the date of this Agreement.
5.12 INSIDER TRANSACTIONS. Enter into, or permit or suffer to
exist, any transaction or arrangement with any director, officer, affiliate
(including other Obligors), or member of management, except on terms that are
no less favorable to the applicable Obligor than could be obtained from persons
who have no relationship with Obligors in arm's-length transactions.
5.13 FISCAL YEAR. Change their fiscal years, all of which
currently end on December 31.
ARTICLE VI
AFFIRMATIVE COVENANTS
While any of the Obligations remain unpaid, each Obligor must:
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6.1 FINANCIAL STATUS.
A. Consolidated Current Ratio. Maintain at all times a
Consolidated Current Ratio of not less than (i) 1.1 to 1 from the date of this
Agreement through June 29, 1997, and (ii) 1.25 to 1 on and after June 30, 1997.
B. Consolidated Funded Debt Ratio. Maintain at all
times a Consolidated Funded Debt Ratio of not greater than (i) .75 to 1 from
the date of this Agreement through September 29, 1997, (ii) .70 to 1 for the
period from September 30, 1997 through December 30, 1997, and (iii) .60 to 1 on
and after December 31, 1997.
C. Consolidated Debt Service Coverage Ratio. Maintain a
Consolidated Debt Service Coverage Ratio of not less than (i) .65 to 1 for the
periods ended December 31, 1996, and March 31, 1997 (ii) .9 to 1 for the period
ended June 30, 1997, (iii) 1 to 1 for the period ended September 30, 1997, and
(iv) 1.25 to 1 for the period ended December 31, 1997, and thereafter. This
financial covenant will be measured as of the last day of each fiscal quarter
of the Obligors on a trailing four quarter basis.
D. Consolidated Leverage Ratio. Maintain at all times a
Consolidated Leverage Ratio of not greater than (i) 9.5 to 1 from the date of
this Agreement through June 29, 1997; (ii) 7 to 1 for the period from June 30,
1997 through September 29 1997; (iii) 5 to 1 for the period from September 30
1997 through June 29, 1998; and (iv) 3 to 1 on and after June 30, 1998.
E. Financial Covenant Calculation. A calculation of the
financial covenants in this Section 6.1 as of March 31, 1997 is attached to
this Agreement as Exhibit 6.1E. Exhibit 6.1E has been reviewed in good faith
by the Obligors and NBD and these parties believe that Exhibit 6.1E reflects
the proper calculation of the financial covenants.
6.2 INSURANCE. (a) Maintain adequate fire and extended coverage
and liability insurance covering all of its present and future real and
personal property, furniture, fixtures, parts, accessories, machinery,
inventory, and new and used vehicles, with lenders loss payable and
noncontributory mortgagee clauses in NBD's favor, protecting NBD's interest, as
such interest may appear, together with such policies of business interruption
insurance and products liability insurance as NBD may reasonably request and
insurance in accordance with all applicable worker's compensation laws. Such
insurance must be in such form, with such companies, and in such amounts as are
reasonably acceptable to NBD, insuring against liability for damage to persons
or property, and must provide for thirty (30) days prior written notice to NBD
of cancellation or material alteration. Each Obligor must provide NBD with the
original policies of insurance for all such coverages or true copies of the
policies, simultaneously with the execution of this Agreement, showing that
NBD's interest has properly been endorsed on the applicable policy. NBD may,
in its Reasonable Credit Judgment, on 30 days written notice to an Obligor,
require an Obligor to obtain additional or different insurance coverages as NBD
may reasonably request.
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(b) Except as provided in subsection (c) below, in cases of loss
or damage by fire or other casualty to the Collateral, NBD is authorized, in
its sole and absolute discretion, (a) to settle and adjust any claim under
insurance policies which insure against such risks, or (b) to allow an Obligor
(as applicable, the "Affected Party") to agree with the insurance company or
companies on the amount to be paid in regard to such loss. In either case, NBD
is authorized to collect and receive any insurance proceeds. Except as
otherwise provided above, all such insurance proceeds must be delivered by the
insurance company or the Affected Party to NBD, to be applied as provided in
this Agreement. If any insurance proceeds should be paid to an Affected Party
(in violation of this Section), such proceeds shall be held in trust for NBD
and shall be immediately paid to NBD. Except as otherwise provided in Section
6.2(c), all such insurance proceeds shall be held by NBD and NBD shall have the
right to apply the insurance proceeds (a) first, to reimburse NBD for all
reasonable costs and expenses, including attorneys' fees, incurred in
connection with the collection and administration of such proceeds, and (b)
then, the remainder of such proceeds shall be applied, at the sole discretion
of NBD, (i) to the payment of any Obligations, either in whole or in part, in
the order determined by NBD, in its sole and absolute discretion, or (ii) to
the repair, restoration or replacement, either partly or entirely, of the
damaged or destroyed assets (the "Affected Assets"). If the insurance proceeds
are to be applied to such repair, restoration or replacement, and if no Event
of Default (see Section 6.2(c)(vii) below) has occurred, such proceeds shall be
made available, from time to time, to the Affected Party upon NBD being
furnished with satisfactory evidence of the estimated cost of completion of
such replacements, repairs, or improvements with an architect's certificate,
waivers of liens, contractors' sworn statements and other evidence of cost and
payments as the NBD may reasonably require and approve, and with all plans and
specifications for such rebuilding or restoration as the NBD may reasonably
require and approve. No payment made prior to final completion of any such
work of restoration or repair shall exceed 90% of the value of the work
performed with materials provided, from time to time, and at all times the
undisbursed balance of said proceeds remaining in the hands of the NBD shall be
at least sufficient to pay the cost of completion of the work free and clear of
liens. In the event of any dispute between NBD and the Affected Party as to
the disposition of any insurance proceeds or any matter related thereto, the
judgment of NBD shall be controlling with respect to any insurer and any
insurer shall be entitled to rely upon such judgment of NBD.
