AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1996
REGISTRATION NO. 333-08639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HCIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 7389 52-1407998
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
300 EAST LOMBARD STREET
BALTIMORE, MARYLAND 21202
(410) 895-7470
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES A. BERARDESCO, ESQUIRE
VICE PRESIDENT AND GENERAL COUNSEL
HCIA INC.
300 EAST LOMBARD STREET
BALTIMORE, MARYLAND 21202
(410) 895-7470
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
FRANK S. JONES, JR., ESQUIRE NORMAN D. SLONAKER, ESQUIRE
D. SCOTT FREED, ESQUIRE BROWN & WOOD LLP
WHITEFORD, TAYLOR & PRESTON L.L.P. ONE WORLD TRADE CENTER
SEVEN SAINT PAUL STREET NEW YORK, NEW YORK 10048-0557
BALTIMORE, MARYLAND 21202 (212) 839-5300
(410) 347-8707
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [X]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 13, 1996
PROSPECTUS
2,216,696 Shares
[HCIA Logo]
Common Stock
------------------------
Of the 2,216,696 shares of common stock, par value $.01 per share (the
"Common Stock"), of HCIA Inc. ("HCIA" or the "Company") offered hereby (the
"Offering"), 2,000,000 shares are being sold by the Company and 216,696 are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of the shares of Common Stock being sold by the
Selling Stockholders.
The Common Stock of the Company is traded on the Nasdaq National Market
("NASDAQ") under the symbol "HCIA." On August 8, 1996, the last reported sales
price for the Company's Common Stock on NASDAQ was $60 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
Total(3)............. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 332,505 additional shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If the over-allotment option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York, on or
about , 1996.
------------------------
Merrill Lynch & Co.
Alex. Brown & Sons
Incorporated
Hambrecht & Quist
Montgomery Securities
Robertson, Stephens & Company
------------------------
The date of this Prospectus is , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------
"HCIA" IS A REGISTERED TRADEMARK OF HCIA INC. THIS PROSPECTUS ALSO INCLUDES
PRODUCT NAMES AND OTHER TRADEMARKS OF HCIA AND OTHER COMPANIES.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED OR UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED BY THE COMPANY TO THE
UNDERWRITERS.
THE COMPANY
HCIA is a leading health care information content company that develops and
markets integrated clinical information systems and products. The Company's
systems and products range from standardized data bases to highly focused
Decision Support Systems that assist its customers in evaluating the efficacy
and economics of health care delivery. HCIA currently sells its Decision Support
Systems to more than 325 customers, including hospitals, integrated delivery
systems, self-insured employers, pharmaceutical companies and managed care
organizations. The Company's Syndicated Products are sold to more than 7,000
customers.
By utilizing its core collection of proprietary data standardization
methodologies, value-added clinical measurement tools and data bases, including
the International Classification of Clinical Services System(TM) (the "ICCS
System(TM)"), the Company creates clinical information systems and products from
its many large and disparate data streams. The ICCS System(TM) allows for the
standardization and comparison of detailed clinical data across a broad range of
data sources. The Company's proprietary disease management methodologies link
the costs, quality, utilization and outcomes of medical services delivered to
patients in various clinical settings. These methodologies and technical
resources permit the Company to provide a level of clinical information that is
substantially more detailed and useful in modifying clinical practice patterns
than information derived from traditional health care data sources.
As a result of its unique ability to integrate health care data collected
from numerous sources and across varied treatment settings, the Company believes
that it is well positioned to offer the information systems and products
necessary to continue to increase average revenue per customer through the sale
of more sophisticated and comprehensive Decision Support Systems. The Company
continually seeks to enhance its systems and products through internal product
development efforts and acquisitions of other companies, product lines and data
resources, as well as through the creation of strategic relationships with key
health care industry participants. Since 1991 the Company has acquired, as part
of its overall growth strategy, a total of 15 health care information companies,
product lines and data resources. Most recently, on August 9, 1996 the Company
acquired LBA Health Care Management, Inc. ("LBA"), a provider of sophisticated
health care information products. See "Business -- Recent Developments."
The Company utilizes a highly specialized direct field sales force to
market Decision Support Systems. The Company's marketing and pricing strategies
are focused on the generation of recurring revenue from Decision Support Systems
through multi-year agreements (typically two to three years) and through the
renewal of its Syndicated Products, which are updated annually. During 1995,
approximately 69% of the Company's revenue was recurring in nature. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Unless the context otherwise requires, references in this Prospectus to
"HCIA" and the "Company" refer to HCIA Inc. and its predecessors and
subsidiaries. The Company's executive offices are located at 300 East Lombard
Street, Baltimore, Maryland 21202, and its telephone number is (410) 895-7470.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 2,000,000 shares
Common Stock offered by the Selling Stockholders...... 216,696 shares
Common Stock to be Outstanding after the Offering..... 11,767,348 shares(1)
Use of Proceeds by the Company........................ For repayment of acquisition indebtedness and for general
corporate purposes, including future acquisitions and
working capital requirements. See "Use of Proceeds."
NASDAQ Symbol......................................... HCIA
</TABLE>
- ---------------
(1) As of June 30, 1996, adjusted to include 492,961 shares of Common Stock
issued in connection with the acquisition of LBA. Excludes 692,306 shares of
Common Stock issuable upon exercise of outstanding stock options.
3
<PAGE>
RECENT ACQUISITIONS
LBA HEALTH CARE. On August 9, 1996, the Company acquired LBA for
approximately $130 million, $100 million of which was paid in cash and $30
million of which was paid by the delivery of Common Stock. LBA is a provider of
health care information products that combine data collection, benchmarking and
decision support tools that enable its customers to achieve significant cost
savings by (i) improving quality of outcomes, (ii) reducing clinical resource
consumption and (iii) optimizing labor utilization. LBA's principal products
include its VALUE ENHANCEMENT systems and Centers of Excellence programs which
utilize comparative data base analyses and a clinical implementation management
team to assist customers in reducing clinical resource consumption and improving
outcomes in specific practice areas, such as orthopaedics and cardiology. LBA's
proprietary data bases contain detailed data from approximately 250 providers
and provider groups that are LBA customers.
RESPONSE HEALTHCARE. In May 1996, the Company acquired Response Healthcare
Information Management, Inc. ("Response") for approximately $6.2 million in
cash. The acquisition of Response provides the Company with expertise and
products in patient-centered data collection and represents a significant
enhancement of the Company's system and product offerings to the managed care
market.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -------------------------------------
1995 1996
-------------------------- 1995 --------------------------
PRO FORMA, ------- PRO FORMA,
1993 1994 ACTUAL(2) AS ADJUSTED(3) ACTUAL ACTUAL(4) AS ADJUSTED(5)
------- ------- ------- --------------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Revenue................. $28,111 $30,711 $48,015 $76,223 $21,005 $30,718 $46,148
Salaries, wages and
benefits............. 14,168 15,457 21,932 31,947 10,163 13,558 18,922
Other operating
expenses............. 7,884 8,538 11,841 23,476 5,496 6,358 8,730
Provision for doubtful
accounts............. 727 87 214 214 40 458 458
Depreciation and
amortization......... 4,595 4,826 6,864 13,863 2,960 4,806 7,762
Write-off of acquired
in-process research
and development
costs................ -- -- 12,152 -- -- 4,372 --
Operating income
(loss)............. 737 1,803 (4,988) 6,723 2,346 1,166 10,276
Net income (loss).... $ 212 $ 1,021 $(2,405) $ 3,606 $ 1,507 $ 964 $ 6,302
Net income (loss) per
share................ $ 0.19 $ (0.31) $ 0.34 $ 0.21 $ 0.10 $ 0.52
Shares used in per share
calculation.......... 5,518 7,733 10,572 7,173 9,549 12,042
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1996
--------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................... $ 41,971 $ 57,990
Total assets........................................................................ 124,054 229,778
Long-term liabilities............................................................... -- --
Stockholders' equity................................................................ 112,188 214,705
</TABLE>
- ---------------
(1) Effective as of January 1, 1994, the Company divested certain of its
software product lines, which generated revenue of approximately $3.0
million during 1993. During 1995 and 1996, the Company completed several
acquisitions which were accounted for using the purchase method of
accounting. In connection with certain of these acquisitions, the Company
recorded one-time charges related to acquired in-process research and
development costs. See "Pro Forma Financial Statements" and Note 1 of the
Notes to Consolidated Financial Statements.
(2) Exclusive of a one-time charge incurred in 1995, operating income, net
income and net income per share would have been $7,164,000, $4,843,000 and
$0.60, respectively.
(3) As adjusted using the purchase method of accounting to give effect to the
acquisitions of (i) Datis Corporation ("Datis"), (ii) the CHAMP unit
("CHAMP") of William M. Mercer, Incorporated ("Mercer"), (iii) the minority
interest in CHKS Limited ("CHKS"), (iv) Response and (v) LBA (together, the
"Acquired Companies") as if such acquisitions had occurred immediately
before the beginning of the period presented. Also adjusted to reflect the
sale by the Company of 2,000,000 shares of Common Stock offered hereby at an
assumed offering price of $60 per share, after deducting underwriting
discounts and commissions and estimated offering expenses and the
application of the estimated net proceeds therefrom as described under "Use
of Proceeds." The pro forma information is not necessarily indicative of
future results of operations of the Company or the results which would have
occurred had the operations and management of the Company and the Acquired
Companies been combined during the period presented. See "Pro Forma
Financial Statements."
(4) Exclusive of a one-time charge incurred in 1996, operating income, net
income and net income per share would have been $5,538,000, $3,631,000 and
$0.38, respectively.
(5) As adjusted using the purchase method of accounting to give effect to the
Response and LBA acquisitions as if they had occurred on December 31, 1995.
Also adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed offering price of $60 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds." The pro forma information is
not necessarily indicative of future results of operations of the Company or
the results which would have occurred had the operations and management of
the Company, Response and LBA been combined during the period presented. See
"Pro Forma Financial Statements."
(6) As adjusted using the purchase method of accounting to give effect to the
LBA acquisition as if it had occurred on December 31, 1995. Also adjusted to
reflect the sale by the Company of 2,000,000 shares of Common Stock offered
hereby at an assumed offering price of $60 per share, after deducting
underwriting discounts and commissions and estimated offering expenses and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." The pro forma information is not necessarily indicative
of future results of operations of the Company or the results which would
have occurred had the operations and management of the Company and LBA been
combined during the period presented. See "Pro Forma Financial Statements."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS.
ACQUISITIONS. The Company has, in part, expanded its systems and products
through the acquisition of health care information companies, product lines and
data resources, including the Company's recent acquisitions of Response and LBA.
The Company intends to continue the acquisition of methodological, analytical
and technical resources that will further enhance and expand the Company's
systems and products. The Company currently has no agreements, commitments or
understandings with respect to any such acquisitions.
Acquisitions involve numerous risks, including difficulties in the
assimilation of operations and products, the ability to manage geographically
remote units, the diversion of management's attention from other business
concerns, the risks of entering markets in which the Company has limited or no
direct expertise and the potential loss of key employees of the acquired
companies. In addition, acquisitions may involve the expenditure of significant
funds and the incurrence of significant charges associated with the amortization
of goodwill or other intangible assets, write-offs of acquired in-process
research and development costs and/or future write-downs of the recorded values
of assets acquired. There can be no assurance that any acquisition will result
in long-term benefits to the Company or that management will be able to manage
effectively the resulting business. See "Business -- Business Strategy."
In connection with the LBA acquisition, the Company expects to incur a
one-time charge in the third quarter of 1996 of approximately $41.2 million
related to acquired in-process research and development costs. The Company also
will record significant goodwill and other intangible assets associated with the
LBA acquisition, which the Company intends to amortize over periods of six to
twenty years. In addition, the LBA acquisition will result in a significant
expansion of the Company's system and product offerings, and the integration of
LBA with the Company will require significant management time and resources.
There can be no assurance that the Company will be able to integrate LBA systems
with the Company's existing systems and products or achieve the operating
synergies necessary to make the acquisition successful.
MANAGEMENT OF GROWTH. The Company is currently experiencing a period of
rapid growth and expansion which could place a significant strain on the
Company's personnel and resources. The Company's growth has resulted in an
increase in the level of responsibility for both existing and new management
personnel. Many of the Company's management personnel have had limited or no
experience in managing companies as large as the Company. The Company has sought
to manage its current and anticipated growth through the recruitment of
additional management and technical personnel and the implementation of internal
systems and controls. However, the failure to manage growth effectively could
adversely affect the Company's operating results. See "Business -- Business
Strategy" and "Management."
DEPENDENCE ON KEY PERSONNEL. The Company depends to a significant extent
on key management, technical and marketing personnel. The Company's growth and
future success will depend in large part on its ability to attract, motivate and
retain highly qualified personnel, including management personnel of acquired
companies. Except for an agreement with George D. Pillari, its Chairman of the
Board, President and Chief Executive Officer, the Company does not have
employment agreements with any of its officers. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company. See "Management."
SHORT HISTORY OF PROFITABILITY; VARIATIONS IN QUARTERLY RESULTS. After
achieving profitability during 1993 and 1994, the Company recorded a net loss
for 1995 as a result of the one-time charge incurred during the period related
to acquired in-process research and development costs in connection with the
CHAMP acquisition. The Company has recorded net income of approximately $964,000
for the six months ended June 30, 1996. However, there can be no assurance that
revenue growth or profitable operations can be sustained in the future. The
Company has experienced and expects to continue to experience variations in
quarterly results. Recent quarterly variations are primarily due to the effect
of one-time charges related to acquired in-process research and development
costs. Quarterly results are also influenced by the timing of release of certain
systems and products as a result of the annual release of certain external data
sources. The Company's operating results for any particular quarterly
6
<PAGE>
or annual period may not be indicative of results for future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS. The Company has made
significant investments in the development and maintenance of its core
collection of proprietary data standardization methodologies, value-added
clinical measurement tools and technical resources that are used to transform
its many large and disparate data streams into clinically relevant information
products. See "Business -- Systems and Products." The Company relies largely on
its license agreements with customers and its own security systems,
confidentiality procedures and employee nondisclosure agreements to maintain the
trade secrecy of its proprietary information. There can be no assurance that the
legal protections and precautions taken by the Company will be adequate to
prevent misappropriation of the Company's proprietary information. In addition,
these protections do not prevent independent third-party development of
functionally equivalent or superior systems, products or methodologies. See
"Business -- Intellectual Property."
COMPETITION. The health care information market is intensely competitive
and rapidly changing. The Company competes for the sale of systems and products
and the resulting access to data with different companies in each of its target
markets. Competitors vary in size and in the scope and breadth of the products
and services offered. Many of the Company's competitors have significantly
greater financial, technical, product development and marketing resources than
the Company. There can be no assurance that future competition, or any
significant loss of access to data resulting therefrom, will not have a material
adverse effect on the Company. See "Business -- Competition."
MAJOR CUSTOMERS. In 1994, one customer, Amgen Inc., accounted for
approximately 12% of the Company's revenue. In 1995, no customer accounted for
10% or more of the Company's revenue. During 1994 and 1995, the Company's ten
largest customers accounted for approximately 29% and 36%, respectively, of the
Company's revenue. Many of the Company's contractual arrangements with its
customers are subject to annual renewal. The loss of one or more of the
Company's largest customers could have a material adverse effect on the Company.
See "Business -- Customers."
INTEGRITY AND RELIABILITY OF DATA. The Company's success depends
significantly on the integrity of its data. Although the Company tests data for
completeness and consistency, it does not conduct independent audits of the
information provided by its customers. Moreover, while the Company believes that
the benchmarking and other clinical, cost and performance information contained
in its data base is representative of the operational aspects of various types
of health care industry participants, there can be no assurance that such
information is appropriate for comparative analysis in all cases or that the
data bases accurately reflect general or specific trends in the health care
market. If the information contained in the data were found, or were perceived,
to be inaccurate, or if such information were generally perceived to be
unreliable, the Company's business and operating results could be materially and
adversely affected.
POTENTIAL COST OF PERFORMANCE GUARANTEES. As part of its VALUE ENHANCEMENT
systems, LBA has guaranteed that each customer will achieve a cost savings
identified as at least equal to the fees the customer pays for the system. To
the extent such cost savings are not achieved, LBA may be subject to claims
related to such guarantees. Although LBA has never incurred a claim under its
guarantee, there can be no assurance that this will continue to be the case.
Liabilities related to such claims could have a material adverse effect on the
Company's business and operating results could be materially and adversely
affected.
VOLATILITY OF STOCK PRICE. The stock market historically has experienced
volatility which has affected the market price of securities of many companies
and which has sometimes been unrelated to the operating performance of such
companies. The trading price of the Common Stock may be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of acquisitions, new systems or products by the Company or its
competitors, governmental regulatory action, other developments or disputes with
respect to proprietary rights, general trends in the industry and overall market
conditions, and other factors.
CHANGES IN THE HEALTH CARE INDUSTRY. The health care industry is subject
to changing political, economic and regulatory influences that may affect the
procurement practices and operation of health care industry participants. During
the past several years, the U.S. health care industry has been subject to an
increase in governmental
7
<PAGE>
regulation of, among other things, reimbursement rates and certain capital
expenditures. Various programs have been proposed to reform the U.S. health care
system. Many of these programs contain proposals to increase governmental
involvement in health care, lower reimbursement rates and otherwise change the
operating environment for the Company's customers. Health care industry
participants may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for the
Company's systems and products. The Company cannot predict what impact, if any,
such factors might have on its business, financial condition and results of
operations. In addition, many health care providers are consolidating to create
larger health care delivery enterprises with greater regional market power. As a
result, the remaining enterprises could have greater bargaining power, which may
lead to price erosion of the Company's systems and products. See
"Business -- Industry Background."
GOVERNMENT REGULATION. The U.S. Food and Drug Administration (the "FDA")
has promulgated a draft policy addressing the regulation of certain computer
products as medical devices under the Federal Food, Drug, and Cosmetic Act. The
FDA could determine in the future that certain applications of the Company's
systems and products are clinical decision tools subject to FDA regulation as
medical devices. In addition, the Company could become subject to future
regulation of the manufacture and marketing of medical devices and health care
software systems, or to legislation or regulation regarding the use of patient
records or of access to health care data. Compliance with such legislation and
regulation could be burdensome, time consuming and expensive. The Company cannot
predict the effect of possible future legislation and regulation. See
"Business -- Government Regulation."
---------------
CERTAIN STATEMENTS CONTAINED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SUCH AS STATEMENTS CONCERNING
FUTURE ACQUISITIONS, PRODUCT DEVELOPMENT EFFORTS AND INVESTMENTS, CERTAIN
STATEMENTS CONTAINED IN "BUSINESS" SUCH AS STATEMENTS CONCERNING THE COMPANY'S
BUSINESS STRATEGY, AND OTHER STATEMENTS CONTAINED HEREIN REGARDING MATTERS THAT
ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED
IN THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")); AND BECAUSE
SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED ABOVE.
8
<PAGE>
PRICE RANGE OF COMMON STOCK
Since the initial offering of the Company's Common Stock at $14.00 per
share on February 22, 1995, the Common Stock has been traded on NASDAQ under the
symbol "HCIA". Prior to such date, there was no public market for the Common
Stock.
The following table sets forth for the quarterly periods indicated the high
and low closing sales price per share of Common Stock as reported by NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
- ----
1st Quarter (from February 22, 1995)............................................................ $25 $17 5/8
2nd Quarter..................................................................................... 31 5/8 21
3rd Quarter..................................................................................... 31 1/4 24 1/2
4th Quarter..................................................................................... 46 3/4 22 3/4
1996
- ----
1st Quarter..................................................................................... 55 3/4 41 7/8
2nd Quarter..................................................................................... 67 7/8 45 5/8
3rd Quarter (through August 8, 1996)............................................................ 66 3/8 51 3/8
</TABLE>
On August 8, 1996, there were 37 holders of record of the Company's Common
Stock. The number of record holders is not representative of the number of
beneficial holders since many shares are held by depositories, brokers or other
nominees. On August 8, 1996, the last reported sale price of the Company's
Common Stock on NASDAQ was $60 per share.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying any cash dividends on the Common Stock in the foreseeable
future. The Company currently intends to retain any future earnings to fund the
development and growth of its business.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
by it hereby at an assumed price of $60 per share (the last reported sale price
of the Company's Common Stock on August 8, 1996) are estimated to be $114.1
million ($133.2 million if the Underwriters' over-allotment option is exercised
in full), after deducting the estimated underwriting discounts and offering
expenses payable by the Company. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders.
The Company intends to use the net proceeds (i) to repay $86 million
borrowed under a credit facility with First Union National Bank of North
Carolina, as agent and as an issuing bank ("First Union"), in connection with
the acquisition of LBA and (ii) for general corporate purposes, including future
acquisitions and funding the increased working capital requirements of the
Company as a result of its growth. Any proceeds not utilized to repay
indebtedness or for the other above-described purposes will be invested in
short-term, interest-bearing securities.
Borrowings under the credit facility bear interest at varying rates based
on an index tied to First Union's prime rate or LIBOR (currently 8.75%). Upon
application of the net proceeds to the Company of the Offering to repay the
borrowings outstanding under the credit facility, the Company will maintain a
$50 million revolving line of credit for general corporate purposes, including
future acquisitions and working capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) on a pro forma basis to give effect to the LBA acquisition
and (iii) as further adjusted to reflect the sale by the Company of the
2,000,000 shares of Common Stock offered hereby (at an assumed offering price of
$60 per share) and the application of the estimated net proceeds to be received
by the Company therefrom as described under "Use of Proceeds." This table should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
(IN THOUSANDS)
PRO PRO FORMA,
ACTUAL FORMA(1) AS ADJUSTED(1)(2)
-------- -------- -----------------
<S> <C> <C> <C>
Long-term liabilities........................................ $ -- $ 76,000 $ --
Stockholders' equity:
Preferred Stock, $.01 par value per share: 500,000 shares
authorized; no shares outstanding....................... -- -- --
Common Stock, $.01 par value per share: 15,000,000 shares
authorized; 9,274,387, 9,767,348 and 11,767,348 shares
issued and outstanding, respectively(3)................. 92 97 117
Additional paid-in capital................................. 116,141 145,714 259,794
Accumulated deficit........................................ (3,989) (45,150) (45,150)
Cumulative unrealized depreciation of short-term
investments............................................. (32) (32) (32)
Cumulative effect of currency translation adjustment....... (24) (24) (24)
-------- -------- -----------------
Total stockholders' equity............................ 112,188 100,605 214,705
-------- -------- -----------------
Total capitalization............................... $112,188 $176,605 $ 214,705
-------- -------- -----------------
-------- -------- -----------------
</TABLE>
- ---------------
(1) Includes the effect of a one-time charge related to acquired in-process
research and development costs in connection with the LBA acquisition of
$41.2 million. Also includes $86 million of bank indebtedness incurred by
the Company and 492,961 shares of Common Stock issued in connection with the
recent acquisition of LBA. See "Pro Forma Financial Statements."
(2) Assumes repayment of $86 million of bank indebtedness with a portion of the
net proceeds to the Company from the Offering and no exercise of the
Underwriters' over-allotment option.
(3) Excludes 692,306 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $17.19 per
share. See "Management -- Stock Options."
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
that should be read in conjunction with the Company's consolidated financial
statements, and the notes thereto, as of December 31, 1994 and 1995 and for each
of the years in the three-year period ended December 31, 1995, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Prospectus. The selected
consolidated financial data set forth below as of and for each of the years in
the three-year period ended December 31, 1995 are derived from the Company's
consolidated financial statements, which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected consolidated
financial data presented below for the six months ended June 30, 1995 and 1996
and as of June 30, 1996 have been derived from the unaudited consolidated
financial statements of the Company and, in the opinion of the Company, reflect
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations of the Company for those periods. The results of operations for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for a full year.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -------------------------------------
1995 1996
--------------------------- 1995 ---------------------------
PRO FORMA, ------- PRO FORMA,
1993 1994 ACTUAL(2) AS ADJUSTED(3) ACTUAL ACTUAL(4) AS ADJUSTED(5)
------- ------- --------- --------------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statements of Operations Data (1):
Revenue......................... $28,111 $30,711 $ 48,015 $76,223 $21,005 $30,718 $ 46,148
Salaries, wages and benefits.... 14,168 15,457 21,932 31,947 10,163 13,558 18,922
Other operating expenses........ 7,884 8,538 11,841 23,476 5,496 6,358 8,730
Provision for doubtful
accounts...................... 727 87 214 214 40 458 458
Depreciation and amortization... 4,595 4,826 6,864 13,863 2,960 4,806 7,762
Write-off of acquired in-process
research and development
costs......................... -- -- 12,152 -- -- 4,372 --
------- ------- --------- ------- ------- --------- ---------------
Operating income (loss)....... 737 1,803 (4,988) 6,723 2,346 1,166 10,276
Interest income................. -- 111 1,290 1,259 417 566 472
Interest expense................ (111) (131) (187) (436) (39) (142) (152)
------- ------- --------- ------- ------- --------- ---------------
Income (loss) before income
taxes, minority interest in
loss (income) of
consolidated subsidiaries
and cumulative effect of
change in accounting for
income taxes................ 626 1,783 (3,885) 7,546 2,724 1,590 10,596
Benefit (provision) for income
taxes......................... (362) (759) 1,554 (3,940) (1,189) (626) (4,294)
Minority interest in loss
(income) of consolidated
subsidiaries.................. 90 (3) (74) -- (28) -- --
------- ------- --------- ------- ------- --------- ---------------
Income (loss) before
cumulative effect of change
in accounting for income
taxes....................... 354 1,021 (2,405) $ 3,606 $ 1,507 $ 964 $ 6,302
Cumulative effect of change in
accounting for income taxes... (142) -- -- -- -- -- --
------- ------- --------- ------- ------- --------- ---------------
Net income (loss)............. $ 212 $ 1,021 $ (2,405) $ 3,606 $ 1,507 $ 964 $ 6,302
------- ------- --------- ------- ------- --------- ---------------
------- ------- --------- ------- ------- --------- ---------------
Net income (loss) per share..... $ 0.19 $ (0.31) $ 0.34 $ 0.21 $ 0.10 $ 0.52
------- --------- ------- ------- --------- ---------------
------- --------- ------- ------- --------- ---------------
Shares used in per share
calculation................... 5,518 7,733 10,572 7,173 9,549 12,042
------- --------- ------- ------- --------- ---------------
------- --------- ------- ------- --------- ---------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, --------------------------
------------------------------ PRO FORMA,
1993 1994 1995 ACTUAL AS ADJUSTED(6)
------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......................................... $ 3,852 $ 5,620 $ 35,671 $ 41,971 $ 57,990
Total assets............................................ 41,122 40,865 108,401 124,054 229,778
Long-term liabilities, excluding current installments... 2,136 1,835 699 -- --
Stockholders' equity.................................... 32,762 34,371 98,044 112,188 214,705
</TABLE>
- ---------------
(1) Effective as of January 1, 1994, the Company divested certain of its
software product lines, which generated revenue of approximately $3.0
million during 1993. During 1995 and 1996, the Company completed several
acquisitions which were accounted for using the purchase method of
accounting. In connection with certain of these acquisitions, the Company
recorded one-time charges related to acquired in-process research and
development costs. See "Pro Forma Financial Statements" and Note 1 of the
Notes to Consolidated Financial Statements.
(2) Exclusive of a one-time charge incurred in 1995, operating income, net
income and net income per share would have been $7,164,000, $4,843,000 and
$0.60, respectively.
(3) As adjusted using the purchase method of accounting to give effect to the
acquisitions of the Acquired Companies as if such acquisitions had occurred
immediately before the beginning of the period presented. Also adjusted to
reflect the sale by the Company of 2,000,000 shares of Common Stock offered
hereby at an assumed offering price of $60 per share, after deducting
underwriting discounts and commissions and estimated offering expenses and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." The pro forma information is not necessarily indicative
of future results of operations of the Company or the results which would
have occurred had the operations and management of the Company and the
Acquired Companies been combined during the period presented. See "Pro Forma
Financial Information."
(4) Exclusive of a one-time charge incurred in 1996, operating income, net
income and net income per share would have been $5,538,000, $3,631,000 and
$0.38, respectively.
(5) As adjusted using the purchase method of accounting to give effect to the
Response and LBA acquisitions as if they had occurred on December 31, 1995.
Also adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed offering price of $60 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds." The pro forma information is
not necessarily indicative of future results of operations of the Company or
the results which would have occurred had the operations and management of
the Company, Response and LBA been combined during the period presented. See
"Pro Forma Financial Statements."
(6) As adjusted using the purchase method of accounting to give effect to the
LBA acquisition as if it had occurred on December 31, 1995. Also adjusted to
reflect the sale by the Company of 2,000,000 shares of Common Stock offered
hereby at an assumed offering price of $60 per share, after deducting
underwriting discounts and commissions and estimated offering expenses and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." The pro forma information is not necessarily indicative
of future results of operations of the Company or the results which would
have occurred had the operations and management of the Company and LBA been
combined during the period presented. See "Pro Forma Financial Statements."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
HCIA is a health care information content company that develops and markets
Decision Support Systems and Syndicated Products. In 1991, HCIA began a series
of acquisitions of health care information companies, product lines and data
resources. These acquisitions established the Company's ability to provide
systems and products which rely on the integration of detailed clinical and
financial data. Effective as of January 1, 1994, the Company divested certain of
its software product lines, which had generated revenue of approximately $3.0
million during 1993. During 1995, the Company completed several additional
acquisitions of health care information companies, including Datis and the CHAMP
unit of Mercer. In connection with the CHAMP acquisition, the Company recorded a
one-time charge related to acquired in-process research and development costs of
approximately $12.2 million. As a result of this charge, the Company recorded a
net loss for the year ended December 31, 1995. In May 1996, the Company acquired
Response for approximately $6.2 million in cash. In connection with the Response
acquisition, the Company recorded a one-time charge during the three months
ended June 30, 1996 of approximately $4.4 million related to acquired in-process
research and development costs. On August 9, 1996, the Company acquired LBA. In
connection with the LBA acquisition, the Company expects to incur a one-time
charge during the three months ended September 30, 1996 of approximately $41.2
million related to acquired in-process research and development costs. The
Company's results of operations include the results of the acquired or divested
entities or product lines since the date of acquisition or prior to the date of
divestiture, as applicable. See Note 1 of the Notes to Consolidated Financial
Statements.
The Company has made a substantial investment in the acquisition and
development of its core collection of methodologies, clinical measurement tools
and technical resources. The Company's strategy is to leverage these resources
across substantially all of its systems and products, thereby giving it the
ability to increase revenue generated from these resources without a
commensurate increase in expenses. In addition to its internal product
development efforts, the Company seeks to continue the acquisition of other
health care information companies, product lines and data resources, and intends
to integrate and leverage these assets into product-line extensions across its
markets. The Company does not track profitability by product line since many of
the Company's resources are utilized throughout its systems and products.
The Company's internal product development efforts are generally in
connection with customer contracts, and the related costs are included as a
component of operating expenses in the year incurred. The Company capitalizes
costs related to internal product development which is not in connection with a
specific customer contract from the point of technological feasibility to the
point of general availability. With respect to acquired companies, product lines
and data resources, the Company has historically completed the acquisitions
using available cash or a deferred payment plan, with recent acquisitions being
funded by the proceeds of the Company's public offerings. The cash portion of
the LBA acquisition was financed by a credit facility which will be repaid with
a portion of the proceeds to the Company from the Offering. The Company also
issued a total of 492,961 shares of Common Stock to the stockholders of the
parent company of LBA. See " -- Liquidity and Capital Resources."
As a result of its acquisition of health care information companies,
product lines and data resources, the Company has acquired intangible assets,
the cost of which it amortizes over various useful lives. In addition, the
Company has capitalized internal development costs and acquired assets relating
to the development of methodologies, clinical measurement tools and technical
resources, including its data base, of $3.3 million, $3.4 million, $6.9 million
and $6.3 million during 1993, 1994, 1995 and the six months ended June 30, 1996,
respectively. Consequently, the Company has recorded amortization expense of
$3.9 million, $3.9 million, $5.2 million and $3.7 million during 1993, 1994,
1995 and the six months ended June 30, 1996, respectively. See Notes 2 and 4 of
the Notes to Consolidated Financial Statements. On a pro forma basis, assuming
the completion of the Response and LBA acquisitions at the beginning of the
respective periods, the Company would have recorded additional amortization
expense of $5.1 million and $2.6 million during 1995 and the six months ended
June 30, 1996, respectively.
13
<PAGE>
As a result of its unique ability to integrate health care data collected
from numerous sources and across varied treatment settings, the Company believes
that it is well positioned to offer the information systems and products
necessary to continue to increase average revenue per customer through the sale
of more sophisticated and comprehensive Decision Support Systems. With respect
to Syndicated Products and entry-level Decision Support Systems, pricing is
relatively fixed and is influenced by competitive systems and products. With
respect to high-end Decision Support Systems, pricing is often negotiated with
the customer and is based on a number of factors, including the value attributed
by the customer to the System.
The Company's revenue is comprised of both recurring revenue from the
Company's installed customer base as well as from first time sales. The Company
seeks to generate recurring revenue from Decision Support Systems through
multi-year agreements (typically two to three years) and through renewals of its
Syndicated Products, which are updated annually. The Company defines its
recurring revenue percentage as revenue recognized during the period from a sale
of a system or product to a customer who purchased a similar system or product
in the prior period, divided by the Company's total revenue in the prior period.
In determining its recurring revenue percentage, the Company includes in its
revenue the revenue of entities acquired during the period as if such
acquisitions had occurred at the beginning of the prior period. The Company does
not classify revenue as recurring to the extent that it exceeds the revenue from
a similar system or product purchase in the prior period. The Company's
recurring revenue percentages for 1994 and 1995 were approximately 64% and 69%,
respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the statements of operations of the Company expressed as a percentage
of revenue:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
-------------------- ------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue.............................................................. 100% 100% 100% 100% 100%
Salaries, wages and benefits......................................... 51 50 46 48 44
Other operating expenses............................................. 28 28 25 26 22
Provision for doubtful accounts...................................... 2 -- -- -- --
Depreciation and amortization........................................ 16 16 14 14 16
Write-off of acquired in-process research and development costs...... -- -- 25 -- 14
Operating income (loss)............................................ 3 6 (10) 11 4
Net interest income.................................................. -- -- 2 2 1
Income (loss) before income taxes, minority interest in loss
(income) of consolidated subsidiaries and cumulative effect of
change in accounting for income taxes........................... 3 6 (8) 13 5
Benefit (provision) for income taxes................................. (1) (3) 3 (6) (2)
Income (loss) before cumulative effect of change in accounting for
income taxes.................................................... 2 3 (5) 7 3
Cumulative effect of change in accounting for income taxes........... 1 -- -- -- --
Net income (loss).................................................. 1% 3% (5)% 7% 3%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUE. Revenue for the six months ended June 30, 1996 was $30.7 million,
an increase of $9.7 million or 46% over the six months ended June 30, 1995. The
increase was primarily the result of a 49% increase in revenue from the sale of
Decision Support Systems. Revenue from the sale of Decision Support Systems
represented 81% of the revenue for the six months ended June 30, 1996 and
Syndicated Products represented the remaining 19% of revenue.
14
<PAGE>
The increase in Decision Support Systems revenue was primarily the result
of the Company's continued success in expanding its customer relationships in
the provider and supplier markets, and as a result of the acquisitions of Datis
and CHAMP.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits decreased to 44%
of revenue for the six months ended June 30, 1996 from 48% for the six months
ended June 30, 1995. This decrease was a result of the continued leveraging of
the Company's historical investments in technology and basic infrastructure as
revenue increased.
OTHER OPERATING EXPENSES. Other operating expenses, which include
occupancy, travel, and marketing expenses, decreased to 22% of revenue for the
six months ended June 30, 1996 from 26% for the six months ended June 30, 1995.
This decrease was a result of certain of these expenses growing at a slower rate
than revenue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
16% of revenue for the six months ended June 30, 1996 from 14% for the six
months ended June 30, 1995. This increase was a result of the additional
amortization associated with the acquisitions of Datis and CHAMP as well as
depreciation of other acquired assets.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In
connection with the acquisition of Response, the Company acquired Response's
ongoing research and development activities. The Company recorded a one-time
charge of $4.4 million during the six months ended June 30, 1996 related to
acquired in-process research and development costs.
INTEREST INCOME AND EXPENSE. Net interest income was $424,000 for the six
months ended June 30, 1996 compared with net interest income of $378,000 for the
six months ended June 30, 1995. This increase was the result of a higher
invested balance in 1996.
INCOME TAXES. The Company's effective tax rate was 39.4% for the six months
ended June 30, 1996 compared with 43.6% for the six months ended June 30, 1995.
The decrease was the result of a portion of the Company's investments being
placed in tax-exempt securities, as well as the tax benefit associated with the
exercise of certain non-qualified stock options. This decrease was partially
offset by an increase in non-deductible goodwill and the non-deductible
write-off of the in-process research and development costs resulting from the
Response acquisition.
1995 COMPARED TO 1994
REVENUE. Revenue for 1995 was $48.0 million, an increase of $17.3 million
or 56% over 1994. The increase was primarily the result of a 77% increase in
revenue from the sale of Decision Support Systems. Revenue from the sale of
Decision Support Systems represented 80% of revenue for 1995 and Syndicated
Products represented the remaining 20% of revenue.
The Decision Support Systems revenue increase was primarily the result of
increased sales of Decision Support Systems to providers, particularly as a
result of the acquisition of Datis during the year, and to a lesser extent, due
to increased sales through CHKS, the Company's English subsidiary. Sales of the
Company's Systems to the buyer and supplier markets also increased. In
particular, the Company met several performance milestones pursuant to its
contract with CIGNA Healthcare during the year.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits decreased to
46% of revenue for 1995 from 50% for 1994. This decrease was a result of the
leveraging of the Company's historical investments in technology and basic
infrastructure as revenue increased.
OTHER OPERATING EXPENSES. Other operating expenses, which include
occupancy, travel and marketing expenses, decreased to 25% of revenue for 1995
from 28% for 1994. This decrease was a result of certain of these expenses
growing at a slower rate than revenue.
15
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to
14% of revenue for 1995 from 16% of revenue for 1994. The decrease was the
result of the fixed nature of a large component of the depreciation and
amortization, which is the result of prior acquisitions, being measured against
a larger revenue base.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In
connection with the acquisition of CHAMP, the Company acquired CHAMP's ongoing
research and development activities. At the time of the acquisition, the Company
recorded a one-time charge resulting from the write-off of the acquired
in-process research and development costs. This charge totaled approximately
$12.2 million or 25% of the Company's revenue for 1995. These costs related to
the development of a client server based system to process and deliver health
care data and analysis tools to CHAMP customers. The amount of the one-time
charge was equal to the estimated current fair value, based on the risk adjusted
cash flows (at a discount rate of 20%, which included cost of capital of 18% and
an incremental risk premium of 2%), of specifically identified technologies for
which technological feasibility had not yet been established pursuant to
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," and for which
future alternative uses did not exist.
INTEREST INCOME AND EXPENSE. Net interest income was $1.1 million or 2% of
revenue for 1995 compared with net interest expense of $20,000 for 1994. The
increase in net interest income was the result of a portion of the proceeds of
the Company's public offerings being utilized to repay the amount due under the
Company's credit agreement with the Company's former majority stockholder, AMBAC
Inc. ("AMBAC") (approximately $1.9 million), with the balance being invested in
cash equivalents and short-term investments.
INCOME TAXES. The Company's effective income tax rate was (39)% for 1995
compared with 43% for 1994. The change was a result of the Company recording a
net loss in 1995.
1994 COMPARED TO 1993
REVENUE. Revenue for 1994 was $30.7 million, an increase of $2.6 million
or 9% over 1993. Effective January 1, 1994, the Company divested certain of its
software product lines which generated revenue of approximately $3.0 million
during 1993. After eliminating the revenue from these product lines, revenue for
1994 increased by $5.6 million or 22% over 1993. Revenue increased in both of
the Company's product classifications. The increase in Decision Support Systems
revenue was primarily due to increased sales of high-end Decision Support
Systems, offset by a decrease in sales of certain entry-level Decision Support
Systems which the Company is no longer actively marketing. Syndicated Product
revenue increased primarily as a result of the increased penetration of existing
products and the introduction of new products, including THE OUTPATIENT
UTILIZATION PROFILE and THE DIRECTORY OF HEALTH CARE PROFESSIONALS.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits decreased to
50% of revenue for 1994 from 51% for 1993. This decrease was a result of the
leveraging of the Company's historical investments in technology and basic
infrastructure as revenue increased. However, during 1994, the Company continued
to increase its investment in sales and marketing personnel at a rate in excess
of revenue growth in order to expand the market penetration of existing systems
and products and to allow for the introduction of new systems and products.
OTHER OPERATING EXPENSES. Other operating expenses, which include
occupancy, travel and marketing expenses, were 28% of revenue for 1994 and 1993.
Decreases in outside data processing and travel costs were offset by slightly
higher marketing and occupancy costs.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
decreased to less than 1% of revenue for 1994 from 2% for 1993. This decrease
was a result of enhanced credit and collection processes and additional
personnel resulting in reduced bad debt losses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was 16% of
revenue for 1994 and 1993. The depreciation and amortization is primarily
related to the Company's acquisitions and certain capitalized costs related to
the development of methodologies, clinical measurement tools and technical
resources.
INCOME TAXES. During 1994 and 1993, the Company's effective tax rates were
43% and 51%, respectively. These rates were in excess of statutory rates
primarily as a result of the non-deductibility of the amortization of certain
goodwill. The reduction in the effective rate was primarily due to the increased
earnings of the Company resulting in a reduced impact of the amortization of
certain goodwill.
16
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial data
for 1994 and 1995 and the first and second quarters of 1996. In the opinion of
the Company's management, this unaudited information has been prepared on the
same basis as the audited information and includes all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
information set forth therein. The operating results for any quarter are not
necessarily indicative of results for any future period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenue............... $6,784 $7,741 $ 8,163 $8,023 $8,749 $ 12,256 $ 13,220 $ 13,790 $ 14,229
Depreciation and
amortization........ 1,171 1,187 1,203 1,265 1,291 1,669 1,851 2,053 2,310
Write-off of acquired
in-process research
and development
costs............... -- -- -- -- -- -- -- 12,152 --
Operating income...... 137 503 812 351 437 1,909 2,489 (9,823) 1,930
Net income............ 67 278 446 230 343 1,164 1,618 (5,530) 1,291
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Revenue............... $ 16,489
Depreciation and
amortization........ 2,495
Write-off of acquired
in-process research
and development
costs............... 4,372
Operating income...... (763)
Net income............ (327)
</TABLE>
The following table sets forth, as a percentage of revenue, certain
unaudited quarterly financial data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................... 100% 100% 100% 100% 100% 100% 100% 100% 100%
Depreciation and
amortization............ 17 15 15 16 15 14 14 15 16
Write-off of acquired in-
process research and
development costs....... -- -- -- -- -- -- -- 88 --
Operating income.......... 2 6 10 4 5 16 19 (71) 14
Net income................ 1 4 5 3 4 9 12 (40) 9
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Revenue................... 100%
Depreciation and
amortization............ 15
Write-off of acquired in-
process research and
development costs....... 27
Operating income.......... (5)
Net income................ (2)
</TABLE>
The Company has experienced quarterly fluctuations in operating results,
which it expects to continue for the foreseeable future. During the three months
ended December 31, 1995, the Company recorded a one-time charge related to
acquired in-process research and development costs in connection with the CHAMP
acquisition. In addition, during the three months ended June 30, 1996, the
Company recorded a $4.4 million one-time charge related to acquired in-process
research and development costs in connection with the Response acquisition.
Similarly, the Company expects to incur a $41.2 million charge in connection
with the LBA acquisition during the three months ended September 30, 1996.
Quarterly results are also influenced by the annual availability of certain data
sources, which affects the timing of the release of certain Syndicated Products
and entry-level Decision Support Systems. As a result, the Company generally
recognizes greater revenue from sale of these systems and products during the
second and third quarters of each year.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company completed an initial public offering of
2,012,500 shares of Common Stock at an initial public offering price of $14.00
per share. The net proceeds to the Company from the offering were approximately
$25.7 million. The Company utilized approximately $1.9 million of the proceeds
to repay amounts due to AMBAC under a line of credit. During August 1995, the
Company completed an additional offering of 1.5 million shares of Common Stock
at a price of $28.50 per share. The net proceeds to the Company were
approximately $40.3 million. In May 1996, the Company issued 261,951 shares at a
price of $51.00 per share pursuant to the exercise of an over-allotment option
granted by the Company to the underwriters in connection with the sale of all of
the shares of Common Stock owned by AMBAC and its wholly owned subsidiary, AMBAC
Indemnity Corporation ("AIC"). The net proceeds to the Company from the exercise
of the over-allotment option were approximately $12.8 million.
On August 8, 1996, the Company obtained from First Union a credit facility
totalling $100 million, consisting of a $50 million term loan and a $50 million
revolving line of credit. The Company incurred a one-time facility fee of
$500,000 and is also required to pay a commitment fee on the average daily
unused portion of the facility at a rate ranging from 0.25% to 0.375% per annum,
depending on the Company's debt/cash flow ratio. Borrowings bear interest at
varying rates based on an index tied to First Union's prime rate or LIBOR
(currently 8.75%). The Company has drawn down the entire $50 million term loan
and approximately $36 million of the revolving line of credit in connection with
the LBA acquisition and will repay these borrowings with a portion of the net
proceeds to the Company of the Offering. The Company will then maintain a $50
million revolving line of credit for general corporate purposes, including
future acquisitions and working capital requirements. Borrowings are
collateralized by substantially all of the Company's assets. The credit facility
also contains financial covenants applicable to HCIA, including a debt/cash flow
ratio and ratios of debt to capital. The Company was in compliance with these
covenants after drawing on the credit facility and expects to continue to be in
compliance thereafter.
During 1993, 1994, 1995 and the six months ended June 30, 1996, the Company
generated net cash from operations of approximately $2.4 million, $4.4 million,
$3.1 million and $3.7 million, respectively. During 1995 and the six months
ended June 30, 1996, approximately $7.3 million and $6.8 million of cash
generated from operations was used to fund the increase in accounts receivable.
The increases in accounts receivable were primarily the result of revenue
growth, as well as the timing of receipt of payments from certain major
customers. During 1995, approximately $1.7 million of cash generated from
operations was used to fund the decrease in deferred revenue, which was the
result of the timing of delivery of products to Datis customers subsequent to
the acquisition of Datis by the Company, as well as a decrease in the revenue
from product lines generating a significant portion of the historical deferred
revenue balance. Net cash provided by financing activities during 1993, 1994,
1995 and the six months ended June 30, 1996 was approximately $3.7 million,
$568,000, $66.2 million and $12.4 million, respectively, primarily as a result
of borrowings under the line of credit from AMBAC, the issuance of preferred
stock to AMBAC and AIC (subsequently exchanged for shares of Common Stock) and
the Company's public offerings in February and August 1995 and May 1996. The net
cash provided by operations and financing activities has been utilized primarily
for capital expenditures and acquisitions.
The Company made capital expenditures (including capitalized leases)
totaling $2.0 million, $1.6 million, $3.1 million and $2.4 million during 1993,
1994, 1995 and the six months ended June 30, 1996, respectively. As of June 30,
1996, the Company had net working capital of $42.0 million, including cash, cash
equivalents and short-term investments in the amount of $26.1 million, and did
not have any material commitments for capital expenditures.
In March 1995, the Company completed the acquisition of substantially all
of the assets of John Froehlich Associates for the payment of approximately
$520,000 in cash and the issuance of a note payable in the amount of $480,000,
which was paid in full in February 1996. In April 1995, the Company acquired
certain assets from MetriCor Inc. for a payment of $485,000 in cash and the
assumption of certain liabilities. Also in April 1995, the Company completed the
acquisition of all of the outstanding capital stock of Datis. The purchase price
for the capital stock of Datis was approximately $14.6 million in cash, which
included approximately $14.25 million funded by the Company and $386,000 funded
with the proceeds received from the exercise of certain options to
18
<PAGE>
purchase Datis stock. In addition, the Company repaid approximately $900,000 of
outstanding debt of Datis. In December 1995, the Company acquired the CHAMP unit
of Mercer for $17.5 million in cash and, in May 1996, the Company completed the
acquisition of Response for approximately $6.2 million in cash. Each of these
acquisitions has been accounted for using the purchase method of accounting and,
accordingly, the assets have been valued at their estimated fair market value.
Funding for the acquisitions was provided by the proceeds of the Company's
public offerings and cash generated by operations.
The Company expects to incur additional costs of $7 to $10 million to
complete the development efforts related to systems and products obtained in
connection with the acquisitions of CHAMP, Response and LBA, and to integrate
these products with the Company's other products. Such costs are expected to
consist of direct labor and contracted labor costs and are expected to be
incurred over the next two to three years.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS No. 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation expense
in the income statement, or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the footnotes to the
Company's consolidated financial statements commencing with the Company's 1996
fiscal year. The Company expects to adopt SFAS No. 123 on a disclosure basis
only. As such, implementation of SFAS No. 123 is not expected to impact the
Company's consolidated financial statements.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of " ("SFAS No. 121"), was issued. This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles which are to be
disposed. Implementation of SFAS No. 121 is not expected to have a material
impact on the Company's consolidated financial statements.
19
<PAGE>
BUSINESS
GENERAL
HCIA is a leading health care information content company that develops and
markets integrated clinical information systems and products. The Company's
systems and products range from standardized data bases to highly focused
Decision Support Systems that assist its customers in evaluating the efficacy
and economics of health care delivery. HCIA currently sells its Decision Support
Systems to more than 325 customers, including hospitals, integrated delivery
systems, self-insured employers, pharmaceutical companies and managed care
organizations. The Company's Syndicated Products are sold to over 7,000
customers. As a result of its unique ability to integrate health care data
collected from numerous sources and across varied treatment settings, the
Company believes that it is well positioned to offer the information systems and
products necessary to continue to increase average revenue per customer through
the sale of more sophisticated and comprehensive Decision Support Systems. The
Company's marketing and pricing strategies are focused on the generation of
recurring revenue from Decision Support Systems through multi-year agreements
(typically two to three years) and through the renewal of its Syndicated
Products, which are updated annually. During 1995, approximately 69% of the
Company's revenue was recurring in nature. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
By utilizing its core collection of proprietary data standardization
methodologies, value-added clinical measurement tools and data bases, including
the ICCS System(TM), HCIA creates clinical information systems and products from
its many large and disparate data streams. The ICCS System(TM) allows for the
standardization and comparison of detailed clinical data across a broad range of
data sources. The Company's proprietary disease management methodologies link
the costs, quality, utilization and outcomes of medical services delivered to
patients in various clinical settings. These methodologies and technical
resources permit the Company to provide a level of clinical information which is
substantially more detailed and useful in modifying clinical practice patterns
than information derived from traditional health care data sources.
RECENT ACQUISITIONS
LBA HEALTH CARE. On August 9, 1996, the Company acquired LBA for
approximately $130 million. LBA, which had revenue during the year ended
December 31, 1995 and the six months ended June 30, 1996 of approximately $16.6
million and $14.4 million, respectively, is a provider of health care
information products and services that combine data collection, benchmarking and
decision support tools to identify and quantify cost reduction and quality
improvement opportunities in clinical settings. LBA's principal products,
including its VALUE ENHANCEMENT systems and Health Care Financing Administration
("HCFA") Centers of Excellence program, utilize comparative data base analyses
and a clinical implementation management team to assist customers in reducing
clinical resource consumption and improving outcomes in specific practice areas,
such as orthopaedics and cardiology. LBA's proprietary data bases contain
detailed data on cost, quality, clinicial resource consumption and
labor/productivity obtained from approximately 250 providers and provider groups
that are LBA customers. The level of information contained in LBA's data bases
is similar to HCIA's ICCS-level data base. HCIA plans to utilize its ICCS
System(TM) to standardize the LBA data bases and integrate them with the
ICCS-level data base.
LBA's systems enable its customers to achieve significant cost savings by
(i) improving quality of outcomes, (ii) reducing clinical resource consumption
and (iii) optimizing labor utilization. The Company believes that LBA's clinical
implementation methodologies will significantly enhance its ability to deliver
clinical solutions that identify and quantify cost reduction and quality
improvement opportunities. Typical LBA customers spend approximately $75,000 to
$100,000 per year on VALUE ENHANCEMENT systems, and approximately 75% of LBA's
customers have purchased at least two systems. As part of a VALUE ENHANCEMENT
system, LBA guarantees that each customer will achieve a cost savings at least
equal to the fees paid to LBA.
Pursuant to the acquisition agreement, the Company acquired all of the
capital stock of LBA's parent company, HealthVISION, Inc. ("HealthVISION").
Prior to the acquisition, all of the assets and liabilities of HealthVISION not
associated with LBA were distributed to certain then-current stockholders of
HealthVISION. The purchase price for the acquisition was approximately $130
million (which included the payment of certain
20
<PAGE>
liabilities, including bank debt and management bonuses), $100 million of which
was paid in cash and $30 million of which was paid by the delivery of 492,961
shares of Common Stock of HCIA. The Company utilized $86 million in borrowings
under a credit facility with First Union to fund the cash portion of the
purchase price, which the Company intends to repay with a portion of the net
proceeds to the Company of the Offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Pursuant to the acquisition agreement, the Company has
agreed to file and maintain under the Securities Act a shelf registration
statement for the benefit of certain former stockholders of HealthVISION.
RESPONSE HEALTHCARE. In May 1996, the Company acquired all of the
outstanding capital stock of Response for approximately $6.2 million in cash.
Response, which had revenue of approximately $2.6 million for the year ended
December 31, 1995, specializes in capturing and analyzing point-of-care,
patient-centered data relating to disease-specific outcomes measurement,
member/patient satisfaction and functional status, as well as the development of
Internet applications. Response's primary customers include managed care
organizations and pharmaceutical companies.
INDUSTRY BACKGROUND
Market driven efforts to contain rising health care costs have resulted in
an increasing demand for access to sophisticated heath care information. During
the five years ended in 1995, the average annual increase in U.S. health care
expenditures was approximately double the rate of general inflation as measured
by the Consumer Price Index. It is estimated that health care expenditures
exceeded $1 trillion, or approximately 14% of U.S. Gross Domestic Product, in
1995. Historically, cost containment efforts have focused on controlling
administrative costs even though approximately 65% of health care costs are
related to the clinical delivery of care (i.e., the costs directly associated
with the treatment of illness).
Clinical costs are driven by the choice of therapeutic resources and the
intensity and frequency of the delivery of such resources. The inappropriate or
excess consumption of therapeutic resources is referred to as "clinical
inefficiency." Clinical inefficiency manifests itself in many ways, including
clinically unjustified lengths of stay, excessive readmission rates,
above-average clinical complication and mortality rates, and excessive primary
care physician referrals to specialists.
Efforts to measure and control the clinical costs of health care
traditionally have been hampered by the lack of "benchmark" data required to
study the appropriateness, efficiency and effectiveness of health care delivery.
Structural changes and industry consolidation are driving the major health care
constituencies (providers, buyers and suppliers) to utilize information and
analytical tools to better measure clinical effectiveness. The increased
industry emphasis on "outcomes measurement" and "disease management" reflects
recognition of the need to properly understand and evaluate clinical costs.
Each of the major health care constituencies demands clinical information
for different reasons. In order to compete more effectively, providers are
increasingly demanding information that allows them both to measure the cost,
quality and outcome of the care they are delivering and to "benchmark" data to
measure performance against the industry's best practices. Buyers are
increasingly demanding a quality outcome at a fixed or capitated price for a
bundle of medical services. As a result, the overall efficiency and
effectiveness of the services delivered has become the central issue in the
selection of providers and in the continued analysis of the performance of
existing providers. Suppliers are increasingly required to demonstrate the
clinical and economic utility of their products when compared with alternatives
because of the increasing emphasis on costs and efficiency and the growing use
of mechanisms such as formularies to restrict physician drug choice.
21
<PAGE>
BUSINESS STRATEGY
HCIA's strategy is to maintain and extend its position as a leading
provider of content-based clinical information systems and products to all
market constituencies. Key elements of the Company's strategy are to:
BUILD RECURRING REVENUE. HCIA's marketing and pricing objectives are
focused on the generation of recurring revenue through multi-year contracts and
annually renewable contracts, as well as regular sales and updates of its
Syndicated Products. The Company's recurring revenue percentage for 1995 was
approximately 69%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." The Company believes that the
high level of sophistication of its systems and products, combined with the
costs associated with switching to substitute information suppliers, encourage
its customers to continue their relationships with HCIA.
EXPAND THE SIZE AND SCOPE OF CUSTOMER RELATIONSHIPS. As a result of its
unique ability to integrate health care data collected from numerous sources and
across varied treatment settings, the Company believes that it is
well-positioned to offer the information systems and products necessary to
continue to increase average revenue per customer through the sale of more
sophisticated and comprehensive Decision Support Systems. The demand for more
sophisticated health care information systems and products has been driven by
the recognition of the need for more comprehensive information on costs,
outcomes and utilization to assess and manage risk while improving the quality
of care.
DEVELOP AND ACQUIRE NEW DATA RESOURCES AND TECHNOLOGIES. HCIA seeks to
develop and acquire new methodological, analytical and technical resources that
will continue to enhance the Company's ability to deliver clinical solutions. In
addition to its internal product development efforts, the Company seeks to
continue the acquisition of other data resources and technologies. The Company
intends to integrate and leverage these assets into product-line extensions
across its markets. The Company believes that its management and product-line
infrastructures, as well as its historical success in acquiring and assimilating
new products and companies, will allow it to continue the successful development
and acquisition of new systems and products.
DEVELOP STRATEGIC RELATIONSHIPS WITH KEY INDUSTRY PARTICIPANTS. HCIA seeks
to transcend the traditional customer-vendor relationship and forge long-term
alliances with key industry participants that are driving market evolution in
the health care industry. Through its strategic relationships with industry
leaders, the Company can add substantial value to its information systems and
products and promote the Company's proprietary data bases and methodologies as
an industry standard.
SYSTEMS AND PRODUCTS
HCIA's information systems and products are broadly classified as Decision
Support Systems, which contributed approximately 80% and 81% of revenue for 1995
and the six months ended June 30, 1996, respectively, and Syndicated Products,
which contributed approximately 20% and 19% of revenue for the same respective
periods. The Company offers its information systems and products through a
variety of media and distribution channels, including print, magnetic media,
CD-ROM and on-line access through SoleSource(TM), its client/server workstation.
DECISION SUPPORT SYSTEMS
HCIA offers a range of Decision Support Systems, which are utilized by the
three major health care market constituencies:
PROVIDERS, such as hospitals, physician groups and integrated delivery
systems, use the Company's Decision Support Systems to measure and analyze the
cost and quality of medical interventions. The Company's entry-level Systems
provide customers with competitor specific information such as market share by
specialty, local market utilization rates compared with regional and national
norms and customer specific analyses of product line and physician level
resource consumption. High-end Decision Support Systems incorporate benchmarks
for specific medical resource consumption and are designed to help providers
understand the best practice for a medical intervention.
22
<PAGE>
BUYERS, such as managed care organizations, indemnity insurers and
self-insured employers, utilize the information and analyses on medical resource
usage and outcomes derived from the Company's Decision Support Systems to select
and monitor the performance of network providers, channel specific types of
patients towards the most clinically effective providers, and negotiate fair
prices and appropriate utilization criteria, as well as to manage the overall
health status of a covered population. The acquisitions of CHAMP and Response
have increased the Company's access to self-insured employers and managed care
organizations.
SUPPLIERS, such as pharmaceutical, biotechnology and medical supply and
device companies, utilize the Company's Decision Support Systems in market
analysis, product positioning and pharmacoeconomic analysis. Pharmacoeconomic
analysis provides suppliers with information needed to measure the specific
benefit/cost and outcome of an individual product against those of competing
products, alternative therapies or, in the case of a new drug or product, the
STATUS QUO therapy.
The Company's entry-level Systems are generally priced from $25,000
annually, while high-end Systems are generally priced from $250,000 to more than
$1.0 million annually. HCIA has entered into a number of strategic relationships
with state hospital associations, business partners such as HBO & Company
("HBOC"), and large users of data such as CIGNA Healthcare, Amgen Inc. and
Columbia/HCA.
HCIA's Decision Support Systems are based on the Company's DataBridge(TM)
collection of data bases and data handling technologies and SoleSource(TM)
desktop analytical software, and are supplemented by its clinical implementation
management team.
DATABRIDGE.(TM) DataBridge(TM) is HCIA's collection of proprietary data
bases and data-handling technologies. A typical Decision Support System customer
submits data in an electronic, computer-readable format. In creating the
interface for the customer's data stream, HCIA enables the transfer of customer
data and the subsequent application of the Company's proprietary software
algorithms and data-standardization technologies to the incoming data,
transforming the data into HCIA's proprietary standardized formats.
DataBridge(TM) has several components, including:
DATA BASE. A large number of the Company's customers are also its data
suppliers. Most of the Company's Decision Support System contracts provide that
as the Company extracts data from the customer (as part of the process of
delivering a system to the customer), the data become part of the Company's data
base. The Company supplements its data base with data it purchases or licenses
from federal and state governments, trade groups and other industry sources. The
Company maintains more than a terabyte of live health care data, including data
from medical records, laboratory, pharmacy, imaging, outpatient clinics,
physician's offices, insurance claims, managed care encounters and point-of-care
member patient surveys.
The Company's data base resides in a relational data base structure that
utilizes a network of large Sun Microsystems servers. The Company believes that
its current software and hardware platforms are scaleable and provide it with a
cost and flexibility advantage. The Company has made a significant investment in
an open-network architecture which links its several geographical locations and
provides customers with leased-line and dial-up access. The Company supports
most of the major relational data base platforms, such as Informix, Oracle, DB2,
Sybase and SQL Server.
The Company has personnel drawn from several key health care disciplines
(e.g., pharmacists, clinical nurses and medical technologists) who are
responsible for the auditing, editing and standardizing of its data base, as
well as the upgrading and maintaining of its core methodologies. The Company
believes that its data base provides more clinical detail and better outcomes
measurement capabilities than competitive systems. Furthermore, the detailed
medical content of the data and HCIA's experience in collecting and
standardizing this information provide additional competitive advantages.
The acquisitions of the CHAMP and Response data bases have significantly
expanded the Company's outpatient and episode-of-care capabilities. The recent
acquisition of LBA should significantly expand the Company's ICCS-level data
base through the addition of detailed clinical data from approximately 250
providers and provider groups which are LBA customers. As a result of
acquisitions and its internal growth, the Company believes that it has built one
of the largest and most sophisticated collections of integrated clinical,
financial and labor/productivity data in the health care industry.
