<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 1-13772
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3787901
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
(Address of Principal Executive Offices) (Zip Code)
(813) 289-1000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of Common Stock outstanding as of July 31, 1996.
<TABLE>
<S> <C>
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 14,908,847
</TABLE>
<PAGE> 2
HEALTHPLAN SERVICES CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Balance Sheet
June 30, 1996 and December 31, 1995 . . . . . . . . . . 2
Consolidated Statement of Income Three and Six
Six Months Ended June 30, 1996 and 1995 . . . . . . . . 3
Consolidated Statement of Changes in
Common Stockholders' Equity June 30, 1996 . . . . . . . 4
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 5,173 $ 4,738
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,338 1,005
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . 30,040 36,723
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 8,189 6,411
Refundable income taxes. . . . . . . . . . . . . . . . . . . . . . . . - 1,041
Prepaid commissions. . . . . . . . . . . . . . . . . . . . . . . . . . 319 748
Prepaid expenses and other current assets. . . . . . . . . . . . . . . 2,735 1,485
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 965
-------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 55,921 53,116
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 9,833 9,241
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349 1,463
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,900 -
Investment in unconsolidated subsidiary. . . . . . . . . . . . . . . . 2,056 -
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,824 48,847
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $123,883 $112,667
======== ========
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,178 $ 3,407
Premiums payable to carriers . . . . . . . . . . . . . . . . . . . . 25,752 17,209
Commissions payable. . . . . . . . . . . . . . . . . . . . . . . . . 3,105 2,897
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 716 947
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 2,976 5,093
Accrued contract commitments . . . . . . . . . . . . . . . . . . . . - 482
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 314 -
Current portion of long-term debt payable. . . . . . . . . . . . . . 70 68
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 34,111 30,103
Note payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,186 1,214
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 631 354
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 23 30
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 35,951 31,701
-------- --------
Common stockholders' equity:
Common stock voting, $.01 par value, 100,000,000
authorized and 13,400,757 issued and outstanding
at June 30, 1996; 25,000,000 authorized and
13,395,357 issued and outstanding at December 31, 1995 . . . . . . . 134 134
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 71,870 71,636
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 15,970 9,196
-------- --------
87,974 80,966
Less: Valuation allowance on securities available for sale . . . . . (42) -
-------- --------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 87,932 80,966
-------- --------
Total liabilities and stockholders' equity. . . . . . . . . . . . $123,883 $112,667
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
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HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, EMDED JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . . . . . . . $31,167 $22,733 $61,465 $46,146
Interest income . . . . . . . . . . . . . . . . . . . . 696 465 1,405 627
------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . . . 31,863 23,198 62,870 46,773
------- ------- ------- -------
Expenses:
Agents commissions . . . . . . . . . . . . . . . . . 10,191 8,943 19,952 18,246
Personnel expenses . . . . . . . . . . . . . . . . . 8,458 5,723 16,850 11,910
General and administrative . . . . . . . . . . . . . . . 5,854 3,958 11,676 7,972
Pre-operating and
contract start-up costs . . . . . . . . . . . . . . 309 - 586 -
Depreciation and amortization . . . . . . . . . . . . . 1,394 1,063 2,668 1,994
------- ------- ------- -------
Total expenses . . . . . . . . . . . . . . . 26,206 19,687 51,732 40,122
------- ------- ------- -------
Income before interest expense
and income taxes . . . . . . . . . . . . . . . . . 5,657 3,511 11,138 6,651
Interest expense . . . . . . . . . . . . . . . . . . . . 17 16 33 32
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 5,640 3,495 11,105 6,619
Provision for income taxes . . . . . . . . . . . . . . . 2,200 1,423 4,331 2,692
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . $ 3,440 $ 2,072 $ 6,774 $ 3,927
======= ======= ======= =======
Dividends on Redeemable
Preferred Stock . . . . . . . . . . . . . . . . . . . $ - $ - $ - $ 285
======= ======= ======= =======
Net income attributable to
common stock . . . . . . . . . . . . . . . . . . . . $ 3,440 $ 2,072 $ 6,774 $ 3,642
======= ======= ======= =======
Pro forma net income per share . . . . . . . . . . . . . $ 0.26 $ 0.15 $ 0.50 $ 0.29
======= ======= ======= =======
Pro forma weighted average
shares outstanding . . . . . . . . . . . . . . . . . . 13,460 13,403 13,460 13,400
======= ======= ======= =======
Historical weighted average net
income per share . . . . . . . . . . . . . . . . . . $ .26 $ .20 $ 0.50 $ 0.39
======= ======= ======= =======
Historical weighted average
shares outstanding . . . . . . . . . . . . . . . . . . 13,456 10,511 13,455 9,243
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION> Voting Additional
Common Paid-in Retained Valuation
Stock Capital Earnings Allowance Total
------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . . . . . . . $134 $71,636 $ 9,196 $ 0 $80,966
Vesting of stockholders' interest in - 158 - - 158
management stock (unaudited) . . . . . . . . . .
Issuance of 5,400 shares in connection with - 76 - - 76
stock option plans (unaudited) . . . . . . . . . .
Valuation allowance from marketable
securities (unaudited) . . . . . . . . . . . . . . - - - (42) (42)
Net income (unaudited) . . . . . . . . . . . . . . . - - 6,774 - 6,774
---- ------- ------- ---- -------
Balance at June 30, 1996 (unaudited) . . . . . . . . $134 $71,870 $15,970 $(42) $87,932
==== ======= ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1995
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,774 $ 3,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555 1,238
Amortization of goodwill. . . . . . . . . . . . . . . . . . . . . 1,014 654
Amortization of deferred costs. . . . . . . . . . . . . . . . . . 99 103
Issuance of common stock to management . . . . . . . . . . . . . 158 175
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 (851)
(Increase) Decrease in:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . (8,333) (3,203)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (1,778) 349
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . 1,041 -
Prepaid commissions . . . . . . . . . . . . . . . . . . . . . . . 429 235
Prepaid expenses and other current assets . . . . . . . . . . . . (1,250) (960)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (28)
Increase (Decrease) in:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . (2,229) 19
Premiums payable to carriers. . . . . . . . . . . . . . . . . . . 8,542 4,768
Commissions payable . . . . . . . . . . . . . . . . . . . . . . . 208 123
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . (231) (47)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . (2,117) (96)
Accrued contract commitments. . . . . . . . . . . . . . . . . . . (482) (1,547)
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . 314 (135)
-------- -------
Net cash provided by operating activities . . . . . . . . . . 4,852 4,724
-------- -------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . . . . . . . . . (2,153) (2,526)
(Purchases) sales of short-term investments, net . . . . . . . . . 6,641 (52,633)
Investment in unconsolidated subsidiary. . . . . . . . . . . . . . (2,056) -
Increase in note receivable. . . . . . . . . . . . . . . . . . . . (6,900) -
-------- -------
Net cash used in investing activities . . . . . . . . . . . . (4,468) (55,159)
-------- -------
Cash flows from financing activities:
Principal payments on note payable. . . . . . . . . . . . . . . . (25) (17)
Net proceeds from initial public
offering of common stock. . . . . . . . . . . . . . . . . . . - 50,905
Issuance of common stock. . . . . . . . . . . . . . . . . . . . . 76 -
-------- -------
Net cash provided by (used in) financing activities . . . . . 51 50,888
-------- -------
Net increase in cash and cash equivalents . . . . . . . . . . . . . 435 453
Cash and cash equivalents at beginning of period . . . . . . . . . 4,738 4,303
-------- -------
Cash and cash equivalents at end of period. . . . . . . . . . . . . $ 5,173 $ 4,756
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . $ 32 $ 33
======== =======
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . $ 1,954 $ 3,778
======== =======
Supplemental disclosure of noncash activities:
Exchange of Redeemable Preferred Stock
Series A and Series B for common stock. . . . . . . . . . . . $ - $19,570
======== =======
Issuance of common stock to management . . . . . . . . . . . . $ 158 $ 175
======== =======
Dividends on redeemable preferred stock . . . . . . . . . . . . . $ - $ 285
======== =======
</TABLE>
The accompany notes are an integral part of these consolidated
financial statements.
5
<PAGE> 7
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
On October 1, 1994, HealthPlan Services Corporation (the "Company"), a
company formed by certain Company officers and Noel Group, Inc., acquired the
outstanding stock and assumed designated liabilities of Plan Services, Inc., a
division of The Dun & Bradstreet Corporation. The Company provides
distribution, enrollment, billing and collection, claims administration, and
information reports and analysis on behalf of health care payors and providers.
Its customers include small businesses, health care purchasing alliances, health
maintenance organizations ("HMOs") and other managed care organizations,
insurance companies, and organizations with self-funded health care plans.
Effective July 1, 1996, the Company acquired Harrington Services Corporation
("Harrington") and Consolidated Group Inc., Consolidated Group Claims, Inc.,
Consolidated Health Coalition, Inc., and Group Benefit Administrators Insurance
Agency, Inc. (collectively, the "Consolidated Group"). As a result, the Company
now serves approximately 125,000 businesses, plan holders and governmental
agencies in 50 states, Washington, D.C. and Puerto Rico, representing
approximately 3,000,000 members.
On May 19, 1995, the Company completed an initial public offering of
4,025,000 shares of its Common Stock, shares of which are presently traded on
the New York Stock Exchange.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The interim financial data is unaudited and should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto included
in the Company's 1995 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996.
In the opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for fair presentation
of financial position and results of operations for the interim periods
presented. Interim results are not necessarily indicative of results for a full
year.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries HealthPlan Services, Inc. ("HPS") and
HealthCare Informatics Corporation, as well as Third Party Claims Management,
Inc. ("TPCM"), the wholly owned subsidiary of HPS. All intercompany
transactions and balances have been eliminated in consolidation.
Short-Term Investments
Investments in marketable securities at June 30, 1996 consisted of a
professionally managed portfolio of short-term financial instruments including
short-term municipal bonds. As of January 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"). The effect of SFAS 115
is dependent upon classification of the investment. As
6
<PAGE> 8
the Company's investments are classified as available for sale, they are
measured at fair market value. Any decline in the value of investments is
recorded as a valuation allowance in the equity section of the balance sheet.
There are no investments with maturities of greater than one year.
On July 1, 1996, substantially all of the Company's investments were
liquidated in order to meet cash requirements related to the Company's
acquisitions of Harrington and Consolidated Group.
Earnings per share
Earnings per share was computed based on both the historical and pro forma
weighted average number of shares of Common Stock outstanding during the period.
The pro forma basis gives retroactive effect in 1995 to the exchange of the
Company's Redeemable Series A and Series B Preferred Stock at the time of the
Company's initial public offering. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all stock options and shares of
Common Stock issued have been included as outstanding for the entire period
using the treasury stock method.
Income Taxes
The Company's effective tax rate for these periods differed from the
statutory rate due primarily to the amortization of goodwill and state income
taxes. The Company's effective tax rate is expected to vary from the statutory
rate for the remainder of the fiscal year.
Pre-Operating and Contract Start-Up Costs
The Company has elected to expense as incurred, and segregate from other
operating costs, those costs related to the preparation for and implementation
of new products and contracts for services to new customers prior to the
initiation of significant revenue activity from these new revenue initiatives.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock
Based Compensation," which will be adopted by the Company in 1996. SFAS 123
establishes a fair value based method of accounting for stock-based compensation
plans. However, it also allows companies to continue to apply the intrinsic
value method currently prescribed by existing generally accepted accounting
principles on the condition that pro forma disclosures are made illustrating the
effect of the fair value based method on the income statement.
The Company has not yet decided if it will apply the effects of SFAS 123
to its income statement upon adoption in 1996 or if it will provide pro forma
disclosures only.
3. CREDIT FACILITY
On May 17, 1996, the Company entered into a definitive credit agreement
pursuant to which the Company received commitments to a $75 million senior
credit facility from several participating banks. This line of credit was
amended to increase it to $85 million on July 1, 1996. First Union National
Bank of North Carolina ("First Union") serves as administrative agent with
respect to this facility. The Company used available capital from the facility
to refinance its existing $20 million credit facility with First Union, to fund
its July 1, 1996 acquisitions of Harrington and Consolidated Group, and to
support other general corporate purposes. Like the previous credit
7
<PAGE> 9
facility, the new facility contains provisions which require the Company to
maintain certain minimum financial ratios, impose limitations on acquisition
activity and capital spending, and prohibit the Company from declaring or paying
any dividend upon any of its capital stock without the consent of First Union.
4. ACQUISITIONS
On August 31, 1995, HPS acquired all of the issued and outstanding shares
of capital stock of TPCM. TPCM's principal business is the administration of
medical benefits for self-funded health care plans.
On October 12, 1995, HPS acquired substantially all of the assets and
assumed certain liabilities of the third party administration business of
Diversified Group Brokerage Corporation ("DGB"), effective as of October 1,
1995.
Both TPCM and DGB have experienced declining revenues due to customer
attrition. If additional customers elect to change suppliers, it could have an
adverse effect on the expected economic benefits of the acquisitions. The
Company has begun consolidating and integrating the operations of the TPCM and
DGB businesses and intends to continue this process throughout the remainder of
1996.
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc. ("Medirisk"), a provider of proprietary health care information products
and services that track the price and utilization of medical procedures, to
purchase $2.0 million of Medirisk preferred stock. This purchase represented a
9% ownership interest in Medirisk, which is accounted for by the Company under
the cost method. In addition, the Company agreed to lend Medirisk up to $10.0
million over four years in the form of debt, with interest payable to the
Company at a rate of 10% per annum, for which the Company would receive
detachable warrants to purchase Medirisk common stock at $0.01 per share. On
March 15, 1996, Medirisk exercised its option to issue $6.9 million in debt,
and has acquired two health care data companies using proceeds from the
Company's preferred stock investment and debt purchase. The investment could
result in the Company owning up to approximately 20% of Medirisk on a fully
diluted basis.
5. SUBSEQUENT EVENTS
On July 1, 1996, the Company acquired all of the issued and outstanding
shares of capital stock of Harrington for a purchase price consisting of (i)
approximately $32.5 million in cash, subject to a post-closing adjustment based
on the balance sheet of Harrington as of June 30, 1996, and (ii) 1,347,133
shares of common stock with a total market value at time of issuance of
approximately $28.8 million. Harrington's principal business is the
administration of self-funded managed care plans for large corporations,
government sector employers, Taft-Hartley plans, and associations.
Effective as of July 1, 1996, the Company acquired all of the issued and
outstanding shares of capital stock of Consolidated Group for a purchase price
of approximately $61.5 million, subject to a post-closing adjustment based on
the balance sheet of Consolidated Group as of June 30, 1996. The principal
business of Consolidated Group is the provision of administrative services for
health benefits to small businesses.
The unaudited pro forma consolidated results of operations of the Company
giving effect to the 1996 acquisitions of Harrington and Consolidated Group
have not yet been prepared but will be included on Form 8-K/A which will be
filed as soon as practicable but no later than September 16, 1996.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of the Company for the three and six months ended June 30,
1996 compared to the same periods in 1995. The Company provides distribution,
enrollment, billing and collection, claims administration, and information
reports and analysis on behalf of health care payors and providers. Its
customers include small businesses, health care purchasing alliances, HMOs and
other managed care organizations, insurance companies, and organizations with
self-funded health care plans. Effective July 1, 1996, the Company acquired
Harrington and Consolidated Group. As a result, the Company now serves
approximately 125,000 businesses, plan holders and governmental agencies in 50
states, Washington, D.C. and Puerto Rico, representing approximately 3,000,000
members. The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues. . . . . . . . . . . . . . . . . . . . . 97.8% 98.0% 97.8% 98.7%
Interest income . . . . . . . . . . . . . . . . . . . . . . 2.2% 2.0% 2.2% 1.3%
Total revenues. . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Expenses:
Agents commissions . . . . . . . . . . . . . . . . . . 32.0% 38.6% 31.7% 39.0%
Personnel expenses . . . . . . . . . . . . . . . . . . 26.5% 24.7% 26.8% 25.5%
General and administrative. . . . . . . . . . . . . . . 18.3% 17.0% 18.6% 17.0%
Pre-operating and contract start-up costs . . . . . . . 1.0% 0.0% 0.9% 0.0%
Depreciation and amortization . . . . . . . . . . . 4.4% 4.6% 4.2% 4.3%
Total expenses . . . . . . . . . . . . . 82.2% 84.9% 82.2% 85.8%
Net income before interest expense . . . . . . . . . . . 17.8% 15.1% 17.8% 14.2%
Interest expense . . . . . . . . . . . . . . . . . . . . . 0.1% 0.0% 0.1% 0.0%
Net income before income taxes . . . . . . . . . . . . . 17.7% 15.1% 17.7% 14.2%
Provision for income taxes . . . . . . . . . . . . . . . . 6.9% 6.2% 6.9% 5.8%
Net income . . . . . . . . . . . . . . . . . . . . . . . . 10.8% 8.9% 10.8% 8.4%
</TABLE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenues for the three months ended June 30, 1996 increased $8.7 million,
or 37.5%, to $31.9 million from $23.2 million for the same period in 1995.