(c) Anything in this Agreement or the related Loan
Documents to the contrary notwithstanding, the casualty insurance
proceeds or any part thereof shall be applied by NBD toward the
reimbursement of all costs and expenses of NBD in collecting the
insurance proceeds and the balance to be held by NBD to be applied to
the payment of the cost of repairing, restoring or rebuilding the
Affected Assets pursuant to procedures established by NBD in Section
6.2(b), provided that all of the following conditions are satisfied:
(i) The Affected Party requests in
writing that such proceeds be used to repair or
restore Affected Assets within thirty (30) days after
the insurance proceeds are delivered to the Bank
and/or the Affected Party;
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(ii) The estimated amount to replace or
restore the loss in question, when added to all other
casualty losses to all Affected Parties for all
Affected Assets not yet fully restored through the
date of determination, does not exceed $4,000,000 in
the aggregate.
(iii) The Bank determines, in its
Reasonable Credit Judgment that the reconstruction or
repair is economically feasible and the security of
the Collateral will not be impaired.
(iv) The repaired or replaced assets
shall be at least equal in value and general utility
as the Affected Assets were prior to the damage or
destruction.
(v) Business loss insurance for the
entire estimated period of repair is in effect and
the amount of such loss will be paid by such
insurance other than standard deductibles acceptable
to NBD.
(vi) The Affected Party continues in
existence.
(vii) No Event of Default has occurred;
provided, however, that for the purpose of
determining whether or not an Event of Default has
occurred, the damage to the Affected Assets
themselves will not in and of itself constitute an
Event of Default, but all related issues, such as the
affect on the Affected Party's business operations
and prospects going forward, will be taken into
account.
(viii) The insurance proceeds are sufficient
to pay for the repair or restoration.
If an Affected Party elects to repair or restore Affected Assets and all of the
above conditions are satisfied, the Affected Party must immediately commence
repair or restoration work and must complete all repair and restoration work
within 6 months after the insurance proceeds are available. Anything herein to
the contrary notwithstanding, in the event there are any excess insurance
proceeds after the completion of any repair or restoration of the Affected
Assets permitted by the Bank or as provided in this Agreement, all such excess
insurance proceeds shall be applied by the Bank to the Obligations in such
order and manner as the Bank may choose. For purposes of this Section 6.2, all
references to "Obligations" are to be treated as also referring to all present
and future obligations of any Affected Party to NBD and NBD Affiliates,
including all obligations arising under the Guaranties.
6.3 CORPORATE EXISTENCE; PAYMENT OF TAXES AND OTHER LIABILITIES.
Maintain its corporate existence and pay all taxes, assessments and other
governmental charges against it or its property, and all of its other
liabilities, before the same become delinquent and before
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penalties accrue on these debts and obligations except to the extent and so
long as the same are being contested in good faith by appropriate proceedings
in such manner as not to cause any Material Adverse Event, with adequate
reserves provided for such payments, and, in the case of unpaid taxes that are
or could become a lien superior to NBD's lien in any of the Collateral, upon
demand by NBD, posting with NBD of adequate security to protect NBD.
6.4 ACCOUNTING RECORDS; REPORTS. Maintain a standard and modern
system for accounting in accordance with generally accepted principles of
accounting consistently applied throughout all accounting periods, and furnish
to NBD:
(a) Within 20 days after the end of each month, as of the
last day of the preceding month, aging and summary reports of each
Obligor's accounts receivable (including Edit Accounts) and payable in
such form and detail as NBD may request.
(b) Within 20 days after the end of each month, monthly
collateral activity reports of USML (each, a "Collateral Activity
Report") as of the close of business of the preceding day, on forms
supplied by NBD.
(c) Within 20 days after the end of each month, a monthly
summary of all inventories of USML in such form and detail as NBD may
reasonably request.
(d) Within 30 days after the end of each of the first
eleven months of each fiscal year, a balance sheet of the Obligors on
a consolidated and consolidating basis as of the close of each such
month and of the comparable month in the preceding fiscal year, and
statements of income and surplus of the Obligors for each month and
for that part of the fiscal year ending with each such month and for
the corresponding period of the preceding fiscal year, all in
reasonable detail and certified as true and correct (subject to audit
and normal year-end adjustments) by a Responsible Officer of each
Obligor.
(e) Within the time allowed (without extension) by the
Securities and Exchange Commission, copies of USML's 10Q and 10K
reports.
(f) As soon as available and in any event within 90 days
after the close of each fiscal year of Obligors, a copy of Obligors'
detailed long-form audit report for such year and accompanying
financial statements, on a consolidated and consolidating basis, as
prepared by independent certified public accountants of recognized
standing selected by the Obligors and reasonably acceptable to NBD,
together with all management letters, which report must be accompanied
by an unqualified opinion of such accountants, in form satisfactory to
NBD, to the effect that the financial statements fairly present the
financial condition of the Obligors and the results of their
operations as of the relevant dates, and each such financial statement
must be accompanied by a certification by the public accountants that
no Event of Default or Default exists, or if such condition does
exist, stating the nature thereof and the action, if any, Obligors are
taking to correct such condition. Although the financial statements
required under this Subsection (f) must
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contain an unqualified opinion of the Obligors' accountants, they may
contain a non-material explanatory paragraph.
(g) Within 90 days after the end of each fiscal year of
the Obligors, a certificate of insurance showing all insurance
policies that the Obligors had in force as of the end of such fiscal
year.
(h) (1) As soon as possible and in any event within 30
days after any Obligor knows that any Reportable Event with respect to
any Plan has occurred, a statement of the chief financial officer of
such Obligor setting forth details as to such Reportable Event and the
action that such Obligor proposes to take with respect to the
Reportable Event, together with a copy of the notice of such
Reportable Event given to the Pension Benefit Guaranty Corporation,
(2) promptly after the filing with the United States Secretary of
Labor or the Pension Benefit Guaranty Corporation, copies of each
annual report with respect to each Plan administered by any Obligor,
and (iii) promptly after receipt, a copy of any notices any Obligor
receives from the Pension Benefit Guaranty Corporation or the Internal
Revenue Service with respect to any Plan administered by any Obligor
provided, however, this subpart (iii) does not apply to notices of
general application promulgated by the Pension Benefit Guaranty
Corporation or the Internal Revenue Service.