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<PAGE>
ICCS SYSTEM.(TM) The Company holds a perpetual and exclusive license to
the ICCS System(TM), subject only to the Company's obligation to use all
commercially reasonable efforts to maintain and upgrade the system. The ICCS
System(TM) assigns a discrete and clinically detailed 12-digit code to every
product and service consumed in the treatment of patients. The Company believes
that the ICCS System(TM) is the health care industry's most widely implemented
uniform classification system for tracking and measuring the use of medical
resources (e.g., drugs, devices, laboratory tests, blood units, diagnostic
imaging and clinical services) across health care providers. The ICCS System(TM)
allows for the standardization and comparison of detailed clinical data,
regardless of the original source of the data (e.g., medical records, insurance
claims, laboratory or pharmacy systems). As of December 31, 1995, there were
more than 69,600 separate ICCS codes, and, during the 12 months ended December
31, 1995, more than 4,100 new codes were added to the ICCS System(TM).
The ICCS System(TM) is used by the Company to create the most clinically
detailed portion of its data base. The Company develops a set of proprietary
software interfaces with each customer who is a supplier of such data. The
interfaces are built by a series of proprietary "data-mapping" applications that
incorporate the ICCS System(TM) and a series of algorithms that allow the
mapping applications to "learn" each time a new clinical item is encountered. In
doing so, the applications are able to automatically standardize more data each
time a new interface is created. As the volume of ICCS-level data entering the
data base expands, the efficiency of the interface-creation process increases.
In 1990, the Company typically required more than six months to create an
interface to extract ICCS-level data. With more than 175 interfaces created to
date, the typical interface creation process has been reduced to less than six
weeks.
Set forth below is an illustration of the application of the ICCS
System(TM) to the delivery of a common anti-infective drug.
<TABLE>
<S> <C> <C>
ICCS Code ICCS Structure Example
4 Service Type Pharmacy
41 General Therapeutic Category Anti-infective
412 Specific Therapeutic Category Cephalosporin
412020 Generic Drug Type Cefazolin
412020.2 Route of Administration Parenteral
412020.232 Dosage Form IV Piggy Back
412020.23279 Dosage Strength 500
412020.232792 Dosage Unit Milligrams
</TABLE>
SOLESOURCE.(TM) SoleSource(TM) is the Company's workstation that provides
customers with access to and analyses of information obtained with a Decision
Support System. SoleSource(TM) utilizes Microsoft Foundation Classes Software
and accesses a variety of data base configurations, including Microsoft SQL
Server, Microsoft Access and Informix. As the Company has worked with a variety
of different health care organizations during the last several years (e.g.,
hospitals, managed care organizations and pharmaceutical companies), it has
developed an extensive library of proprietary health care data base
applications. In addition, as a result of the CHAMP, Response and LBA
acquisitions, the Company has recently expanded, and will continue to expand,
the scope of its data base applications. Depending on the customer, the size of
the data base and the sophistication of the Decision Support System, the Company
licenses various SoleSource(TM) applications to customers as part of a Decision
Support System.
CLINICAL IMPROVEMENT METHODOLOGY AND MANAGEMENT. In addition to providing
data bases and application software, the Company, utilizing proprietary
methodologies, assists customers with the implementation of clinical solutions.
The Company's knowledge-based clinical improvement methodologies allow HCIA to
leverage its ICCS-level information and enable clients to realize improved
clinical outcomes and lower costs through
24
<PAGE>
the modification of medical and behavioral practice patterns. The Company's
methodologies link the costs, quality, utilization and outcomes of medical
services delivered to patients in various clinical settings and focus on
episodes of illness that offer the greatest opportunity for improving outcomes
and reducing costs.
As a result of the LBA acquisition, the Company will significantly expand
its clinical improvement methodologies and implementation management
capabilities. The Company also intends to integrate LBA's data bases,
methodologies and staff with HCIA's, creating additional leverage from its
ICCS-level data base and SoleSource(TM) delivery platform. LBA's VALUE
ENHANCEMENT systems utilize data base analyses, clinical improvement
methodologies and an implementation management team of approximately 50 people
to assist customers in reducing clinical resource consumption and improving
outcomes in major specialties, including:
<TABLE>
<S> <C>
(Bullet) invasive cardiovascular (Bullet) vascular
(Bullet) orthopaedics (Bullet) neurosciences
(Bullet) oncology (Bullet) pulmonary
(Bullet) medical cardiology (Bullet) women's services
</TABLE>
In addition to its VALUE ENHANCEMENT systems, LBA assists hospitals in
obtaining Center of Excellence designation by HCFA. Center of Excellence
designation by HCFA conveys select medical status to high volume, premier
facilities in the practice areas of cardiology and orthopaedics. LBA's Centers
of Excellence program provides the necessary metrics, methodologies and data
bases to assist hospitals in achieving Center of Excellence designation for
specific clinical practice areas. The Company intends to enhance LBA's Centers
of Excellence program following the acquisition and believes that it will be
uniquely positioned to work with hospitals in motivating physicians and other
clinical practitioners to change behavior and achieve measurable improvements in
costs, outcomes, and clinical resource consumption -- the fundamental
requirements for Center of Excellence designation.
SYNDICATED PRODUCTS
Syndicated Products include publications and standardized databases which
are generally priced between $100 to $2,000, with certain Products priced up to
$25,000. The Products are developed from specific portions of the Company's data
base, and feature particular industry niches. Most Syndicated Products are sold
as annually renewable subscriptions or as multi-year contracts. Syndicated
Products range from data base directories (e.g., health care industry
professionals, nursing homes and managed care organizations) to more complex
analyses (e.g., cost and outcome summaries for each U.S. hospital).
HCIA also markets to managed care clients a number of more sophisticated
Syndicated Products containing national and regional normative data on length of
stay, costs and medical necessity. The Company markets these products directly
to managed care organizations, and through alliances with information systems
vendors, third-party administrators and other entities that process data streams
for managed care organizations and payors. These Syndicated Products generally
are used for utilization management, claims adjudication and actuarial
forecasting and generally result in annual revenue of $100,000 or more per
customer.
CUSTOMERS
The Company's customers include numerous health care industry participants
located throughout the United States and the United Kingdom, including major
provider and provider groups, managed care organizations, and pharmaceutical,
biotechnology and medical device companies. As of December 31, 1995, the Company
had more than 325 Decision Support System customers and more than 7,000
Syndicated Product customers. In 1994, one customer, Amgen Inc., accounted for
approximately 12% of the Company's revenue. In 1995, no single customer
accounted for 10% or more of the Company's revenue. HCIA's ten largest customers
accounted for approximately 29% and 36% of its revenue during 1994 and 1995,
respectively.
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SALES AND MARKETING
HCIA markets its information systems and products through a variety of
means that are designed to enhance its name recognition and facilitate the
marketing of additional systems and products to its customer base. The Company
utilizes a direct sales approach with the existing customer base to market its
Decision Support Systems. The Company's field sales force is highly specialized
and frequently draws on the Company's clinical implementation management team.
The field sales force seeks to present proposals in face-to-face meetings at the
executive level. In addition, HCIA has recently entered into agreements with
HBOC, Transition Systems and ActaMed, whereby the Company's Systems are marketed
through their respective sales forces.
The Company also approaches each of the major market constituencies through
the sale of lower-priced Syndicated Products. Many of these products, such as
the 100 TOP HOSPITALS study, are specifically designed to increase the
visibility of the Company as an industry-leading source of health care
information. The Company uses both telemarketing and direct-mail efforts in the
sales of its Syndicated Products.
HCIA continually seeks opportunities to create name recognition as a
leading provider of health care information. As part of this strategy, the
Company is widely quoted in the media, including publications such as THE WALL
STREET JOURNAL and MODERN HEALTHCARE, and its senior officers are frequently
asked to speak at industry conferences and serve on the editorial boards of
industry newsletters and publications.
COMPETITION
The Company believes that the principal competitive factors in the health
care information market are the breadth and quality of system and product
offerings, access to proprietary data, the proprietary nature of methodologies
and technical resources, price and the effectiveness of marketing and sales
efforts. In addition, the Company believes that the speed with which information
companies can anticipate and respond to the evolving health care industry
structure and identify information needs is an important competitive factor. The
Company believes that it competes favorably with respect to each of these
factors.
The market for health care information products and services is intensely
competitive. Competitors vary in size and in the scope and breadth of products
and services offered, and the Company competes for the sale of systems and
products and the resulting access to data with different companies in each of
its target markets. Many of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. Furthermore, other major information companies not presently offering
clinical health care information services may enter the markets in which the
Company competes.
The Company's potential competitors include specialty health care
information companies, health care information system and software vendors and
large data processing and information companies. Many of these competitors have
substantial installed customer bases in the health care industry and the ability
to fund significant product development and acquisition efforts.
INTELLECTUAL PROPERTY
HCIA considers its methodologies, computer software and data bases to be
proprietary. The Company seeks to protect its proprietary information through
confidentiality agreements with its employees. The Company's policy is to have
employees enter into confidentiality agreements containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, requiring employees to acknowledge, and, if requested, assist in
confirming the Company's ownership of any new ideas, developments, discoveries
or inventions conceived during employment, and requiring assignment to the
Company of proprietary rights to such matters that are related to the Company's
business.
The Company also relies on a combination of trade secret, copyright and
trademark laws, contractual provisions in agreements with customers and
technical measures to protect its rights in various methodologies, systems and
products and data bases. The Company has not filed any patent applications or
copyright registration applications covering its software technology. Due to the
nature of its software applications, the Company believes that patent, trade
secret and copyright protection are less significant than the Company's ability
to further develop, enhance and modify its current systems and products.
26
<PAGE>
GOVERNMENT REGULATION
The FDA has promulgated a draft policy for the regulation of certain
computer products as medical devices. Although it is not possible to anticipate
the final form of the FDA's policy with regard to computer software, the Company
expects that, whether or not the draft policy is finalized, the FDA is likely to
become increasingly active in regulating computer software that is intended for
use in health care settings. The Company's products and product development
activities, therefore, could become subject to extensive regulation by the FDA.
The FDA regulates the introduction of new medical devices as well as activities
such as manufacturing, labeling and recordkeeping for such products. To the
extent that computer software is a medical device under FDA regulations or
policy, the Company would be required, depending on the product, to comply with
regulations, to (i) register and list the product with the FDA, (ii) notify the
FDA and demonstrate substantial equivalence to other products on the market
before marketing such products or (iii) obtain FDA approval by demonstrating
safety and effectiveness before marketing a product. In addition, such products
would be subject to the FDA's general controls, including those relating to good
manufacturing practices and adverse experience reporting.
The process of obtaining clearance from the FDA can be costly and time
consuming, and there can be no assurance that, if required, such clearance would
be granted for the Company's existing and future products on a timely basis, if
at all, or that FDA review will not include delays that would adversely affect
the Company's ability to market new products or to expand permitted uses of
existing products. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. FDA regulations depend heavily on administrative and
scientific interpretation, and there can be no assurance that future
interpretation made by the FDA or other regulatory bodies, with possible
prospective and retroactive effect, will not adversely affect the Company.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases is subject
to substantial regulation by state governments. These state laws and regulations
govern both the disclosure and use of confidential patient medical record
information. Although compliance with these laws and regulations is principally
the responsibility of the hospital, physician or other health care provider
supplying the data to the Company, the Company's databases have been designed to
enable health care providers to comply with the confidentiality of state law.
The Company believes that its procedures comply with the laws and regulations
regarding the collection of patient data in substantially all jurisdictions.
However, additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may be of substantial cost to the Company. There can be no
assurance that changes to state or federal laws will not materially restrict the
ability of health care providers to submit information from patient records to
the Company.
EMPLOYEES
As of June 30, 1996, the Company had 588 employees, including 59 in sales
and marketing, 335 in health care data, 110 in technology and 84 in finance and
administration. None of the Company's employees are represented by a union or
other bargaining group. The Company believes its relationships with its
employees to be satisfactory. As of June 30, 1996, LBA had 162 employees, none
of whom are represented by a union or other bargaining group.
PROPERTIES
The Company's executive and corporate offices are located in Baltimore,
Maryland, in approximately 57,000 square feet of leased office space, under a
lease that expires on December 31, 2002, and which includes an option for an
additional term of up to five years. The Company also leases approximately
36,500 square feet of office space in Ann Arbor, Michigan, under a lease that
expires on March 31, 2000. The Company also maintains seven other offices in the
United States and three offices in Europe. LBA maintains corporate offices in
Denver, Colorado, in approximately 41,962 square feet of leased office space
under a lease that expires in September 2001. The Company believes that its
facilities are adequate for its current operations.
27
<PAGE>
LITIGATION
The Company is a defendant from time to time in lawsuits incidental to its
business. The Company is not currently a party to, and none of its properties is
subject to, any material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
George D. Pillari............................... 33 Chairman of the Board, President and Chief
Executive Officer
Richard Dulude.................................. 63 Director
Richard A. Berman............................... 51 Director
W. Grant Gregory................................ 55 Director
Phillip B. Lassiter............................. 52 Director
Mark C. Rogers, M.D. ........................... 53 Director
Carl J. Schramm, Ph.D. ......................... 49 Director
Sachi J. Morishige.............................. 30 Senior Vice President and Chief Operating
Officer
Barry C. Offutt................................. 34 Senior Vice President and Chief Financial
Officer
Jean Chenoweth.................................. 49 Senior Vice President -- Industry Relations
Lawrence J. Byrne............................... 57 Senior Vice President
Kevin J. Hicks.................................. 37 Senior Vice President
</TABLE>
Mr. Pillari co-founded the Company in 1985, and has served as its Chief
Executive Officer since 1987, also serving as President from 1987 to April 1992
and since October 1992. He has served as Chairman of the Board since April 1992.
Mr. Dulude has been a director of the Company since December 1994. He
retired as Vice Chairman of Corning Incorporated in April 1993, having served in
that capacity since November 1990, and as Group President of Corning
Incorporated from 1983 to November 1990. Mr. Dulude is a director of AMBAC, AIC
and Raychem Corporation.
Mr. Berman has been a director of the Company since October 1995. He has
served as President of Manhattanville College in New York since January 1995.
From November 1991 to January 1995, he served as the President and Chief
Executive Officer of Howe-Lewis International, an executive search and
management consulting firm. Prior to that time, Mr. Berman held several
positions in educational institutions, government and the private sector,
including serving as Special Assistant to the U.S. Department of Health and
Human Services and as a health care practice leader at McKinsey & Company, a
management consulting firm.
Mr. Gregory has been a director of the Company since December 1994. He has
served as Chairman of Gregory & Hoenemeyer, Inc., merchant bankers, since 1988.
Mr. Gregory retired as Chairman of the Board of Touche Ross, Inc. in 1987. He is
a director of AMBAC, AIC, InaCom Corp. and Renaissance Hotel Group N.V.
Mr. Lassiter has been a director of the Company since October 1992. He has
served as Chairman and Chief Executive Officer of AMBAC and AIC since April
1991, and as President since August 1992. From 1969 to July 1991, Mr. Lassiter
served in various capacities with Citibank, N.A., including Deputy Section Head
for North American investment, corporate banking and institutional insurance
activities. He is a director of Diebold Inc.
Dr. Rogers has been a director of the Company since January 1995. He was
appointed Senior Vice President, Corporate Development and Chief Technology
Officer of Perkin Elmer in May 1996. From 1992 until assuming his present
position, Dr. Rogers served as the Vice Chancellor for Health Affairs, Duke
University Medical Center, and the Executive Director and Chief Executive
Officer, Duke University Hospital and Health Network. From 1990 until 1992, Dr.
Rogers was Associate Dean for Clinical Affairs at The Johns Hopkins University
28
<PAGE>
School of Medicine and, from 1980 until 1992, he also served as Professor and
Chairman of the Department of Anesthesiology and Critical Care Medicine at The
Johns Hopkins University School of Medicine.
Dr. Schramm has served as a director of the Company since January 1995. He
is presently serving as President of Greenspring Advisors, Inc., which provides
strategic, financial and other advice to businesses. From January 1993 to May
1995, Dr. Schramm served as Executive Vice President of Fortis, Inc., and from
May 1987 to December 1992, served as President of the Health Insurance
Association of America. He was Director of The Johns Hopkins Center for Hospital
Finance and Management from January 1980 to May 1987. Dr. Schramm co-founded the
Company in 1985, and served as an officer and director of the Company until
1988.
Ms. Morishige has been employed by the Company in various capacities since
its founding in 1985, and currently serves as Senior Vice President and Chief
Operating Officer.
Mr. Offutt served as a Vice President from April 1992 until September 1995,
when he was appointed Senior Vice President, and has served as Chief Financial
Officer since October 1992. He is a certified public accountant and was employed
by Arthur Andersen & Co. in various capacities from 1984 to March 1992.
Ms. Chenoweth served as Vice President -- Industry Relations from April
1992 until her appointment as Senior Vice President in September 1995. She
served in various senior management positions, including President, with HKR and
its predecessor from 1989 through April 1992.
Mr. Byrne was recently appointed a Senior Vice President of the Company
following the Company's acquisition of LBA. Mr. Byrne founded the predecessor of
LBA in 1978 and served as its chief executive officer from that time until its
recent sale to the Company. He also served as an Executive Vice President of
HealthVISION from September 1995 until the Company's recent acquisition of LBA.
Mr. Hicks was recently appointed a Senior Vice President of the Company
following the Company's acquisition of LBA. Mr. Hicks served as Executive Vice
President of LBA from 1990 to 1993 and also served as chief operating officer of
LBA from 1993 until its recent sale to the Company. He also served as an
Executive Vice President of HealthVISION from September 1995 until the Company's
recent acquisition of LBA.
EMPLOYMENT AGREEMENT
Effective as of January 1, 1995, the Company entered into an employment
agreement with Mr. Pillari pursuant to which the Company continued his
employment as Chairman of the Board, President and Chief Executive Officer.
Pursuant to the employment agreement, Mr. Pillari receives an annual base salary
of $265,000 and is entitled to participate in bonus arrangements under which he
is eligible to earn an annual bonus based on the Company's achieving certain
performance goals to be established by the Board of Directors. The employment
agreement has an initial term of two years, and unless the Board of Directors
notifies Mr. Pillari otherwise, the term of the agreement automatically renews
daily for succeeding two year periods.
The employment agreement provides that in the event of the termination of
Mr. Pillari's employment for certain reasons, including certain terminations
resulting from a change in control of the Company (as defined in the employment
agreement), Mr. Pillari would be entitled to receive for the remainder of the
employment term contemplated in the agreement, compensation at an annualized
rate equal to the sum of his base annual salary and target bonus at the time of
termination (such sum being not less than 140% of such base annual salary). In
addition, he would continue to participate in all Company benefit plans until
the earlier of two years from the date of termination or such time as he is
covered by a comparable plan of a subsequent employer. Mr. Pillari is also
subject to certain restrictions under the agreement prohibiting him from
competing with the Company or any of its subsidiaries and from divulging any
confidential proprietary information obtained by him while in the employ of the
Company and for a period of time thereafter.
MANAGEMENT RETENTION AGREEMENTS
The Company has entered into a management retention agreement with each of
its officers (other than Mr. Pillari). These agreements provide for payments and
other benefits if there is a change in control (as defined in the agreement) of
the Company and, within two years of such change in control, the officer's
employment is
29
<PAGE>
terminated by the Company or its successor other than for cause (as defined in
the agreement), or the officer resigns for good reason (as defined in the
agreement). Under each agreement, the officer would receive, following
termination of employment under such circumstances, cash payments equal to two
times the sum of (i) the officer's highest annual rate of base salary, and (ii)
the product of the officer's highest bonus percentage (as a percentage of base
salary) times his highest base salary (such sum being the "Reference Amount").
The officer may elect to receive payment of one times the Reference Amount
either in a lump sum or in the form of periodic payments following his
termination of employment. Amounts in excess of one times the Reference Amount
will be made in the form of periodic payments, and will be subject to reduction,
on a dollar-for-dollar basis, by any compensation the officer earns from a
subsequent employer unrelated to the Company.
In addition to the payments described above, the officer would be fully
vested in all stock options and other Awards under the HCIA 1994 Stock and
Incentive Plan (the "Stock Option Plan") upon a change in control and would
receive following termination of employment a lump-sum payment equal to the
amount that the Company would have contributed for the officer's account under
the Company's Savings Incentive Plan during the two years following termination
of employment. The officer and his family will remain eligible to participate in
the Company's medical and other welfare benefits programs for two years from the
officer's termination of employment (except that coverage will end to the extent
the officer begins coverage under the plans of a subsequent employer).
STOCK OPTIONS
NON-PLAN OPTIONS. The Company has granted non-qualified options (the
"Options"), pursuant to individual stock option award agreements, to certain of
its past and present employees (the "optionees") to purchase shares of the
Company's Common Stock. Options were granted in December 1992, and in February,
April and October 1994 (collectively the "Options"). The Options granted in
October 1994 expire on October 21, 2004. The remainder of the Options expire on
July 1, 2000.
The Options have exercise prices ranging from $6.00 to $10.50 per share.
With respect to the Options granted in December 1992 and February and April
1994, 50% of the shares of Common Stock may be exercised on or after February
22, 1996 and the balance of the Options may be exercised on or after February
22, 1997. The Options granted in October 1994 become exercisable upon their
vesting, which is over a three-year period which commenced in October 1995.
Under the Options, if the optionee's employment with the Company terminates for
any reason other than death or permanent disability (as defined in the option
agreement), the Option shares not vested are forfeited. If the optionee's
employment terminates by reason of death or permanent disability prior to the
vesting of an Option, the Option is fully vested as of the date of death or
termination due to permanent disability. The Options granted in October 1994
also vest in full if the optionee's employment terminates due to retirement.
The Company's Chief Executive Officer was granted, in connection with the
Company's initial public offering, a non-plan option to purchase 160,000 shares
of Common Stock at an exercise price equal to the initial public offering price
of $14.00 per share. This option is exercisable in full and will expire on
February 22, 2000.
STOCK OPTION PLAN. The Company's Stock Option Plan was approved by the
Board of Directors on December 22, 1994 and thereafter by the Company's
stockholders. The Stock Option Plan provides for the grant or award of stock
options, stock appreciation rights, restricted stock, restricted stock units and
other performance awards which may or may not be denominated in shares of Common
Stock or other securities (collectively, the "Awards"). Stock options granted
under the Stock Option Plan may be either incentive stock options or non-
qualified options. The purpose of the Stock Option Plan is to attract and retain
outstanding employees through the incentives of stock ownership and monetary
payments. Any regular full-time employee of the Company, including officers but
excluding directors who are not officers, is eligible to receive awards.
The Stock Option Plan is administered by the Compensation Committee.
Subject to the provisions of the Stock Option Plan, the Compensation Committee
has the authority to designate participants, determine the types of Awards to be
granted, the number of shares to be covered by each Award, the time at which
each Award is exercisable or may be settled, the method of payment and any other
terms and conditions of the Awards. All Awards shall be evidenced by an Award
Agreement between the Company and the participant.
30
<PAGE>
While the Compensation Committee determines the prices at which options and
other Awards may be exercised under the Stock Option Plan, the exercise price of
an option shall be at least 100% of the fair market value (as determined under
the terms of the Stock Option Plan) of a share of Common Stock on the date of
grant. The aggregate number of shares of Common Stock available for awards under
the Plan is currently 1,350,000. No Awards may be made under the Stock Option
Plan after December 31, 2004.
DIRECTORS OPTION PLAN. Under the HCIA 1995 Non-Employee Directors Stock
Option Plan (the "Directors Option Plan"), each director who is not an officer
or employee of the Company or its affiliates (an "outside director") is
initially granted an option to purchase 5,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock at the time of
grant. In addition, each current outside director, and each person who is
subsequently elected as an outside director, will be granted an option at each
annual meeting of stockholders to purchase 5,000 shares of Common Stock at an
exercise price equal to the fair market value on the date of grant. A total of
200,000 shares of Common Stock are currently available for awards under the
Plan.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of August 8, 1996, as adjusted to reflect
the sale of shares by the Company and the Selling Stockholders, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each of the Selling Stockholders; (ii) each person known by the Company to
beneficially own more than 5% of the Common Stock; (iii) each director and
executive officer of the Company; and (iv) all directors and executive officers
of the Company as a group. The Company believes that the beneficial owners of
the Common Stock listed below, based on information furnished by such owners,
have sole voting and investment power with respect to such shares, except as
noted below:
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) THE OFFERING(1)(2)
-------------------- SHARES ------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P. (3)......................... 221,485 2.3% 199,393 22,092 *%
United HealthCare Services, Inc. (4)........................ 17,102 * 7,698 9,404 *
HLM Partners V, L.P. (5).................................... 4,267 * 1,921 2,346 *
HLM Partners VII, L.P. (5).................................. 17,071 * 7,684 9,387 *
George D. Pillari(6)........................................ 386,600 3.9 -- 386,600 3.2
Lawrence J. Byrne........................................... 116,518 1.2 -- 116,518 1.0
Kevin J. Hicks.............................................. 116,518 1.2 -- 116,518 1.0
Sachi J. Morishige(7)....................................... 48,694 * -- 48,694 *
Barry C. Offutt(7).......................................... 13,915 * -- 13,915 *
Jean Chenoweth(7)........................................... 11,610 * -- 11,610 *
Richard Dulude(8)........................................... 3,250 * -- 3,250 *
Richard Berman.............................................. -- -- -- -- --
W. Grant Gregory(8)(9)...................................... 12,250 * -- 12,250 *
Phillip B. Lassiter......................................... 2,000 * -- 2,000 *
Mark C. Rogers, M.D.(8)..................................... 2,250 * -- 2,250 *
Carl J. Schramm, Ph.D.(8)................................... 2,250 * -- 2,250 *
FMR Corp(10)................................................ 981,100 10.0 -- 981,100 8.3
Essex Investment Management Company(11)..................... 607,785 6.2 -- 607,785 5.2
All directors and executive officers as a group (12
persons)(12).............................................. 715,855 7.2% -- 755,855 6.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to the
shares. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of August 8, 1996 are deemed outstanding for
computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) Assumes no exercise of the 30-day option to purchase up to 332,505 shares
of Common Stock solely to cover over-allotments, if any, granted by the
Company to the Underwriters.
(3) The sole general partner of Warburg, Pincus Investors, L.P. ("WP
Investors") is Warburg, Pincus & Co., a New York general partnership
("WP"). E.M. Warburg, Pincus & Company, a New York general partnership
manages WP Investors. WP has a 20% interest in the profits of WP Investors
and, through its wholly owned subsidiary, E.M. Warburg, Pincus & Co., Inc.
owns 1.13% of the limited partnership interests in WP Investors. The
address of WP Investors is 466 Lexington Avenue, New York, New York 10017.
(4) The address of United HealthCare Services, Inc. is 9900 Bren Road, East,
Minnetonka, Minnesota 55343.
(5) The address of HLM Partners is 222 Berkeley Street, Suite 2150, Boston, MA
02116.
(6) Includes (i) 226,150 shares as to which Mr. Pillari shares beneficial
ownership with his wife, (ii) 450 shares held as custodian and (iii) a
currently exercisable option to acquire 160,000 shares of Common Stock.
(7) Includes 44,444, 10,110, and 13,165 shares subject to options held by Sachi
J. Morishige, Jean Chenoweth and Barry C. Offutt, respectively.
(8) Includes 2,250 shares subject to options under the Directors Option Plan.
(9) Includes 4,000 shares owned through a partnership of which Mr. Gregory is a
partner.
(10) Based on a Schedule 13G filed by the listed entity on behalf of itself and
certain affiliates. According to the Schedule 13G, there is sole
dispositive power with respect to all shares and neither sole nor shared
voting power with respect to any such shares. The address of FMR Corp is 85
Devonshire Street, Boston, Massachusetts 02109.
(11) Based on a Schedule 13G filed by the listed entity. According to the
Schedule 13G, there is sole dispositive power as to all such shares and
sole voting power as to 426,905 shares. The address of Essex Investment
Management Company is 125 High Street, Boston, Massachusetts 02110.
(12) Includes 236,719 shares subject to options held by all directors and
executive officers as a group.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company, the Selling Stockholders and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Alex. Brown & Sons
Incorporated, Hambrecht & Quist LLC, Montgomery Securities and Robertson,
Stephens & Company LLC (the "Underwriters"), the Company and the Selling
Stockholders have agreed to sell to each of the Underwriters, and each of the
Underwriters has severally agreed to purchase from the Company and the Selling
Stockholders, the number of shares of Common Stock set forth opposite its name
below. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby if any of such shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Alex. Brown & Sons Incorporated..................................................
Hambrecht & Quist LLC............................................................
Montgomery Securities............................................................
Robertson, Stephens & Company LLC................................................
---------
Total................................................................ 2,216,696
---------
---------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 332,505
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. The Underwriters
may exercise this option only to cover over-allotments, if any, made on the sale
of the shares of Common Stock offered hereby. If the Underwriters exercise this
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table is of the 2,216,696 shares initially offered hereby.
The Company and certain officers of the Company and HealthVISION have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or file or cause to be filed a registration statement under the
Securities Act with respect to, any shares of Common Stock, securities
convertible into, exchangeable for or repayable with such shares or rights or
warrants to acquire such shares, for a period of 90 days after the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, except that the Company may, without such consent, grant
options pursuant to the Stock Option Plan and the Directors Option Plan or issue
shares of Common Stock upon exercise of options currently outstanding, or issue,
or file registration statements with respect to, up to a specified number of
shares of Common Stock in connection with acquisitions under certain
circumstances.
In connection with the Offering, certain Underwriters (and selling group
members, if any) may engage in passive market making transactions in the Common
Stock on NASDAQ in accordance with Rule 10b-6A under the Exchange Act. Rule
10b-6A permits, upon satisfaction of certain conditions, underwriters and
selling group members participating in a distribution that are also NASDAQ
market makers in the security being distributed to engage in limited market
making transactions during the period when Rule 10b-6 under the Exchange Act
would otherwise prohibit such activity. Rule 10b-6A prohibits underwriters and
selling group members engaged in passive market making, generally, from entering
a bid or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on NASDAQ by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily
33
<PAGE>
net purchase limitation equal to 30% of such entity's average daily trading
volume during the two full consecutive calendar months immediately preceding the
date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company and the Selling Stockholders by Whiteford, Taylor & Preston
L.L.P., Baltimore, Maryland. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Brown & Wood LLP, New York,
New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995, and for each of the years in the three-year period ended December
31, 1995 included herein and in the Registration Statement of which this
Prospectus is a part, and the financial statements of Datis Corporation as of
March 31, 1993 and for the year ended March 31, 1993 and the financial
statements of William M. Mercer, Incorporated National Health Analysis Unit as
of December 31, 1994 and September 30, 1995 and for the years ended December 31,
1993 and 1994 and the nine months ended September 30, 1995 incorporated in this
Prospectus by reference to the Company's Current Report on Form 8-K dated July
19, 1996, as amended, have been included herein and incorporated by reference in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein or incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The report by KPMG Peat Marwick LLP covering the consolidated financial
statements of the Company noted above refers to the adoption of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
The combined balance sheet of LBA Health Care Management, Inc. and
Healthcare Data Source, Inc. (collectively, the "Predecessor Business") as of
December 31, 1994 and the combined statements of operations and retained
earnings and cash flows for the Predecessor Business for each of the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 through
September 27, 1995, the balance sheet of LBA Health Care Management, Inc. as of
December 31, 1995 and the statements of operations and retained earnings and
cash flows of LBA Health Care Management, Inc. for the period from September 28,
1995 through December 31, 1995 and the consolidated balance sheet of
HealthVISION, Inc. as of December 31, 1994 and 1995 and the consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1995 and for the period February 2, 1994 (inception) through
December 31, 1994 appearing in this Prospectus and Registration Statement, or
incorporated in this Prospectus and Registration Statement by reference to the
Company's Current Report on Form 8-K dated July 19, 1996, as amended, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement or
incorporated in this Prospectus and Registration Statement by reference to the
Company's Current Report on Form 8-K dated July 19, 1996, as amended, and are
included in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Datis Corporation as of May 31, 1993 and 1994
and for the year ended May 31, 1994 and the two months ended May 31, 1993
incorporated in this Prospectus by reference to the Form 8-K of HCIA Inc. dated
July 19, 1996, as amended, have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
34
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). The reports and other
information filed by the Company with the Commission in accordance with the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at Seven World Trade Center, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. at prescribed rates. Such reports, proxy statements and other
information concerning the Company can be inspected at the offices of NASDAQ at
1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
35
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed by the Company with
the Commission are incorporated herein by reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by the Form 10-K/A filed on April 30, 1996.
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(3) Current Report on Form 8-K dated July 19, 1996, as amended by the Form
8-K/A filed August 13, 1996.
(4) The description of the Common Stock contained in the Company's
Registration Statement under the Exchange Act on Form 8-A filed on
January 13, 1995.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the filing date of
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is incorporated or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Subject to the foregoing, all information appearing in this Prospectus is
qualified in its entirety by the information appearing in the documents
incorporated herein by reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON WRITTEN OR ORAL
REQUEST, AT NO CHARGE, FROM THE COMPANY. REQUESTS SHOULD BE DIRECTED TO THE
COMPANY, 300 EAST LOMBARD STREET, BALTIMORE, MARYLAND 21202, ATTENTION: BARRY C.
OFFUTT, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER.
36
<PAGE>
HCIA INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Financial Statements of HCIA Inc.:
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets (December 31, 1994 and 1995)................................................. F-3
Consolidated Statements of Operations (Years Ended December 31, 1993, 1994 and 1995)..................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Years Ended December 31, 1993, 1994 and
1995)................................................................................................. F-5
Consolidated Statements of Cash Flows (Years Ended December 31, 1993, 1994 and 1995)..................... F-6
Notes to Consolidated Financial Statements (December 31, 1993, 1994 and 1995)............................ F-7
Unaudited Consolidated Financial Statements of HCIA Inc.:
Consolidated Balance Sheets (December 31, 1995 and June 30, 1996)........................................ F-18
Consolidated Statements of Operations (Six Months Ended June 30, 1995 and 1996).......................... F-19
Consolidated Statement of Changes in Stockholders' Equity (Year Ended December 31, 1995 and Six Months
Ended June 30, 1996).................................................................................. F-20
Consolidated Statements of Cash Flows (Six Months Ended June 30, 1995 and 1996).......................... F-21
Notes to Unaudited Consolidated Financial Statements..................................................... F-22
Financial Statements of LBA Health Care Management, Inc.:
Report of Independent Auditors........................................................................... F-23
Balance Sheets (December 31, 1994 and 1995).............................................................. F-24
Statements of Operations and Retained Earnings (Years Ended December 31, 1993 and 1994, Period from
January 1, 1995 through September 27, 1995, and Period from September 28, 1995 through December 31,
1995)................................................................................................. F-25
Statements of Cash Flows (Years Ended December 31, 1993 and 1994, Period from January 1, 1995 through
September 27, 1995, and Period from September 28, 1995 through December 31, 1995)..................... F-26
Notes to Financial Statements............................................................................ F-27
Unaudited Financial Statements of LBA Health Care Management, Inc.:
Balance Sheet (December 31, 1995 and June 30, 1996)...................................................... F-34
Statements of Operations and Retained Earnings (Six Months Ended June 30, 1995 and 1996)................. F-35
Statements of Cash Flows (Six Months Ended June 30, 1995 and 1996)....................................... F-36
Notes to Unaudited Financial Statements.................................................................. F-37
Pro Forma Financial Statements:
Unaudited Pro Forma Financial Information................................................................ F-38
Unaudited Pro Forma Balance Sheet (December 31, 1995).................................................... F-39
Unaudited Pro Forma Balance Sheet (June 30, 1996)........................................................ F-40
Unaudited Pro Forma Statement of Operations (Year Ended December 31, 1995)............................... F-41
Unaudited Pro Forma Statement of Operations (Six Months Ended June 30, 1996)............................. F-42
Notes to Unaudited Pro Forma Financial Statements........................................................ F-43
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HCIA Inc.:
We have audited the accompanying consolidated balance sheets of HCIA Inc.
and subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HCIA Inc.
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standard Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 19, 1996
F-2
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 696 $ 3,190
Short-term investments................................................................... -- 23,280
Trade accounts receivable, net of allowance for doubtful accounts of $359 in 1994 and
$454 in 1995.......................................................................... 8,607 16,623
Prepaid expenses......................................................................... 924 2,236
------- --------
Total current assets................................................................ 10,227 45,329
Furniture and equipment, net (notes 2 and 3)............................................... 3,896 6,576
Computer software costs, net (note 2)...................................................... 6,031 11,012
Other intangible assets, net (note 4)...................................................... 19,025 42,338
Net deferred tax asset (note 8)............................................................ -- 3,090
Note receivable from related party (note 1)................................................ 1,551 --
Other...................................................................................... 135 56
------- --------
Total assets........................................................................ $40,865 $108,401
------- --------
------- --------
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 605 $ 732
Accrued salaries, benefits and other liabilities (note 5)................................ 2,521 4,222
Capital lease obligations (note 6)....................................................... 102 174
Notes payable (note 1)................................................................... -- 2,265
Income taxes payable (note 8)............................................................ 125 1,098
Deferred revenue......................................................................... 1,254 1,167
------- --------
Total current liabilities........................................................... 4,607 9,658
Net deferred tax liability (note 8)........................................................ 535 --
Notes payable (note 1)..................................................................... -- 699
Amounts due to related party (note 11)..................................................... 1,300 --
------- --------
Total liabilities................................................................... 6,442 10,357
------- --------
Minority interest (note 2)................................................................. 52 --
------- --------
Stockholders' equity (note 10):
Preferred stock -- $0.01 par value; authorized 500,000 shares; no shares issued and
outstanding in 1994 and 1995.......................................................... -- --
Common stock -- $.01 par value; authorized 15,000,000 shares; issued and outstanding
5,437,005 as of December 31, 1994 and 8,955,932 as of December 31, 1995............... 54 90
Additional paid-in capital............................................................... 36,876 102,882
Accumulated deficit...................................................................... (2,548) (4,953)
Cumulative unrealized appreciation of short-term investments............................. -- 44
Cumulative effect of currency translation adjustment..................................... (11) (19)
------- --------
Total stockholders' equity.......................................................... 34,371 98,044
------- --------
Total liabilities, minority interest and stockholders' equity....................... $40,865 $108,401
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue.......................................................................... $28,111 $30,711 $48,015
Salaries, wages and benefits..................................................... 14,168 15,457 21,932
Other operating expenses......................................................... 7,884 8,538 11,841
Provision for doubtful accounts.................................................. 727 87 214
Depreciation..................................................................... 654 957 1,619
Amortization..................................................................... 3,941 3,869 5,245
Write-off of acquired in-process research and development costs (note 1)......... -- -- 12,152
------- ------- -------
Operating income (loss)........................................................ 737 1,803 (4,988)
Interest income.................................................................. -- 111 1,290
Interest expense on related party borrowings (note 11)........................... (72) (110) (83)
Interest expense on capital leases............................................... (39) (21) (104)
------- ------- -------
Income (loss) before income taxes, minority interest in loss (income) of
consolidated subsidiaries and cumulative effect of change in accounting for
income taxes................................................................ 626 1,783 (3,885)
Benefit (provision) for income taxes (note 8).................................... (362) (759) 1,554
Minority interest in loss (income) of consolidated subsidiaries (note 2)......... 90 (3) (74)
------- ------- -------
Income (loss) before cumulative effect of change in accounting for income
taxes....................................................................... 354 1,021 (2,405)
Cumulative effect of change in accounting for income taxes....................... (142) -- --
------- ------- -------
Net income (loss).............................................................. $ 212 $ 1,021 $(2,405)
------- ------- -------
------- ------- -------
Net income (loss) per share (note 2)............................................. $ 0.19 $ (0.31)
------- -------
------- -------
Shares used in per share calculation (note 2).................................... 5,518 7,733
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
UNREALIZED EFFECT OF
PREFERRED PREFERRED PREFERRED TOTAL ADDITIONAL APPRECIATION OF CURRENCY
STOCK STOCK STOCK PREFERRED COMMON PAID-IN ACCUMULATED SHORT-TERM TRANSLATION
SERIES A SERIES B SERIES C STOCK STOCK CAPITAL DEFICIT INVESTMENTS ADJUSTMENT
--------- --------- --------- --------- ------ ---------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1,
1993.......... $ 10,662 $ 2,500 $ 6,400 $ 19,562 $ 30 $ 10,627 $(1,367) $ -- $ 55
Capital
contributions... -- -- -- -- -- 605 -- -- --
Tax benefit
from exercise
of employee
stock
options....... -- -- -- -- -- 87 -- -- --
Issuance of
preferred
stock......... -- 3,000 -- 3,000 -- -- -- -- --
Net income..... -- -- -- -- -- -- 212 -- --
Effect of
currency
translation
adjustment.... -- -- -- -- -- -- -- -- (49)
--------- --------- --------- --------- ------ ---------- ----------- --- -----
BALANCE AT
DECEMBER 31,
1993.......... 10,662 5,500 6,400 22,562 30 11,319 (1,155) -- 6
--------- --------- --------- --------- ------ ---------- ----------- --- -----
Capital
contributions... -- -- -- -- -- 605 -- -- --
Conversion of
preferred
stock......... (10,662) (5,500) (6,400) (22,562) 24 24,952 (2,414) -- --
Net income..... -- -- -- -- -- -- 1,021 -- --
Effect of
currency
translation
adjustment.... -- -- -- -- -- -- -- -- (17)
--------- --------- --------- --------- ------ ---------- ----------- --- -----
BALANCE AT
DECEMBER 31,
1994.......... -- -- -- -- 54 36,876 (2,548) -- (11)
--------- --------- --------- --------- ------ ---------- ----------- --- -----
Sale of common
stock to the
public........ -- -- -- -- 36 66,006 -- -- --
Net loss....... -- -- -- -- -- -- (2,405) -- --
Effect of
currency
translation
adjustment.... -- -- -- -- -- -- -- -- (8)
Unrealized
appreciation
of short-term
investments... -- -- -- -- -- -- -- 44 --
--------- --------- --------- --------- ------ ---------- ----------- --- -----
BALANCE AT
DECEMBER 31,
1995.......... $ -- $ -- $ -- $ -- $ 90 $102,882 $(4,953) $ 44 $ (19)
--------- --------- --------- --------- ------ ---------- ----------- --- -----
--------- --------- --------- --------- ------ ---------- ----------- --- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE AT
JANUARY 1,
1993.......... $28,907
Capital
contributions. 605
Tax benefit
from exercise
of employee
stock
options....... 87
Issuance of
preferred
stock......... 3,000
Net income..... 212
Effect of
currency
translation
adjustment.... (49)
------
BALANCE AT
DECEMBER 31,
1993.......... 32,762
------
Capital
contributions. 605
Conversion of
preferred
stock......... --
Net income..... 1,021
Effect of
currency
translation
adjustment.... (17)
------
BALANCE AT
DECEMBER 31,
1994.......... 34,371
------
Sale of common
stock to the
public........ 66,042
Net loss....... (2,405)
Effect of
currency
translation
adjustment.... (8)
Unrealized
appreciation
of short-term
investments... 44
------
BALANCE AT
DECEMBER 31,
1995.......... $98,044
------
------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................................. $ 212 $ 1,021 $ (2,405)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................... 4,595 4,826 6,864
Write-off of acquired in-process research and development costs............. -- -- 12,152
Deferred tax provision...................................................... 876 (338) (3,625)
Provision for doubtful accounts............................................. 727 87 214
Changes in operating assets and liabilities:
Accounts receivable....................................................... (2,120) (436) (7,292)
Income taxes receivable/payable........................................... (315) 1,097 973
Prepaid expenses.......................................................... (377) (234) (1,505)
Accounts payable.......................................................... (645) (853) 215
Accrued salaries, benefits and other liabilities.......................... (811) (771) (816)
Deferred revenue.......................................................... 322 40 (1,714)
Minority interest......................................................... (90) 3 75
------- ------- --------
Net cash provided by operating activities.............................. 2,374 4,442 3,136
------- ------- --------
Cash flows from investing activities:
Purchases of furniture and equipment........................................... (2,000) (1,568) (3,145)
Cost of acquisitions, net of cash acquired..................................... (148) -- (35,271)
Computer software costs purchased or capitalized............................... (2,236) (2,603) (6,151)
Other intangible assets purchased or capitalized............................... (1,103) (779) (716)
Purchases of short-term investments............................................ -- -- (69,312)
Sales of short-term investments................................................ -- -- 46,077
Payments on note receivable.................................................... -- 108 1,551
Other.......................................................................... -- (40) 104
------- ------- --------
Net cash used in investing activities..................................... (5,487) (4,882) (66,863)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock...................................... 3,000 -- --
Proceeds from capital contributions............................................ 692 605 --
Proceeds from public offerings................................................. -- -- 66,042
Borrowings from related party.................................................. 2,925 1,400 2,915
Repayments of related party borrowings......................................... (2,779) (1,250) (513)
Repayments of note payable..................................................... -- -- (1,900)
Other borrowings............................................................... 16 -- --
Principal payments on capital leases........................................... (188) (187) (315)
------- ------- --------
Net cash provided by financing activities................................. 3,666 568 66,229
------- ------- --------
Impact of currency fluctuations on cash and cash equivalents..................... (49) (17) (8)
------- ------- --------
Increase (decrease) in cash and cash equivalents................................. 504 111 2,494
Cash and cash equivalents -- beginning of year.................................. 81 585 696
------- ------- --------
Cash and cash equivalents -- end of year........................................ $ 585 $ 696 $ 3,190
------- ------- --------
------- ------- --------
Supplemental cash flow information
-- cash paid during the year for interest..................................... $ 154 $ 137 $ 89
-- cash paid during the year for income taxes................................. $ -- $ -- $ 1,088
------- ------- --------
------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) BACKGROUND
(a) DESCRIPTION OF BUSINESS
HCIA Inc. ("HCIA" or the "Company") is a health care information content
company that develops and markets integrated clinical information systems and
products. The Company's systems and products range from standardized data bases
to highly focused Decision Support Systems that assist its customers in
evaluating the efficacy and economics of health care delivery. The Company's
customers include hospitals, integrated delivery systems, self-insured
employers, pharmaceutical companies and managed care organizations.
(b) PUBLIC OFFERINGS
During February 1995, the Company completed an initial public offering of
approximately 2.0 million shares of Common Stock at $14.00 per share. In August
1995, the Company completed a second public offering of approximately 2.6
million shares at $28.50 per share. The second public offering consisted of 1.5
million shares issued by the Company and approximately 1.1 million shares sold
by the Company's largest stockholder, AMBAC Inc. ("AMBAC").
(c) ACQUISITIONS
On April 28, 1995, the Company acquired all of the capital stock of Datis
Corporation ("Datis") for $14,250,000 in cash. Datis provides databases and
related analyses to hospitals and hospital systems. The acquisition was
accounted for using the purchase method of accounting and resulted in increases
in current assets of $1,338,000, furniture and equipment of $1,092,000, other
assets of $25,000, software of $233,000 and other intangible assets of
$16,503,000; offset by increases in current liabilities of $4,671,000 and long
term liabilities of $270,000. Substantially all of the other intangible assets
recorded in connection with this acquisition relate to goodwill. The goodwill is
being amortized over its estimated useful life of 20 years. The estimate of the
amortization period is based on the nature of the products and markets of Datis
and the historical rate of change in the products and markets. Funding for the
acquisition was provided from the proceeds of the Company's initial public
offering.
During November 1995, the Company acquired an additional 36% interest in
CHKS Limited ("CHKS"). As a result of this acquisition, CHKS became a
wholly-owned subsidiary of the Company. The Company issued notes payable to the
former shareholders in the amount of $2,795,000. The purchase agreement also
provides for an additional payment to the former shareholders in the event that
certain operational performance targets are met by CHKS during 1996. This
acquisition was accounted for using the purchase method of accounting and
resulted in additional goodwill of $2,709,000. The goodwill is being amortized
over its estimated useful life of 15 years. The estimate of the amortization
period is based on the nature of the products and markets of CHKS and the
historical rate of change in the products and markets.
On December 15, 1995, the Company acquired the assets constituting the
CHAMP unit of William M. Mercer, Incorporated for $17,500,000 in cash. The CHAMP
unit provides data base and analytical reporting services to large employers to
assist them in the management of their health care costs. The acquisition was
accounted for using the purchase method of accounting and resulted in an
increase in software of $859,000 and other intangible assets of $4,489,000. The
other intangible assets consist of trade names of $1,266,000, assembled
workforce of $1,102,000, customer base of $595,000 and goodwill of $1,526,000.
These assets are being amortized on a straight-line basis over 12 years. The
lives of these assets were determined by an independent appraiser based on,
among other things, employee turnover, historical customer retention rates and
the historical rate of change in the products and markets. At the date of the
acquisition, the Company recorded a non-recurring charge of $12,152,000 relating
to in-process research and development costs which were acquired in this
acquisition.
F-7
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These costs related to the development of a client server based system to
process and deliver health care data and analysis tools to CHAMP customers. The
amount of the non-recurring charge was equal to the estimated current fair
value, based on the risk adjusted cash flows (at a discount rate of 20%, which
included cost of capital of 18% and an incremental risk premium of 2%), of
specifically identified technologies for which technological feasibility had not
yet been established pursuant to Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," and for which future alternative uses did not exist.
Consideration of technological feasibility for purposes of this calculation was
done on a basis consistent with that normally utilized by the Company (See Note
2(d)). This charge is recorded as an operating expense on the accompanying
consolidated statement of operations for the year ended December 31, 1995.
Funding for this acquisition was provided from the proceeds of the Company's
public offerings.
During 1995, the Company also acquired certain assets and assumed certain
liabilities of John Froehlich Associates, MetriCor Inc. and MetaGenerics. The
aggregate purchase price for these acquisitions was $1,677,000, consisting of
cash of $1,166,000 and notes payable of $511,000. These acquisitions were
accounted for using the purchase method of accounting and resulted in increases
in furniture and equipment of $75,000, increases in other intangible assets of
$1,938,000 and increases in current liabilities of $336,000. The other
intangible assets consist of goodwill which is being amortized on a
straight-line basis over estimated useful lives of 10 to 15 years. The estimate
of each amortization period is based on the nature of the products and markets
of the acquired entities and the historical rate of change in the products and
markets. Funding for these acquisitions was provided from the proceeds of the
Company's public offerings.
Unaudited pro forma combined results of the operations of the Company for
the years ended December 31, 1995 and 1994 are presented below and have been
prepared assuming that the acquisitions discussed above had been made as of
January 1, 1994.
<TABLE>
<CAPTION>
1994 1995
------- -------
(UNAUDITED)
<S> <C> <C>
Revenue............................................................................ $47,156 $57,389
Net income (loss).................................................................. $(1,844) $ 3,355
Net income (loss) per share........................................................ $ (0.33) $ 0.42
</TABLE>
The pro forma results include the historical accounts of the Company and
the acquired entities adjusted to reflect the effects of the depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the assets acquired, additional interest expense
related to notes payable issued in connection with certain acquisitions, the
reversal of the non-recurring write-off of acquired in-process research and
development costs recorded in connection with the CHAMP acquisition and the
related income tax effects. The pro forma results are not necessarily indicative
of actual results which might have occurred had the operations and management of
the Company and the acquired entities been combined in 1994 and 1995.
(d) DIVESTITURE
Effective January 1, 1994, the Company sold certain of its software product
lines at their approximate book value to a company formed by a group of the
Company's former employees. These product lines generated revenues of
approximately $3.0 million during the year ended December 31, 1993. In
connection with the sale, the Company received a note in the amount of
$1,659,000 and also purchased a 49% equity interest in the new entity for
$120,000. During 1995, the Company received payment in full on the balance
outstanding on the note and sold the equity interest back to the entity for
$139,000, representing the original investment of $120,000 plus interest for the
period the equity interest was held.
F-8
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its subsidiaries. The minority interest of CHKS for the periods before it
became wholly-owned is stated separately on the financial statements. All
significant intercompany transactions have been eliminated in consolidation.
(b) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of highly liquid securities with original
maturities of three months or less at the date acquired by the Company. At
December 31, 1995, the Company's short-term investments, which are classified as
available for sale securities portfolio, consist of the following:
<TABLE>
<CAPTION>
FAIR VALUE COST
------------ ------------
<S> <C> <C>
Auction Market Preferred Stock........................................... $ 7,000,000 $ 7,000,000
Variable Rate Debentures................................................. 5,500,000 5,500,000
Municipal Bonds.......................................................... 10,780,000 10,736,000
------------ ------------
Total.................................................................. $ 23,280,000 $ 23,236,000
------------ ------------
------------ ------------
</TABLE>
The portfolio is carried at fair value in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All securities mature within one year. Gross
unrealized gains and losses were $44,000 and $0, respectively, and are included
as a separate component of stockholders' equity. Realized gains and losses are
recorded using the specific identification basis to determine costs. During
1995, proceeds from sales of the securities totalled $46,677,000, gross realized
gains totalled $2,000 and gross realized losses totalled $0.
(c) FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Included in furniture and
equipment are computer hardware, furniture and fixtures and leasehold
improvements. These costs are being depreciated on the straight-line method over
their estimated useful lives of three to five years.
(d) COMPUTER SOFTWARE COSTS
Computer software costs include the cost of internally developed software
and the fair market value assigned to computer software obtained in purchase
transactions. Costs for internally developed software are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
These costs relate primarily to the building of production systems and extending
existing applications to new markets or platforms using existing technologies
and programming methods. The Company capitalizes only those costs incurred after
a detailed program design or, in the absence of such, a working prototype has
been developed. The Company generally develops its applications in connection
with customer contracts and includes the related costs as a component of
operating expenses in the period incurred. The Company capitalized or purchased
a total of $2,236,000, $2,603,000 and $7,260,000 of computer software costs in
1993, 1994 and 1995, respectively, including $1,109,000 in 1995 related to
business acquisitions.
Capitalized costs are amortized, beginning with market availability, over
the economic useful life of the product. Typically, this life is five years. The
annual amortization expense is the greater of the amount computed using (a) the
ratio that current gross revenues for a product bears to the total of current
and anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product including the
period being reported. Amortization expense for computer software was
$1,540,000,
F-9
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1,456,000 and $2,048,000 during 1993, 1994 and 1995, respectively. Accumulated
amortization for computer software was $4,462,000 and $6,510,000 at December 31,
1994 and 1995, respectively.
The Company evaluates, on a quarterly basis, the recoverability of
capitalized software costs on the basis of whether such costs are fully
recoverable from projected undiscounted cash flows of individual system and
product lines.
(e) REVENUE RECOGNITION
Revenue from license fees for access to the Company's data bases is
recognized when access to the data base is made available to the customer.
Revenue from custom system or data base development and implementation contracts
is recognized on a percentage of completion basis using the cost to cost method.
On a quarterly basis, the Company assesses whether the current estimate of total
contract costs for each of these contracts indicates a loss is expected and
accrues any such losses on the entire contract in that quarter. Where the
Company has contracted to provide both access to a Company data base and
development of a custom data base, the contract value is segmented into its
discrete elements according to their relative values, and revenue is recognized
separately on each element in accordance with the above.
Revenue from group data contracts, which obligate the Company to process
data, produce reports and update data bases on periodic intervals, is recognized
as the contracted obligations are fulfilled.
Revenue from licensing of software products is recognized upon shipment,
provided that no vendor obligations remain outstanding. While the Company has no
significant post-contract support (PCS) obligations, any revenue related to
insignificant PCS obligations on software licenses is deferred and recognized
over the contract term. The Company determines the component of revenue
applicable to PCS obligations based upon its experience in fulfilling such
obligations.
Revenue on all other products is recognized when the product is shipped.
During 1993 and 1994, one customer accounted for 12% of the Company's
revenue. At December 31, 1994, receivables from that customer represented 12% of
the Company's trade accounts receivable. Consistent with Company policy, no
collateral or other security was held with respect to such trade accounts
receivable. During 1995, no single customer accounted for 10% or more of the
Company's revenue or trade accounts receivable.
(f) FOREIGN CURRENCY TRANSLATION
The assets and liabilities of CHKS are translated at year-end exchange
rates, while revenue and expenses are translated at rates prevailing during the
period. Accordingly, translation adjustments that arise due to fluctuations in
exchange rates are excluded from operations and are reported as a separate
component of stockholders' equity.
(g) INCOME TAXES
Prior to the completion of the Company's initial public offering in
February 1995, the Company was party to a federal tax-sharing agreement with
AMBAC and was included in AMBAC's consolidated federal income tax return. The
tax-sharing agreement provided for the determination of tax expense or benefit
based on the contribution of the Company to AMBAC's tax liability, computed
substantially as if the Company filed a separate income tax return. The tax
liability due AMBAC was settled quarterly, with a final settlement taking place
after the filing of the consolidated federal tax return. Commencing February 22,
1995, the Company is no longer included on a consolidated basis for tax purposes
with AMBAC and is responsible for filing its own federal income tax return.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
and the cumulative effect of this change as of that date is reported in the
consolidated statement of operations for 1993.
F-10
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS No. 109, the Company uses the asset and liability method to
account for deferred income taxes. Under this method, deferred income taxes are
recognized for temporary differences between the financial reporting bases of
assets and liabilities and their respective tax bases and for operating loss and
tax credit carryforwards based on enacted rates expected to be in effect when
such amounts are realized or settled. The effects of changes in tax laws or
rates on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
(h) EARNINGS PER SHARE
Earnings per share has been calculated based upon the weighted average
number of shares outstanding and using the treasury stock method for outstanding
stock options. The number of shares used in this calculation has been adjusted
to reflect a one-for-three reverse stock split and the conversion of Class A and
Class B common stock into a single class of common stock (see note 10). For
1994, the fair market value per share for the purpose of the calculation of the
weighted average shares outstanding was assumed to be $11.00, which was the
mid-point of the initial public offering price range.
(i) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(j) RECLASSIFICATIONS
Certain amounts for 1993 and 1994 have been reclassified to conform to the
presentation for 1995.
(3) FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Computer equipment.......................................................... $ 5,225,000 $ 8,629,000
Office furniture and equipment.............................................. 887,000 1,398,000
Other....................................................................... 164,000 392,000
----------- -----------
6,276,000 10,419,000
Less accumulated depreciation............................................... 2,380,000 3,843,000
----------- -----------
$ 3,896,000 $ 6,576,000
----------- -----------
----------- -----------
</TABLE>
(4) OTHER INTANGIBLE ASSETS
Other intangible assets at December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
CAPITALIZED ACCUMULATED CARRYING
COST AMORTIZATION VALUE
----------- ----------- ------------
<S> <C> <C> <C>
Data bases................................................. $ 5,326,000 $2,749,000 $ 2,577,000
CPHA license............................................... 8,073,000 1,286,000 6,787,000
Prepaid CPHA royalties..................................... 5,958,000 949,000 5,009,000
Goodwill................................................... 4,934,000 1,202,000 3,732,000
Other...................................................... 1,938,000 1,018,000 920,000
----------- ----------- ------------
$26,229,000 $7,204,000 $ 19,025,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Other intangible assets at December 31, 1995 consist of the following:
F-11
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CAPITALIZED ACCUMULATED CARRYING
COST AMORTIZATION VALUE
----------- ----------- ------------
<S> <C> <C> <C>
Data bases................................................. $ 5,888,000 $3,711,000 $ 2,177,000
CPHA license............................................... 8,073,000 1,761,000 6,312,000
Prepaid CPHA royalties..................................... 5,958,000 1,300,000 4,658,000
Goodwill................................................... 27,531,000 2,231,000 25,300,000
Other...................................................... 3,976,000 85,000 3,891,000
----------- ----------- ------------
$51,426,000 $9,088,000 $ 42,338,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Data bases consist of the fair market value of various data bases acquired
through acquisitions, the cost of acquiring data and internal development costs
(direct labor and related overhead) incurred in standardizing data for use in
internally developed data bases. These assets are being amortized on a
straight-line basis over their estimated useful lives of five years.
Amortization expense for data bases was approximately $849,000, $839,000 and
$962,000 during 1993, 1994 and 1995, respectively.
During 1992, the Company acquired an exclusive license to access and sell
the data bases and certain other assets of the Commission on Professional and
Hospital Activities ("CPHA"). This license was recorded at its estimated fair
value of $8,073,000 at the date of acquisition and is being amortized on a
straight-line basis over 17 years. The amortization period was determined to be
the estimated economic life cycle of the licensed properties, as corroborated by
an independent appraisal, and reflected the remainder of the existing term of
the license at the date of acquisition plus one renewal term provided under the
terms of the agreement.
Under the terms of the license, the Company paid royalties to CPHA based on
revenues earned utilizing the licensed assets. Subsequent to the acquisition,
the Company and CPHA entered into a new license agreement. Under the terms of
the new agreement, the Company paid $5,958,000 to CPHA in lieu of future royalty
obligations. The payment is recorded as prepaid CPHA royalties and is being
amortized on a straight-line basis over 17 years, consistent with the estimated
economic life of the licensed properties.
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired. Goodwill is being amortized on a straight-line basis over
10 to 20 years. Such amortization periods are estimated based on the nature of
the products and markets of the acquired companies and the historical rates of
changes in these products and market areas.
Other intangibles consist of noncompetition agreements and identifiable
intangible assets obtained through acquisitions. The noncompetition agreements
are amortized over their 1 to 2 year terms. Certain of the noncompetition
agreements are with the original stockholders of the acquired company who are
still employed by the Company or AMBAC as of December 31, 1995. Amortization of
these agreements, which are valued at $684,000, will commence when the
stockholders are no longer employees of AMBAC or the Company. The acquired
identifiable intangible assets consist of trade names, assembled workforce,
customer base and methodologies. The trade names, assembled workforce and
customer base were obtained through the CHAMP acquisition, and are being
amortized over 12 years. The lives of these assets were determined by an
independent appraiser based on factors such as going concern value, employee
turnover and historical customer retention rates. The methodologies are being
amortized over their estimated useful lives of 5 years.
F-12
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) ACCRUED SALARIES, BENEFITS AND OTHER LIABILITIES
Accrued salaries, benefits and other liabilities consist of the following
at December 31:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Accrued salaries............................................................ $ 602,000 $ 844,000
Accrued benefits............................................................ 284,000 304,000
Accrued vacation............................................................ 418,000 562,000
Other....................................................................... 1,217,000 2,512,000
----------- -----------
$ 2,521,000 $ 4,222,000
----------- -----------
----------- -----------
</TABLE>
(6) LEASES
The Company leases certain of its equipment under capital leases. These
leases require monthly lease payments plus related sales taxes and maintenance
agreement payments and are capitalized using interest rates from 6.7% to 16.3%.
