HEALTH POWER INC /DE/
SC 13E3, EX-99.(B)(1), 2000-09-21
HOSPITAL & MEDICAL SERVICE PLANS

Previous: HEALTH POWER INC /DE/, SC 13E3, EX-24, 2000-09-21

Next: HEALTH POWER INC /DE/, SC 13E3, EX-99.(B)(2), 2000-09-21

Borrower:		HP Acquisition Corp.
CoBorrowers/
Guarantors:		WC Holdings, Inc., Health Power, Inc., CompManagement, Inc. (“CMI”), CompManagement Health Systems, Inc., M&N Risk Management, Inc., and M&N Enterprises, Inc. group to include all entities which survive the Acquisition, which Bank, in its sole discretion, requests as CoBorrowers or Guarantors, including those entities which have name changes.
Loan Amount:		$17,000,000
Maturity Date:		September 30, 2005
Amortization:		Six year, straightline amortization
Interest Rate and Interest Rate Swap:		Tier 1 LIBOR plus 1.75%
		Tier 2 LIBOR plus 1.45%

Tier 2 pricing level can be attained when the Total Debt/ EBITDA Ratio is < 1.50 for two (2) consecutive years.

Borrower shall enter into a standard ISDA Master Agreement pursuant to which it will enter into an interest rate swap for a minimum of $8,500,000 for a period of no less than three (3) years.

Closing Fee:

$42,500 (0.25%)

Repayment Terms:

60 installments of principal in the amount of $236,111.11 plus all accrued and unpaid interest due and payable monthly, remaining principal and all other unpaid amounts due at maturity.

Prepayment:

Allowed without penalty subject to normal LIBOR breakage fees.

Collateral:

(i)

First lien on all business assets of Borrower, CoBorrowers and Guarantors.

(ii)

Pledge and assignment of all capital stock of all subsidiaries of Borrower.

(iii)

Assignment of rights under all material leases under which Borrower, any CoBorrower or any Guarantor is a lessee.

Borrower:

HP Acquisition Corp.

Guarantors:

WC Holdings, Inc., Health Power, Inc., CMI, CompManagement Health Systems, Inc., M&N Risk Management, Inc., group to include all entities which survive the Acquisition, including those which have name changes.

Loan Amount:

$8,000,000

Maturity Date:

September 30, 2002

Amortization:

Non-amortizing

Interest Rate:	Tier 1   At the option of Borrower, LIBOR plus 1.75% or Prime minus 0.50%
	Tier 2   At the option of Borrower, LIBOR plus 1.45% or Prime minus 0.75%

Tier 2 pricing level can be attained when the Total Debt/ EBITDA Ratio is <1.50 for two (2) consecutive years.

Unused Fee:

0.50% per annum of average unfunded commitment amount calculated, due and payable quarterly.

Closing Fee:

$20,000 (0.25%)

Repayment Terms:

Interest only due and payable monthly, principal due and payable at maturity.

Prepayment:

Allowed without penalty subject to normal LIBOR breakage fees.

Collateral:

(i)

First lien on all business assets of Borrower, CoBorrowers and Guarantors.

(ii)

Pledge and assignment of all capital stock of all subsidiaries of Borrower.

(iii)

Assignment of rights under all material leases under which Borrower, any CoBorrower or any Guarantor is a lessee.

Measured at Borrower level:

Ÿ

Minimum Debt Service Coverage Ratio defined as: EBITDA—Taxes—Distributions in Lieu of Taxes (+/-) Gains/(Losses) on sale of Fixed Assets (+/-) Changes in Deferred Taxes Divided By: CMLTD + Interest Expense + Distributions for Subordinated Debt Interest. Requirement is that the DSC >1.20 to 1.00 measured on a rolling four (4)quarters basis.

Ÿ

Maximum Total Debt to Cash Flow Ratio defined as: Outstanding Balance on the Revolver + Balance on the Term Loan + Balance of the note to Anthem + any other outside debt of Borrower or CMI + Balance

of WC Holdings, Inc. Subordinated Debt Divided By: EBITDA. Requirement is that Total Debt/EBITDA be <2.75 at FYE 2000; and that Total Debt/EBITDA be <2.50 at FYE 2001 and thereafter. Ratio to be measured on a rolling four (4) quarters basis.

Ÿ

Minimum Net Worth Level of $7.0 million.

Ÿ

Maximum annual Capital Expenditures Limit of $1.2 million.

Additional Limitations:

Ÿ

Prior to the occurrence of any default under the Loan Agreement, Management Fees may be paid by the Borrower or CMI in an amount not to exceed 5.0% of EBITA.