This increase resulted primarily from revenue of $4.7 million produced by the
Company's 1995 acquisitions, and $3.2 million from internal growth including
the new alliance contract in Kentucky and new Administrative Services Only
("ASO") and Multiple Employer Trust ("MET") business.
Agents commissions expenses for the three months ended June 30, 1996
increased $1.3 million, or 14.6%, to $10.2 million from $8.9 million for the
same period in 1995. Agents commissions represented 32.7% of operating revenues
in 1996 (39.3% in 1995). This decrease in commissions as a percentage of
revenue resulted primarily from an increase in ASO and alliance revenue as a
percentage of total revenue. As a percentage of revenue, MET agents commissions
are typically significantly greater than ASO agents commissions. There are no
agents commissions associated with alliance revenues. MET agents commissions
represented 45.3% of MET revenues in 1996 (46.2% in 1995), and ASO agents
commissions represented 14.9% of ASO revenues in 1996 (11.7% in 1995).
9
<PAGE> 11
Personnel costs for the three months ended June 30, 1996 increased $2.8
million, or 49.1%, to $8.5 million from $5.7 million for the same period in
1995. This increase primarily resulted from the additional costs associated
with the Company's 1995 acquisitions, the alliance contract in Kentucky, and
new ASO contracts.
General and administrative expenses for the three months ended June 30,
1996 increased $1.9 million, or 47.5%, to $5.9 million from $4.0 million for
the same period in 1995. This increase primarily resulted from other operating
expenses (primarily postage, telephone and printing) related to the Company's
1995 acquisitions and costs associated with the Kentucky alliance and new ASO
contracts.
The Company incurred $0.3 million in pre-operating and start-up costs
during the three months ended June 30, 1996. These costs related primarily to
the state-sponsored health care purchasing alliances in North Carolina and
Washington, the private alliance in Texas and the new ASO contracts, and
consisted of salaries and wages and temporary help, printing and travel
expenses.
Depreciation and amortization expenses for the three months ended June 30,
1996 increased $0.3 million, or 27.3% to $1.4 million from $1.1 million in
1995. This increase related primarily to an increase in the amortization of
goodwill related to the Company's 1995 acquisitions, data processing equipment
purchased, and internally developed software.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues for the six months ended June 30, 1996 increased $16.1 million,
or 34.4%, to $62.9 million from $46.8 million for the same period in 1995.
This increase resulted primarily from revenue of $9.3 million produced by the
Company's 1995 acquisitions, $5.5 million from internal growth including the
new alliance contract in Kentucky and new ASO and MET business, and additional
interest income of $0.8 million from the proceeds of the Company's initial
public offering on May 19, 1995.
Agents commissions expenses for the six months ended June 30, 1996
increased $1.8 million, or 9.9%, to $20.0 million from $18.2 million for the
same period in 1995. Agents commissions represented 32.5% of operating
revenues in 1996 (39.5% in 1995). This decrease in commissions as a percentage
of revenue resulted primarily from an increase in ASO and alliance revenue as a
percentage of total revenue. As a percentage of revenue, MET agents
commissions are typically significantly greater than ASO agents commissions.
There are no agents commissions associated with alliance revenues. MET agents
commissions represented 44.7% of MET revenues in 1996 (46.5% in 1995), and ASO
agents commissions represented 14.3% of ASO revenues in 1996 (10.8% in 1995).
Personnel costs for the six months ended June 30, 1996 increased $5.0
million, or 42.0%, to $16.9 million from $11.9 million for the same period in
1995. This increase primarily resulted from the additional costs associated
with the Company's 1995 acquisitions, the alliance contract in Kentucky, and
new ASO contracts.
General and administrative expenses for the six months ended June 30, 1996
increased $3.7 million, or 46.3%, to $11.7 million from $8.0 million for the
same period in 1995. This increase primarily resulted from other operating
expenses (primarily postage, telephone and printing) related to the Company's
1995 acquisitions and costs associated with the Kentucky alliance and new ASO
contracts.
The Company incurred $0.6 million in pre-operating and start-up costs
during the six months ended June 30, 1996. These costs related primarily to
the contracts with the state-sponsored health care purchasing alliances in
North Carolina and Washington, the private alliance in Texas and the new ASO
contracts, and consisted of salaries and wages and temporary help, printing and
travel expenses.
10
<PAGE> 12
Depreciation and amortization expenses for the six months ended June 30,
1996 increased $0.7 million, or 35.0% to $2.7 million from $2.0 million in
1995. This increase related primarily to an increase in the amortization of
goodwill related to the Company's 1995 acquisitions, data processing equipment
purchased, and internally developed software.
B. LIQUIDITY AND CAPITAL RESOURCES
On May 19, 1995, the Company completed an initial public offering which
generated net proceeds of approximately $51.0 million. On August 31, 1995, HPS
used approximately $7.5 million of the offering proceeds to acquire all of the
outstanding capital stock of TPCM. On October 12, 1995, HPS used approximately
$5.1 million of the offering proceeds to acquire substantially all of the
assets of the third party administration business of DGB. The Company placed an
additional $5 million of the proceeds in an escrow account to guarantee the
availability of funds for semi-monthly payments due with respect to the DGB
acquisition. On January 13, 1996, using offering proceeds, the Company
acquired $2.0 million of preferred stock of Medirisk, representing a 9%
ownership interest in Medirisk, and on March 15, 1996, Medirisk exercised its
option to issue $6.9 million of debt with detachable warrants to the Company.
To date the Company has not elected to convert the detachable warrants into
common stock of Medirisk.
On May 17, 1996, the Company entered into a definitive credit agreement
pursuant to which the Company received commitments to a $75 million senior
credit facility from several participating banks. This line of credit was
amended to increase it to $85 million on July 1, 1996. First Union serves as
administrative agent with respect to this facility. The Company used available
capital from the facility to refinance its existing $20 million facility with
First Union, to fund the acquisitions of Harrington and Consolidated Group, and
to support other general corporate purposes. Like the previous credit facility,
the new facility contains provisions which require the Company to maintain
certain minimum financial ratios, impose limitations on acquisition activity
and capital spending, and prohibit the Company from declaring or paying any
dividend upon any of its capital stock without the consent of First Union.
On July 1, 1996, the Company liquidated substantially all of the remaining
proceeds from the public offering and borrowed against its line of credit
to fund the acquisitions of Harrington and Consolidated Group. The draw
against the line of credit averaged approximately $69 million during July,
1996.
Based on current expectations, the Company believes that all operating,
investing and financing activities for the remainder of 1996 and the
foreseeable future will be met from internally generated cash flow, available
cash, or its existing credit facility.
C. SEASONALITY AND INFLATION
The Company has not experienced any pattern of seasonality with respect to
its sales.
The Company does not believe that inflation had a material effect on its
results of operations for the three and six months ended June 30, 1996 or June
30, 1995. There can be no assurance, however, that the Company's business will
not be affected by inflation in the future.
11
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1995, Self Funded Strategies, L.L.C. ("SFS") filed a complaint
against the Company in the District Court of Dallas County, Texas. SFS
provided sales and marketing services for the Company's ASO business between
July 1992 and April 1995, when the Company terminated its contract with SFS.
The SFS complaint alleges that the Company wrongfully terminated the SFS
contract, and also alleges tortious interference and breach of implied covenant
of good faith and fair dealing. The complaint asserted an estimated $25
million in compensatory damages plus unspecified punitive damages. The Company
and SFS have agreed to resolve this dispute through binding arbitration, and
the complaint has been dismissed without prejudice. The Company intends to
defend its interests in this matter vigorously. There can be no assurance,
however, regarding the outcome of this matter, and an adverse outcome could
have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
At the Annual Meeting of Stockholders of the Company held on May 2, 1996,
the Company's stockholders approved an amendment to the Company's Certificate
of Incorporation to increase the number of shares of Common Stock of the
Company, par value $0.01 per share, from 25,000,000 shares to 100,000,000
shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders, held on May 2, 1996, the
stockholders of the Company: (i) elected eleven directors to serve for the
ensuing year or until their respective successors have been elected and
qualified or their earlier resignation or removal; (ii) adopted an amendment to
the Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock, par value $0.01 per share, from
25,000,000 shares to 100,000,000 shares; and (iii) adopted the Company's 1996
Employee Stock Purchase Plan. The results of these votes were as follows:
<TABLE>
<CAPTION>
(i) Director Nominees For Withheld Broker Non-Votes
----------------- --- -------- ----------------
<S> <C> <C> <C>
James K. Murray, Jr. 11,646,407 10,092 400
William L. Bennett 11,646,407 10,092 400
Joseph A. Califano 11,646,407 10,092 400
Joseph S. DiMartino 11,646,407 10,092 400
John R. Gunn 11,507,207 149,292 400
Charles H. Guy, Jr. 11,646,407 10,092 400
Nancy Kane, Ph.D. 11,646,407 10,092 400
David Nierenberg 11,646,407 10,092 400
James G. Niven 11,646,407 10,092 400
Samuel F. Pryor, IV 11,646,407 10,092 400
Trevor G. Smith 11,646,407 10,092 400
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
---- ------- ------- ----------------
<S> <C> <C> <C> <C>
(ii) Amendment to Certificate
of Incorporation 11,363,342 290,042 3,065 400
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
(iii) Adoption of Company's 1996
Employee Stock Purchase Plan 11,643,392 8,642 4,065 400
</TABLE>
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation, as amended and
restated through May 28, 1996 (incorporated by reference to Exhibit
4.1 to the Company's Form S-8 Registration Statement 333-07631, filed
on July 3, 1996).
4.1 Excerpts from the Certificate of Incorporation, as amended through May
28, 1996 (included in Exhibit 3.1).
10.1 Credit Agreement dated as of May 17, 1996 by and among the Company,
the Lenders and First Union Bank of North Carolina, as agent, as
amended July 1, 1996.
10.2 Acquisition Agreement dated May 17, 1996, between the Company,
Consolidated Group, Inc., Consolidated Group Claims, Inc.,
Consolidated Health Coalition, Inc., and Group Benefit Administrators
Insurance Agency, Inc., the Named Shareholders, and Holyoke L. Whitney
as Shareholders' Representative (incorporated by reference to Exhibit
2 to the Company's Form 8-K Current Report filed on July 15, 1996).
10.3 Plan and Agreement of Merger dated May 28, 1996 by and among the
Company, HealthPlan Services Alpha Corporation, Harrington Services
Corporation, and Robert Chefitz as Shareholders' Representative
(incorporated by reference to Exhibit 2 to the Company's Form 8-K
Current Report filed on July 16, 1996).
10.4 Employment and Noncompetition Agreement with Robert R. Parker, dated
June 25, 1996.
10.5 Employment and Noncompetition Agreement with Timothy T. Clifford,
dated July 1, 1996.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(b) The Company filed two reports on Form 8-K with respect to the
Harrington and Consolidated Group acquisitions, each dated July 1, 1996, to
reflect the closing date of such transactions. No financial statements were
filed with such reports. Required financial statements will be filed by
amendment to each such 8-K as soon as practicable but no later than September
16, 1996.
13
<PAGE> 15
HEALTHPLAN SERVICES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHPLAN SERVICES CORPORATION
Date: August 13, 1996 /s/ James K. Murray, Jr.
--------------------------------------------
President and Chief Executive Officer
Date: August 13, 1996 /s/James K. Murray III
--------------------------------------------
Executive Vice President and
Chief Financial Officer
14
<PAGE> 1
EXHIBIT 10.1
Credit Agreement dated as of May 17, 1996 by and among the Company, the Lenders
and First Union Bank of North Carolina, as agent, as amended July 1, 1996.
<PAGE> 2
================================================================================
CREDIT AGREEMENT
dated as of May 17, 1996,
by and among
HEALTHPLAN SERVICES CORPORATION,
as Borrower,
the Lenders referred to herein,
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Agent
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.3. Other Definitions and Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II
CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.1. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.2. Procedure for Advances of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.3. Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.4. Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.5. Optional Permanent Reduction of the Aggregate Commitment . . . . . . . . . . . . . . . . . . . 15
SECTION 2.6. Termination of Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.7. Term-Out of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.8. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.1. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.2. Notice and Manner of Conversion or Continuation of Loans . . . . . . . . . . . . . . . . . . . 19
SECTION 3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.4. Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.5. Crediting of Payments and Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.6. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.7. Nature of Obligations of Lenders Regarding Loans; Assumption by the Agent . . . . . . . . . . 21
SECTION 3.8. Changed Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.9. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.10. Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.11. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV
CLOSING; CONDITIONS OF CLOSING AND BORROWING . . . . . . . . . . . . . . . . . 25
SECTION 4.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.2. Conditions to Closing and Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.3. Conditions to All Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . . . . . . . . . . 30
SECTION 5.1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.2. Survival of Representations and Warranties, etc . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES . . . . . . . . . . . . . . . . . . . 36
SECTION 6.1. Financial Statements and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.2. Officer's Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.3. Notice of Litigation and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.1. Preservation of Existence and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.2. Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.4. Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.5. Payment and Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.6. Compliance With Laws and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.7. Environmental Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.8. Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.9. Compliance With Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.10. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.11. Visits and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.12. New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.13. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII
FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.1. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.2. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.3. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE IX
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.1. Limitations on Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.2. Limitations on Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.3. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.4. Limitations on Loans, Advances, Investments and Acquisitions . . . . . . . . . . . . . . . . . 43
SECTION 9.5. Limitations on Mergers and Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.6. Restrictions on Sale of Assets, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.7. Limitations on Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.8. Limitations on Exchange and Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.9. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.10. Certain Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.11. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.12. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.13. Payments, Etc. on Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE X
DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.3. Rights and Remedies Cumulative; Non-Waiver; etc. . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XI
THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 11.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 11.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.3. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.4. Reliance by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.6. Non-Reliance on the Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.8. The Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.9. Resignation of the Agent; Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 12.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 12.2. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 12.3. Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.4. Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.5. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.6. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.7. Binding Arbitration; Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 12.8. Reversal of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.9. Injunctive Relief; Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.10. Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.11. Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 12.12. Amendments, Waivers and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.13. Performance of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.14. All Powers Coupled with Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.15. Survival of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.16. Titles and Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 12.17. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.18. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.19. Term of Agreement; Independent Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
iv
<PAGE> 7
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Conversion/Continuation
Exhibit D - Form of Officer's Compliance Certificate
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Pledge Agreement
Exhibit G - Form of Subsidiary Guaranty Agreement
SCHEDULES
Schedule 1.1(a) - Carrier Contracts
Schedule 1.1(b) - Lenders and Commitments
Schedule 5.1(a) - Jurisdictions of Organization and
Qualification
Schedule 5.1(b) - Subsidiaries and Capitalization
Schedule 5.1(i) - ERISA Plans
Schedule 5.1(l) - Material Contracts
Schedule 5.1(m) - Labor and Collective Bargaining Agreements
Schedule 5.1(s) - Liens
Schedule 5.1(t) - Debt and Guarantees
Schedule 5.1(u) - Litigation
Schedule 9.4 - Existing Loans, Advances and Investments
v
<PAGE> 8
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of the 17th day of May, 1996, by and among
HEALTHPLAN SERVICES CORPORATION, a corporation organized under the laws of
Delaware (the "Borrower"), the Lenders who are or may become a party to this
Agreement, and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent for the
Lenders.
STATEMENT OF PURPOSE
The Borrower has requested, and the Lenders have agreed, to extend
certain credit facilities to the Borrower on the terms and conditions of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"Affiliate" means, with respect to a Person, any other Person which
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term
"control" means (a) with respect to an Affiliate of the Borrower or any
Subsidiary thereof, the power to vote ten percent (10%) or more of the
securities or other equity interests of a Person having ordinary voting power,
(b) with respect to an Affiliate of the Agent or any Lender, the power to vote
twenty percent (20%) or more of the securities or other equity interests of a
Person having ordinary voting power, or (c) with respect to any Person, the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agent" means First Union in its capacity as Agent hereunder, and any
successor thereto appointed pursuant to Section 11.9.
"Agent's Office" means the office of the Agent specified in or
determined in accordance with the provisions of Section 12.1.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms
<PAGE> 9
hereof. On the Closing Date, the Aggregate Commitment shall be Seventy-Five
Million Dollars ($75,000,000).
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time.
"Applicable Law" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all Governmental Authorities and all
orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in Section
3.1(c).
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 12.11.