The equipment is recorded in the accompanying balance sheets as follows at
December 31:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Equipment....................................................................... $ 666,000 $ 859,000
Less: Accumulated amortization.................................................. 564,000 685,000
--------- ---------
Net...................................................................... $ 102,000 $ 174,000
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, future minimum obligations under the leases totaled
$186,000, including $12,000 representing interest.
The Company leases office space and certain equipment under operating
leases. Rent expense for these leases was $1,312,000, $1,527,000 and $2,286,000
during 1993, 1994 and 1995, respectively. The minimum rental commitments under
noncancelable operating leases as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1996..................................................................................... $ 2,937,000
1997..................................................................................... 2,429,000
1998..................................................................................... 1,909,000
1999..................................................................................... 1,618,000
2000..................................................................................... 1,049,000
Thereafter............................................................................... 1,794,000
------------
Total minimum payments required................................................... $ 11,736,000
------------
------------
</TABLE>
(7) SAVINGS INCENTIVE PLAN
The Company maintains the HCIA Inc. Savings Incentive Plan, a profit
sharing plan qualified under Section 401(a) of the Internal Revenue Code. All
employees of the Company who have completed one year of service are eligible to
participate in the Plan. Subject to certain limitations on individual
contributions and allocations and Company deductions, the Plan allows
participants to defer up to 15% of their pay on a pre-tax basis and up to 10% of
their pay on an after-tax basis. The Company also makes matching contributions
equal to 50% of the amount a participant defers up to 4% of the participant's
pay. The Plan also provides for discretionary contributions by the Company. All
participants are fully vested in all of their accounts in the Plan. The
Company's contributions to the Plan during 1993, 1994 and 1995 were
approximately $155,000, $167,000, and $194,000, respectively.
F-13
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The income tax expense (benefit) relating to the operations of the Company
is composed of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- -----------
<S> <C> <C> <C>
Federal and state:
Current..................................................... $(514,000) $1,097,000 $ 2,071,000
Deferred.................................................... 876,000 (338,000) (3,625,000)
--------- ---------- -----------
Total income tax expense (benefit)..................... $ 362,000 $ 759,000 $(1,554,000)
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
The tax provisions in the accompanying financial statements differ from
prevailing federal corporate rates. A reconciliation of this difference follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------------- --------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
--------- ---- -------- ---- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense (benefit)
at statutory rate................................. $ 251,000 35.0% $623,000 35.0% $(1,346,000) (34.0)%
Goodwill amortization............................... 100,000 14.0 44,000 2.5 187,000 4.7
Tax-exempt interest................................. -- -- -- -- (199,000) (5.0)
State tax net of federal benefit.................... -- -- 93,000 5.2 (221,000) (5.6)
Other, net.......................................... 11,000 1.5 (1,000) -- 25,000 .6
--------- ---- -------- ---- ----------- -----
$ 362,000 50.5% $759,000 42.7% $(1,554,000) (39.3)%
--------- ---- -------- ---- ----------- -----
--------- ---- -------- ---- ----------- -----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets at December 31,
1994 and 1995, are presented below:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Deferred tax assets:
Operating accruals......................................................... $ 247,000 $ 403,000
Cost of acquired in-process research and development....................... -- 4,941,000
--------- -----------
Gross deferred tax assets............................................... 247,000 5,344,000
Valuation allowance..................................................... -- --
--------- -----------
Net deferred tax assets................................................. 247,000 5,344,000
Deferred tax liabilities:
Capitalized acquisitions costs............................................. $ 274,000 $ 352,000
Capitalized royalty payments............................................... 171,000 183,000
Capitalized software....................................................... 337,000 1,719,000
--------- -----------
Total deferred tax liabilities.......................................... 782,000 2,254,000
--------- -----------
Net deferred tax asset (liability)...................................... $(535,000) $ 3,090,000
--------- -----------
--------- -----------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 and
December 31, 1994 and 1995 was $0. Therefore, there was no net change in the
valuation allowance for 1994 and 1995.
(9) LINE OF CREDIT
The Company has entered into a line of credit agreement with a bank which
allows for maximum borrowings of $4,000,000. The line of credit is secured by
accounts receivable and bears interest at the bank's prime rate
F-14
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus 0.25% (8.75% as of December 31, 1995) and expires on January 2, 1997. The
Company also pays a commitment fee on the average daily unused portion of the
line of credit at a rate of 0.25% per annum. As of December 31, 1995 there had
been no borrowings under the line of credit.
(10) STOCKHOLDERS' EQUITY
(a) CAPITAL AMENDMENT
Effective February 14, 1995, the Company filed an amendment to its articles
of incorporation which effected: (i) a one-for-three reverse stock split; (ii)
the conversion of the Class A and Class B common stock into a single class of
common stock; and (iii) the authorization of a total of 15,000,000 shares of
common stock and 500,000 shares of preferred stock, each having a par value of
$.01 per share. All references to common stock and stock options in these
financial statements have been adjusted to reflect the one-for-three reverse
stock split as if it had occurred prior to January 1, 1993.
(b) COMMON AND PREFERRED STOCK
The preferred stock may be issued from time to time by the board of
directors as shares of one or more series. The description of the shares of each
series of preferred stock is established by the board of directors prior to the
issuance of the series of shares.
During 1993, the Company issued 30,000 shares of Series B, 6% cumulative
preferred stock to AMBAC Indemnity Corporation ("AIC").
During 1994, the Company issued 2,378,672 shares of common stock to AIC in
exchange for the 225,621 shares of preferred stock then outstanding.
During 1995, the Company issued 3,512,500 shares of common stock in
connection with its public offerings.
(c) OPTIONS
At December 31, 1994 and 1995, the Company had outstanding stock options as
follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Stock options outstanding pursuant to:
HCIA Stock Option Plan.......................................................... -- 169,933
Directors Option Plan........................................................... -- 22,500
Other options................................................................... 374,226 507,800
-------- --------
Total stock options outstanding................................................. 374,226 700,233
-------- --------
-------- --------
</TABLE>
The HCIA Stock Option Plan provides that up to 450,000 options may be
issued to employees of the Company. Options granted to date under this plan vest
over a period of three or four years. The Directors Option Plan provides that
100,000 options may be issued to outside directors of the Company. Options
granted to date under this plan vest over a period of two years. The Company has
also issued non-plan options which generally vest over periods of two or three
years. In February 1995, the Company issued a non-plan option to its chief
executive officer which was fully vested on the date of grant. All stock options
issued by the Company have been granted with exercise prices equal to or greater
than the estimated fair market value of the common stock on the date of grant;
accordingly, the Company has recorded no compensation expense related to such
grants. Stock option transactions are summarized as follows:
F-15
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Options outstanding -- beginning of period....................... 169,163 164,997 374,226
Granted.......................................................... -- 217,563 357,433
Exercised........................................................ -- -- (6,427)
Cancelled........................................................ (4,166) (8,334) (24,999)
------- ------- ------------
Options outstanding -- end of period............................. 164,997 374,226 700,233
------- ------- ------------
------- ------- ------------
Option price or price ranges during period:
Granted.......................................................... $ -- $10.50 $14.00-26.25
Exercised........................................................ $ -- $ -- $10.50
Options exercisable at end of period............................. -- -- 186,876
------- ------- ------------
------- ------- ------------
</TABLE>
(11) RELATED PARTY TRANSACTIONS
In January 1993 and 1994, the Company executed credit agreements with
AMBAC. The credit agreement entered into in January 1994 replaced the prior
agreement and extended a revolving line of credit of $2.5 million (subject to
certain borrowing base limitations) at a rate based upon the prime rate of
Citibank, N.A. in New York, New York. The Company was also required to pay AMBAC
a commitment fee on the average daily unused portion of the line of credit at a
rate of 0.25% per annum. The Company utilized approximately $1.9 million of the
proceeds from its initial public offering to repay the outstanding borrowings
under the credit agreement. The credit agreement was terminated in May 1995.
Until August 1995, the Company maintained its business insurance, including
property, general liability, automobile, workers' compensation and fidelity and
fiduciary coverage (including officers' and directors' liability insurance)
through AMBAC, which purchased insurance coverage for the Company. The Company
was charged its pro rata share of premiums. The amounts of premiums paid to
AMBAC by the Company were $90,000, $72,000 and $89,000 for policy years 1993,
1994 and 1995, respectively.
AIC purchases information services from the Company. Such purchases totaled
$262,000, $288,000 and $250,000 during 1993, 1994 and 1995, respectively.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, trade accounts
receivable, other current assets, accounts payable, accrued expenses and capital
lease obligations approximates fair value because of the short-term maturity of
these instruments. The fair value of short-term investments is estimated based
on quoted market prices for these or similar investments. The Company has notes
receivable from and notes payable to individuals relating to certain of its
business acquisitions. It is not practicable to estimate the fair value of these
notes since they are not traded, no quoted values are readily available for
similar financial instruments and the Company believes it is not cost-effective
to have valuations performed. However, management believes that there has been
no permanent impairment in the value of such notes.
(13) NEW FINANCIAL ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS No. 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation expense
in the income statement, or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the notes to the Company's
consolidated financial statements commencing with the Company's 1996 fiscal
year. The Company expects to adopt SFAS No. 123 on a disclosure basis only. As
such, implementation of SFAS No. 123 is not expected to impact the Company's
consolidated financial statements.
F-16
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of " ("SFAS No. 121"), was issued. This Statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles which are to be
disposed. Implementation of SFAS No. 121 is not expected to have a material
impact on the Company's consolidated financial statements.
(14) SUBSEQUENT EVENTS (UNAUDITED)
In May 1996, the Company acquired all of the outstanding capital stock of
Response Healthcare Information Management, Inc. ("Response") for approximately
$6,200,000 in cash. Response specializes in capturing and analyzing
point-of-care, patient-centered data relating to disease-specific outcomes
measurement, member/patient satisfaction and functional status, as well as the
development of Internet applications. Response's primary customers include
managed care organizations and pharmaceutical companies. At the date of the
acquisition, the Company recorded a non-recurring charge of $4,372,000 relating
to acquired in-process research and development costs.
On August 9, 1996, the Company acquired LBA Health Care Management, Inc.
("LBA") through the acquisition of all of the capital stock of its parent
company, HealthVISION, Inc., for approximately $130,000,000, $100,000,000 of
which is payable in cash and $30,000,000 of which is payable by the delivery of
492,961 shares of common stock of the Company. The Company utilized a
$100,000,000 bank credit facility to fund the cash portion of the purchase
price, which the Company intends to repay with the net proceeds of an offering
of its common stock soon after the date of acquisition. LBA is a provider of
health care information products and services that combine data collection,
benchmarking and decision support tools to identify and quantify cost reduction
and quality improvement opportunities in clinical settings.
F-17
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, JUNE 30,
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 3,190 $ 6,387
Short-term investments................................................................. 23,280 19,752
Trade accounts receivable, net of allowance for doubtful accounts of
$868 in 1996 and $454 in 1995....................................................... 16,623 24,531
Prepaid expenses and other current assets.............................................. 2,236 3,167
-------- -----------
Total current assets.............................................................. 45,329 53,837
Furniture and equipment, net............................................................. 6,576 7,554
Computer software costs, net............................................................. 11,012 15,086
Other intangible assets, net............................................................. 42,338 43,012
Deferred tax asset, net.................................................................. 3,090 3,697
Other.................................................................................... 56 868
-------- -----------
Total assets...................................................................... $108,401 $ 124,054
-------- -----------
-------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 732 $ 1,211
Accrued salaries, benefits and other liabilities....................................... 4,222 4,959
Capital lease obligations.............................................................. 174 116
Notes payable.......................................................................... 2,265 2,160
Income taxes payable................................................................... 1,098 1,413
Deferred revenue....................................................................... 1,167 2,007
-------- -----------
Total current liabilities......................................................... 9,658 11,866
Notes payable............................................................................ 699 --
-------- -----------
Total liabilities................................................................. 10,357 11,866
-------- -----------
Stockholders' equity:
Common stock -- $.01 par value; 15,000,000 shares authorized; 9,274,387 issued
and outstanding as of June 30, 1996.................................................... 90 92
Additional paid-in capital............................................................... 102,882 116,141
Accumulated deficit...................................................................... (4,953) (3,989)
Cumulative unrealized (depreciation)/appreciation of short-term investments.............. 44 (32)
Cumulative effect of currency translation adjustment..................................... (19) (24)
-------- -----------
98,044 112,188
-------- -----------
Total liabilities and stockholders' equity............................................... $108,401 $ 124,054
-------- -----------
-------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revenue..................................................................................... $21,005 $30,718
Salaries, wages and benefits................................................................ 10,163 13,558
Other operating expenses.................................................................... 5,536 6,816
Depreciation................................................................................ 655 1,090
Amortization................................................................................ 2,305 3,716
Write-off of acquired in-process research and development costs............................. -- 4,372
------- -------
Operating income....................................................................... 2,346 1,166
Interest income............................................................................. 417 566
Interest expense............................................................................ (39) (142)
------- -------
Income before income taxes and minority interest in income of consolidated
subsidiaries.......................................................................... 2,724 1,590
Provision for income taxes.................................................................. (1,189) (626)
Minority interest in income of consolidated subsidiaries.................................... (28) --
------- -------
Net income............................................................................. $ 1,507 $ 964
------- -------
------- -------
Net income per share........................................................................ $ 0.21 $ 0.10
------- -------
------- -------
Shares used in per share calculation........................................................ 7,173 9,549
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
UNREALIZED CUMULATIVE
APPRECIATION/ EFFECT OF
ADDITIONAL (DEPRECIATION) OF CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED SHORT-TERM TRANSLATION STOCKHOLDERS'
STOCK CAPITAL DEFICIT INVESTMENTS ADJUSTMENT EQUITY
------ ---------- ----------- ----------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994............ $ 54 $ 36,876 $(2,548) $ -- $(11) $ 34,371
------ ---------- ----------- ----- ----- -------------
Sale of common stock to the
public....................... 36 66,006 -- -- -- 66,042
Net loss....................... -- -- (2,405) -- -- (2,405)
Effect of currency translation
adjustment................... -- -- -- -- (8) (8)
Unrealized appreciation of
short-term investments....... -- -- -- 44 -- 44
------ ---------- ----------- ----- ----- -------------
BALANCE AT
DECEMBER 31, 1995............ 90 102,882 (4,953) 44 (19) 98,044
------ ---------- ----------- ----- ----- -------------
Exercise of stock options...... -- 503 -- -- -- 503
Sale of common stock to the
public....................... 2 12,756 -- -- -- 12,758
Net income..................... -- -- 964 -- -- 964
Effect of currency translation
adjustment................... -- -- -- -- (5) (5)
Unrealized (depreciation) of
short-term investments....... -- -- -- (76) -- (76)
------ ---------- ----------- ----- ----- -------------
BALANCE AT JUNE 30, 1996
(unaudited).................. $ 92 $ 116,141 $(3,989) $ (32) $(24) $ 112,188
------ ---------- ----------- ----- ----- -------------
------ ---------- ----------- ----- ----- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................... $ 1,507 $ 964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 2,960 4,806
Write-off of acquired in-process research and development costs....................... -- 4,372
Deferred tax provision................................................................ -- (386)
Changes in operating assets and liabilities:
Accounts receivable................................................................. (2,206) (6,767)
Income taxes payable................................................................ 1,109 315
Prepaid expenses.................................................................... (308) (485)
Accounts payable.................................................................... 19 336
Accrued salaries, benefits and other liabilities.................................... (811) (110)
Deferred revenue.................................................................... (10) 629
Minority interest................................................................... 29 --
-------- --------
Net cash provided by operating activities........................................ 2,289 3,674
-------- --------
Cash flows from investing activities:
Purchases of furniture and equipment..................................................... (1,650) (2,369)
Cost of acquisitions, net of cash acquired............................................... (14,976) (6,782)
Computer software purchased or capitalized............................................... (2,684) (5,517)
Other intangible assets purchased or capitalized......................................... (453) (820)
Purchases of short-term investments...................................................... -- (45,329)
Proceeds from disposals of short-term investments........................................ -- 48,781
Other.................................................................................... (28) (812)
-------- --------
Net cash used in investing activities............................................ (19,791) (12,848)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options.................................................. -- 503
Proceeds from public offerings........................................................... 25,675 12,758
Borrowing from related party............................................................. 600 --
Repayments of notes payable.............................................................. (71) (804)
Repayments of related party borrowings................................................... (1,900) --
Principal payments on capital leases..................................................... (147) (81)
-------- --------
Net cash provided by (used in) financing activities.............................. 24,157 12,376
-------- --------
Impact of currency fluctuations on cash and cash equivalents............................... (4) (5)
-------- --------
Increase in cash and cash equivalents...................................................... 6,651 3,197
Cash and cash equivalents -- beginning of period........................................... 696 3,190
-------- --------
Cash and cash equivalents -- end of period................................................. $ 7,347 $ 6,387
-------- --------
-------- --------
Supplemental cash flow information -- cash paid during period for interest................. $ 79 $ 72
-------- --------
-------- --------
-- cash paid during period for income taxes............. $ -- $ 699
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of the Company have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, these statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations, changes in stockholders'
equity and cash flows for the periods presented. The results of operations for
the six-month period ended June 30, 1996 may not be indicative of the results
that may be expected for the full year ending December 31, 1996. These financial
statements and notes should be read in conjunction with the financial statements
and notes included in the audited consolidated financial statements of the
Company for the year ended December 31, 1995 appearing elsewhere herein.
(2) CASH EQUIVALENTS
As of June 30, 1996, cash equivalents consist of highly liquid securities
with original maturities of three months or less at the date acquired by the
Company. The Company's short term investments consist of preferred stocks,
variable rate debenture bonds and municipal bonds.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
LBA HEALTH CARE MANAGEMENT, INC.
We have audited the accompanying combined balance sheet of LBA Health Care
Management, Inc. and Healthcare Data Source, Inc. (collectively, the
"Predecessor Business") as of December 31, 1994, the combined statements of
operations and retained earnings, and cash flows for the Predecessor Business
for each of the years ended December 31, 1993 and 1994 and for the period from
January 1, 1995 through September 27, 1995, the balance sheet of LBA Health Care
Management, Inc. as of December 31, 1995, and the statements of operations and
retained earnings, and cash flows of LBA Health Care Management, Inc. for the
period from September 28, 1995 through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of LBA Health Care
Management, Inc. and Healthcare Data Source, Inc. at December 31, 1994 and 1995,
the combined results of their operations and retained earnings, and their cash
flows for each of the years ended December 31, 1993, 1994 and for the period
from January 1, 1995 through September 27, 1995, and the financial position of
LBA Health Care Management, Inc. at December 31, 1995, and the results of its
operations and retained earnings, and its cash flows for the period from
September 28, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
January 12, 1996, except Note 8
as to which the date is
July 30, 1996
F-23
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
BALANCE SHEETS
PREDECESSOR BUSINESS COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
PREDECESSOR LBA HEALTH CARE
BUSINESS MANAGEMENT, INC.
------------ ----------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 232,181 $ 1,824,734
Accounts receivable............................................................ 1,689,854 2,018,297
Prepaid expenses and other current assets...................................... 162,148 197,643
------------ ----------------
Total current assets............................................................. 2,084,183 4,040,674
Deferred tax asset............................................................... -- 2,150,823
Building, equipment and furniture, net........................................... 865,864 1,012,501
Loan fees and closing costs, net................................................. -- 841,875
Intangibles, net................................................................. -- 44,033,921
------------ ----------------
Total assets..................................................................... $2,950,047 $ 52,079,794
------------ ----------------
------------ ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 10,017 $ 329,581
Accrued compensation and related liabilities................................... 854,814 210,165
Other accrued liabilities...................................................... -- 200,000
Customer advances.............................................................. 79,172 --
Accrued interest............................................................... -- 789,011
Deferred revenue............................................................... 261,834 --
Income taxes payable........................................................... -- 837,309
Current portion of long-term debt.............................................. 183,034 5,121,369
------------ ----------------
Total current liabilities........................................................ 1,388,871 7,487,435
Long-term debt, less current portion............................................. 136,736 30,984,065
Parent company payable........................................................... -- 15,978,181
Commitments and contingencies
STOCKHOLDERS' EQUITY:
LBA Health Care Management, Inc. common stock, $.01 par value; 100 shares
authorized, 100 shares issued and outstanding in 1995....................... -- 1
LBA common stock, no par value; 1,000,000 shares authorized, 650 shares issued
and outstanding in 1994..................................................... 129,766 --
HDS common stock, $1.00 par value; 10,000 shares authorized, issued and
outstanding in 1994......................................................... 10,000 --
Additional paid-in capital..................................................... 240,000 --
Treasury stock................................................................. (543,090) --
Retained earnings.............................................................. 1,587,764 (2,369,888)
------------ ----------------
Total stockholders' equity....................................................... 1,424,440 (2,369,887)
------------ ----------------
Total liabilities and stockholders' equity....................................... $2,950,047 $ 52,079,794
------------ ----------------
------------ ----------------
</TABLE>
See accompanying notes.
F-24
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
PREDECESSOR BUSINESS COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
LBA HEALTH CARE
PREDECESSOR BUSINESS MANAGEMENT, INC.
--------------------------------------------- ------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 SEPTEMBER 28, 1995
YEARS ENDED DECEMBER 31, THROUGH THROUGH
-------------------------- SEPTEMBER 27, DECEMBER 31,
1993 1994 1995 1995
----------- ----------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenue....................................... $11,108,428 $12,470,708 $10,163,707 $ 6,453,677
Cost of revenue............................... 2,919,235 3,918,616 3,453,789 3,616,469
----------- ----------- --------------- ------------------
Gross profit.................................. 8,189,193 8,552,092 6,709,918 2,837,208
Operating expenses:
Product development......................... 487,250 450,944 420,512 49,846
Sales and marketing......................... 6,231,602 5,734,456 5,462,776 759,261
General and administrative.................. 1,280,222 1,453,120 1,247,578 3,285,856
Write-off of in-process technology.......... -- -- -- 1,580,000
----------- ----------- --------------- ------------------
Total operating expenses...................... 7,999,074 7,638,520 7,130,866 5,674,963
----------- ----------- --------------- ------------------
Operating income (loss)....................... 190,119 913,572 (420,948) (2,837,755)
Other income (expense):
Interest expense............................ (45,404) (35,834) (16,230) (854,181)
Interest income............................. 7,827 11,683 11,092 8,534
----------- ----------- --------------- ------------------
Total other income (expense).................. (37,577) (24,151) (5,138) (845,647)
----------- ----------- --------------- ------------------
Income (loss) before income taxes............. 152,542 889,421 (426,086) (3,683,402)
Benefit for income taxes...................... -- -- -- (1,313,514)
----------- ----------- --------------- ------------------
Net income (loss)............................. 152,542 889,421 (426,086) (2,369,888)
Beginning retained earnings................... 545,801 698,343 1,587,764 --
----------- ----------- --------------- ------------------
Ending retained earnings
(accumulated deficit)....................... $ 698,343 $ 1,587,764 $ 1,161,678 $ (2,369,888)
----------- ----------- --------------- ------------------
----------- ----------- --------------- ------------------
</TABLE>
See accompanying notes.
F-25
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
PREDECESSOR BUSINESS COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
LBA HEALTH CARE
PREDECESSOR BUSINESS MANAGEMENT, INC.
------------------------------------------- ------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 SEPTEMBER 28, 1995
YEARS ENDED DECEMBER 31, THROUGH THROUGH
------------------------ SEPTEMBER 27, DECEMBER 31,
1993 1994 1995 1995
--------- --------- --------------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................. $ 152,542 $ 889,421 $ (426,086) $ (2,369,888)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 142,569 248,652 254,146 166,474
Amortization of intangibles...................... -- -- -- 4,813,997
Write-off of in-process technology............... -- -- -- 1,580,000
Deferred tax assets.............................. -- -- -- (2,150,823)
Changes in operating assets and liabilities:
Accounts receivable............................ 17,376 (841,353) 40,442 (368,885)
Prepaid expenses and other assets.............. 30,743 (130,399) (12,588) (22,907)
Accounts payable............................... (47,876) (3,041) (4,496) 323,873
Accrued compensation and related liabilities... 332,922 192,074 (682,140) 37,491
Other accrued liabilities...................... -- -- -- 200,000
Customer advances.............................. -- 79,172 64,805 (143,977)
Accrued interest............................... -- -- -- 789,011
Deferred revenue............................... (358,839) 101,733 1,494,374 (1,756,208)
Income taxes payable........................... -- -- -- 837,309
--------- --------- --------------- ------------------
Net cash provided by operating activities.......... 269,437 536,259 728,457 1,935,467
INVESTING ACTIVITIES
Purchases of building, equipment and furniture..... (203,300) (483,565) (163,259) (278,168)
Acquisition of LBA Health Care Management, Inc. and
Healthcare Data Source, Inc., less cash and cash
equivalents of $397,517.......................... -- -- -- (39,802,483)
--------- --------- --------------- ------------------
Net cash used in investing activities.............. (203,300) (483,565) (163,259) (40,080,651)
FINANCING ACTIVITIES
Proceeds from acquisition debt, net of loan fees... -- -- -- 35,000,000
Proceeds from sale of parent company stock in
relation to acquisition.......................... -- -- -- 5,000,000
Principal payments on debt......................... (189,086) (130,999) (192,183) (30,082)
Issuance of common stock in formation of HDS....... -- 250,000 -- --
--------- --------- --------------- ------------------
Net cash (used in) provided by financing
activities....................................... (189,086) 119,001 (192,183) 39,969,918
--------- --------- --------------- ------------------
Net (decrease) increase in cash.................... (122,949) 171,695 373,015 1,824,734
Cash at beginning of period........................ 183,435 60,486 232,181 --
--------- --------- --------------- ------------------
Cash at end of period.............................. $ 60,486 $ 232,181 $ 605,196 $ 1,824,734
--------- --------- --------------- ------------------
--------- --------- --------------- ------------------
Supplemental schedule of non-cash investing and
financing activities:
Issuance of parent company stock in relation to
acquisition, net of capital contribution....... $ -- $ -- $ -- $ 10,978,181
--------- --------- --------------- ------------------
--------- --------- --------------- ------------------
Cash paid for interest........................... $ 45,404 $ 35,834 $ 16,230 $ 65,170
--------- --------- --------------- ------------------
--------- --------- --------------- ------------------
Equipment and furniture obtained through capital
lease financing................................ $ 35,501 $ 57,318 $ 52,538 $ 147,455
--------- --------- --------------- ------------------
--------- --------- --------------- ------------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. THE COMPANY, ORGANIZATION AND BASIS OF PRESENTATION
On September 27, 1995, LBA Health Care Management, Inc. (the "Company")
acquired substantially all of the business, assets, and liabilities of LBA
Health Care Management, Inc. and Healthcare Data Source, Inc. (collectively, the
"Predecessor Business") pursuant to the terms of the Purchase Agreement dated
September 25, 1995 between HealthVISION, Inc., the parent of the Company, and
the Predecessor Business. The Company is now a wholly-owned subsidiary of
HealthVISION, Inc. The Company provides consulting and marketing services to
health care providers.
The aggregate purchase price (including closing costs) of the Predecessor
Business was $51,178,182. The acquisition was financed through $5,000,000 in
cash, the issuance of debt aggregating $35,000,000, and the issuance of
$10,978,182 of HealthVISION, Inc.'s, the parent company's, stock. The business
acquisition was accounted for by the purchase method and the results of
operations of the Predecessor Business are included in the Company's financial
statements beginning September 28, 1995. The allocation of the purchase price
was as follows:
<TABLE>
<S> <C>
Total purchase price............................................................. $51,178,182
Fair market value of net tangible assets acquired................................ (808,389)
-----------
Excess purchase price over fair market value of net tangible assets acquired
("excess purchase price")...................................................... $50,369,793
-----------
-----------
Allocation of excess purchase price:
Goodwill......................................................................... $19,079,793
Covenant-not-to-compete.......................................................... 13,700,000
Value enhancements............................................................... 9,310,000
Assembled work force............................................................. 3,000,000
Backlog.......................................................................... 3,700,000
In-process technology............................................................ 1,580,000
-----------
$50,369,793
-----------
-----------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized ratably over the estimated time to complete a
contract which is six to twelve months in duration.
The Company has offered Value Enhancement systems to health care providers
throughout the United States. As part of the Value Enhancement Programs, the
Company has guaranteed that each customer will achieve cost savings. In the
event such cost savings are not achieved, the Company may be subject to claims
related to such guarantees. The Company or its predecessor did not incur any
such claims during the periods ended December 31, 1993, 1994 and 1995. No
reserves are maintained for any potential future claims.
ACCOUNTS RECEIVABLE
Receivable balances represent amounts due primarily from hospitals in the
United States for consulting work performed. The Company performs ongoing credit
evaluations of these companies and generally does not require collateral.
F-27
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
UNBILLED RECEIVABLES
Unbilled receivables represent recoverable costs and accrued profit related
to contracts on which revenue has been recognized, but billings have not been
presented to the customer.
INTANGIBLES
Intangibles reflect the allocation of excess purchase price resulting from
the acquisition of the Predecessor Business. Amortization is based upon the
periods of expected economic benefit which are as follows: goodwill -- 20 years,
covenants-not-to-compete -- 3 years, value enhancements -- 2.5 years,
backlog -- 1 year, and assembled workforce -- 3 years.
Acquired technology which is in process, has not reached technological
feasibility, and has no alternative future use is written-off in the period in
which it is acquired. The write-off of in-process technology was $1,580,000 for
the period September 28, 1995 through December 31, 1995.
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
------------------- -----------
<S> <C> <C>
Goodwill............................................................ $ -- $19,079,793
Covenant-not-to-compete............................................. -- 13,700,000
Value enhancements.................................................. -- 9,310,000
Assembled work force................................................ -- 3,000,000
Backlog............................................................. -- 3,700,000
------------------- -----------
-- 48,789,793
Less accumulated amortization....................................... -- (4,755,872)
------------------- -----------
Intangibles, net.................................................... $ -- $44,033,921
------------------- -----------
------------------- -----------
</TABLE>
Amortization has been expensed in the accompanying statements of operations
as cost of revenue of $1,911,033 and general and administrative of $2,844,839.
The Company performs evaluations as of each balance sheet date assessing
the recoverability and amortization of intangibles by determining whether the
intangibles can be recovered through the estimated undiscounted cash flows of
the businesses acquired over the remaining amortization period. The Company
considers external factors relating to each acquired business, including
technological advances, competition, regulatory developments and trends of the
businesses and other pertinent factors in making its assessment. The Company
does not believe there are currently any factors that would require an
adjustment to the carrying value of its intangibles or their remaining lives as
of December 31, 1995.
BUILDING, EQUIPMENT AND FURNITURE
Building, equipment and furniture are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which are as follows:
<TABLE>
<S> <C>
Building.......................................................... 30 years
Office equipment.................................................. 4-5 years
Computer equipment................................................ 3 years
Furniture and fixtures............................................ 6 years
</TABLE>
F-28
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1995
presentation. Additionally, retained earnings at January 1, 1993 was restated to
properly account for a prior period adjustment in the amount of $518,940.
3. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("Statement 109"), "Accounting for Income
Taxes". Under Statement 109, the liability method is used to account for income
taxes. Under this method, deferred taxes and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The Predecessor Business elected to be classified as an S corporation under
Section 1362 of the Internal Revenue Code for federal and state income tax
purposes. Accordingly, federal income taxes on any earnings were payable by the
Predecessor Business' stockholders and not the S corporations themselves; state
income taxes were immaterial and were payable by both the Predecessor Business
and its stockholders. The provision for income taxes for the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 through
September 27, 1995 were immaterial and are not separately disclosed in the
accompanying financial statements.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Basis difference in acquired assets............................................. $ 153,532
Deferred tax assets:
Basis difference in acquired assets............................................. 2,304,355
Valuation allowance for deferred tax assets..................................... --
----------
Net deferred tax assets........................................................... $2,150,823
----------
----------
</TABLE>
F-29
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. INCOME TAXES -- Continued
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 28, 1995
THROUGH
DECEMBER 31, 1995
------------------
<S> <C>
Current:
Federal................................................. $ 694,354
State................................................... 142,955
------------------
Total current............................................. 837,309
Deferred:
Federal................................................. (1,783,609)
State................................................... (367,214)
------------------
Total deferred............................................ (2,150,823)
------------------
$ (1,313,514)
------------------
------------------
</TABLE>
4. BUILDING, EQUIPMENT AND FURNITURE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Building............................................................ $ 184,022 $ --
Office equipment.................................................... 178,072 198,204
Computer equipment.................................................. 747,053 1,117,915
Furniture and fixtures.............................................. 308,955 559,380
---------- ----------
1,418,102 1,875,499
Less accumulated depreciation and amortization...................... (552,238) (862,998)
---------- ----------
Building, equipment and furniture, net.............................. $ 865,864 $1,012,501
---------- ----------
---------- ----------
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- -----------
<S> <C> <C>
Revolving credit note payable pursuant to $25,750,000 Senior Credit Agreement with
senior bank (interest accrues at prime plus 0.50% for prime rate loans and at the
LIBOR rate plus 3.00% on $15,450,000 and 1.50% on $10,300,000); the Company's average
borrowing rate at December 31, 1995 was 8.3%; borrowings under agreement are payable
in quarterly installments of varying amounts through September 1999.................. $ -- $25,750,000
Note payable pursuant to $10,150,000 Subordinated Credit Agreement with bank (interest
accrues at the prime rate plus 0.50% for prime rate loans and at the LIBOR rate plus
1.50% for Eurodollar loans); the Company's average borrowing rate at December 31,
1995 was 7.6%; borrowings under agreement are payable in September 1999.............. -- 10,150,000
Notes payable resulting from common stock repurchases from former stockholders, bearing
interest at 8.9% per annum due in varying monthly installments plus interest through
September 1995....................................................................... 114,739 --
</TABLE>
F-30
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM DEBT -- Continued
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- -----------
<S> <C> <C>
Note payable bearing interest at 7.5% per annum payable in monthly installments plus
interest through January 2003........................................................ 93,032 --
Note payable bearing interest at 12% per annum payable in monthly installments plus
interest through November 1996....................................................... 22,557 11,256
Capital lease obligations bearing interest at rates ranging from 8 to 12% per annum
payable in varying monthly installments plus interest through September 1998......... 89,442 194,178
-------- -----------
319,770 36,105,434
Less current portion................................................................... (183,034) (5,121,369)
-------- -----------
Long-term debt......................................................................... $136,736 $30,984,065
-------- -----------
-------- -----------
</TABLE>
Future payments are due as follows for the periods ended December 31:
<TABLE>
<CAPTION>
NOTES CAPITAL LEASE
PAYABLE OBLIGATIONS
----------- -------------
<S> <C> <C>
1996........................................................ $ 5,011,256 $ 110,113
1997........................................................ 5,750,000 64,777
1998........................................................ 6,500,000 42,984
1999........................................................ 18,650,000 --
----------- -------------
Total minimum payments...................................... $35,911,256 217,874
-----------
-----------
Less amount representing interest........................... (23,696)
-------------
Present value of minimum payments........................... $ 194,178
-------------
-------------
</TABLE>
Equipment and furniture under capital leases at December 31, 1995 totaled
$329,813 ($185,067 at December 31, 1994) and is included in building, equipment
and furniture in the accompanying balance sheets. The related accumulated
amortization at December 31, 1995 totaled $87,957 ($98,544 at December 31,
1994). Amortization of assets recorded under capital leases is included in
depreciation expense.
LOAN FACILITIES
On September 27, 1995, the Company entered into a Senior Credit Agreement
by and between the Company and the senior bank. Subject to the terms and
conditions of the Senior Credit Agreement, the Company is entitled to borrow up
to $25,750,000 from the senior bank, on a revolving basis, through the maturity
date of the credit facility, which is September 1999. The Company's obligations
under the Senior Credit Agreement are secured by a security interest in favor of
the senior bank in substantially all of the assets of the Company. In addition,
HealthVISION, Inc., the parent of the Company, provided a security interest in
substantially all of its assets, including its shares of capital stock in
subsidiary and affiliated corporations, to secure the obligations of the Company
to the senior bank under the Senior Credit Agreement, and HealthVISION, Inc.
provided an unlimited guaranty in favor of the senior bank with respect to the
obligations of the Company under the Senior Credit Agreement. Similarly, another
subsidiary of HealthVISION, Inc. granted a security interest in substantially
all of its assets, including its shares of capital stock of its subsidiary and
affiliated corporations, to secure the obligations of the Company to the senior
bank under the Senior Credit Agreement, and an unlimited guaranty in favor of
the senior bank with respect to the obligations of the Company and the Senior
Credit Agreement.
F-31
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM DEBT -- Continued
A second and subordinated credit facility in the amount of $10,150,000 was
entered into by and between the Company and a bank pursuant to a Credit
Agreement by and between the Company and a bank also dated September 27, 1995
(the "Subordinated Credit Agreement"). To secure these obligations, the Company
granted a security interest in substantially all of its assets in favor of the
bank. HealthVISION, Inc., the parent of the Company, granted a security interest
to the bank in its shares of capital stock in its subsidiaries and affiliates to
secure the obligations of the Company under the Subordinated Credit Agreement.
HealthVISION, Inc. also provided an unlimited guaranty of the Company's
obligations under the Subordinated Credit Agreement and major stockholders of
HealthVISION, Inc. provided limited guaranties in favor of the bank with respect
to the Company's obligations under the Subordinated Credit Agreement similar to
those provided for the senior bank. In addition, the bank received a $9,239,000
letter of credit bearing an interest rate of 1.5%, due quarterly, if the letter
of credit is outstanding, naming the bank as beneficiary.
The agreements contain certain restrictive covenants, including the
maintenance of certain financial ratios and limitations on additional
borrowings, mergers, acquisitions, dispositions and the payment of dividends.
The agreements also provide for additional payments of principal from excess
cash flow.
6. COMMITMENTS AND CONTINGENCIES
The Company leases substantially all of its office facilities under
noncancelable operating leases having initial terms greater than one year.
Future minimum lease payments under noncancelable operating leases are as
follows for the periods ended December 31:
<TABLE>
<S> <C>
1996........................................................................ $511,404
1997........................................................................ 527,856
1998........................................................................ 404,728
-----------
$1,443,988
-----------
-----------
</TABLE>
Rent expense was $97,423 for the period from September 28, 1995 through
December 31, 1995 ($232,789 for the period from January 1, 1995 through
September 27, 1995 and $261,246 and $195,632 for the years ended December 31,
1994 and 1993, respectively).
The Predecessor Business maintained a $350,000 line of credit with a bank
that expires on January 20, 1996. There were no advances on the line of credit
as of December 31, 1995.
7. EMPLOYEE RETIREMENT AND SAVINGS PLAN
The Company has a qualified 401(k) savings plan (the "Plan"). Under the
Plan, full time employees with one year of service may defer a portion of their
salary. At the discretion of the Board of Directors, the Company may also make a
matching contribution for all eligible employees. Contributions by the Company
to the Plan were $18,842, $82,866, $86,512 and $81,070 for the period from
September 28, 1995 through December 31, 1995, the period from January, 1995
through September 27, 1995 and the years ended December 31, 1994 and 1993,
respectively.
8. SUBSEQUENT EVENT
On July 19, 1996, HealthVISION, Inc. entered into a definitive agreement to
sell the Company.
F-32
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS) -- PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. SUBSEQUENT EVENT -- Continued
LEGAL PROCEEDINGS
The Company is currently a defendant to a civil complaint filed April 26,
1996, in the United States District Court of Colorado, by a former employee. The
complaint alleges that the former employee was unlawfully discharged from the
the Company. The Company believes that the suit is without merit and intends to
defend its position vigorously. While the ultimate outcome of this lawsuit can
not be determined at this time, management does not believe that this matter
will have a material adverse effect on the financial position, cash flows or
results of operations of the Company.
In connection with the purchase by HealthVISION, Inc. in September 1995 of
the assets of the predecessor of LBA, a current minority stockholder of
HealthVISION, Inc. threatened suit. The Company and certain other parties
executed an agreement on July 30, 1996, which, upon consummation of the
Company's contemplated transaction with HCIA Inc., will resolve any
disagreements between the parties as of that date and provides for a release of
all claims.
F-33
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS)-PREDECESSOR BUSINESS)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 1,824,734 $ 1,591,344
Accounts receivable........................................................ 2,018,297 3,781,033
Prepaid expenses and other current assets.................................. 197,643 354,368
---------------- ----------------
Total current assets.................................................. 4,040,674 5,726,745
Deferred tax asset........................................................... 2,150,823 4,832,961
Equipment and furniture, net................................................. 1,012,501 1,539,189
Loan fees and closing costs, net............................................. 841,875 778,508
Intangibles, net............................................................. 44,033,921 35,902,522
---------------- ----------------
Total assets.......................................................... $ 52,079,794 $ 48,779,925
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 329,581 $ 151,828
Accrued compensation and related liabilities............................... 210,165 100,000
Other accrued liabilities.................................................. 200,000 --
Accrued interest........................................................... 789,011 --
Deferred revenue........................................................... -- --
Income taxes payable....................................................... 837,309 2,954,705
Current portion of long-term debt.......................................... 5,121,369 4,824,297
---------------- ----------------
Total current liabilities............................................. 7,487,435 8,030,830
Long-term debt, less current portion......................................... 30,984,065 28,217,680
Parent company payable....................................................... 15,978,181 15,978,181
Commitments
Stockholders' equity:
LBA Health Care Management, Inc. common stock, $.01 par value; 100 shares
authorized, 100 shares issued and outstanding in 1995 and 1996.......... 1 1
Accumulated deficit........................................................ (2,369,888) (3,446,767)
---------------- ----------------
Total stockholders' equity............................................ (2,369,887) (3,446,766)
---------------- ----------------
Total liabilities and stockholders' equity............................ 52,079,794 $ 48,779,925
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes.
F-34
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS)-PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
PREDECESSOR BUSINESS COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
LBA HEALTH CARE
PREDECESSOR BUSINESS MANAGEMENT, INC.
---------------------- ----------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 JANUARY 1, 1996
THROUGH JUNE 30, 1995 THROUGH JUNE 30, 1996
---------------------- ----------------------
<S> <C> <C>
Revenue........................................................... $6,294,778 $ 14,422,205
Cost of revenue................................................... 2,447,545 8,349,869
---------------------- ----------------------
Gross profit...................................................... 3,847,233 6,072,336
Operating expenses:
Product development............................................. 121,500 19,436
Sales and marketing............................................. 2,755,930 1,218,239
General and administrative...................................... 584,219 5,045,442
---------------------- ----------------------
Total operating expenses................................... 3,461,649 6,283,117
---------------------- ----------------------
Operating income.................................................. 385,584 (210,781)
Other income (expense):
Interest expense................................................ (10,093) (1,464,957)
Interest income................................................. -- 34,117
---------------------- ----------------------
Total other income (expense)............................... (10,093) (1,430,840)
---------------------- ----------------------
Income (loss) before income taxes................................. 375,491 (1,641,621)
Benefit for income taxes.......................................... -- (564,742)
---------------------- ----------------------
Net income (loss)................................................. 375,491 (1,076,879)
Beginning retained earnings (accumulated deficit)................. 1,587,764 (2,369,888)
---------------------- ----------------------
Ending retained earnings (accumulated deficit).................... $1,963,255 $ (3,446,767)
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
See accompanying notes.
F-35
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS)-PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
LBA HEALTH CARE
PREDECESSOR BUSINESS MANAGEMENT, INC.
---------------------- ----------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 JANUARY 1, 1996
THROUGH JUNE 30, 1995 THROUGH JUNE 30, 1996
---------------------- ----------------------
<S> <C> <C>
Operating activities
Net income (loss)................................................. $ 375,491 $ (1,076,879)
Adjustments to reconcilie net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 170,000 298,177
Amortization of intangibles.................................. -- 8,194,766
Gain on sale of equipment.................................... -- (25,092)
Deferred tax assets.......................................... -- (2,682,138)
Changes in operating assets and liabilities:
Accounts receivable........................................ 387,146 (1,762,736)
Prepaid expenses and other assets.......................... (8,329) (156,725)
Accounts payable........................................... 2,932 (177,753)
Accrued compensation and related liabilities............... (841,902) (110,165)
Other accrued liabilities.................................. -- (200,000)
Customer advances.......................................... (79,172) --
Accrued interest........................................... -- (789,011)
Deferred revenue........................................... 655,358 --
Income taxes payable....................................... -- 2,117,396
------------ ----------------------
Net cash provided by operating activities......................... 661,524 3,629,840
Investing activities
Purchases of equipment and furniture.............................. (124,233) (827,373)
Proceeds from sale of equipment................................... -- 27,600
------------ ----------------------
Net cash used in investing activities............................. (124,233) (799,773)
Financing activities
Principal payments on debt........................................ (57,331) (3,063,457)
------------ ----------------------
Net cash used in financing activities............................. (57,331) (3,063,457)
------------ ----------------------
Net (decrease) increase in cash................................... 479,960 (233,390)
Cash at beginning of period....................................... 232,181 1,824,734
------------ ----------------------
Cash at end of period............................................. $ 712,141 $ 1,591,344
------------ ----------------------
------------ ----------------------
Supplemental schedule of non-cash investing and financing
activities:
Cash paid for interest....................................... $ 10,093 $ 2,253,968
------------ ----------------------
------------ ----------------------
Equipment and furniture obtained through capital lease
financing.................................................. $ 28,406 $ --
------------ ----------------------
------------ ----------------------
</TABLE>
F-36
<PAGE>
LBA HEALTH CARE MANAGEMENT, INC.
(FORMERLY LBA HEALTH CARE MANAGEMENT, INC. (LBA)
AND HEALTHCARE DATA SOURCE, INC. (HDS)-PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995 AND 1996
1. THE COMPANY, ORGANIZATION AND BASIS OF PRESENTATION
On September 27, 1995, LBA Health Care Management, Inc. (the "Company")
acquired substantially all of the business, assets, and liabilities of LBA
Health Care Management, Inc. and Heathcare Data Source, Inc. (collectively, the
"Predecessor Business") pursuant to the terms of the Purchase Agreement dated
September 25, 1995 between HealthVISION, Inc., the parent of the Company and the
Predecessor Business. The Company is now a wholly owned subsidiary of
HealthVISION, Inc. The Company provides consulting and marketing services to
health care providers.
The aggregate purchase price (including closing costs) of the Predecessor
Business was $51,178,182. The acquisition was financed through $5,000,000 in
cash, the issuance of debt aggregating $35,000,000, and the issuance of
$10,978,182 of HealthVISION, Inc.'s stock. The business acquisition was
accounted for by the purchase method and the results of operations of the
Predecessor Business are included in the Company's financial statements for the
six months ended June 30, 1996. The allocation of the purchase price was as
follows:
<TABLE>
<S> <C>
Total purchase price........................................................... $51,178,182
Fair market value of net tangible assets acquired.............................. (808,389)
-----------
Excess purchase price over fair market value of net tangible assets
acquired ("excess purchase price")........................................... $50,369,793
-----------
-----------
Allocation of excess purchase price:
Goodwill....................................................................... $19,079,793
Covenant-not-to-compete........................................................ 13,700,000
Value enhancements............................................................. 9,310,000
Assembled work force........................................................... 3,000,000
Backlog........................................................................ 3,700,000
In-process technology.......................................................... 1,580,000
-----------
$50,369,793
-----------
-----------
</TABLE>
2. INTERIM FINANCIAL INFORMATION
The financial information at June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and of the operating
results and cash flows for such periods. The results for the interim periods are
not necessarily indicative of results expected for the entire year ended
December 31, 1996.
These interim financial statements should be read in conjunction with the
summary of significant accounting policies and notes to the financial statements
included in the Company's December 31, 1995 financial statements included
elsewhere in this Registration Statement.
3. INTANGIBLE AMORTIZATION
Amortization has been expensed in the accompanying statements of operations as
cost of revenue of $3,698,334 and general and administrative of $4,430,065.
F-37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheets and
statements of operations have been derived from the Company's balance sheets as
of December 31, 1995 and June 30, 1996 and the statement of operations for the
year ended December 31, 1995 and the six months ended June 30, 1996. Adjustments
have been made to such information to give effect to (i) the April 28, 1995
acquisition of all of the outstanding capital stock of Datis, (ii) the December
15, 1995 acquisition of the CHAMP unit of Mercer, (iii) the November 29, 1995
acquisition of the minority interest in CHKS, (iv) the May 14, 1996 acquisition
of all of the capital stock of Response, and (v) the August 9, 1996 acquisition
of LBA, as if such acquisitions had occurred immediately before the beginning of
the periods presented. Adjustments have also been made to give effect to the
Offering and the application of the estimated net proceeds to the Company
therefrom.
The following unaudited pro forma statement of operations is not
necessarily indicative of future results of operations of the Company or the
results which would have resulted had the operations and management of the
Company, Datis, the CHAMP unit of Mercer, the minority interest in CHKS,
Response and LBA been combined during the periods presented. In addition, the
pro forma results are not intended to be a projection of future results. The
unaudited consolidated pro forma statement of operations should be read in
conjunction with the financial statements of Datis, the CHAMP unit of Mercer and
LBA, including the notes thereto, and the consolidated financial statements of
the Company, including the notes thereto, included elsewhere herein.
F-38
<PAGE>
HCIA INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESPONSE LBA
PRO FORMA PRO FORMA OFFERING PRO FORMA,
HCIA RESPONSE LBA COMBINED ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents....... $ 3,190 $ 517 $ 1,824 $ 5,531 $ -- $ -- $ 5,531 $ -- $ 5,531
Short-term
investments......... 23,280 -- -- 23,280 (6,200)(11) (14,600)(17) 2,480 28,100(22) 30,580
Trade accounts
receivable.......... 16,623 482 2,018 19,123 (35)(12) -- 19,088 -- 19,088
Prepaid expenses.... 2,236 354 198 2,788 -- -- 2,788 -- 2,788
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Total current
assets.......... 45,329 1,353 4,040 50,722 (6,235) (14,600) 29,887 28,100 57,987
Furniture and
equipment, net........ 6,576 319 1,013 7,908 -- -- 7,908 -- 7,908
Computer software
costs, net............ 11,012 -- -- 11,012 182(10) -- 11,194 -- 11,194
Other intangible
assets................ 42,338 81 44,034 86,453 463(10) 21,120(16)(19) 108,036 -- 108,036
Net deferred tax
asset................. 3,090 221 2,151 5,462 -- 18,183(18) 23,645 -- 23,645
Other................. 56 170 842 1,068 (170)(12) -- 898 -- 898
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Total assets.... $108,401 $2,144 $52,080 $162,625 $(5,760) $ 24,703 $181,568 $ 28,100 $ 209,668
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.... $ 732 $ 82 $ 330 $ 1,144 $ -- $ -- $ 1,144 $ -- $ 1,144
Accrued salaries,
benefits and other
liabilities....... 4,222 39 1,199 5,460 584(12) -- 6,044 -- 6,044
Capital lease
obligations......... 174 26 -- 200 -- -- 200 -- 200
Notes payable....... 2,265 -- 5,122 7,387 -- 4,878(17) 12,265 (10,000)(22) 2,265
Income taxes
payable............. 1,098 -- 837 1,935 -- -- 1,935 -- 1,935
Deferred revenue.... 1,167 25 -- 1,192 -- -- 1,192 -- 1,192
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Total current
liabilities... 9,658 172 7,488 17,318 584 4,878 22,780 (10,000) 12,780
Notes payable......... 699 250 46,963 47,912 (250)(12) 29,037(17) 76,699 (76,000)(22) 699
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Total
liabilities..... 10,357 422 54,451 65,230 334 33,915 99,479 (86,000) 13,479
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Stockholders' equity:
Common stock -- $.01
par value;
15,000,000 shares
authorized;
8,955,932 shares
outstanding as of
December 31,
1995.............. 90 10 -- 100 (10)(14) 5(21) 95 20(22) 115
Additional paid in
capital........... 102,882 3,119 -- 106,001 (3,119)(14) 29,573(21) 132,455 114,080(22) 246,535
Accumulated
deficit............. (4,953) (638) (2,371) (7,962) (3,734)(14) (38,790)(21) (50,486) -- (50,486)
Treasury stock...... -- (769) -- (769) 769(14) -- -- -- --
Cumulative
unrealized
depreciation...... 44 -- -- 44 -- -- 44 -- 44
Cumulative effect of
currency
translation
adjustment........ (19) -- -- (19) -- -- (19) -- (19)
-------- -------- ------- -------- ----------- ----------- --------- ----------- ----------
Total
stockholders'
equity.......... 98,044 1,722 (2,371) 97,395 (6,094) (9,212) 82,089 114,100 196,189
-------- -------- ------- -------- ----------- ----------- --------- ----------- ----------
Total
liabilities
and
stockholders'
equity........ $108,401 $2,144 $52,080 $162,625 $(5,760) $ 24,703 $181,568 $ 28,100 $ 209,668
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
-------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
</TABLE>
F-39
<PAGE>
HCIA INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LBA
PRO FORMA OFFERING PRO FORMA,
HCIA LBA COMBINED ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ------- -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 6,387 $ 1,591 $ 7,978 $ -- $ 7,978 $ -- $ 7,978
Short-term investments........................ 19,752 -- 19,752 (14,600)(17) 5,152 28,100(22) 33,252
Trade accounts receivable..................... 24,531 3,781 28,312 -- 28,312 -- 28,312
Prepaid expenses.............................. 3,167 354 3,521 -- 3,521 -- 3,521
-------- ------- -------- ----------- --------- ----------- -----------
Total current assets...................... 53,837 5,726 59,563 (14,600) 44,963 28,100 73,063
Furniture and equipment, net................... 7,554 1,539 9,093 -- 9,093 -- 9,093
Computer software costs, net................... 15,086 -- 15,086 -- 15,086 -- 15,086
Other intangible assets........................ 43,012 35,903 78,915 27,943(16)(19) 106,858 -- 106,858
Net deferred tax asset......................... 3,697 4,833 8,530 15,501(18) 24,031 -- 24,031
Other.......................................... 868 779 1,647 -- 1,647 -- 1,647
-------- ------- -------- ----------- --------- ----------- -----------
Total assets.............................. $124,054 $48,780 $172,834 $ 28,844 $201,678 $ 28,100 $ 229,778
-------- ------- -------- ----------- --------- ----------- -----------
-------- ------- -------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 1,211 $ 152 $ 1,363 $ -- $ 1,363 $ -- $ 1,363
Accrued salaries, benefits and other
liabilities................................. 4,959 100 5,059 -- 5,059 -- 5,059
Capital lease obligations..................... 116 -- 116 -- 116 -- 116
Notes payable................................. 2,160 4,824 6,984 5,176(17) 12,160 (10,000)(22) 2,160
Income taxes payable.......................... 1,413 2,955 4,368 -- 4,368 -- 4,368
Deferred revenue.............................. 2,007 -- 2,007 -- 2,007 -- 2,007
-------- ------- -------- ----------- --------- ----------- -----------
Total current liabilities................. 11,866 8,031 19,897 5,176 25,073 (10,000) 15,073
Notes payable.................................. -- 44,196 44,196 31,804(17) 76,000 (76,000)(22) --
-------- ------- -------- ----------- --------- ----------- -----------
Total liabilities......................... 11,866 52,227 64,093 36,980 101,073 (86,000) 15,073
-------- ------- -------- ----------- --------- ----------- -----------
Stockholders' equity:
Common stock -- $.01 par value; 15,000,000
shares authorized; 11,767,350 shares
outstanding as of June 30, 1996............. 92 -- 92 5(21) 97 20(22) 117
Additional paid in capital.................... 116,141 -- 116,141 29,573(21) 145,714 114,080(22) 259,794
Accumulated deficit........................... (3,989) (3,447) (7,436) (37,714)(21) (45,150) -- (45,150)
Cumulative unrealized depreciation............ (32) -- (32) -- (32) -- (32)
Cumulative effect of currency translation
adjustment.................................. (24) -- (24) -- (24) -- (24)
-------- ------- -------- ----------- --------- ----------- -----------
Total stockholders' equity................ 112,188 (3,447) 108,741 (8,136) 100,605 114,100 214,705
-------- ------- -------- ----------- --------- ----------- -----------
Total liabilities and stockholders'
equity..................................$124,054 $48,780 $172,834 $ 28,844 $201,678 $ 28,100 $ 229,778
-------- ------- -------- ----------- --------- ----------- -----------
-------- ------- -------- ----------- --------- ----------- -----------
</TABLE>
F-40
<PAGE>
HCIA INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
LBA DATIS CHAMP
PREDECESSOR PRO FORMA PRO FORMA
HCIA DATIS CHAMP RESPONSE BUSINESS LBA COMBINED ADJUSTMENTS ADJUSTMENTS
------- ------- ------ -------- ----------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... $48,015 $ 1,864 $7,189 $2,537 $10,164 $ 6,454 $76,223 $-- $ --
Salaries, wages and benefits..... 21,932 1,389 4,555 1,692 4,396 2,083 36,047 -- --
Other operating expenses......... 12,055 1,301 2,270 1,483 5,933 648 23,690 -- --
Depreciation..................... 1,619 222 -- 67 256 167 2,331 -- --
Amortization..................... 5,245 -- 70 10 -- 4,814 10,139 265(1) 523(3)
Write-off of acquired in-process
research and development
costs........................... 12,152 -- -- -- -- 1,580 13,732 -- (12,152)(4)
------- ------- ------ -------- ----------- ------- -------- ----- -----------
Operating income (loss).......... (4,988) (1,048) 294 (715) (421) (2,838) (9,716) (265) 11,629
Interest income.................. 1,290 -- -- 65 11 9 1,375 -- --
Interest expense................. (187) (27) -- -- (16) (854) (1,084) -- --
------- ------- ------ -------- ----------- ------- -------- ----- -----------
Income (loss) before income taxes
and minority interest in income
of consolidated subsidiaries.... (3,885) (1,075) 294 (650) (426) (3,683) (9,425) (265) 11,629
Benefit (provision) for income
taxes........................... 1,554 -- -- 225 -- 1,313 3,092 430(2) (4,769)(5)
Minority interest in income of
consolidated subsidiaries....... (74) -- -- -- -- -- (74) -- --
------- ------- ------ -------- ----------- ------- -------- ----- -----------
Net income (loss)................ $(2,405) $(1,075) $ 294 $ (425) $ (426) $(2,370) $(6,407) $ 165 $ 6,860
------- ------- ------ -------- ----------- ------- -------- ----- -----------
------- ------- ------ -------- ----------- ------- -------- ----- -----------
Net income (loss) per share...... $ (0.31)
-------
-------
Shares used in per share
calculation..................... 7,733
-------
-------
<CAPTION>
CHKS RESPONSE LBA
PRO FORMA PRO FORMA PRO FORMA PRO OFFERING PRO FORMA,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
----------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $-- $-- $-- $76,223 $-- $76,223
Salaries, wages and benefits..... -- -- (4,100)(15) 31,947 -- 31,947
Other operating expenses......... -- -- -- 23,690 -- 23,690
Depreciation..................... -- -- -- 2,331 -- 2,331
Amortization..................... 181(6) 94(10) 330(16) 11,532 -- 11,532
Write-off of acquired in-process
research and development
costs........................... -- -- (1,580)(16) -- -- --
----- ----- ----------- ------- ----------- -----------
Operating income (loss).......... (181) (94) 5,350 6,723 -- 6,723
Interest income.................. -- (116)(11) (262)(17) 997 262(23) 1,259
Interest expense................. (200)(7) -- (6,677)(17) (7,961) 7,525(23) (436)
----- ----- ----------- ------- ----------- -----------
Income (loss) before income taxes
and minority interest in income
of consolidated subsidiaries.... (381) (210) (1,589) (241) 7,787 7,546
Benefit (provision) for income
taxes........................... 80(8) 46(13) 296(20) (825) (3,115)(24) (3,940)
Minority interest in income of
consolidated subsidiaries....... 74(9) -- -- -- -- --
----- ----- ----------- ------- ----------- -----------
Net income (loss)................ $(227) $ (164) $(1,293) (1,066) 4,672 $ 3,606
----- ----- ----------- ------- ----------- -----------
----- ----- ----------- ------- ----------- -----------
Net income (loss) per share...... $ 0.34
-----------
-----------
Shares used in per share
calculation..................... 10,572
-----------
-----------
</TABLE>
See accompanying notes to pro forma financial statements.
F-41
<PAGE>
HCIA INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
RESPONSE
FOR THE
PERIOD
JAN. 1,
1996- RESPONSE LBA
MAY 15, PRO FORMA PRO FORMA OFFERING PRO FORMA,
HCIA 1996 LBA COMBINED ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................ $30,718 $1,008 $14,422 $46,148 $-- $-- $46,148 $-- $46,148
Salaries, wages and
benefits............. 13,558 905 4,459 18,922 -- -- 18,922 -- 18,922
Other operating
expenses............. 6,816 691 1,681 9,188 -- -- 9,188 -- 9,188
Depreciation........... 1,090 34 298 1,422 -- -- 1,422 -- 1,422
Amortization........... 3,716 5 8,195 11,916 47(10) (5,623)(16) 6,340 -- 6,340
Write-off of acquired
in-process research
and development
costs................ 4,372 -- -- 4,372 (4,372) -- -- --
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Operating income
(loss)............... 1,166 (627) (211) 328 4,325 5,623 10,276 -- 10,276
Interest income........ 566 14 34 614 (142)(11) (350)(17) 122 350(23) 472
Interest expense....... (142) (10) (1,465) (1,617) -- (2,298)(17) (3,915) 3,763(23) (152)
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Income (loss) before
income taxes and
minority interest in
income of
consolidated
subsidiaries......... 1,590 (623) (1,642) (675) 4,183 2,975 6,483 4,113 10,596
Benefit (provision) for
income taxes......... (626) 218 565 157 (1,481)(13) (1,325)(20) (2,648) (1,645)(24) (4,294)
Minority interest in
income of
consolidated
subsidiaries......... -- -- -- -- -- -- -- -- --
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Net income (loss)...... $ 964 $ (405) $(1,077) $ (518) $ 2,703 $ 1,650 $ 3,835 $ 2,468 $ 6,302
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
------- -------- ------- -------- ----------- ----------- --------- ----------- -----------
Net income per share... $ 0.10 $ 0.52
------- -----------
------- -----------
Shares used in per
share calculation.... 9,549 12,042
------- -----------
------- -----------
</TABLE>
See accompanying notes to pro forma financial statements.