(i) Within 30 days after the end of each month of each
fiscal year, a letter of "covenant compliance" regarding Obligors'
obligations under this Agreement, delivered to NBD and prepared, in
form and substance acceptable to NBD, by a Responsible Officer of the
Obligors. This letter must include the aggregate amount of all
accrued claims (both reported and unreported) under the managed care
contracts that have outstanding Standby Letters of Credit associated
with them.
(j) Except for routine administrative reports, all
reports sent by any Obligor to any governmental agency or its
shareholders and holders of its Indebtedness under the Public Debt
Documents, including without limitation, any such reports sent to the
Securities and Exchange Commission.
(k) Within 60 days after June 30 of each year, an
Acceptable Appraisal.
(l) All other reports, documents and information that NBD
may reasonably request.
6.5 INSPECTIONS. Permit NBD's representatives to visit and
inspect any of each Obligor's properties and premises and examine, copy (by
electronic or other means) and abstract any of each Obligor's books and
accounting and Collateral records at any reasonable time, during business
hours, and as often as may be reasonably desired.
6.6 LITIGATION. Promptly furnish NBD, in writing, the details of
all material litigation, legal or administrative proceedings, or other actions
of any nature adversely affecting any
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Obligor, including, without limitation, any notices of violation, citation,
commencement of administrative proceeding or similar notice under any
Environmental Law, in which more than $150,000 is at issue, and, upon the
request of NBD, submit to NBD the opinion of the applicable Obligor's counsel
as to the merits of such proceedings.
6.7 AUDITS. Permit NBD's representatives to conduct an on-site
audit of each Obligor's business operations as frequently as NBD desires.
After the occurrence of an Event of Default, the Obligors must reimburse NBD
for all costs incurred in connection therewith within 10 days after receipt of
an invoice therefor.
6.8 FURTHER ASSURANCES. At NBD's request, promptly execute or
cause to be executed and delivered to NBD any and all documents, instruments
and agreements deemed necessary or appropriate by NBD to perfect or to continue
the perfection of NBD's Liens, to facilitate the collection of any of the
Collateral, or otherwise to give effect to or carry out the terms, conditions
or intent of this Agreement (or any agreements or documents referred to or
incorporated herein) or the other Loan Documents.
6.9 COMPLIANCE WITH LAWS. Comply in all material respects with
all applicable Governmental Regulations, in effect from time to time.
6.10 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its
properties that are necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted, and
comply at all times with the provisions of all leases to which it is a party as
lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder.
6.11 REQUIRED DIVIDENDS. Each Obligor and each Affiliate of each
Obligor (including Michigan Managed Care and Ohio Managed Care) in which NBD
does not enjoy a first-priority, properly perfected, security interest in
substantially all of its assets must pay dividends in an amount equal to the
maximum amount allowed by applicable law to an Obligor in which NBD enjoys a
first-priority, properly perfected, security interest in substantially all of
its assets so that NBD ends up with a first-priority, properly perfected,
security interest in all such dividends.
ARTICLE VII
DEFAULTS
If any one or more of the following events (each an " Event of Default"
and collectively, "Events of Default") occurs, then NBD's obligation to make or
accept any Note or any Loan under this Agreement will, at NBD's option,
immediately terminate, and the unpaid principal balance of, and accrued
interest on, all Obligations will be immediately due and payable, without
further notice of any kind, notwithstanding anything contained to the contrary
in this Agreement or in any other agreement, note or document:
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7.1 DEFAULT IN PAYMENT OF OBLIGATIONS. Any Obligor fails to make
a payment of any principal or interest within 5 days of when and as due
(whether by demand or otherwise) on any Note, or any other Obligations.
7.2 DEFAULT UNDER OTHER AGREEMENTS. Default by any Obligor in the
performance or observance of any of the other agreements or conditions in this
Agreement, the other Loan Documents, or in any other agreement or instrument
made or given by any Obligor to NBD or any NBD Affiliate, required to be
observed or performed by the Obligor which, if possible of being cured, is not
cured within 30 days after it occurs.
7.3 REPRESENTATIONS OR STATEMENTS FALSE. Any representation or
warranty made by any Obligor in this Agreement, the other Loan Documents, or
any certificate delivered in accordance with this Agreement, or any financial
statement delivered to NBD or any NBD Affiliate proves to have been false in
any material respect as of the time when made or given.
7.4 DEFAULT ON OTHER DEBT. Any Obligor fails to pay all or any
part of the principal of or interest on any Indebtedness more than $250,000
(including Indebtedness owed under the Public Debt Documents) of or assumed by
any Obligor as and when due and payable, whether at maturity, by acceleration
or otherwise, and such default is not cured within the period of grace, if any,
specified in the documents(s) evidencing such Indebtedness.
7.5 JUDGMENTS AND SETTLEMENTS. A judgment is entered against any
Obligor which, together with other outstanding judgments entered against that
Obligor and the other Obligors, exceeds in the aggregate $50,000, and remains
outstanding and unsatisfied, unbonded or unstayed on the earlier of (a) 30 days
after the date of entry of such judgment and (b) three business days before the
judgment creditor in whose favor the judgment runs may begin enforcing its
rights and remedies under such judgment. One or more of the Obligors enters
into any settlement with respect to the IRS Disputes and the Justice Department
Dispute which, together with other outstanding settlements entered into by one
or more of the Obligors with respect to such matters, exceeds in the aggregate
$2,500,000, or if all such settlements are not reasonably satisfactory in form
and substance to NBD.