"Base Rate" means, at any time, the higher of (a) the Prime Rate and
(b) the Federal Funds Rate as determined by the Agent plus 1/2 of one percent
(1/2%); each change in the Base Rate shall take effect simultaneously with the
corresponding change or changes in the Prime Rate or the Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate based upon
the Base Rate as provided in Section 3.1(a).
"Borrower" means HealthPlan Services Corporation, a Delaware
corporation, and its successors and assigns.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina are open for the conduct of their
commercial banking business, and (b) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
any LIBOR Rate Loan, any day that is a Business Day described in clause (a) and
that is also a day for trading by and between banks in Dollar deposits in the
London interbank market.
"Capital Assets" means, with respect to a Person and its Subsidiaries,
any asset that would, in accordance with GAAP, be required to be classified or
accounted for as a capital asset on a Consolidated balance sheet of such
Person.
"Capital Expenditures" means, with respect to a Person and its
Subsidiaries for any period, the aggregate cost of replacement or acquisition
of all Capital Assets of such Person and its Subsidiaries during such period,
determined on a Consolidated basis in accordance with GAAP.
"Capital Lease" means any lease of any property by a Person or any
Subsidiary thereof at any time as lessee that would, in accordance with GAAP,
be required to be classified or accounted for as a capital lease on a
Consolidated balance sheet of such Person.
2
<PAGE> 10
"Capital Lease Obligation" means, with respect to any Capital Lease,
the amount of the obligation of a Person or any of Subsidiary thereof that
would, in accordance with GAAP, appear on a Consolidated balance sheet of such
Person as a liability in respect of such Capital Lease.
"Carrier Contracts" means the collective reference to the
administrative services contracts between the Borrower or any Subsidiary
thereof and the Persons for whom the Borrower or such Subsidiary provides
administrative, marketing or other services with respect to health insurance
plans of such Persons in the ordinary course of the Borrower's or such
Subsidiary's business. Each Carrier Contract which is a Material Contracts is
listed on Schedule 1.1(a) hereto.
"Change in Control" shall have the meaning assigned thereto in Section
10.1(h).
"Claims Management" means Third Party Claims Management, Inc., a
Connecticut corporation and its successors and assigns.
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Article IV shall be satisfied or
waived in all respects in a manner acceptable to the Agent.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Collateral" means the assets, property and interests in property of
the Credit Parties, whether now owned or hereafter acquired, that shall, from
time to time, secure the Obligations as in accordance with the Security
Documents and any property or interest provided in addition to or in
substitution for any of the foregoing.
"Commitment" means, as to any Lender, the obligation of such Lender to
make Loans to the Borrower hereunder in an aggregate principal or face amount
at any time outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule 1.1(b) hereto, as the same may be reduced or modified
at any time or from time to time pursuant to the terms hereof.
"Commitment Percentage" means, as to any Lender at any time, the ratio
of (a) the amount of the Commitment of such Lender to (b) the Aggregate
Commitment.
"Consolidated" means, when used with reference to financial statements
or financial statement items of a Person and its Subsidiaries, such statements
or items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Credit Facility" means the credit facility established pursuant to
Article II hereof.
3
<PAGE> 11
"Credit Parties" means the collective reference to the Borrower and
the Subsidiary Guarantors.
"Debt" means, with respect to any Person, all liabilities, obligations
and indebtedness (including subordinated indebtedness) of such Person for
borrowed money, whether now or hereafter owing or arising and whether primary,
secondary, direct, contingent, fixed or otherwise and whether matured or
unmatured, including without limitation: (a) all notes payable and drafts
accepted representing extensions of credit and all obligations evidenced by
bonds, debentures, notes or other similar instruments; (b) all obligations,
contingent or otherwise, relative to the face amount of all letters of credit,
whether or not drawn, and banker's acceptances issued for the account of such
Person; (c) all Capital Lease Obligations; (d) all obligations to pay the
deferred purchase price of property or services, and all indebtedness secured
by a Lien on property owned by such Person whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse; and (e) all
net obligations under any Hedging Agreement.
"Default" means any of the events specified in Section 10.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means, for any period, Net Income of the Borrower and its
Subsidiaries for such period plus the sum of the following for such period to
the extent deducted in determining such Net Income: (a) Interest Expense,
(b) all federal, state, local and foreign income and gross receipt tax expense
and (c) depreciation, amortization and depletion expense, in each case
determined on a Consolidated book basis in accordance with GAAP.
"Earnings Multiple" means, as of any date of determination, Pro Forma
EBITDA times two and one-quarter (2.25).
"Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is at the
time of such assignment (a) a commercial bank organized under the laws of the
United States or any state thereof, having combined capital and surplus in
excess of $500,000,000, (b) a finance company, insurance company or other
financial institution which in the ordinary course of business extends credit
of the type extended hereunder and that has total assets in excess of
$1,000,000,000, (c) already a Lender hereunder (whether as an original party to
this Agreement or as the assignee of another Lender), (d) the successor
(whether by transfer of assets, merger or otherwise) to all or substantially
all of the commercial lending business of the assigning Lender, or (e) any
other Person that has been approved in writing as an Eligible Assignee by the
Borrower and the Agent.
4
<PAGE> 12
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Credit Party or any ERISA Affiliate or (b) has at any time within the preceding
six years been maintained for the employees of any Credit Party or any current
or former ERISA Affiliate.
"Environmental Laws" means any and all 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 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 Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person who is a member of a group which is
under common control with any Credit Party, who together with any Credit Party
is treated as a single employer within the meaning of Section 414(b) and (c) of
the Code.
"Existing Facility" means the credit agreement dated as of September
30, 1994 by and among Plan Services, Inc., as borrower, and First Union, as
bank, as amended, modified or supplemented from time to time.
"Existing Letters of Credit" means the letters of credit originally
issued by First Union under the Existing Facility and reapproved thereby prior
to the termination of the Existing Facility on the Closing Date.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve
requirement (including without limitation any basic, supplemental or emergency
reserves) in respect of Eurocurrency liabilities or any similar category of
liabilities for a member bank of the Federal Reserve System in New York City.
"Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal
5
<PAGE> 13
Reserve System arranged by Federal funds brokers, as published at 11:00 a.m.
(Charlotte time) for such day (or if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a 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 it.
"Final Maturity Date" means April 30, 2001.
"First Union" means First Union National Bank of North Carolina, a
national banking association, and its successors.
"Fiscal Year" means the fiscal year of the Borrower and its
Subsidiaries ending on December 31.
"Funded Debt" shall mean, at any date of determination thereof, the
aggregate amount of Debt (exclusive of interest) of Borrower and its
Subsidiaries which by its terms matures or is otherwise payable more than one
year from such date, including any rights of extension or renewal and current
maturities of any such Funded Debt.
"GAAP" means generally accepted accounting principles, as recognized
by the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, applied and maintained on a consistent basis for
any applicable Person and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of such Person and its
Subsidiaries.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all Governmental Authorities.
"Governmental Authority" means any nation, province, state or other
political subdivision thereof, and any government or any Person exercising
executive, legislative, 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.
"Guarantee" means, with respect to a Person, without duplication, any
obligation, contingent or otherwise, of any such Person pursuant to which such
Person has directly or indirectly guaranteed any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of any such Person (a)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement condition or
otherwise) or (b) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof
6
<PAGE> 14
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, mutagenic or
otherwise hazardous and are or become regulated by any Governmental Authority,
(c) the presence of which require investigation or remediation under any
Environmental Law or common law, (d) which are materials consisting of
underground or aboveground storage tanks, whether empty, filled or partially
filled with any substance, or (e) which 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.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection
with hedging the interest rate exposure of the Borrower under this Agreement,
and any confirming letter executed pursuant to such hedging agreement, all as
amended or modified.
"HPSI" means HealthPlan Services, Inc., a Florida corporation, and its
successors and assigns.
"Informatics" means Healthcare Informatics Corporation, a Florida
corporation, and its successors and assigns.
"Interest Coverage Ratio" means as of any fiscal quarter end of the
Borrower, the ratio of (a) the sum of (i) Pro Forma EBITDA less Capital
Expenditures each for the period of four consecutive fiscal quarters ending on
such fiscal quarter end to (b) Interest Expense for the immediately succeeding
four consecutive fiscal quarter period commencing on such fiscal quarter end
(calculated using the rates of interest in effect with respect to such Debt and
the aggregate outstanding principal amount of Debt of the Borrower and its
Subsidiaries in each case as of such fiscal quarter end).
"Interest Expense" means, for any period, total interest expense of
the Borrower and its Subsidiaries (including without limitation, interest
expense attributable to Capital Leases) determined on a Consolidated basis in
accordance with GAAP.
"Interest Period" shall have the meaning assigned thereto in Section
3.1(b).
"Lender" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that
7
<PAGE> 15
hereafter becomes a party to this Agreement as a Lender pursuant to Section
12.11.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"Leverage Ratio" means as of any fiscal quarter end of the Borrower,
the ratio of (a) Consolidated Funded Debt as of such fiscal quarter end to (b)
Pro Forma EBITDA as of such fiscal quarter end.
"LIBOR" means the rate for deposits in Dollars for a period equal to
the Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 a.m. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate
is not available, then "LIBOR" shall mean the rate per annum at which, as
determined by the Agent, Dollars in the amount of $5,000,000 are being offered
to leading banks at approximately 11:00 a.m. London time, two (2) Business Days
prior to the commencement of the applicable Interest Period for settlement in
immediately available funds by leading banks in the London interbank market for
a period equal to the Interest Period selected.
"LIBOR Rate" means a rate per annum (rounded upwards to the nearest
1/100 of 1%) determined by the Agent pursuant to the following formula: (a)
LIBOR divided by (b) one (1) minus the Eurodollar Reserve Percentage.
"LIBOR Rate Loan" means any Loan bearing interest at a rate determined
with reference to the LIBOR Rate as provided in Section 3.1(a).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary thereof
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"Loans" means any revolving loans made to the Borrower pursuant to
Section 2.1.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Security Documents, any Hedging Agreement with a Lender and each other
document, instrument and agreement executed and delivered by any Credit Party
in connection with this Agreement, all as amended, modified or supplemented
from time to time.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
Collateral or other properties of the Credit Parties
8
<PAGE> 16
taken as a whole or (b) the ability of any Credit Party to perform its
obligations under any Loan Document.
"Material Contract" means (a) any Carrier Contract or any other
contract or agreement, written or oral, of any Credit Party which in any such
case generates an amount equal to or greater than fifteen percent (15%) of the
revenue of the Borrower (determined on a Consolidated basis) as of the end of
the fiscal quarter ending on or immediately prior to any date of determination
and (b) any contract or agreement not referred to above the cancellation of
which could reasonably be expected to have a Material Adverse Effect.
"Maximum Rate" shall have the meaning assigned thereto in Section
3.1(f).
"Medirisk Investment" means an investment by the Borrower in Medirisk,
Inc., a Florida corporation ("Medirisk"), comprised of the purchase of (a) up
to Ten Million Dollars ($10,000,000) of senior subordinated notes; (b) warrants
for the purchase of up to 16% of the outstanding shares of series A common
stock of Medirisk on a fully diluted basis as of the date of the Securities
Purchase Agreement referred to below; and (c) the purchase of Two Million
Dollars ($2,000,000) of Medirisk's series B convertible preferred stock, in
each case pursuant to the terms of the Securities Purchase Agreement between
Medirisk and the Borrower dated as of January 8, 1996 (the "Securities Purchase
Agreement").
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Credit Party or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions within the
preceding six (6) years.
"Net Income" means, for any period, the net income (or loss) of the
Borrower and its Subsidiaries determined on Consolidated basis for such period
in accordance with GAAP; provided, that there shall be excluded from such net
income (a) the net income of any Person not a Wholly-Owned Subsidiary of the
Borrower, and the net income of any Person accounted for by the equity method,
except in each case to the extent received by the Borrower or a Wholly-Owned
Subsidiary in a cash distribution and (b) any cash or non-cash gain or loss of
an extraordinary nature.
"Notes" means the separate Promissory Notes made by the Borrower
payable to the order of each Lender, substantially in the form of Exhibit A
hereto, evidencing the Credit Facility, and any amendments and modifications
thereto, any substitutes therefor, and any replacements, restatements, renewals
or extension thereof, in whole or in part; "Note" means any of such Notes.
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.
9
<PAGE> 17
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of the Loans, (b) the interest on
(including interest accruing after the filing of any bankruptcy or similar
petition) the Loans, (c) all other payments and other amounts due to the
Lenders under the Loan Documents including without limitation all amounts due
by the Borrower to any Lender under any Hedging Agreement, and (d) all other
fees (including reasonable attorney's fees), charges, indebtedness, loans,
liabilities, financial accommodations, obligations, covenants and duties owing
by any Credit Party to a Lender, of every kind, nature and description, direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by any note,
and whether or not for the payment of money, in each case under or in respect
of this Agreement, the Note or any of the other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 6.2.
"Other Taxes" shall have the meaning assigned thereto in Section
3.11(b).
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor agency.
"Permitted Acquisition" means an acquisition permitted pursuant to
Section 9.4(a).
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the Credit
Parties or any ERISA Affiliates or (b) has at any time within the preceding six
years been maintained for the employees of the Credit Parties or any of their
current or former ERISA Affiliates.
"Person" means an individual, corporation, partnership, association,
trust, business trust, joint venture, joint stock company, pool, syndicate,
sole proprietorship, unincorporated organization, Governmental Authority or any
other form of entity or group thereof.
"Pledge Agreements" means the collective reference to the Pledge
Agreements executed by the Borrower and HPSI in favor of the Agent for the
ratable benefit of itself and the Lenders, and any other Pledge Agreement
executed pursuant to Section 7.12, each substantially in the form of Exhibit F
hereto, as amended, modified or supplemented from time to time.
"Prime Rate" means, at any time, the rate of interest publicly
announced from time to time by First Union as its prime rate. Each change in
the Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by
10
<PAGE> 18
First Union as its Prime Rate is an index or base rate and shall not
necessarily be its lowest rate charged to its customers.
"Pro Forma EBITDA" means, as of any date of determination, EBITDA for
the period of four consecutive fiscal quarters ending on, or immediately prior
to, such date of determination, as set forth on the applicable Officer's
Compliance Certificate and financial statements attached thereto, including on
a pro forma basis EBITDA for such period attributable to any Permitted
Acquisition; provided that EBITDA attributable to any Permitted Acquisition (a)
for the calendar month during which such Permitted Acquisition is consummated
shall be included in Pro Forma EBITDA on an actual or pro forma basis as
determined in accordance with GAAP and (b) for any calendar month following
such Permitted Acquisition which is part of the same fiscal quarter during
which such Permitted Acquisition is consummated shall be included in Pro Forma
EBITDA on an actual basis.
"Register" shall have the meaning assigned thereto in Section
12.11(d).
"Required Lenders" means, at any date, any combination of holders of
at least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid
principal amount of the Notes, or if no amounts are outstanding under the
Notes, any combination of Lenders whose Commitment Percentages aggregate at
least sixty-six and two-thirds percent (66-2/3%).
"Revolver Termination Date" means the first to occur of (a) the
termination of the Credit Facility in accordance with Section 2.6 or (b) the
second anniversary of the Closing Date.
"Security Documents" means the collective reference to the Pledge
Agreements, the Subsidiary Guaranty Agreements and each other agreement or
writing pursuant to which any Credit Party pledges or grants a security
interest in the Collateral securing the Obligations or such Person guaranties
the payment and/or performance of the Obligations.
"Solvent" means, as to any Person on a particular date, that such
Person (a) has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage and is able to pay
its debts as they mature, (b) does not reasonably believe that it will incur
debts or liabilities beyond its ability to pay such debts or liabilities as
they mature and (c) is not insolvent within the meaning of the federal
bankruptcy laws, Title 11, U.S.C. Section 101(32)
"Subordinated Debt" means any unsecured Debt of the Borrower or any
Subsidiary subordinated in right and time of payment to the Obligations on
terms satisfactory to the Agent and Lenders.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which more than fifty percent (50%) of the
outstanding capital stock, partnership
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<PAGE> 19
interest or other equity interests is at the time, directly or indirectly,
owned by such Person. Unless otherwise specified, references herein to any
Subsidiary shall mean a Subsidiary of the Borrower.
"Subsidiary Guarantors" means each Subsidiary of the Borrower who
executed a Subsidiary Guaranty (a) on the Closing Date or (b) after such date
in accordance with Section 7.12.
"Subsidiary Guaranty Agreements" means the collective reference to
each unconditional guaranty agreement executed by the Subsidiary Guarantor
party thereto in favor of itself for the ratable benefit of itself and the
Lenders, substantially in the form of Exhibit G hereto, as amended, modified or
supplemented from time to time.