F-42
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
(1) PRO FORMA ADJUSTMENTS
In preparing the accompanying pro forma financial statements, the following
adjustments have been made:
DATIS ACQUISITION
(1) Reflects the additional amortization of intangible assets recorded
as a result of the allocation of the purchase price. These intangible
assets and their lives are as follows:
<TABLE>
<S> <C> <C>
Software................................................. $ 233,000 5 years
Databases................................................ $ 17,000 5 years
Goodwill................................................. $ 16,485,000 20 years
</TABLE>
(2) Reflects the benefit of the Datis tax losses which are offset by
the taxable income of the Company.
CHAMP ACQUISITION
(3) Reflects the additional amortization of intangible assets recorded
as a result of the allocation of the purchase price. These intangible
assets and their lives are as follows:
<TABLE>
<S> <C> <C>
Software................................................. $ 859,000 5 years
Trade Name............................................... $ 1,266,000 12 years
Assembled Work Force..................................... $ 1,102,000 12 years
Customer Base............................................ $ 595,000 12 years
Goodwill................................................. $ 1,526,000 12 years
</TABLE>
(4) Reflects the reversal of the non-recurring write-off of acquired
in-process research and development costs.
(5) Reflects the tax provision related to CHAMP operations and the tax
effects of pro forma adjustments described in notes 3 and 4 above.
CHKS ACQUISITION
(6) Reflects the additional amortization of goodwill recorded as a
result of the allocation of the purchase price over a period of 15 years.
(7) Reflects the interest expense related to the notes payable issued
in connection with the purchase.
(8) Reflects the tax benefit of the pro forma adjustment described in
note 7 above.
(9) Reflects the reversal of the minority interest.
F-43
<PAGE>
(1) PRO FORMA ADJUSTMENTS -- Continued
RESPONSE ACQUISITION
(10) Reflects the impact of the allocation of the purchase price to
intangible assets and the additional amortization expense recorded as a
result of the allocation. These assets and their lives are as follows:
Software $182,000 5 years
Assembled Work Force $133,000 12 years
Customer Base $393,000 12 years
Goodwill $205,039 15 years
(11) Reflects the reduction of short-term investments and the related
interest income which would have occurred had the Response acquisition been
funded out of the Company's existing short-term investments.
(12) Reflects the reduction of certain assets to their estimated
realizable value and the recording of certain liabilities related to the
acquisition and the repayment of certain debt in accordance with the
acquisition agreement.
(13) Reflects the tax benefits of the pro forma adjustments described
in note 11 above.
(14) Reflects the elimination of historical stockholder equity.
LBA ACQUISITION
(15) To record the salaries, wages and benefits payable to certain
executives of LBA as if the compensation arrangements in effect with these
employees subsequent to the acquisition were in place at the beginning of
the period presented.
(16) Reflects the reversal of intangible assets and amortization
expense recorded on the prior basis of accounting, the write-off of
acquired in process research and development costs and the recording of
intangible assets and additional amortization of intangible assets as a
result of the allocation of the purchase price. These assets and their
lives are as follows:
Software and technology $13,435,000 6 years
Assembled Work Force $ 4,080,000 10 years
Customer Base $ 5,178,000 10 years
Goodwill $37,170,000 20 years
(17) Reflects the reduction of short-term investments, additional debt
and additional interest expense which would have resulted had the
acquisition occurred at the beginning of the period.
(18) Reflects the debt acquisition costs incurred in connection with
the debt.
(19) Reflects the value of acquired tax net operating loss
carryforwards.
(20) Reflects the tax benefits of the pro forma adjustments described
in notes 15, 16 and 17 above.
(21) Reflects the elimination of historical stockholder equity,
including a one-time charge related to acquired in-process research and
development costs of approximately $41.2 million.
OFFERING ADJUSTMENTS
(22) Reflects the receipt and application of the net proceeds of the
offering to the Company at an assumed offering price of $60 per share.
(23) Reflects the reversal of interest expense and additional interest
income which would have occurred had the offering occurred at the beginning
of the periods presented.
(24) Reflects the tax benefits of the pro forma adjustments described
in note 23 above.
(2) NET INCOME PER SHARE
The number of shares used to calculate net income per share is determined
based on the weighted average number of shares outstanding using the treasury
stock method for outstanding stock options. In the columns of the statement
reflecting net income for the period, the weighted average number of shares
includes the impact of using the treasury stock method for outstanding stock
options as such stock options are dilutive to earnings per share. In the columns
reflecting a loss for the period, the impact of the outstanding stock options is
not included in the calculation of weighted average shares outstanding as such
options are antidilutive.
F-44
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Price Range of Common Stock.................... 9
Dividend Policy................................ 9
Use of Proceeds................................ 10
Capitalization................................. 10
Selected Consolidated Financial Data........... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 13
Business....................................... 20
Management..................................... 28
Principal and Selling Stockholders............. 32
Underwriting................................... 33
Legal Matters.................................. 34
Experts........................................ 34
Additional Information......................... 35
Incorporation of Certain Information by
Reference.................................... 36
Index to Financial Statements.................. F-1
</TABLE>
2,216,696 SHARES
[HCIA Logo]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1996
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth a statement of all expenses payable by the
Registrant in connection with the registration of the Common Stock covered
hereby.
<TABLE>
<S> <C>
SEC Registration Fee........................................................................ $ 44,611
NASD Fee.................................................................................... 13,437
Accounting Fees and Expenses................................................................ 100,000
Legal Fees and Expenses..................................................................... 250,000
Blue Sky Fees and Expenses.................................................................. 7,000
NASDAQ Listing Fee.......................................................................... 17,500
Miscellaneous Fees and Expenses............................................................. 67,452
---------
Total................................................................................ $ 500,000
---------
---------
</TABLE>
- ---------------
* Except for the SEC Registration Fee and NASD Fee, all expenses are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL") provides
that the Registrant may indemnify any director who was, is or is threatened to
be made a named defendant or respondent to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director of the
Registrant, or while a director, is or was serving at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, against reasonable expenses
(including attorneys' fees), judgments, penalties, fines and settlements,
actually incurred by the director in connection with such action, suit or
proceeding, unless it is established that: (i) the act or omission of the
director was material to the matter giving rise to such action, suit or
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the director actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the director had reasonable cause to believe that the act or
omission was unlawful. If the action, suit or proceeding was one by or in the
right of the Registrant, no indemnification shall be made with respect to any
action, suit or proceeding in which the director shall have been adjudged to be
liable to the Registrant. A director also may not be indemnified with respect to
any action, suit or proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director is adjudged to be liable on the basis that a personal
benefit was improperly received. Unless limited by the Registrant's Charter: (i)
a court of appropriate jurisdiction, upon application of a director, may order
such indemnification as the court shall deem proper if it determines that the
director is fairly and reasonably entitled to indemnification in view of all of
the relevant circumstances, regardless of whether the director has met the
standards of conduct required by Section 2-418; and (ii) the Registrant shall
indemnify a director if such director is successful on the merits or otherwise
in defense of any action, suit or proceeding referred to above. However, with
respect to any action, suit or proceeding by or in the right of the Registrant
or in which the director was adjudged to be liable on the basis that a personal
benefit was improperly received, the Registrant may only indemnify the director
for any expenses (including, attorneys' fees) incurred in connection with such
action, suit or proceeding.
Section 2-418 of the MGCL further provides that unless limited by the
Registrant's Charter, the Registrant: (i) shall (a) indemnify an officer of the
Registrant if such officer is successful on the merits or otherwise in defense
of any action, suit or proceeding referred to above, and (b) indemnify an
officer of the Registrant if a court of appropriate jurisdiction, upon
application of an officer, shall order indemnification; (ii) may indemnify and
advance expenses to an officer, employee or agent of the Registrant to the same
extent that it may indemnify
II-1
<PAGE>
directors; and (iii) may indemnify and advance expenses to an officer, employee
or agent who is not a director to such further extent, consistent with law, as
may be provided by the Charter, Bylaws, general or specific action of the
Registrant's Board of Directors or contract.
The Registrant's Bylaws provide that the Registrant shall indemnify: (i)
any individual who is a present or former director or officer of the Registrant;
or (ii) any individual who serves or has served in another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director or officer, or as a partner or trustee of such partnership or
employee benefit plan, at the request of the Registrant and who by reason of
service in that capacity was, is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to the full extent permitted under
the MGCL. The Registrant may, with the approval of its Board of Directors,
provide such indemnification for a person who formerly served a predecessor of
the Registrant in any of the capacities described in (i) or (ii) above and for
any employee or agent of the Registrant or a predecessor of the Registrant.
The Registrant's Bylaws also provide that the reasonable expenses incurred
by a director or officer who is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, shall be paid or reimbursed by the
Registrant in advance of the final disposition of the proceeding upon receipt by
the Registrant of: (i) a written affirmation by the party seeking
indemnification that he has a good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met; and (ii) a written
undertaking by or on behalf of the party seeking indemnification to repay the
amount if it shall ultimately be determined that such standard of conduct has
not been met.
The Registrant's Charter provides that, to the fullest extent permitted by
Maryland statutory or decisional law, as amended or interpreted, no director or
officer of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages. The Registrant's Charter also provides that
except as the Bylaws of the Registrant may otherwise provide, no indemnification
shall be provided for any director or officer or for any employee or agent of
the Registrant or any predecessor of the Registrant or any other entity.
The provisions in the Charter and Bylaws do not eliminate the duty of care.
In appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief remain available under Maryland law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under the MGCL. These provisions also do not
affect a director's or officer's responsibilities under any other law, such as
the federal or state securities laws or state or federal environmental laws.
The Underwriting Agreement (a form of which is filed as Exhibit 1.1 hereto)
will provide that the Underwriters shall indemnify and hold harmless the Selling
Stockholders, the Registrant and each director, officer or controlling person of
the Registrant from and against any liability caused by any statement or
omission in the Registration Statement or Prospectus based upon certain
information furnished to the Registrant by the Underwriters for use in the
preparation thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Proposed form of Underwriting Agreement by and among
the Registrant, the Selling Stockholders and the
Underwriters.
2.1 (double dagger) Agreement and Plan of Reorganization by and among the Registrant, HCIA Sub Inc. and HealthVISION,
Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Amendment and Restatement of the Registrant, as amended.
3.2 *** Amended and Restated Bylaws of the Registrant.
5.1 * Opinion of Whiteford, Taylor & Preston L.L.P. (including the consent of such firm).
10.1 ** Employment Agreement dated as of January 1, 1995 by and between the Registrant and George D. Pillari.
10.2 *** Agreement dated October 13, 1992 by and among the Registrant, AMBAC Inc. and George D. Pillari.
10.3 *** Agreement dated September 20, 1994 by and among the Registrant, AMBAC Inc., AMBAC Indemnity
Corporation and George D. Pillari.
10.4 ** HCIA Inc. 1994 Stock and Incentive Plan.
10.5.1 *** Agreement dated June 11, 1990 by and among Voluntary Hospitals of America, Inc., the Commission on
Professional and Hospital Activities and the Registrant ("VHA Agreement").
10.5.2 *** Addendum to VHA Agreement dated January 11, 1995.
10.6.1 *** Agreement for Development and Implementation of EPO Utilization Data Audit dated January 1, 1992 by
and between Amgen Inc. and the Registrant, as amended.
10.6.2 * Fifth Amendment to Agreement for Development and Implementation of EPO Utilization Data Audit dated
June 12, 1996.
10.7 *** Asset Purchase Agreement dated March 10, 1994 by and between HCIA Software Systems, Inc. and the
Registrant.
10.8 *** Agreement dated December 4, 1992 by and among Healthcare Knowledge Resources, Inc., the Registrant
and the Commission on Professional and Hospital Activities.
10.9 ** Non-Employee Directors Stock Option Plan.
10.10 *** Maryland Full-Service Office Lease dated November 22, 1991 by and between FBC&G Limited Partnership
and AMBAC Inc., as amended.
10.11 *** Lease dated March 2, 1992 by and between Domino's Pizza, Inc. and the Registrant, as amended.
10.12 *** Incentive Compensation Plan.
10.13 *** Tax Sharing Agreement by and among AMBAC Inc., AMBAC Indemnity Corporation, American Municipal Bond
Holding Company and the Registrant dated as of July 18, 1991.
10.14 ** Registration Rights Agreement dated August 10, 1995 by and among the Registrant, George D. Pillari,
AMBAC Inc. and AMBAC Indemnity Corporation.
10.15 * Form of Management Retention Agreement.
10.16 Credit Agreement dated August 8, 1996 by and between First Union National Bank of North Carolina, as
Agent, and the Registrant.
10.17 Registration Rights Agreement, dated August 9, 1996, by and among the Registrant and certain
stockholders.
11.1 Statement regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
23.1.2 Consent of KPMG Peat Marwick LLP.
23.1.3 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 *Consent of Whiteford, Taylor & Preston L.L.P. (included in Exhibit 5.1).
24.1 *Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-94946).
*** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-88226).
(dagger) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(double dagger) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated July 19, 1996, as amended by the Form 8-K/A filed
on August 13, 1996.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts*
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00492).
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Baltimore, State of Maryland, on August 13, 1996.
HCIA INC.
By: /s/ George D. Pillari
--------------------------------------
George D. Pillari, Chairman of the
Board
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------- --------------------
<C> <S> <C>
/S/ GEORGE D. PILLARI Chairman of the Board, President August 13, 1996
- ------------------------------------------------------ and Chief Executive Officer
GEORGE D. PILLARI (principal executive officer)
/S/ BARRY C. OFFUTT Senior Vice President and Chief August 13, 1996
- ------------------------------------------------------ Financial Officer (principal
BARRY C. OFFUTT financial and accounting
officer)
* Director August 13, 1996
- ------------------------------------------------------
PHILLIP B. LASSITER
* Director August 13, 1996
- ------------------------------------------------------
RICHARD DULUDE
* Director August 13, 1996
- ------------------------------------------------------
RICHARD BERMAN
* Director August 13, 1996
- ------------------------------------------------------
W. GRANT GREGORY
* Director August 13, 1996
- ------------------------------------------------------
MARK C. ROGERS
* Director August 13, 1996
- ------------------------------------------------------
CARL J. SCHRAMM
</TABLE>
- ---------------
* Barry C. Offutt, by signing his name hereto, does hereby sign this document on
behalf of each of the named directors of the Registrant pursuant to a power of
attorney executed by each such person.
<TABLE>
<C> <S> <C>
/S/ BARRY C. OFFUTT
- ------------------------------------------------------
BARRY C. OFFUTT
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- ----------
<S> <C> <C>
1.1 Proposed form of Underwriting Agreement by and among the Registrant, the Selling
Stockholders and the Underwriters.
2.1 (double dagger) Agreement and Plan of Reorganization by and among the
Registrant, HCIA Sub Inc. and HealthVISION, Inc.
3.1 Articles of Amendment and Restatement of the Registrant, as amended.
3.2 *** Amended and Restated Bylaws of the Registrant.
5.1 *Opinion of Whiteford, Taylor & Preston L.L.P. (including the consent of such firm).
10.1 ** Employment Agreement dated as of January 1, 1995 by and between the Registrant and George
D. Pillari.
10.2 *** Agreement dated October 13, 1992 by and among the Registrant, AMBAC Inc. and George D.
Pillari.
10.3 *** Agreement dated September 20, 1994 by and among the Registrant, AMBAC Inc., AMBAC
Indemnity Corporation and George D. Pillari.
10.4 ** HCIA Inc. 1994 Stock and Incentive Plan.
10.5.1 *** Agreement dated June 11, 1990 by and among Voluntary Hospitals of America, Inc., the
Commission on Professional and Hospital Activities and the Registrant ("VHA Agreement").
10.5.2 *** Addendum to VHA Agreement dated January 11, 1995.
10.6.1 *** Agreement for Development and Implementation of EPO Utilization Data Audit dated January
1, 1992 by and between Amgen Inc. and the Registrant, as amended.
10.6.2 *Fifth Amendment to Agreement for Development and Implementation of EPO Utilization Data
Audit dated June 12, 1996.
10.7 *** Asset Purchase Agreement dated March 10, 1994 by and between HCIA Software Systems, Inc.
and the Registrant.
10.8 *** Agreement dated December 4, 1992 by and among Healthcare Knowledge Resources, Inc., the
Registrant and the Commission on Professional and Hospital Activities.
10.9 ** Non-Employee Directors Stock Option Plan.
10.10 *** Maryland Full-Service Office Lease dated November 22, 1991 by and between FBC&G Limited
Partnership and AMBAC Inc., as amended.
10.11 *** Lease dated March 2, 1992 by and between Domino's Pizza, Inc. and the Registrant, as
amended.
10.12 *** Incentive Compensation Plan.
10.13 *** Tax Sharing Agreement by and among AMBAC Inc., AMBAC Indemnity Corporation, American
Municipal Bond Holding Company and the Registrant dated as of July 18, 1991.
10.14 ** Registration Rights Agreement dated August 10, 1995 by and among the Registrant, George
D. Pillari, AMBAC Inc. and AMBAC Indemnity Corporation.
10.15 *Form of Management Retention Agreement.
10.16 Credit Agreement dated August 8, 1996 by and between First Union National Bank of North
Carolina, as Agent, and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- ----------
<S> <C> <C>
10.17 Registration Rights Agreement, dated August 9, 1996, by and among the Registrant and certain
stockholders.
11.1 Statement regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1.1 Consent of KPMG Peat Marwick LLP.
23.1.2 Consent of KPMG Peat Marwick LLP.
23.1.3 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 * Consent of Whiteford, Taylor & Preston L.L.P. (included in Exhibit 5.1).
24.1 * Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-94946).
*** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-88226).
(dagger) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(double dagger) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated July 19, 1996, as amended by the Form 8-K/A filed
on August 13, 1996.
Exhibit 1.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
HCIA INC.
(a Maryland corporation)
2,216,696 Shares of Common Stock
UNDERWRITING AGREEMENT
Dated: , 1996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
UNDERWRITING AGREEMENT................................................................................. 1
SECTION 1. Representations and Warranties.............................................. 3
(a) Representations and Warranties by the Company............................... 3
(i) Compliance with Registration Requirements........................... 3
(ii) Incorporated Documents.............................................. 4
(iii) Independent Accountants............................................. 4
(iv) Financial Statements................................................ 4
(v) No Material Adverse Change in Business.............................. 5
(vi) Good Standing of the Company........................................ 5
(vii) Good Standing of Subsidiaries....................................... 6
(viii) Capitalization...................................................... 6
(ix) Authorization of Agreement.......................................... 6
(x) Authorization and Description of the
Securities.................................................................. 6
(xi) Absence of Defaults and Conflicts................................... 7
(xii) Absence of Labor Dispute............................................ 7
(xiii) Absence of Proceedings.............................................. 7
(xiv) Accuracy of Exhibits................................................ 8
(xv) Possession of Intellectual Property................................. 8
(xvi) Absence of Further Requirements..................................... 8
(xvii) Possession of Licenses and Permits.................................. 8
(xviii) Title to Property................................................... 8
(xix) Compliance with Cuba Act............................................ 9
(xx) Registration Rights................................................. 9
(xxi) Income Taxes........................................................ 9
(xxii) Accounting Controls................................................. 9
(xxiii) Insurance........................................................... 9
(xxiv) ERISA Matters....................................................... 9
(xxv) No Stabilization or Manipulation.................................... 10
(b) Representations and Warranties by the Selling Stockholders.................. 10
(i) Accurate Disclosure................................................. 10
(ii) Authorization of Agreements......................................... 10
(iii) Good and Marketable Title........................................... 11
(iv) Due Execution of Power of Attorney and
Custody Agreement........................................................... 11
(v) No Stabilization or Manipulation.................................... 12
(vi) Absence of Further Requirements..................................... 12
(vii) Restriction on Sale of Securities................................... 12
(viii) Certificates Suitable for Transfer.................................. 12
(c) Officer's Certificates...................................................... 12
SECTION 2. Sale and Delivery to Underwriters; Closing.................................. 12
(a) Initial Securities.......................................................... 12
(b) Option Securities........................................................... 13
(c) Payment..................................................................... 13
(d) Denominations; Registration................................................. 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3. Covenants of the Company.................................................... 14
(a) Compliance with Securities Regulations and Commission
Requests.................................................................... 14
(b) Filing of Amendments........................................................ 15
(c) Delivery of Registration Statements......................................... 15
(d) Delivery of Prospectuses.................................................... 15
(e) Continued Compliance with Securities Laws................................... 15
(f) Blue Sky Qualifications..................................................... 16
(g) Rule 158.................................................................... 16
(h) Use of Proceeds............................................................. 16
(i) Restriction on Sale of Securities........................................... 16
(j) Reporting Requirements...................................................... 17
SECTION 4. Payment of Expenses......................................................... 17
(a) Expenses.................................................................... 17
(b) Termination of Agreement.................................................... 17
(c) Allocation of Expenses...................................................... 17
SECTION 5. Conditions of Underwriters' Obligations..................................... 18
(a) Effectiveness of Registration Statement..................................... 18
(b) Opinion of Counsel for the Company and the
Selling Stockholders........................................................ 18
(c) Opinion of Counsel for Underwriters......................................... 18
(d) Officers' Certificate....................................................... 18
(e) Certificate of Selling Stockholders......................................... 19
(f) Accountants' Comfort Letters................................................ 19
(g) Bring-down Comfort Letter................................................... 19
(h) No Objection................................................................ 19
(i) Lock-up Agreements.......................................................... 19
(j) Conditions to Purchase of Option Securities................................. 19
(k) Additional Documents........................................................ 20
(l) Termination of Agreement.................................................... 20
SECTION 6. Indemnification............................................................. 21
(a) Indemnification of Underwriters............................................. 21
(b) Indemnification of Company, Directors and Officers.......................... 23
(c) Actions against Parties; Notification....................................... 23
(d) Settlement without Consent if Failure to Reimburse.......................... 24
SECTION 7. Contribution................................................................ 24
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.............. 25
SECTION 9. Termination of Agreement.................................................... 26
(a) Termination; General........................................................ 26
(b) Liabilities................................................................. 26
SECTION 10. Default by One or More of the Underwriters.................................. 26
SECTION 11. Default by One or More of the Selling Stockholders
or the Company.............................................................. 27
SECTION 12. Notices..................................................................... 27
SECTION 13. Parties..................................................................... 28
SECTION 14. GOVERNING LAW AND TIME...................................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 15. Effect of Headings.......................................................... 28
</TABLE>
iii
<PAGE>
HCIA INC.
(a Maryland corporation)
2,216,696 Shares of Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
_________________, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY LLC
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
HCIA Inc., a Maryland corporation (the "Company"), and the persons
listed in Schedule B hereto (the "Selling Stockholders"), confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Alex. Brown & Sons Incorporated, Hambrecht
& Quist LLC, Montgomery Securities and Robertson, Stephens & Company LLC
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof) with respect to the
sale by the Company and the Selling Stockholders, acting severally and not
jointly, and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.01 per share,
of the Company ("Common Stock"), set forth in Schedules A and B hereto, and with
respect to the grant by the Company to the Underwriters, severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 332,505 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 2,216,696
1
<PAGE>
shares of Common Stock (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the 332,505 shares of Common Stock subject
to the option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities".
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Underwriters deem advisable after this Agreement has been executed and
delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-08639) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (i) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (ii) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed by the Company
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final prospectus, including the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished
to the Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus"
shall refer to the preliminary prospectus dated July 26, 1996 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to
2
<PAGE>
mean and include all such financial statements and schedules and other
information which is incorporated by reference in the Registration Statement,
any preliminary prospectus or the Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to mean
and include the filing of any document under the Securities Exchange Act of 1934
(the "1934 Act") which is incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement,
the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the time the
Prospectus or any such amendment or supplement was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434
is used, the Company will comply with the prospectus delivery
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement (or any amendment thereto) or Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with (x) information furnished to the Company in writing by
any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or Prospectus (or any
amendment or supplement thereto) and (y) information furnished to the
Company in writing by or on behalf of any
3
<PAGE>
Selling Stockholder expressly for use in the Registration Statement (or
any amendment thereto) or Prospectus (or any amendment or supplement
thereto).
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical in all material respects to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, when they became effective or at the time they were
or hereafter are filed with the Commission, complied and will comply in
all material respects with the requirements of the 1934 Act and the
rules and regulations of the Commission thereunder (the "1934 Act
Regulations"), as applicable, and, when read together with the other
information in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules of the Company and
its subsidiaries, of Datis Corporation ("Datis"), of the William M.
Mercer, Incorporated National Health Analysis Unit ("CHAMP"), of
HealthVISION, Inc. ("HealthVISION") and its subsidiaries and of LBA
Health Care Management, Inc. ("LBA") included in the Registration
Statement are independent public accountants as required by the 1933
Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements of the
Company and its subsidiaries included in the Registration Statement and
the Prospectus, together with the related schedules and notes, present
fairly the financial position of the Company and its consolidated
subsidiaries at the dates indicated and the statement of operations,
changes in stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The financial statements of
Datis included in the Registration Statement and the Prospectus,
together with the related notes, present fairly the financial
position of Datis at the dates indicated and the statement of
operations, shareholders' deficit and cash flows of Datis for the
periods specified; said financial statements have been prepared
in conformity with GAAP applied on a consistent basis throughout
the periods involved. The financial statements of CHAMP included
in the Registration Statement and the Prospectus, together with
the related notes, present fairly the financial position of CHAMP
at the dates indicated and the statement of operations and cash flows
of CHAMP for the periods specified; said financial statements have
been
4
<PAGE>
prepared in conformity with GAAP applied on a consistent basis
throughout the periods involved. The financial statements of
HealthVISION and its subsidiaries included in the Registration
Statement and the Prospectus, together with the related notes, present
fairly the financial position of HealthVISION and its consolidated
subsidiaries at the dates indicated and the statement of operations,
changes in stockholders' equity and cash flows of HealthVISION and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. The financial
statements of LBA (including the combined financial statements of LBA
and Healthcare Data Source, Inc. (together, the "Predecessor
Business")) included in the Registration Statement and the
Prospectus, together with the related notes, present fairly the
financial position of LBA or the Predecessor Business, as the case may
be, at the dates indicated and the statement of operations, retained
earnings and cash flows of LBA or the Predecessor Business, as
the case may be, for the periods specified; said financial statements
have been prepared in conformity with GAAP applied on a consistent
basis throughout the periods involved. The supporting schedules,
if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited financial statements of the Company and its subsidiaries
included in the Registration Statement. The pro forma financial
statements and the related notes thereto included in the Registration
Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have
been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock. The Company and its subsidiaries have no material contingent
liabilities or obligations which are not disclosed in the Registration
Statement.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Maryland and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign
5
<PAGE>
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
Company listed on Schedule D hereto (each a "Subsidiary" and,
collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except for
directors' qualifying shares and as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
of each such Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company or another
Subsidiary free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only subsidiaries of the Company are (a) the subsidiaries listed on
Schedule D hereto and (b) CHKS, S.A., a corporation (societe anonyme)
organized under the laws of France.
(viii) Capitalization. The authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus). The shares of outstanding capital stock of the Company,
including the Initial Securities to be purchased by the Underwriters
from the Selling Stockholders, have been duly authorized and validly
issued and are fully paid and non-assessable; none of the outstanding
shares of capital stock of the Company, including the Initial
Securities to be purchased by the Underwriters from the Selling
Stockholders, was issued in violation of the preemptive or other
similar rights of any securityholder of the Company arising by
operation of law, under the charter or bylaws of the Company, under any
agreement to which the Company or any of its subsidiaries is a party or
otherwise.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of the Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale by the Company to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid
and non-assessable; the
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Common Stock conforms to all statements relating thereto contained in
the Prospectus and such description conforms to the rights set forth in
the instruments defining the same; and no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or bylaws or
in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and compliance by the
Company with its obligations hereunder have been duly authorized by all
necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or bylaws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any Subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the performance by the Company of
its obligations hereunder; the aggregate of all pending legal or
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governmental proceedings to which the Company or any subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described or filed as required.
(xv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess rights to use all material patents,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property, which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, except such as have been already obtained or
as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.
(xvii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xviii) Title to Property. The Company and its Subsidiaries
own no real property. The Company and its Subsidiaries have good title
to all personal property owned by them, free and clear of all pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the
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use made and proposed to be made of such property by the Company or any
of its Subsidiaries; and all of the leases and subleases material to
the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its Subsidiaries
holds properties described in the Prospectus, are in full force and
effect, and neither the Company nor any subsidiary has any notice of
any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company or any Subsidiary under any of the leases
or subleases mentioned above, or affecting or questioning the rights of
the Company or such Subsidiary to the continued possession of the
leased or subleased premises under any such lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xx) Registration Rights. Except as described in the
Registration Statement, there are no persons with registration or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxi) Income Taxes. The Company and its subsidiaries have
filed all Federal, state and foreign income tax returns which have been
required to be filed, other than those filings being contested in good
faith, and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes become due, other than those being contested in good faith and
for which adequate reserves have been provided in accordance with GAAP
or those currently payable without penalty or interest. All tax
liabilities are adequately provided for on the books of the Company in
accordance with GAAP.
(xxii) Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxiii) Insurance. The Company and each of its Subsidiaries
and their respective properties are insured in such amounts against
such losses and with such insurers as the Company believes are prudent
when considered in light of the nature of the properties and businesses
of the Company and its Subsidiaries.
(xxiv) ERISA Matters. The Company is in compliance in all
material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder
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("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the
Company would have any liability; the Company has not incurred and does
not expect to incur liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (ii)
Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(xxv) No Stabilization or Manipulation. The Company has not
and will not take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of
the shares of Common Stock to facilitate the sale or resale of the
Securities.
(b) Representations and Warranties by the Selling Stockholders. Each
Selling Stockholder severally represents and warrants to each Underwriter as of
the date hereof and as of the Closing Time referred to in Section 2(c) hereof,
and agrees with each Underwriter, as follows:
(i) Accurate Disclosure. The Registration Statement, any Rule
462(b) Registration Statement or any post-effective amendments thereto,
at the respective times the Registration Statement, any Rule 462(b)
Registration Statement or any post-effective amendments thereto became
effective, did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus
or any amendment or supplement thereto, at the time the Prospectus was
issued, at the time any such amended or supplemented prospectus was
issued or at the Closing Time, did not and will not include an untrue
statement of a material fact and did not and will not omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The foregoing representations and warranties in this subsection shall
apply only to statements in or omissions from the Registration
Statement (or any amendment thereto) or Prospectus (or any amendment or
supplement thereto) made in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of such
Selling Stockholder expressly for use under the caption "Principal and
Selling Stockholders" in the Registration Statement (or any amendment
thereto) or Prospectus (or any amendment or supplement thereto). Such
Selling Stockholder is not prompted to sell the Securities to be sold
by such Selling Stockholder hereunder by any material adverse
information concerning HealthVISION or LBA.
(ii) Authorization of Agreements. Each Selling Stockholder has
the full right, power and authority to enter into this Agreement and a
Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") and to sell, transfer and deliver the Securities to
be sold by such Selling Stockholder hereunder. The execution
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and delivery of this Agreement and the Power of Attorney and Custody
Agreement and the sale and delivery of the Securities to be sold by
such Selling Stockholder and the consummation of the transactions
contemplated herein and compliance by such Selling Stockholder with its
obligations hereunder have been duly authorized by such Selling
Stockholder and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any tax, lien, charge or encumbrance upon the Securities to be sold by
such Selling Stockholder or any property or assets of such Selling
Stockholder pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other
agreement or instrument to which such Selling Stockholder is a party or
by which such Selling Stockholder may be bound, or to which any of the
property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the charter or
by-laws or other organizational instrument of such Selling Stockholder,
or any applicable law, statute, rule, regulation, judgment, order, writ
or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over such Selling Stockholder
or any of its properties.
(iii) Good and Marketable Title. Such Selling Stockholder has
and at the Closing Time will have good and marketable title to the
Securities to be sold by such Selling Stockholder hereunder, free and
clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind, other than pursuant to this
Agreement; and upon delivery of such Securities and payment of the
purchase price therefor as herein contemplated, assuming each such
Underwriter has no notice of any adverse claim, each of the
Underwriters will receive good and marketable title to the Securities
purchased by it from such Selling Stockholder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Such Selling Stockholder has duly executed and delivered, in the form
heretofore furnished to the Underwriters, the Power of Attorney and
Custody Agreement with Warburg, Pincus Investors, L.P., as
attorney-in-fact (in such capacity, the "Attorney-in-Fact") and as
custodian (in such capacity, the "Custodian"); the Custodian is
authorized to deliver the Securities to be sold by such Selling
Stockholder hereunder and to accept payment therefor; and the
Attorney-in-Fact is authorized to execute and deliver this Agreement
and the certificate referred to in Section 5(f) or that may be required
pursuant to Section 5(l) on behalf of such Selling Stockholder, to
sell, assign and transfer to the Underwriters the Securities to be sold
by such Selling Stockholder hereunder, to determine the purchase price
to be paid by the Underwriters to such Selling Stockholder, as provided
in Section 2(a) hereof, to authorize the delivery of the Securities to
be sold by such Selling Stockholder hereunder, to accept payment
therefor, and otherwise to act on behalf of such Selling Stockholder in
connection with this Agreement.
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(v) No Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action
which is designed to or which has constituted or which might reasonably
be expected to cause or result in the stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or
resale of the Securities.
(vi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency, domestic or foreign, is necessary or required for the
performance by such Selling Stockholder of its obligations hereunder or
in the Power of Attorney and Custody Agreement, or in connection with
the sale and delivery by such Selling Stockholder of the Initial
Securities hereunder or the consummation by such Selling Stockholder of
the transactions contemplated by this Agreement, except such as may
have previously been made or obtained.
(vii) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, such Selling Stockholder will
not, without the prior written consent of Merrill Lynch, offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock, securities convertible into, exchangeable for
or repayable with shares of Common Stock, or rights or warrants to
acquire shares of Common Stock or cause to be filed any registration
statement under the 1933 Act with respect to any of the foregoing. The
foregoing sentence shall not apply to the Securities to be sold
hereunder.
(viii) Certificates Suitable for Transfer. Certificates for
all of the Securities to be sold by such Selling Stockholder pursuant
to this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed, have been placed in custody with the
Custodian with irrevocable conditional instructions to deliver such
Securities to the Underwriters pursuant to this Agreement.
(c) Officer's Certificates. Any certificate signed by any officer of
the Company and delivered to the Underwriters or to counsel for the Underwriters
in connection with the offering of the Securities shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby and not a personal representation and warranty by any such
officer; and any certificate signed by or on behalf of the Selling Stockholders
as such and delivered to the Underwriters or to counsel for the Underwriters
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by such Selling Stockholder to the Underwriters as to the matters
covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and each Selling Stockholder, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
each
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Selling Stockholder, at the price per share set forth in Schedule C, that
proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or such Selling Stockholder, as the case may be, which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities subject, in
each case, to such adjustments among the Underwriters as the Underwriters in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.
(b) Option Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional 332,505 shares of Common Stock, as
set forth in Schedule B, at the price per share set forth in Schedule C, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Underwriters to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Underwriters, but shall not be later
than seven full business days (or, in the case of any exercise of said option by
notice given after the Closing Time (as hereinafter defined), earlier than two
full business days) after the exercise of said option, nor in any event prior to
the Closing Time. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities, subject in each case to such adjustments as the Underwriters in
their discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Brown &
Wood LLP, One World Trade Center, New York, New York 10048, or at such other
place as shall be agreed upon by the Underwriters and the Company and the
Selling Stockholders, at 10:00 A.M. (Eastern Time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern Time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Underwriters and the Company and the Selling
Stockholders (such time and date of payment and delivery being herein called
"Closing Time"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Underwriters and the Company, on each Date of Delivery as specified in the
notice from the Underwriters to the Company.
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Payment of the purchase price for the Initial Securities shall be made
to the Company and the Selling Stockholders by wire transfer of immediately
available funds to the Company and the Custodian pursuant to each Selling
Stockholder's Power of Attorney and Custody Agreement, as the case may be,
against delivery to the Underwriters of certificates for the Initial Securities
to be purchased by them. Payment of the purchase price for any Option Securities
shall be made to the Company by wire transfer of immediately available funds to
the Company, against delivery to the Underwriters of certificates for the Option
Securities to be purchased by them. It is understood that each Underwriter has
authorized Merrill Lynch, for its account, to accept delivery of, receipt for,
and make payment of the purchase price for, the Initial Securities and the
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities
or the Option Securities, if any, to be purchased by any Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such Underwriter from its
obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Underwriters may request in writing at least one
full business day before the Closing Time or the relevant Date of Delivery, as
the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Underwriters in The City of New York not later than 10:00 A.M. (Eastern Time) on
the business day prior to the Closing Time or the relevant Date of Delivery, as
the case may be.
SECTION 3. Covenants of the Company. The Company covenants with
each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b) hereof, will comply with
the requirements of Rule 430A or Rule 434, as applicable, and will
notify the Underwriters promptly, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission with respect to the Registration
Statement, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings
for any of such purposes. The Company will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file
such prospectus. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
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(b) Filing of Amendments. During the period when the
Prospectus is required to be delivered under the 1933 Act, the Company
will give the Underwriters notice of its intention to file or prepare
any amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, whether pursuant to the
1933 Act, the 1934 Act, or otherwise, will furnish the Underwriters
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file or
use any such document to which the Underwriters or counsel for the
Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to Merrill Lynch, without charge, a signed
copy of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents
and certificates of experts, and will also deliver to the other
Underwriters and to counsel for the Underwriters, without charge, a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed
to be incorporated by reference therein). The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical in all material respects to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical in all material
respects to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and
the Prospectus. If at any time when a prospectus is required by the
1933 Act to be delivered in connection with sales of the Securities,
any event shall occur or condition shall exist as a result of which it
is necessary, in the reasonable opinion of counsel for the Underwriters
and counsel for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will
not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light
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of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus
comply with such requirements, and the Company will furnish to each
Underwriter such number of copies of such amendment or supplement as
such Underwriter may reasonably request.
(f) Blue Sky Qualifications. The Company will use all
reasonable efforts, in cooperation with the Underwriters, to qualify
the Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as the
Underwriters may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its security holders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (x) offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock, securities convertible into, exchangeable for or
repayable with shares of Common Stock, or rights or warrants to acquire
shares of Common Stock or (y) file any registration statement under the
1933 Act with respect to any shares of Common Stock, securities
convertible into, exchangeable for or repayable with shares of Common
Stock, or rights or warrants to acquire shares of Common Stock. The
foregoing sentence shall not apply to (A) options to purchase Common
Stock granted pursuant to the Company's 1994 Stock and Incentive Plan
and 1995 Non-Employee Director Stock Option Plan referred to in the
Prospectus; or (B) shares of Common Stock issued upon exercise of
options outstanding at the date of this Agreement; or (C) shares of
Common
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Stock issued in connection with one or more acquisitions of
privately-held companies, provided that the number of shares so issued
does not exceed, in the aggregate, 2,000,000 (subject to appropriate
adjustment for stock splits, reverse stock splits and stock dividends)
and that upon issuance all such shares constitute "restricted
securities" as defined in Rule 144(a) under the 1933 Act; or (D) the
filing of registration statements on Form S-4 under the 1933 Act
covering, in the aggregate, the registration of not more than 2,000,000
(subject to appropriate adjustment for stock splits, reverse stock
splits and stock dividends) shares of Common Stock.
(j) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company and the
Selling Stockholders will pay or cause to be paid all expenses incident to the
performance of their obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
or any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the fees and disbursements of the
Selling Stockholders' counsel, accountants and other advisors, (vi) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vii) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (viii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (ix)
the fees and expenses of any transfer agent or registrar for the Securities, (x)
the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. ("NASD") of the terms of the offering
and sale of the Securities and (xi) the fees and expenses incurred in connection
with the inclusion of the Securities in the Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11 hereof, the Company and the Selling Stockholders shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriters.
(c) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Stockholders may make for
the sharing of such costs and expenses.
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SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained in Section 1 hereof, to the accuracy of the statements made in
certificates of any officer of the Company or on behalf of any Selling
Stockholder delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for the Company and the Selling
Stockholders. At Closing Time, the Underwriters shall have received the
favorable opinion, dated as of Closing Time, of Whiteford, Taylor &
Preston L.L.P., counsel for the Company and the Selling Stockholders,
in form and substance reasonably satisfactory to counsel for the
Underwriters, to the effect set forth in Exhibit A hereto and to such
further effect as counsel to the Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood LLP, counsel for the Underwriters, with
respect to the matters set forth in clauses (i), (v) through (vii),
inclusive, and the penultimate paragraph of Exhibit A hereto. In giving
such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York, the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the
Underwriters. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, and the Underwriters shall
have received a certificate of the President or a Senior Vice President
of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there
has been no such material adverse change, (ii) the representations and
warranties of the Company in Section 1(a) hereof are true and correct
with the same force and effect as
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though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or, to their knowledge, are pending or are contemplated by
the Commission.
(e) Certificate of Selling Stockholders. At Closing Time, the
Underwriters shall have received a certificate of the Attorney-in-Fact
on behalf of each Selling Stockholder, dated as of Closing Time, to the
effect that (i) the representations and warranties of each Selling
Stockholder contained in Section 1(b) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing
Time and (ii) each Selling Stockholder has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time.
(f) Accountants' Comfort Letters. At the time of the execution
of this Agreement, the Underwriters shall have received from each of
KPMG Peat Marwick LLP, Price Waterhouse LLP and Ernst & Young LLP a
letter dated such date, in form and substance reasonably satisfactory
to the Underwriters, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(g) Bring-down Comfort Letters. At Closing Time, the
Underwriters shall have received from KPMG Peat Marwick LLP a letter,
dated as of Closing Time, to the effect that it reaffirms the
statements made in the letter furnished by it pursuant to subsection
(f) of this Section, except that the "specified date" referred to
shall be a date not more than three business days prior to Closing
Time.
(h) No Objection. The NASD shall not have raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement,
the Underwriters shall have received an agreement substantially in the
form of Exhibit B hereto signed by each of the persons listed on
Schedule E hereto.
(j) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall
be true and correct as of each Date of Delivery and, at the relevant
Date of Delivery, the Underwriters shall have received:
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(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Senior Vice President of the
Company and of the chief financial or chief accounting officer
of the Company confirming that the certificate delivered at
Closing Time pursuant to Section 5(d) hereof is true and
correct as of such Date of Delivery.
(ii) Opinion of Counsel for the Company. The favorable opinion
of Whiteford, Taylor & Preston L.L.P., counsel for the
Company, in form and substance reasonably satisfactory to
counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
opinion of Brown & Wood LLP, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities
to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letters. A letter from KPMG Peat
Marwick LLP, in form and substance satisfactory to the
Underwriters and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished by KPMG Peat Marwick LLP to the Underwriters
pursuant to Section 5(g) hereof, except that any
"specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, contained herein; and all proceedings taken by the
Company and the Selling Stockholders in connection with the issuance
and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Underwriters and counsel for
the Underwriters.
(l) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the Underwriters
by notice to the Company and the Selling Stockholders at any time at or
prior to the Closing Time or such Date of Delivery, as the case may be,
and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1,
6, 7 and 8 shall survive any such termination and remain in full force
and effect.
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SECTION 6. Indemnification.
(a) Indemnification of Underwriters. (1) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, referred to
under (i) above; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, referred to under (i) above
to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with (x) written information furnished to the Company by
any Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) or (y) written information
furnished to the Company by or on behalf of any Selling Stockholder expressly
for use under the caption "Principal and Selling Stockholders" in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereof); and
provided, further, that the foregoing indemnity is subject to the condition
that, insofar as it relates to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus but eliminated
in the
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Prospectus (or any amendment or supplement thereto), such indemnity shall not
inure to the benefit of any Underwriter (or any person controlling such
Underwriter) if a copy of such Prospectus (or amendment or supplement thereto)
was not delivered to the person asserting any such loss, liability, claim or
damage, if such delivery was required by the 1933 Act, and the delivery thereof
would have cured the defect giving rise to such loss, liability, claim or
damage.
(2) Each Selling Stockholder, severally and not jointly, agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, referred to
under (i) above; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of such Selling
Stockholder; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, referred to under (i) above
to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall apply only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Selling Stockholder expressly for use
under the caption "Principal and Selling Stockholders" in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and
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<PAGE>
provided, further, that the foregoing indemnity is subject to the condition
that, insofar as it relates to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus but eliminated
in the Prospectus (or any amendment or supplement thereto), such indemnity shall
not inure to the benefit of any Underwriter if a copy of such Prospectus (or
amendment or supplement thereto) was not delivered to the person asserting any
such loss, liability, claim or damage, if such delivery was required by the 1933
Act, and the delivery thereof would have cured the defect giving rise to such
loss, liability, claim or damage.
(b) Indemnification of Company, Directors and Officers and Selling
Stockholders. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, each Selling Stockholder, and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. If it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise
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<PAGE>
or consent (i) includes an unconditional release of each indemnified party from
all liability arising out of such litigation, investigation, proceeding or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(1)(ii) and Section 6(a)(2)(ii) effected without its written consent
if (i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 45 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) The provisions of this Section shall not affect any agreement among
the Company and the Selling Stockholders with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Stockholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet bear to the aggregate initial public offering price of the
Securities as set forth on such cover.
The relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Stockholders on the one
hand or by the Underwriters on the other hand and the parties' relative
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intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
such Selling Stockholder, respectively. The Underwriters' respective obligations
to contribute pursuant to this Section 7 are several in proportion to the number
of Initial Securities set forth opposite their respective names in Schedule A
hereto and not joint.
The provisions of this Section shall not affect any agreement between
the Company and the Selling Stockholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Selling
Stockholders submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company or the
Selling Stockholders, and shall survive delivery of the Securities to the
Underwriters.
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SECTION 9. Termination of Agreement.
(a) Termination; General. The Underwriters may terminate this
Agreement, by notice to the Company and the Selling Stockholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States, any outbreak of hostilities or escalation thereof or other calamity or
crisis or any change or development involving a prospective change in national
or international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the reasonable judgment of the
Underwriters, impracticable to market the Securities or to enforce contracts for
the sale of the Securities, or (iii) if trading in any securities of the Company
has been suspended or limited by the Commission, the Nasdaq National Market, or
if trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the NASD or any other governmental authority, or (iv)
if a banking moratorium has been declared by either Federal or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the non-defaulting Underwriters shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the non-defaulting
Underwriters shall not have completed such arrangements within such 24-hour
period, then this Agreement (or, with respect to any Date of Delivery which
occurs after the Closing Time, the obligation of the Underwriters to purchase
and of the Company to sell the Option Securities to be purchased and sold on
such Date of Delivery) shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement (or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities)
either the non-defaulting Underwriters or the Selling Stockholders (solely with
respect to the Initial Securities) or the Company shall have the right to
postpone
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Closing Time or the relevant Date of Delivery, as the case may be, for a period
not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. Default by One or More of the Selling Stockholders or the
Company. (a) If one or more Selling Stockholders shall fail at Closing Time to
sell and deliver the number of Securities which such Selling Stockholder or
Selling Stockholders are obligated to sell hereunder, the remaining Selling
Stockholders shall have the right within 24 hours thereafter to increase, pro
rata or otherwise, the number of Securities to be sold by them hereunder to the
total number to be sold by all Selling Stockholders as set forth in Schedule B
hereto; if, however, the non-defaulting Selling Stockholders shall not have
exercised such right within such 24-hour period, then the Underwriters may, by
notice from the Underwriters to the Company and the non-defaulting Selling
Stockholders, either (a) terminate this Agreement without any liability on the
part of any non-defaulting party, except that the provisions of Sections 1, 4,
6, 7 and 8 shall remain in full force and effect, or (b) elect to purchase the
Securities which the non-defaulting Selling Stockholders and the Company have
agreed to sell hereunder. No action taken pursuant to this Section 11 shall
relieve any Selling Stockholder so defaulting from liability, if any, in respect
of such default.
In the event of a default by any Selling Stockholder as referred to in
this Section 11, each of the Underwriters, the Company and the non-defaulting
Selling Stockholders shall have the right to postpone Closing Time for a period
not exceeding seven days in order to effect any required change in the
Registration Statement or Prospectus or in any other documents or arrangements.
(b) If the Company shall fail at Closing Time or at the Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability, if any, in respect of
such default.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices and other
communications to the Underwriters shall be directed to the Underwriters c/o
Merrill Lynch at North Tower, World Financial Center, New York, New York
10281-1201, attention of Raymond Wong; notices and other communications to the
Company shall be sent to it at 300 East Lombard Street, Baltimore, Maryland
21202, attention of Charles A. Berardesco, Vice President and General Counsel,
with copies to Whiteford, Taylor & Preston L.L.P., Seven Saint Paul Street,
Baltimore, Maryland 21202-1626, attention of D. Scott Freed, Esq.; and notices
and other communications to the Selling Stockholders shall be directed to the
Selling Stockholders c/o Warburg, Pincus Investors, L.P. at 466 Lexington
Avenue, New York, New York 10017, attention of Patrick Hackett.
27
<PAGE>
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company and the Selling Stockholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Stockholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Stockholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorney-in-Fact for
the Selling Stockholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement between the Underwriters,
the Company and the Selling Stockholders in accordance with its terms.
28
<PAGE>
Very truly yours,
HCIA INC.
By
Name: George D. Pillari
Title: Chairman of the Board,
President and Chief Executive
Officer
WARBURG, PINCUS INVESTORS, L.P.
By
For itself and as Attorney-in-Fact
acting on behalf of the other Selling
Stockholders named in Schedule B
hereto.
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Alex. Brown & Sons Incorporated.....................................
Hambrecht & Quist LLC...............................................
Montgomery Securities...............................................
Robertson, Stephens & Company LLC...................................
Total................................................... 2,216,696
=========
Sch A - 1
<PAGE>
SCHEDULE B
Maximum Number of
Number of Initial Option Securities to be
Securities to be Sold Sold
HCIA Inc. 2,000,000 332,505
Warburg, Pincus Investors, L.P. 199,393
United HealthCare Services, Inc.
HLM Partners V. L.P. 7,698
HLM Partners VII, L.P. 1,921
7,684
Sch B - 1
<PAGE>
SCHEDULE C
HCIA INC.
2,216,696 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Initial
Securities shall be $[ ].
2. The purchase price per share for the Initial Securities to be paid by
the several Underwriters shall be $[ ], being an amount equal to the
initial public offering price set forth above less $[ ] per share.
Sch C - 1
<PAGE>
SCHEDULE D
Healthcare Knowledge Systems Limited
CHKS Limited
IASIST, S.A.
Response Healthcare Information Management, Inc.
LBA Holdings, Inc.
LBA Health Care Management Inc.
Sch D - 1
<PAGE>
SCHEDULE E
George D. Pillari
Sachi J. Morishige
Barry C. Offutt
Jean Chenoweth
Lawrence J. Byrne
Kevin J. Hicks
Sch E - 1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement.
(ii) Each of the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to own
or lease its properties and conduct its business as described in the
Prospectus; the Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their
business requires such qualification, unless the failure to qualify would
not have a material adverse effect on the business of the Company and its
subsidiaries taken as a whole; and the outstanding shares of capital stock
of each of the Subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable and are owned by the Company or a
Subsidiary (except for directors' qualifying shares); and, to our knowledge,
except for the lien in favor of First Union National Bank of North Carolina
("First Union") created under that certain Credit Agreement dated August 8,
1996 by and between First Union, as Agent, and the Company, the outstanding
shares of capital stock of each of the Subsidiaries are owned free and clear
of all liens, encumbrances and security interests, and no options, warrants
or other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital stock or
of ownership interests in the Subsidiaries are outstanding.
(iii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the outstanding
shares of the Company's Common Stock, including the Initial Securities to be
purchased by the Underwriters from the Selling Stockholders, have been duly
authorized and validly issued and are fully paid and non-assessable; all of
the Securities conform to the description thereof incorporated by reference
in the Prospectus; the Securities to be sold by the Company pursuant to the
Underwriting Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by
the Underwriting Agreement; and no preemptive rights of stockholders exist
with respect to any of the Securities or the issue or sale thereof.
(iv) Except as described in or contemplated by the Prospectus, to our
knowledge, there are no outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating the
Company to issue any shares of its capital stock or any securities
convertible or exchangeable
A-1
<PAGE>
into or evidencing the right to purchase or subscribe for any shares of such
stock, provided, however, that certain former shareholders of CHKS Limited,
an English private company limited by shares ("CHKS"), have the option to
require repayments of promissory notes issued by the Company in shares of
Common Stock in connection with the repurchase of such shareholders' stock
in CHKS by the Company; and except as described in the Prospectus, to our
knowledge, there is no holder of any securities of the Company or any other
person who has the right, contractual or otherwise, to cause the Company to
sell or otherwise issue to them, or to permit them to underwrite the sale
of, any shares of Common Stock or the right to have any shares of Common
Stock or other securities of the Company included in the Registration
Statement, or to require registration under the 1933 Act of any shares of
Common Stock or other securities of the Company.
(v) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to the
best of our knowledge and information, no stop order suspending the
effectiveness of the Registration Statement has been issued under the 1933
Act or proceedings therefor initiated or threatened by the Commission.
(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and Prospectus, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements, supporting schedules and other financial or
statistical data included therein or omitted therefrom, as to which we
render no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(viii) The documents incorporated by reference in the Prospectus
(other than the financial statements, supporting schedules and other
financial or statistical data included therein or omitted therefrom, as to
which we render no opinion), when they became effective or were filed with
the Commission, as the case may be, complied as to form in all material
respects with the requirements of the 1933 Act or the 1934 Act, as
applicable, and the rules and regulations of the Commission thereunder.
(ix) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the Charter and By-laws of
the Company and the requirements of the Nasdaq National Market.
(x) After due inquiry, including discussions with the Company's
senior management and the Company's accountants, we know of no material
legal or governmental proceedings
A-2
<PAGE>
pending or threatened against the Company or any of the subsidiaries except
as set forth in the Prospectus.
(xi) The statements under the captions "Risk Factors--Dependence on
Intellectual Property Rights", "Use of Proceeds," "Business--Recent
Acquisitions; Decision Support Systems; Customers; Intellectual Property;
Government Regulation; Properties; Litigation", "Management" and "Principal
and Selling Stockholders", in the Prospectus, and under the caption
"Description of Capital Stock" in the Company's Registration Statement on
Form 8-A filed on January 13, 1995, insofar as such statements constitute a
summary of documents referred to therein or matters of law, are accurate
summaries and fairly present in all material respects the information called
for with respect to such documents and matters; and there are no material
statutes, rules or regulations (including any relating to health care or
similar matters) that are not described or referred to therein and that are
necessary to make the statements in the Prospectus in the light in which
they were made not materially misleading.
(xii) We know of no contracts or documents required to be filed as
exhibits to the Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or described as required,
and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.
(xiii) To our knowledge, neither the Company or any subsidiary is
presently in breach of, or in default under, their respective Charter
documents or Bylaws, or any provision of any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness or any other agreement, lease, contract, instrument, franchise,
license, authorization, permit, approval, registration, judgment, decree,
order, statute, rule or regulation of which we have knowledge to which the
Company or any subsidiary is a party or by which any of its respective
properties is bound, which breach or default is material to the business or
financial condition of the Company and its subsidiaries taken as a whole,
and to our knowledge, the Company and its subsidiaries are conducting their
respective businesses in compliance with all of the material laws, rules and
regulations applicable thereto except where non-compliance, together with
all other such instances of non-compliance, would not have a material
adverse effect on the business, properties, rights, assets, operations or
condition (financial or otherwise) of the Company and its subsidiaries taken
as a whole.
(xiv) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery
of the Underwriting Agreement by the Company and the consummation by the
Company of the transactions therein contemplated (other than as may be
required by state securities and Blue Sky laws as to which we express no
opinion), except such as have been obtained or made.
(xv) The execution and delivery of the Underwriting Agreement by the
Company and the consummation of the transactions therein contemplated do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or Bylaws of the
Company, or any agreement or instrument known to us to which the Company or
any of its subsidiaries is a party or by which the Company or any of the
A-3
<PAGE>
subsidiaries may be bound, except to the extent that any such conflict,
breach or default would not have a material adverse effect on the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or business prospects of the Company and its
subsidiaries taken as a whole.
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(xvii) To our knowledge, each of the Company and its subsidiaries
owns, or is licensed or otherwise has sufficient right to use, all
proprietary knowledge, data bases, inventions, trademarks, service marks,
logo marks and copyrights (collectively, the "rights") necessary for the
conduct of its business as described in the Prospectus. To our knowledge, no
claims have been asserted against the Company or any of its subsidiaries by
any person to the use of any such rights or challenging or questioning the
validity or effectiveness of any such rights. The use, in connection with
the business and operations of the Company and its subsidiaries, of such
rights does not, to our knowledge, infringe on the rights of any person or
entity.
(xviii) No filing with, or consent, approval, authorization, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the
order of the Commission declaring the Registration Statement effective and
such authorizations, approvals or consents as may be necessary under state
securities laws, as to which we express no opinion) is necessary or required
to be obtained by the Selling Stockholders for the performance by each
Selling Stockholder of its obligations under the Underwriting Agreement or
in the Power of Attorney and Custody Agreement, or in connection with the
offer, sale or delivery of the Securities.
(xix) Each Power of Attorney and Custody Agreement has been duly
executed and delivered by the respective Selling Stockholder named therein
and constitutes the legal, valid and binding agreement of such Selling
Stockholder.
(xx) The Underwriting Agreement has been duly authorized, executed
and delivered by or on behalf of each Selling Stockholder.
(xxi) The Attorney-in-Fact has been duly authorized by the Selling
Stockholders to deliver the Securities on behalf of the Selling Stockholders
in accordance with the terms of the Underwriting Agreement.
(xxii) The execution, delivery and performance by the Selling
Stockholders of the Underwriting Agreement and the Power of Attorney and
Custody Agreements and the sale and delivery of the Securities to be sold by
the Selling Stockholders and the consummation by the Selling Stockholders of
the transactions contemplated in the Underwriting Agreement and in the
Registration Statement and compliance by the Selling Stockholders with their
obligations under the Underwriting Agreement have been duly authorized by
all necessary action on the part of each Selling Stockholder and do not and
will not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default under
A-4
<PAGE>
or result in the creation or imposition of any tax, lien, charge or
encumbrance upon the Securities to be sold by the Selling Stockholders or
any property or assets of any Selling Stockholder pursuant to, any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, license,
lease or other instrument or agreement to which any Selling Stockholder is a
party or by which any Selling Stockholder may be bound, or to which any of
the property or assets of any Selling Stockholder may be subject nor will
such action result in any violation of the provisions of the charter or
by-laws or other organizational instrument of any Selling Stockholder, or
any law, administrative regulation, judgment or order of any governmental
agency or body or any administrative or court decree having jurisdiction
over any Selling Stockholder or any Selling Stockholder's properties.
(xxiii) To our knowledge, each Selling Stockholder has all rights in
and to the Securities to be sold by such Selling Stockholder, free and clear
of any "adverse claims" within the meaning of Section 8-302 of the New York
Uniform Commercial Code, and full right and authority to effect the sale and
delivery of such Securities; and upon delivery of the Securities to be sold
by each Selling Stockholder and payment of the purchase price therefor as
contemplated in the Underwriting Agreement, assuming each of the
Underwriters is a "bona fide purchaser" (as defined under Section 8-302 of
the New York Uniform Commercial Code), each of the Underwriters will acquire
all rights in and to the Securities purchased by it from each Selling
Stockholder, free and clear of any "adverse claims" within the meaning of
Section 8-302 of the New York Uniform Commercial Code.
Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial or statistical data included
therein or omitted therefrom, as to which we make no statement), at the time
such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial or statistical data included therein or omitted therefrom, as to
which we make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
[In rendering such opinion, such counsel may (A) rely as to all matters
involving the application of laws other than the laws of the State of Maryland
or the federal laws of the United States of America, to the extent such counsel
deems proper and specified in such opinion, upon the opinion of other counsel
whom such counsel believes to be reliable, provided that such counsel furnishes
a copy thereof to the Underwriters and states that such opinion of such local
counsel is satisfactory in form and substance and that the Underwriters and
counsel for the Underwriters are entitled to rely thereon, (B) assume that the
laws of the State of New York, to the extent applicable to such opinion, will be
applied in a manner similar to, and consistent with the laws of the State of
Maryland, and (C) rely as to matters of fact, to the extent such counsel
A-5
<PAGE>
deems proper, on certificates of responsible officers of the Company, its
subsidiaries, the Selling Stockholders and public officials.]
A-6
<PAGE>
[Form of lock-up pursuant to Section 5(i)]
Exhibit B
________, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY LLC
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering of Common Stock of HCIA Inc.
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of
HCIA Inc., a Maryland corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC, Montgomery
Securities and Robertson Stephens & Company LLC (collectively, the
"Underwriters") propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with the Company and certain stockholders of the
Company providing for the public offering of 2,216,696 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company. For good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each Underwriter that, during a period
of 90 days from the date of the Underwriting Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, offer, sell, contract
to sell or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into, exchangeable for or repayable with
shares of Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or cause to be filed any registration statement under
the Securities Act of 1933, as amended, with respect to any of the foregoing.
Very truly yours,
Signature:
Print Name:
B-1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
HCIA INC.
HCIA INC., a Maryland corporation (the "Corporation"), hereby certifies
to the State Department of Assessments and Taxation of Maryland (the "SDAT")
that:
FIRST: The Corporation desires to amend and restate its Charter as
currently in effect as hereinafter provided. The provisions set forth in
these Articles of Amendment and Restatement are all the provisions of the
Charter of the Corporation currently in effect.
SECOND: The Charter of the corporation is hereby amended and restated
in its entirety as follows:
FIRST: The name of the corporation (the "Corporation") is:
HCIA Inc.
SECOND: The purposes for which the Corporation is formed are
as follows:
(a) To analyze, prepare, market and sell all
manner of data, information, research products, reports and
other such materials concerning hospitals, health-care
providers and other medically-related institutions and
entities;
(b) To otherwise provide financial, business
and related types of analysis and advisory services to
financial institutions, businesses, insurers, hospitals and
other data users; and
(c) To carry on any and all business,
transactions and activities permitted by the Maryland General
Corporation Law which may be deemed desirable by the Board of
Directors of the Corporation, whether or not identical with or
related to the business described in the foregoing paragraphs
of this Article, as well as all activities and things
necessary and incidental thereto, to the full extent empowered
by such laws.
THIRD: The address of the principal office of the Corporation
in this State is 300 East Lombard Street, Baltimore, Maryland
21202. The name and address of the resident agent of the
Corporation in this State are Resagent, Inc., Suite 1400,
Seven Saint Paul Street, Baltimore, Maryland 21202; the
resident agent is a Maryland Corporation.