7.6 BANKRUPTCY; INSOLVENCY. Any Obligor or Guarantor of any of
the Obligations: (a) dies or becomes insolvent; or (b) is unable, or admits in
writing its or their inability to pay debts as they generally mature; or (c)
makes a general assignment for the benefit of creditors or to an agent
authorized to liquidate any substantial amount of its or their property; or (d)
has an order for relief entered with respect to it; or (e) files a petition in
bankruptcy, or for reorganization, or to effect a plan or other arrangement
with creditors; or (f) has any bankruptcy petition filed against it that is not
discharged within 60 days thereafter; or (g) files an answer to a creditor's
petition (admitting the material allegations thereof) in bankruptcy or for
reorganization or to effect a plan or other arrangement with creditors; or (h)
applies to a court for the appointment of a receiver, trustee or custodian for
any of its or their assets; or (i) has a receiver, trustee or custodian
appointed for any of its or their assets (with or without their respective
consent).
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7.7 REPORTABLE EVENT. If any Reportable Event, which the holder
of any Note determines in good faith constitutes grounds for the termination of
any Plan by the Pension Benefit Guaranty Corporation or for the appointment by
the appropriate United States District Court of a trustee to administer any
Plan, occurs and is continuing 30 days after written notice of such
determination has been given to any Obligor, or any Plan shall be terminated
within the meaning of Title IV of ERISA, or a trustee shall be appointed by the
appropriate United States District Court to administer any Plan, or the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate any Plan
or to appoint a trustee to administer any Plan, and such liability is not
covered, for the benefit of such Obligor, by insurance.
7.8 MATERIAL LOSS OR ADVERSE CHANGE. Any Obligor suffers a
Material Adverse Event.
7.9 [Intentionally Omitted].
7.10 REVOCATION OF GUARANTY. If any present or future guarantor
(including the Guarantors) of any Obligor's present or future Obligations to
NBD notifies NBD that it intends to terminate all or a portion of its liability
under any present or future guaranty agreement in NBD's favor, disputes its
liability under any present or future guaranty agreement in NBD's favor, or
defaults under any guaranty or other agreement in NBD's favor.
7.11 DEFAULT UNDER OTHER DOCUMENTS. If any Obligor, any guarantor
(including the Guarantors), any subordinated creditor, or any other party to
any agreement or instrument with or in favor of NBD entered into or delivered
in connection with the Loans or the Collateral defaults under any such
agreement or instrument and such default is not cured within the grace period,
if any, contained in such agreement or instrument.
ARTICLE VIII
REMEDIES ON OCCURRENCE
OF AN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, NBD has all rights and
remedies provided by law, and all such rights and remedies granted under any
guaranty agreement (including the "Guaranties") relating to the Obligations or
any security agreement (including the Security Agreements) relating to the
Collateral, and under all other Loan Documents (including the Stock Pledge
Agreement). NBD also has the right to sell and deliver any and all of the
Collateral at public or private sale, for cash, for credit or otherwise, and
upon such prices and terms as NBD deems advisable. Each Obligor acknowledges
that, unless the circumstances dictate that shorter notice is reasonable, at
least 10 days' prior notice of any such sale or other disposition of Collateral
is reasonable notice, and that such notice may be given to any Obligor at its
address specified on page 1 of this Agreement, or at such other address as it
provides to Bank in writing from time to time. Such notice may be written, by
telegram, telex or other medium of communication, or may be personally
delivered by Bank. If the sale of Collateral is public, Bank may purchase at
the sale and have all rights of a good faith purchaser for value. Except as
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prohibited by applicable law with respect to Medicare Accounts and Medicaid
Accounts, Bank also has the right to collect accounts by direct action against
each Obligor's customers making such settlements or compromises with them as it
deems advisable. Bank may also take physical possession of any Collateral at
any time or times, and maintain such possession on any Obligor's premises.
Bank may also remove such Collateral or any part thereof to such other places
as it may wish. If Bank exercises its right to take possession of Collateral,
each Obligor must, on Bank's request, assemble it and make it available to Bank
at a place reasonably convenient to Bank. In addition to all of the rights and
remedies set forth in this Agreement, Bank will have the right forthwith or at
any time thereafter to remove from each Obligor's premises all business records
and Bank may keep and retain the business records in its possession until all
Obligations have been fully paid and discharged. The removal of such business
records will not prevent Obligors from being afforded access to them, during
regular business hours, at the place or places to which they have been moved by
Bank, for the purpose of examining and auditing them and making written
excerpts from such Business Records. All such rights and remedies are
cumulative.