"Taxes" shall have the meaning assigned thereto in Section 3.11(a).
"Term-Out Amount" shall have the meaning assigned thereto in Section
2.7.
"Term-Out Period" means the period from the Revolver Termination Date
through and including the Final Maturity Date.
"United States" means the United States of America.
"Wholly-Owned Subsidiary" means a Subsidiary all of the shares of the
capital stock or other ownership matters of which are, directly or indirectly,
owned or controlled by a Credit Party and/or one or more of its Wholly-Owned
Subsidiaries.
SECTION 1.2. General. Unless otherwise specified, a reference in
this Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter. Any reference herein to "Charlotte time" shall
refer to the applicable time of day in Charlotte, North Carolina.
SECTION 1.3. Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
terms defined in this Agreement shall have the defined meanings when used in
the Notes and the other Loan Documents or any certificate, report or other
document made or delivered pursuant to this Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
12
<PAGE> 20
ARTICLE II
CREDIT FACILITY
SECTION 2.1. Loans. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Loans to the Borrower from time
to time from the Closing Date through the Revolver Termination Date as
requested by the Borrower in accordance with the terms of Section 2.2;
provided, that (a) the aggregate principal amount of all outstanding Loans
(after giving effect to any amount requested) shall not exceed the lesser of
(i) the Aggregate Commitment and (ii) the Earnings Multiple and (b) the
principal amount of outstanding Loans from any Lender to the Borrower shall not
at any time exceed such Lender's Commitment. Each Loan by a Lender shall be in
a principal amount equal to such Lender's Commitment Percentage of the
aggregate principal amount of Loans requested on such occasion. Subject to the
terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans
hereunder until the Revolver Termination Date.
SECTION 2.2. Procedure for Advances of Loans.
(a) Requests for Borrowing. The Borrower shall give the Agent
irrevocable prior written notice in the form attached hereto as Exhibit B (a
"Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) at least
three (3) Business Days before each requested borrowing date, in the case of a
LIBOR Rate Loan, and at least one (1) Business Day before each requested
borrowing date, in the case of a Base Rate Loan, specifying (i) the date of
such borrowing, which shall be a Business Day, (ii) whether the Loans are to be
LIBOR Rate Loans or Base Rate Loans, (iii) the amount of such borrowing, which
shall be in the case of any Base Rate Loans an aggregate principal amount of
$500,000 or any integral multiple of $500,000 in excess thereof and in the case
of any LIBOR Rate Loans an aggregate principal amount of $1,000,000 or any
integral multiple of $500,000 in excess thereof and (iv) the requested duration
of any Interest Period applicable thereto. Notices received after 11:00 a.m.
(Charlotte time) shall be deemed received on the next Business Day. The Agent
shall promptly notify the Lenders of each Notice of Borrowing.
(b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time)
on the proposed borrowing date, each Lender will make available to the Agent,
for the account of the Borrower, at the office of the Agent in funds
immediately available to the Agent, such Lender's Commitment Percentage of the
Loans to be made on such borrowing date. The Borrower hereby irrevocably
authorizes the Agent to disburse the proceeds of each borrowing requested
pursuant to this Section 2.2 in immediately available funds by crediting such
proceeds to a deposit account of the Borrower maintained with the Agent or by
wire transfer to such account as may be agreed upon by the Borrower and the
Agent from time to time. Subject to Section 3.7 hereof, the Agent shall not be
obligated to disburse the proceeds of any Loan requested pursuant to this
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<PAGE> 21
Section 2.2 to the extent that any Lender has not made available to the Agent
its Commitment Percentage of such Loan.
SECTION 2.3. Repayment of Loans.
(a) Repayment on Final Maturity Date. The Borrower shall repay the
outstanding principal amount of all Loans in full, together with all accrued
but unpaid interest thereon and any other outstanding Obligations, on the Final
Maturity Date.
(b) Mandatory Repayment Loans. (i) If at any time the outstanding
principal amount of all Loans exceeds the lesser of the Aggregate Commitment
and the Earnings Multiple, the Borrower shall repay immediately upon notice
from the Agent, by payment to the Agent for the account of the Lenders, the
Loans in an amount equal to such excess. During the Term-Out Period, any such
repayment shall be applied pro rata to reduce the outstanding principal
installments due with respect to the Loans. Each such repayment shall be
accompanied by accrued interest on the amount repaid and any amount required to
be paid pursuant to Section 3.9.
(ii) The Aggregate Commitment shall be permanently reduced by an
amount equal to the net proceeds received by the Borrower from the issuance of
any Debt permitted by Section 9.1(e) on any such date of receipt. If, as a
result of any such reduction, repayment of any Loans are required pursuant to
paragraph (i) of this Section 2.3(b), the Borrower on such day of receipt shall
make such repayment in accordance with such paragraph.
(c) Optional Repayments. The Borrower may at any time and from time
to time repay the Loans, in whole or in part, upon at least three (3) Business
Days' irrevocable notice to the Agent with respect to LIBOR Rate Loans and one
(1) Business Day irrevocable notice with respect to Base Rate Loans, specifying
the date and amount of repayment and whether the repayment is of LIBOR Rate
Loans, Base Rate Loans, or a combination thereof, and, if of a combination
thereof, the amount allocable to each. Upon receipt of such notice, the Agent
shall promptly notify each Lender. If any such notice is given, the amount
specified in such notice shall be due and payable on the date set forth in such
notice. Partial repayments shall be in an aggregate amount of $500,000 or a
whole multiple of $500,000 in excess thereof with respect to Base Rate Loans
and $1,000,000 or a whole multiple of $500,000 in excess thereof with respect
to LIBOR Rate Loans. During the Term-Out Period, any such repayment shall be
applied to reduce the outstanding principal installments due with respect to
the Loans in the inverse order of maturity thereof. Each such repayment shall
be accompanied by any amount required to be paid pursuant to Section 3.9.
(d) Limitation on Repayment of LIBOR Rate Loans. Notwithstanding the
provisions of Section 2.3(c), the Borrower may not repay any LIBOR Rate Loan on
any day other than on the last day of the Interest Period applicable thereto
unless such repayment is
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<PAGE> 22
accompanied by any amount required to be paid pursuant to Section 3.9.
SECTION 2.4. Promissory Notes. Each Lender's Loans and the
obligation of the Borrower to repay such Loans shall be evidenced by a Note
executed by the Borrower payable to the order of such Lender representing the
Borrower's obligation to pay such Lender's Commitment or, if less, the
aggregate unpaid principal amount of all Loans made and to be made by such
Lender to the Borrower hereunder, plus interest and all other fees, charges and
other amounts due thereon. Each Note shall be dated the date hereof and shall
bear interest on the unpaid principal amount thereof at the applicable interest
rate per annum specified in Section 3.1.
SECTION 2.5. Optional Permanent Reduction of the Aggregate
Commitment. The Borrower shall have the right at any time and from time to
time, upon at least five (5) Business Days prior written notice to the Agent,
to permanently reduce, in whole at any time or in part from time to time,
without premium or penalty, the Aggregate Commitment in an aggregate principal
amount not less than $1,000,000 or any whole multiple of $500,000 in excess
thereof; provided, that each such permanent reduction shall be accompanied by a
prepayment of principal sufficient to reduce the aggregate outstanding Loans of
the Lenders after such reduction to the lesser of the Aggregate Commitment as
so reduced and the Earnings Multiple, by accrued interest on the amount so paid
and by any payment required under Section 3.9 hereof. Any reduction of the
Aggregate Commitment to zero shall be accompanied by payment of all outstanding
Obligations and termination of the Credit Facility. If the reduction of the
Aggregate Commitment requires the repayment of any LIBOR Rate Loan, such
reduction may be made only on the last day of the then current Interest Period
applicable thereto unless such repayment is accompanied by any amount required
to be paid pursuant to Section 3.9 hereof.
SECTION 2.6. Termination of Credit Facility. The Credit Facility
shall terminate and all outstanding Obligations shall be paid in full on the
earliest of (a) the Final Maturity Date, (b) the date of termination by the
Borrower pursuant to Section 2.5, and (c) the date of termination by the Agent
on behalf of the Lenders pursuant to Section 10.2(a).
SECTION 2.7. Term-Out of Loans. Subject to the satisfaction on the
Revolver Termination Date of the provisions of Section 4.3, the aggregate
principal balance of Loans then outstanding (the "Term-Out Amount") shall term
out in accordance with this Section 2.7. The Term-Out Amount shall be payable
in bi-annual principal installments on the last Business Day of the applicable
calendar month as specified below. Such installments shall be in an amount
equal to the product of the Term-Out Amount multiplied by the following
percentages on the following dates:
15
<PAGE> 23
<TABLE>
<CAPTION>
Date Percentage
<S> <C>
November 30, 1998 13.3%
April 30, 1999 13.3%
November 30, 1999 16.7%
April 30, 2000 16.7%
November 30, 2000 20.0%
April 30, 2001 20.0%
</TABLE>
SECTION 2.8. Use of Proceeds. The Borrower shall use the proceeds of
the Loans (a) to pay in full all Obligations outstanding under the Existing
Facility and terminate the Existing Facility, (b) to finance Permitted
Acquisitions and (c) for working capital and other general corporate
requirements of the Borrower and its Subsidiaries, including the payment of
certain fees and expenses incurred in connection with the transactions
contemplated hereby.
ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1. Interest.
(a) Interest Rate Options. Subject to the provisions of this Section
3.1, at the election of the Borrower, the aggregate principal balance of the
Notes or any portion thereof shall bear interest at the Base Rate or the LIBOR
Rate plus, in each case, the Applicable Margin as set forth below. The
Borrower shall select the rate of interest and Interest Period, if any,
applicable to any Loan at the time a Notice of Borrowing is given pursuant to
Section 2.2 or at the time a Notice of Conversion/Continuation is given
pursuant to Section 3.2. Each Loan or portion thereof bearing interest based
on the Base Rate shall be a "Base Rate Loan", each Loan or portion thereof
bearing interest based on the LIBOR Rate shall be a "LIBOR Rate Loan". Any
Loan or any portion thereof as to which the Borrower has not duly specified an
interest rate as provided herein shall be deemed a Base Rate Loan.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Borrower, by giving notice at the times described in Section 3.1(a), shall
elect an interest period (each, an "Interest Period") to be applicable to such
Loan, which Interest Period shall be a period of one (1), two (2) or three (3)
months with respect to each LIBOR Rate Loan; provided that:
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<PAGE> 24
(i) the Interest Period shall commence on the date of advance of
or conversion to any LIBOR Rate Loan and, in the case of immediately successive
Interest Periods, each successive Interest Period shall commence on the date on
which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided, that if any Interest Period with respect to a LIBOR
Rate Loan would otherwise expire on a day that is not a Business Day but is a
day of the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iii) any Interest Period with respect to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the relevant
calendar month at the end of such Interest Period;
(iv) no Interest Period shall be selected so as to require any
payment under Section 3.9 as a result of the term-out payments to be made
pursuant to Section 2.7 and no Interest Period shall extend beyond the Final
Maturity Date; and
(v) there shall be no more than five (5) Interest Periods
outstanding at any time.
(c) Applicable Margin. The Applicable Margin provided for in Section
3.1(a) with respect to the Loans (the "Applicable Margin") shall (i) on the
Closing Date equal the percentages set forth in the certificate delivered
pursuant to Section 4.2(e)(ii) and (ii) for each fiscal quarter thereafter be
determined by reference to the Leverage Ratio as of the end of the fiscal
quarter immediately preceding the delivery of the applicable Officer's
Compliance Certificate as follows:
<TABLE>
<CAPTION>
Leverage Ratio Applicable Margin Applicable Margin
Per Annum Per Annum
Base Rate + LIBOR Rate +
<S> <C> <C>
Greater than 0.75% 1.75%
1.75 to 1.00
Greater than
1.00 to 1.00 but less than or equal 0.50% 1.50%
to 1.75 to 1.00
Less than or equal to 1.00 to 1.00 0.25% 1.25%
</TABLE>
Adjustments, if any, in the Applicable Margin shall be made by the Agent on the
tenth (10th) Business Day after receipt by the Agent
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<PAGE> 25
of quarterly financial statements for the Borrower and its Subsidiaries and the
accompanying Officer's Compliance Certificate setting forth the Leverage Ratio
of the Borrower and its Subsidiaries as of the most recent fiscal quarter end.
Subject to Section 3.1(d), in the event the Borrower fails to deliver such
financial statements and certificate within the time required by Section 6.2
hereof, the Applicable Margin shall be the highest Applicable Margin set forth
above until the delivery of such financial statements and certificate.
(d) Default Rate. Upon the occurrence and during the continuance of
an Event of Default, (i) the Borrower shall no longer have the option to
request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall bear
interest at a rate per annum two percent (2%) in excess of the rate then
applicable to LIBOR Rate Loans, as applicable, until the end of the applicable
Interest Period and thereafter at a rate equal to two percent (2%) in excess of
the rate then applicable to Base Rate Loans, and (iii) all outstanding Base
Rate Loans shall bear interest at a rate per annum equal to two percent (2%) in
excess of the rate then applicable to Base Rate Loans. Interest shall continue
to accrue on the Notes 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.
(e) Interest Payments; Interest and Fee Computation. Interest on
each Base Rate Loan shall be payable in arrears on the last Business Day of
each fiscal quarter commencing June 30, 1996 and interest on each LIBOR Rate
Loan shall be payable on the last day of each Interest Period applicable
thereto. All interest rates, fees and other commissions provided hereunder
shall be computed on the basis of a 360-day year and assessed for the actual
number of days elapsed.
(f) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the
maximum rate permitted by Applicable Law and the Lenders shall at the Agent's
option promptly refund to the Borrower any interest received by Lenders in
excess of the maximum lawful rate or shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that the Borrower not pay
or contract to pay, and that neither the Agent nor any Lender receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by the Borrower under Applicable Law.
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<PAGE> 26
SECTION 3.2. Notice and Manner of Conversion or Continuation of
Loans. Provided that no Event of Default has occurred and is then continuing,
the Borrower shall have the option to (a) convert at any time all or any
portion of its outstanding Base Rate Loans in a principal amount equal to
$1,000,000 or any whole multiple of $500,000 in excess thereof into one or more
LIBOR Rate Loans, (b) upon the expiration of any Interest Period, convert all
or any part of its outstanding LIBOR Rate Loans in a principal amount equal to
$500,000 or a whole multiple of $500,000 in excess thereof into Base Rate Loans
or (c) continue such LIBOR Rate Loans as LIBOR Rate Loans. Whenever the
Borrower desires to convert or continue Loans as provided above, the Borrower
shall give the Agent irrevocable prior written notice in the form attached as
Exhibit C (a "Notice of Conversion/Continuation") not later than 11:00 a.m.
(Charlotte time) three (3) Business Days before the day on which a proposed
conversion or continuation of such Loan is to be effective specifying (A) the
Loans to be converted or continued, and, in the case of any LIBOR Rate Loan to
be converted or continued, the last day of the Interest Period therefor, (B)
the effective date of such conversion or continuation (which shall be a
Business Day), (C) the principal amount of such Loans to be converted or
continued, and (D) the Interest Period to be applicable to such converted or
continued LIBOR Rate Loan. The Agent shall promptly notify the Lenders of such
Notice of Conversion/Continuation.
SECTION 3.3. Fees.
(a) Commitment Fee. Commencing on the Closing Date, a non-refundable
commitment fee shall accrue at a rate per annum equal to one quarter of one
percent (1/4%) on the average daily unused portion of the Aggregate Commitment.
Such commitment fee shall be payable by the Borrower to the Agent, for the
account of the Lenders, in arrears on the last Business Day of each fiscal
quarter during the period from the date hereof through and including the
Revolver Termination Date with the first such payment due on June 30, 1996.
(b) Agent's and Other Fees. In order to compensate the Agent for
structuring the Loans and for its obligations as Agent hereunder, the Borrower
agrees to pay to the Agent the fees set forth in the separate fee letter
agreement executed by the Borrower dated May 17, 1996 (other than the upfront
fees which are due and payable pursuant to the terms of Section 3.3(c)). The
administrative fee referred to therein shall be payable in advance on the
Closing Date, on the first anniversary thereof for the period commencing on
such date and ending on June 29, 1997 and quarterly thereafter commencing on
June 30 1997.
(c) Upfront Fees. The Agent shall receive on the Closing Date for
the account of the Lenders an upfront fee for each Lender equal to one-eighth
of one percent (1/8%) of the Commitment of each Lender as set forth on Schedule
1.1(b).