FOURTH: The total number of shares of all classes of stock
which the Corporation has authority to issue is Fifteen
Million Five Hundred Thousand
<PAGE>
(15,500,000) shares, of which Fifteen Million (15,000,000)
shares shall be common stock, par value $.01, and Five Hundred
Thousand (500,000) shares shall be preferred stock, par
value $.01 per share. The aggregate par value of all shares
of all classes of stock having a par value is One Hundred
and Fifty-Five Thousand dollars ($155,000).
FIFTH: The Corporation shall have seven Directors (which
number may be increased or decreased pursuant to the Bylaws of
the Corporation, but shall never be less than the minimum
number required by the provisions of the Maryland General
Corporation Law). The names of the current directors, who
shall act until their successors are duly elected and qualify,
are:
Mark C. Rogers
Richard Dulude
Robert Genader
W. Grant Gregory
Phillip B. Lassiter
George D. Pillari
Carl J. Schramm
SIXTH: In carrying on its business, or for the purpose of
attaining or furthering any of its objectives, the Corporation
shall have all of the rights, powers and privileges granted to
corporations by the laws of the State of Maryland, as well as
the power to do any and all acts and things which a natural
person or partnership could do, as now or hereafter authorized
by law, either alone or in partnership or conjunction with
others. In furtherance and not in limitation of the powers
conferred by statute, the powers of the Corporation and of its
Board of Directors and stockholders shall include the
following:
(a) The Board of Directors of the Corporation is
hereby empowered to authorize the issuance from time to time
of shares of its stock of any class, whether now or hereafter
authorized, and securities convertible into shares of its
stock, of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors
may deem advisable.
(b) No contract or other transaction between this
Corporation and any other corporation, partnership, individual
or other entity and no act of this Corporation shall in any
way be affected or invalidated by the fact that any of the
directors of this Corporation are directors, principals,
partners or officers of such other entity, or have a pecuniary
or otherwise are interested in such contract, transaction or
act; provided that: (i) the existence of such relationship or
such interest shall be disclosed to the Board of Directors or
to a committee of the Board of Directors if the matter
involves a committee decision, and the contract, transaction
or act shall be authorized, approved or ratified by a majority
of disinterested directors on the Board or on such committee,
as the case may be, even if the number of disinterested
directors constitutes less than a quorum; or (ii) the
contract, transaction or act shall be authorized, ratified or
2
<PAGE>
approved in any other manner permitted by the Maryland General
Corporation law.
(c) The Corporation reserves the right to make, from
time to time, any amendments to its Charter which may now or
hereafter be authorized by law, including any amendments which
alter the contract rights of any class of outstanding stock as
expressly set forth in the Charter.
(d) The Board of Directors shall have the power to
classify or reclassify any unissued stock, whether now or
hereafter authorized, by setting or changing the preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or
conditions of redemption of such stock.
(e) Notwithstanding any provision of law requiring
any action to be taken or authorized by the affirmative vote
of the holders of a designated proportion of the votes of all
classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of
votes entitled to be cast thereon, except as otherwise
provided in this Charter.
SEVENTH: Unless otherwise provided by the Board of Directors,
no holder of stock of any class or any other security shall be
entitled to preemptive rights to subscribe for or purchase or
receive any part of any new or additional issue of stock of
any class of the Corporation or securities convertible into
stock of any class of the Corporation; provided, however, that
the Board of Directors may, in authorizing the issuance of
stock of any class, confer any preemptive right that the Board
of Directors may deem advisable in connection with such
issuance, and set the price and any other terms the Board of
Directors, in its sole discretion, may fix.
EIGHTH: To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no director or
officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any
of its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such
amendment or repeal.
NINTH: Except as the Bylaws of the Corporation may
otherwise provide, no indemnification shall be provided
for any officer or director or for any employee or agent of
the Corporation or of any predecessor of the Corporation or
any other entity.
TENTH: Except as the Bylaws of the Corporation may
otherwise provide, no director may be removed by the
stockholders without cause.
3
<PAGE>
THIRD: Immediately before the filing of these Articles of
Amendment and Restatement, the total number of shares of all classes of
stock which the Corporation had authority to issue was Twenty-Three
Million Two Hundred Thirty Thousand (23,230,000) shares, of which
Twenty Million (20,000, 000) shares were Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), Three Million
(3,000,000) shares were Class B Non-Voting Common Stock, par value $.01
per share (the "Class B Common Stock"), and Two Hundred Thirty Thousand
(230,000) shares were Preferred Stock, par value $100 per share. The
aggregate par value of all shares of all classes of stock having a par
value was Twenty-Three Million Two Hundred Thirty Thousand Dollars
($23,230,000).
FOURTH: Upon acceptance of these Articles of Amendment and
Restatement by the SDAT the total number of shares of all classes of
stock which the Corporation shall have the authority to issue pursuant
to its Charter shall be Fifteen Million Five Hundred Thousand
(15,500,000) shares, of which Fifteen Million (15,000,000) shares are
Common Stock, par value $.01 per share (the "New Common Stock"), and
Five Hundred Thousand (500,000) shares are Preferred Stock, par value
$.01 per share. The aggregate par value of all shares of all classes of
stock having a par value shall be One Hundred and Fifty-Five Thousand
Dollars ($155,000).
FIFTH: The manner and basis of implementing the
reclassification and exchange effected by these Articles of Amendment
and Restatement shall be as follows: Upon acceptance of these Articles
of Amendment and Restatement by the SDAT, three shares of the Class A
Common Stock of the Corporation shall forthwith be surrendered in
exchange for 1 share of the New Common Stock, and three shares of the
Class B
4
<PAGE>
Common Stock of the Corporation shall forthwith be surrendered in
exchange for 1 share of the New Common Stock.
SIXTH: The current address of the principal office of the
Corporation is 300 East Lombard Street, Baltimore, Maryland 21202.
SEVENTH: The name and address of the Corporation's current
resident agent are Resagent, Inc., Seven Saint Paul Street, Suite 1400,
Baltimore, Maryland 21202.
EIGHTH: The number of directors of the Corporation is
seven. The names of the directors currently in office are:
Richard Dulude
Robert J. Genader
W. Grant Gregory
Phillip B. Lassiter
George D. Pillari
Mark C. Rogers
Carl J. Schramm
NINTH: These Articles of Amendment and Restatement of the
Charter of the Corporation were advised by the Board of Directors and
approved by the stockholders of the Corporation in the manner and by
the vote required by law and its Charter.
TENTH: The undersigned acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation
and with respect to all matters or facts required to be verified under
oath, the undersigned acknowledges that to the best of his knowledge,
information and belief, such matters and facts are true in all material
respects and such statement is made under penalties of perjury.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Assistant Secretary on this 11th day of
February, 1995.
ATTEST: HCIA, INC.
/s/ Barry Offutt By: /s/ George D. Pillari
Barry Offutt, Assistant Secretary George D. Pillari, President
6
<PAGE>
ARTICLES OF AMENDMENT
OF
HCIA INC.
HCIA INC., a Maryland corporation (the "Corporation"), hereby certifies
to the State Department of Assessments and Taxation of Maryland ("SDAT") that:
FIRST: The Corporation desires to amend its Charter as currently
in effect as hereinafter provided.
SECOND: Article Fourth of the Charter of the Corporation is hereby
amended by deleting in its entirety and inserting the following in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation has authority to issue is 50,500,000 shares, of
which 50,000,000 shares shall be common stock, par value $.01 per
share, and 500,000 shares shall be preferred stock, par value $.01 per
share. The aggregate par value of all shares of all classes of stock
having a par value is $505,000."
THIRD: Immediately prior to the filing of these Articles of Amendment,
the total number of shares of all classes of stock which the Corporation had the
authority to issue pursuant to its Charter was 15,500,000 shares, of which
15,000,000 shares were common stock, par value $.01 per shares, and 500,000
shares were preferred stock, par value $.01 per share. The aggregate par value
of all shares of all classes of stock having a par value was $155,000.
FOURTH: Upon the acceptance of these Articles of Amendment by SDAT, the
total number of shares of all classes of stock which the Corporation shall have
the authority to issue pursuant to its Charter shall be 50,500,000 shares, of
which 50,000,000 shares shall be common stock, par value $.01 per share, and
500,000 shares shall be preferred stock, par value $.01 per share. The aggregate
par value of all shares of all classes of stock having a par value shall be
$505,000.
FIFTH: The foregoing amendment to the Charter of the Corporation
was authorized by the Board of Directors and approved by the stockholders of
the Corporation in the manner and by the vote as required by law and its
Charter.
SIXTH: The undersigned acknowledge these Articles of Amendment to be
the corporate act of the Corporation and with respect to all matters or facts
required to be verified under oath, the undersigned acknowledge that to the best
of their knowledge, information and belief, such matters and facts are true in
all material respects and such statement is made under the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its President and
attested to by its Secretary on this 7th day of August, 1996.
ATTEST: HCIA INC.
/s/ Charles A. Berardesco By: /s/ George D. Pillari
Charles A. Berardesco George D. Pillari
Secretary President
8
CREDIT AGREEMENT
among
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
as Agent
VARIOUS LENDERS
and
HCIA INC.
as Borrower
$50,000,000 Term Loan Facility
$50,000,000 Revolving Credit Facility
August 8, 1996
<PAGE>
TABLE OF CONTENTS
Page
Recitals ................................................................... 1
ARTICLE I
DEFINITIONS
1.1. Defined Terms.................................................. 1
1.2. Accounting Terms...............................................23
1.3. Singular/Plural................................................24
1.4. Other Terms....................................................24
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;
LETTERS OF CREDIT
2.1. The Loans......................................................24
2.2. Borrowings.....................................................25
2.3. Notes..........................................................27
2.4. Termination and Reduction of Commitments.......................28
2.5. Payments; Voluntary, Mandatory.................................29
2.6. Interest.......................................................31
2.7. Fees...........................................................33
2.8. Interest Periods...............................................34
2.9. Conversions and Continuations..................................35
2.10. Method of Payments; Computations...............................36
2.11. Increased Costs, Change in Circumstances, Etc..................38
2.12. Taxes..........................................................41
2.13. Compensation...................................................43
2.14. Use of Proceeds................................................44
2.15. Recovery of Payments...........................................44
2.16. Pro Rata Treatment.............................................45
2.17. Letters of Credit..............................................46
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING
3.1. Closing........................................................52
3.2. Conditions of Loans and Advances...............................52
3.2.1. Executed Loan Documents............................52
3.2.2. Closing Certificates; Etc..........................53
3.2.3. Consents; No Adverse Change........................54
3.2.4. Financial Matters..................................55
3.2.5. Miscellaneous......................................55
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3.3. LBA Health Care Management, Inc................................56
3.4. Conditions to All Loans and Advances...........................56
3.5. Waiver of Conditions Precedent.................................57
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Corporate Organization and Power...............................57
4.2. Subsidiaries...................................................58
4.3. Enforceability of Loan Documents; Compliance with
Other Instruments..............................................58
4.4. Use of Proceeds................................................58
4.5. Governmental Authorization.....................................59
4.6. Financial Statements...........................................59
4.7. Solvency.......................................................60
4.8. Places of Business.............................................60
4.9. Leased Properties..............................................60
4.10. Realty.........................................................61
4.11. Assets for Conduct of Business.................................61
4.12. Insurance......................................................61
4.13. Ownership of Properties........................................61
4.14. First Priority.................................................61
4.15. Litigation; Government Regulation..............................62
4.16. Taxes..........................................................62
4.17. ERISA; Employee Benefits.......................................62
4.18. Compliance with Laws...........................................64
4.19. Environmental Matters..........................................64
4.20. Margin Securities..............................................65
4.21. Full Disclosure................................................65
4.22. Contracts; Labor Disputes......................................65
4.23. Event of Default...............................................66
4.24. Single Business Enterprise.....................................66
4.25. Updates to Schedules...........................................66
ARTICLE V
AFFIRMATIVE COVENANTS
5.1. Financial and Business Information about the Borrower..........66
5.2. Notice of Certain Events.......................................69
5.3. Corporate Existence and Maintenance of Properties..............70
5.4. Payment of Debt................................................70
5.5. Maintenance of Insurance.......................................70
5.6. Maintenance of Books and Records; Inspection...................72
5.7. Compliance with ERISA..........................................72
5.8. Payment of Taxes...............................................73
5.9. Compliance with Laws...........................................73
5.10. Name Change....................................................73
5.11. Disbursement of Proceeds by the Borrower.......................73
5.12. Creation or Acquisition of New Subsidiaries....................74
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5.13. Certain Acquisitions...........................................74
5.14. Further Assurances.............................................76
ARTICLE VI
NEGATIVE COVENANTS
6.1. Merger, Consolidation..........................................77
6.2. Debt...........................................................77
6.3. Contingent Obligations.........................................78
6.4. Liens and Encumbrances.........................................79
6.5. Disposition of Assets..........................................79
6.6. Transactions with Related Persons..............................80
6.7. Restricted Investments.........................................80
6.8. Restricted Payments............................................81
6.9. Consolidated Debt to Adjusted EBITDA...........................81
6.10. Consolidated Debt to Consolidated Total Capital................82
6.11. Fixed Charge Coverage..........................................82
6.12. Sale and Leaseback.............................................82
6.13. New Business...................................................82
6.14. Subsidiaries or Partnerships...................................82
6.15. Transactions Affecting the Collateral..........................82
6.16. Hazardous Wastes...............................................82
6.17. Fiscal Year....................................................83
6.18. Amendments; Prepayments of Debt, Etc...........................83
6.19. Location of Assets; Places of Business.........................83
6.20. Account Documents..............................................83
6.21. No Inconsistent Transactions or Agreements.....................84
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default..............................................84
ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT
8.1. Remedies; Termination of Commitments, Acceleration,
Etc............................................................87
8.2. Right of Setoff................................................87
8.3. Rights and Remedies Cumulative; Non-Waiver; Etc................88
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ARTICLE IX
THE AGENT
9.1. Appointment....................................................88
9.2. Nature of Duties...............................................88
9.3. Exculpatory Provisions.........................................89
9.4. Reliance by the Agent..........................................89
9.5. Non-Reliance on Agent and Other Lenders........................90
9.6. Notice of Default..............................................91
9.7. Indemnification................................................91
9.8. The Agent in its Individual Capacity...........................92
9.9. Successor Agent................................................92
9.10. Collateral Matters.............................................92
ARTICLE X
MISCELLANEOUS
10.1. Survival.......................................................93
10.2. Governing Law; Consent to Jurisdiction.........................94
10.3. Arbitration; Remedies..........................................94
10.4. Notice.........................................................96
10.5. Assignments, Participations....................................97
10.6. Fees and Expenses.............................................100
10.7. Indemnification...............................................101
10.8. Amendments, Waivers, Etc......................................102
10.9. Rights and Remedies Cumulative, Non-Waiver, Etc...............103
10.10. Binding Effect, Assignment....................................103
10.11. Severability..................................................104
10.12. Entire Agreement..............................................104
10.13. Interpretation................................................104
10.14. Counterparts; Effectiveness...................................104
10.15. Conflict of Terms.............................................104
10.16. Injunctive Relief.............................................104
10.17. Confidentiality...............................................105
10.18. Post-Closing Matters..........................................105
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<PAGE>
EXHIBITS
A-1 Form of Term Note
A-2 Form of Revolving Credit Note
B-1 Notice of Borrowing
B-2 Notice of Conversion/Continuation
B-3 Letter of Credit Request
C Compliance Certificate
Attachment A: Covenant Compliance Worksheet
Attachment B: Interest Rate Calculation Worksheet
D Assignment and Acceptance Agreement
E Financial Condition Certificate
SCHEDULES
1.1(a) Existing Liens
4.1 Foreign Jurisdiction; Names
4.2 Subsidiaries
4.3 Compliance with Other Instruments
4.5 Government Authorizations
4.6 Financial Statement Exceptions
4.8 Principal Places of Business
4.9 Leased Properties
4.10 Realty
4.12 Insurance
4.13 Title to Assets
4.15 Litigation; Government Regulation
4.16 Taxes
4.17 ERISA Matters
4.19 Environmental Matters
6.2 Existing Debt
6.6 Transactions with Related Persons
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 8th day of August, 1996 (the
"Credit Agreement" or "Agreement"), is made among HCIA INC., a Maryland
corporation with its principal offices in Baltimore, Maryland (the "Borrower");
the banks and other financial institutions from time to time parties hereto
(each, a "Lender," and collectively, the "Lenders"); and FIRST UNION NATIONAL
BANK OF NORTH CAROLINA, as Agent (the "Agent") and as Issuing Bank.
Recitals
A. The Borrower has applied to the Lenders for (i) a term loan in the
principal amount of $50,000,000, and (ii) a revolving credit loan in the
aggregate principal amount of up to $50,000,000, to be advanced by the Lenders
in accordance with the terms hereof.
B. The Subsidiaries of the Borrower will jointly and severally
guarantee all of the obligations of the Borrower hereunder and under the other
Loan Documents (as hereinafter defined). The Borrower and all domestic
guarantors will each pledge its assets to secure its obligations hereunder and
under the other Loan Documents.
C. The parties acknowledge that this Credit Agreement and each of the
other Loan Documents (as hereinafter defined) have been negotiated and delivered
in Charlotte, North Carolina.
D. The Lenders are willing to make the Loans described
herein based on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Lenders, and the
Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. For purposes of this Credit Agreement, in
addition to the terms defined elsewhere in this Credit Agreement,
the following terms shall have the meanings set forth below:
"Account Designation Letter" shall mean a letter from the Borrower to
the Agent, duly completed and signed by an Authorized Officer of the Borrower
and in form and substance satisfactory to the Agent, listing any one or more
accounts to which the Borrower may from time to time request the Agent to
forward the proceeds of any Loans made hereunder.
<PAGE>
"Accounts" shall mean all "accounts," within the meaning of the Uniform
Commercial Code, of the Borrower and each of its Subsidiaries.
"Acquisition" shall mean any acquisition, whether in a single
transaction or series of related transactions, by the Borrower or any one or
more of its Subsidiaries, or any combination thereof, of (i) all or a
substantial part of the assets, equity or a going business or division, of any
Person, whether through purchase of assets or securities, by merger or
otherwise, (ii) control of at least a majority of the outstanding securities of
an existing corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors or (iii)
control of a greater than 50% ownership interest in any existing partnership,
joint venture or other Person.
"Acquisition Amount" shall mean, with respect to any Permitted
Acquisition, the sum (without duplication) of (i) the amount of cash paid by the
Borrower and its Subsidiaries in connection with such Permitted Acquisition,
(ii) the Fair Market Value of all capital stock or other ownership interests of
the Borrower or any of its Subsidiaries issued or given in connection with such
Permitted Acquisition, (iii) the amount (determined by using the face amount or
the amount payable at maturity, whichever is greater) of all Debt incurred,
assumed or acquired in connection with such Permitted Acquisition, (iv) all
additional purchase price amounts in the form of earnouts and other contingent
obligations, (v) all amounts paid in respect of covenants not to compete,
consulting agreements and other affiliated contracts in connection with such
Permitted Acquisition other than bona fide employment and similar agreements not
a part of the allocation of the purchase price, and (vi) the aggregate fair
market value of all other consideration given by the Borrower and its
Subsidiaries in connection with such Permitted Acquisition. All Capital
Expenditures made or projected to be incurred by the Borrower or its
Subsidiaries within ninety (90) days and in connection with any Permitted
Acquisition shall be included in the Acquisition Amount attributable to such
Permitted Acquisition.
"Adjusted Base Rate" shall mean, at any time with respect to any Base
Rate Loan, a rate per annum equal to the Base Rate plus the Applicable Margin
for Base Rate Loans, each as in effect at such time.
"Adjusted EBITDA" shall mean, as of the last day of any fiscal quarter,
Annualized EBITDA, minus four (4) times Capitalized Costs for such fiscal
quarter.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate plus the Applicable Margin for
LIBOR Loans, each as in effect at such time.
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<PAGE>
"Affiliate" shall mean, as to any Person, each of the Persons that
directly or indirectly, through one or more intermediaries, owns or controls, or
is controlled by or under common control with, such Person. For the purpose of
this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean First Union, in its capacity as agent as appointed
in Article IX hereof, and its permitted successors and assigns.
"Agreement" or "this Agreement" or "Credit Agreement" shall mean this
Credit Agreement and any amendments, modifications and supplements hereto, any
replacements, renewals, extensions and restatements hereof, and any substitutes
herefor, in whole or in part, and all Schedules and Exhibits hereto, and shall
refer to this Agreement as the same may be in effect at the time such reference
becomes operative.
"Annualized EBITDA" shall mean, as of the last day of any fiscal
quarter, four (4) times Consolidated EBITDA for such fiscal quarter.
"Annualized EBITDAR" shall mean, as of the last day of any fiscal
quarter, Annualized EBITDA, plus four (4) times Rent Expense for the fiscal
quarter then ending.
"Applicable Margin" shall mean, at any time with respect to any Loan,
the applicable percentage points as determined under the following matrix with
reference to the ratio of Consolidated Debt to Adjusted EBITDA calculated as
provided below:
Ratio of Consolidated Applicable Margin Applicable Margin
Debt to Adjusted EBITDA (Base Rate) (LIBOR Rate)
Greater than 3.0 to 1.0 0.50% 1.75%
Less than or equal to 3.0 to 1.0
but greater than
2.5 to 1.0 0.25% 1.50%
Less than or equal to 2.5 to 1.0
but greater than
2.0 to 1.0 0.00% 1.25%
Less than or equal to 2.0 to 1.0
but greater than
1.5 to 1.0 0.00% 1.00%
Less than or equal to
1.5 to 1.0 0.00% .75%
From the Closing Date until the fifth (5th) Business Day after delivery of the
financial statements for the fiscal quarter ended September 30, 1996 pursuant to
Section 5.1(a) below, the Applicable
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<PAGE>
Margin shall be 1.75% for LIBOR Loans and 0.50% for Base Rate Loans. The
Applicable Margins shall be reset from time to time in accordance with the above
matrix on the fifth (5th) Business Day after delivery by the Borrower in
accordance with Sections 5.1(a) or (b) of financial statements together with a
Compliance Certificate attaching an Interest Rate Calculation Worksheet
(reflecting the computation of the ratio of Consolidated Debt to Adjusted EBITDA
as of the last day of the preceding fiscal quarter or fiscal year, as
appropriate) that provides for different Applicable Margins than those then in
effect.
"Assignment and Acceptance" shall mean an Assignment and Acceptance
Agreement entered into between a Lender and an Eligible Assignee, and accepted
by the Agent, in substantially the form of Exhibit D.
"Assignment Restrictions" shall mean with respect to any contracts or
agreements assigned to the Agent, on behalf of the Lenders, as Collateral by the
Borrower or any of its Subsidiaries, any restriction or prohibition on
assignment that has not been waived or consented to by the Person for whose
benefit such restriction or prohibition exists and with respect to which the
Agent has waived the requirement of such waiver or consent.
"Authorized Officer" shall mean any officer of the Borrower authorized
by resolution of the board of directors of the Borrower to take the action
specified herein with respect to such officer and whose signature and incumbency
shall have been certified to the Agent by the secretary or an assistant
secretary of the Borrower.
"Bankruptcy Code" shall mean 11 U.S.C. ss. 101 et seq., as amended,
and any successor statute or statute having substantially the same
function.
"Base Rate" shall mean the higher of (i) the Prime Rate, or (ii)
one-half percentage point (0.5%) in excess of the Federal Funds Rate, as
adjusted to conform to changes as of the opening of business on the date of any
such change in the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any Loan that bears interest
at such time at the Adjusted Base Rate.
"Borrower" shall mean HCIA Inc., a Maryland corporation, and
its successors and assigns.
"Borrowing" shall mean the incurrence by the Borrower on a given date
(including as a result of conversions of outstanding Loans pursuant to Section
2.9) of one Type of Loan under a single Facility, provided that Base Rate Loans
incurred pursuant to Section 2.11(c) shall be considered part of the related
Borrowing of LIBOR Loans.
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<PAGE>
"Borrowing Date" shall have the meaning assigned to such term in
Section 2.2(b).
"Business Day" shall mean (i) any day other than a Saturday or Sunday,
a legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan or any Swap Agreement, any such day that is also a day
on which tradings are conducted in the London interbank Eurodollar market.
"Capital Asset" shall mean any asset that would, in accordance with
Generally Accepted Accounting Principles, be required to be classified and
accounted for as a capital asset.
"Capital Expenditures" shall mean the aggregate amount of all
expenditures and liabilities (including, without limitation, Capital Lease
Obligations) made and incurred in respect of the acquisition by any Borrower or
any of its Subsidiaries of Capital Assets.
"Capital Lease" shall mean any lease of any property that would, in
accordance with Generally Accepted Accounting Principles, be required to be
classified and accounted for as a capital lease on the balance sheet of the
lessee.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that would, in
accordance with Generally Accepted Accounting Principles, appear on a balance
sheet as a liability of such lessee in respect of such Capital Lease.
"Capitalized Costs" shall mean the aggregate amount of all cash
expenditures that would, in accordance with Generally Accepted Accounting
Principles, be required to be classified and accounted for on a capitalized
basis, except those cash expenditures that are included in plant, property and
equipment on the balance sheet.
"Cash Collateral Account" shall have the meaning assigned to such term
in Section 2.17(i).
"Cash Investments" shall mean (i) marketable direct obligations (x)
issued or unconditionally guaranteed by the United States of America or (y)
issued by any agency thereof having a rating of A or higher by Standard & Poor's
or A-2 or higher by Moody's Investors Service, Inc., in each case maturing
within one year from the date of acquisition thereof; (ii) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (iii) marketable commercial
paper maturing no more than one year from the date of creation
-5-
<PAGE>
thereof and, at the time of acquisition, having a rating of at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc.; (iv) demand deposits,
time deposits and certificates of deposit maturing within one (1) year from the
date of issuance thereof and issued by a Lender or a bank or trust company
organized under the laws of the United States of America or any state thereof
and having a long term debt rating by Standard & Poor's Corporation of A or
higher; (v) repurchase agreements with a term not exceeding seven days with
respect to underlying securities of the types described in clause (i) above
entered into with a bank or trust company meeting the qualifications specified
in clause (iv) above; and (vi) mutual funds that invest solely in any of the
items described above.
"Change of Control" shall mean any Person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act), shall, directly or indirectly,
as a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become, after the Closing Date, the
"beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Borrower representing 30% or more of the combined voting power
of the then outstanding securities of the Borrower ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
"Closing" shall have the meaning assigned to such term in
Section 3.1.
"Closing Date" shall mean the date referred to in Section 3.1
hereof.
"Collateral" shall mean all assets, property and interests in property
of the Borrower and its domestic Subsidiaries, whether now owned or hereafter
acquired, that shall, from time to time, directly or indirectly secure the
Obligations, including, without limitation, the assets, property or interests in
property described in the Security and Pledge Agreement.
"Commitment" shall mean, for any Lender, such Lender's Term
Loan Commitment plus its Revolving Credit Commitment.
"Commitment Letter" shall mean the commitment letter to the Borrower
from First Union National Bank of North Carolina dated July 19, 1996, confirming
its commitment to provide to the Borrower the Revolving Credit Facility and the
Term Credit Facility pursuant
to this Agreement.
"Compliance Certificate" shall mean a fully completed
certificate in the form of Exhibit C.
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<PAGE>
"Consolidated Debt" shall mean, at any date, the aggregate (without
duplication) of all Debt of the Borrower and its Subsidiaries as of such date,
determined on a consolidated basis.
"Consolidated EBITDA" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis as of the last day of any fiscal quarter,
the aggregate of (i) Consolidated Net Income for the immediately preceding
fiscal quarter then ended, plus (ii) the sum of Interest Expense, taxes,
depreciation, amortization and other noncash expenses or charges reducing income
for such period (to the extent taken into account in the calculation of
Consolidated Net Income for such period), minus (iii) noncash credits increasing
Consolidated Net Income for such period (to the extent taken into account in the
calculation of Consolidated Net Income for such period).
"Consolidated Net Income" shall mean, for any fiscal quarter, the net
income (or loss) of the Borrower and its Subsidiaries, on a consolidated basis
and excluding intercompany items, for such quarter, determined in accordance
with Generally Accepted Accounting Principles, but excluding as income: (a)
gains on the sale, conversion or other disposition of Capital Assets, (b) gains
on the acquisition, retirement, sale or other disposition of Stock of the
Borrower or any of its Subsidiaries, (c) gains on the collection of life
insurance proceeds, (d) any write-up of any asset, and (e) any other gain or
credit of an extraordinary nature.
"Consolidated Net Worth" shall mean, as of the last day of any fiscal
quarter, the net worth of the Borrower and its Subsidiaries as of such date,
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
"Consolidated Total Capital" shall mean with respect to the Borrower
and its Subsidiaries, the sum of Consolidated Net Worth and Debt on a
consolidated basis.
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Debt, lease,
dividend, guaranty, letter of credit (other than a standby letter of credit with
no reasonable likelihood of draw, in the reasonable opinion of the Agent) or
other obligation (the "primary obligation") of another Person (the "primary
obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise
acquire such primary obligations, (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor in respect thereof to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the
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owner of any such primary obligation against loss or failure or inability of the
primary obligor to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.
"Covenant Compliance Worksheet" shall mean a fully completed
certificate in the form of Attachment A to Exhibit C.
"Credit Obligations" shall mean and include (i) the Loans, any
Reimbursement Obligations and all other loans, advances, indebtedness,
liabilities, obligations, covenants and duties owing, arising, due or payable
from the Borrower to the Agent, the Issuing Bank or any Lender of any kind or
nature, present or future, howsoever evidenced, created, incurred, acquired or
owing, that arise under this Agreement, the Notes or the other Loan Documents,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising and however acquired, and (ii) all interest (including, to the
extent permitted by law, all post-petition interest), charges, expenses, fees,
attorneys' fees and any other sums payable by the Borrower to the Agent, the
Issuing Bank or any Lender under this Agreement or any of the other Loan
Documents.
"Debt" shall mean, with respect to any Person, without duplication, (i)
all indebtedness of such Person for money borrowed, (ii) all reimbursement
obligations of such Person with respect to surety bonds, letters of credit and
bankers' acceptances (in each case, whether or not matured), (iii) all
obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (iv) all obligations of such Person to pay the deferred purchase
price of property or services (including earnouts and other similar contingent
obligations, calculated in accordance with Generally Accepted Accounting
Principles), other than trade payables, (v) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all Capital Lease Obligations of
such Person, (vii) all obligations under any Swap Agreement or other interest
rate protection or hedging arrangement, (viii) all obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in respect of
any capital stock or other equity securities that, by their stated terms (or by
the terms of any equity securities issuable upon conversion thereof or in
exchange therefor), or upon the occurrence of any event, mature or are
mandatorily redeemable, or are redeemable at the option of the holder thereof,
in whole or in part, (ix) all indebtedness referred
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to in clauses (i) through (viii) above secured by any lien on any property or
asset owned or held by such Person regardless of whether the indebtedness
secured thereby shall have been assumed by such Person or is nonrecourse to the
credit of such Person, and (x) any Contingent Obligation of such Person.
"Default" shall mean any event that, with the passage of time or giving
of notice, or both, would constitute an Event of Default.
"Dollars" or "$" shall mean dollars of the United States of
America.
"Domestic Guarantors" shall mean all Guarantors organized and existing
under the laws of a State of the United States of America.
"Eligible Assignee" shall mean (i) a commercial bank organized under
the laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of any
other country that is a member of the OECD or a political subdivision of any
such country and having total assets in excess of $1,000,000,000, provided that
such bank is acting through a branch or agency located in the United States, in
the country under the laws of which it is organized or in another country that
is also a member of the OECD, (iii) the central bank of any country that is a
member of the OECD, (iv) a finance company, mutual fund, insurance company or
other financial institution that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and having
total assets in excess of $1,000,000,000, (v) any Affiliate of an existing
Lender or (vi) any other Person (other than an Affiliate of any Borrower)
approved by the Agent and the Borrower, which approval shall not be unreasonably
withheld.
"Employee Plan" shall mean any "employee benefit plan" within the
meaning of Section 3(3) of ERISA maintained by the Borrower or any of its
Subsidiaries.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by the Borrower or any of its Subsidiaries solely in the
ordinary course of its business and not in response to any third party action or
request of any kind) or proceedings relating in any way to any Environmental Law
or any permit issued, or any approval given, under any such Environmental Law
(hereinafter, "Claims"), including, without limitation, (i) any and all Claims
by Governmental Authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental
Law and (ii) any and all Claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from
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Hazardous Substances or arising from alleged injury or threat of injury to
health or the environment.
"Environmental Laws" shall mean any and all applicable laws, subsequent
enactments, amendments and modifications, including, without limitation,
federal, state and local laws, statutes, ordinances, rules, regulations,
permits, licenses, approvals, interpretations and orders of courts or
Governmental Authorities, relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Substances. Environmental Laws include, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.) ("RCRA"), the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401
et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the
Safe Drinking Water Act (42 U.S.C. ss. 300f, et seq.), the Environmental
Protection Agency's regulations relating to underground storage tanks (40 C.F.R.
Parts 280 and 281), and the Occupational Safety and Health Act (29 U.S.C. ss.
651 et seq.), to the extent that it regulates exposure to Hazardous Substances,
("OSHA"), as such laws have been amended or supplemented, and any analogous
future federal or state, or present or future applicable local, statutes and the
rules and regulations promulgated thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Qualified
Plan (as defined in Section 4.17); (b) a withdrawal by any Borrower Affiliate
from a Qualified Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA);
(c) a complete or partial withdrawal by any Borrower Affiliate from a
Multiemployer Plan; (d) the filing of a notice of intent to terminate, the
treatment of a plan amendment as a termination under Section 4041 or 4041A of
ERISA or the commencement of proceedings by the Pension Benefit Guaranty
Corporation to terminate a Qualified Plan or Multiemployer Plan subject to Title
IV of ERISA; (e) a failure to make required contributions to a Qualified Plan or
Multiemployer Plan; (f) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Qualified Plan or Multiemployer
Plan; (g) the imposition of any liability under Title IV of ERISA, other than
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Pension Benefit Guaranty Corporation premiums due but not delinquent under
Section 4007 of ERISA, upon any Borrower Affiliate; (h) an application for a
funding waiver or an extension of any amortization period pursuant to Section
412 of the Internal Revenue Code with respect to any Qualified Plan; (i) any
Borrower Affiliate engages in or otherwise becomes liable for a nonexempt
prohibited transaction; or (j) a violation of the applicable requirements of
Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a)
of the Internal Revenue Code by any fiduciary with respect to any Qualified Plan
for which any Borrower Affiliate may be directly or indirectly liable.
"Event of Default" shall have the meaning specified in Article
VII hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
"Facility" shall mean the Term Loan Facility or the Revolving Credit
Facility, as the context may require.
"Fair Market Value" shall mean, with respect to any capital stock or
other ownership interests issued or given by the Borrower or any of its
Subsidiaries in connection with a Permitted Acquisition, (i) in the case of
common stock of the Borrower that is then designated as a national market system
security by the National Association of Securities Dealers, Inc. ("NASDAQ") or
is listed on a national securities exchange, the average of the last reported
bid and ask quotations or prices reported thereon for such common stock or (ii)
in all other cases, the determination of the fair market value thereof in good
faith by a majority of members of the board of directors of the Borrower or such
Subsidiary with no direct or indirect (other than by virtue of being a director)
economic interest in such Permitted Acquisition, in each case effective as of
the close of business on the Business Day immediately preceding the closing date
of such Permitted Acquisition.
"Federal Funds Rate" shall mean, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of Richmond, or
if such rate is not so published on the relevant Business Day, the average of
the quotations for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by the Agent.
"Fee Letter" shall mean the letter, dated the Closing Date, from First
Union to the Borrower, relating to the fees payable to First Union as of the
Closing Date for its own account and the
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administrative fee payable to the Agent from time to time for its
own account.
"Financial Condition Certificate" shall mean a fully completed
certificate, with the attachments required thereby, in the form of Exhibit E.
"Financials" or "Financial Statements" shall mean the consolidated
financial statements of the Borrower and its Subsidiaries for the fiscal periods
ended December 31, 1994 and December 31, 1995; the unaudited consolidated
interim financial statements of the Borrower and its Subsidiaries for the 6
months ended June 30, 1996; and all other financial statements of the Borrower
and its Subsidiaries that have previously been delivered by the Borrower, any of
its Subsidiaries to the Agent or any Lender, including without limitation
interim financial statements.
"Financing Statements" shall mean financing statements approved for
filing in accordance with the applicable adopted version of the Uniform
Commercial Code and all other titles, documents and certificates that the Agent
may reasonably require from the Borrower or any Domestic Guarantor to describe
and perfect the security interests created hereunder or under the other Loan
Documents, and all assignments thereof and amendments thereto, in form and
substance satisfactory to the Agent.
"First Union" shall mean First Union National Bank of North Carolina, a
national banking association, and its successors and assigns.
"Fixed Charges" shall mean, as of the last day of any fiscal quarter,
(a) the current maturity of Debt for borrowed money, plus (b) four (4) times the
sum of the following for the fiscal quarter then ending: (i) Interest Expense,
(ii) Rent Expense, and
(iii) Capital Expenditures.
"Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles, as recognized by the American Institute of
Certified Public Accountants, consistently applied and maintained on a
consistent basis for the Borrower and its Subsidiaries on a consolidated basis
throughout the period indicated and consistent with the financial practice of
the Borrower and its Subsidiaries after the date hereof.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
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"Guarantors" shall mean any Subsidiary of the Borrower that guarantees
the Credit Obligations and Guaranty Obligations of the Borrower and the other
Guarantors, respectively.
"Guaranty Agreement" shall mean the Guaranty Agreement dated as of the
date hereof, executed by each Guarantor in favor of the Agent, whereby each
Guarantor guarantees to the Lenders the payment and performance of the Credit
Obligations, together with any amendments, accessions, modifications and
supplements thereto, any replacements, renewals, extensions and restatements
thereof, and any substitutes therefor, in whole or in part.
"Guaranty Documents" shall mean the Guaranty Agreement and the security
agreements, pledge agreements, collateral assignments of agreements and any
other documents or agreements between the Agent and any of the Domestic
Guarantors, whereby the Domestic Guarantors have pledged Collateral to the Agent
as security for the obligations of the Domestic Guarantors under the Guaranty
Agreement, including, without limitation, the Security and Pledge Agreement,
together with any amendments, modifications and supplements thereto, any
replacements, renewals, extensions and restatements thereof, and any substitutes
therefor, in whole or in part.
"Guaranty Obligations" shall mean the obligations of the Guarantors
pursuant to the Guaranty Agreement and the Guaranty Documents.
"Hazardous Substances" means any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law; (ii) that are
toxic, explosive, corrosive, flammable, infectious, radioactive, mutagenic or
otherwise hazardous and are or become regulated by any Governmental Authority;
(iii) the presence of which requires investigation or remediation under any
Environmental Law or common law; or (iv) that contain, without limitation,
asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation,
petroleum hydrocarbons, petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"IRS" shall mean the Internal Revenue Service and any
successor thereto.
"Indemnified Costs" shall have the meaning assigned to such term in
Section 10.7.
"Indemnified Person" shall have the meaning assigned to such term in
Section 10.7.
"Interest Expense" shall mean, for any period, total interest expense
of the Borrower and its Subsidiaries on a consolidated basis for such period
(including, without limitation, interest
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expense attributable to Capital Lease Obligations), determined in accordance
with Generally Accepted Accounting Principles.
"Interest Period" shall have the meaning assigned to such term in
Section 2.8.
"Interest Rate Calculation Worksheet" shall mean a fully completed
worksheet in the form of Attachment B to Exhibit C.
"Interests" shall mean all ownership or profit-sharing interests
(howsoever designated) in any general or limited partnership, limited liability
company or joint venture, and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
"Issuing Bank" shall mean First Union, in its capacity as issuer of the
Letters of Credit, and its successors and assigns in such capacity.
"L/C Participant" shall have the meaning assigned to such term in
Section 2.17(c).
"LIBOR Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted LIBOR Rate.
"LIBOR Rate" shall mean, for any Interest Period, an interest rate per
annum (rounded upwards, if necessary, to the next higher 1/100 of one percentage
point) obtained by dividing (a) the rate of interest determined by Agent to be
the rate for deposits in U.S. dollars for the applicable Interest Period which
appears on the Telerate Page 3750 at approximately 11:00 a.m. London time, two
(2) Business Days prior to the first date of the applicable Interest Period, or
if such rate is not available, the rate per annum at which, in the reasonable
opinion of Agent, U.S. dollars in the amount of the corresponding Borrowing are
being offered to leading reference banks in the London interbank market for
settlement at approximately 11:00 a.m. London time, two (2) Business Days prior
to the first date of the applicable Interest Period, by (b) the percentage equal
to one hundred percent (expressed as a decimal fraction) minus the Reserve
Requirement for such Interest Period. Each calculation by the Agent of the
applicable LIBOR Rate shall be conclusive and binding for all purposes, absent
bad faith or manifest error.
"Lease Expense" shall mean, for any period, all amounts paid, payable
or accrued during such period by the Borrower and its Subsidiaries on a
consolidated basis with respect to all leases and rental agreements of the
Borrower and its Subsidiaries, other than Capital Leases, determined in
accordance with Generally Accepted Accounting Principles.
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"Leased Properties" shall mean the real properties leased and occupied
by the Borrower and its Subsidiaries, as of the date hereof and at any time
hereafter and consisting, as of the date hereof, of the properties set forth in
Schedule 4.9 hereof.
"Lender" shall mean each financial institution signatory hereto and
each other financial institution that becomes a "Lender" hereto pursuant to
Section 10.5, and their permitted successors and assigns.
"Lending Office" shall mean, with respect to any Lender, the branch or
branches (or Affiliates) from which any of such Lender's Loans are made or
maintained.
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i)
the aggregate Stated Amount of all outstanding Letters of Credit at such time
and (ii) the aggregate amount of all Reimbursement Obligations at such time.
"Letter of Credit Request" shall have the meaning assigned to such term
in Section 2.17(b).
"Letters of Credit" shall have the meaning assigned to such term in
Section 2.17(a).
"Line of Business" shall mean the business of building, maintaining,
selling and licensing computer-based systems and databases regarding financial
and clinical performance and outcomes for use by health care providers, buyers
and suppliers, and businesses ancillary to the aforesaid line of business that
enhance or support it and that are not materially different from the foregoing.
"Loan Documents" shall mean and collectively refer to this Agreement,
the Notes, the Security and Pledge Agreement, the Guaranty Documents, the
Financing Statements, the Letters of Credit, Swap Agreements (if any) between
the Borrower and any Lender, and any and all other agreements, instruments and
documents, including, without limitation, notes, guaranties, mortgages, deeds to
secure debt, deeds of trust, chattel mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust account
agreements and other written matters, heretofore, now or hereafter executed by
or on behalf of the Borrower or any of its Subsidiaries and heretofore, now or
hereafter delivered to the Agent or any Lender with respect to this Agreement or
with respect to the transactions contemplated by this Agreement, and in each
case, together with any amendments, modifications and supplements thereto, any
replacements, renewals, extensions and restatements thereof, and any substitutes
therefor, in whole or in part.
"Loans" shall mean and collectively refer to the Term Loans and the
Revolving Credit Loans.
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"Material Adverse Effect" or "Material Adverse Change" shall mean, in
the reasonable good faith opinion of the Required Lenders, and subject to any
applicable cure or grace periods, a material adverse effect upon, or a material
adverse change in, any of (a) the financial condition, operations, business,
properties of the Borrower and its Subsidiaries, taken as a whole; (b) the
ability of the Borrower or any of its Subsidiaries to perform under any Loan
Document or any other material contract to which it is a party; (c) the
legality, validity or enforceability of any Loan Document; (d) the perfection or
priority of the liens of the Agent granted under the Loan Documents or the
rights and remedies of the Agent or the Lenders under the Loan Documents; or (e)
the condition or value of any material portion of the Collateral.
"Multiemployer Plan" shall mean any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower or any of its
Subsidiaries is required to make contributions.
"Notes" shall mean the Term Notes and the Revolving Credit
Notes.
"Notice of Borrowing" shall have the meaning assigned to such term in
Section 2.2(b).
"Notice of Conversion/Continuation" shall have the meaning
assigned to such term in Section 2.9(b).
"OSHA" shall mean the Occupational Safety and Health Act, as amended
from time to time, and all rules and regulations from time to time promulgated
thereunder.
"Participant" shall mean any Person, now or at any time hereafter,
participating with any Lender in the Loans pursuant to this Agreement, and its
permitted successors and assigns.
"Pension Plan" shall mean any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA maintained by the Borrower or any of its
Subsidiaries (other than any Multiemployer Plan that is subject to the
provisions of Title IV of ERISA).
"Percentage" shall mean, with respect to any Lender at any time, such
Lender's Term Loan Percentage or Revolving Credit Percentage at such time, as
the context may require.
"Permitted Acquisition" shall mean an Acquisition with respect to which
the following conditions are satisfied: (i) the Acquisition Amount shall not
exceed $20,000,000 in any single transaction and the aggregate Acquisition
Amounts for all Acquisitions consummated in any fiscal year of the Borrower
shall not exceed $30,000,000; (ii) the assets acquired, or the business of the
Person whose stock is acquired, shall be primarily within the Line of Business;
(iii) those Acquisitions that are structured
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as asset acquisitions shall be for an entire business, division, facility,
operation or product line of such acquired Person; and (iv) those Acquisitions
that are structured as stock acquisitions shall be effected through a purchase
of no less than 100% of the capital stock of such Person by the Borrower (except
in the case of the acquisition of a Subsidiary which is not a Domestic
Subsidiary, the percentage shall be no less than 90%) or through a merger
between such Person and a newly-formed direct Subsidiary of the Borrower, as the
case may be, so that after giving effect to such merger 100% of the capital
stock of the surviving corporation of such merger is owned by the Borrower.
Notwithstanding anything to the contrary contained in the immediately preceding
sentence, an Acquisition shall be a Permitted Acquisition only if all
requirements of Sections 5.12 (if any new Subsidiaries are acquired or created
in connection with such Acquisition) and 5.13 are met with respect thereto
(except in the case of the acquisition of a Subsidiary which is not a Domestic
Subsidiary, the percentage shall be no less than 90%).
"Permitted Liens" shall mean any of the following liens, restrictions
or encumbrances securing any liability or indebtedness of the Borrower or any of
its Subsidiaries on, or otherwise affecting, any of the Borrower's or such
Subsidiary's property, real or personal, whether now owned or hereafter
acquired:
(a) Liens granted to the Agent, for the benefit of the
Lenders;
(b) Liens for current taxes, assessments or other governmental charges
that are not delinquent or remain payable without any penalty or that are being
contested in good faith and with due diligence by appropriate proceedings,
provided that all such liens in the aggregate have no Material Adverse Effect
and, if reasonably requested by the Agent, the Borrower or such Subsidiary has
established reserves reasonably satisfactory to the Agent with respect thereto;
(c) Liens upon property leased under a Capital Lease and placed upon
such property at the time of, or within twenty (20) days after, the commencement
of the lease thereof to secure the lease payments under such Capital Lease,
provided that any such lien (i) shall not encumber any other property of the
Borrower or any of its Subsidiaries, (ii) shall not exceed the total of such
lease payments and (iii) shall not be pursuant to a lease that is for a term of
less than six (6) months;
(d) Liens set forth on Schedule 1.1(a) attached hereto,
provided that such liens are not increased, extended or renewed;
(e) Purchase money liens incurred in the purchase of equipment
permitted under Section 6.9 hereof, provided that any such lien (i) attaches to
such asset concurrently with or within ten
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(10) days after the acquisition thereof, (ii) shall not encumber any other
property of the Borrower or any of its Subsidiaries and (iii) shall not exceed
the purchase price of such asset;
(f) Assignment Restrictions;
(g) Easements, rights of way, restrictive covenants, conditions, zoning
restrictions and other similar encumbrances on real estate that do not
materially impair the value of the property to which they relate;
(h) Carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like liens arising in the ordinary course of business that are not
overdue for a period of more than thirty (30) days, or, if overdue for more than
thirty (30) days, (i) which are being contested in good faith and by appropriate
proceedings; (ii) for which adequate reserves in accordance with Generally
Accepted Accounting Principles have been established on the books of the
Borrower or appropriate Subsidiary; and (iii) with respect to which the
obligations secured thereby are immaterial;
(i) Pledges or deposits in connection with workers'
compensation insurance, unemployment insurance and like matters;
(j) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(k) Liens in respect of any writ of execution, attachment, garnishment,
judgment or award in an amount less than $250,000, the time for appeal or
petition for rehearing of which shall not have expired, or in respect of which
an appeal or appropriate proceeding for review is being prosecuted in good faith
and a stay of execution pending such appeal or proceeding for review has been
secured;
(l) Liens of a lessor with respect to an operating lease of
equipment or machinery; and
(m) Any other liens or encumbrances as the Required Lenders
may approve in writing from time to time.
"Person" shall mean a corporation, an association, a joint venture, a
partnership, limited liability company, an organization, a business, an
individual, a trust or a government or political subdivision thereof or any
government agency or any other legal entity.
"Prime Rate" shall mean the per annum interest rate publicly announced
from time to time by First Union from its principal office in Charlotte, North
Carolina, to be its Prime Rate, which
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may not necessarily be its best lending rate, as adjusted to conform to changes
as of the opening of business on the date of any such change in the Prime Rate.
In the event First Union shall abolish or abandon the practice of announcing its
Prime Rate or should the same be unascertainable, the Agent shall designate a
comparable reference rate that, upon the Borrower's consent (which shall not be
unreasonably withheld), shall be deemed to be the Prime Rate under this Credit
Agreement and the other Loan Documents.
"Pro Rata Share" of any amount shall mean, with respect to any Lender
at any time, the product of (i) such amount, multiplied by (ii) such Lender's
Percentage at such time under the Facility or Facilities under which such amount
is being paid or advanced or to which such amount relates.
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or
(ii) Section 4975(c) of the Internal Revenue Code that is not exempt by reason
of Section 4975(c) or 4975(d).
"Projections" shall mean the financial projections delivered to the
Agent by the Borrower pursuant to Section 4.6(b) hereof.
"Realty" shall mean all of the right, title and interest of the
Borrower or any of its Subsidiaries in and to land, improvements and fixtures,
including any leasehold interests (whether as lessor or lessee).
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 207, or any successor or other regulation
hereafter promulgated by said Board to replace the prior Regulation G and having
substantially the same function.
"Regulation U" shall mean Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation U and having substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation X and having substantially the same function.
"Reimbursement Obligation" shall have the meaning assigned to
such term in Section 2.17(d).
"Rent Expense" shall mean, for any period, all amounts paid,
payable or accrued during such period by the Borrower and its
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Subsidiaries on a consolidated basis with respect to all operating leases of
real and personal property, excluding intercompany items.
"Reportable Event" shall mean a reportable event as defined in Section
4043(b) of ERISA (other than an event for which notice is waived under the ERISA
regulations).
"Required Lenders" shall mean, at any time, the Lenders owning or
holding 66&2/3% or more of the sum of (i) the then aggregate principal amount
of the Loans then outstanding plus (ii) the then aggregate Letter of
Credit Outstandings; or, if no Loans or Letters of Credit are then
outstanding, the Lenders with 60% or more of the aggregate of all Commitments
at such time. For purposes of this definition, the Letter of Credit
Outstandings shall be considered to be owed to the Lenders according to
their Revolving Credit Percentages.
"Requirement of Law" means, as to any Person, the charter, articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any statute, law, treaty, rule, regulation, order,
decree, writ, injunction or determination of any arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Reserve Requirement" shall mean, with respect to any Interest Period,
the reserve percentage (expressed as a decimal) applicable two (2) Business Days
before the first day of such Interest Period determined by the Agent to be in
effect on such day, as provided by the Board of Governors of the Federal Reserve
System (or any successor governmental body), applied for determining the maximum
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to the Lenders under Regulation D
with respect to "Eurocurrency liabilities" within the meaning of Regulation D,
or under any similar or successor regulation with respect to Eurocurrency
liabilities or Eurocurrency funding.
"Revolving Credit Commitment" shall mean, with respect to any Lender at
any time, the amount set forth under such Lender's name on its signature page
hereto under the caption "Revolving Credit Commitment" or, if such Lender has
entered into one or more Assignment and Acceptances, the amount set forth for
such Lender at such time in the Register maintained by the Agent pursuant to
Section 10.5(c) as such Lender's "Revolving Credit Commitment," as such amount
may be reduced at or prior to such time pursuant to the terms hereof.
"Revolving Credit Facility" shall mean the revolving line of credit
established by the Lenders under Section 2.1(b).
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"Revolving Credit Facility Maturity Date" shall mean July 31,
2001.
"Revolving Credit Facility Termination Date" shall mean such earlier
date of July 31, 2001, or termination of the Total Revolving Credit Commitment
in accordance with Section 2.4(d) or Section 8.1.
"Revolving Credit Loans" shall have the meaning assigned to such term
in Section 2.1(b).
"Revolving Credit Notes" shall mean the promissory notes of the
Borrower in substantially the form of Exhibit A-2, executed and delivered to the
Lenders with Revolving Credit Commitments pursuant to Section 2.3(c) or, in
connection with an Assignment and Acceptance, pursuant to Section 10.5(d),
together with any amendments, modifications and supplements thereto and
restatements thereof, in whole or in part.
"Revolving Credit Percentage" shall mean, with respect to any Lender at
any time, a fraction (expressed as a percentage) the numerator of which is the
Revolving Credit Commitment of such Lender at such time and the denominator of
which is the Total Revolving Credit Commitment at such time; provided that if
the Revolving Credit Percentage of any Lender is to be determined after the
Revolving Credit Commitments have been terminated, then such Revolving Credit
Percentage shall be determined immediately prior (and without giving effect) to
such termination.
"Security and Pledge Agreement" shall mean the Security and Pledge
Agreement, dated as of the date hereof, between the Borrower, the Domestic
Guarantors and the Agent, whereby the Borrower and the Domestic Guarantors have
granted to the Agent a security interest in certain Collateral described therein
as security for the Credit Obligations and the Guaranty Obligations of the
Domestic Guarantors, respectively, together with any amendments, accessions,
modifications and supplements thereto, any replacements, renewals, extensions
and restatements thereof, and any substitutes therefor, in whole or in part.
"Solvent" shall mean, as to any Person on any particular date, that
such Person (i) has capital reasonably sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage,
(ii) is able to pay its debts as they mature, (iii) owns property having a fair
saleable value greater than the amount required to pay its probable liability on
existing debts as they mature (including known reasonable contingencies and
contingencies that should be included in notes of the financial statements of
such Person pursuant to Generally Accepted Accounting Principles), and (iv) does
not intend to, and does not believe that it will, incur debts or probable
liabilities beyond its ability to pay such debts or liabilities as they mature.
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"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the maximum amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
"Stock" shall mean all shares, options, interests or other equivalents
(howsoever designated) of or in a corporation, whether voting or nonvoting,
including, without limitation, common stock, warrants, preferred stock,
convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors, or other entity of which more than 50% of
the Interests or voting power, is at the time, directly or indirectly, owned by
any Person or one or more of its Subsidiaries (irrespective of whether, at the
time, the ownership interests or Stock of any other class or classes of such
entity or corporation shall have or might have voting power by reason of the
happening of any contingency). When used without reference to a parent, the term
"Subsidiary" shall be deemed to refer to a Subsidiary of the Borrower.
"Swap Agreement" shall mean all interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance or
other hedging arrangements and all other similar agreements or arrangements
between the Borrower and First Union designed to protect against fluctuations in
interest rates.
"Target" shall have the meaning assigned to such term in
Section 5.13(c)(i).
"Taxes" shall have the meaning assigned to such term in
Section 2.12(a).
"Term Loan Commitment" shall mean, with respect to any Lender at any
time, the amount set forth under such Lender's name on its signature page hereto
under the caption "Term Loan Commitment" or, if such Lender has entered into one
or more Assignment and Acceptances, the amount set forth for such Lender at such
time in the Register maintained by the Agent pursuant to Section 10.5(c) as such
Lender's "Term Loan Commitment," as such amount may be reduced at or prior to
such time pursuant to the terms hereof.
"Term Loan Facility" shall mean the term loan extended by the Lenders
under Section 2.1(a).
"Term Loan Facility Maturity Date" shall mean July 31, 2001.
"Term Loan Percentage" shall mean, with respect to any Lender at any
time, a fraction (expressed as a percentage) the numerator of which is the Term
Loan Commitment of such Lender at such time
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and the denominator of which is the Total Term Loan Commitment at such time;
provided that if the Term Loan Percentage of any Lender is to be determined
after the Term Loan Commitments have been terminated, then such Term Loan
Percentage shall be determined immediately prior (and without giving effect) to
such termination.
"Term Loans" shall have the meaning assigned to such term in Section
2.1(a).
"Term Notes" shall mean the promissory note of the Borrower in
substantially the form of Exhibit A-1, executed and delivered to the Lenders
with Term Loan Commitments pursuant to Section 2.3(b) or, in connection with an
Assignment and Acceptance, pursuant to Section 10.5(d), together with any
amendments, modifications and supplements thereto and restatements thereof, in
whole or in part.
"Total Commitment" shall mean, at any time, the sum of all
Commitments at such time.
"Total Revolving Credit Commitment" shall mean, at any time, the sum of
the Revolving Credit Commitments of all Lenders at such time.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of all Lenders at such time.
"Total Unutilized Revolving Credit Commitment" shall mean, at any time,
the sum of the Unutilized Revolving Credit Commitments of all Lenders at such
time.
"Type" shall have the meaning assigned to such term in
Section 2.2(a).
"Uniform Commercial Code" shall mean the Uniform Commercial Code of the
State of North Carolina, as amended from time to time, unless in any particular
instance the Uniform Commercial Code of another state is applicable, in which
case it shall mean the Uniform Commercial Code of such state.
"Unutilized Revolving Credit Commitment" shall mean, with respect to
any Lender at any time, such Lender's Revolving Credit Commitment at such time
less the sum of (i) the aggregate principal amount of all Revolving Credit Loans
made by such Lender that are outstanding at such time and (ii) such Lender's Pro
Rata Share of all Letter of Credit Outstandings at such time.
1.2. Accounting Terms. Any accounting terms used in this Agreement that
are not specifically defined shall have the meanings customarily given them in
accordance with Generally Accepted Accounting Principles; provided, however,
that, in the event that changes in Generally Accepted Accounting Principles
shall be mandated by the Financial Accounting Standards Board, or any
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similar accounting body of comparable standing, or shall be recommended by the
Borrower's certified public accountants, to the extent that such changes would
modify or could modify such accounting terms or the interpretation or
computation thereof, such changes shall be followed in defining such accounting
terms only from and after the date this Agreement shall have been amended to the
extent necessary to reflect any such changes in the financial covenants and
other terms and conditions of this Agreement.
1.3. Singular/Plural. Unless the context otherwise requires,
words in the singular include the plural and words in the plural
include the singular.
1.4. Other Terms. All other terms contained in this Agreement
shall, when the context so indicates, have the meanings provided
for by the Uniform Commercial Code of the State of North Carolina
to the extent the same are used or defined therein.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;
LETTERS OF CREDIT
2.1. The Loans.
(a) Each Lender having a Term Loan Commitment severally agrees, subject
to and on the terms and conditions of this Agreement, to make a loan (each, a
"Term Loan" and collectively the "Term Loans") to the Borrower on the Closing
Date in the principal amount not to exceed its Term Loan Commitment. No Term
Loans shall be made at any time after the Closing Date. To the extent repaid,
Term Loans may not be reborrowed.
(b) Each Lender having a Revolving Credit Commitment severally agrees,
subject to and on the terms and conditions of this Agreement, to make loans
(each, a "Revolving Credit Loan" and collectively, the "Revolving Credit Loans")
to the Borrower, from time to time on any Business Day during the period from
the date hereof to the Revolving Credit Facility Termination Date, provided that
(i) the aggregate principal amount of Revolving Credit Loans at any time
outstanding for any Lender shall not exceed the difference between (A) such
Lender's Revolving Credit Commitment at such time less (B) such Lender's Pro
Rata Share (calculated based on its Revolving Credit Percentage) of the
aggregate Letter of Credit Outstandings at such time (exclusive of Reimbursement
Obligations that are repaid with the proceeds of, and simultaneously with the
incurrence of, Revolving Credit Loans) and (ii) no Borrowing of Revolving Credit
Loans shall be made if, immediately after giving effect thereto, the sum of (W)
the aggregate principal amount of Revolving Credit Loans outstanding at such
time plus (X) the aggregate Letter of Credit Outstandings at
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such time would exceed the Total Revolving Credit Commitment, and (iii) no
advance of any Borrowing of Revolving Credit Loans shall be required if,
immediately after giving effect thereto, a Default or Event of Default exists.
Subject to and on the terms and conditions of this Agreement, the Borrower may
borrow, repay and reborrow Revolving Credit Loans until the Revolving Credit
Facility Termination Date.
2.2. Borrowings.
(a) The Loans shall, at the option of the Borrower and subject to the
terms and conditions of this Agreement, be either Base Rate Loans or LIBOR Loans
(each such type of Loan, a "Type"), provided that (i) all Loans comprising the
same Borrowing shall, unless otherwise specifically provided herein, be of the
same Type and (ii) notwithstanding any other provision of this Agreement, all
Loans made prior to the third (3rd) Business Day after the Closing Date shall be
made initially as Base Rate Loans.
(b) In order to make a Borrowing (other than continuations of
outstanding Loans which shall be made pursuant to Section 2.9), the Borrower
will give the Agent written notice (by telecopier or otherwise), not later than
11:00 a.m., Charlotte, North Carolina local time, at least three (3) Business
Days prior to each Borrowing to be comprised of LIBOR Loans and at least one (1)
Business Day prior to each Borrowing to be comprised of Base Rate Loans;
provided, however, that requests for the Borrowing of the Term Loans and any
Revolving Credit Loans to be made on the Closing Date may, at the discretion of
the Agent, be given later than the times specified hereinabove. Each such notice
(each, a "Notice of Borrowing") shall be irrevocable, shall be given in the form
of Exhibit B-1 and shall be appropriately completed to specify (i) the Facility
under which such Borrowing is to be made, (ii) the aggregate principal amount
and Type of the Loans to be made pursuant to such Borrowing (and, in the case of
a Borrowing of LIBOR Loans, the initial Interest Period to be applicable
thereto), (iii) the proposed use of the proceeds of the Borrowing, and (iv) the
requested date of the Borrowing (the "Borrowing Date"), which shall be a
Business Day.