ARTICLE IX
MISCELLANEOUS
9.1 EXPENSES, FEES AND COSTS; INDEMNIFICATION.
(a) Each Obligor is responsible for the payment of all
fees and out-of-pocket disbursements incurred by NBD and/or NBD Affiliates,
including fees of counsel and court costs, in any way arising from or in
connection with this Agreement (and all documents or agreements referred to or
incorporated herein, including the Loan Documents), any of the Collateral, any
of the Obligations or the business relationship between NBD, on the one hand,
and any one or more of the Obligors or the Guarantors, on the other hand,
including, without limitation, (a) audit fees; (b) except as provided in
Section 3.9(g), all fees and expenses (including recording fees and insurance
policy fees) of NBD and counsel for NBD for the preparation, examination,
approval, negotiation, execution and delivery of, or the closing of any of the
transactions contemplated by, this Agreement (and all documents or agreements
referred to or incorporated herein); (c) all fees and out-of-pocket
disbursements incurred by NBD, including attorneys' fees, in any way arising
from or in connection with any action taken by NBD to monitor, advise,
administer, enforce or collect any of the Obligations (including under this
Agreement (and all documents or agreements referred to or incorporated herein,
including the Loan Documents), the Guaranties, the Security Agreements, or
otherwise) or any other obligations of any Obligor or any Guarantor, whether
joint, joint and several, or several, under this Agreement (or any documents or
agreements referred to or incorporated herein, including the Loan Documents),
or any other existing or future document or agreement, or arising from or
relating to the business relationship between NBD, on the one hand, and any one
or more of the Obligors or the Guarantors, on the other hand, or otherwise
securing any of the Obligations, including any actions to lift the automatic
stay or to otherwise in any way monitor or participate in any bankruptcy,
reorganization or insolvency proceeding of any one or more of any Obligor or
any Guarantor; (d) all expenses and fees (including reasonable attorneys' fees)
incurred in relation to, in connection with, in defense of
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and/or in prosecution of any litigation instituted by any one or more of the
Obligors, the Guarantors, NBD or any third party against or involving NBD
arising from, relating to, or in connection with any of the Obligations or any
Obligor's or any Guarantor's other obligations, this Agreement (or any
documents or agreements referred to or incorporated herein, including the Loan
Documents), any of the Collateral, or the business relationship between NBD, on
the one hand, and any one or more of the Obligors or the Guarantors, on the
other hand, including any so-called "lender liability" action, any claim and
delivery or other action for possession of, or foreclosure on, any of the
Collateral, post-judgment enforcement of any rights or remedies including
enforcement of any judgments, and prosecution of any appeals (whether
discretionary or as of right and whether in connection with pre-judgment or
post-judgment matters); (e) all costs, expenses and fees incurred by NBD or its
agents in connection with appraisals and reappraisals of all or any of the
Collateral (and Obligors must fully cooperate with such appraisers and make
their property available for appraisal in connection with as many appraisals as
NBD may reasonably request); (f) all costs, expenses and fees incurred by NBD
and/or its counsel in connection with consultants, expert witnesses or other
professionals retained by NBD and/or its counsel in order to assist, advise
and/or give testimony with respect to any matter relating to this Agreement (or
any documents or agreements referred to or incorporated herein, including the
Loan Document), the Collateral, the Guaranties, the Security Agreements or the
business relationship between NBD, on the one hand, and any one or more of the
Obligors or the Guarantors, on the other hand (and Obligors and Guarantors must
fully cooperate with such consultant, expert witness or other professional and
shall make their premises, books and records, accounting systems, computer
systems and other media for the recordation of information available to such
persons); and (g) all costs, expenses and fees incurred by NBD in connection
with any environmental investigations (and each Obligor agrees that NBD and/or
its agents may enter on its premises at any time to conduct such environmental
investigations and agree to fully cooperate in the conduct of such
environmental investigations). Each Obligor's agreement to be responsible for
NBD's attorneys' fees and costs applies regardless of whether or not NBD
prevails in whole or in part in any action, proceeding, litigation or otherwise
and regardless of the nature of any action or litigation or the theories or
bases of recovery or defense; provided, however, that Obligors are not
responsible for NBD's attorneys' fees and costs if Obligors institute a lender
liability suit against NBD and Prevail (as defined below) against NBD in such
lender liability suit. "Prevail" means that Obligors obtain a final,
non-appealable lender liability judgment against NBD in at least 51% of the
amount of the Obligations on the date that the judgment becomes final and
non-appealable (calculated without regard to payments made to NBD after the
litigation commences). Each Obligor agrees to indemnify NBD for any and all
Claims that may be imposed on, incurred by or asserted against NBD in
connection with this Agreement (or any documents or agreements referred to or
incorporated herein, including the Loan Documents) or the transactions
contemplated hereby or thereby or the business relationship between NBD, on the
one hand, and any one or more of the Obligors or the Guarantors, on the other
hand, except to the extent arising solely from NBD's willful misconduct or bad
faith.
(b) All of the foregoing costs, expenses, reimbursement
obligations, and indemnification obligations set forth in this paragraph are
part of the Obligations and are secured by the Collateral.
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<PAGE> 47
9.2 SUCCESSORS. The provisions of this Agreement inure to the
benefit of and are binding upon any successor to any of the parties to this
Agreement and are available to any holder of any Note; provided, however, that
persons or entities that succeed to the rights of any Obligor under this
Agreement are not entitled to enforce any rights or remedies of any Obligor
under or by reason of the terms of this Agreement, or any other agreement
referred to or incorporated by reference into this Agreement (including the
Loan Documents), unless they have obtained NBD's written consent to succeed to
such rights.
9.3 ANTI-WAIVER; AMENDMENTS; AND CUMULATIVE REMEDIES PROVISIONS.
No failure or delay on the part of NBD or the holder of any Note in the
exercise of any power or right, and no course of dealing between any Obligor
and NBD or the holder of any Note, shall operate as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to NBD at law or in equity. No notice to or
demand on any Obligor not required hereunder or under any Note or other
agreement shall in any event entitle any Obligor to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right
of NBD or the holder of any Note to any other or further action in any
circumstances without notice or demand. Any waiver of any provision of this
Agreement, any Note or other agreement, and any consent to any departure by any
Obligor from the terms of any provision of this Agreement, any Note or other
agreement, shall be effective only in the specific instance and for the
specific purpose for which given. Neither this Agreement nor any Note or other
agreement (including the Loan Documents) nor any terms hereof or thereof may be
changed, waived, discharged or terminated unless such change, waiver, discharge
or termination is in a written agreement signed by the Obligors and NBD.
9.4 SURVIVAL. All agreements, representations and warranties made
in this Agreement survive the execution of this Agreement, the making of the
Loans and the execution and delivery of the Notes.
9.5 CONTROLLING LAW. This Agreement and the Notes issued under
this Agreement are governed by and construed in accordance with the internal
laws of the State of Michigan applicable to contracts made and performed within
such state without regard to conflict of laws provisions.
9.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if all signatures were upon the same
instrument.
9.7 NOTICES. All communications or notices that are required or
may be given under this Agreement are treated as having been served when
personally delivered or on the date when deposited in the United States mail,
postage prepaid, and addressed as follows (unless and until NBD or an Obligor
advises the other party, in writing, of a change in such address): (a) if to
Obligors, with the name and address of such entity shown at the beginning of
this Agreement; and (b) if to NBD, addressed to NBD Bank, 28660 Northwestern
Highway, Southfield, Michigan
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<PAGE> 48
48034, to the attention of Robert B. Greene, with a copy to Theodore B.