SECTION 3.4. Manner of Payment. Each payment by the Borrower on
account of the principal of or interest on the Loans or of any
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<PAGE> 27
fee, commission or other amounts payable to the Lenders under this Agreement or
any Note shall be made not later than 1:00 p.m. (Charlotte time) on the date
specified for payment under this Agreement to the Agent at the Agent's Office
for the account of the Lenders pro rata in accordance with their respective
Commitment Percentages, in Dollars, in immediately available funds and shall be
made without any set-off, counterclaim or deduction whatsoever. Any payment
received after such time but before 2:00 p.m. (Charlotte time) on such day
shall be deemed a payment on such date for the purposes of Section 10.1, but
for all other purposes shall be deemed to have been made on the next succeeding
Business Day. Any payment received after 2:00 p.m. (Charlotte time) shall be
deemed to have been made on the next succeeding Business Day for all purposes.
Upon receipt by the Agent of each such payment, the Agent shall credit each
Lender's account with its pro rata share of such payment in accordance with
such Lender's Commitment Percentage and shall wire advice of the amount of such
credit to each Lender. Each payment to the Agent of Agent's fees or expenses
shall be made for the account of the Agent and any amount payable to any Lender
under Sections 3.7, 3.8 or 3.9 shall be paid to the Agent for the account of
such Lender. Subject to Section 3.1(b)(ii), if any payment under this
Agreement or any Note shall be specified to be made upon a day which is not a
Business Day, it shall be made on the next succeeding day which is a Business
Day and such extension of time shall in such case be included in computing any
interest if payable along with such payment.
SECTION 3.5. Crediting of Payments and Proceeds. In the event that
the Borrower shall fail to pay any of the Obligations when due and the
Obligations have been accelerated pursuant to Section 10.2, all payments
received by the Lenders upon the Notes and the other Obligations and all net
proceeds from the enforcement of the Obligations shall be applied first to all
expenses then due and payable by the Borrower hereunder, then to all indemnity
obligations then due and payable by the Borrower hereunder, then to all Agent's
fees then due and payable, then to all commitment and other fees and
commissions then due and payable, then to accrued and unpaid interest on the
Notes and any termination payments due in respect of a Hedging Agreement with
any Lender (pro rata in accordance with all such amounts due), then to the
principal amount of the Notes, in that order.
SECTION 3.6. Adjustments. If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or if any Lender shall at any time receive any collateral in respect
to its Loans (whether voluntarily or involuntarily, by set-off or otherwise) in
a greater proportion than any such payment to and collateral received by any
other Lender, if any, in respect of such other Lender's Loans, or interest
thereon, such Benefitted Lender shall purchase for cash from the other Lenders
such portion of each such other Lender's Loans, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the
20
<PAGE> 28
Lenders; provided, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned to the extent
of such recovery, but without interest. The Borrower agrees that each Lender
so purchasing a portion of another Lender's Loans may exercise all rights of
payment (including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such portion.
SECTION 3.7. Nature of Obligations of Lenders Regarding Loans;
Assumption by the Agent. The obligations of the Lenders under this Agreement
to make the Loans are several and are not joint or joint and several. Unless
the Agent shall have received notice from a Lender prior to a proposed
borrowing date that such Lender will not make available to the Agent such
Lender's ratable portion of the amount to be borrowed on such date (which
notice shall not release such Lender of its obligations hereunder), the Agent
may assume that such Lender has made such portion available to the Agent on the
proposed borrowing date in accordance with Section 2.2(b) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If such amount is made available to the Agent on a date
after such borrowing date, such Lender shall pay to the Agent on demand an
amount, until paid, equal to the product of (a) the amount of such Lender's
Commitment Percentage of such borrowing, times (b) the daily average Federal
Funds Rate during such period as determined by the Agent, times (c) a fraction
the numerator of which is the number of days that elapse from and including
such borrowing date to the date on which such Lender's Commitment Percentage of
such borrowing shall have become immediately available to the Agent and the
denominator of which is 360. A certificate of the Agent with respect to any
amounts owing under this Section shall be conclusive, absent manifest error.
If such Lender's Commitment Percentage of such borrowing is not made available
to the Agent by such Lender within three (3) Business Days of such borrowing
date, the Agent shall be entitled to recover such amount made available by the
Agent with interest thereon at the rate per annum applicable to Base Rate Loans
hereunder, on demand, from the Borrower. The failure of any Lender to make its
Commitment Percentage of any Loan available shall not relieve it or any other
Lender of its obligation, if any, hereunder to make its Commitment Percentage
of such Loan available on such borrowing date, but no Lender shall be
responsible for the failure of any other Lender to make its Commitment
Percentage of such Loan available on the borrowing date.
SECTION 3.8. Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect
to any Interest Period the Agent or any Lender (after consultation with Agent)
shall determine that, by reason of circumstances affecting the foreign exchange
and interbank markets generally, deposits in eurodollars, in the applicable
amounts are not being quoted via Telerate Page 3750 or offered to the Agent or
such Lender for such Interest Period, then the Agent shall
21
<PAGE> 29
forthwith give notice thereof to the Borrower. Thereafter, until the Agent
notifies the Borrower that such circumstances no longer exist, the obligation
of the Lenders to make LIBOR Rate Loans and the right of the Borrower to
convert any Loan to or continue any Loan as a LIBOR Rate Loan shall be
suspended, and the Borrower shall repay in full (or cause to be repaid in full)
the then outstanding principal amount of each such LIBOR Rate Loans together
with accrued interest thereon, on the last day of the then current Interest
Period applicable to such LIBOR Rate Loan or convert the then outstanding
principal amount of each such LIBOR Rate Loan to a Base Rate Loan as of the
last day of such Interest Period.
(b) Laws Affecting LIBOR Rate Availability. If, after the date
hereof, the introduction of, or any change in, any Applicable Law or any change
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any of their respective
Lending Offices) with any request or directive (whether or not having the force
of law) of any such Authority, central bank or comparable agency, shall make it
unlawful or impossible for any of the Lenders (or any of their respective
Lending Offices) to honor its obligations hereunder to make or maintain any
LIBOR Rate Loan, such Lender shall promptly give notice thereof to the Agent and
the Agent shall promptly give notice to the Borrower and the other Lenders.
Thereafter, until the Agent notifies the Borrower that such circumstances no
longer exist, (i) the obligations of the Lenders to make LIBOR Rate Loans and
the right of the Borrower to convert any Loan or continue any Loan as a LIBOR
Rate Loan shall be suspended and thereafter the Borrower may select only Base
Rate Loans hereunder, and (ii) if any of the Lenders may not lawfully continue
to maintain a LIBOR Rate Loan to the end of the then current Interest Period
applicable thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan shall
immediately be converted to a Base Rate Loan for the remainder of such Interest
Period.
(c) Increased Costs. If, after the date hereof, the introduction of,
or any change in, any Applicable Law, or in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any of the Lenders (or any of their respective Lending Offices)
with any request or directive (whether or not having the force of law) of such
Authority, central bank or comparable agency:
(i) shall subject any of the Lenders (or any of their
respective Lending Offices) to any tax, duty or other charge with respect to
any Note or shall change the basis of taxation of payments to any of the
Lenders (or any of their respective Lending Offices) of the principal of or
interest on any Note or any other amounts due under this Agreement in respect
thereof (except for changes in the rate of tax on the overall net income of any
of the Lenders or any of their respective Lending Offices imposed by the
jurisdiction in which such Lender is organized or is or should be qualified to
do business or such Lending Office is located); or
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(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any of the Lenders (or any of their respective Lending Offices) or
shall impose on any of the Lenders (or any of their respective Lending Offices)
or the foreign exchange and interbank markets any other condition affecting any
Note;
and the net result of any of the foregoing is to increase the costs to any of
the Lenders of maintaining any LIBOR Rate Loan or to reduce the yield or amount
of any sum received or receivable by any of the Lenders under this Agreement or
under the Notes in respect of a LIBOR Rate Loan, then such Lender shall
promptly notify the Agent, and the Agent shall promptly notify the Borrower of
such fact and demand compensation therefor and, within five (5) days after such
notice by the Agent, the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or Lenders for such increased
cost or reduction. The Agent will promptly notify the Borrower of any event of
which it has knowledge which will entitle such Lender to compensation pursuant
to this Section 3.8(c); provided, that the Agent shall incur no liability
whatsoever to the Lenders or the Borrower in the event it fails to do so. The
amount of such compensation shall be determined, in the applicable Lender's
sole discretion, based upon the assumption that such Lender funded its
Commitment Percentage of the LIBOR Rate Loans in the London interbank or
domestic certificate of deposit market, as applicable, and using any reasonable
attribution or averaging methods which such Lender deems appropriate and
practical. A certificate of such Lender setting forth the basis for
determining such amount or amounts necessary to compensate such Lender shall be
forwarded to the Borrower through the Agent and shall be conclusively presumed
to be correct save for manifest error.
SECTION 3.9. Indemnity. The Borrower hereby indemnifies each of the
Lenders against any loss or expense which may arise or be attributable to each
Lender's obtaining, liquidating or employing deposits or other funds acquired
to effect, fund or maintain any portion of the Loans (a) as a consequence of
any failure by the Borrower to make any payment when due of any amount due
hereunder in connection with a LIBOR Rate Loan, (b) due to any failure of the
Borrower to borrow on a date specified therefor in a Notice of Borrowing or
Notice of Continuation/Conversion or (c) due to any payment, prepayment or
conversion of any LIBOR Rate Loan on a date other than the last day of the
Interest Period therefor. The amount of such loss or expense shall be
determined, in the applicable Lender's sole discretion, based upon the
assumption that such Lender funded its Commitment Percentage of the LIBOR Rate
Loans in the London interbank or domestic certificate of deposit market, as
applicable, and using any reasonable attribution or averaging methods which
such Lender deems appropriate and practical. A certificate of such Lender
setting forth the basis for determining such amount or amounts necessary to
compensate such
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Lender shall be forwarded to the Borrower through the Agent and shall be
conclusively presumed to be correct save for manifest error.
SECTION 3.10. Capital Requirements. If either (a) the introduction
of, or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request issued after the date hereof from any
central bank or comparable agency or other Governmental Authority (whether or
not having the force of law), has or would have the effect of reducing the rate
of return on the capital of, or has affected or would affect the amount of
capital required to be maintained by, any Lender or any corporation controlling
such Lender as a consequence of, or with reference to the Commitments and other
commitments of this type, below the rate which the Lender or such other
corporation could have achieved but for such introduction, change or
compliance, then within five (5) Business Days after written demand by any such
Lender, the Borrower shall pay to such Lender from time to time as specified by
such Lender additional amounts sufficient to compensate such Lender or other
corporation for such reduction. A certificate as to such amounts submitted to
the Borrower and the Agent by such Lender, shall, in the absence of manifest
error, be presumed to be correct and binding for all purposes.
SECTION 3.11. Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholding, and all liabilities with respect thereto excluding, (i)
in the case of each Lender and the Agent, income and franchise taxes imposed by
the jurisdiction under the laws of which such Lender or the Agent (as the case
may be) is organized or is or should be qualified to do business or any
political subdivision thereof, (ii) in the case of each Lender, income and
franchise taxes imposed by the jurisdiction of such Lender's Lending Office or
any political subdivision thereof and (iii) in the case of each Lender and the
Agent, income and franchise taxes imposed by the United States (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 any Lender or the Agent, (A) 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 3.11) such Lender or the Agent (as the case may be) receives an
amount equal to the amount such party would have received had no such
deductions been made, (B) the Borrower shall make such deductions, (C) the
Borrower shall pay the full amount deducted to the relevant taxing authority or
other authority in accordance with applicable law, and (D) the Borrower shall
deliver to the Agent evidence of such payment to the relevant taxing authority
or other authority in the manner provided in Section 3.11(d).
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(b) Stamp and Other Taxes. In addition, the Borrower shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes (other than excise
and property taxes to which the Lenders would have been subject in the absence
of this Agreement), levies of the United States or any state or political
subdivision thereof or any applicable foreign jurisdiction which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, the Loans, the other Loan Documents,
or the perfection of any rights or security interest in respect thereto (such
taxes, other than any such taxes which are excluded from the indemnity provide
by Section 3.11(a), are hereinafter referred to as "Other Taxes").
(c) Indemnity. The Borrower shall indemnify each Lender and the
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts
payable under this Section 3.11) paid by such Lender or the Agent (as the case
may be) and any liability (including, to the extent resulting from late payment
by the Borrower or any Subsidiary thereof, penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Such indemnification shall be made
within thirty (30) days from the date such Lender or the Agent (as the case may
be) makes written demand therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of
any payment of Taxes or Other Taxes, the Borrower shall furnish to the Agent,
at its address referred to in Section 12.1, the original or a certified copy of
a receipt evidencing payment thereof or other evidence of payment satisfactory
to the Agent.
(e) Survival. Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 3.11 shall survive the payment in full of
the Obligations and the termination of the Credit Facility.
ARTICLE IV
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1. Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Suite
4200, Charlotte, North Carolina 28202 at 10:00 a.m. on May 17, 1996, or on such
other date as the parties hereto shall mutually agree.
SECTION 4.2. Conditions to Closing and Initial Loans. The obligation
of the Lenders to close this Agreement and to make the initial Loan is subject
to the satisfaction of each of the following conditions:
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(a) Executed Loan Documents. The following Loan Documents, in form
and substance reasonably satisfactory to the Agent and each Lender:
(i) this Agreement;
(ii) the Notes;
(iii) the Pledge Agreements executed by the Borrower and
HPSI; and
(iv) the Subsidiary Guaranty Agreements executed by HPSI,
Claims Management and Informatics
shall have been duly authorized, executed and delivered by the applicable
Credit Parties, shall be in full force and effect and no Default or Event of
Default shall exist thereunder, and such Credit Parties shall have delivered
original counterparts thereof to the Agent.
(b) Collateral
(i) Filings and Recordings. All filings and recordations
that are necessary to perfect the security interests of the Lenders in the
Collateral shall have been filed or recorded in all appropriate locations and
the Agent shall have received evidence satisfactory to the Agent that such
security interests constitute valid and perfected first priority Liens therein
subject only to Liens permitted by Section 9.3.
(ii) Pledged Stock. The Agent shall have received original
stock certificates evidencing the capital stock pledged pursuant to the Pledge
Agreements, together with an appropriate undated stock power for each
certificate duly executed in blank by the registered owner thereof.
(iii) UCC-11 Searches. The Credit Parties shall have
delivered the results of UCC-11 searches of all filings made against such
Credit Parties under the Uniform Commercial Code as in effect in any state in
which any of their offices or Collateral is located, indicating among other
things that their assets are free and clear of any Lien, except for the Liens
permitted by Section 9.3.
(iv) Insurance. The Agent shall have received certificates
of insurance and certified copies of insurance policies in the form required
under Section 7.3 and the Security Documents and otherwise in form and
substance reasonably satisfactory to the Agent.
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(c) Closing Certificates and Opinions; etc.
(i) Certificate of the Borrower. The Agent shall have
received a certificate dated as of the Closing Date from the Borrower, in form
and substance satisfactory to the Agent, certifying on behalf of the Credit
Parties that all representations and warranties of the Credit Parties contained
in this Agreement and the other Loan Documents are true and correct in all
material respects; that no Credit Party is in violation of any of the covenants
contained in this Agreement and the other Loan Documents; that, after giving
effect to the transactions contemplated by this Agreement, no Default or Event
of Default has occurred and is continuing; and that the Credit Parties have
satisfied each of the closing conditions to be satisfied thereby which has not
been waived by the Agent and Required Lenders.
(ii) Certificate of Secretary of each Credit Party. The
Agent shall have received a certificate of the secretary or assistant
secretary of each Credit Party certifying on behalf of such Credit Party, as
applicable, that attached thereto is a true and complete copy of the
articles of incorporation of such Credit Party and all amendments thereto; that
attached thereto is a true and complete copy of the bylaws of such Credit
Party; that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Credit Party, authorizing, in the
case of the Borrower, the borrowings contemplated hereunder and, in the case of
each of the Credit Parties, the execution, delivery and performance of this
Agreement and the other Loan Documents; and as to the incumbency and
genuineness of the signature of each officer of such Credit Party executing
Loan Documents to which such Credit Party is a party.
(iii) Certificates of Good Standing. The Agent shall have
received certificates of good standing from the jurisdiction of incorporation
of each Credit Party and, to the extent requested by the Agent, certificates of
authority to do business from each jurisdiction where any Credit Party is
authorized to do business.
(iv) Opinions of Counsel. The Agent shall have received
favorable opinions of counsel to the Credit Parties, dated as of the Closing
Date and addressed to the Agent and Lenders, in form and substance
satisfactory to the Agent; which opinion shall cover, without limitation,
perfection of the Agent's security interest in the Collateral to the extent
such security interest can be perfected by filing UCC-1 financing statements.