Ÿ

Prior to the occurrence of any default under the Loan Agreement, distributions may be made by CMI to Borrower and by Borrower to WC Holdings, Inc. or Security Capital Corporation in an amount which does not exceed (i) any amount due in lieu of taxes, plus (ii) the amount required to service the Subordinated Debt.

Ÿ

No additional indebtedness or guarantees by Borrower, any CoBorrower or any Guarantor without prior written consent of Bank.

Ÿ

No changes may be made in ownership control of the Borrower, any CoBorrower or any Guarantor nor may certain agreed-upon members of senior management be changed without the prior written consent of Bank.

Ÿ

Management’s ownership interest in the Borrower may not be diluted during the first two years following Closing without the prior written consent of Bank. Thereafter, such ownership interest may only be diluted if certain to be agreed-upon criteria have been satisfied.

Ÿ

No mergers or acquisitions by Borrower, any CoBorrower or any Guarantor of any other entity without the prior written consent of Bank .

Ÿ

No Borrower, CoBorrower or any Guarantor shall make any loans or advances to (i) any entity, including any subsidiary of the Borrower, a CoBorrower or a Guarantor unless such entity to which the loan or advance is made is also a Borrower, CoBorrower or Guarantor or (ii) WC Holdings, Inc.

Reporting Requirements:

Ÿ

Audited financial statements of WC Holdings, Inc. prepared and submitted annually on a consolidated and consolidating basis to separately reflect the financial condition of all Borrowers, CoBorrowers and Guarantors.

Ÿ

Internal financial statements of all Borrowers, CoBorrowers and Guarantors prepared in accordance with GAAP and submitted monthly on a consolidating basis.

Ÿ

Evidence of current hazard and general liability insurance on personal property.

Key Man Life Insurance:

Assignment of key man life insurance policies on each of Robert Bossart and John Wagner in the amount of $3,000,000 each.

Fees and Expenses:

Borrower shall pay all fees and expenses incurred by it or on its behalf in connection with the negotiation, preparation and execution of the documentation necessary to consummate the proposed transaction, including the costs of any and all UCC searches, filing fees, fees for certified copies of documents, Borrower’s counsel’s fees and expenses, the Bank’s counsel’s fees and expenses and the fees and expenses of any accountants or consultants. Borrower understands that the Bank will incur fees and expenses upon Borrower’s acceptance of this letter and that such fees will be billed to Borrower and Borrower agrees to pay such fees and expenses regardless of whether the loans close.

Purpose of Loans:

The loans shall be used to finance the Acquisition and reduce existing indebtedness previously disclosed to the Bank, with the Revolver being available to be drawn upon until its Maturity Date.

See Addendum A attached hereto.

Pre-Closing Requirements:

Timely submission of all Pre-Closing Documents listed on Addendum B.

Closing:

The closing shall occur on or before November 30, 2000 unless such date is extended in writing by the Bank.

The Bank shall not be required to close the loans or make any advances on the loans unless and until all of the conditions and requirements of this letter have been fulfilled or completed to the satisfaction of the Bank.

The Bank shall not be required to make any advances on the loans until all of the loan documents listed on Addendum C, and any other documents required by the Bank or its counsel, are in form and substance reasonably satisfactory to the Bank and have been executed by the respective parties thereto.

No Material Adverse Change:	Prior to closing, there shall not have occurred in the opinion of the Bank any material adverse change in: 1) the Borrower’s, any CoBorrower’s or any Guarantor’s business operation or financial condition, 2) any security for the loans or 3) any other material facts, circumstances or conditions upon which the Bank has relied or utilized in making its decision to make the loans.

Representations And Warranties:

Borrower represents and warrants that this letter and the supporting materials submitted by Borrower for the consideration by the Bank in connection with this letter constitute a complete and accurate presentation of all facts material to the Bank’s consideration of the issuance of this letter.

Borrower, each CoBorrower, and each Guarantor represents and warrants that none of them nor any entity in which any of them has an ownership interest is (i) a defendant in any suits or legal actions except as set forth in

	Addendum D attached hereto, (ii) has any judgments, garnishments or attachments pending against them or (iii) has ever been adjudicated a bankrupt.
Time Of Essence:	Time is of the essence hereof with respect to the dates, terms and conditions set forth, and in the event that any respective term or condition is not fully complied with by Borrower by the designated date, including without limitation, the submission of the Pre-Closing Documents designated on Addendum B, and any other document required by the Bank or its counsel, the Bank may declare this letter null and void.