Sylwestrzak, 2290 First National Building, Detroit, Michigan 48226.
9.8 LOAN AGREEMENT CONTROLS. Anything contained in any other
agreement referred to in this Agreement (including the Loan Documents) or in
any other agreement now existing between NBD and any Obligor to the contrary
notwithstanding, in the event of any express conflict between the terms and
provisions of such other agreement and those contained in this Agreement, the
terms of this Agreement govern and control.
9.9 PARTIAL INVALIDITY. The unenforceability for any reason of
any provision of this Agreement or the other Loan Documents does not impair or
limit the operation or validity of any other provisions of this Agreement or
the other Loan Documents or any other existing or future agreements between NBD
and any Obligor.
9.10 LEGAL RATE ADJUSTMENT. This Agreement and all security
agreements, mortgages and notes between any Obligor and NBD pertaining to the
Notes are expressly limited so that in no event whatsoever may the amount of
interest paid or agreed to be paid to NBD exceed the highest rate of interest
permissible under applicable law. If, from any circumstances, fulfillment of
any provision of this Agreement or the Notes at the time performance of such
provisions is due, shall involve exceeding the interest limitation validly
prescribed by law which a court of competent jurisdiction may deem applicable
to this Agreement and any Loans under this Agreement, then the obligation to be
fulfilled is reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if, for any reason whatsoever, NBD
receives as interest an amount which would be deemed unlawful under applicable
law, such interest will be automatically applied to the payment of the
principal of the Notes (whether or not then due and payable), and not to the
payment of interest, or will be refunded to the Obligors, if such principal has
been paid in full.
9.11 SETOFF. In addition to any rights and remedies of NBD or NBD
Affiliates provided by law, NBD and NBD Affiliates have the right, without
prior written notice to any Obligor, any such notice being expressly waived by
each Obligor to the extent permitted by applicable law, upon the occurrence of
any Event of Default, to set off and apply against any Obligations, whether
matured or unmatured, of any Obligor to NBD or NBD Affiliates, any amount owing
by NBD or NBD Affiliates to any Obligor, at or at any time after the happening
of any of the above mentioned events, and such right of setoff may be exercised
by NBD and NBD Affiliates against any Obligor or against any assignee for the
benefit of creditors, receiver, or execution, judgment or attachment creditor
of any Obligor, or against anyone else claiming through or against any Obligor
of such assignee for the benefit of creditors, receiver, or execution, judgment
or attachment creditor, notwithstanding the fact that such right of setoff has
not been exercised by NBD or NBD Affiliates prior to the making, filing or
issuance or service upon NBD or NBD Affiliates of, or of notice of, assignment
for the benefit of creditors, appointment or application for the appointment of
a receiver, or issuance of execution, subpoena or order or warrant. NBD agrees
to use reasonable efforts to promptly notify the affected Obligor after any set
off and application made by NBD or NBD Affiliates, provided that the failure to
give such notice does
48
<PAGE> 49
not affect the validity of such set off and application or give rise to claims
or causes of actions in favor of any Obligor or any other party.
9.12 LOCK BOX AGREEMENTS. All collections of any nature or kind,
including payments and deposits received by NBD and proceeds subject to the
liens and security interests of NBD, including, without limitation, proceeds
realized from the Collateral, will be subject to Lock Box Agreements in form
and substance reasonably satisfactory to NBD.
9.13 NO MARSHALLING. Each Obligor, on its own behalf and on behalf
of its successors and assigns expressly waives all rights, if any, to require a
marshalling of assets by NBD or to require that NBD first resort to some or any
portion of the Collateral before foreclosing upon, selling or otherwise
realizing on any other portion thereof.
9.14 REINSTATEMENT OF OBLIGATIONS AND SECURITY. To the extent that
any Obligor makes a payment to Bank or Bank receives any payment(s) or proceeds
of accounts or other Collateral for any Obligor's benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable doctrine, then, to the extent of such payment(s)
or proceeds received, the Obligor's obligations or part thereof intended to be
satisfied thereby will be reinstated and continue in full force and effect, and
all collateral security therefor will remain in full force and effect (or be
reinstated), as if such payment(s) or proceeds had not been received by Bank,
and an appropriate adjustment to that Obligor's loan balance may be recorded,
until payment has been made to Bank, which payment will be due on demand.
9.15 EXHIBITS. All exhibits attached to this Agreement are to be
construed as being part of this Agreement and as if the Exhibits were set forth
in their entirety in the body of this Agreement.
9.16 PARTICIPATIONS. NBD may sell participation interests in the
Obligations and in advance of a sale, NBD may disclose to prospective
purchasers all information regarding the Obligors and the Guarantors that NBD
is aware of, and the Obligors and the Guarantors must cooperate in this effort.
Each Obligor grants to each participating lender a continuing lien on and
security interest in any money, securities, and other property of each Obligor
in the custody of possession of a participating lender, including the right of
setoff, to the extent of a participating lender's participation in the
Obligations, and each participating lender has the same right of setoff to the
extent of a participating lender's participation in the Obligations under this
Agreement as it would have if it were a direct lender under this Agreement.
9.17 ENTIRE AGREEMENT OF THE PARTIES. This Agreement, including
all agreements referred to or incorporated into this Agreement (including the
Loan Documents) and all recitals in this Agreement (which recitals are
incorporated as covenants of the parties), constitute the entire agreement
between the parties relating to the subject matter of this Agreement. This
Agreement supersedes all prior agreements, commitments and understandings
between the parties
49
<PAGE> 50
relating to the subject matter of this Agreement and cannot be changed or
terminated orally, and are to be treated as effective on the date noted above.