(d) Consents; Defaults.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any Person and
of all Governmental Authorities and courts having jurisdiction with respect to
the transactions contemplated by this Agreement and the other Loan Documents
shall have been obtained.
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(ii) Permits and Licenses. All permits and licenses,
including permits and licenses required under Applicable Laws, necessary to the
conduct of business by the Credit Parties shall have been obtained and remain
in full force and effect.
(iii) No Injunction, Etc. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or
arises out of this Agreement or the other Loan Documents or the consummation of
the transactions contemplated hereby or thereby, or which, in the Agent's
discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement and such other Loan Documents.
(iv) No Material Adverse Change. There shall not have
occurred any material change in the Collateral, business, properties, business
prospects, financial condition or results of operations of the Credit Parties,
or in any event, condition or state of facts that could reasonably be expected
to have a Material Adverse Effect.
(v) No Event of Default. No Default or Event of Default
shall have occurred and be continuing.
(e) Financial Matters.
(i) Financial Statements. The Agent shall have received
(A) audited Consolidated financial statements for the Fiscal Year of the
Borrower and its Subsidiaries ended December 31, 1995, (B) unaudited
Consolidated financial statements for the of the Borrower and its Subsidiaries
for the fiscal quarter period ended March 31, 1996, and (C) such other
financial information as may be reasonably requested by the Agent.
(ii) Financial Condition Certificate. The Borrower shall
have delivered to the Agent a certificate on behalf of itself and the Credit
Parties, in form and substance satisfactory to the Agent, and certified as
accurate in all material respects by the chief executive officer or chief
financial officer (or other officer acceptable to the Agent) of the Borrower
that (A) HPSI's payables are current and not past due more than ninety (90)
days (except for those being contested in good faith by HPSI) and each Credit
Party is Solvent, (B) the Borrower's and HPSI's liquidity position as of the
date of such certificate is not materially different from the December 31,
1995 financial statements previously furnished to the Agent, (C) attached
thereto is a pro forma balance sheet of the Borrower and its Subsidiaries
setting forth on a pro forma basis the financial condition of the Borrower and
its Subsidiaries as of that date, reflecting on a pro forma basis the effect of
the transactions contemplated herein, including all material fees and expenses
in connection therewith, and evidencing compliance by the Borrower on a pro
forma basis with the financial covenants contained in Articles VIII hereof,
(D) the financial projections previously delivered to the Agent represent
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the good faith opinion of the Borrower and senior management thereof as to the
projected results contained therein and (E) attached thereto is a calculation
of the Applicable Margin as of the Closing Date in accordance with Section
3.1(c).
(iii) Payment at Closing; Fee Letters. There shall have been
paid by the Credit Parties to the Agent and the Lenders the fees set forth or
referenced in Section 3.3 and any other accrued and unpaid fees or commissions
due hereunder (including, without limitation, legal fees and expenses), and to
any other Person such amount as may be due thereto in connection with the
transactions contemplated hereby, including all taxes, fees and other charges
in connection with the execution, delivery, recording, filing and registration
of any of the Loan Documents. The Agent shall have received duly authorized
and executed copies of the fee letter agreement referred to in Section 3.3(b).
(f) Miscellaneous.
(i) Notice of Borrowing; Disbursement Instructions. The
Agent shall have received written instructions from the Borrower to the Agent
directing the payment of any proceeds of Loans made under this Agreement that
are to be paid on the Closing Date.
(ii) Proceedings and Documents. All opinions, certificates
and other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance to
the Lenders. The Lenders shall have received copies of all other instruments
and other evidence as the Lender may reasonably request, in form and substance
satisfactory to the Lenders, with respect to the transactions contemplated by
this Agreement and the taking of all actions in connection therewith.
(iii) Other Documents. The Credit Parties
shall have delivered to the Agent such other documents, certificates and
opinions as the Agent may reasonably request.
(iv) Existing Facility. The Borrower shall have paid in
full and terminated the Existing Facility.
SECTION 4.3. Conditions to All Loans. The obligations of the Lenders
to make any Loan is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date:
(a) Continuation of Representations and Warranties. The
representations and warranties made by the Credit Parties contained in Article
V and in the other Loan Documents shall be true and correct on and as of such
borrowing or issuance date with the same effect as if made on and as of such
borrowing date, taking into account any revised Schedules forwarded by the
Credit Parties to the Agent after the Closing Date; provided that (i) the
obligation to update Schedules shall be subject to Section 6.3(f) and the
representations and warranties relating to such Schedules shall not
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be deemed to be inaccurate prior to updating such Schedules pursuant to Section
6.3(f) and (ii) subsequent disclosures shall not constitute a cure or waiver of
any Default or Event of Default resulting from the matters disclosed.
(b) No Existing Default. The Borrower shall be in compliance with
Sections 2.1 and 2.3(b) and no other Default or Event of Default shall have
occurred and be continuing hereunder on the borrowing date with respect to such
Loan or after giving effect to the Loans to be made on such borrowing date.
(c) Officer's Compliance Certificate; Additional Documents. The Agent
shall have received the current Officer's Compliance Certificate and each
additional document, instrument, legal opinion or other item of information
reasonably requested by it.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 5.1. Representations and Warranties. To induce the Agent to
enter into this Agreement and the Lenders to make the Loans, the Borrower
hereby represents and warrants to the Agent and Lenders that:
(a) Existence; Power; Qualification. Each Credit Party is a duly
formed, validly existing corporation organized under the laws of the state of
its incorporation and is in good standing under the laws of such state, has the
corporate power and authority to own its properties and to carry on its
business as now being and hereafter proposed to be conducted and is duly
qualified (or otherwise licensed) and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification and authorization except where the failure
to so qualify could reasonably be expected to have a Material Adverse Effect.
The jurisdictions in which the Credit Parties are organized and qualified to do
business, including each State where the Borrower or any Subsidiary thereof is
licensed as a third party administrator of insurance plans or licensed for
utilization review services, are described on Schedule 5.1(a).
(b) Ownership. Each Credit Party is listed on Schedule 5.1(b). The
capitalization of the Credit Parties consists of the number of shares,
authorized, issued and outstanding, of such classes and series, with or without
par value, described on Schedule 5.1(b). All outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The
shareholders of the Subsidiaries of the Borrower and the number of shares owned
by each are described on Schedule 5.1(b). There are no outstanding stock
purchase warrants, subscriptions, options, securities, instruments or other
rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of capital
stock of
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the Subsidiaries of the Borrower, except as described on Schedule 5.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowings. Each
Credit Party has the corporate right, power and authority and has taken all
necessary corporate and other action to authorize the execution, delivery and
performance of each of the Loan Documents to which it is a party in accordance
with their respective terms. Each of the Loan Documents has been duly executed
and delivered by the duly authorized officers of the Credit Parties party
thereto, and constitutes the legal, valid and binding obligation of each such
Credit Party enforceable in accordance with its respective terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws, the enforcement of creditors' rights in
general and the availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by each Credit Party of the Loan
Documents to which each such Person is a party, in accordance with their
respective terms, the borrowings hereunder and the transactions contemplated
hereby do not and will not, by the passage of time, the giving of notice or
otherwise, (i) require any Governmental Approval not previously obtained or
violate any Applicable Law relating to the Credit Parties, (ii) conflict with,
result in a breach of or constitute a default under the articles of
incorporation, by-laws or any other contract or agreement to which such Person
is a party or by which any of its properties may be bound or any Governmental
Approval relating to such Person, or (iii) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by such Person other than Liens permitted pursuant to
Section 9.3.
(e) Compliance with Law; Governmental Approvals. Each Credit Party
(i) has all Governmental Approvals required by any Applicable Law for it to
conduct its business (except where the failure to have any such approval could
not reasonably be expected to have a Material Adverse Effect), each of which is
in full force and effect, is final and not subject to review on appeal and is
not the subject of any pending or, to the best of its knowledge, threatened
attack by direct or collateral proceeding, and (ii) is in compliance with each
Governmental Approval applicable to it and in all material respects with all
other Applicable Laws relating to it or any of its respective properties,
except where the failure to so comply could not reasonably be expected to have
a Material Adverse Effect.
(f) Tax Returns and Payments. Each Credit Party has duly filed or
caused to be filed all federal, state, local and other tax returns required by
Applicable Law to be filed, and has paid, or made adequate provision for the
payment of, all federal, state, local and other taxes, assessments and
governmental charges or levies upon it and its property, income, profits and
assets which are due and payable. No Governmental Authority has asserted any
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Lien or other claim against any Credit Party with respect to unpaid taxes which
has not been discharged or resolved. The charges, accruals and reserves on the
books of each Credit Party in respect of federal, state, local and other taxes
for all fiscal years and portions thereof since the formation of such Credit
Party are in the judgment of such Credit Party adequate, and the Credit Parties
do not anticipate any additional taxes or assessments for any of such years.
(g) Franchises, Intellectual Property and Computer Equipment.
(i) Except where the failure to do so could not reasonably
be expected to have a Material Adverse Effect, each Credit Party owns or
possesses rights to use all franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications,
trademarks, trademark rights, trade names, trade name rights, copyrights and
rights with respect to the foregoing which are required to conduct its
business as now and presently planned to be conducted without any conflict
with the rights of others. No event has occurred which permits, or after
notice or lapse of time or both would permit, the revocation or termination of
any such rights, and the Credit Parties are not liable to any Person for
infringement under Applicable Law with respect to any such rights as a result
of their business operations.
(ii) Except where the failure to do so could not reasonably
be expected to have a Material Adverse Effect, each Credit Party has such
title to or the right to use, by license or other agreement, all computer
software programs used thereby as are necessary to permit the Credit Parties
to conduct their operations as currently conducted, without any known conflict
with the rights of others or any known use by others which conflicts, in any
material respect, with the rights of the Credit Parties.
(h) Environmental Matters. The Credit Parties and their properties
and operations are not in violation in any material respect of any applicable
Environmental Law; (ii) without limitation of clause (i) above, the Credit
Parties and their properties and operations are not in violation in any
material respect of any Environmental Law, or subject to any existing, pending
or threatened investigation, inquiry or proceeding by any Governmental
Authority or to any remedial obligations under any Environmental Law; and (iii)
all material notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed by the Credit Parties relating to Hazardous
Materials, including, without limitation, past or present treatment, storage,
disposal or release of any Hazardous Materials or solid waste by the Credit
Parties into the environment, have been obtained or applications for such
permits and licenses have been filed and the Credit Parties are in full
compliance in all material respects with the requirements of such permits,
licenses or authorizations.
(i) ERISA. Except as set forth on Schedule 5.1(i), the Credit
Parties and each ERISA Affiliate are in compliance in all
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material respects with applicable provisions of ERISA and the regulations and
published interpretations thereunder with respect to all Employee Benefit Plans
except for any required amendments for which the remedial amendment period as
defined in Section 401(b) of the Code has not yet expired. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and
each trust related to such plan has been determined to be exempt under Section
501(a) of the Code. No material liability has been incurred by any Credit Party
or any ERISA Affiliate which remains unsatisfied with respect to any Employee
Benefit Plan or any Multiemployer Plan.
(j) Margin Stock. None of the Credit Parties are engaged principally
or as one of their activities in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" (as each such term is
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System). No part of the proceeds of any of the Loans will be used for
purchasing or carrying margin stock or for any purpose which violates, or which
would be inconsistent with, the provisions of Regulation G, T, U or X of such
Board of Governors. If requested by the Agent, the Borrower will furnish to
the Agent and Lenders a statement or statements in conformity with the
requirements of said Regulation G, T, U or X to the foregoing effect.
(k) Government Regulation. No Credit Party is an "investment
company" or a company "controlled" by an "investment company" (as each such
term is defined in the Investment Company Act of 1940, as amended) and no
Credit Party is, or after giving effect to any Extension of Credit will be,
subject to regulation under the Public Utility Holding Company Act of 1935 or
the Interstate Commerce Act, each as amended, or any other Applicable Law which
limits its ability to incur or consummate the transactions contemplated hereby.
(l) Material Contracts. Schedule 5.1(l) sets forth a complete and
accurate list of all Material Contracts of the Credit Parties in effect as of
the Closing Date and not listed on any other Schedule hereto; other than as set
forth in Schedule 5.1(l), each such Material Contract is, and after giving
effect to the consummation of the transactions contemplated by the Loan
Documents will be, in full force and effect in accordance with the terms
thereof; and there are no material defaults by the Credit Parties (other than
as may be disclosed on Schedule 5.1(l)) or, to the best of the Credit Parties'
knowledge after due inquiry, by any other party under any such Material
Contract. To the extent requested by the Agent, the Credit Parties have
delivered to the Agent a true and complete copy of each Material Contract
required to be listed on Schedule 5.1(l).
(m) Employee Relations. Each Credit Party has a stable work force in
place and is not, except as set forth on Schedule 5.1(m), party to any
collective bargaining agreement nor has any labor union been recognized as the
representative of its employees. The
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Credit Parties know of no pending, threatened or contemplated strikes, work
stoppage or other collective labor disputes involving its employees.
(n) Burdensome Provisions. None of the Credit Parties is a party to
any indenture, agreement, lease or other instrument, or subject to any
corporate or partnership restriction, Governmental Approval or Applicable Law
which is so unusual or burdensome as in the foreseeable future could have a
Material Adverse Effect. The Credit Parties do not presently anticipate that
future expenditures needed to meet the provisions of federal or state statutes,
orders, rules or regulations of a Governmental Authority will be so burdensome
as to have a Material Adverse Effect.
(o) Financial Statements. The Consolidated balance sheet of the
Borrower and its Subsidiaries as of December 31, 1995 and the related
statements of income and retained earnings and cash flows for the periods then
ended, copies of which have been furnished to the Agent, when read together
with the other financial information pertaining to the Credit Parties which has
heretofore been furnished in writing to the Agent, fairly present the assets,
liabilities and financial position of the Credit Parties as at such dates, and
the results of the operations and changes of financial position for the periods
then ended. All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved except as indicated in the notes thereto. The
Credit Parties have no material Debt, obligation or other unusual forward or
long-term commitment which is not fairly reflected in the foregoing financial
statements or in the notes thereto (except for such items as are incurred in
connection with Permitted Acquisitions or as are incurred in the ordinary
course of business in each case after the date thereof), all as required by
GAAP.
(p) No Material Adverse Change. Since December 31, 1995, there has
been no material adverse change in the properties, businesses, results of
operations, or financial or other condition of the Credit Parties taken as a
whole, including, but not limited to, any material adverse change resulting
from any fire, explosion, accident, drought, storm, hail, earthquake, embargo,
act of God, or of the public enemy or other casualty (whether or not covered by
insurance).
(q) Solvency. As of the Closing Date and after giving effect to each
Loan made on the Closing Date, each Credit Party will be Solvent.
(r) Titles to Properties. Each Credit Party has such title to the
real property owned in fee or leased by it as is appropriate to the conduct of
its business, and valid and legal title to all of its personal property and
assets, including, but not limited to, those reflected on the Consolidated
balance sheets of the Borrower and its Subsidiaries delivered pursuant to
Section 5.1(o), except those which have been disposed of by the Credit Parties
subsequent
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to such date which dispositions have been in the ordinary course of business.
(s) Liens. Except as described on Schedule 5.1(s), none of the
properties and assets owned by the Credit Parties is subject to any Lien,
except Liens permitted pursuant to Section 9.3. No financing statement under
the Uniform Commercial Code of any state which names the Credit Parties as
debtor and which has not been terminated, has been filed in any state or other
jurisdiction and none of the Credit Parties has signed any such financing
statement or any security agreement authorizing any secured party thereunder to
file any such financing statement, except to perfect those Liens listed on
Schedule 5.1(s).
(t) Debt and Guarantees. Schedule 5.1(t) sets forth a complete and
correct listing of all Debt and Guarantees of the Credit Parties in excess of
$100,000. The Credit Parties have performed and are in compliance with all of
the terms of such Debt and Guarantees and all instruments and agreements
relating thereto, and no default or event of default, or event or condition
which with notice or lapse of time or both would constitute such a default or
event of default on the part of the Credit Parties exists with respect to any
such Debt or Guarantees. To the extent requested by the Agent, the Credit
Parties have delivered to the Agent a true and complete copy of each instrument
and agreement evidencing such Debt and Guarantees.
(u) Litigation. Except as set forth on Schedule 5.1(u), there are no
actions, suits or proceedings pending nor, to the knowledge of any Credit
Party, threatened against or in any other way relating adversely to or
affecting any Credit Party or any of their respective properties in any court
or before any arbitrator of any kind or before or by any Governmental Authority
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect. There are no material outstanding or unpaid judgments against
any Credit Parties.