Modification:

The modification or waiver of any provision of this letter shall not be effective unless set forth in writing and signed by the parties hereto.

Waiver Of Jury Trial:

The Bank and the Borrower, each CoBorrower and each Guarantor hereby voluntarily, irrevocably and unconditionally waive any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise, between them arising out of, in connection with, related to, or incidental to the relationship established between any of them in connection with this letter or any other agreement or document executed or delivered in connection herewith or the transactions related hereto. This provision is a material inducement to the Bank to enter into this transaction. It shall not in any way affect, waive, limit, amend or modify the Bank’s ability to pursue its remedies including, but not limited to, any confession of judgment or cognovit provision contained in any document related hereto.

Governing Law:

This letter shall be governed by and construed in accordance with the laws of the State of Ohio.

Scope of Letter:

The foregoing is intended to provide an outline of terms and conditions rather than a complete statement of all terms, conditions and documents which would be required in connection with the loans. It is possible that substantive terms or conditions may be changed in order to account for or reflect, among other things, changes in statutory or regulatory authorities governing the subject matter of the transaction or subsequent negotiations.

THIS LETTER DOES NOT CONSTITUTE A COMMITMENT TO LEND UNLESS AND UNTIL EXECUTED BY BORROWER AND RECEIVED BY THE UNDERSIGNED ON OR BEFORE 5:00 p.m., COLUMBUS, OHIO TIME, ON SEPTEMBER 22, 2000.

THIS LETTER IS NOT INTENDED AS A COMPREHENSIVE STATEMENT OF ALL OF THE TERMS AND CONDITIONS TO WHICH THE LOANS WILL BE SUBJECT, BUT RATHER IS INTENDED AS A SUMMARY OF CERTAIN MAJOR PROVISIONS THAT WILL BE CONTAINED IN THE LOAN DOCUMENTS TO BE EXECUTED BY THE BORROWER, THE COBORROWERS AND THE GUARANTORS.

UPON BORROWER’S ACCEPTANCE OF THIS LETTER, IT BECOMES A COMMITMENT TO LEND SUBJECT TO SATISFACTION OF THE TERMS AND CONDITIONS OF THIS LETTER. NO PARTY OTHER THAN BORROWER SHALL BE ENTITLED TO RELY ON THIS COMMITMENT. THIS COMMITMENT IS NOT ASSIGNABLE.

	Sincerely,
	BANK ONE, N.A.
	By:	/s/    David J. Folkwein  David J. Folkwein, First Vice President

Insurance. The Borrower shall maintain hazard and other insurance upon all of its assets and business properties and liability insurance with responsible and reputable insurers of such character and amounts as are usually maintained by companies engaged in like business. All insurance policies shall be written for the benefit of the Borrower and the Bank as their respective interests may appear and shall contain a provision requiring the insurance company to provide the Bank not less than thirty days’ written notice prior to cancellation of any such policy. All insurance policies or certificates evidencing the same shall be furnished to the Bank prior to Closing.

Payment of Taxes and Claims. The Borrower shall pay all taxes, assessments and other governmental charges imposed upon its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a lien or charge upon any of its properties or assets, provided that (unless any material item of property would be lost, forfeited or materially damaged as a result thereof) no such charge or claim need be paid if the amount, applicability or validity thereof is currently being contested in good faith and if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor.

Compliance with Laws. The Borrower shall comply in all substantial respects with all applicable statutes, laws, ordinances and governmental rules, regulations and orders to which it is subject or which are applicable to its business, properties and assets if noncompliance therewith would materially adversely affect such businesses; provided that (unless such contest or noncompliance would materially adversely affect such businesses) the Borrower need not so comply if any such statute, law, ordinance, or governmental rule, regulation or order is currently being contested in good faith.

Maintenance of Tangible Assets. The Borrower shall maintain its tangible assets in good condition and repair and shall not permit any action or omission which might materially impair the value thereof, normal wear and tear excepted.

Performance of Contracts. The Borrower shall perform and comply with in accordance with their terms, all material provisions of each and every material contract, agreement or instrument now or hereafter binding upon the Borrower, except to the extent that the Borrower shall contest the provisions thereof in good faith and by proper proceedings.