Notwithstanding anything to the contrary contained herein:
(i) the aggregate principal amount of each Borrowing
hereunder (y) in the case of Borrowings comprised of Base Rate Loans,
shall not be less than $500,000 and, if greater, shall be in an
integral multiple of $250,000 in excess thereof, and (z) in the case of
Borrowings comprised of LIBOR Loans, shall not be less than $5,000,000
and, if greater, shall be in an integral multiple of $1,000,000 in
excess thereof (or, in all cases of a Borrowing of Revolving Loans, if
less, in the amount of the aggregate Unutilized Revolving Credit
Commitments);
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(ii) if the Borrower shall have failed to designate
the Type of Loans comprising a Borrowing, the Borrower shall be deemed
to have requested a Borrowing comprised of Base Rate Loans;
(iii) if the Borrower shall have failed to select the
duration of the Interest Period to be applicable to any Borrowing of
LIBOR Loans, then the Borrower shall be deemed to have selected an
Interest Period with a duration of one month; and
(iv) LIBOR Loans under the Revolving Credit Facility
may not be outstanding under more than three (3) separate Interest
Periods at any one time and LIBOR Loans under the Term Loan Facility
may not be outstanding under more than three (3) separate Interest
Periods at any one time.
(c) Upon its receipt of a Notice of Borrowing, the Agent will promptly
notify each Lender with a Commitment under the relevant Facility of the proposed
Borrowing. Not later than 1:00 p.m., Charlotte time, on the requested Borrowing
Date, each such Lender will make available to the Agent at its office referred
to in Section 10.4 (or at such other location as the Agent may designate) an
amount, in Dollars and in immediately available funds, equal to the amount of
the Loan to be made by such Lender. To the extent the relevant Lenders have made
such amounts available to the Agent as provided hereinabove, the Agent will make
the aggregate of such amounts available to the Borrower in accordance with
subsection (d) below and in like funds as received by the Agent. Each Lender
may, at its option, make and maintain any LIBOR Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make or maintain such LIBOR Loan,
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
(d) The Borrower hereby authorizes the Agent to disburse the proceeds
of each Borrowing in accordance with the terms of any written instructions from
any of the Authorized Officers, provided that the Agent shall not be obligated
under any circumstances to forward amounts to any account not listed in an
Account Designation Letter. The Borrower may at any time deliver to the Agent an
Account Designation Letter listing any additional accounts or deleting any
accounts listed in a previous Account Designation Letter.
(e) Unless the Agent has received, prior to 1:00 p.m., Charlotte time,
on the relevant Borrowing Date, written notice from a Lender that such Lender
will not make available to the Agent such Lender's ratable portion, if any, of
the relevant Borrowing, the Agent may assume that such Lender has made such
portion available to the Agent in immediately available funds on such Borrowing
Date
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in accordance with subsection (c) above, and the Agent may, in reliance upon
such assumption, make a corresponding amount available to the Borrower on such
Borrowing Date. If and to the extent that such Lender shall not have made such
portion available to the Agent, and the Agent shall have made such corresponding
amount available to the Borrower, such Lender, on the one hand, and the
Borrower, on the other, severally agree to pay to the Agent forthwith on demand
such corresponding amount, together with interest thereon for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid to the Agent, (i) in the case of such Lender, at the Federal Funds Rate,
and (ii) in the case of the Borrower, at the rate of interest applicable at such
time to Loans comprising such Borrowing, as determined under the provisions of
Section 2.6. If such Lender shall repay to the Agent such corresponding amount,
such amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement. The failure of any Lender to make any Loan required
to be made by it as part of any Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its Loan as part of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Loan to be made by such other Lender as part of any Borrowing.
2.3. Notes.
(a) The Loans made by each Lender shall be evidenced (i) if Term Loans,
by a Term Note appropriately completed in substantially the form of Exhibit A-1,
and (ii) if Revolving Credit Loans, by a Revolving Credit Note appropriately
completed in substantially the form of Exhibit A-2.
(b) The Term Note issued to each Lender with a Term Loan Commitment
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Lender, (iii) be dated as of the Closing Date (or, in the case of Term Notes
issued pursuant to an Assignment and Acceptance, as of the date thereof), (iv)
be in a stated principal amount equal to such Lender's Term Loan Commitment, (v)
bear interest in accordance with the provisions of Section 2.6, as the same may
be applicable to the Term Loans made by such Lender from time to time, and (vi)
be entitled to all of the benefits of this Agreement and the other Loan
Documents and subject to the provisions hereof and thereof.
(c) The Revolving Credit Note issued to each Lender with a Revolving
Credit Commitment shall (i) be executed by the Borrower, (ii) be payable to the
order of such Lender, (iii) be dated as of the Closing Date (or, in the case of
Revolving Credit Notes issued pursuant to an Assignment and Acceptance, as of
the date thereof), (iv) be in a stated principal amount equal to such Lender's
Revolving Credit Commitment, (v) bear interest in accordance with the provisions
of Section 2.6, as the same may be applicable to the Revolving Credit Loans made
by such Lender from time to time, and
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(vi) be entitled to all of the benefits of this Agreement and the other Loan
Documents and subject to the provisions hereof and thereof.
(d) Each Lender will record on its internal records the amount of each
Loan made by it and each payment received by it in respect thereof and will, in
the event of any transfer of any of its Notes, either endorse on the reverse
side thereof or on a schedule attached thereto (or any continuation thereof) the
outstanding principal amount of the Loans evidenced thereby as of the date of
transfer or provide such information on Annex I to the Assignment and Acceptance
relating to such transfer; provided, however, that the failure of any Lender to
make any such recordation or provide any such information, or any error in such
recordation or information, shall not affect the Borrower's obligations in
respect of such Loans. The register maintained by the Agent shall be deemed
correct absent manifest error.
2.4. Termination and Reduction of Commitments.
(a) The Lenders' obligation to advance Term Loans shall be
automatically and permanently terminated at 5:00 p.m., Charlotte time, on August
13, 1996.
(b) The Lenders' obligation to advance Revolving Credit Loans shall be
automatically and permanently terminated on the Revolving Credit Facility
Termination Date unless sooner terminated
pursuant to subsection (d) below or Section 8.1.
(c) The Revolving Credit Commitment of each Lender shall be reduced as
of 12:01 a.m. on July 31 in the years set out below in the amounts set forth
opposite such years, such amounts expressed as a percentage of the amount of the
Revolving Credit Commitment of each Lender as of the Closing Date:
Year Percentage Reduction
1999 25%
2000 25%
(d) At any time and from time to time, upon at least five (5) Business
Days' prior written notice to the Agent, the Borrower may terminate in whole or
reduce in part the Total Unutilized Revolving Credit Commitment, provided that
any such partial reduction shall be in an aggregate amount of not less than
$250,000 or, if greater, integral multiples in excess thereof. The amount of any
termination or reduction made under this subsection (d) may not thereafter be
reinstated.
(e) Each reduction of the Revolving Credit Commitment under
this Section 2.4 shall be applied ratably among the Lenders according to their
relative Revolving Credit Commitments. After
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any such reduction, the fee provided in Sections 2.7(b) shall be calculated with
respect to the reduced Commitments.
2.5. Payments; Voluntary, Mandatory.
(a) At any time and from time to time, the Borrower shall have the
right to prepay the Loans, in whole or in part, without premium or penalty
(except as provided in clause (iii) below), upon written notice to the Agent
given not later than 11:00 a.m., Charlotte time, five (5) Business Days prior to
each intended prepayment, provided that (i) each partial prepayment shall be in
an aggregate principal amount of not less than $500,000 or, if greater, an
integral multiple of $250,000 in excess thereof, (ii) no partial prepayment of
LIBOR Loans made pursuant to any single Borrowing shall reduce the aggregate
outstanding principal amount of the remaining LIBOR Loans under such Borrowing
to less than $5,000,000 or to any greater amount not an integral multiple of
$1,000,000 in excess thereof, and (iii) unless made together with all amounts
required under Section 2.13 to be paid as a consequence of such prepayment, a
prepayment of a LIBOR Loan may be made only on the last day of the Interest
Period applicable thereto. Each such notice shall specify the proposed date of
such prepayment and the aggregate principal amount and the Types of the Loans to
be prepaid (and, in the case of LIBOR Loans, the Interest Period of the
Borrowing pursuant to which made), and shall be irrevocable and shall bind the
Borrower to make such prepayment on the terms specified therein. Upon and after
the occurrence of an Event of Default or if the Borrower has not designated
allocations, all prepayments pursuant to this subsection (a) shall be applied,
first, to the Term Loans, in inverse order of maturity, and then upon payment in
full of the Term Loans, to the Revolving Loans. Revolving Loans (but not Term
Loans) prepaid pursuant to this subsection (a) may be reborrowed, subject to the
terms and conditions of this Agreement.
(b) Each prepayment of the Term Loans made pursuant to subsection (a)
above shall be applied to reduce the aggregate outstanding principal amount of
the Term Loans, ratably among the Lenders holding Term Loans in proportion to
the principal amount held by each, with such reduction to be applied to the
scheduled principal payments on the Term Loans due under Section 2.5(c) on a pro
rata basis. Each prepayment of the Revolving Loans made pursuant to subsection
(a) above shall be applied to reduce the aggregate outstanding principal amount
of the Revolving Loans, ratably among the Lenders holding Revolving Loans in
proportion to the principal amount held by each.
(c) Except to the extent due or made sooner pursuant to the provisions
of this Agreement, the Borrower will repay the aggregate outstanding principal
of the Term Loans in the amounts and on the dates set forth below:
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Date Payment
July 31, 1997 $10,000,000
July 31, 1998 $10,000,000
July 31, 1999 $10,000,000
July 31, 2000 $10,000,000
July 31, 2001 $10,000,000
To the extent not previously paid, the aggregate outstanding principal of the
Term Loans shall be due and payable on the Term Loan Facility Maturity Date.
(d) Except to the extent due or made sooner pursuant to the provisions
of this Agreement, the Borrower will repay the aggregate outstanding principal
amount of the Revolving Loans in full on the Revolving Credit Facility Maturity
Date.
(e) In the event that, at any time, the sum of (i) the aggregate
principal amount of the Revolving Credit Loans outstanding on any date plus (ii)
the aggregate Letter of Credit Outstandings at such time exceeds the Total
Revolving Credit Commitment at such time (after giving effect to any termination
or reduction thereof as of such date), the Borrower will immediately repay the
principal amount of the Revolving Credit Loans on such date in the amount of
such excess; provided that, (A) such payment shall be accompanied by all amounts
required under Section 2.13 if applied to a LIBOR Loan and such payment is not
made on the last day of the Interest Period applicable thereto, and (B) to the
extent such excess amount required to be repaid is greater than the aggregate
principal amount of the Revolving Credit Loans outstanding immediately prior to
the application of such repayment, the amount so repaid shall be retained by the
Agent and held in the Cash Collateral Account as security for the Borrower's
Reimbursement Obligations, as more particularly described in Section 2.17(i),
and thereupon such cash shall be deemed to reduce the aggregate Reimbursement
Obligations by an equivalent amount.
(f) On the date of receipt by the Borrower or any of its Subsidiaries
of any net cash proceeds from any issuance of equity securities, other than an
equity infusion for the sole purpose of funding a Permitted Acquisition, the
Borrower shall make a mandatory repayment of principal of the Term Loans in an
amount equal to one hundred percent (100%) of such net cash proceeds (net of any
underwriting discounts and commissions and other reasonable costs associated
with such issuance).
(g) On the date of receipt by the Borrower or any of its Subsidiaries
of any net cash proceeds from any sale or disposition of assets, other than
sales or dispositions permitted under clauses (i), (ii) and (iv) of Section 6.5
or the sale of permitted temporary overnight investments, the Borrower shall
make a
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mandatory repayment of principal of the Term Loans in an amount equal to
one-hundred percent (100%) of such net cash proceeds.
(h) Each prepayment of the Loans made pursuant to subsections (f) and
(g) above shall be applied to reduce the aggregate outstanding principal amount
of the Term Loans, ratably among the Lenders holding Term Loans in proportion to
the principal amount held by each, with such reduction to be applied to the
scheduled principal payments on the Term Loans due under subsection (c) above,
in the inverse order of maturity. Each payment or prepayment of a LIBOR Loan
made pursuant to the provisions of this Section 2.5 on a day other than the last
day of the Interest Period applicable thereto shall be made together with all
amounts required under Section 2.13 to be paid as a consequence thereof.
2.6. Interest.
(a) The Borrower will pay interest in respect of the unpaid principal
amount of each Loan, from the date of Borrowing thereof until such principal
amount shall be paid in full, (i) at the Adjusted Base Rate, as in effect from
time to time, during such periods as such Loan is a Base Rate Loan, or (ii) at
the Adjusted LIBOR Rate, as in effect from time to time, during such periods as
such Loan is a LIBOR Loan.
(b) Any principal amounts of the Loans not paid when due and, to the
greatest extent permitted by law, all interest accrued on the Loans and all
other fees and amounts hereunder not paid when due (whether at maturity,
pursuant to acceleration or otherwise), shall bear interest at a rate per annum
equal to the Adjusted Base Rate plus two percentage points (2.0%), and such
default interest shall be payable on demand. Further, but without duplication of
the foregoing, during the existence of any Event of Default in response to which
the Lenders do not elect to declare the outstanding principal amounts of the
Loans immediately due and payable, if required by the Required Lenders, the
Borrower will pay interest on the dates provided pursuant to subsection (c),
below, in respect of the unpaid principal amount of each Loan, from the date the
Event of Default first exists until it is cured, at a rate per annum equal to
the Adjusted Base Rate plus two percentage points (2.0%) and such interest shall
be payable on demand. To the greatest extent permitted by law, interest shall
continue to accrue after the filing by or against the Borrower of any petition
seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.
(c) Accrued (and theretofore unpaid) interest shall be
payable as follows:
(i) in respect of each Base Rate Loan (including
any Base Rate Loan or portion thereof paid or prepaid pursuant
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to the provisions of Section 2.5, except as provided hereinbelow), in
arrears on the last Business Day of each calendar quarter, beginning
with the first such day to occur after the Closing Date; provided, that
in the event the Loans are repaid or prepaid in full and the Total
Commitment has been terminated, then accrued interest in respect of all
Base Rate Loans shall be payable together with such repayment or
prepayment on the date thereof;
(ii) in respect of each LIBOR Loan (including any
LIBOR Loan or portion thereof paid or prepaid pursuant to the
provisions of Section 2.5, except as provided hereinbelow), in arrears
(y) on the last Business Day of the Interest Period applicable thereto
(subject to the provisions of clause (iv) in Section 2.8); provided,
that in the event all LIBOR Loans made pursuant to a single Borrowing
are repaid or prepaid in full, then accrued interest in respect of such
LIBOR Loans shall be payable together with such repayment or prepayment
on the date thereof; and
(iii) in respect of any Loan, at maturity (whether
pursuant to acceleration or otherwise) and, after maturity, on
demand.
(d) Nothing contained in this Agreement or in any other Loan Document
shall be deemed to establish or require the payment of interest to any Lender in
an amount in excess of the maximum amount permitted by applicable law. If the
amount of interest or other charges payable for the account of any Lender on any
payment date would exceed the maximum amounts permitted by applicable law to be
charged by such Lender, the amount of interest payable for its account on such
payment date shall be automatically reduced to such maximum permissible amounts.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amounts permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent payment date shall be automatically increased
to such maximum permissible amount, provided that at no time shall the aggregate
amount by which interest paid for the account of any Lender has been increased
pursuant to this sentence exceed the aggregate amount by which interest paid for
its account has theretofore been reduced pursuant to the previous sentence. The
parties hereto understand and believe that if Maryland law were to apply, this
lending transaction complies with the usury laws of the State of Maryland. If at
any time, any amount of interest or other charges actually paid by the Borrower
on or with respect to any Loan is determined to be in excess of the maximum
amount permitted by applicable law, such excess amount shall be credited as a
prepayment of the outstanding principal balance of the applicable
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Loan as of the date paid or, if such Loan has been paid in full, refunded to the
Borrower.
(e) The Agent shall promptly notify the Borrower and the Lenders upon
determining the interest rate for each Borrowing of LIBOR Loans after its
receipt of the relevant Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that the failure of the Agent to
provide the Borrower or the Lenders with any such notice shall neither affect
any obligations of the Borrower or the Lenders hereunder nor result in any
liability on the part of the Agent to the Borrower or any Lender. Each such
determination (including each determination of the Reserve Requirement in
connection with a Borrowing of LIBOR Loans) shall, absent manifest error, be
final and conclusive and binding on all parties hereto.
2.7. Fees. The Borrower agrees to pay:
(a) To First Union, for its own account, on the date of this Agreement,
the fees described in the Fee Letter, in the amounts set forth therein as due
and payable on the date of this Agreement and to the extent not theretofore paid
to First Union;
(b) To the Agent, for the account of each Lender with a Revolving
Credit Commitment, a commitment fee per annum for the period from the date of
this Agreement to the Revolving Credit Facility Termination Date at the rate per
annum as determined under the following matrix with reference to the ratio of
Consolidated Debt to Adjusted EBITDA, applied to the average daily Unutilized
Revolving Credit Commitment of such Lender, payable in arrears (i) on the last
Business Day of each calendar quarter, beginning with the first such day to
occur after the Closing Date, and (ii) on the Revolving Credit Facility
Termination Date:
Ratio of Consolidated
Debt to Adjusted EBITDA Fee Percentage
Greater than 3.0 to 1.0 0.375%
Less than or equal to 3.0 to 1.0
but greater than
2.5 to 1.0 0.30%
Less than or equal to 2.5 to 1.0 0.25%
From the Closing Date until the fifth (5) Business Day after delivery
of the financial statement for the fiscal quarter ended September 30, 1996
pursuant to Section 5.1(a) below, the fee percentage shall be .0375%
(c) To the Agent, for the account of each L/C Participant, a letter of
credit fee in respect of each Letter of Credit for the period from the date of
its issuance to the date of its termination, at a rate per annum equal to the
Applicable Margin for LIBOR
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Loans in effect from time to time during such period, on the daily average
Stated Amount thereof, payable in arrears (i) on the last Business Day of each
calendar quarter, beginning with the first such day to occur after the Closing
Date, and (ii) on the later of the Revolving Credit Facility Termination Date or
the date of termination of the last outstanding Letter of Credit;
(d) To the Issuing Bank, for its own account, a facing fee in respect
of each Letter of Credit for the period from the date of its issuance to the
date of its termination, at the rate of 0.125% per annum, on the daily average
Stated Amount thereof, payable in arrears (i) on the last Business Day of each
calendar quarter, beginning with the first such day to occur after the Closing
Date, and (ii) on the later of the Revolving Credit Facility Termination Date
and the date of termination of the last outstanding Letter of Credit;
(e) To the Issuing Bank, for its own account, such commissions,
issuance fees, transfer fees and other fees and charges incurred in connection
with the issuance and administration of each Letter of Credit as are customarily
charged from time to time by the Issuing Bank for the performance of such
services in connection with similar letters of credit, or as may be otherwise
agreed to by the Borrower, but without duplication of amounts payable under
subsection (d) above; and
(f) To the Agent, for its own account, the annual administrative fees
provided in the Fee Letter, on the terms, in the amounts and at the times set
forth therein.
2.8. Interest Periods. Concurrently with the giving of any Notice of
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of LIBOR Loans, the Borrower shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrower, be a one, two, or three month period (subject to availability);
provided, however, that:
(i) all LIBOR Loans comprising a single Borrowing
shall at all times have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan
shall commence on the date of the Borrowing of such Loan (including the
date of any continuation of, or conversion into, such LIBOR Loan), and
each successive Interest Period applicable to such LIBOR Loan shall
commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) the Borrower may not select any Interest
Period that begins prior to the Closing Date or that expires after
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(y) the Revolving Credit Facility Maturity Date, with respect to
Revolving Credit Loans that are to be maintained as LIBOR Loans, or (z)
Term Loan Facility Maturity Date, with respect to Term Loans that are
to be maintained as LIBOR Loans;
(iv) if any Interest Period otherwise would expire on
a day that is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day unless such next succeeding Business
Day falls in another calendar month, in which case such Interest Period
shall expire on the next preceding Business Day;
(v) no Interest Period may be selected that would end
after a scheduled date for repayment of principal of the Term Loans
occurring on or after the first day of such Interest Period unless,
immediately after giving effect to such selection, the aggregate
principal amount of Term Loans that are Base Rate Loans or that have
Interest Periods expiring on or before such principal repayment date
equals or exceeds the principal amount required to be paid on such
principal repayment date;
(vi) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month during
which such Interest Period would otherwise expire, such Interest Period
shall expire on the last Business Day of such calendar month; and
(vii) if, upon the expiration of any Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrower shall have
failed to elect a new Interest Period to be applicable to such LIBOR
Loans, then the Borrower shall be deemed to have elected to convert
such LIBOR Loans into Base Rate Loans as of the expiration of the then
current Interest Period applicable thereto.
2.9. Conversions and Continuations.
(a) The Borrower shall have the right, on any Business Day occurring on
or after the third (3rd) Business Day after the Closing Date, to elect (i) to
convert all or a portion of the outstanding principal amount of any Base Rate
Loans under either Facility into LIBOR Loans under the same Facility, or to
convert any LIBOR Loans under either Facility the Interest Periods for which end
on the same day into Base Rate Loans under the same Facility, or (ii) to
continue all or a portion of the outstanding principal amount of any LIBOR Loans
under either Facility the Interest Periods for which end on the same day for an
additional Interest Period, provided that (x) any such conversion of LIBOR Loans
into Base Rate Loans shall involve an aggregate principal amount of not less
than $500,000 or, if greater, an integral multiple of $250,000 in excess
thereof; any such conversion of Base Rate Loans
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into, or continuation of, LIBOR Loans shall involve an aggregate principal
amount of not less than $5,000,000 or, if greater, an integral multiple of
$1,000,000 in excess thereof; and no partial conversion of LIBOR Loans made
pursuant to a single Borrowing shall reduce the outstanding principal amount of
such LIBOR Loans to less than $5,000,000 or to any greater amount not an
integral multiple of $1,000,000 in excess thereof, (y) except as otherwise
provided in Section 2.11(d), LIBOR Loans may be converted into Base Rate Loans
only on the last day of the Interest Period applicable thereto (and, in any
event, if a LIBOR Loan is converted into a Base Rate Loan on any day other than
the last day of the Interest Period applicable thereto, the Borrower will pay,
upon such conversion, all amounts required under Section 2.13 to be paid as a
consequence thereof) and (z) no conversion of Base Rate Loans into LIBOR Loans
or continuation of LIBOR Loans shall be permitted during the continuance of a
Default or Event of Default.
(b) The Borrower shall make each such election by giving the Agent
written notice not later than 11:00 a.m., Charlotte time, three (3) Business
Days prior to the effective date of any conversion of Base Rate Loans into, or
continuation of, LIBOR Loans and one (1) Business Day prior to the effective
date of any conversion of LIBOR Loans into Base Rate Loans. Each such notice
(each, a "Notice of Conversion/Continuation") shall be irrevocable, shall be
given in the form of Exhibit B-2 and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Loans being
converted or continued and the Facility under which such Loans were made. Upon
the receipt of a Notice of Conversion/Continuation, the Agent will promptly
notify each Lender having a Commitment under the relevant Facility of the
proposed conversion or continuation. In the event that the Borrower shall fail
to deliver a Notice of Conversion/ Continuation as provided herein with respect
to any outstanding LIBOR Loans, such LIBOR Loans shall automatically be
converted to Base Rate Loans upon the expiration of the then current Interest
Period applicable thereto (unless repaid pursuant to the terms hereof).
2.10. Method of Payments; Computations.
(a) All payments by the Borrower hereunder shall be made without
setoff, counterclaim or other defense, in Dollars and in immediately available
funds to the Agent, for the account of the Lenders (except as otherwise
expressly provided herein as to payments required to be made directly to the
Issuing Bank and the Lenders) at its office referred to in Section 10.4, prior
to 12:00 noon, Charlotte time, on the date payment is due. Any payment made as
required hereinabove, but after 12:00 noon, Charlotte time, shall be deemed to
have been made on the next succeeding Business Day. If any payment falls due on
a day that is not a Business Day,
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then such due date shall be extended to the next succeeding Business Day (except
that in the case of LIBOR Loans to which the provisions of clause (iv) in
Section 2.8 are applicable, such due date shall be the next preceding Business
Day), and such extension of time shall then be included in the computation of
payment of interest, fees or other applicable amounts.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received by 12:00 noon, Charlotte time, in immediately available
funds, the Agent will make available to each relevant Lender on the same date,
by wire transfer of immediately available funds, such Lender's ratable share of
such payment (based on the percentage that the amount of the relevant payment
owing to such Lender bears to the total amount of such payment owing to all of
the relevant Lenders), and (ii) if such payment is received after 12:00 noon,
Charlotte time, or in other than immediately available funds, the Agent will
make available to each such Lender its ratable share of such payment by wire
transfer of immediately available funds on the next succeeding Business Day (or
in the case of uncollected funds, as soon as practicable after collected). If
the Agent shall not have made a required distribution to the appropriate Lenders
as required hereinabove after receiving a payment for the account of such
Lenders, the Agent will pay to each such Lender, on demand, its ratable share of
such payment with interest thereon at the Federal Funds Rate for each day from
the date such amount was required to be disbursed by the Agent until the date
repaid to such Lender. The Agent will distribute to the Issuing Bank like
amounts relating to payments made to the Agent for the account of the Issuing
Bank in the same manner, and subject to the same terms and conditions, as set
forth hereinabove with respect to distributions of amounts to the Lenders.
(c) Unless the Agent shall have received written notice from the
Borrower prior to the date on which any payment is due to any Lender hereunder
that such payment will not be made in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date, and the Agent
may, in reliance on such assumption, but shall not be obligated to, cause to be
distributed to such Lender on such due date an amount equal to the amount then
due to such Lender. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, and without limiting the obligation of the
Borrower to make such payment in accordance with the terms hereof, such Lender
shall repay to the Agent forthwith on demand such amount so distributed to such
Lender, together with interest thereon for each day from the date such amount is
so distributed to such Lender until the date repaid to the Agent, at the Federal
Funds Rate.
(d) Each Lender for whose account any payment is to be made hereunder
may, but shall not be obligated to, debit the amount of any such payment not
made as and when required hereunder to any
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ordinary deposit account of the Borrower with such Lender (with prompt notice to
the Agent and the Borrower); provided, however, that the failure to give such
notice shall not affect the validity of such debit by such Lender.
(e) With respect to each payment hereunder, except as specifically
provided otherwise herein or in any of the other Loan Documents, the Borrower
may designate by written notice to the Agent prior to or concurrently with such
payment the Types of Loans that are to be paid, repaid or prepaid, provided that
(i) unless made together with all amounts required under Section 2.13 to be paid
as a consequence thereof, a prepayment of a LIBOR Loan may be made only on the
last day of the Interest Period applicable thereto, and (ii) each payment on
account of any Obligations to or for the account of any one or more Lenders
shall be apportioned ratably among such Lenders in proportion to the amounts of
such Obligations owed to them respectively. In the absence of any such
designation by the Borrower, or if an Event of Default has occurred and is
continuing, the Agent shall make such designation in its sole discretion or as
the Required Lenders may direct, subject to the foregoing and to the other
provisions of this Agreement.
(f) All computations of interest and fees hereunder (including
computations of the Reserve Requirement) shall be made on the basis of a year
consisting of 360 days and the actual number of days (including the first day,
but excluding the last day) elapsed; provided, however, that interest on Base
Rate Loans shall be computed on the basis of a 365/366-day year and the actual
days elapsed.
2.11. Increased Costs, Change in Circumstances, Etc.
(a) If, at any time after the Closing Date and from time to time, the
adoption or modification of any applicable law, rule or regulation, or any
interpretation or administration thereof by any Governmental Authority or
central bank (whether or not having the force of law) charged with the
interpretation, administration or compliance of the Lenders with any of such
requirements, shall:
(i) subject any Lender to, or increase the net amount
of, any tax, impost, duty, charge or withholding with respect to any
amount received or to be received hereunder in connection with LIBOR
Loans (other than taxes imposed on net income or profits of, or any
branch or franchise tax applicable to, such Lender or a Lending Office
of such Lender);
(ii) change the basis of taxation of payments to any
Lender in connection with LIBOR Loans (other than changes in taxes on
the net income or profits of, or any branch or franchise tax applicable
to, such Lender or a Lending Office of such Lender);
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(iii) impose, increase or render applicable any reserve
(other than the Reserve Requirement), capital adequacy, special deposit
or similar requirement against assets of, deposits with or for the
account of, or loans, credit or commitments extended by, any Lender or
a Lending Office of such Lender; or
(iv) impose on any Lender or in the London interbank
Eurodollar market any other condition or requirement affecting this
Agreement or LIBOR Loans;
and the result of any of the foregoing is to increase the costs to any Lender of
agreeing to make, making, funding or maintaining any LIBOR Loans or to reduce
the yield or rate of return of such Lender on any LIBOR Loans to a level below
that which such Lender could have achieved but for the adoption or modification
of any such requirements, the Borrower will, within fifteen (15) days after
delivery to the Borrower by such Lender of written demand therefor (with a copy
thereof to the Agent), pay to such Lender such additional amounts relating or
directly corresponding to the Loans as shall compensate such Lender for such
increase in costs or reduction in return.
(b) If, at any time after the Closing Date and from time to time, the
adoption or modification of any applicable federal, state or local law, rule or
regulation regarding any Lender's required level of capital (including any
allocation of capital requirements or conditions, but excluding federal, state
or local income tax liability), or the implementation of any such requirements
previously adopted but not implemented prior to the Closing Date, or any
interpretation or administration thereof by any Governmental Authority (whether
or not having the force of law) charged with the interpretation, administration
or compliance of such Lender with any of such requirements, has or would have
the effect of reducing the rate of return on such Lender's capital as a
consequence of its Commitments, Loans or participations in Letters of Credit
hereunder to a level below that which such Lender could have achieved but for
such adoption, modification, implementation or interpretation (taking into
account such Lender's policies with respect to capital adequacy), the Borrower
will, within fifteen (15) days after delivery to the Borrower by such Lender of
written demand therefor (with a copy thereof to the Agent), pay to such Lender
such additional amounts as will compensate such Lender for such reduction in
return.
(c) If, on or prior to the first day of any Interest Period, (i) the
Agent shall have determined that Dollar deposits in the amount of any Lender's
required LIBOR Loan pursuant to such Borrowing are not generally available in
the London interbank Eurodollar market or that the rate at which such Dollar
deposits are being offered will not adequately and fairly reflect the cost to
such Lender of making or maintaining its LIBOR Loan during such Interest Period
or (ii) the Agent shall have determined that
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adequate and reasonable means do not exist for ascertaining the applicable LIBOR
Rate for such Interest Period, the Agent will forthwith so notify the Borrower
and the Lenders, whereupon the obligation of (y) in the case of clause (i)
above, each such affected Lender, and (z) in the case of clause (ii) above, all
Lenders, in each case to make, to convert Base Rate Loans into, or to continue,
LIBOR Loans shall be suspended (including pursuant to the Borrowing to which
such Interest Period applies), and any Notice of Borrowing or Notice of
Conversion/Continuation given at any time thereafter with respect to LIBOR Loans
shall be deemed to be a request for Base Rate Loans (but in the case of clause
(i) above, only to the extent of such affected Lender's Pro Rata Share thereof)
until the Agent or the affected Lender, as the case may be, shall have
determined that the circumstances giving rise to such suspension no longer exist
(and the affected Lender, if making such determination, shall have so notified
the Agent), and the Agent shall have so notified the Borrower and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any
time after the Closing Date and from time to time, the adoption or modification
of any applicable law, rule or regulation, or any interpretation or
administration thereof by any Governmental Authority or central bank (whether or
not having the force of law) charged with the interpretation, administration or
compliance of any Lender with any of such requirements, has or would have the
effect of making it unlawful for such Lender to honor its obligation to make
LIBOR Loans or to continue to make or maintain LIBOR Loans, such Lender will
forthwith so notify the Agent and the Borrower, whereupon (i) each of such
Lender's outstanding LIBOR Loans shall automatically, on the expiration date of
the respective Interest Period applicable thereto or, to the extent any such
LIBOR Loan may not lawfully be maintained as a LIBOR Loan until such expiration
date, upon such notice, be converted into a Base Rate Loan and (ii) the
obligation of such Lender to make, to convert Base Rate Loans into, or to
continue, LIBOR Loans shall be suspended, and any Notice of Borrowing or Notice
of Conversion/Continuation given at any time thereafter with respect to LIBOR
Loans shall, as to such Lender, be deemed to be a request for Base Rate Loans,
until such Lender shall have determined that the circumstances giving rise to
such suspension no longer exist and shall have so notified the Agent, and the
Agent shall have so notified the Borrower.
(e) Determinations by the Agent or any Lender for purposes of this
Section of any increased costs, reduction in return, market contingencies,
illegality or any other matter shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith. Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of this
Section with respect to such Lender, it will, if requested by the Borrower and
to the extent permitted by law, endeavor in good faith to designate another
Lending Office for its LIBOR Loans, but only if such
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designation would make it lawful for such Lender to continue to make or maintain
LIBOR Loans hereunder; provided that such designation is made on such terms that
such Lender, in its good faith determination, suffers no increased cost or
economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of this Section.
(f) Each demand for payment under this Section shall be preceded by a
notice to the Borrower of such anticipated demand, which notice shall specify in
reasonable detail the basis for such demand, but the failure to provide such
advance notice shall not relieve the Borrower of any of its obligations
hereunder. No failure by the Agent or any Lender to demand payment of any
amounts payable under this Section shall constitute a waiver of its right to
demand payment of any additional amounts arising at any subsequent time. Nothing
in this Section shall be construed or so operate as to require the Borrower to
pay any interest, fees, costs or charges in excess of that permitted by
applicable law.
2.12. Taxes.
(a) Any and all payments by the Borrower hereunder or under any Note
shall be made, in accordance with the terms hereof and thereof, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto (other than taxes imposed on net income or profits of, or any branch or
franchise taxes applicable to, the Agent, the Issuing Bank or any Lender) (y) by
the jurisdiction under the laws of which the Agent, the Issuing Bank or such
Lender, as the case may be, is organized or any political subdivision thereof
and (z) in the case of each Lender, by the jurisdiction in which any Lending
Office of such Lender is located or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to the Agent, the Issuing Bank or any Lender, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section), the Agent, the Issuing Bank or such Lender, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower will make such deductions, and (iii) the
Borrower will pay the full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law. If and to the extent that any
Lender subsequently shall be refunded or otherwise recover all or any part of
such deduction, it shall refund to the Borrower the amount so recovered.
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(b) The Borrower will indemnify the Agent, the Issuing Bank and each
Lender for the full amount of Taxes (including, without limitation, any Taxes
imposed by any jurisdiction on amounts payable under this Section) paid by the
Agent, the Issuing Bank or such Lender, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date the
Agent, the Issuing Bank or any Lender, as the case may be, makes written demand
therefor. Within thirty (30) days after the date of any payment of Taxes
pursuant to this Section, the Borrower will furnish to the Agent, the Issuing
Bank or the relevant Lender, as the case may be, the original or a certified
copy of a receipt evidencing payment thereof. If and to the extent that any
Lender subsequently shall be refunded or otherwise recover all or any part of
such payment of taxes, it shall refund to the Borrower the amount so recovered.
(c) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Internal Revenue Code, and such Lender claims
exemption from United States withholding tax under Section 1441 or 1442 of the
Internal Revenue Code, such Lender will deliver to the Agent and the Borrower:
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
properly completed IRS Forms 1001 and W-8 before the payment of any
interest in the first calendar year, and before the payment of any
interest in each third succeeding calendar year, during which interest
may be paid to such Lender under this Agreement;
(ii) if such Lender claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Lender, and in each succeeding taxable year of such Lender, during
which interest may be paid to such Lender under this Agreement, and IRS
Form W-9; and
(iii) such other form or forms as may be required under
the Internal Revenue Code or other laws of the United States as a
condition to exemption from, or reduction of, United States withholding
tax.
Each such Lender will promptly notify the Agent and the Borrower of any
changes in circumstances that would modify or render invalid any claimed
exemption or reduction.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the
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applicable withholding tax after taking into account such reduction. If the
forms or other documentation required under subsection (c) above are not
delivered to the Agent, then the Agent may withhold from any interest payment to
such Lender not providing such forms or other documentation an amount equivalent
to the applicable withholding tax. For purposes of this Section, a distribution
hereunder by the Agent to or for the account of any Lender shall be deemed a
payment by the Borrower.
(e) If the IRS or any other Governmental Authority, domestic or
foreign, asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (whether because the
appropriate form was not delivered or was not properly executed, because such
Lender failed to notify the Agent of a change in circumstances that rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason), such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this subsection (e), together with all costs,
expenses and reasonable attorneys' fees incurred or paid in connection
therewith.
(f) If at any time the Borrower requests any Lender to deliver any
forms or other documentation pursuant to subsection (c) above, then the Borrower
shall, upon demand of such Lender, reimburse such Lender for any reasonable
costs or expenses incurred by such Lender in the preparation or delivery of such
forms or other documentation.
(g) Each Lender agrees that, if the Borrower is required to pay
additional amounts to or for the account of any Lender pursuant to subsection
(a) or (b) above, then such Lender will, to the extent permitted by law,
endeavor in good faith to designate another Lending Office for its LIBOR Loans,
but only if such designation would make it lawful for such Lender to continue to
make or maintain LIBOR Loans hereunder; provided that such designation is made
on such terms that such Lender, in its good faith determination, suffers no
increased cost or economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of this
Section.
2.13. Compensation. The Borrower will compensate each Lender upon
demand for all losses, expenses and liabilities (including, without limitation,
any loss, expense or liability incurred by reason of the liquidation or
reemployment of deposits or other funds required by such Lender to fund or
maintain LIBOR Loans) that such Lender may sustain (i) if for any reason (other
than a default by such Lender) a Borrowing of, or conversion of or into, LIBOR
Loans does not occur on a date specified therefor in a Notice of
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Borrowing or Notice of Conversion/Continuation, (ii) if any repayment,
prepayment or conversion of any LIBOR Loan occurs on a date other than the last
day of an Interest Period applicable thereto (including as a consequence of
acceleration of the maturity of such Loans pursuant to Section 8.1), (iii) if
any prepayment of any of its LIBOR Loans is not made on any date specified in a
notice of prepayment given by the Borrower, or (iv) as a consequence of any
other failure by the Borrower to make any payments with respect to LIBOR Loans
when due hereunder. In addition, the Borrower will pay to the Agent, for its own
account, an administrative fee of $100 concurrently with any payments made in
respect of any single occurrence pursuant to this Section. Calculation of all
amounts payable to a Lender under this Section shall be made as though such
Lender had actually funded its relevant LIBOR Loan through the purchase of a
Eurodollar deposit bearing interest at the LIBOR Rate in an amount equal to the
amount of such LIBOR Loan, having a maturity comparable to the relevant Interest
Period and through the transfer of such Eurodollar deposit from an offshore
Lending Office of such Lender to a Lending Office of such Lender in the United
States; provided, however, that each Lender may fund each of its LIBOR Loans in
any manner it sees fit and the foregoing assumption shall be utilized only for
the calculation of amounts payable under this Section. Determinations by any
Lender for purposes of this Section of any such losses, expenses or liabilities
shall, absent manifest error, be conclusive, provided that such determinations
are made in good faith.
2.14. Use of Proceeds. The proceeds of the Term Loans and the Revolving
Credit Loans shall be used by the Borrower (i) to finance Permitted Acquisitions
pursuant to this Agreement; (ii) to provide working capital for the Borrower and
its Subsidiaries; and (iii) for general corporate purposes.
2.15. Recovery of Payments.
(a) The Borrower agrees that to the extent the Borrower makes a payment
or payments to or for the account of the Agent, the Lenders or the Issuing Bank,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under any bankruptcy, insolvency or
similar state or federal law, common law or equitable cause, then, to the extent
of such payment or repayment, the Credit Obligation intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been received.
(b) If any amounts distributed by the Agent to a Lender are
subsequently returned or repaid by the Agent to the Borrower or its
representative or successor in interest, whether by court order or by settlement
approved by the Lender in question, such Lender will, promptly upon receipt of
notice thereof from the Agent, pay the Agent such amount. If any such amounts
are recovered by the Agent
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from the Borrower or its representative or successor in interest, the Agent
shall redistribute such amounts to the Lenders on the same basis as such amounts
were originally distributed.
2.16. Pro Rata Treatment.
(a) All funding of Borrowings, continuations and conversions of Loans
shall be made by the Lenders pro rata on the basis of their relative Commitments
(in the case of the funding of the Term Loans and the initial funding of
Revolving Loans) or Loans (in the case of continuations and conversions of
Loans), as applicable from time to time.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, or otherwise,
applicable to the payment of any of the Credit Obligations that exceeds its
ratable share (according to the proportion of (i) the amount of such Credit
Obligations due and payable to such Lender at such time to (ii) the aggregate
amount of such Credit Obligations due and payable to all Lenders at such time)
of payments on account of such Credit Obligations then or therewith obtained by
all the Lenders to which such payments are required to have been made, such
Lender shall forthwith purchase from the other Lenders such participations in
such Credit Obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or other recovery ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each such other Lender
shall be rescinded and each such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such other Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to the provisions of this subsection may, to the
fullest extent permitted by law, exercise any and all rights of payment
(including, without limitation, setoff, banker's lien or counterclaim) with
respect to such participation as fully as if such participant were a direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled under this
subsection to share in the benefits of any recovery on such secured claim.
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2.17. Letters of Credit.
(a) Subject to and upon the terms and conditions herein set forth, so
long as no Default or Event of Default has occurred and is continuing, the
Issuing Bank will, at any time and from time to time on and after the Closing
Date and prior to the Revolving Credit Facility Termination Date, and upon
request by the Borrower in accordance with the provisions of Section 2.17(b),
issue for the account of the Borrower one or more irrevocable standby letters of
credit denominated in Dollars and in a form customarily used or otherwise
approved by the Issuing Bank (together with all amendments, modifications and
supplements thereto, substitutions therefor and renewals and restatements
thereof, collectively, the "Letters of Credit"). The Stated Amount of each
Letter of Credit shall not be less than such amount as may be reasonably
acceptable to the Issuing Bank. Notwithstanding the foregoing:
(i) No Letter of Credit shall be issued the Stated
Amount upon issuance of which (i) when added to all other Letter of
Credit Outstandings at such time, would exceed $5,000,000 or (ii) when
added to all other Letter of Credit Outstandings at such time and the
aggregate principal amount of all Revolving Credit Loans then
outstanding, would exceed the Total Revolving Credit Commitment at such
time;
(ii) No Letter of Credit shall be issued that by its
terms expires more than one (1) year after its date of issuance or the
Revolving Credit Facility Maturity Date, whichever is earliest;
provided, however, that a Letter of Credit may, if requested by the
Borrower and approved by the Issuing Bank, provide by its terms, and on
terms acceptable to the Issuing Bank, for renewal for successive
periods of one year or less, unless and until the Issuing Bank shall
have delivered a notice of nonrenewal to the beneficiary of such Letter
of Credit; and
(iii) The Issuing Bank shall be under no obligation to
issue any Letter of Credit if, at the time of such proposed issuance,
(A) any order, judgment or decree of any Governmental Authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing
Bank from issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or directive (whether or
not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Bank shall prohibit, or request that the
Issuing Bank refrain from, the issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction or reserve
or capital requirement (for which the Issuing Bank is not otherwise
compensated) not in effect on the Closing Date, or any unreimbursed
loss, cost or expense that was not applicable, in effect or known to
the
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Issuing Bank as of the Closing Date and that the Issuing Bank in good
faith deems material to it, or (B) the Issuing Bank shall have actual
knowledge, or shall have received notice from any Lender, prior to the
issuance of such Letter of Credit that one or more of the conditions
specified in Section 3.3 are not then satisfied or that the issuance of
such Letter of Credit would violate the provisions of subsection (i)
above.
(b) Whenever the Borrower desires the issuance of a Letter of Credit,
the Borrower will notify the Issuing Bank (with copies to the Agent) in writing,
by 1:00 p.m., Charlotte, North Carolina local time, at least three (3) Business
Days (or such shorter period as is acceptable to the Issuing Bank in any given
case) prior to the requested date of issuance thereof. Each such request (each,
a "Letter of Credit Request") shall be irrevocable, shall be given in the form
of Exhibit B-3 and shall be appropriately completed to specify (i) the proposed
date of issuance (which shall be a Business Day), (ii) the proposed Stated
Amount and expiry date of the Letter of Credit, and (iii) the name and address
of the proposed beneficiary or beneficiaries of the Letter of Credit. The
Borrower will also complete any application procedures and documents reasonably
required by the Issuing Bank in connection with the issuance of any Letter of
Credit. The Agent will, promptly upon its receipt thereof, notify each Lender of
the Letter of Credit Request. Upon its issuance of any Letter of Credit, the
Issuing Bank will promptly notify each Lender of such issuance and will notify
each Lender with a Revolving Credit Commitment of the amount of its
participation therein under Section 2.17(c).
(c) Immediately upon the issuance of any Letter of Credit, the Issuing
Bank shall be deemed to have sold and transferred to each Lender with a
Revolving Credit Commitment, and each such Lender (each, in such capacity, an
"L/C Participant") shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Bank, without recourse or warranty, an
undivided interest and participation, pro rata to the extent of its Revolving
Credit Percentage at such time, in such Letter of Credit, each drawing made
thereunder, and the obligations of the Borrower under this Agreement with
respect thereto and any security therefor (including the Collateral) or guaranty
pertaining thereto; provided, however, that the fees and other charges relating
to Letters of Credit described in Sections 2.7(d) and (e) shall be payable
directly to the Issuing Bank as provided therein, and the L/C Participants shall
have no right to receive any portion thereof. Upon any change in the Revolving
Credit Commitments of any of the Lenders pursuant to Section 10.5, with respect
to all outstanding Letters of Credit and Reimbursement Obligations there shall
be an automatic adjustment to the participations pursuant to this Section to
reflect the new Revolving Credit Percentages of the assigning Lender and the
Eligible Assignee.
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(d) The Borrower hereby agrees to reimburse the Issuing Bank by making
payment to the Agent, for the account of the Issuing Bank, in immediately
available funds, for any payment made by the Issuing Bank under any Letter of
Credit (each such amount so paid until reimbursed, together with interest
thereon payable as provided hereinbelow, a "Reimbursement Obligation")
immediately after, and in any event on the date of, such payment, together with
interest on the amount so paid by the Issuing Bank, to the extent not reimbursed
prior to 2:00 p.m., Charlotte, North Carolina local time, on the date of such
payment or disbursement, (i) for the period from the date of the respective
payment to the date of receipt by the Borrower from the Issuing Bank of notice
of such payment, at the Adjusted Base Rate as in effect from time to time during
such period, and (ii) for the period from the date of receipt by the Borrower
from the Issuing Bank of notice of such payment to the date the Reimbursement
Obligation created thereby is satisfied, at the Adjusted Base Rate as in effect
from time to time during such period plus two percentage points (2.0%), such
interest also to be payable on demand. The Issuing Bank will provide the Agent
and the Borrower with prompt notice of any payment or disbursement made under
any Letter of Credit, although the failure to give, or any delay in giving, any
such notice shall not release, diminish or otherwise affect the Borrower's
obligations under this Section or any other provision of this Agreement.
(e) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have timely satisfied in full its
Reimbursement Obligation to the Issuing Bank pursuant to Section 2.17(d), and to
the extent that any amounts then held in the Cash Collateral Account established
pursuant to Section 2.17(i) shall be insufficient to satisfy such Reimbursement
Obligation in full, the Issuing Bank will promptly notify the Agent, and the
Agent will promptly notify each L/C Participant, of such failure. If the Agent
gives such notice prior to 11:00 a.m., Charlotte, North Carolina local time, on
any Business Day to any L/C Participant, such L/C Participant will make
available to the Agent, for the account of the Issuing Bank, its Pro Rata Share
(calculated with respect to its Revolving Credit Percentage) of the amount of
such payment on such Business Day in immediately available funds. If the Agent
gives such notice after 11:00 a.m., Charlotte, North Carolina local time, on any
Business Day to any such L/C Participant, such L/C Participant shall make its
Pro Rata Share of such amount available to the Agent on the next succeeding
Business Day. If and to the extent such L/C Participant shall not have so made
its Pro Rata Share of the amount of such payment available to the Agent, such
L/C Participant agrees to pay to the Agent, for the account of the Issuing Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Agent, at the Federal
Funds Rate. The failure of any L/C Participant to make available to the Agent
its Pro Rata Share of any payment under any Letter of Credit shall not relieve
any other L/C Participant of its obligation hereunder to make available to the
Agent its Pro Rata
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Share of any payment under any Letter of Credit on the date required, as
specified above, but no L/C Participant shall be responsible for the failure of
any other L/C Participant to make available to the Agent such other L/C
Participant's Pro Rata Share of any such payment. Each such payment by an L/C
Participant under this Section 2.17(e) of its Pro Rata Share of an amount paid
by the Issuing Bank shall constitute a Revolving Credit Loan by such Lender (the
Borrower being deemed to have given a timely Notice of Borrowing therefor) and
shall be treated as such for all purposes of this Agreement; provided that for
purposes of determining the available unused portion of the Total Revolving
Credit Commitment immediately prior to giving effect to the application of the
proceeds of such Revolving Credit Loans, the Reimbursement Obligation being
satisfied thereby shall be deemed not to be outstanding at such time.
(f) Whenever the Issuing Bank receives a payment in respect of a
Reimbursement Obligation as to which the Agent has received, for the account of
the Issuing Bank, any payments from the L/C Participants pursuant to Section
2.17(e), the Issuing Bank will promptly pay to the Agent, and the Agent will
promptly pay to each L/C Participant that has paid its Pro Rata Share thereof,
in immediately available funds, an amount equal to such L/C Participant's
ratable share (based on the proportionate amount funded by such L/C Participant
to the aggregate amount funded by all L/C Participants) of such Reimbursement
Obligation.
(g) The Reimbursement Obligations of the Borrower, and the obligations
of the L/C Participants to make payments to the Agent, for the account of the
Issuing Bank, with respect to Letters of Credit, shall be irrevocable, shall
remain in effect until the Issuing Bank shall have no further obligations to
make any payments or disbursements under any circumstances with respect to any
Letter of Credit, and, except to the extent resulting from any gross negligence
or willful misconduct on the part of the Issuing Bank as finally determined by a
court of competent jurisdiction and not subject to any appeal (or pursuant to
arbitration as set forth in Section 10.3(b)), shall not be subject to
counterclaim, setoff or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this
Agreement, any of the other Loan Documents or any documents or
instruments relating to any Letter of Credit;
(ii) Any change in the time, manner or place of
payment of, or in any other term of, all or any of the Credit
Obligations in respect of any Letter of Credit, whether or not the
Borrower has notice or knowledge thereof;
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(iii) The existence of any claim, setoff, defense or
other right that the Borrower may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter
of Credit (or any Person for whom any such transferee may be acting),
the Agent, the Issuing Bank, any Lender or other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated hereby or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary named
in any such Letter of Credit);
(iv) Any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect, any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by
mail, telecopier or otherwise, or any errors in translation or in
interpretation of technical terms, other than due to the Issuing Bank's
gross negligence or willfull misconduct;
(v) Any defense based upon the failure of any drawing
under a Letter of Credit to conform to the terms of the Letter of
Credit (the Issuing Bank's sole obligation, in determining whether to
pay under any Letter of Credit, being to examine documents required to
be delivered under such Letter of Credit in good faith and without
gross negligence to ascertain that such documents appear on their face
to comply with the terms of such Letter of Credit), any non-application
or misapplication by the beneficiary or any transferee of the proceeds
of such drawing or any other act or omission of such beneficiary or
transferee in connection with such Letter of Credit;
(vi) The exchange, release, surrender or
impairment of any Collateral or other security for the Credit
Obligations;
(vii) The occurrence of any Default or Event of
Default; or
(viii) Subject to the Issuing Bank's obligation set
forth in the parenthetical in clause (v) above, any other circumstance
or event whatsoever, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Borrower or a guarantor.
None of the foregoing shall impair, prevent or otherwise affect any of the
rights and powers granted to the Issuing Bank hereunder. Any action taken or
omitted to be taken by the Issuing Bank under or in connection with any Letter
of Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall be
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binding upon the Borrower and each L/C Participant and shall not create or
result in any liability of the Issuing Bank to the Borrower or any L/C
Participant.
(h) If at any time after the Closing Date the Issuing Bank or any L/C
Participant determines that the introduction of or any change in any applicable
law, rule, regulation, order, guideline or request or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by the Issuing Bank or
any L/C Participant with any request or directive by any such authority (whether
or not having the force of law) shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by the Issuing Bank or participated in by any L/C
Participant or (ii) impose on the Issuing Bank or any L/C Participant any other
conditions relating, directly or indirectly, to this Agreement or any Letter of
Credit, and the result of any of the foregoing is to increase the cost to the
Issuing Bank or L/C Participant of issuing, maintaining or participating in any
Letter of Credit, or to reduce the amount of any sum received or receivable by
the Issuing Bank or such L/C Participant hereunder or reduce the rate of return
on its capital with respect to Letters of Credit, then the Borrower will, within
fifteen (15) days after delivery to the Borrower by the Issuing Bank or such L/C
Participant of written demand therefor (with a copy thereof to the Agent), pay
to the Issuing Bank or such L/C Participant such additional amounts as shall
compensate the Issuing Bank or such L/C Participant for such increase in costs
or reduction in return. A certificate submitted to the Borrower by the Issuing
Bank or such L/C Participant, as the case may be (a copy of which certificate
shall be sent by the Issuing Bank or such L/C Participant to the Agent), setting
forth the basis for the determination of such additional amount or amounts
necessary to compensate the Issuing Bank or such L/C Participant as aforesaid,
shall be conclusive and binding on the Borrower absent manifest error.
(i) At any time and from time to time (i) during the continuance of an
Event of Default, the Agent, at the direction, or with the consent, of the
Required Lenders, may require the Borrower to deliver to the Agent such
additional amount of cash as is equal to the difference between the aggregate
Stated Amount of all Letters of Credit at any time outstanding (whether or not
any beneficiary under any Letter of Credit shall have drawn or be entitled at
such time to draw thereunder) and the amount then on deposit in the Cash
Collateral Account (as hereinafter defined) and (ii) in the event of a repayment
under Section 2.5(e), the Agent will retain such amount as may then be required
to be retained under the proviso in Section 2.5(e), such amount in each case
under clauses (i) and (ii) above to be held by the Agent in a non-interest
bearing cash collateral account (the "Cash Collateral Account") as security for,
and for application to, the Borrower's Reimbursement Obligations. In the event
of a drawing, and
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subsequent payment by the Issuing Bank, under any Letter of Credit at any time
during which any amounts are held in the Cash Collateral Account, the Agent will
deliver to the Issuing Bank an amount equal to the Reimbursement Obligation
created as a result of such payment (or, if the amounts so held are less than
such Reimbursement Obligation, all of such amounts) to reimburse the Issuing
Bank therefor. Any amounts remaining in the Cash Collateral Account after the
expiration of all Letters of Credit and reimbursement in full of the Issuing
Bank for all of its obligations thereunder shall be held by the Agent, for the
benefit of the Borrower, with such amounts to be applied against the Credit
Obligations in such order as (x) the Borrower may direct in the absence of a
Default or an Event of Default, and (y) otherwise, the Agent may direct.
(j) Notwithstanding any termination of the Commitments or repayment of
the Loans, or both, the obligations of the Borrower under this Section 2.17
shall remain in full force and effect until the Issuing Bank and the L/C
Participants shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit.
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING
3.1. Closing. The closing of the transactions contemplated
by this Credit Agreement (the "Closing") shall take place at the
offices of Whiteford, Taylor & Preston, L.L.P., Suite 1400, Seven
St. Paul Street, Baltimore, Maryland 21202, at 10:00 a.m. on
August 8, 1996, or at such other place or time as the parties
hereto shall mutually agree.
3.2. Conditions of Loans and Advances. The obligations of the
Lenders to enter into this financing and to make the initial Loans
under this Agreement on the Closing Date are subject to the
satisfaction of the following conditions:
3.2.1. Executed Loan Documents.
(a) Loan Documents. The Notes and all Loan Documents shall have been
duly authorized, executed and delivered to the appropriate Lenders by the
Borrower, in form and substance satisfactory to the Lenders, shall be in full
force and effect and no Default shall exist thereunder, each Lender shall have
received its original Notes and a copy of each other Note, and the Agent shall
have received a copy of each Note.
(b) Security and Pledge Agreement. The Security and Pledge
Agreement shall have been duly authorized, executed and delivered
to the Agent and each Lender by the Borrower and the Domestic
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Guarantors, together with all certificates for the Stock being pledged
thereunder and duly executed undated stock powers for each such certificate,
shall be in full force and effect and no Default shall exist thereunder, and the
Agent and, as to the Security and Pledge Agreement, each Lender shall have
received a fully executed original thereof.
(c) Guaranty Documents. Each Subsidiary of the Borrower existing as of
the Closing Date shall have duly authorized, executed and delivered to the Agent
and each Lender a Guaranty Agreement and the other Guaranty Documents in form
and substance satisfactory to the Lenders, each such document shall be in full
force and effect and no Default shall exist thereunder, and the Agent and each
Lender shall have received a fully executed original thereof.
(d) Financing Statements. Financing Statements and all other filings or
recordations necessary to perfect the security interest of the Agent, on behalf
of the Lenders, in the Collateral shall have been filed, and the Agent shall
have received confirmation in a form acceptable to the Lenders that such
security interest constitutes a valid and perfected first priority security
interest therein, subject only to Permitted Liens.
3.2.2. Closing Certificates; Etc.
(a) Certificate of the Borrower. The Agent and each Lender shall have
received a certificate dated as of the Closing Date from a Chief Executive
Officer or Chief Financial Officer of the Borrower, in form and substance
satisfactory to the Lenders, to the effect that, to their knowledge, (i) all
representations and warranties of the Borrower contained in this Agreement and
the other Loan Documents are true, correct and complete as of the Closing Date,
(ii) neither the Borrower nor any of its Subsidiaries is in violation of any of
the covenants contained in this Agreement and the other Loan Documents, (iii)
after giving effect to the transactions contemplated by this Agreement, no
Default or Event of Default has occurred and is continuing, and (iv) the
Borrower has satisfied each of the conditions set forth in this Section.
(b) Secretaries' Certificates. The Agent and each Lender
shall have received a certificate dated as of the Closing Date from the
Secretary or an Assistant Secretary of the Borrower and each Guarantor, in form
and substance satisfactory to the Lenders, certifying: (i) that attached thereto
is a true and complete copy of the bylaws of such corporation as in effect on
the date of such certification; (ii) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors and stockholders
(if necessary) of such corporation, authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents, as applicable; and
(iii) as to the incumbency and genuineness of the signature of each officer of
such corporation
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executing this Agreement or any of the other Loan Documents, as
applicable.
(c) Articles of Incorporation. The Agent and each Lender shall have
received copies of the articles or certificate of incorporation of the Borrower
and each Guarantor and all amendments thereto, each certified as of a recent
date by the Secretary of State (or other equivalent officer) of its state of
incorporation, together with a certification by the Secretary or an Assistant
Secretary of the Borrower and each Guarantor that such articles of incorporation
have not been amended since such date.
(d) Certificates of Existence or Good Standing. The Agent and each
Lender shall have received (i) long-form certificates as of a recent date of the
good standing or existence of the Borrower and each Guarantor under the laws of
its state of incorporation and each state where the Borrower and each Guarantor
is qualified to transact business, and (ii) where reasonably available,
certificates as of a recent date from the department of revenue or other
appropriate Governmental Authority of each such state indicating that the
Borrower or such Guarantor, as appropriate, has filed all required tax returns
and owes no delinquent taxes.
(e) Opinion of Counsel to the Borrower and the Guarantors. The Agent
and each Lender shall have received the favorable opinion of Whiteford, Taylor &
Preston L.L.P., counsel to the Borrower and the Guarantors, addressed to the
Agent, for the benefit of the Lenders, the Issuing Bank and each Lender, in form
and substance satisfactory to the Agent and each Lender.
(f) UCC Search. The Agent and each Lender shall have received the
results of a search of all filings made against the Borrower and each Guarantor
under the Uniform Commercial Code as in effect in any state in which any assets
of any Borrower or any Guarantor are located, indicating that the Collateral is
free and clear of any liens or encumbrances except for Permitted Liens.
(g) Insurance. The Agent shall have received certificates, and copies
of policies, of insurance, in form and substance satisfactory to the Agent, upon
the Collateral and the business of the Borrower and each Guarantor, with the
additional insured, mortgagee and loss payable clauses and endorsements required
by Section 5.5.
3.2.3. Consents; No Adverse Change.
(a) Consents and Approvals. All necessary approvals, authorizations and
consents, if any be required, of any Person and all Governmental Authorities
having jurisdiction with respect to the Collateral and the transactions
contemplated by this Agreement shall have been obtained.
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(b) No Injunction, Etc. No action, proceeding, investigation, claim,
regulation or legislation (including without limitation any such event regarding
LBA Health Care Management, Inc.) shall have been instituted, threatened or
proposed before any court or other Governmental Authority to enjoin, restrain or
prohibit, or to obtain substantial damages in respect of, or that is related to
or arises out of this Agreement or the consummation of the transactions
contemplated hereby or that, in the Required Lenders' discretion, would make
inadvisable the consummation of the transactions contemplated by this Agreement.
(c) No Material Adverse Change. Since the date of the most recent
audited Financial Statements, there shall not have occurred any Material Adverse
Change or any event, condition or state of facts that could reasonably be
expected to have a Material Adverse Effect, other than as specifically
contemplated by this Agreement and the other Loan Documents.
(d) Event of Default. No Default or Event of Default shall
have occurred and be continuing.
3.2.4. Financial Matters.
(a) Financial Statements. The Lenders shall have received the
Financial Statements from the Borrower, in form and substance satisfactory to
the Lenders.
(b) Projections. The Lenders shall have received the
Projections from the Borrower, together with a certificate of the chief
financial officer of the Borrower as to the assumptions used in preparing the
Projections, all in form and substance satisfactory to the Lenders.
(c) Financial Condition Certificate. The Agent and each
Lender shall have received a Financial Condition Certificate together with the
attachments required thereby, all in substantially the form of Exhibit E.