(v) Absence of Defaults. (i) No event has occurred or is continuing
which constitutes a Default or an Event of Default and (ii) no event has
occurred and is continuing which constitutes, or which with the passage of time
or giving of notice or both would constitute, a default or event of default by
any Credit Party under any Material Contract (other than this Agreement) or
judgment, decree or order to which any Credit Party is a party or by which any
Credit Party or any of their respective properties may be bound or which would
require any Credit Party to make any payment thereunder prior to the scheduled
maturity date therefor, any of which events referred to in this clause (ii)
could reasonably be expected to have a Material Adverse Effect.
(w) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of the
Credit Parties and furnished to the Lenders were, at the time the same were so
furnished, complete and correct in all respects to the extent necessary to give
the recipient a true and
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accurate knowledge of the subject matter. No document furnished or written
statement made to the Agent or the Lenders by the Credit Parties in connection
with the negotiation, preparation or execution of this Agreement or any of the
Loan Documents contains or will contain any untrue statement of a fact material
to the creditworthiness of the Credit Parties or omits or will omit to state a
fact necessary in order to make the statements contained therein not
misleading. The Credit Parties are not aware of any facts which it has not
disclosed in writing to the Agent which could reasonably be expected to have a
Material Adverse Effect.
SECTION 5.2. Survival of Representations and Warranties, etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Closing Date, shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement or any borrowing
hereunder.
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Credit Facility terminated, unless consent has been
obtained in the manner set forth in Section 12.12 hereof, the Borrower will
furnish or cause to be furnished to the Agent at the Agent's Office set forth
in Section 12.1 hereof and to the Lenders at their respective addresses as set
forth on Schedule 1.1(b), or such other office as may be designated by the
Agent and Lenders from time to time:
SECTION 6.1. Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as practicable and in
any event within forty-five (45) days after the end of each fiscal quarter, an
unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as of
the close of such fiscal quarter of each Fiscal Year and unaudited Consolidated
statements of income, retained earnings and cash flows for the fiscal quarter
then ended and that portion of the Fiscal Year then ended, all in reasonable
detail setting forth in comparative form the corresponding figures for the
preceding Fiscal Year and prepared by the Borrower in accordance with GAAP
applied on a basis consistent with that of the preceding period, and certified
by the chief financial officer of the Borrower to present fairly in all
material respects the financial condition of the Borrower and its Subsidiaries
as of their respective dates and the results of operations of the Borrower and
its Subsidiaries for the respective periods then ended, subject to normal
year-end adjustments.
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(b) Annual Financial Statements. As soon as practicable and in any
event within ninety (90) days after the end of each Fiscal Year, an audited
Consolidated balance sheet of the Borrower and its Subsidiaries as of the close
of such Fiscal Year, together with audited Consolidated statements of income,
retained earnings and cash flows for the Fiscal Year then ended, including the
notes thereto, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared by an
independent certified public accounting firm acceptable to the Agent in
accordance with GAAP, applied on a basis consistent with that of the preceding
year and accompanied by a report thereon by such certified public accountants
that is not qualified with respect to scope limitations imposed by the Borrower
or with respect to accounting principles followed by the Borrower not in
accordance with GAAP.
(c) Annual Projections. As soon as practicable and in any event
within ninety (90) days after the end of each Fiscal Year, annual projections
for the Borrower and its Subsidiaries for the following Fiscal Year indicating
projected balance sheets and earnings for such Fiscal Year.
(d) Other Financial Information. Such other information regarding
the operations, business affairs and financial condition of the Credit Parties
and any Subsidiary thereof as the Agent or any Lender may reasonably request.
SECTION 6.2. Officer's Compliance Certificate. At each time
financial statements are delivered pursuant to Sections 6.1 (a) or (b) and at
such other times as the Agent shall reasonably request, a certificate of the
chief executive officer or chief financial officer (or other officer thereof
acceptable to the Agent) of the Borrower in the form of Exhibit D attached
hereto (an "Officers Compliance Certificate").
SECTION 6.3. Notice of Litigation and Other Matters. Prompt (but in
no event later than five (5) Business Days after any Credit Party obtains
knowledge thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or
before any Governmental Authority and all actions and proceedings in any court
or before any arbitrator against or involving any Credit Party or any of their
properties, assets or businesses which could reasonably be expected to have a
Material Adverse Effect;
(b) any labor controversy that has resulted in, or threatens to
result in, a strike or other work action against any Credit Party which could
reasonably be expected to have a Material Adverse Effect;
(c) any attachment, judgment, lien, levy or order that may be
assessed against or threatened against any Credit Party which could reasonably
be expected to have a Material Adverse Effect;
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(d) (i) any Default or Event of Default or (ii) any event which
constitutes or which with the passage of time or giving of notice or both would
constitute a default or event of default under any other Material Contract to
which any Credit Party is a party or by which any Credit Party or any of such
Credit Party's respective property may be bound, which default or event of
default referred to in this clause (ii) could reasonably be expected to have a
Material Adverse Effect;
(e) any violation of ERISA or any liability incurred under any
Employee Benefit Plan or Multiemployer Plan which could reasonably be expected
to have a Material Adverse Effect;
(f) any event which makes any of the representations set forth in
Section 5.1 inaccurate in any material respect (provided that all Schedules
must be updated by the Credit Parties only at each fiscal quarter end by
forwarding any such updates to the Agent with the applicable Officer's
Compliance Certificate); and
(g) any proposed amendment, change or modification to, or waiver of
any provision of, or any termination of, any Material Contract which could
reasonably be expected to have a Material Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner provided for in Section 12.12, the Borrower will,
and will cause each of its Subsidiaries to:
SECTION 7.1. Preservation of Existence and Related Matters. Preserve
and maintain its separate existence and all material rights, franchises,
licenses and privileges necessary to the conduct of its business; and qualify
and remain qualified and authorized to do business in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect.
SECTION 7.2. Maintenance of Property. In addition to the
requirements of any of the Security Documents, protect and preserve all
properties useful in and material to its business, including copyrights,
patents, trade names and trademarks; maintain in good working order and
condition, other than ordinary wear and tear excepted all buildings, equipment
and other tangible real and personal property, and from time to time make or
cause to be made all renewals, replacements and additions to such property
reasonably necessary for the conduct of its business.
SECTION 7.3. Insurance. In addition to the requirements of any of
the Security Documents, maintain insurance with responsible insurance companies
against such risks and in such amounts as are
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customarily maintained by similar businesses or as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter
deliver to the Agent upon its request (a) a detailed list of the insurance then
in effect, stating the names of the insurance companies, the amounts and rates
of the insurance, the dates of the expiration thereof and the properties and
risks covered thereby, and (b) a certified copy of the policies of insurance.
SECTION 7.4. Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP consistently applied and in compliance with the regulations of any
Governmental Authority having jurisdiction over it or any of its properties.
SECTION 7.5. Payment and Performance of Obligations. Pay and perform
(a) all Obligations, (b) all taxes, assessments and other governmental charges
that may be levied or assessed upon it or its property (other than those being
contested in good faith by appropriate proceedings if adequate reserves are
maintained to the extent required by GAAP) and (c) all other indebtedness,
obligations and liabilities in accordance with customary trade practices the
failure to make payment of which could reasonably be expected to have a
Material Adverse Effect.
SECTION 7.6. Compliance With Laws and Approvals. Observe and remain
in compliance in all material respects with all Applicable Laws and maintain in
full force and effect all Governmental Approvals, in each case applicable or
necessary to the conduct of its business including, without limitation, all
Environmental Laws and all Governmental Approvals required thereunder.
SECTION 7.7. Environmental Management. In addition to and without
limiting the generality of Section 7.6, maintain its business premises (whether
leased or owned in fee) free of any Hazardous Materials the removal of which is
required under Environmental Laws; and adopt and maintain prudent management,
disposal, clean-up and other practices as may be required by Environmental Laws
for all other Hazardous Materials located on its business premises.
SECTION 7.8. Compliance with ERISA. In addition to and without
limiting the generality of Section 7.6, make timely payment of contributions
required to meet the minimum funding standards set forth in ERISA with respect
to any Employee Benefit Plan; not take any action or fail to take action the
result of which could be a material liability to the PBGC or to a Multiemployer
Plan; not participate in any prohibited transaction that could result in any
material civil penalty under ERISA or material tax under the Code; furnish to
the Agent upon the Agent's request such information about any Employee Benefit
Plan as may be reasonably requested by the Agent; and operate each Employee
Benefit Plan in such a manner that will not incur any material tax liability
under Section 4980B
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of the Code or any material liability to any qualified beneficiary as defined
in Section 4980B of the Code.
SECTION 7.9. Compliance With Agreements. Comply with each term,
condition and provision of all leases, agreements and other instruments entered
into in the conduct of its business including, without limitation, all Material
Contracts, where the failure to so comply would reasonably be expected to have
a Material Adverse Effect.
SECTION 7.10. Conduct of Business. Remain engaged primarily in the
business of (a) third party administration of healthcare, life and disability
plans and the marketing of such plans and any other business reasonably related
thereto, including the medical informatics business and (b) other lines of
business approved in connection with a Permitted Acquisition.
SECTION 7.11. Visits and Inspections. Permit representatives of the
Agent and Lenders, upon reasonable notice to the Borrower, from time to time
during normal business hours, as often as may be reasonably requested, to visit
and inspect its properties; inspect, audit and make extracts from its books,
records and files, including, but not limited to, management letters prepared
by independent accountants; and discuss with its partners, principal officers,
and its independent accountants, its business, assets, liabilities, financial
condition, results of operations and business prospects.
SECTION 7.12. New Subsidiaries. Prior to such time as a Subsidiary
of the Borrower (which is not then a Borrower) owns assets in excess of $1,000
or conducts business or consummates any Permitted Acquisition, cause to be
executed and delivered to the Agent (i) a supplement substantially in the form
attached as Exhibit A to the Pledge Agreement, executed by the Borrower, if the
Borrower is the parent thereof, or Exhibit A to the Pledge Agreement executed
by HPSI, if HPSI is the parent thereof, or, if such new Subsidiary is not a
direct Wholly-Owned Subsidiary of either such Credit Party, an additional
Pledge Agreement executed by the parent thereof, in each case pledging 100% of
the capital stock of such new Subsidiary in form and content satisfactory to
the Agent, (ii) a Subsidiary Guaranty substantially in the form of the Exhibit
G, executed by such new Subsidiary and (iii) corresponding closing documents
and legal opinions referred to in Section 4.2 with respect to such new
Subsidiary and such other documents reasonably requested by the Agent and
Required Lenders consistent with the terms of this Agreement, in order that
such Subsidiary shall become bound by all of the terms, covenants and
agreements contained in the Loan Documents and that the capital stock of such
Subsidiary shall become Collateral for the Obligations.
SECTION 7.13. Dividends. To the extent necessary in order that the
Borrower be able to make any payment required hereunder, cause its Subsidiaries
to pay dividends or make other cash distributions to the Borrower.
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SECTION 7.14. Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Agent may
reasonably require to document and consummate the transactions contemplated
hereby and to vest completely in and insure the Agent its rights under this
Agreement, the Note and the other Loan Documents.
ARTICLE VIII
FINANCIAL COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner set forth in Section 12.12 hereof, the Borrower and
its Subsidiaries on a Consolidated basis will not:
SECTION 8.1. Leverage Ratio. As of the end of any fiscal quarter of
the Borrower during the term of the Credit Facility, permit the Leverage Ratio
to exceed 2.50 to 1.00.
SECTION 8.2. Interest Coverage Ratio. As of the end of any fiscal
quarter of the Borrower during the term of the Credit Facility, permit the
Interest Coverage Ratio to be less than 3.0 to 1.0.
SECTION 8.3. Capital Expenditures. Make Capital Expenditures in an
aggregate amount in excess of Twelve Million Dollars ($12,000,000) in any
Fiscal Year.
ARTICLE IX
NEGATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner set forth in Section 12.12 hereof, the Borrower
will not and will not permit any of its Subsidiaries to:
SECTION 9.1. Limitations on Debt. Create, incur, assume or suffer to
exist any Debt other than (a) the Obligations, (b) existing Debt described as
of the Closing Date on Schedule 5.1(t) hereto (but not the increase thereof),
(c) the Existing Letters of Credit and any renewal (but not any increase or
other material modification that the Required Lenders have not previously
approved in writing) thereof, (d) additional letters of credit (with respect to
which the Borrower is the account party) issued in connection with Permitted
Acquisitions or otherwise in the ordinary cause of business of the Borrower and
its Subsidiaries, not to exceed an aggregate amount of $6,000,000 outstanding
at any time, (e) Subordinated Debt of the Borrower which is convertible into
common stock thereof not to exceed an aggregate principal amount of $50,000,000
during the term of the Credit Facilities, (f) other
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Subordinated Debt of the Borrower which shall not exceed an aggregate principal
amount of Five Million Dollars ($5,000,000) incurred during the term of the
Credit Facility, (g) Debt under any Hedging Agreement reasonably acceptable to
the Agent and Required Lenders, (h) Debt of the Borrower incurred by reason of
merger or otherwise assumed in connection with any Permitted Acquisition in an
aggregate principal amount not to exceed $15,000,000 during the term of the
Credit Facility, the terms and conditions of which (including without
limitation any collateral security therefor) shall be reasonably acceptable to
the Agent and Lenders, and (i) Debt of the Borrower, other than that provided
for in clauses (a) through (h) of this Section, incurred in the ordinary course
of business of the Borrower and its Subsidiaries not to exceed an aggregate
principal amount of One Million Dollars ($1,000,000) outstanding at any time;
provided, that none of the Debt permitted to be incurred by this Section shall
restrict, limit or otherwise encumber (by covenant or otherwise) the ability of
any Subsidiary of the Borrower to make any payment to the Borrower or any of
its Subsidiaries (in the form of dividends, intercompany advances or otherwise)
for the purposes of enabling the Borrower to pay the Obligations.
SECTION 9.2. Limitations on Guarantees. Other than Guarantees
created by the Loan Documents, create, incur, assume or suffer to exist any
Guarantee, except indemnity obligations under surety or fidelity insurance
coverage (a) set forth on Scheduled 5.1(t) and (b) incurred in the ordinary
course of business; provided that the aggregate amount of such indemnity
obligations pursuant to clauses (a) and (b) less the amount of any such
obligations secured by the Existing Letters of Credit and any additional
letters of credit issued pursuant to Section 9.1(d) does not exceed $8,000,000.
SECTION 9.3. Limitations on Liens. Create, incur, assume or suffer
to exist, any Lien on or with respect to any of its owned property, real or
personal (including without limitation capital stock or other ownership
interests), whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA
or Environmental Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired or which are
being contested in good faith and by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
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(c) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of, obligations
under workers' compensation, unemployment insurance or similar claims or to
secure the performance of tenders, bids, contracts, statutory obligations and
other similar obligations;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements, and rights or restrictions of record on the use of
real property, which in the aggregate are not substantial in amount and which
do not, in any case, materially detract from the value of such property or
impair the use thereof in the ordinary conduct of business;
(e) purchase money Liens securing any purchase money Debt permitted
under Section 9.1(i); provided, that the Lien attaches only to the asset being
purchased and does not exceed 100% of the purchase price of such asset;
(f) Liens in favor of the Agent for the benefit of itself and the
Lenders arising under the Loan Documents;
(g) Liens not otherwise permitted by this Section 9.3 and in
existence on the Closing Date (i) listed on Schedule 5.1(s) and (ii) which may
be reflected on the Lien search reports to be delivered to the Agent and
Lenders after the Closing Date as described on Schedule 5.1(s) to the extent
that such Liens evidence the interests of lessors under Capital Leases (as long
as the corresponding Capital Lease Obligation is otherwise permitted hereunder)
and operating leases, in each case in the property subject to such lease, and
such other Liens as permitted by the Agent and Required Lenders;
(h) Liens permitted in accordance with Section 9.1(h) existing on any
property or asset prior to the acquisition thereof by the Borrower or any
Subsidiary securing Debt permitted by such Section; provided that (i) such Lien
is not created in contemplation of or in connection with such acquisition and
(ii) such Lien does not apply to any other property or assets of the Borrower
or any Subsidiary; and
(i) extensions, renewals or replacements of any Lien referred to in
clauses (a) through (h) above provided that such extension, renewal or
replacement is limited to the property originally encumbered thereby.