9.18 SURVIVAL; RELIANCE. All agreements, representations and
warranties made in this Agreement (and all agreements referred to or
incorporated herein, including the Loan Documents) survive the execution of
this Agreement (and all documents and agreements referred to or incorporated
herein, including the Loan Documents) and the making of the Loans and the
execution and delivery of the Notes. Notwithstanding anything in this
Agreement (or any documents or agreements referred to or incorporated herein,
including the Loan Documents) to the contrary, no investigation or inquiry by
any party with respect to any matter which is the subject of any
representation, warranty, covenant or other agreement set forth herein or
therein is intended, nor may it be interpreted, to limit, diminish or otherwise
affect the full scope and effect of any such representation, warranty, covenant
or other agreement. All terms, covenants, agreements, representations and
warranties of each Obligor made herein (or in any documents or agreements
referred to or incorporated herein, including the Loan Documents), or in any
certificate or other document delivered under this Agreement are to be treated
as material and to have been relied upon by NBD, notwithstanding any
investigation heretofore or hereafter made by NBD or its agents.
9.19 INTERPRETATION. This Agreement (and all agreements referred
to or incorporated herein, including the Loan Documents) are being entered into
among competent persons, who are experienced in business and represented by
counsel, and has been reviewed by the parties and their counsel. Therefore,
any ambiguous language in this Agreement (and all agreements referred to or
incorporated herein, including the Loan Documents) will not necessarily be
construed against any particular party as the drafter of such language.
9.20 AUTHORIZATION TO DEBIT ACCOUNT OR ADD AMOUNTS TO LOAN BALANCE.
If any payment called for by this Agreement (or any agreement referred to or
incorporated herein, including the Loan Documents) or any other present or
future agreement between NBD (or any NBD Affiliate) and any Obligor is not paid
when and as called for in the terms of such agreement, then NBD may (a) debit
any of any Obligor's accounts at NBD (or at any NBD Affiliate) for such amount
and (b) may add all or a part of such unpaid payment to Borrower's loan balance
under the Line of Credit Loan.
9.21 SURVIVAL OF VARIOUS PROVISIONS. The covenants and agreements
of each Obligor set forth in Section 9.1 survive the repayment in full of the
Obligations and the termination of this Agreement.
9.22 INDEPENDENCE OF COVENANTS. All covenants in this Agreement
and the other Loan Documents are to be given independent effect so that if a
particular action or condition is not permitted by a covenant, the fact that it
would be permitted by an exception to, or would be otherwise within the
limitations of, another covenant does not avoid the occurrence of a Default or
an Event of Default if such action is taken or such condition exists.
50
<PAGE> 51
9.23 INVENTORY IN THE POSSESSION OF THIRD PARTIES. If any
inventory is in the possession or control of any of any Obligor's agents or
processors, that Obligor must notify them of Bank's security interest, and upon
Bank's request, instruct them to hold all such inventory for Bank's account and
subject to Bank's instructions. Bank may, in its discretion, at any time,
pursuant to the power of attorney granted in this Agreement, notify any
Obligor's agents, processors or any warehousemen who have possession of any
Inventory, of Bank's security interest, and that all such Inventory must be
held for Bank's account and subject to its instructions.
9.24 VERIFICATION AND COLLECTION OF RECEIVABLES. Bank may verify
any receivable at any time in any reasonable manner, including written or
telephone requests for verification of receivables from Obligors' customers
(each, a "Customer" and collectively, the "Customers"), and each Obligor must
help Bank do so. Bank at any time may notify any Obligor's Customers that Bank
has a security interest in the receivables, and, after an Event of Default has
occurred, collect them directly in Bank's own name. Except as prohibited by
applicable law with respect to Medicaid Accounts and Medicare Accounts, after
Bank has notified any Customer, Bank has the right, without any Obligor's
participation, approval, or notice, to settle any disputes between such
Customer and any Obligor directly with the Customer for any amounts and upon
such terms as Bank considers advisable.
9.25 APPOINTMENT OF AGENT. After the occurrence of any Event of
Default, each Obligor appoints Bank as its attorney-in-fact, or any person or
entity that Bank from time to time appoints to act in this capacity. Such
appointment is effective immediately upon declaration of an Event of default by
NBD. As Obligors' attorney-in-fact, Bank has the power to endorse any
Obligor's name on checks, notes, acceptances, drafts, or other forms of payment
or security that may come into NBD's possession. Such attorney may also sign
any Obligor's name on any invoices or bills of lading relating to any
receivables or inventory or on any tax refund checks or drafts, or on drafts
against the Customers, on schedules and confirmations of assignments of
receivables or inventory, on notices of assignments, financing statements under
the UCC and other public records, on verifications of accounts and on notices
to Customers. Bank may also notify the post office authorities to change the
address for delivery of any Obligor's mail to an address designated by Bank.
Bank may receive, open and dispose of all mail addressed to any Obligor. Bank
may send requests for verifications of accounts to Customers, and do all other
things necessary to carry out this Agreement. Each Obligor ratifies and
confirms all acts of the attorney. Neither the attorney-in-fact, if a separate
person or entity is designated, nor Bank will be liable for any act or
omission, or any error in judgment or mistake of fact or law. These powers
granted to Bank and the attorney are coupled with an interest, and cannot be
revoked by any Obligor if any Obligor is indebted to Bank or Bank has a
security interest in any account or other Collateral of any Obligor.
9.27 SPECIAL PROVISION REGARDING MICHIGAN MANAGED CARE AND OHIO
MANAGED CARE. Notwithstanding any other term or condition of this Agreement or
the other Loan Documents, Michigan Managed Care's and Ohio Managed Care's
liability with respect to the
51
<PAGE> 52
Loans is limited to that portion of the Loans arising in connection with
Standby Letters of Credit issued for their respective accounts in connection
with their managed care business.
9.28 INTELLECTUAL PROPERTY LICENSE. Each Obligor grants NBD a
fully paid-up non-exclusive, irrevocable, worldwide license ("License") of all
of its present and future copyrights, trademarks, licenses, patent rights, and
all other intellectual property of every nature and kind. NBD may only use the
License to assist it in selling, disposing of, foreclosing on, or otherwise
realizing on any Collateral and such License, unless transferred to a third
party in connection with a sale or other disposition of any of the Collateral,
shall terminate when all Obligations have been paid in full.