(d) Taxes. All taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of any of
the Loan Documents shall have been paid by the Borrower.
(e) Compliance Certificate. The Lenders shall have received a
Compliance Certificate, calculated as of the end of the previous fiscal quarter.
3.2.5. Miscellaneous.
(a) Disbursement Instructions; Account Designation Letter.
The Agent shall have received an Account Designation Letter, together with
written instructions from an Authorized Officer of the Borrower,
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including wire transfer information, directing the payment of the proceeds of
the initial Loans to be made hereunder. If any Debt is being refinanced or
otherwise paid off with the proceeds of the Loans, the funds required for such
payoff shall be earmarked by the Agent for the benefit of the refinanced lender
and shall be paid directly from the Agent to the refinanced lender pursuant to a
payoff letter under which the refinanced lender agrees to releases any and all
liens on the assets of the Borrower and its Subsidiaries upon payment in full.
(b) Proceedings and Documents. The Agent and the Lenders shall have
received copies of all other documents, certificates, opinions, instruments and
other evidence as each may reasonably request, in form and substance
satisfactory to the Agent and the Lenders, with respect to the transactions
contemplated by this Agreement and the taking of all actions in connection
therewith.
3.3. LBA Health Care Management, Inc. As a condition to a Borrowing to
fund the acquisition of LBA Health Care Management, Inc., the Agreement and Plan
of Reorganization shall have been duly authorized, executed and delivered by,
and shall be binding upon, the Borrower, HCIA Sub Inc. and HealthVISION, Inc.,
and the transactions contemplated by the Agreement and Plan of Reorganization
shall have closed, and the merger referred to therein shall have become
effective, in accordance with the Agreement and Plan of Reorganization, and the
Agreement and Plan of Reorganization shall be in full force and effect and no
default shall exist thereunder and the Agent shall have received a copy thereof.
The Borrower shall have delivered to the Agent a certified copy of the Articles
of Merger as filed with the State of Delaware and an opinion of counsel to the
Borrower indicating that such documents have been properly filed and that the
merger has become effective.
3.4. Conditions to All Loans and Advances. The obligation of the
Lenders to make any Loan hereunder (including any Loans made on the Closing
Date) and the obligation of the Issuing Bank to issue any Letters of Credit are
subject to the continued validity of all Loan Documents and the satisfaction of
the following conditions precedent on the relevant Borrowing Date:
(a) Each of the representations and warranties made by the Borrower
contained in Article IV shall be true and correct on and as of such Borrowing
Date with the same effect as if made on and as of the Borrowing Date, except to
the extent the facts upon which such representation and warranty are based may
be changed as a result of transactions or occurrences permitted or contemplated
hereby or such representation or warranty relates solely to a prior date;
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(b) No Default or Event of Default shall have occurred on the Borrowing
Date or after giving effect to the Loans to be made or Letters of Credit to be
issued on such Borrowing Date; and
(c) The security interests in the Collateral previously pledged to the
Agent, for the benefit of the Lenders, pursuant to the Loan Documents shall
remain in full force and effect and shall constitute first priority, perfected
liens and security interests, subject only to Permitted Liens.
3.5. Waiver of Conditions Precedent. If any Lender makes any Loan
hereunder, or if the Issuing Bank issues any Letter of Credit, prior to the
fulfillment of any of the conditions precedent set forth in this Article III,
the making of such Loan or the issuance of such Letter of Credit shall
constitute only an extension of time for the fulfillment of such condition and
not a waiver thereof, and unless the Required Lenders indicate otherwise in
writing, the Borrower shall thereafter use its best efforts to fulfill each such
condition promptly.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Credit Agreement, to
make the Loans and to continue to make the Loans, and to induce the Issuing Bank
to issue, and the Lenders to participate in, the Letters of Credit, the Borrower
makes the following warranties and representations to the Agent, the Issuing
Bank and each Lender:
4.1. Corporate Organization and Power. The Borrower and each
of its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (b) is
qualified to do business and is in good standing in every other jurisdiction
where the nature of its business or the ownership of its properties requires it
to be so qualified and where the failure to be so qualified would have a
Material Adverse Effect, which jurisdictions are set forth on Schedule 4.1; (c)
except as set forth on Schedule 4.2 and except for Subsidiaries acquired or
created after the Closing Date in compliance with Section 5.12, has no
Subsidiaries or Affiliates (other than its officers, directors and shareholders)
and is not a partner or joint venturer in any partnerships or joint ventures;
(d) has the corporate power to own and give a lien on and security interest in
its respective Collateral and to engage in the transactions contemplated hereby;
and (e) has the full corporate power, authority and legal right to execute and
deliver this Agreement and the other Loan Documents to which it is a party and
to perform and observe the terms and provisions thereof. Neither the Borrower
nor any of its Subsidiaries has, during the preceding
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five (5) years, been known as or used any other corporate, fictitious or trade
names in the United States other than as set forth on Schedule 4.1.
4.2. Subsidiaries. Schedule 4.2 contains a complete and accurate list
of the Subsidiaries of the Borrower as of the Closing Date, showing, as to each
Subsidiary, the number of shares and the owner of each class of capital stock
authorized and outstanding. Except as set forth on Schedule 4.2, all of such
issued and outstanding shares of capital stock of all of the Borrower's
Subsidiaries that are owned by the Borrower or its Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned
by the Borrower, free and clear of any liens, charges, encumbrances, security
interests, claims or restrictions of any nature whatsoever, except for liens in
favor of the Agent, for the benefit of the Lenders, granted under the Loan
Documents, and there are no other equity securities of any Subsidiary issued and
outstanding or reserved for any purpose.
4.3. Enforceability of Loan Documents; Compliance with Other
Instruments. Except as set forth on Schedule 4.3, each of the Loan Documents to
which the Borrower or any Guarantor is a party, as the case may be, has been
duly authorized by all necessary corporate action on the part of the Borrower or
such Guarantor, has been validly executed and delivered by the Borrower or such
Guarantor and is the legal, valid and binding obligation of the Borrower or such
Guarantor, enforceable against the Borrower or such Guarantor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general principles of equity. Except as set forth in
Schedule 4.3, neither the Borrower nor any of its Subsidiaries is in default in
any material respect with respect to any indenture, loan agreement, mortgage,
lease, deed or similar agreement to which it is a party or by which it, or any
of its property, is bound. Neither the execution, delivery or performance of the
Loan Documents by the Borrower and the Guarantors, nor compliance by the
Borrower and the Guarantors therewith: (a) conflicts or will conflict with or
results or will result in any breach of, or constitutes or will constitute with
the passage of time or the giving of notice or both, a default under, (i) any
Requirement of Law or (ii) any material agreement or instrument to which the
Borrower or any Guarantor is a party or by which it, or any of its property, is
bound or (b) results or will result in the creation or imposition of any lien,
charge or encumbrance upon the properties of the Borrower or any of its
Subsidiaries pursuant to any such agreement or instrument, except for Permitted
Liens.
4.4. Use of Proceeds. The Borrower's use of the proceeds of
any Loans made by the Lenders to the Borrower pursuant to this Agreement are and
will be legal and proper corporate uses, duly authorized by the Board of
Directors of the Borrower, and such uses
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are and will be consistent with all applicable laws and statutes, as in effect
from time to time.
4.5. Governmental Authorization.
(a) Except as set forth on Schedule 4.5, no authorization, consent or
approval of, or declaration or filing with, any Governmental Authority is
required for the valid execution and delivery by the Borrower and its
Subsidiaries of the Loan Documents to which they are a party or the consummation
by the Borrower and its Subsidiaries of the transactions contemplated hereby and
thereby, including repayment of the Credit Obligations or pledging the
Collateral, except for the filing and recording of the Financing Statements. The
Borrower and its Subsidiaries have, and are in good standing with respect to,
all material governmental approvals, permits, certificates, inspections,
consents and franchises necessary to continue to conduct business as heretofore
conducted and to own or lease and operate its respective properties as now owned
or leased by it. None of such material approvals, permits, certificates,
consents, or franchises contains any term, provision, condition or limitation
more burdensome than such as are generally applicable to Persons engaged in the
same or similar business as the Borrower or its Subsidiaries, except to the
extent that any such increased burden by such term, provision, condition or
limitation will not have a Material Adverse Effect.
(b) The Borrower and each of its Subsidiaries has, to the extent
applicable, obtained (or been duly assigned) and maintains in good standing all
material licenses as required by the relevant state and federal Governmental
Authorities, for the ownership and operation of its businesses as currently
operated.
4.6. Financial Statements.
(a) The Borrower has heretofore furnished to each Lender copies of the
Financial Statements. The Financial Statements have been prepared in accordance
with Generally Accepted Accounting Principles (subject, with respect to the
unaudited Financial Statements, to the absence of notes required by Generally
Accepted Accounting Principles and to normal year-end audit adjustments) and
present fairly the financial position of the Borrower and its Subsidiaries on a
consolidated basis as of the dates thereof and the consolidated results of
operations of the Borrower and its Subsidiaries for the periods then ended.
Except as fully reflected in the most recent Financial Statements and the notes
thereto, as of the Closing Date, and taking into account the Loans to be made on
the Closing Date and the other transactions contemplated by the Loan Documents,
there will be no material liabilities or obligations with respect to the
Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute,
contingent or otherwise and whether or not due). Since the date of the most
recent Financial Statements, there has been no Material Adverse Change,
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and, to the knowledge of the Borrower, no Material Adverse Change is threatened
or reasonably likely to occur, except as set forth on Schedule 4.6. Neither the
Borrower nor any of its Subsidiaries has directly or indirectly declared,
ordered, paid, made or set apart any amounts or property for any dividend, share
acquisition or other distribution, or agreed to do so, except as permitted by
Section 6.8.
(b) The Borrower has prepared, and has heretofore furnished to each
Lender copies of, annual projected balance sheets and statements of income and
cash flows of the Borrower and its Subsidiaries for the five-year period
commencing on the date set forth therein (the "Projections"). In the opinion of
the Borrower's management, the assumptions used in preparation of the
Projections were reasonable when made and are reasonable as of the Closing Date.
The Projections have been prepared in good faith by the executive and financial
personnel of the Borrower in light of the historical financial performance of
the Borrower and its Subsidiaries and the financial and operating condition of
the Borrower and its Subsidiaries at the time prepared, give effect to the
transactions contemplated by the Loan Documents and, in the opinion of the
Borrower's management, represent, as of the Closing Date, a reasonable estimate
of the future performance and financial condition of the Borrower and its
Subsidiaries, subject to the uncertainties and approximations inherent in any
projections and without representation or warranty that such projected
performance and financial condition will actually be achieved.
4.7. Solvency. The Borrower and each of its Domestic
Subsidiaries is, and the Borrower and its Subsidiaries, on a
consolidated basis are, (i) Solvent, and (ii) after giving effect
to the transactions contemplated hereby, will be Solvent.
4.8. Places of Business. Schedule 4.8 lists, as of the Closing Date,
(i) the chief executive office and places of business (including county or town
designation), as provided in the Uniform Commercial Code, of the Borrower and
each of its Subsidiaries, (ii) the locations at which the Borrower and each of
its Subsidiaries maintains, or presently intends to maintain, billing and
related records relating to Accounts Receivable, and (iii) all locations where
personal property valued at $25,000 or more in the aggregate of the Borrower and
each of its Subsidiaries is presently maintained.
4.9. Leased Properties. Schedule 4.9 lists, as of the Closing Date, (i)
all real property leased by the Borrower or any of its Subsidiaries, and (ii)
all personal property leased by the Borrower or any of its Subsidiaries
requiring lease payments in excess of $100,000 per year, including in each case
the name of the lessors and a description of the locations of such property. The
Borrower and each of its Subsidiaries enjoys peaceful and undisturbed possession
under all of its leases, and all such leases are valid
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and subsisting and in full force and effect. The Borrower has delivered complete
and accurate copies of all such leases to the Agent and the Lenders.
4.10. Realty. Schedule 4.10 lists all real property owned as of the
Closing Date by the Borrower or any of its Subsidiaries. To the knowledge of
the Borrower, no portion of any such Realty is located either in a flood fringe
area or an unbuildable floodway area.
4.11. Assets for Conduct of Business. The Borrower and each of its
Subsidiaries possesses adequate assets, licenses, patents, copyrights,
trademarks and trade names necessary to continue to conduct its business
substantially as heretofore conducted without any material conflict with the
rights of other Persons.
4.12. Insurance. Schedule 4.12 accurately summarizes all insurance
policies or programs of the Borrower and its Subsidiaries in effect as of the
Closing Date, and indicates the insurer's name, policy number, expiration date,
amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and also indicates any self-insurance program that is in effect.
4.13. Ownership of Properties. Except as set forth on Schedule 4.13,
(a) each of the Borrower and its Subsidiaries has good and marketable title to
all real property owned by it, holds interests as lessee under valid leases in
full force and effect with respect to all leased real and material personal
property used in connection with its business, and has good title to all of its
other properties and assets, including, without limitation, the assets reflected
in the most recent Financial Statements (except as sold or otherwise disposed of
since the date thereof in the ordinary course of business), in each case free
and clear of all liens, claims or encumbrances other than Permitted Liens; and
(b) other than the Financing Statements in favor of the Agent and protective
filings with respect to operating leases that may be filed after the Closing
Date, no financing statement that names the Borrower or any of its Subsidiaries
as debtor has been filed and is still in effect, and neither the Borrower nor
any of its Subsidiaries has signed any other financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement.
4.14. First Priority. The provisions of the Loan Documents (whether
executed and delivered prior to or on the Closing Date or thereafter), are and
will be effective to create in favor of the Agent, for the benefit of the
Lenders, upon the initial extension of credit hereunder and the proper filing of
all Financing Statements and other recordations contemplated thereunder in the
jurisdictions and locations contemplated thereby (or, in the case of the Pledge
Agreement, the possession by the Agent of certificates evidencing the securities
pledged thereby), a valid
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and enforceable first priority perfected security interest in and lien upon all
right, title and interest of the Borrower and its Subsidiaries in the Collateral
described therein, subject only to Permitted Liens.
4.15. Litigation; Government Regulation. Except as set forth in
Schedule 4.15, (a) there are no judgments, injunctions or similar orders or
decrees and no actions, suits, investigations or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
of its Subsidiaries or its business, or that question the validity of this
Agreement or any of the Loan Documents, at law or in equity before any court,
arbitrator or Governmental Authority, and (b) neither the Borrower nor any of
its Subsidiaries is in violation of or in default under any Requirement of Law
where such violation could have a Material Adverse Effect.
4.16. Taxes. Except as set forth in Schedule 4.16, neither the Borrower
nor any of its Subsidiaries is delinquent in the payment of any taxes that have
been levied or assessed by any Governmental Authority against it or its assets.
Except as set forth in Schedule 4.16, each of the Borrower and its Subsidiaries
(a) has timely filed all tax returns that are required by law to be filed prior
to the date hereof, and has paid all taxes shown on said returns and all other
assessments or fees levied upon it or upon its properties to the extent that
such taxes, assessments or fees have become due, and if not due, such taxes have
been adequately provided for and sufficient reserves therefor established on its
books of account, and (b) is current with respect to payment of all federal and
state withholding taxes, social security taxes and other payroll taxes.
4.17. ERISA; Employee Benefits.
(a) Schedule 4.17 lists, as of the Closing Date, all Employee Plans and
Pension Plans ("Plans") maintained or sponsored by the Borrower and its
Subsidiaries or to which the Borrower or any of its Subsidiaries is obligated to
contribute and separately identifies all Qualified Plans (as defined below) and
all Multiemployer Plans. The Borrower has delivered true and correct copies of
all such Plans to the Agent.
(b) Each such Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Internal Revenue Code and other federal or
state law, including all requirements under the Internal Revenue Code or ERISA
for filing reports (which are true and correct in all material respects as of
the date filed), and benefits have been paid in accordance with the provisions
of each such Plan.
(c) The form of each Plan intended to be qualified under
Section 401 of the Internal Revenue Code ("Qualified Plan") to the
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knowledge of the Borrower qualifies under Section 401 of the Internal Revenue
Code, and the trusts created thereunder are, to the knowledge of the Borrower,
exempt from tax under the provisions of Section 501 of the Internal Revenue
Code, and to the knowledge of the Borrower nothing has occurred that would cause
the loss of such qualification or tax-exempt status.
(d) There is no material outstanding liability under Title IV of ERISA
with respect to any Plan maintained or sponsored by the Borrower and its
Subsidiaries (as to which the Borrower or any of its Subsidiaries is or may be
liable), nor with respect to any Plan to which any of the Borrower or its
Subsidiaries (wherein the Borrower or any of its Subsidiaries is or may be
liable) contributes or is obligated to contribute.
(e) None of the Qualified Plans subject to Title IV of ERISA has any
material unfunded benefit liability as defined in Section 4001(a)(18) of ERISA
(as to which the Borrower or any of its Subsidiaries is or may be liable).
(f) No Plan maintained or sponsored by the Borrower or any of its
Subsidiaries provides medical or other welfare benefits or extends coverage
relating to such benefits beyond the date of a participant's termination of
employment with the Borrower or such Subsidiary, except to the extent required
by Section 4980B of the Internal Revenue Code and at the sole expense of the
participant or the beneficiary of the participant to the fullest extent
permissible under such Section of the Internal Revenue Code. The Borrower and
its Subsidiaries have complied in all material respects with the notice and
continuation coverage requirements of Section 4980B of the Internal Revenue
Code.
(g) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan maintained or sponsored by the Borrower or any of its
Subsidiaries or to which the Borrower or any of its Subsidiaries is obligated to
contribute.
(h) As of the Closing Date, there are no pending or, to the knowledge
of the Borrower, threatened claims, actions or lawsuits, other than routine
claims for benefits in the usual and ordinary course, asserted or instituted
against (i) any Plan maintained or sponsored by the Borrower and its
Subsidiaries or their assets, or (ii) any fiduciary with respect to any Plan for
which the Borrower or any of its Subsidiaries may be directly or indirectly
liable, through indemnification obligations or otherwise.
(i) Neither the Borrower nor any of its Subsidiaries has incurred or,
to the knowledge of the Borrower, reasonably expects to incur (i) any liability
(and no event has occurred that, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with
respect to a Multiemployer Plan or (ii) any liability under Title IV of ERISA
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(other than premiums due and not delinquent under Section 4007 of ERISA) with
respect to a Plan.
(j) Neither the Borrower nor any of its Subsidiaries has engaged,
directly or indirectly, in a nonexempt prohibited transaction (as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA) in connection
with any Plan that has a Material Adverse Effect.
4.18. Compliance with Laws. The Borrower and each of its Subsidiaries
has duly complied with, and the Collateral and their business operations and
leaseholds are in compliance with, all Requirements of Law, including, without
limitation, all federal and state securities laws, OSHA, and Titles XVIII and
XIX of the Social Security Act (42 U.S.C. ss.ss. 1395 et seq. and ss.ss. 1396 et
seq., respectively, as amended from time to time), except to the extent that
noncompliance will not have a Material Adverse Effect.
4.19. Environmental Matters.
(a) Except as set forth on Schedule 4.19 attached hereto, (i) no
Hazardous Substances are unlawfully stored or otherwise unlawfully located on
the Realty, and neither the Borrower nor any of its Subsidiaries has
contaminated, nor the Borrower's knowledge has any other person contaminated,
any part of the Realty, including the groundwater located thereon and
thereunder, with any Hazardous Substance during the ownership, occupancy or
operation thereof by the Borrower or any of its Subsidiaries, and, to the
knowledge of the Borrower, no part of the Realty, including the groundwater
located thereon and thereunder, has been previously contaminated by any such
Hazardous Substance; (ii) no improvements on the Realty contain any friable
asbestos or substances containing asbestos and deemed hazardous by any federal,
state or local laws, regulations or orders respecting such material; (iii) there
have been no releases of such Hazardous Substances in violation of any
Environmental Law by the Borrower or any of its Subsidiaries, or to the
Borrower's knowledge by any other Person, on any Realty previously owned by the
Borrower or any of its Subsidiaries; (iv) to the Borrower's knowledge, the
foregoing statements are true and correct with respect to all of the real
property adjoining any of the Realty; (v) none of the Realty is located on a
site which, pursuant to any Environmental Law, has been placed on the "National
Priorities List" or "CERCLIS List" (or any similar state list) of hazardous
waste sites; (vi) to the Borrower's knowledge, there are no underground storage
tanks situated on the Realty and no underground storage tanks have ever been
situated on the Realty; and (vii) to the knowledge of a responsible officer of
the Borrower, neither the Borrower nor any of its Subsidiaries has ever sent
Hazardous Substances to a site which, pursuant to any Environmental Law, (1) has
been placed on the "National Priorities List" or "CERCLIS List" of hazardous
waste sites (or any similar state list) or (2) which is subject to a claim, an
administrative
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order or other request to take "removal" or "remedial" action (as defined under
Environmental Laws) or to pay for the costs of cleaning up such a site; and
(b) All activities and operations of the Borrower and each of its
Subsidiaries comply in all material respects with the requirements of all
applicable Environmental Laws of all Governmental Authorities having
jurisdiction over the Borrower or any of its Subsidiaries or its properties, and
neither the Borrower nor any of its Subsidiaries is involved in any suit or
proceeding or has received any written notice from any governmental agency
alleging that the Borrower or any of its Subsidiaries is a responsible party
with respect to a release of Hazardous Substances or has received written notice
of any claims from any person or entity relating to property damages or personal
injuries from exposure to Hazardous Substances.
4.20. Margin Securities.
(a) Neither the Borrower nor any of its Subsidiaries owns any "margin
stock" within the meaning of Regulation U. None of the proceeds of the Loans
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin stock, maintaining, reducing or retiring any Debt that was originally
incurred to purchase or carry margin stock or for any other purpose that would
violate Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System, as the same
may be in effect from time to time, or for any purpose that would violate the
Exchange Act.
(b) None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds of the Loans) will violate or result
in a violation of Section 7 of the Exchange Act. Neither the Borrower nor any of
its Subsidiaries owns or intends to carry or purchase directly or indirectly any
"margin security" within the meaning of the Exchange Act.
4.21. Full Disclosure. None of the Loan Documents or any other written
statements furnished to the Agent or any Lender by or on behalf of the Borrower
or any of its Subsidiaries in connection with the Loan Documents, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein or herein, in light of the
circumstances under which they were made, not misleading.
4.22. Contracts; Labor Disputes. Neither the Borrower nor any of its
Subsidiaries is a party to any contract or agreement, or subject to any charge,
corporate restriction, judgment, injunction, decree, rule, regulation or order
of any court or other Governmental Authority, that has or could reasonably be
expected to have a Material Adverse Effect. Neither the Borrower nor any of
its Subsidiaries is a party to, and there is not pending or, to the
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Borrower's knowledge, threatened, any labor dispute, strikes, lockout,
grievance, work stoppage or walkouts relating to any labor contract to which the
Borrower or any of its Subsidiaries is a party.
4.23. Event of Default. No Default or Event of Default has
occurred and is continuing.
4.24. Single Business Enterprise. The Borrower and the Guarantors
operate, and intend to operate, as a single business enterprise. Although
separate entities, the Borrower and the Guarantors operate under a common
business plan. Each of the Borrower and the Guarantors will accordingly benefit
from the financing arrangement established by this Agreement. The Borrower
acknowledges that the Agent and the Lenders are relying on the agreement by each
Guarantor to execute and deliver the Guaranty Documents in committing to the
Facilities.
4.25. Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules attached hereto (other than
Schedules relating solely to representations and warranties made solely as of
the Closing Date) become outdated or incorrect in any material respect or in the
event additional disclosure is required in connection with any Acquisition, the
Borrower shall promptly provide the Agent in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or correct
the same; provided, however, that no Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update that would
disclose the occurrence of an event or condition which constitutes a Default or
Event of Default, nor shall any breach of warranty or representation resulting
from the inaccuracy or incompleteness of any such Schedule be deemed to have
been cured thereby, unless and until the Required Lenders, in their sole and
absolute discretion, shall have accepted in writing such revisions or updates to
such Schedule.
ARTICLE V
AFFIRMATIVE COVENANTS
Until payment in full of all Credit Obligations and the termination of
the Lenders' obligation to make Loans and the Issuing Bank's obligation, on
behalf of the Lenders, to issue Letters of Credit, the Borrower covenants and
agrees that:
5.1. Financial and Business Information about the Borrower.
The Borrower shall deliver to the Agent and the Lenders:
(a) Within forty-five (45) days after the close of each of the first
three fiscal quarters of each fiscal year of the Borrower, beginning with the
current fiscal quarter, an unaudited
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consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as of the close of such fiscal quarter and unaudited consolidated
and consolidating statements of income, retained earnings and cash flows for the
Borrower and its Subsidiaries for the fiscal quarter then ended and for that
portion of the fiscal year then ended, in each case setting forth comparative
figures for the corresponding fiscal quarter in the preceding fiscal year, and
comparable budgeted figures for the fiscal quarter then ended, all prepared in
accordance with Generally Accepted Accounting Principles (subject to the absence
of notes required by Generally Accepted Accounting Principles and subject to
normal and reasonable year-end audit adjustments) applied on a basis consistent
with that of the preceding quarter or containing disclosure of the effect on the
financial position or results of operation of any change in the application of
accounting principles and practices during the quarter, and certified by the
Chief Executive Officer or Chief Financial Officer of the Borrower to be true
and accurate in all material respects (subject to normal and reasonable year-end
audit adjustments);
(b) As soon as practicable and in any event within one hundred (100)
days after the close of the fiscal year of the Borrower, beginning with the
close of the current fiscal year, an audited consolidated balance sheet of the
Borrower and its Subsidiaries as of the close of such fiscal year and audited
consolidated statements of income, retained earnings and cash flows for the
Borrower and its Subsidiaries for the fiscal year then ended, setting forth
unaudited comparative figures for the preceding fiscal year and comparable
budgeted figures for the fiscal year then ended, including the notes to each,
audited (except as previously noted) by KPMG Peat Marwick, LLP or another
independent certified public accountant reasonably acceptable to the Required
Lenders, together with unaudited consolidating balance sheets and statements of
income for the Borrower and its Subsidiaries for the fiscal year then ended, all
prepared in accordance with Generally Accepted Accounting Principles applied on
a basis consistent with those of the preceding year or containing disclosure of
the effect on the financial position or results of operations of any change in
the application of accounting principles and practices during the year,
certified by the Chief Executive Officer or Chief Financial officer of the
Borrower to be true and accurate in all material respects, and, with respect to
audited statements, accompanied by a report thereon by such certified public
accountants, containing an opinion that is not qualified in any respect,
including as to going concern or scope of audit;
(c) Concurrently with the delivery of the financial statements
described in subsection (b) above, a letter from the independent certified
public accountants that, based on the independent certified public accountant's
examination of the financial statements of the Borrower and its Subsidiaries,
the accountants did not obtain knowledge of the occurrence or existence
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of any Default or Event of Default, or a statement specifying the nature and
period of existence of any such condition or event disclosed by their
examination; provided, however, that such accountants shall not be liable to
anyone by reason of their failure to obtain knowledge of any Event of Default or
Default that would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards;
(d) Concurrently with the delivery of the financial statements
described in subsections (a) and (b) above, a Compliance Certificate with
respect to the period covered by the financial statements then being delivered,
together with an Interest Rate Calculation Worksheet and a Covenant Compliance
Worksheet reflecting the computation of the financial covenants set forth in
Article VI as of the last day of the period covered by such financial
statements;
(e) As soon as practicable and in any event within thirty (30) days
after the close of each fiscal year of the Borrower, beginning with the current
fiscal year, an annual operating budget and capital budget prepared on a
quarterly basis for the Borrower and its Subsidiaries on a consolidated basis,
in form and detail reasonably acceptable to the Agent;
(f) Promptly upon their becoming available, copies of (i) all financial
statements, reports, notices and proxy statements that the Borrower or any of
its Subsidiaries shall send or make available generally to its stockholders,
(ii) all regular, periodic and special reports, registration statements and
prospectuses that the Borrower or any of its Subsidiaries shall render to or
file with the Securities and Exchange Commission, the National Association of
Securities Dealers or any national securities exchange, (iii) all material
reports and other statements (other than routine reports prepared in the
ordinary course of business that would not result in any adverse action) that
the Borrower or any of its Subsidiaries may render to or file with any other
Governmental Authority, including, without limitation, the Environmental
Protection Agency, OSHA and state environmental and health authorities and
agencies, and (iv) all press releases and other statements that the Borrower or
any of its Subsidiaries shall make available generally to the public concerning
developments in the business of the Borrower or any of its Subsidiaries, other
than press releases or statements issued in the ordinary course of business;
(g) Promptly after review by the Borrower's Board of Directors, but in
any event within thirty (30) days after the Borrower's receipt thereof, copies
of any management letters from certified public accountants;
(h) Concurrently with each delivery of the financial
statements described in subsections (a) and (b) an aging of the
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Accounts of the Borrower and its Subsidiaries as of the end of such
fiscal quarter;
(i) Promptly upon the reasonable request therefor, copies of any annual
report required to be filed under ERISA in connection with any Employee Plan and
such other additional information about any Employee Plan as may be reasonably
requested;
(j) Upon the Agent's or any Lender's request, such other information
about the Collateral or the financial condition and operations of the Borrower
and its Subsidiaries as the Agent or any Lender may from time to time reasonably
request.
5.2. Notice of Certain Events. The Borrower shall promptly,
but in no event later than five (5) Business Days after the Borrower obtains
knowledge thereof, give written notice to the Agent and the Lenders of:
(a) Any litigation or proceeding brought against the
Borrower or any of its Subsidiaries that could reasonably be
expected to have a Material Adverse Effect;
(b) Any written notice of a violation of a Requirement of Law received
by the Borrower or any of its Subsidiaries from any Governmental Authority that,
if such violation were established and not promptly corrected, could reasonably
be expected to have a Material Adverse Effect;
(c) Any attachment, judgment, lien, levy or order in excess of $250,000
that may be placed on, assessed against or threatened against the Borrower or
any of its Subsidiaries or any of the Collateral, except for Permitted Liens;
(d) Any Default or Event of Default; provided that the notice period
provided above shall not be deemed to be a cure period or extension for any
Default or Event of Default;
(e) Any default or event of default under any lease
relating to the Leased Properties under which the Borrower or any
Subsidiary is lessee;
(f) Any default or event of default under any agreement or instrument
to which the Borrower or any of its Subsidiaries is a party or by which the
Borrower or any of its Subsidiaries, or any of their property, is bound, the
termination of which could reasonably be expected to have a Material Adverse
Effect;
(g) The acquisition of assets by a Subsidiary that is not a Guarantor
(including the proceeds of a loan, Investment, or other distribution from the
Borrower or another Subsidiary) with a value (as determined in accordance with
Generally Accepted Accounting
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Principles) exceeding $25,000 less the value of such Subsidiary's assets prior
to such acquisition of assets;
(h) The occurrence of a Change of Control (such notice being sent to
the Agent and Lenders no later than five (5) Business Days after the Borrower
obtains knowledge of a transaction or transactions that could cause a Change of
Control in the future or, if the Borrower has no knowledge, no later than five
(5) Business Days after the Change of Control);
(i) Any other matter that has resulted, or is likely to
result, in a Material Adverse Change.
5.3. Corporate Existence and Maintenance of Properties. The
Borrower shall, and shall cause each of its Subsidiaries to:
(a) Maintain and preserve in full force and effect its corporate
existence, except as otherwise permitted by Section 6.1, and all material
rights, privileges and franchises; provided, however, that the Borrower may
permit the dissolution of any of its Subsidiaries (and any such Subsidiary may
suffer such dissolution) if, at the time of such dissolution, such Subsidiary
has no assets, engages in no business and otherwise has no activities other than
activities related to the maintenance of its corporate existence and good
standing;
(b) Conduct its business in an orderly and efficient manner, keep its
properties in good working order and condition (normal wear and tear excepted)
and from time to time make all needed repairs to, renewals of or replacements of
its properties (except to the extent that any of such properties are obsolete or
are being replaced) so that the efficiency of its business operations shall be
fully maintained and preserved; and
(c) File or cause to be filed in a timely manner all reports,
applications, estimates and licenses required by any Governmental Authority
that, if not timely filed, could reasonably be expected to have a Material
Adverse Effect.
5.4. Payment of Debt. The Borrower shall, and shall cause each of its
Subsidiaries to, pay all Debt when due within the terms thereof (unless being
contested in good faith by appropriate proceedings) and all other obligations in
accordance with customary trade practices.
5.5. Maintenance of Insurance.
(a) The Borrower will, and will cause each of its Subsidiaries to,
maintain and pay for insurance upon all of its assets and properties, including
the Collateral, wherever located, and all real property owned by it, covering
property and casualty, commercial general liability, product liability,
professional
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liability, business interruption, earthquake, flood, boiler, fidelity and such
other risks, and in such amounts and with such insurance companies, as shall be
reasonably satisfactory to the Agent (and in any event in such amounts as shall
be adequate to cover the Collateral), and will, at the Closing, deliver
certificates of such insurance to the Agent with satisfactory loss payable
endorsements naming the Agent as an additional loss payee, additional insured
and/or mortgagee thereunder, as its interests may appear, as appropriate. As
soon as practicable after the Closing Date, the Borrower shall deliver to the
Agent certified copies of the original policies of all insurance on the
Collateral.
(b) Each such policy of insurance shall contain a clause requiring the
insurer to give not less than thirty (30) days prior written notice to the Agent
before any cancellation of the policies for any reason whatsoever, and a clause
that the interest of the Agent shall not be impaired or invalidated by any act
or neglect of the Borrower or any of its Subsidiaries or the owner of the
property nor by the occupation of the premises wherein such property is located
for purposes more hazardous than are permitted by such policy. The Borrower
hereby directs, and will cause each of its Subsidiaries to direct, all insurers
under policies of property and casualty insurance on the Collateral to pay all
proceeds payable thereunder directly to the Agent when such proceeds, on an
aggregate basis, exceed $250,000. The Agent, on behalf of the Lenders, shall
hold all such proceeds for the account of the Borrower and its Subsidiaries. So
long as no Default or Event of Default has occurred and is continuing, the Agent
shall, at the Borrower's request, disburse such proceeds for the purpose of
replacing or repairing destroyed or damaged assets, as and when required to be
paid and upon presentation of evidence satisfactory to the Agent of such
required payments and such other documents as the Agent may reasonably request,
or shall apply such proceeds in whole or in part as a prepayment of the Loans,
in such order as the Borrower may determine. Upon and during the continuance of
a Default or Event of Default, the Agent shall apply such proceeds as a
prepayment of the Term Loans in accordance with Sections 2.5(a) (except that
such prepayment shall be applied to reduce the aggregate outstanding principal
amount of the Term Loans, ratably among the Lenders holding Term Loans in
proportion to the principal amount held by each, with such reduction to be
applied to the scheduled principal payments on the Term Loans due under
subsection (c) above, in the inverse order of maturity and shall be applied
first to Base Rate Loans and then to LIBOR Loans) and, to the extent of any
excess, as a prepayment of the Revolving Credit Loans in accordance with Section
2.5(a). If an Event of Default has occurred, the Borrower hereby irrevocably
makes, constitutes and appoints the Agent (and all officers, employees or agents
designated by the Agent) as its true and lawful agent (and attorney-in-fact) for
the purpose of making, settling and adjusting claims under such policies of
insurance, endorsing its name or the name of any Subsidiary on any check, draft,
instrument or other item or payment for the proceeds of such policies of
insurance and
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for making all determinations and decisions with respect to such
policies of insurance.
(c) If the Borrower or any of its Subsidiaries fails to obtain and
maintain any of the policies of insurance required to be maintained hereunder or
to pay any premium in whole or in part, then the Agent may, at the Borrower's
expense, without waiving or releasing any obligation or Default by the Borrower
hereunder, procure the same, but shall not be required to do so. All sums so
disbursed by the Agent, including reasonable attorneys' fees, court costs,
expenses and other charges related thereto, shall be payable on demand by the
Borrower to the Lenders and shall be additional Credit Obligations hereunder,
secured by the Collateral.
(d) Upon the reasonable request of the Agent from time to time, the
Borrower shall deliver to the Agent evidence that the insurance required to be
maintained pursuant to this Agreement is in effect.
5.6. Maintenance of Books and Records; Inspection.
(a) The Borrower shall, and shall cause each of its Subsidiaries to,
maintain adequate books, accounts and records, and prepare all financial
statements required under this Agreement in accordance with Generally Accepted
Accounting Principles and in material compliance with the regulations of any
Governmental Authority having jurisdiction over it.
(b) The Borrower shall, and shall cause each of its Subsidiaries to,
permit employees or agents of the Agent (or any Lender, at the Lenders'
expense), at any reasonable time during normal business hours upon reasonable
notice to inspect its properties and to examine or audit its books, records,
reports, accounts and other papers and make copies and memoranda of them, and to
discuss its affairs, finances and accounts with its officers and employees and,
upon notice to the Borrower, the independent public accountants of the Borrower
and its Subsidiaries (and by this provision the Borrower and each of its
Subsidiaries authorizes said accountants to discuss the finances and affairs of
the Borrower or such Subsidiary), all at such reasonable times and as often as
may be reasonably requested without undue interference in the business and
operations of the Borrower and its Subsidiaries.
5.7. Compliance with ERISA. The Borrower shall, and shall cause each of
its Subsidiaries to: (i) make timely payment of contributions required to meet
the minimum funding standards set forth in ERISA with respect to any Employee
Plan and (ii) not take any action or fail to take action, the result of which
action or inaction could be a material liability of the Borrower or any of its
Subsidiaries to the Pension Benefit Guaranty Corporation or to a Multiemployer
Plan. Borrower shall not, nor shall it permit any of its Subsidiaries to,
participate in any Prohibited Transaction
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that could subject the Borrower or any of its Subsidiaries to any material civil
penalty under ERISA or material tax under the Internal Revenue Code. The
Employee Plans of the Borrower and each of its Subsidiaries shall be operated in
such a manner that neither the Borrower nor any Subsidiary will incur any
material tax liability under Section 4980B of the Internal Revenue Code or any
material liability to any qualified beneficiary as defined in Section 4980B.
5.8. Payment of Taxes. The Borrower shall, and shall cause each of its
Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties would attach
thereto, and all lawful claims that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that the Borrower or any of its
Subsidiaries may in good faith by appropriate proceedings and with due diligence
contest any such tax, assessment, charge, levy or claim if the Borrower or
Subsidiary establishes any reserves in accordance with Generally Accepted
Accounting Principles.
5.9. Compliance with Laws. The Borrower shall, and shall cause each of
its Subsidiaries to, (i) have all material licenses, permits, certifications
approvals and authorizations required by Governmental Authorities necessary to
the ownership, occupation or use of its properties or the conduct of its
business, and maintain the same at all times in full force and effect, except to
the extent that a failure to have or maintain the same would not have a Material
Adverse Effect, and (ii) comply with all Requirements of Law in respect of the
conduct of its business, the ownership of its property and the Collateral, other
than those the failure to comply with which would not have a Material Adverse
Effect.
5.10. Name Change. The Borrower shall notify the Agent and the Lenders
at least fifteen (15) days prior to the effective date of any change of the name
of the Borrower or any of its Subsidiaries, and prior to such effective date the
Borrower or such Subsidiary shall execute any amended or new Financing
Statements and other Loan Documents necessary to maintain and continue the
perfected security interest of the Agent in all of the Collateral and shall take
such other actions and executed such documents as the Agent shall reasonably
request.
5.11. Disbursement of Proceeds by the Borrower.
(a) At the request of the Agent, the Borrower shall obtain an
intercompany promissory note with respect to advances of any portion of the
Loans to any Subsidiary of the Borrower and any other amounts owing from any
Subsidiary of the Borrower to the Borrower from time to time, and shall promptly
thereafter grant to the Agent a first priority perfected security interest in
such promissory note as security for the Credit Obligations.
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(b) Should any Subsidiary become a debtor under the Bankruptcy Code,
the Agent, on behalf of the Lenders, is authorized, but not required, to file
proofs of claim with respect to such intercompany Debt on behalf of the Borrower
and vote the rights of the Borrower in any plan of reorganization. The Agent, on
behalf of the Lenders, is further empowered to demand, sue for, collect and
receive every payment and distribution on such Debt owing to the Borrower in
such Subsidiary's bankruptcy proceeding.
5.12. Creation or Acquisition of New Subsidiaries. The Borrower and its
Subsidiaries may from time to time create or acquire new Subsidiaries, provided
that (i) each new Subsidiary having assets with a gross value (determined in
accordance with Generally Accepted Accounting Principles) in excess of $250,000
(or upon obtaining assets, including but not limited to the proceeds of
Investments, loans, or other distributions from the Borrower or another
Subsidiary, in excess of $250,000 in the case of an existing Subsidiary which
previously had assets with a gross value less than $250,000) will execute and
deliver to the Agent (with sufficient copies for each Lender) an amendment or
accession to the Guaranty Agreement, in form and substance satisfactory to the
Agent, pursuant to which such new Subsidiary shall become a party thereto, as
well as an amendment or accession to the Security and Pledge Agreement and
Financing Statements, each in form and substance satisfactory to the Agent,
pursuant to which such new Subsidiary shall secure its obligations under the
Guaranty Agreement by first priority, perfected security interests in all of its
assets, subject only to Permitted Liens, (ii) the Borrower will execute and
deliver to the Agent (with sufficient copies for each Lender) an amendment or
supplement to the Pledge Agreement, in form and substance satisfactory to the
Agent, pursuant to which all of the capital stock or other ownership interests
of such new Subsidiary that is directly or indirectly owned by the Borrower
shall be pledged to the Agent under the Security and Pledge Agreement, together
with the certificates representing such capital stock or other ownership
interests and stock powers duly executed in blank, and (iii) the Borrower will
cause each such new Subsidiary to execute and deliver, and will cause to be
delivered, all documentation of the type described in Sections 3.2.2(b) through
(g) as such new Subsidiary would have had to deliver were it a Subsidiary on the
Closing Date.
5.13. Certain Acquisitions.
(a) Subject to the remaining provisions of this Section 5.13 applicable
thereto and the requirements contained in the definition of Permitted
Acquisition, as the case may be, the Borrower may from time to time after the
Closing Date effect Permitted Acquisitions or, with the approval of the Required
Lenders, other Acquisitions, so long as with respect to each Acquisition, no
Default or Event of Default is in existence at the
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time of the consummation of such Acquisition or would exist after giving effect
thereto.
(b) At the time of each Acquisition involving the creation or
acquisition of a Subsidiary or the acquisition of capital stock or other equity
interest of any Person, at least 100% of the capital stock or other interest
thereof created or acquired in connection with such Permitted Acquisitions
(except in the case of the acquisition of a Subsidiary which is not a Domestic
Subsidiary, the percentage shall be no less than 90%) shall be directly or
indirectly owned by the Borrower, and the Borrower shall have complied with
Section 5.12.
(c) Not less than five (5) days prior to the consummation of any
Acquisition for an Acquisition Amount greater than $1,000,000, the Borrower
shall deliver to the Agent and each Lender the following items, each in form and
substance reasonably satisfactory to the Agent:
(i) a reasonably detailed description of the material
terms of such Acquisition (including, without limitation, the
Acquisition Amount and method and structure of payment) and of each
Person or business that is the subject of such Acquisition (each, a
"Target"), together with a draft of the acquisition agreement;
(ii) to the extent available, historical financial
statements of each Target for the two (2) most recent fiscal years
available and for any interim periods since the most recent fiscal
year-end for which such interim statements are available; and
(iii) projected income statements with respect to each
Target for the three-year period following the consummation of such
Acquisition, together with any appropriate statement of assumptions and
pro forma adjustments.
(d) Within ten (10) days after the closing of each Acquisition, the
Borrower will deliver to the Agent and each Lender a copy of the fully executed
acquisition agreement (including schedules and exhibits thereto).
(e) Within thirty (30) days after the closing of a Acquisition for an
Acquisition Amount greater than $250,000, but less than or equal to $1,000,000,
the Borrower shall deliver to the Lenders the information listed in subsections
c(i) above.
(f) No Acquisition may be effected unless:
(x) calculations are made by the Borrower of
compliance with the covenants contained in Sections 6.9
through 6.12, inclusive, for the most recent calculation
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period ended immediately prior to the date of such Acquisition, on a
pro forma basis as if the Acquisition has occurred on the first day of
such period, and shall show that all such covenants will be complied
with, giving effect to the pro forma consolidation of the business
acquired, and such calculations shall be reasonably satisfactory to the
Agent;
(y) the Borrower in good faith believes that the financial
covenants contained in such Sections 6.9 through 6.12, inclusive, will
continue to be met for the one year period following the date of the
consummation of the Acquisition; and
(z) prior to the consummation of the Acquisition, the
Borrower shall furnish the Agent and the Lenders with an officer's
certificate executed by the chief financial officer of the Borrower,
certifying to the best of his knowledge as to compliance with the
requirements of preceding clauses (x) and (y) and Section 5.13(a), and
containing the pro forma calculations required by the preceding clause
(x).
(g) The consummation of each Acquisition subject to this Section shall
be deemed to be a representation and warranty by the Borrower that all
conditions thereto have been satisfied, that the same is permitted in accordance
with the terms of this Agreement and that the information submitted by the
Borrower pursuant to subsections (c) and (f) above, as appropriate, is true and
correct as of the date such certificate is given, which representation and
warranty shall be deemed to be a representation and warranty for all purposes
hereunder, including, without limitation, for purposes of Sections 3.3 and 7.1.
(h) Any Acquisition other than a Permitted Acquisition will
require approval of the Required Lenders.
5.14. Further Assurances. The Borrower shall, and shall cause each of
its Subsidiaries to, make, execute, endorse, acknowledge and deliver to the
Agent and the Lenders any amendments, restatements, modifications or supplements
hereto and any other agreements, instruments or documents, and take any and all
such other actions, as may from time to time be reasonably requested by the
Agent or the Lenders to effect, confirm or further assure or protect and
preserve the interests, rights and remedies of the Lenders and the Agent under
this Agreement and the other Loan Documents.
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ARTICLE VI
NEGATIVE COVENANTS
Until payment in full of the Credit Obligations and termination of the
Lenders' obligation to make Loans and the Issuing Bank's obligation, on behalf
of the Lenders, to issue Letters of Credit, the Borrower covenants and agrees
that it will not, and will not permit any of its Subsidiaries to, individually
or in the aggregate:
6.1. Merger, Consolidation. Except as permitted by Section
5.3, liquidate, wind up or dissolve, or enter into any consolidation, merger or
other combination, or agree to do any of the foregoing; provided, however, that:
(i) the Borrower may merge or consolidate with
another Person so long as (x) the Borrower is the surviving
corporation, (y) if such merger or consolidation is in connection with
a Permitted Acquisition, the applicable conditions of Section 5.13
shall be satisfied, and (z) immediately after giving effect thereto, no
Default or Event of Default would exist;
(ii) any Subsidiary may merge or consolidate with
another Person so long as (w) the Person surviving such merger or
consolidation is the Borrower or a Guarantor, (y) if such merger or
consolidation is in connection with a Permitted Acquisition, the
applicable conditions of Sections 5.12 and 5.13 shall be satisfied, and
(z) immediately after giving effect thereto, no Default or Event of
Default would exist.
6.2. Debt. Create, incur, assume or suffer to exist any Debt
other than:
(i) Debt incurred pursuant to this Agreement and
the other Loan Documents;
(ii) Debt existing, or relating to commitments
existing, on the date hereof, all as set forth in Schedule 6.2 attached
hereto, and any extensions, refundings or renewals thereof on the same
terms or other terms satisfactory to the Required Lenders; provided,
however, that neither the principal amount thereof nor the interest
rate thereon shall be increased, nor shall the amortization schedule
thereof be shortened;
(iii) accrued expenses, current trade payables and
other current liabilities arising in the ordinary course of business
and not incurred through the borrowing of money;
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(iv) unsecured intercompany Debt (x) of any Subsidiary
to the Borrower, (y) of any Subsidiary to a Subsidiary, and (z) of the
Borrower to any Subsidiary, provided that any such Debt under this
clause (v) is incurred in the ordinary course of business and, if
requested by the Agent, is evidenced by one or more promissory notes
pledged to the Agent pursuant to the Pledge Agreement, is payable on
demand and, as to Debt described in clause (z), is fully subordinated
in right of payment to the Credit Obligations;
(v) Contingent Obligations permitted by Section
6.3;
(vi) Debt of the Borrower under any Swap Agreement
relating to the Debt incurred under this Agreement; provided that the
notional amount of all such agreements at any time shall not exceed the
aggregate amount of the Commitments at such time;
(vii) unsecured Debt assumed or incurred in connection
with a Permitted Acquisition to the extent such Debt (other than de
minimis operating or capital leases) is approved by and, if required by
the Required Lenders, subordinated on terms acceptable to the Required
Lenders; and
(viii) other Debt (including, without limitation, Debt
secured by liens described in clause (e) of the definition of Permitted
Liens) in an aggregate principal amount at any time outstanding not to
exceed $3,000,000 for the Borrower and its Subsidiaries.
6.3. Contingent Obligations. Create, incur, assume or suffer
to exist any Contingent Obligation other than:
(i) endorsements of instruments or items of
payment for deposit or collection in the ordinary course of business;
(ii) Contingent Obligations incurred pursuant to
the Loan Documents;
(iii) Contingent Obligations consisting of the
indemnification by the Borrower or any of its Subsidiaries of (x) the
officers, directors, employees and agents of the Borrower or such
Subsidiary, to the extent permissible under the corporation law of the
jurisdiction in which the Borrower or such Subsidiary is organized, (y)
commercial banks, investment bankers and other independent consultants
or professional advisors pursuant to agreements relating to the
underwriting of the Borrower's or such Subsidiary's securities or the
rendering of banking or professional services to the Borrower or such
Subsidiary and (z) landlords, licensors, licensees and other parties
pursuant to agreements entered
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into in the ordinary course of business by the Borrower or
such Subsidiary;
(iv) customary indemnification obligations of the
Borrower and its Subsidiaries incurred in connection with Permitted
Acquisitions made in compliance with Section 5.13;
(v) unsecured amounts payable under earnouts and
other contingent obligations, approved by and subordinated on terms
acceptable to the Required Lenders, incurred by any Borrower or any
Subsidiary in connection with a Permitted Acquisition, whether or not
earned or matured;
(vi) Contingent Obligations consisting of warranties,
indemnities and guaranties regarding copyright and trademark
infringement and other matters approved by the Agent given to customers
in the ordinary course of business and consistent with past practices;
(vii) Indebtedness with respect to financed insurance
premiums not past due;
(viii) obligations under Letters of Credit issued under
Section 2.17;
(ix) guarantees by any Borrower or any of its
Subsidiaries of obligations of the Borrower or its Subsidiaries under
leases permitted hereunder; and
(x) guarantees by any Borrower or any of its
Subsidiaries of any other Debt permitted under Section 6.2.
6.4. Liens and Encumbrances. Create, assume or suffer to exist any deed
of trust, mortgage or encumbrance, lien (including a lien of attachment,
judgment or execution) or security interest (including the interest of a
conditional seller of goods), securing a charge or obligation, in or on any of
its property, real or personal, whether now owned or hereafter acquired, except
for Permitted Liens.
6.5. Disposition of Assets. Sell, lease, transfer, convey or otherwise
dispose of any of its assets or property, including, without limitation, the
Collateral, except for (i) sales of inventory in the ordinary course of
business; (ii) the sale of worn out or obsolete equipment for fair market value
or the exchange of used or obsolete equipment for replacement equipment; (iii)
the sale of permitted temporary or overnight investments; (iv) dispositions not
otherwise permitted by this Section 6.5, not exceeding $1,000,000 in the
aggregate, for the Borrower and its Subsidiaries, for any fiscal year; and (v)
any sale, lease, transfer or conveyance from one Subsidiary to another Domestic
Subsidiary or to the Borrower, or from the Borrower to any Domestic
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Subsidiary, in accordance with Section 6.6, provided that, immediately after
giving effect thereto, no Default or Event of Default would exist.
6.6. Transactions with Related Persons. Except as set forth on Schedule
6.6 or as permitted by Sections 5.13, 6.2 and 6.7 or otherwise contemplated by
this Agreement, directly or indirectly make any loan or advance to, or purchase,
assume or guarantee any Debt to or from, any of its officers, directors,
stockholders or Affiliates, or subcontract any operations to any Affiliate, or
enter into any other transaction with any Affiliate, except (a) in the ordinary
course of and pursuant to the reasonable requirements of such Borrower's or such
Subsidiary's business and (b) upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
6.7. Restricted Investments. Except as otherwise permitted in Sections
6.2 and 6.8, directly or indirectly, purchase, own, invest in or otherwise
acquire any capital stock, evidence of indebtedness or other obligation or
security or any interest whatsoever in any other Person, or make or permit to
exist any loans, advances or extensions of credit to, or any investment in cash
or by delivery of property in, any other Person, or become a partner or joint
venturer in any partnership or joint venture, or consummate an Acquisition, or
make a commitment or otherwise agree to do any of the foregoing, other than:
(a) Cash Investments;
(b) loans and advances to employees not to exceed in the
aggregate $500,000;
(c) Accounts owing to the Borrower or any of its
Subsidiaries created in the ordinary course of business
and payable in accordance with customary terms
prevailing in the industry;
(d) prepaid expenses incurred in the ordinary course of
business;
(e) existing investments in corporations that are
Subsidiaries as of the date hereof;
(f) investments in Subsidiaries and Permitted Acquisitions
made in accordance with terms of this Agreement,
including Sections 5.12 and 5.13;
(g) investments in and loans to Persons which do not
constitute Subsidiaries; provided, however, that the
aggregate amount of all investments in and loans to any
single Person shall not exceed $7,500,000 at any time,
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and the aggregate amount of all investments in and
loans to all Persons which do not constitute
Subsidiaries shall not exceed $20,000,000 at any time;
(h) investments by any Borrower under any Swap Agreement
relating to the Debt incurred under this Agreement;
provided that the notional amount of all such Swap
Agreements at any time shall not exceed the aggregate
amount of the Commitments at such time;
(i) loans or advances from a Subsidiary to the Borrower or
to another Subsidiary or from the Borrower to a
Subsidiary so long as the requirements of Section
6.2(v) are satisfied; and
(j) any other investments which are not described in clauses
(a) through (i) above, not to exceed during the term of
the Loans, $2,000,000 in the aggregate.
6.8. Restricted Payments.
(a) Declare or pay any dividends upon any of its Stock (other than
dividends paid in Stock of the Borrower and dividends paid or payable by a
Subsidiary to the Borrower or another Subsidiary); or
(b) purchase, redeem, retire or otherwise acquire, directly or
indirectly, any shares of its Stock, any shares of Stock of any Affiliate or any
option, warrant or other right to acquire shares of its Stock or Stock of any
Affiliate (other than purchases, redemptions, retirements and other acquisitions
by a Subsidiary of shares, options, warrants or other rights issued thereby held
by the Borrower or another Subsidiary); or
(c) make any distribution of cash, property or assets other than Stock
among the holders of shares of its Stock (other than distributions made by
Subsidiaries to the Borrower or another Subsidiary); or
(d) enter into or amend any agreement relating to any of
the foregoing (excluding agreements relating only to Subsidiaries
with the Borrower or another Subsidiary).
6.9. Consolidated Debt to Adjusted EBITDA. Permit the ratio of
Consolidated Debt to Adjusted EBITDA as of the end of any fiscal quarter
beginning with the fiscal quarter ending September 30, 1996 to and including the
fiscal quarter ending June 30, 1998, to be greater than or equal to 3.5 to 1.0 ;
or as of the end of any fiscal quarter thereafter, to be greater than or equal
to 3.0 to 1.0.
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6.10. Consolidated Debt to Consolidated Total Capital. Permit the ratio
of Consolidated Debt (other than Contingent Obligations) to Consolidated Total
Capital to be greater than or equal to .55 to 1.0 as of the end of any fiscal
quarter, beginning with the fiscal quarter ending September 30, 1996.
6.11. Fixed Charge Coverage. Permit the ratio of Annualized
EBITDAR to Fixed Charges at the end of any fiscal quarter,
beginning with the fiscal quarter ending September 30, 1996, to be
less than or equal to 1.5 to 1.0.
6.12. Sale and Leaseback. Enter into any arrangement with any Person
(other than the Borrower or any of its Subsidiaries, provided the provisions of
Section 6.6 are satisfied) providing for the leasing by the Borrower or any of
its Subsidiaries of any asset that has been sold or transferred by the Borrower
or such Subsidiary to such Person.
6.13. New Business. Engage in any business other than
businesses primarily within the Line of Business or make any
material change in any of its business objectives, purposes and
operations that would be reasonably likely to materially adversely
affect the repayment of the Credit Obligations.
6.14. Subsidiaries or Partnerships. Except as otherwise
permitted by the terms of this Agreement (including but not limited to Sections
5.12, 5.13 and 6.7 hereof), (a) become a partner or joint venturer in any
partnership or joint venture, or (b) create or acquire any new Subsidiary.
6.15. Transactions Affecting the Collateral. Enter into any
transaction that materially adversely affects the Collateral or the ability of
the Borrower to repay any Debt or the Credit Obligations.
6.16. Hazardous Wastes. Permit any Hazardous Substances, the
removal of which is required or the maintenance of which is restricted,
prohibited or penalized by any Governmental Authority, to be unlawfully brought
onto or located on any Realty owned or, to the extent the Borrower or any of its
Subsidiaries is in possession or control of same, leased by the Borrower or any
of its Subsidiaries, except in material compliance with all applicable
Environmental Laws; and if any Hazardous Substance is brought or found located
thereon in material violation of any applicable Environmental Law, it shall be
immediately removed, with proper disposal, and all required environmental
cleanup procedures shall be diligently undertaken pursuant to all such
Environmental Laws, and the obligations hereunder with respect to any such
materials brought or located thereon while the Borrower or any of its
Subsidiaries owned or leased any such real property shall survive any
foreclosure of the Leasehold Deeds of Trust, and other deeds of trust or
mortgages. THE BORROWER HEREBY ACKNOWLEDGES THAT FOR SO
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LONG AS THE LENDERS HAVE NOT FORECLOSED AND TAKEN TITLE TO, AND POSSESSION AND
CONTROL OF, THE REALTY, ALL HAZARDOUS WASTE HANDLING PRACTICES AND ENVIRONMENTAL
PRACTICES AND PROCEDURES ARE THE SOLE RESPONSIBILITY OF THE BORROWER AND ITS
SUBSIDIARIES AND THE BORROWER HAS FULL DECISION-MAKING POWER WITH RESPECT
THERETO. THE BORROWER FURTHER ACKNOWLEDGES THAT NEITHER THE AGENT NOR ANY LENDER
IS AN ENVIRONMENTAL CONSULTANT, ENGINEER, INVESTIGATOR OR INSPECTOR OF ANY TYPE
WHATSOEVER. NO ACT (OR DECISION NOT TO ACT) OF THE AGENT OR ANY LENDER RELATED
TO THIS AGREEMENT OR ANY LOAN DOCUMENT SHALL GIVE RISE TO ANY OBLIGATION OR
LIABILITY ON THE PART OF THE AGENT OR ANY LENDER WITH RESPECT TO ENVIRONMENTAL
MATTERS UNLESS SUCH ACTION IS AFTER THE LENDERS HAVE FORECLOSED ON AND TAKEN
POSSESSION AND CONTROL OF THE SUBJECT PROPERTY AND SUCH ACTION PROXIMATELY
RESULTS IN SUCH CONTAMINATION. IN NO EVENT SHALL ANY INFORMATION OBTAINED FROM
THE AGENT OR ANY LENDER OR THEIR AGENTS PURSUANT TO THIS AGREEMENT OR ANY LOAN
DOCUMENT CONCERNING THE ENVIRONMENTAL CONDITION OF THE REALTY BE CONSIDERED BY
THE BORROWER OR ANY OF ITS SUBSIDIARIES (OR ANY OTHER RECIPIENT OF SAID
INFORMATION) AS CONSTITUTING LEGAL OR ENVIRONMENTAL CONSULTING, ENGINEERING,
INVESTIGATING OR INSPECTING ADVICE, AND NEITHER THE BORROWER NOR ANY OF ITS
SUBSIDIARIES (NOR ANY OTHER RECIPIENT OF SAID INFORMATION) SHALL RELY ON SAID
INFORMATION. THE RESPONSIBILITY FOR COMPLIANCE WITH VARIOUS FEDERAL, STATE AND
LOCAL ENVIRONMENTAL, HEALTH OR SAFETY LAWS AND REGULATIONS RESTS SOLELY WITH THE
BORROWER AND ITS SUBSIDIARIES FOR SO LONG AS THE LENDERS HAVE NOT FORECLOSED AND
TAKEN TITLE TO, AND POSSESSION AND CONTROL OF, THE REALTY.
6.17. Fiscal Year. Change its fiscal year from a calendar year ending
December 31.
6.18. Amendments; Prepayments of Debt, Etc. (a) Amend in any respect
its certificate or articles of incorporation without thirty (30) days' prior
written notice; or (b) except with respect to the Debt created under the Loan
Documents and except for customary trade discounts, make any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with any trustee with
respect thereto money or securities before due for the purpose of paying when
due), or exchange, any Debt.
6.19. Location of Assets; Places of Business. Without thirty (30) days'
prior written notice to the Agent and the filing of Financing Statements
reasonably satisfactory to the Agent, (i) maintain any Inventory or Equipment at
any location other than the locations set forth on Schedule 4.8 or (ii) change
its principal place of business to a location other than that set forth on
Schedule 4.8.
6.20. Account Documents. Without thirty (30) days' prior written
notice to the Agent and the filing of Financing Statements reasonably
satisfactory to the Agent, remove the billing and
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related records relating to Accounts from the locations set forth on Schedule
4.8.