(i)  enter into any transaction, including without limitation, the purchase, sale or exchange of property or the rendering of any services, with any affiliated person or any officer or director thereof, enter into, assume or suffer to exist any employment or consulting contract with any affiliated person, except any transaction or contract which is in the ordinary course of the Borrower’s business and which is upon fair and reasonable terms no less favorable to the Borrower than it would obtain in a comparable arms-length transaction;

(ii)  make any advance or loan to any affiliated person or any director or officer thereof or to any trust of which any of the foregoing is a beneficiary, or to any person on the guaranty of any of the foregoing; or

(iii) pay any fees or expenses to, or reimburse or assume any obligation for the reimbursement of any expenses incurred by, any affiliated person or any officer or director thereof except as may be permitted in accordance with the preceding clauses of this paragraph.

Corporate Organization. Borrower shall provide to Bank a complete corporate organization chart showing all subsidiaries and subsidiaries of subsidiaries which will exist after the Acquisition. Bank shall have the right to require any or all of such subsidiaries to become CoBorrowers or Guarantors of the Term Loan and Revolver and shall have the right to prohibit borrowings or advances among and between any such subsidiaries which do not become CoBorrowers or Guarantors.

Organization Documents. Certified articles of incorporation, code of regulations and certificate of good standing of Borrower, all CoBorrowers and Guarantors.

Ohio Department of Insurance Documents. Certified copy or copies of all Orders of the Ohio Department of Insurance evidencing the termination from supervision of Health Power HMO (“HP HMO”) and evidence of the liquidation of HP HMO and the approval thereof by the Ohio Department of Insurance and/or the Franklin County Court of Common Pleas.

Financial Statements. Audited financial statements of Health Power, Inc., including its subsidiaries.

Comprehensive General Liability Insurance. Comprehensive general public liability policy naming the Bank as additional insured, with minimum $5,000,000.00 combined single limit bodily injury/property damage liability.

Worker’s Compensation and General Liability. As required by applicable State law.

Business Interruption Insurance. Rental loss or business interruption coverage equal to minimum 6-months rental (if rents abated as result of casualty) or 6-months gross operating revenues.

Leases. Description of all leases to which the Borrower, any CoBorrower or Guarantor is a party.

Payoff Letter. Letter from each lender who will be paid off from the proceeds of the loans, stating amount due as of particular date, per diem amount, and wire or other payment instructions.

Acquisition Documents and Approvals. Executed copy of Agreement and Plan of Merger Among Security Capital Corporation, HP Acquisition Corp. and Health Power, Inc. and all

exhibits thereto and related documents, including any filings with and orders or comment letters from the Securities and Exchange Commission. Evidence of approval of the Acquisition by all relevant parties, including the existing shareholders of Health Power, Inc.

UCC Searches. Searches of the records of the Secretary of State of Ohio and searches of the records of the County Recorders of Franklin, Cuyahoga and Hamilton Counties, as to any UCC Financing Statements filed therein naming Borrower, any CoBorrower or any Guarantor as debtor(s).

Loan Agreement. Comprehensive agreement among Borrower and all CoBorrowers and the Bank which governs the closing and administration of the financing. Includes all terms of the financing, representations and warranties and affirmative and negative covenants of Borrower, conditions to funding, funding procedures and default provisions.

Promissory Note. Cognovit promissory notes of Borrower and CoBorrowers evidencing each loan in the full amount of each loan.

Guaranty Agreements. Comprehensive, unconditional guaranty agreement from any and all Guarantors which are not CoBorrowers.

Intercreditor Agreement. Intercreditor Agreement between the Bank and Banc One Mezzanine Corporation in form and substance satisfactory to the Bank in its sole discretion and acknowledged by Borrower, each CoBorrower and each Guarantor.

Borrower’s Counsel Opinion. Legal opinion from Borrower’s counsel in form approved by the Bank and its Counsel opining as to due formation, good standing and authorization of Borrower, all CoBorrowers and all Guarantors, due execution and validity and enforceability of loan documents and guaranty agreements, approval of Acquisition by the shareholders of Health Power, Inc., liquidation of HP HMO, absence of litigation and defaults under other documents, and such other matters reasonably required by the Bank and its Counsel.

Incumbency Certificates. Certificates from Borrower, all CoBorrowers and all Guarantors acceptable to the Bank identifying and certifying those individuals authorized to obligate the Borrower, all CoBorrowers and all Guarantors and execute legal documents.

Security and Pledge Agreements. Pledge by Borrower, CoBorrowers and Guarantors in favor of the Bank of any securities, promissory notes, bank accounts, certificates of deposit, etc., and the grant by Borrower, CoBorrowers and Guarantors to the Bank of a security interest in fixtures, equipment, inventory, accounts receivable, contract rights and general intangibles.

Financing Statements. UCC Financing Statements describing collateral in which the Bank has been granted a security interest.

FAQ | Privacy | Terms Of Service | Contact