9.29 ACKNOWLEDGMENT OF OBLIGORS. THIS AGREEMENT HAS BEEN FREELY
AND VOLUNTARILY ENTERED INTO WITH THE BANK BY THE OBLIGORS, WITHOUT ANY DURESS
OR COERCION, AND AFTER THE OBLIGORS HAVE EITHER CONSULTED WITH COUNSEL OR HAS
BEEN GIVEN AN OPPORTUNITY TO DO SO, AND THE OBLIGORS, ACKNOWLEDGE THAT EACH HAS
CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS
AGREEMENT.
9.30 WAIVER OF BOND AND SUBMISSION TO JURISDICTION. ANY JUDICIAL
PROCEEDING AGAINST ANY OBLIGOR BROUGHT BY THE BANK WITH RESPECT TO ANY TERM OR
CONDITION OF THIS AGREEMENT, OR ANY OTHER PRESENT OR FUTURE AGREEMENT BETWEEN
ANY OBLIGOR AND THE BANK MAY BE BROUGHT BY THE BANK IN A COURT OF COMPETENT
JURISDICTION IN THE STATE OF MICHIGAN, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OBLIGOR AND THE BANK ACCEPT FOR
THEMSELVES AND IN CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT, OR ANY OTHER PRESENT AND FUTURE AGREEMENT
BETWEEN ANY OBLIGOR AND THE BANK. EACH OBLIGOR WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY MAIL OR MESSENGER DIRECTED TO IT AT ITS ADDRESS SET FORTH IN THIS
AGREEMENT. EACH OBLIGOR WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND
OR SURETY WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE BANK. NOTHING
CONTAINED IN THIS SECTION AFFECTS THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECTS THE BANK'S RIGHT TO BRING ANY
ACTION OR PROCEEDING AGAINST ANY OBLIGOR OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OBLIGOR AGAINST THE BANK
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT
OF, RELATED TO OR CONNECTED WITH THIS
52
<PAGE> 53
AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER PRESENT OR FUTURE AGREEMENT BETWEEN
ANY OBLIGOR AND THE BANK, MAY BE BROUGHT ONLY IN A COURT LOCATED IN THE STATE
OF MICHIGAN, COUNTY OF OAKLAND. EACH OBLIGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER OR IN CONNECTION
HEREWITH AND MAY NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE
OR BASED UPON FORUM NON CONVENIENS. ANY OBLIGOR OR THE BANK MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVERS AND CONSENTS CONTAINED HEREIN.
9.31 WAIVER OF JURY TRIAL. EACH OBLIGOR AND NBD ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
NBD AND EACH OBLIGOR, AFTER CONSULTING COUNSEL OF THEIR CHOICE, EACH HEREBY
KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY
JURY OF ALL DISPUTES BETWEEN THEM. NEITHER ANY OBLIGOR NOR NBD SHALL BE DEEMED
TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A
WRITTEN INSTRUMENT SIGNED BY THE PARTY TO BE CHARGED.
NBD BANK
By: /s/ Robert B. Greene
------------------------------------------
Robert B. Greene
First Vice President
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Alan S. Ker
------------------------------------------
Alan S. Ker
Vice President Finance and Treasurer
[Signatures continued on following page]
53
<PAGE> 54
[Signature continued from preceding page]
UNIVERSAL STANDARD MANAGED
CARE OF MICHIGAN, INC.
By: /s/ Alan S. Ker
----------------------------
Alan S. Ker, Treasurer
UNIVERSAL STANDARD MANAGED
CARE OF OHIO, INC.
By: /s/ Alan S. Ker
----------------------------
Alan S. Ker, Treasurer
UNIVERSAL STANDARD MANAGED
CARE, INC.
By: /s/ Alan S. Ker
----------------------------
Alan S. Ker, Treasurer
A/R CREDIT, INC.
By: /s/ Alan S. Ker
----------------------------
Alan S. Ker, Treasurer
T.P.A., INC.
By: /s/ Alan S. Ker
----------------------------
Alan S. Ker, Treasurer
EXHIBITS
1.1 - Permitted Liens List
54
<PAGE> 55
2.1 - Line of Credit Note
2.5 - Request under Revolving Credit and Loan Agreement
3.3 - Counsel Opinion
3.4(a) - Form of General Security Agreement
3.4(b) - Form of Stock Pledge Agreement
3.5 - Form of Guaranty
3.6 - Form of Landlord/Mortgagee Waiver
3.8 - Preliminary Closing List
4.1 - Business Record Location List
4.5 - Issues re Taxes
4.6 - List of Litigation
4.7 - Environmental Issues List
4.8 - Corporate Names
4.16 - Projections
4.17 - Patent, Trademark, and Copyright List for each Obligor
5.2(c) - Permitted Indebtedness List
6.1E - Financial Covenant Calculations
55
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<ARTICLE> 5
<CIK> 0000889187
<NAME> UNIVERSAL STANDARD MEDICAL LABORATORIES, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,470
<SECURITIES> 0
<RECEIVABLES> 16,071
<ALLOWANCES> 8,436
<INVENTORY> 1,174
<CURRENT-ASSETS> 11,884
<PP&E> 17,655
<DEPRECIATION> 8,337
<TOTAL-ASSETS> 56,000
<CURRENT-LIABILITIES> 10,763
<BONDS> 11,603
0
0
<COMMON> 32,864
<OTHER-SE> (6,534)
<TOTAL-LIABILITY-AND-EQUITY> 56,000
<SALES> 13,502
<TOTAL-REVENUES> 13,502
<CGS> 9,081
<TOTAL-COSTS> 9,081
<OTHER-EXPENSES> 2,724
<LOSS-PROVISION> 813
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> (471)
<INCOME-TAX> 38
<INCOME-CONTINUING> (509)
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<CHANGES> 0
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