6.21. No Inconsistent Transactions or Agreements. Enter into
any transaction or agreement, or enter into any amendment or other modification
to any currently existing agreement, that by its terms prohibits or materially
restricts the ability of the Borrower to pay the principal of or interest on the
Loans.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) The Borrower fails to pay when due any principal, fees or interest
on the Credit Obligations;
(b) The Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained in Sections 2.13, 5.1, 5.2, 5.3(a) or 5.5, 5.12, 5.13 or Article VI;
(c) The Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained herein except those specified in subsections (a) and (b) above, and
the same is not cured to the Required Lenders' satisfaction within thirty (30)
days after the earlier of (i) written notice to the Borrower of the existence of
such Default, or (ii) the date on which the Borrower or such Subsidiary acquires
knowledge thereof;
(d) If any representation or warranty made in writing by or on behalf
of the Borrower or any of its Subsidiaries in this Agreement, in the other Loan
Documents or in any other agreement now existing or hereafter executed between
the Borrower or any of its Subsidiaries and the Agent or any Lender, or in
connection with the transactions contemplated hereby or thereby, shall prove to
have been false or misleading in any material respect when made;
(e) The occurrence of any default or event of default on the part of
the Borrower or any of its Subsidiaries (including specifically, but without
limitation, defaults due to nonpayment) under the terms of any agreement,
document or instrument (including without limitation any Swap Agreement or any
other similar agreement with any other Person) pursuant to which the Borrower or
such Subsidiary has incurred any Debt (other than the Credit Obligations) in
excess of $250,000, which default or event of default would permit acceleration
of such Debt and which is not cured within any applicable grace or cure period;
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(f) The termination of any agreement, contract or instrument of
$250,000 or more to which the Borrower or any of its Subsidiaries is a party or
by which it or any of its properties are bound, and such termination results in
a Material Adverse Effect;
(g) The occurrence of an event of default under any of the Loan
Documents or in any other agreement now existing or hereafter executed
evidencing or securing any of the Credit Obligations, taking into account any
applicable grace or cure provisions thereof;
(h) The occurrence of any material uninsured damage to or loss, theft
or destruction of the Collateral or other assets of the Borrower or any of its
Subsidiaries that has a Material Adverse Effect;
(i) The filing by the Borrower or any of its Subsidiaries (with assets
having a value of $250,000 or more) of any voluntary petition seeking
liquidation, reorganization, arrangement, readjustment of debts or for any other
relief under the Bankruptcy Code or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing;
(j) The filing against the Borrower or any of its Subsidiaries (with
assets having a value of $250,000 or more) of any involuntary petition seeking
liquidation, reorganization, arrangement, readjustment of debts or for any other
relief under the Bankruptcy Code or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing, which petition is not dismissed within sixty (60) days after the date
of filing;
(k) A custodian, trustee, receiver or assignee for the benefit of
creditors is appointed or takes possession of the Collateral or any other assets
of the Borrower or any of its Subsidiaries (with assets having a value of
$250,000 or more);
(l) The Borrower or any of its Domestic Subsidiaries (with assets
having a value of $250,000 or more) ceases, or the Borrower and its
Subsidiaries, on a consolidated basis, cease, to be Solvent (taking into account
any rights of contribution), or ceases or cease to conduct its or their business
substantially as now conducted or is enjoined, restrained or in any way
prevented by court order from conducting all or any material part of its or
their business affairs;
(m) A notice of lien, levy or assessment which, together with all other
liens, levies and assessments of record, is in excess of $250,000 is filed of
record against any portion of the assets of the Borrower or any of its
Subsidiaries by the United States, or any department, agency or instrumentality
thereof, or by any other Governmental Authority or any other Person, including,
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without limitation, the Pension Benefit Guaranty Corporation, or if any taxes or
debts owing at any time or times hereafter to any one of them becomes a lien or
encumbrance (other than a Permitted Lien) upon the Collateral or any other asset
of the Borrower or any of its Subsidiaries, and the same is not dismissed,
released, bonded or discharged within five (5) days after the same becomes a
lien or encumbrance or, in the case of ad valorem taxes, prior to the last day
when payment may be made without penalty and, if bonded, such bond (or a
replacement bond) shall not continue in effect at all times until such judgment
is dismissed or discharged;
(n) The entry of a judgment or the issuance of a warrant of attachment,
execution or similar process against the Borrower or any of its Subsidiaries or
any of their assets in excess of $250,000 which shall not be dismissed,
discharged, stayed pending appeal or bonded within five (5) days after entry
and, if bonded, such bond (or a replacement bond) shall not continue in effect
at all times until such judgment is dismissed or discharged;
(o) The occurrence of any of the following events: (i) the happening
of a Reportable Event that could give rise to liability (that is not waived by
the Pension Benefit Guaranty Corporation or by the Required Lenders, or if such
liability can be avoided by any corrective action of the Borrower, such
corrective action is not completed within ninety (90) days after the occurrence
of such Reportable Event) with respect to any Pension Plan; (ii) the termination
of any Pension Plan in a "distress termination" under the provisions of Section
4041 of ERISA; (iii) the appointment of a trustee by an appropriate United
States District Court to administer any Pension Plan; (iv) the institution of
any proceedings by the Pension Benefit Guaranty Corporation to terminate any
Pension Plan or to appoint a trustee to administer any such plan; and (v) the
failure of the Borrower to notify the Lenders promptly upon receipt by the
Borrower of any notice of the institution of any proceeding or any other actions
that may result in the termination of any such plan;
(p) (i) The guaranty given by any Guarantor of the Borrower under the
Guaranty Agreement shall, for any reason other than the satisfaction in full of
all Credit Obligations and termination of this Agreement or the release of such
Subsidiary from its Credit Obligations under the Guaranty Agreement in
accordance with the terms thereof, cease to be in full force and effect at any
time or is declared to be null and void or (ii) any such Subsidiary denies that
it has any further liability under the Guaranty Agreement or gives notice to
such effect, and such denial or notice is not revoked within one Business Day
after the earlier of (A) receipt by the Borrower of notice from the Agent or any
Lender of such denial or notice or (B) the Borrower becomes aware of such denial
or notice being made or given, as the case may be; or
(q) The occurrence of a Change of Control.
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ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT
8.1. Remedies; Termination of Commitments, Acceleration, Etc.
Upon and at any time after the occurrence and during the continuance of any
Event of Default, the Agent shall at the direction, or may with the consent, of
the Required Lenders, take any or all of the following actions at the same or
different times:
(a) Declare the Commitments of each Lender, and the Issuing Bank's
obligation to issue Letters of Credit, to be terminated, whereupon the same
shall terminate (provided that, upon the occurrence of an Event of Default
pursuant to Sections 7.1(i), (j) or (k), all of the Commitments, together with
the Issuing Bank's obligation to issue Letters of Credit, shall automatically be
terminated);
(b) Declare all or any part of the outstanding principal amount of the
Loans, all unpaid interest accrued thereon, and all other amounts payable under
this Agreement, the Notes and the other Loan Documents to be immediately due and
payable, whereupon such outstanding principal amounts, accrued interest and
other such amounts shall become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by the
Borrower (provided that, upon the occurrence of an Event of Default pursuant to
Sections 7.1(i), (j) or (k), all such outstanding principal amounts, accrued
interest and other such amounts shall automatically become immediately due and
payable);
(c) Direct the Borrower to deliver (and the Borrower hereby agrees,
upon receipt of notice of such direction from the Agent, to deliver) to the
Agent from time to time such additional amount of cash as is equal to the
difference between the aggregate Stated Amount of all Letters of Credit then
outstanding (whether or not any beneficiary under any Letter of Credit shall
have drawn or be entitled at such time to draw thereunder) and the amount then
on deposit in the Cash Collateral Account, such amount to be held by the Agent
in the Cash Collateral Account as security for the Borrower's Reimbursement
Obligations as described in Section 2.17(i); and
(d) Exercise all rights and remedies available to it under
this Agreement, the other Loan Documents and applicable law.
8.2. Right of Setoff. Upon the occurrence of an Event of
Default, the Agent and each Lender may, and are hereby authorized by the
Borrower, at any time and from time to time, to the fullest extent permitted by
applicable law, without advance notice to the Borrower (any such notice being
expressly waived by the Borrower)
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and irrespective of demand for payment, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held in other than a fiduciary account and any other indebtedness at any time
owing by such Lender to or for the credit or the account of the Borrower against
any or all of the Credit Obligations now or hereafter existing, whether or not
such Credit Obligations have matured. The Agent agrees to notify the Borrower
after any such setoff or application, provided that the failure to give such
notice shall not affect the validity of such setoff and application.
8.3. Rights and Remedies Cumulative; Non-Waiver; Etc. The
enumeration of the Agent's and the Lenders' rights and remedies set forth in
this Agreement is not intended to be exhaustive, and the exercise by the Agent
or any Lender of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder, under the Loan
Documents or under any other agreement between the Borrower or any of its
Subsidiaries and the Agent or the Lenders or that may now or hereafter exist in
law or in equity or by suit or otherwise. No delay or failure to take action on
the part of the Agent or any Lender in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude other or further exercise thereof or
the exercise of any other right, power or privilege or shall be construed to be
a waiver of any Event of Default. No course of dealing between the Borrower or
any of its Subsidiaries and the Agent or the Lenders or their agents or
employees shall be effective to change, modify or discharge any provision of
this Agreement or any of the other Loan Documents or to constitute a waiver of
any Event of Default.
ARTICLE IX
THE AGENT
9.1. Appointment. Each Lender hereby irrevocably appoints and
authorizes First Union to act as Agent hereunder and under the other Loan
Documents and to take such actions as agent on its behalf hereunder and under
the other Loan Documents, and to exercise such powers and to perform such
duties, as are specifically delegated to the Agent by the terms hereof or
thereof, together with such other powers and duties as are reasonably incidental
thereto.
9.2. Nature of Duties. The Agent shall have no duties or
responsibilities other than those expressly set forth in this
Agreement and the other Loan Documents. The Agent shall not have,
by reason of this Agreement or any other Loan Document, a fiduciary
relationship in respect of any Lender; and nothing in this
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Agreement or any other Loan Document, express or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations or liabilities
in respect of this Agreement or any other Loan Document except as expressly set
forth herein or therein. The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents or attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact that it selects with reasonable care. The Agent shall be
entitled to consult with legal counsel, independent public accountants and other
experts selected by it with respect to all matters pertaining to this Agreement
and the other Loan Documents and its duties hereunder and thereunder and shall
not be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts. The Lenders
hereby acknowledge that the Agent shall not be under any duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Loan Document unless it shall be requested in
writing to do so by the Required Lenders (or, where a higher percentage of the
Lenders is expressly required hereunder, such Lenders).
9.3. Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action taken or omitted to be taken by it or such Person under or
in connection with the Loan Documents, except for its or such Person's own gross
negligence or willful misconduct, (ii) responsible in any manner to any Lender
for any recitals, statements, information, representations or warranties herein
or in any other Loan Document or in any document, instrument, certificate,
report or other writing delivered in connection herewith or therewith, for the
execution, effectiveness, genuineness, validity, enforceability or sufficiency
of this Agreement or any other Loan Document, or for the financial condition of
the Borrower, its Subsidiaries or any other Person, or (iii) required to
ascertain or make any inquiry concerning the performance or observance of any of
the terms, provisions or conditions of this Agreement or any other Loan Document
or the existence or possible existence of any Default or Event of Default, or to
inspect the properties, books or records of the Borrower or any of its
Subsidiaries.
9.4. Reliance by the Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any notice, statement, consent or
other communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons. The Agent may deem and treat each Lender as the owner of its interest
hereunder for all purposes hereof unless and until a written notice of the
assignment, negotiation or transfer thereof shall have been given to the Agent
in accordance with the
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provisions of this Agreement. The Agent shall be entitled to refrain from taking
or omitting to take any action in connection with this Agreement or any other
Loan Document (i) if such action or omission would, in the reasonable opinion of
the Agent, violate any applicable law or any provision of this Agreement or any
other Loan Document or (ii) unless and until it shall have received such advice
or concurrence of the Required Lenders (or, where a higher percentage of the
Lenders is expressly required hereunder, such Lenders) as it deems appropriate
or it shall first have been indemnified to its satisfaction by the Lenders
against any and all liability and expense that may be incurred by it by reason
of taking, continuing to take or omitting to take any such action. Without
limiting the foregoing, no Lender shall have any right of action whatsoever
against the Agent as a result of the Agent's acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of the Required Lenders (or, where a higher percentage of the Lenders is
expressly required hereunder, such Lenders), and such instructions and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders (including all subsequent Lenders).
9.5. Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representation
or warranty to it and that no act by the Agent or any such Person hereafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that (i) it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries
and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder, and (ii) it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action hereunder and under the
other Loan Documents and to make such investigation as it deems necessary to
inform itself as to the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except as expressly provided in this Agreement and the other Loan Documents, the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information concerning the
business, prospects, operations, properties, financial or other condition or
creditworthiness of the Borrower, its Subsidiaries or any other Person that may
at any time come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
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9.6. Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default unless the Agent
shall have received written notice from the Borrower or a Lender referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent will give notice thereof to the Lenders as soon as
reasonably practicable; provided, however, that if any such notice has also been
furnished to the Lenders, the Agent shall have no obligation to notify the
Lenders with respect thereto. The Agent shall (subject to Sections 9.4 and 10.8)
take such action with respect to such Default or Event of Default as shall
reasonably be directed by the Required Lenders; provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. Each Lender shall promptly give the Agent such a
notice upon its actual knowledge of a Default or an Event of Default; provided,
however, that the failure of any Lender to deliver such notice shall not, in the
absence of gross negligence or willful misconduct, affect its rights hereunder
or under the other Loan Documents. Each Lender agrees that the rights and
remedies granted under this Agreement and the other Loan Documents shall be
exercised solely by the Agent, at the direction or with the consent of the
Required Lenders, and that no Lender shall have any right individually to
exercise any such right or remedy except to the extent, if any, expressly
provided herein or therein.
9.7. Indemnification. To the extent the Agent is not reimbursed by or
on behalf of the Borrower, and without limiting the obligation of the Borrower
to do so, the Lenders agree (i) to indemnify the Agent and its officers,
directors, employees, agents, attorneys-in-fact and Affiliates, ratably in
proportion to their respective percentages as used in determining the Required
Lenders as of the date of determination, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including, without limitation, attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including
at any time following the repayment in full of the Loans and the termination of
the Commitments) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other Loan Document or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing, and (ii) to reimburse the Agent upon
demand, ratably in proportion to their respective percentages as used in
determining the Required Lenders as of the date of determination, for any
expenses incurred by the Agent for the benefit of the Lenders (including,
without limitation, attorneys' fees and expenses and compensation of agents and
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employees paid for services rendered on behalf of the Lenders); provided,
however, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting from the gross negligence or
willful misconduct of the party to be indemnified.
9.8. The Agent in its Individual Capacity. With respect to its
Commitments, the Loans made by it, the Letters of Credit issued by it and the
Notes issued to it, the Agent in its individual capacity and not as Agent shall
have the same rights and powers under the Loan Documents as any other Lender and
may exercise the same as though it were not performing the agency duties
specified herein; and the terms "Lenders," "Required Lenders," "holders of
Notes" and any similar terms shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with the Borrower,
any of its Subsidiaries or any of their respective Affiliates as if it were not
performing the agency duties specified herein, and may accept fees and other
consideration from any of them for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
9.9. Successor Agent. Subject to the appointment and acceptance of a
successor as provided below, the Agent may resign at any time by giving ten (10)
Business Days' prior written notice to the Borrower and the Lenders. Upon any
such notice of resignation, the Required Lenders will appoint from among the
Lenders a successor to the Agent. If no successor to the Agent shall have been
so appointed by the Required Lenders and shall have accepted such appointment
within such ten-Business Day period, then the retiring Agent may, on behalf of
the Lenders, appoint a successor Agent, which shall be a commercial bank or
trust company organized under the laws of the United States of America or any
state thereof and having a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder and
under the other Loan Documents. After any retiring Agent's resignation as Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent.
9.10. Collateral Matters.
(a) The Agent is hereby authorized on behalf of the Lenders, without
the necessity of any notice to or further consent from the Lenders, from time to
time (but without any obligation) to take any action with respect to the
Collateral and the Security
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Documents that may be necessary to perfect and maintain perfected the Liens upon
the Collateral granted pursuant to the Security Documents.
(b) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all of
the Obligations, (ii) constituting property sold or to be sold or disposed of as
part of or in connection with any disposition expressly permitted hereunder or
under any other Loan Document or to which the Required Lenders have consented or
(iii) otherwise pursuant to and in accordance with the provisions of any
applicable Loan Document. Upon request by the Agent at any time, the Lenders
will confirm in writing the Agent's authority to release Collateral pursuant to
this subsection (b).
ARTICLE X
MISCELLANEOUS
10.1. Survival.
(a) The representations and warranties made by or on behalf of the
Borrower or any of its Subsidiaries in this Agreement and in each other Loan
Document shall survive the execution and delivery of this Agreement and each
such other Loan Document. Notwithstanding any other provision herein or anything
provided or implied by law to the contrary, no termination or cancellation
(regardless of cause or procedure) of the Commitments, this Agreement or any of
the other Loan Documents shall in any way affect or impair the rights and
obligations of the parties hereto with respect to any of the provisions of (i)
Section 10.3, (ii) Section 2.15 or (iii) this Agreement and the other Loan
Documents relating to indemnification or payment of costs and expenses,
including, without limitation, all of the provisions of Sections 2.11(a),
2.11(b), 2.12, 2.13, 2.17(h), 9.7, 10.6 and 10.7, and, in each case, such
provisions shall survive any such termination or cancellation and the making and
repayment of the Loans.
(b) The Borrower, the Agent and the Lenders agree that: (i) Articles IV
and V and the other applicable provisions of this Credit Agreement are intended
as the Agent's (on behalf of the Lenders) written request for information (and
the Borrower's response) concerning the environmental condition of the real
property; and (ii) each provision in this Credit Agreement (together with any
indemnity applicable to a breach of any such provision) with respect to the
environmental condition of the Realty is intended to be an "environmental
provision" and as such it is expressly understood that the Borrower's duty to
indemnify the Agent and the Lenders hereunder shall survive the termination
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or cancellation of the Commitments or this Agreement and the making
and repayment of the Loans.
10.2. Governing Law; Consent to Jurisdiction. THIS AGREEMENT
SHALL BE DEEMED TO HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN NORTH CAROLINA
AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NORTH CAROLINA; PROVIDED THAT EACH LETTER OF
CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO SUCH
LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED
THEREBY, THE INTERNAL LAWS OF THE STATE OF THE DOMICILE OF THE ISSUING BANK.
AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, THE BORROWER
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG
COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN
DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED
HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, OR ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
PROCEEDING TO WHICH THE AGENT, THE ISSUING BANK, ANY LENDER OR THE BORROWER IS A
PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF THE AGENT, THE ISSUING BANK, ANY LENDER OR THE BORROWER. THE
BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF
APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES
ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE
OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. THE
BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED
MAIL DIRECTED TO BORROWER (ATTENTION: GENERAL COUNSEL) AT ITS ADDRESS SET FORTH
HEREINBELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED
STATES MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.3. Arbitration; Remedies.
(a) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement or any of the Loan
Documents ("Disputes") between or among parties hereto or thereto shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to
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demand arbitration hereunder. Disputes may include, without limitation, tort
claims, counterclaims, claims brought as class actions, claims arising from
documents executed in the future, or claims arising out of or connected with the
transaction contemplated by this Agreement or any of the Loan Documents.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Charlotte, North Carolina. The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims
of less than $1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to any interest rate protection agreements.
(b) Notwithstanding the foregoing, the Borrower and the Agent, on
behalf of the Lenders, agree to preserve, without diminution, certain remedies,
more particularly described below, that any party hereto may employ or exercise
freely, either alone, in conjunction with or during a Dispute; provided,
however, that the Borrower preserves its right to seek injunctive or other
appropriate judicial relief from a court of competent jurisdiction with respect
to the foregoing pending final resolution of the Dispute pursuant to subsection
(a) above. The Agent, on behalf of the Lenders, shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under any Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, setoff,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of any arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
The Borrower and the Agent, on behalf of the Lenders, agree that they
shall not have a remedy of punitive or exemplary damages against the other in
any Dispute and hereby waive any right or claim to punitive or exemplary damages
they have now or which may
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arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
10.4. Notice. All notices and other communications provided for
hereunder shall be in writing (including facsimile transmission) and mailed,
telecopied or delivered to the party to be notified at the following addresses
(provided, however, that Syndication Agency Services of First Union National
Bank of North Carolina will not receive copies of regular financial reports and
the attorneys listed below will receive neither regular financial reports nor
the business information submitted to the Agent and the Lenders):
If to Borrower: HCIA Inc.
300 East Lombard Street
Baltimore, Maryland 21202
Attention: Chief Financial Officer
Telephone: (410) 332-7532
Telecopy: (410) 547-8750
with a copy to: HCIA Inc.
300 East Lombard Street
Baltimore, Maryland 21202
Attention: Charles A. Berardesco,
General Counsel
Telephone: (410) 332-7470
Telecopy: (410) 547-8750
If to the Agent
or the Issuing Bank: First Union National Bank of
North Carolina
One First Union Center, TW-10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone: (704) 388-0281
Telecopy: (704) 383-0288
with a copy to: Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street
Suite 1900
Charlotte, North Carolina 28246
Attention: Stokely G. Caldwell, Jr.
Telephone: (704) 377-8332
Telecopy: (704) 378-4000
If to any Lender: At the address set forth on its
signature page hereto.
or to such other address as any party may designate for itself by like notice to
all other parties hereto. All such notices and communications shall be deemed to
have been given (i) if mailed as provided above by any method other than
overnight delivery service, on the third Business Day after deposit in the
mails, postage prepaid, (ii) if transmitted by overnight delivery service or
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telecopied, when delivered for overnight delivery or transmitted by telecopier,
respectively, with appropriate confirmation of delivery, or (iii) if delivered
by hand, upon delivery; provided that notices and communications to the Agent
shall not be effective until received by the Agent.
All wire transfers to the Agent shall be sent to First Union National
Bank of North Carolina, ABA Routing #053000219, to the credit of First Union
National Bank of North Carolina, Charlotte, North Carolina, Attention:
Syndication Agency Services, G/L #465906, RC #5007, RE: HCIA Inc., unless
otherwise instructed by the Agent.
10.5. Assignments, Participations.
(a) With the prior consent of the Agent and the Borrower, which consent
shall not be unreasonably withheld, each Lender may assign to one or more other
Persons all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) each such assignment shall be of an equal, pro rata percentage
of such Lender's rights and obligations (including its Commitments) under each
Facility, (ii) except in the case of an assignment to an Affiliate of such
Lender or a Person that, immediately prior to such assignment, was a Lender, the
amount of the Commitments of such assigning Lender being assigned pursuant to
each such assignment (determined as of the date of the Assignment and Acceptance
with respect to each such assignment) shall in no event be less than the lesser
of (y) the aggregate Commitments of such Lender immediately prior to such
assignment or (z) $5,000,000, (iii) each such assignment shall be to an Eligible
Assignee, and (iv) the parties to each such assignment will execute and deliver
to the Agent, for its acceptance and recording in the Register, an Assignment
and Acceptance, together with any Note or Notes subject to such assignment, and
will pay a processing fee of $3,000 to the Agent for its own account. Upon such
execution, delivery, acceptance and recording of the Assignment and Acceptance,
from and after the effective date specified therein (a) the assignee thereunder
shall be deemed a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of such Lender hereunder with respect
thereto, and (b) the assigning Lender shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of such assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance,
the assigning Lender and the assignee thereunder confirm to and agree with each
other, and with the other parties hereto, as follows: (i) other than as may be
provided in such
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Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document
or any other instrument or document furnished hereto or pursuant thereto; (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any of
its Subsidiaries or the performance or observance by the Borrower or any of its
Subsidiaries of any of their respective obligations under this Agreement or any
other Loan Document or any other instrument or document furnished pursuant
hereto or thereto; (iii) such assignee has received a copy of this Agreement,
together with copies of the Financial Statements and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Agreement; (iv) such assignee will, independently
and without reliance upon the Agent, the assigning Lender or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement and the
other Loan Documents and any other instruments and agreements referred to herein
or therein, and to exercise such powers and to perform such duties hereunder and
thereunder, as are specifically delegated to or required of the Agent by the
terms hereof or thereof and such other powers as are reasonably incidental
thereto; and (vii) such assignee will perform in accordance with their terms all
of the obligations that by the terms of this Agreement are required to be
performed by it as a Lender.
(c) The Agent will maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower, the Issuing Bank or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an assignee, together with any Note or Notes subject
to such assignment, the Agent will, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit D, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give notice thereof to the Borrower. Within
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five (5) Business Days after its receipt of such notice, the Borrower, at their
own expense, will execute and deliver to the Agent in exchange for the
surrendered Note or Notes a new Note or Notes to the order of such assignee in
an amount equal to the Commitment or Commitments assumed by it pursuant to such
Assignment and Acceptance and, to the extent the assigning Lender has retained
its Commitments hereunder, a new Note or Notes to the order of the assigning
Lender in an amount equal to the Commitment or Commitments retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the forms of Exhibits A-1 and A-2, as appropriate.
(e) Each Lender may sell to one or more other Persons participations in
any portion comprising less than all of its rights and obligations under this
Agreement (including, without limitation, a portion of its Commitments, the
outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible for the performance
of such obligations, (iii) the Borrower, the Issuing Bank, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, (iv)
any such participation shall be in an amount of not less than $3,000,000, (v) no
Lender shall sell any participation that, when taken together with all other
participations, if any, sold by such Lender, covers all of such Lender's rights
and obligations under this Agreement (including, without limitation, all of its
Commitments, the outstanding Loans made by it and the Note or Notes held by it),
(vi) each such participation shall be of an equal, pro rata percentage of such
Lender's rights and obligations (including its Commitments) under each Facility,
(vii) no Lender shall permit any participant to have any voting rights or any
right to control the vote of such Lender with respect to any amendment,
modification, waiver, consent or other action hereunder or under any other Loan
Document except as to actions of the type described in Section 10.8(a), and
(viii) the parties to each such participation shall pay a processing fee of
$3,000 to the Agent for its own account. In the case of a participation, the
participant shall not have any rights under this Agreement or any of the other
Loan Documents, the participant's rights against the granting Lender in respect
of such participation to be those set forth in the participation agreement, and
all amounts payable by the Borrower hereunder shall be determined as if such
Lender had not sold such participation; provided, however, that each such
participant shall have the rights of a Lender for purposes of Sections 2.11(a),
2.11(b), 2.12, 2.13 and 8.2, and shall be entitled to the benefits thereto, to
the extent that the Lender selling such participation would be entitled to such
benefits if the participation had not been sold.
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(f) With the prior consent of the Required Lenders and the Borrower,
which consent shall not be unreasonably withheld, the Issuing Bank may assign
all, but not less than all, of its rights and obligations as Issuing Bank under
this Agreement, including, without limitation, its commitment to issue Letters
of Credit, to any Eligible Assignee, and upon acceptance of such assignment, the
successor Issuing Bank shall succeed to such rights and obligations and the
assigning Issuing Bank shall be discharged therefrom.
(g) The Agent, the Issuing Bank and each Lender may, in connection with
any assignment or participation or proposed assignment or participation pursuant
to this Section, disclose to the assignee or participant, or proposed assignee
or participant, any information relating to the Borrower and its Subsidiaries
furnished to it by or on behalf of any other party hereto, provided that such
assignee or participant or proposed assignee or participant agrees in writing to
the Agent, the Issuing Bank or such Lender, as the case may be, to keep such
information confidential to the same extent required of the Lenders under
Section 10.17.
10.6. Fees and Expenses. Whether or not the transactions
contemplated by this Agreement shall be consummated, the Borrower
shall be obligated:
(a) to pay or reimburse the Agent upon demand and after notice in
accordance with Section 10.4 for all reasonable expenses (including, without
limitation, reasonable attorneys' fees, but excluding salaries of the Agent's
regularly employed personnel and overhead) incurred or paid by the Agent in
connection with: (i) the preparation, execution, delivery, interpretation,
modification, amendment or termination of this Agreement or the other Loan
Documents or any consent or waiver requested by the Borrower hereunder or
thereunder; (ii) charges for appraisers, examiners, environmental consultants,
auditors or similar Persons whom the Agent may engage with respect to rendering
opinions concerning the financial condition of the Borrower and its
Subsidiaries; and (iii) any commercially reasonable attempt to inspect, verify,
protect, preserve, collect, sell, liquidate or otherwise dispose of the
Collateral or any other assets of the Borrower or any Guarantor;
(b) to pay or reimburse the Agent and each Lender upon demand and after
notice in accordance with Section 10.4 for all reasonable expenses (including,
without limitation, reasonable attorneys' fees, but excluding salaries of the
Agent's or such Lender's regularly employed personnel and overhead) incurred or
paid by the Agent or such Lender in connection with: (i) any litigation,
contest, dispute, suit or proceeding or action (whether instituted by the Agent,
the Lenders, or any of them, the Borrower or any other Person) in any way
relating to this Agreement or the other Loan Documents or to the Borrower's or
any Subsidiary's affairs (other than a dispute solely between or among the
Lenders or the Lenders and the Agent); (ii) any attempt by the Agent or such
Lender to enforce any of its rights against the Borrower or
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any other Person that may be obligated to the Agent or such Lender by virtue of
this Agreement or the other Loan Documents; and (iii) any refinancing or
restructuring of the credit arrangement provided under this Agreement in the
nature of a "work-out" or in any insolvency or bankruptcy proceeding;
(c) to pay and hold the Agent and each Lender harmless from and against
any and all liability and loss with respect to or resulting from the nonpayment
or delayed payment of any and all intangibles, documentary stamp and other
similar taxes, fees and excises, if any, including any interest and penalties,
that may be, or be determined to be, payable in connection with the transactions
contemplated by this Agreement and the other Loan Documents or in any
modification hereof or thereof;
(d) to pay and hold the Agent and each Lender harmless from and against
any and all finder's or brokerage fees and commissions that may be payable in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, other than any fees or commissions of finders or brokers engaged
by the Agent or any Lender, and
10.7. Indemnification. From and at all times after the date of this
Agreement, and in addition to the costs and expenses payable under Section 10.6
and all of the Agent's and the Lenders' other rights and remedies against the
Borrower, the Borrower agrees to indemnify and hold harmless the Agent, the
Issuing Bank and each Lender and each of their directors, officers, employees,
agents and Affiliates (each, an "Indemnified Person") against any and all
claims, losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever, including, without limitation, attorneys' fees, costs and expenses
(collectively, "Indemnified Costs") incurred by or asserted against any such
Indemnified Person from and after the date hereof, whether direct or indirect,
as a result of or arising from or in any way relating to any suit, action or
proceeding (including any inquiry or investigation) by any Person, whether
threatened or initiated, asserting a claim for any legal or equitable remedy
under any statute or regulation, including, without limitation, any federal or
state securities laws, or under any common law or equitable cause or otherwise,
arising from or in connection with the negotiation, preparation, execution,
performance or enforcement of this Agreement or the other Loan Documents or any
of the transactions contemplated herein or therein, and including, without
limitation, Environmental Claims, whether or not such Indemnified Person is a
party to any such action, proceeding or suit or the target of any such inquiry
or investigation; provided, however, that no Indemnified Person shall have the
right to be indemnified hereunder for any Indemnified Costs resulting primarily
from the gross negligence or willful misconduct of such Indemnified Person (as
finally determined by a court of competent jurisdiction or pursuant to
arbitration as set forth in Section 10.3). Without limiting the generality of
the foregoing, the Indemnified Costs with respect to Environmental Claims shall
include, without limitation, amounts paid in settlement of claims, all
consultant and expert fees and expenses
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of any Indemnified Person incurred in connection with any investigation of site
conditions, any abatement, cleanup, remediation, removal or restoration work, or
liability for any damages or injuries of any Person or to land, air, water or
other natural resources. All of the foregoing losses, damages, costs and
expenses of any Indemnified Person shall be payable by the Borrower, as and when
incurred and upon demand, and shall be additional Credit Obligations hereunder.
In the event that the foregoing indemnity is unavailable or insufficient to hold
each Indemnified Person harmless, then the Borrower will contribute to amounts
paid or payable by such Indemnified Persons in respect of their losses, claims,
damages or liabilities in such proportions as appropriately reflect the relative
benefits received by and fault of the Borrower and such Indemnified Persons in
connection with the matters as to which such losses, claims, damages or
liabilities relate and other equitable considerations.
10.8. Amendments, Waivers, Etc. Except as may be otherwise specifically
set forth in this Agreement or the other Loan Documents, neither this Agreement
nor any other Loan Document nor any provision hereof or thereof may be amended,
modified, waived, discharged or terminated, and no consent to any departure by
the Borrower from any provision hereof or thereof may be given, except in a
writing signed by the Required Lenders; provided, however, that:
(a) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of each Lender holding Credit Obligations
directly affected thereby, (i) reduce the principal amount of, or rate of
interest on, any Loan, or reduce any fees or other Credit Obligations (other
than fees payable to the Agent for its own account) or any obligations of any
Person now or hereafter primarily or contingently liable with respect to the
Credit Obligations or (ii) postpone any date fixed for any payment of principal,
interest (other than additional interest payable under Section 2.6(b) during the
continuance of an Event of Default), fees (other than fees payable to the Agent
for its own account) or any other Credit Obligations;
(b) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of all Lenders, (i) increase the Commitments
of any Lender (it being understood that a waiver of any Default or Event of
Default or of any mandatory reduction in either Total Commitment shall not
constitute such an increase), (ii) change the definition of "Required Lenders"
or otherwise change the number or percentage of Lenders that shall be required
for the Lenders or any of them to take or approve, or direct the Agent to take,
any action hereunder, (iii) amend, modify or waive any of the provisions for
extending, or take action to extend, the term of the Revolving Credit Facility
or Term Loan Facility, (iv) affect the obligation of the Lenders having
Revolving Credit Commitments to become L/C Participants, (v) amend any provision
of this Section, (vi) release all or substantially all of the Collateral or
(vii) consent to the assignment or transfer by the Borrower, or by any other
Person now or hereafter primarily or contingently liable with respect to the
Credit
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<PAGE>
Obligations, of any of its rights and obligations under this
Agreement or any of the other Loan Documents;
(c) no provision relating to the rights or obligations of the Issuing
Bank under this Agreement or any of the other Loan Documents may be amended,
modified or waived without the consent of the Issuing Bank; and
(d) no provision relating to the rights or obligations of the Agent
under this Agreement or any of the other Loan Documents may be amended, modified
or waived without the consent of the Agent.
10.9. Rights and Remedies Cumulative, Non-Waiver, Etc. The
enumeration of the Agent's and the Lenders' rights and remedies set forth in
this Agreement and the other Loan Documents is not intended to be exhaustive,
and the exercise by the Agent or any Lender of any right or remedy shall not
preclude the exercise of any other rights or remedies, all of which shall be
cumulative, and shall be in addition to any other right or remedy given
hereunder, under the other Loan Documents or under any other agreement between
the Borrower and the Lenders, or any of them (or the Agent on their behalf), or
that may now or hereafter exist in law or in equity or by suit or otherwise. No
delay or failure to take action on the part of the Agent or any Lender in
exercising any right, power or privilege shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or privilege
preclude other or further exercise thereof or the exercise of any other right,
power or privilege or shall be construed to be a waiver of any Event of Default.
No course of dealing between any of the Borrower and the Agent or the Lenders or
their agents or employees shall be effective to change, modify or discharge any
provision of this Agreement or to constitute a waiver of any Event of Default.
No notice to or demand upon the Borrower in any case shall entitle the Borrower
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of the Agent or any Lender to exercise any
right or remedy or take any other or further action in any circumstances without
notice or demand.
10.10. Binding Effect, Assignment. All of the terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
respective successors and assigns of the Borrower, the Agent, the Issuing Bank
and each Lender; provided, however, that (i) the Borrower may not sell, assign
or transfer this Agreement or any portion hereof or thereof, including, without
limitation, any of its rights, title, interests, remedies, powers and duties
hereunder or thereunder and (ii) any assignees and participants of the Lenders
and any successor Issuing Bank shall have such rights and obligations with
respect to this Agreement and the other Loan Documents as are provided for in
and pursuant to Section 10.5.
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10.11. Severability. To the extent any provision of this
Agreement is prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Agreement.
10.12. Entire Agreement. THIS AGREEMENT AND THE DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED CONTEMPORANEOUSLY HEREWITH EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF, INCLUDING WITHOUT LIMITATION THE COMMITMENT LETTER,
EXCEPT FOR THE FEE LETTER AND ANY PRIOR ARRANGEMENTS MADE WITH RESPECT TO
PAYMENT BY THE BORROWER OF (OR ANY INDEMNIFICATION FOR) ANY FEES, COSTS OR
EXPENSES PAYABLE TO OR INCURRED (OR TO BE INCURRED) BY OR ON BEHALF OF THE
AGENT, THE ISSUING BANK OR ANY LENDER, THE PROVISIONS OF WHICH FEE LETTER AND
ANY SUCH PRIOR ARRANGEMENTS ARE HEREBY INCORPORATED INTO THIS AGREEMENT BY THIS
REFERENCE. THIS AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS AND THE
INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10.13. Interpretation. The captions to the various sections and
subsections of this Agreement have been inserted for convenience only and shall
not limit or affect any of the terms hereof. Unless the context otherwise
requires, words in the singular include the plural and words in the plural
include the singular, and the use of any gender shall be applicable to all
genders.
10.14. Counterparts; Effectiveness. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which shall together constitute one and the same
instrument. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto.
10.15. Conflict of Terms. The Exhibits and Schedules hereto and the
other Loan Documents are incorporated in this Agreement by this reference
thereto. Except as otherwise provided in this Agreement and except as otherwise
provided in the other Loan Documents, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision of the other
Loan Documents, the provision contained in this Agreement shall control.
10.16. Injunctive Relief. The Borrower recognizes that in the event
it fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Agent and the Lenders. The Borrower therefore agrees that the Agent and the
Lenders, if the Agent so requests, shall be entitled to temporary and permanent
injunctive
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relief without the necessity of proving actual damages in any case where a
remedy at law, in the reasonable good faith opinion of the Required Lenders, may
prove to be inadequate relief.
10.17. Confidentiality. Each Lender agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all nonpublic confidential information provided in connection with this
Agreement or any other Loan Document and agrees and undertakes that it shall not
use any such information for any purpose or in any manner other than pursuant to
the terms contemplated by this Agreement. Any Lender may disclose such
information (i) at the request of any bank regulatory authority or in connection
with an examination of such Lender by any such authority, (ii) pursuant to
subpoena or other court process, (iii) when required to do so in accordance with
the provisions of any applicable law, (iv) at the express direction of any
agency of any State of the United States of America or of any other jurisdiction
in which such Lender conducts its business or (v) to such Lender's independent
auditors and other professional advisors that have a reasonable need or basis
for access thereto. The Lenders agree to notify the Borrower of any such
disclosure.
10.18. Post-Closing Matters. The Borrower will, and will cause each
of its Subsidiaries to, use its best efforts to assist the Agent in the
syndication of the Facilities and the resultant addition of Lenders after the
Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their corporate names by their duly authorized corporate officers as
of the date first above written.
HCIA INC.
By: /s/ George D. Pillari
_____________________________________
George D. Pillari,
President and Chief Executive Officer
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS AGENT AND AS ISSUING BANK
By: /s/ Ann M. Dodd
_____________________________________
Ann M. Dodd,
Senior Vice President
(signatures continued)
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FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Ann M. Dodd
_____________________________________
Ann M. Dodd
Senior Vice President
Term Loan
Commitment: $50,000,000.00
Revolving Credit: $50,000,000.00
Address:
First Union National Bank
of North Carolina
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Healthcare Finance Group
Telephone: (704) 383-7121
Telecopy: (704) 383-9144
Wiring Instructions:
First Union National Bank
of North Carolina
Charlotte, North Carolina
ABA# 053000219
For further credit to:
Syndication Agency Services
GL# 465906
RC# 5007
Reference: HCIA Inc.
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Exhibit 10.17
EXECUTION COPY
HCIA INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August 9, 1996,
among the Stockholders listed on Schedule I hereto (the "Stockholders") and HCIA
Inc., a Maryland corporation (the "Company").
R E C I T A L S
WHEREAS, pursuant to the terms of the Agreement and Plan of
Reorganization (the "Reorganization Agreement"), dated as of July 19, 1996, by
and among the Company, HCIA Sub Inc., a wholly-owned subsidiary of the Company
("Sub"), and HealthVISION, Inc., a Delaware corporation ("HVI"), Sub is to be
merged with and into HVI (the "Merger"); and
WHEREAS, as a result of the Merger, the Stockholders will
receive, among other things, shares of common stock, $.01 par value per share
(the "Common Stock") of the Company as set forth on Schedule I; and
WHEREAS, the Company has agreed, as a condition precedent to
the Merger, to grant the Stockholders certain registration rights with respect
to the Common Stock.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
Capitalized terms used herein without definition shall have
the meanings set forth in the Reorganization Agreement. As used in this
Agreement, the following terms have the respective meaning set forth below:
Commission: shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act;
Exchange Act: shall mean the Securities Exchange Act of 1934,
as amended;
<PAGE>
Filing Date: shall mean the date which is 60 days following
the Effective Time of the Merger; provided, however, that if the Company
registers any of its equity securities as contemplated under Section 2(a) hereof
and if at least 75% of the Registrable Securities requested to be included in
such registration are sold pursuant to such registration within 60 days of the
Effective Time of the Merger, the Filing Date shall mean the date which is 120
days following the Effective Time of the Merger.
Holder: shall mean any holder of Registrable Securities;
Person: shall mean an individual, partnership, joint-stock
company, corporation, limited liability company, trust or unincorporated
organization, and a government or agency or political subdivision thereof;
Prospectus: shall mean the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Shelf Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments;
register, registered and registration: shall mean a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
Registrable Securities: shall mean (A) shares of Common Stock
owned by a Holder and (B) any stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares of Common Stock referred to in clause (A);
Registration Expenses: shall mean all expenses incurred by the
Company in compliance with Sections 2(a), (b) and (c) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company);
Security, Securities: shall have the meaning set forth in
Section 2(1) of the Securities Act;
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Securities Act: shall mean the Securities Act of 1933, as
amended;
Selling Expenses: shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders;
Shelf Registration: shall mean a registration effected
pursuant to Section 2(b) hereof; and
Shelf Registration Statement: shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Section 2(b)
hereof which covers some or all of the Registrable Securities on an appropriate
form under Rule 415 under the Securities Act or any similar rule that may be
adopted by the Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
2. REGISTRATION RIGHTS
(a) Company Registration.
(i) Registration. If the Company shall
determine to register any of its equity securities either for its own
account or for the account of Persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such
registration ("Other Stockholders"), other than a registration relating
solely to employee benefit plans, or a registration relating solely to
a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(A) promptly give to each of the Holders a
written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify
such securities under the applicable blue sky or other state
securities laws); and
(B) include in such registration (and any
related qualification under blue sky laws or other compliance),
and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within fifteen (15) days after receipt of the written
notice from the Company described in clause (i) above, except as
set forth in Section 2(a)(ii) below. Such written request
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may specify all or a part of the Holders' Registrable Securities.
(ii) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise each of the Holders as a part
of the written notice given pursuant to Section 2(a)(i)(a). In such
event, the right of each of the Holders to registration pursuant to
this Section 2(a) shall be conditioned upon such Holders' participation
in such underwriting and the inclusion of such Holders' Registrable
Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2(a), if the
representative determines that marketing factors require a limitation
on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number
of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall
be allocated in the following manner: The securities of the Company
held by officers, directors and Other Stockholders of the Company
(other than Registrable Securities and other than securities held by
holders who by contractual right demanded such registration) shall be
excluded from such registration and underwriting to the extent required
by such limitation, and, if a limitation on the number of shares is
still required, the number of shares that may be included in the
registration and underwriting by each of the Holders shall be reduced,
on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply
with such limitation. If any of the Holders or any officer, director or
Other Stockholder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
(b) Shelf Registration; Suspension of Use
of Prospectus.
(i) Not later than the Filing Date, the Company shall
prepare and file with the Commission a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the
Holders from time to time in
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accordance with the methods of distribution elected by such Holders and
set forth in such Shelf Registration Statement. The Company shall use
its best efforts to have the Shelf Registration Statement declared
effective under the Securities Act not later than 60 days following
the Filing Date (the date the Shelf Registration Statement is so
declared effective is hereinafter referred to as the "Registration
Date").
(ii) The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in order to
permit the Prospectus forming part thereof to be usable by Holders
until the earlier of (A) the date after which all of the Registrable
Securities may be sold pursuant to Rule 144(k) under the Securities
Act, (B) the second anniversary of the Registration Date or (C) the
date when all the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period").
(iii) The Company shall not be obligated to effect
any registration pursuant to this Section 2(b) in any particular
jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder.
(c) Expenses of Registration. All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to this Section 2 shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
(d) Registration Procedures. In the case of each
registration effected by the Company pursuant to this Section 2, the Company
will keep the Holders advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will:
(i) keep such registration effective for a period
of one hundred twenty (120) days (or, in the case of a Shelf
Registration Statement, for the Shelf Registration Period) or until the
Holders, as applicable, have completed the distribution described in
the registration statement relating thereto, whichever first occurs;
provided, however, that the Shelf Registration Period shall be extended
for a period of time equal to the period during which use of the
Prospectus is suspended in accordance with provisions of Section 2(j)
hereof; and
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(ii) furnish such number of prospectuses and other
documents incident thereto as each of the Holders from time to time
may reasonably request.
(e) Indemnification.
(i) The Company will indemnify each of the Holders,
each of its officers, directors and partners, and each person
controlling each of the Holders, with respect to each registration
which has been effected pursuant to this Section 2, and each
underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration and related qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or the Exchange Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration and related
qualification or compliance, and will reimburse each of the Holders,
each of its officers, directors and partners, and each person
controlling each of the Holders, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based
on any untrue statement or omission based upon written information
furnished to the Company by the Holders or underwriter in writing and
stated to be specifically for use therein.
(ii) Each of the Holders will, if
Registrable Securities held by it are included in the securities as to
which such registration and related qualification or compliance is
being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities
covered by such registration statement, each person who controls the
Company or such underwriter, each Other Stockholder and each of their
officers, directors, and partners, and each person controlling such
Other Stockholder against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document made by
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such Holder, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements by such Holder therein not misleading, and will reimburse
the Company and such Other Stockholders, directors, officers, partners,
persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made
in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein; provided, however, that the obligations
of each of the Holders hereunder shall be limited to an amount equal
to the net proceeds to such Holder of securities sold as contemplated
herein.
(iii) Each party entitled to
indemnification under this Section 2(e) (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall be approved
by the Indemnified Party (whose approval shall not unreasonably be
withheld) and the Indemnified Party may participate in such defense
at its own expense (unless the Indemnified Party shall have reasonably
concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which
case the fees and expenses of such counsel to the Indemnified Party
shall be at the expense of the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2 unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
7
<PAGE>
(iv) If the indemnification provided for
in this Section 2(e) is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss,
liability, claim, damage or expense referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage
or expense, as well as any other relevant equitable considerations.
The relative fault of the Indemnifying Party and of the Indemnified
Party shall be determined by reference to, among other things, whether
the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(v) Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection
with any underwritten public offering contemplated by this Agreement
are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of
the Company and Holders is subject to the condition that, insofar as
they relate to any loss, claim, liability or damage made in a
preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration
statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the
"Final Prospectus"), such indemnity or contribution agreement shall
not inure to the benefit of any underwriter if a copy of the Final
Prospectus was furnished to the underwriter and was not furnished to
the person asserting the loss, liability, claim or damage at or prior
to the time such action is required by the Securities Act.
(f) Information by the Holders. Each of the Holders
holding securities included in any registration shall furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 2.
8
<PAGE>
(g) Rule 144 Reporting.
With a view to making available the benefits of certain rules
and regulations of the Commission which may permit the sale of restricted
securities to the public without registration, the Company agrees to:
(i) make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities
Act ("Rule 144"), at all times from and after the date hereof;
(ii) use its best efforts to file with the
Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act at any
time after it has become subject to such reporting requirements; and
(iii) so long as the Holder owns any
Registrable Securities, furnish to the Holder upon request, a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144, and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the
Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any such
securities without registration.
(i) Listing of Common Stock. The Company will use
its best efforts to list, subject to official notice of issuance, the Common
Stock to be delivered to the Stockholders on the Nasdaq National Market System
on or prior to the date the Shelf Registration Statement becomes
effective.
(j) Notice of Proposed Sale. If any Holder desires
to sell or otherwise transfer any of its Registrable Securities pursuant to the
Shelf Registration Statement in accordance with this Agreement, such Holder
shall notify the Company of its intention to do so by written notice (the
"Notice") received by the Company at least two business days prior to such sale
or transfer. Such Holder may effect such sale or transfer within 20 days of
the delivery of such Notice unless, at least one business day prior thereto, the
Company shall furnish to such Holder a written notice stating that, either (i)
in the good faith judgment of the Company's General Counsel or principal
outside legal counsel, the sale or transfer of the Registrable Securities
described in the Notice would, at such time, require the disclosure of material
information that the Company has a bona fide business purpose for preserving
as confidential or the Company would require the provision of information
required by the Commission or the Securities Act (or the rules and regulations
promulgated thereunder), such as pro
9
<PAGE>
forma financial information, that at such time the Company would be unable
to provide or (ii) the Company has determined to engage in a public offering of
its common equity securities (an "Offering") and has been advised in writing by
a nationally recognized investment banking firm selected by the Company that, in
such firm's opinion, the sale of the Registrable Securities described in the
Notice pursuant to the Shelf Registration Statement would adversely affect the
Company's immediately planned Offering. In such event, the Company's obligation
to prepare a prospectus to be used in connection with the sale or transfer or to
amend the Shelf Registration Statement shall be suspended for a reasonable
period (but not in excess of 60 days) until the Company determines that such
confidential information may be disclosed or is able to provide any such
information required by the Commission or the Securities Act (or the rules and
regulations promulgated thereunder) or that the sale of Registrable Securities
will not adversely affect the Offering, as the case may be; provided, however,
that the Company may only suspend its obligation once in any 12-month period.
Each of the Company and each Holder agrees to keep confidential any notification
by any party pursuant to this Section 2(j). Each Holder agrees that, in
connection with any sale or transfer of any Registrable Securities, such Holder
will comply with any legal requirement such Holder may have to deliver a
prospectus. Each Holder also agrees not to offer or sell any of such Registrable
Securities in any offering or sale that would require the Company to amend or
supplement the prospectus prepared pursuant to this Section 2 solely due to a
change in description of the plan of distribution of such Registrable Securities
contained in such prospectus.
3. ACKNOWLEDGMENT OF RESTRICTED NATURE OF REGISTRABLE
SECURITIES.
Each Stockholder hereby acknowledges that the
Registrable Securities are subject to the following:
(a) No Stockholder may, directly or indirectly,
offer, sell, transfer, assign, pledge, hypothecate or otherwise dispose of the
Registrable Securities (or solicit any offers to purchase or otherwise acquire
or take a pledge of such Registrable Securities), except (A) pursuant to an
effective registration statement under the Securities Act and the rules and
regulations promulgated thereunder, (B) Rule 144 of the Commission (or any
similar rule or rules then in force ("Rule 144")) if such rule is available
and (C) any other legally available means of transfer; provided, however, that
in the case of this clause (C) only and at the Company's written request and
expenses (including, without limitation, reasonable fees and expenses of
counsel), the Holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together
with an opinion of counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such
10
<PAGE>
transfer of Registrable Securities may be effected without registration of such
Registrable Securities under the Securities Act;
(b) Although the Company will use its best efforts
to cause the Shelf Registration Statement to become effective in accordance
with this Agreement, (A) the offer and sale of Registrable Securities have not
been registered under the Securities Act or registered or qualified under
any "Blue Sky" state securities laws as of the date hereof and will not
be registered or qualified under the Securities Act or any "Blue Sky" state
securities laws at the Effective Time of the Merger, (B) each Stockholder must
continue to bear the economic risk of the investment in its shares of
Registrable Securities until the offer and sale of such Registrable Securities
are subsequently registered and/or qualified under the Securities Act and any
applicable "Blue Sky" state securities laws pursuant to this Agreement or an
exemption from such registration and/or qualification is available, (C) there
can be no assurance that the offer and sale of such Stockholder's Registrable
Securities will be registered and/or qualified under the Securities Act or any
applicable "Blue Sky" state securities laws at any time, (D) when and if such
Stockholder's Registrable Securities may be disposed of without registration in
reliance upon Rule 144, the offer and sale of such Stockholder's Registrable
Securities may not qualify under Rule 144 since dispositions under such
Rule can be made only in limited amounts in accordance with the terms and
conditions of such Rule, (E) if the exemption afforded by Rule 144 is not
available, public offer or sale of the Registrable Securities without
registration willrequire the availability of an exemption under the Securities
Act, (F) a restrictive legend in substantially the form hereinafter set forth
shall be placed upon the Registrable Securities, and (G) a notation shall be
made in the appropriate records of the Company indicating that the Registrable
Securities are subject to restrictions on transfer and appropriate stop-transfer
instructions will be issued to the transfer agent of the Company with respect to
the Registrable Securities;
(c) If any Registrable Securities are disposed of
in accordance with Rule 144, the Holder shall deliver to the Company at or prior
to the time of such disposition an executed copy of Form 144 (if required
by Rule 144) and such other documentation as the Company may reasonably
require in connection with such disposition; and
(d) The Registrable Securities shall bear a
legend in substantially the following form:
THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT"). SUCH SHARES MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR
11
<PAGE>
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE
RESPECTIVE RULES AND REGULATIONS THEREUNDER. THE TRANSFER
OF THESE SHARES IS ALSO SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT, DATED AS OF AUGUST
9, 1996, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
OFFICES OF HCIA INC., 300 EAST LOMABARD STREET, BALTIMORE,
MARYLAND 21202, ATTENTION: VICE PRESIDENT AND GENERAL COUNSEL,
AND NO TRANSFER OF THE SHARES SHALL BE VALID OR EFFECTIVE
UNLESS AND UNTIL THE TERMS AND CONDITIONS OF SUCH REGISTRATION
IGHTS AGREEMENT SHALL HAVE BEEN COMPLIED WITH IN FULL.
4. REPRESENTATIONS BY STOCKHOLDERS.
Each Stockholder represents and warrants to the
Company that:
(a) it has been furnished with a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, Form 10-Q for the fiscal quarter ended March 31, 1996, Annual Report to
Stockholders for the fiscal year ended December 31, 1995, and Proxy Statement
for the Annual Meeting of Stockholders to be held on August 7, 1996, each as
filed with the Commission;
(b) its principal address is set forth in
Schedule I; and
(c) it is (i) an accredited investor as that
term is defined in Regulation D promulgated under the Securities Act and/or
(ii) has such knowledge and experience in financial and business affairs
that it is capable of evaluating the merits and risks of an investment in the
Registrable Securities.
5. INTERPRETATION OF THIS AGREEMENT
(a) Directly or Indirectly. Where any provision in
this Agreement refers to action to be taken by any Person, or which such Person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed entirely within such
State.
12
<PAGE>
(c) Section Headings. The headings of the sections
and subsections of this Agreement are inserted for convenience only and
shall not be deemed to constitute a part thereof.
6. MISCELLANEOUS
(a) Notices.
(i) All communications under this Agreement
shall be in writing and shall be delivered by hand or mailed by overnight
courier or by registered or certified mail, postage prepaid:
(A) if to the Company, to 300 East Lombard
Street, Baltimore, Maryland 21202, Attention: Vice President
and General Counsel, or at such other address as it may have
furnished in writing to the Investors;
(B) if to the Stockholders, at the address
listed on Schedule I hereto, or at such other address as may
have been furnished the Company in writing.
(iii) Any notice so addressed shall be deemed to be
given: if delivered by hand, on the date of such delivery; if mailed by courier,
on the first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
(b) Reproduction of Documents. This Agreement
and all documents relating thereto, including, without limitation, any
consents, waivers and modifications which may hereafter be executed may be
reproduced by the Stockholders by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and the
Stockholders may destroy any original document so reproduced. The parties
hereto agree and stipulate that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by the Stockholders in the regular course of business)
and that any enlargement, facsimile or further reproduction of such reproduction
shall likewise be admissible in evidence.
(c) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties.
(d) Entire Agreement; Amendment and Waiver.
This Agreement constitutes the entire understanding of the parties hereto
and supersedes all prior understanding among such parties. This
Agreement may be amended, and the observance of any term of this Agreement
may be waived, with (and only with) the written
13
<PAGE>
consent of the Company and the Stockholders holding a majority of the then
outstanding Registrable Securities.
(e) Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original
and all of which together shall be considered one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
HCIA INC.
By: /s/ Charles A. Berardesco
_____________________________
Name: Charles A. Berardesco
Title: Vice President & General
Counsel
STOCKHOLDERS:
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co.,
its General Partner
By: /s/ Robert S. Hillas
_________________________
Name: Robert S. Hillas
Title: Partner
UNITED HEALTHCARE SERVICES, INC.
By: /s/ Bernard J. McDouagh
_________________________
Name: Bernard J. McDouagh
Title: V.P. Business Research
HLM PARTNERS V, L.P.
By: /s/ Peter Grua
_________________________
Name: Peter Grua
Title: General Partner
HLM PARTNERS VII, L.P.
By: /s/ Peter Grua
_________________________
Name: Peter Grua
Title: General Partner
LAWRENCE J. BYRNE
/s/ Lawrence J. Byrne
----------------------------
KEVIN J. HICKS
/s/ Kevin J. Hicks
----------------------------
15
<PAGE>
SCHEDULE I
Number of
Name and Address of Stockholder Registrable Securities
- --------------------------------- ------------------------
Warburg, Pincus Investors, L.P. 221,547
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
United HealthCare Services, Inc. 17,106
9900 Bren Road, East
Minnetonka, Minnesota 55343
Attention: Bernard F. McDonagh
HLM Partners V, L.P. 4,268
222 Berkeley Street
Suite 2150
Boston, MA 02116
Attention: Peter Grua
HLM Partners VII, L.P. 17,075
222 Berkeley Street
Suite 2150
Boston, MA 02116
Attention: Peter Grua
Lawrence J. Byrne 116,482
c/o LBA Health Care Management, Inc.
6300 South Syracuse Way
Suite 630
Englewood, CO 80111
Kevin J. Hicks 116,482
c/o LBA Health Care Management, Inc.
6300 South Syracuse Way
Suite 630
Englewood, CO 80111
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Primary (1) Fully Diluted(1)
(In thousands, except per share data)
<S> <C> <C>
Three months ended June 30, 1996
Weighted average shares outstanding............................ 9,153
Effect of dilutive common stock equivalents.................... 0 N/A
--------------
Weighted average shares outstanding for EPS purposes........... 9,153
Net income..................................................... $ (327)
--------------
Net income per share (2)....................................... $( 0.04)
==============
Six months ended June 30, 1995
Weighted average shares outstanding............................ 9,061 9,061
Effect of dilutive common stock equivalents.................... 488 515
-------------- --------------
Weighted average shares outstanding for EPS purposes........... 9,549 9,576
Net income..................................................... $964 $964
-------------- --------------
Net income per share (2)....................................... $0.10 $0.10
============== ==============
</TABLE>
(1) As of June 30, 1996, options to purchase 692,306 shares of common stock were
outstanding. In the calculation of primary net income per share, these options
were included in the average number of common shares outstanding using the
treasury stock method based on the average price of the common stock for the
period.
As the price of the Company's common stock on June 30, 1996 was in excess of the
average price for the six months ended June 30, 1996, the number of shares used
to calculate net income per share on a fully diluted basis is increased as using
the treasury stock method with the period end price result in a higher number of
shares deemed outstanding.
As the Company had a loss for the three months ended June 30, 1996, the fully
diluted earnings per share is not applicable.
(2) In accordance with Accounting Principle Board Opinion No. 15, any reduction
of less than 3% need not be considered dilutive. Accordingly, the consolidated
statements of operations reflect net income per share and the weighted average
number of shares used in the calculation on a primary basis only.
EXHIBIT 21.1
HCIA INC.
SUBSIDIARIES
Response Healthcare Information Management, Inc.
Healthcare Knowledge Systems Limited
CHKS Limited*
CHKS, S.A.
IASIST, S.A.
LBA Holdings, Inc.
LBA Health Care Management, Inc.**
- ---------------
*CHKS Limited is 55% owned by Healthcare Knowledge Systems Limited and 45%
directly owned by HCIA.
**Directly and wholly owned by LBA Holdings, Inc.
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
HCIA Inc.:
We consent to the use of our reports on the consolidated financial
statements and schedule of HCIA Inc. and subsidiaries as of December 31, 1994
and 1995 and for each of the years in the three-year period ended December 31,
1995, and to the reference to our firm under the headings "Selected Consolidated
Financial Data" and "Experts" in the registration statement.
Our reports dated January 19, 1996 refer to the adoption of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "ACCOUNTING FOR INCOME TAXES."
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
August 13, 1996
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
HCIA Inc.:
We consent to the use of our report dated June 17, 1993 on the financial
statements of Datis Corporation as of March 31, 1993 and for the year then
ended, incorporated by reference in the prospectus, and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
San Jose, California
August 13, 1996
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
HCIA Inc.:
We consent to the use of our report dated January 30, 1996 on the financial
statements of William M. Mercer, Incorporated National Health Analysis Unit as
of December 31, 1993 and 1994 and September 30, 1995 and for the years ended
December 31, 1993 and 1994 and the nine months ended September 30, 1995,
incorporated by reference in the prospectus, and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
August 13, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
July 22, 1994 relating to the financial statements of Datis Corporation, which
appears in HCIA Inc.'s Form 8-K dated July 19, 1996, as amended. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
/s/ PRICE WATERHOUSE LLP
San Jose, California
August 12, 1996
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement on Form S-3 and related Prospectus
of HCIA Inc. ("HCIA") for the registration of 2,216,696 shares of its common
stock and to the incorporation by reference therein of our report dated January
26, 1996, except Note 12 as to which the date is July 30, 1996, with respect to
the consolidated balance sheets of HealthVISION, Inc. as of December 31, 1994
and 1995 and the consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1995 and for the period February 2,
1994 (inception) through December 31, 1994 included in HCIA's Current Report on
Form 8-K dated July 19, 1996, as amended by Amendment A-1 dated August 13, 1996,
filed with the Securities and Exchange Commission and to the use of our report
dated January 12, 1996, except for Note 8 as to which the date is July 30, 1996,
with respect to the combined balance sheet of LBA Health Care Management, Inc.
and Healthcare Data Source, Inc. (collectively, the "Predecessor Business") as
of December 31, 1994 and the combined statements of operations and retained
earnings and cash flows for the Predecessor Business for each of the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 through
September 27, 1995, the balance sheet of LBA Health Care Management, Inc. as of
December 31, 1995, and the statements of operations and retained earnings and
cash flows of LBA Health Care Management, Inc. for the period from September 28,
1995 through December 31, 1995.
/s/ ERNST & YOUNG, LLP
Walnut Creek, California
August 13, 1996