SECTION 9.4. Limitations on Loans, Advances, Investments and
Acquisitions. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, partnership or joint venture (including without
limitation the creation or capitalization of any Subsidiary) interests,
evidence of Debt or other obligation or security, substantially all or a
material portion of the assets of any other Person or any other investment or
interest whatsoever in any other Person; or make or permit to exist any loans,
advances or extensions of credit to, or any
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accounts or notes receivable from, or any investment in cash or by delivery of
property in, any Person; or enter into any commitment or option in respect of
the foregoing, except:
(a) investments by the Borrower in the form of acquisitions of all or
substantially all of the business or a line of business of any other Person
(whether by the acquisition of capital stock or other equity ownership
interests, assets or any combination thereof) which are consummated in
accordance with the following requirements of this Section 9.4(a) (any such
acquisition, a "Permitted Acquisition"): (i) the acquired Person shall be and
substantially all of the acquired assets shall be utilized in the same line of
business as the Borrower as described in clause (a) of Section 7.10 or as
otherwise approved in writing by the Required Lenders, (ii) no Default or Event
of Default shall have occurred and be continuing or be created by the relevant
Permitted Acquisition as evidenced by a certificate of the Borrower delivered
on the closing date thereof to the Agent and the Required Lenders in form and
substance satisfactory to the Agent demonstrating pro forma compliance with the
financial covenants set forth in Article VIII and the other terms of the Loan
Documents, (iii) a description of the relevant Permitted Acquisition in
reasonable detail and the corresponding documentation shall be furnished by the
Borrower to the Lenders at least ten Business Days prior to the closing date
thereof (to be followed by any changed pages and fully executed copies promptly
after the creation thereof) and (iv) the Borrower shall have received the prior
written approval of the Required Lenders; provided, that (A) clause (iv) of
this Section set forth above shall not be applicable to any Permitted
Acquisition the aggregate cash or any other consideration for which is less
than Twelve Million Five Hundred Thousand Dollars ($12,500,000) as long as the
aggregate cash or any other consideration for such Permitted Acquisition and
each other Permitted Acquisition closed during the same Fiscal Year as such
Permitted Acquisition does not equal or exceed Twenty-Five Million Dollars
($25,000,000) (provided further that the aggregate cash and other consideration
for the Permitted Acquisitions described in clause (B) of this Section set
forth below shall not be counted against the amounts contained in this clause
(A)) and (B) clause (iv) of this Section set forth above shall not be
applicable to the proposed acquisitions of Consolidated Group, Inc. (including
certain affiliated companies) and Harrington Services Corporation so long as
the Agent and Lenders complete to their satisfaction their legal due diligence
with respect to each such acquisition, the Borrower promptly provides such
Persons with any information requested thereby in connection therewith, and no
information is discovered prior to either such acquisition that, in the opinion
of the Agent and Lenders, is materially different from the information provided
through the date hereof or would have materially influenced the decision of the
Agent and Lenders to permit such acquisition without the prior written consent
of the Required Lenders.
(b) investments in treasury bills, certificates of deposits and
bankers acceptances of banks with capital and surplus in excess of
$500,000,000, open market commercial paper maturing within
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ninety (90) days and having the highest or second highest rating of either
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, a Division
of McGraw-Hill Corporation, (provided that the fair market value of any
investment in such commercial paper having the second highest rating of Moody's
Investor Service or third highest rating of Standard & Poor's Ratings Group, a
Division of McGraw-Hill Corporation shall not exceed ten percent (10%) of the
fair market value of all commercial paper investments permitted by this
paragraph (b), commercial paper and governmental securities repurchase
obligations issued by banks with capital and surplus in excess of $500,000,000
and money market mutual funds and accounts containing solely the investments
permitted under this clause (b); and
(c) investments in Subsidiary Guarantors and the existing loan
advances and investments set forth in Schedule 9.4;
(d) trade accounts created in the ordinary course of business;
(e) deposits for utilities under security deposits, leases and
similar prepaid expenses incurred in the ordinary course of business;
(f) loans and advances to employees (i) in connection with reasonable
travel and business expenses in the ordinary course of business in an aggregate
amount not in excess of $50,000 outstanding at any time or (ii) as permitted by
Section 9.9; and
(g) other investments (excluding the Medirisk Investment) not to
exceed One Million Five Hundred Thousand Dollars ($1,500,000) in the aggregate
during the term of the Credit Facility unless otherwise approved in writing by
the Required Lenders, such approval not to be unreasonably withheld.
SECTION 9.5. Limitations on Mergers and Liquidation. Merge,
consolidate or enter into any similar combination with any other Person or
liquidate, wind-up or dissolve itself or suffer any liquidation or dissolution
except (a) any Wholly-Owned Subsidiary of the Borrower may merge into the
Borrower or with any other Wholly-Owned Subsidiary thereof (provided that a
Credit Party is the surviving entity) and (b) any Wholly-Owned Subsidiary may
merge into the Person such Wholly-Owned Subsidiary was formed to acquire in
connection with an acquisition permitted by Section 9.4.
SECTION 9.6. Restrictions on Sale of Assets, etc. Sell, lease,
transfer, assign, exchange or otherwise dispose of any of its assets
(including, without limitation, accounts receivable and any transaction the
primary purpose of which is to accomplish the sale-leaseback of any asset) or
liquidate, dissolve or enter into any transaction for the purpose of winding up
its business affairs other than (a) the sale of assets in the ordinary course
of business of the Borrower or applicable Subsidiary (including sales of assets
in connection with office consolidations consummated in the ordinary course of
business) (b) the sale of obsolete assets no
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longer used in the business of the Borrower or applicable Subsidiary and (c)
any conveyance in connection with a merger permitted by Section 9.5.
SECTION 9.7. Limitations on Dividends and Distributions. Declare or
pay any dividends upon any of its capital stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares
of its capital stock; or make any change in its capital structure that could
reasonably be expected to have a Material Adverse Effect; provided that (a) the
Borrower may pay dividends solely in shares of its own capital stock and (b)
any Subsidiary of the Borrower may pay cash dividends or make any other cash
distribution thereto.
SECTION 9.8. Limitations on Exchange and Issuance of Capital Stock.
Issue, sell or otherwise dispose of any class or series of capital stock that,
by its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would
be, (a) convertible or exchangeable into Debt or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or
has, or upon the happening of an event or passage of time would have, a
redemption or similar payment due.
SECTION 9.9. Transactions with Affiliates. Directly or indirectly,
(a) make any loan or advance to, or purchase, assume or guarantee any note or
other obligation to or from, any of its officers, partners or other Affiliates,
or to or from any member of the immediate family of any of its officers,
partners or other Affiliates, or subcontract any operations to any of its
Affiliates, or (b) enter into, or be a party to, any transaction with any of
its Affiliates, except with respect to each such clause (a) and (b) pursuant to
the reasonable requirements of its business (it being hereby agreed that loans
to executive officers of the Borrower or its Subsidiaries not to exceed at any
one time in an aggregate outstanding principal amount of $500,000 are pursuant
to the reasonable requirements of the Borrower's business) and upon fair and
reasonable terms that are fully disclosed to the Agent and are no less
favorable to it than it would obtain in a comparable arm's length transaction
with a Person not its Affiliate.
SECTION 9.10. Certain Accounting Changes. Change its Fiscal Year
end, or make any change in its accounting treatment and reporting practices for
the purposes of compliance with the Loan Documents, subject to the provisions
of Section 12.10.
SECTION 9.11. Restrictive Agreements. Enter into any agreement which
contains any covenants materially more restrictive than the provisions of
Articles VII, VIII and IX hereof, or which restricts, limits or otherwise
encumbers its ability to incur Liens on or with respect to any of its assets or
properties other than the assets or properties securing Debt permitted by
Sections 9.1(h) and 9.1(i) and incurred pursuant to such agreement.
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SECTION 9.12. Material Contracts. Amend, modify, cancel, terminate
or otherwise make any change in any Material Contract in any manner that could
reasonably be expected to have a Material Adverse Effect.
SECTION 9.13. Payments, Etc. on Subordinated Debt. Amend or modify
(or permit the modification or amendment of) any of the terms or provisions of
any Subordinated Debt, or cancel or forgive, make any voluntary or optional
payment or prepayment on, or redeem or acquire for value (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) any Subordinated
Debt.
ARTICLE X
DEFAULT AND REMEDIES
SECTION 10.1. Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans. The Borrower shall
default in any payment of principal of, or interest on, any Loan or the Notes
when and as due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the payment
when and as due of any other Obligation and such default shall continue
unremedied for five (5) Business Days after the due date thereof.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by any Credit Party under this Agreement, any Loan Document or
Security Document, or any amendment supplement or other modification hereto or
thereto, shall at any time prove to have been incorrect or misleading in any
material respect when made.
(d) Default in Performance of Certain Covenants. Any Credit Party
shall (i) default in the performance or observance of any covenant or agreement
contained in Articles VIII or IX, as applicable, of this Agreement or (ii)
default in any material respect of the performance or observance of any
covenant or agreement contained in Sections 5 or 6 of any Pledge Agreement.
(e) Default in Performance of Other Covenants and Conditions. Any
Credit Party shall default in the performance or observance of any term,
covenant, condition or agreement contained in this Agreement (other than as
specifically provided for otherwise in this Section 10.1) or any other Loan
Document and such default
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shall continue for a period of thirty (30) days after written notice thereof
has been given to the Borrower by the Agent.
(f) Debt Cross-Default. Any Credit Party shall (i) default in the
payment of any Debt (other than the Notes) the aggregate outstanding amount of
which is in excess of $100,000 beyond the period of grace (not to exceed 30
days), if any, provided in the instrument or agreement under which such Debt
was created; or (ii) default in the observance or performance of any other
agreement or condition relating to any Debt (other than the Notes) the
aggregate outstanding amount of which is in excess of $100,000 or contained in
any instrument or agreement evidencing, securing or relating thereto or any
other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such Debt (or a trustee or agent on behalf of such holder or holders) to cause,
with the giving of notice if required, any such Debt to become due prior to its
stated maturity (any applicable grace period having expired).
(g) Other Cross-Defaults; Cancellation and Termination. Any Credit
Party shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any Material Contract (other than
the Credit Agreement) the breach of which could have a Material Adverse Effect.
Any Carrier Contract or other agreement to which the Borrower or any Subsidiary
thereof is a party or any group of such Carrier Contracts or agreements which
individually or in the aggregate generated an amount equal to or greater than
fifteen percent (15%) of the revenue of the Borrower (determined on a
Consolidated basis) for the fiscal quarter ending on or most recently ended
prior to any date of determination shall be canceled or terminated during the
term of the Credit Facility.
(h) Change of Control. (i) the Borrower shall cease to own and
control 100% of the issued and outstanding common stock of HPSI free and clear
of any Liens (except as created by the Pledge Agreement executed by the
Borrower) or 100% of the voting power of HPSI entitled to vote in the election
of members of the board of directors of HPSI or (ii) any person or group of
persons (within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended) other than the Noel Group, Inc. shall obtain ownership or
control in one or more series of transactions of more than thirty percent (30%)
of the voting power of the Borrower entitled to vote in the election of members
of the board of directors of the Borrower or more than such percentage of the
issued and outstanding common stock of the Borrower.
(i) Voluntary Bankruptcy Proceeding. Any Credit Party shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect); (ii) file a petition seeking to take advantage of any
other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts; (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an
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involuntary case under such bankruptcy laws or other laws; (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
or liquidator of itself or of a substantial part of its property, domestic or
foreign; (v) admit in writing its inability to pay its debts as they become
due; (vi) make a general assignment for the benefit of creditors; or (vii) take
any corporate action for the purpose of authorizing any of the foregoing.
(j) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against any Credit Party in any court of competent
jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or
hereafter in effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts; or
(ii) the appointment of a trustee, receiver, custodian, liquidator or the like
for any such Person or for all or any substantial part of their respective
assets, domestic or foreign, and such case or proceeding shall continue
undismissed or unstayed for a period of sixty (60) consecutive calendar days,
or an order granting the relief requested in such case or proceeding
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
(k) Failure of Agreements. Any material provision of this Agreement
or of any other Loan Document shall for any reason cease to be valid and
binding on any Credit Party, or any Credit Party shall so state in writing, or
any Security Document shall for any reason cease to create a valid and
perfected first priority Lien on, or security interest in, any of the
Collateral purported to be covered thereby, in each case other than in
accordance with the express terms hereof or thereof.
(l) Judgment or Attachment. Any final judgments or orders for the
payment of money which exceed $500,000 in an amount individually or in the
aggregate shall be entered against any Credit Party by any court or warrants or
writs of attachment or execution or similar processes shall be issued against
any property of the any Credit Party which exceeds $500,000 in value
individually or in the aggregate and such judgments or order warrants or
processes as applicable, shall continue undischarged or unstayed for a period
of forty-five (45) days.
(m) Loss of License. Any license for third party administration or
utilization review services of the Borrower or any Subsidiary thereof shall be
revoked, canceled or otherwise terminated, which event would reasonably be
expected to have a Material Adverse Effect.
SECTION 10.2. Remedies. Upon the occurrence of an Event of Default,
with the consent of the Required Lenders, the Agent may, or upon the request of
the Required Lenders, the Agent shall, by notice to the Borrower:
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(a) Acceleration; Termination of Facilities. Declare the principal
of and interest on the Loans and the Notes at the time outstanding, and all
other amounts owed to the Lenders and to the Agent under this Agreement or any
of the other Loan Documents and all other Obligations, to be forthwith due and
payable, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other Loan Documents to the
contrary notwithstanding, and terminate the Credit Facility and any right of
the Borrower to request borrowings thereunder; provided, that upon the
occurrence of an Event of Default specified in Section 10.1(i) or (j), the
Credit Facility shall be automatically terminated and all Obligations shall
automatically become due and payable.
(b) Rights of Collection. Exercise on behalf of the Lenders all of
its other rights and remedies under this Agreement, the other Loan Documents
and Applicable Law, in order to satisfy all of the Obligations.
SECTION 10.3. Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Agent and the Lenders set forth
in this Agreement is not intended to be exhaustive and the exercise by the
Agent and the Lenders 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 or under the Loan
Documents 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, the Agent and
the Lenders or their respective 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 XI
THE AGENT
SECTION 11.1. Appointment. Each of the Lenders hereby irrevocably
designates and appoints First Union as Agent of such Lender under this
Agreement and the other Loan Documents and each such Lender irrevocably
authorizes First Union as Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Agent by the terms of this Agreement and such other Loan Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere
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in this Agreement or such other Loan Documents, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or the other Loan Documents or otherwise
exist against the Agent.
SECTION 11.2. Delegation of Duties. The Agent may execute any of its
respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by the Agent with reasonable care.
SECTION 11.3. Exculpatory Provisions. Neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for actions occasioned solely by its or such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Credit Party or any officer thereof contained in this
Agreement or the other Loan Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by the Agent
under or in connection with, this Agreement or the other Loan Documents or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or the other Loan Documents or for any failure of any Credit
Party to perform its obligations hereunder or thereunder. The Agent shall not
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Credit Parties.
SECTION 11.4. Reliance by the Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless such Note shall have been transferred in accordance with
Section 12.11 hereof. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement and the other Loan Documents
unless it shall first receive such advice or concurrence of the Required
Lenders (or, when expressly required hereby or by the relevant other Loan
Document, all the Lenders) as it deems appropriate or it shall
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first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action except for its own gross negligence or
willful misconduct. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the Notes in accordance
with a request of the Required Lenders (or, when expressly required hereby, all
the Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
SECTION 11.5. Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives
such a notice, it shall promptly give notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; provided that unless and
until the Agent shall 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.
SECTION 11.6. Non-Reliance on the Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates has made any representations or warranties to it and that no act by
the Agent hereinafter taken, including any review of the affairs of the Credit
Parties, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Credit Parties and
made its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Credit Parties.
Except for notices, reports and other documents expressly required to be
furnished to the Lenders by the Agent hereunder or by the other Loan Documents,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, operations, property,
financial and other condition or creditworthiness of the Credit Parties which
may come into the
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possession of the Agent or any of its respective officers, directors,
employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.
SECTION 11.7. Indemnification. The Lenders agree to indemnify the
Agent in its capacity as such and (to the extent not reimbursed by the Borrower
or the Subsidiary Guarantors and without limiting the obligation of the
Borrower to do so), ratably according to the respective amounts of their
Commitment Percentages, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or the other Loan Documents, or any documents contemplated by
or referred to herein or therein 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; provided that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's bad faith, gross negligence or willful misconduct. The
agreements in this Section 11.7 shall survive the payment of the Notes and all
other amounts payable hereunder and the termination of this Agreement.
SECTION 11.8. The Agent in Its Individual Capacity. Subject to
Section 9.1 and the other covenants herein applicable to the Credit Parties,
the Agent and its respective Subsidiaries and Affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Credit Parties as though the Agent were not an Agent hereunder. With respect
to any Loans made or renewed by it and any Note issued to it, the Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not an
Agent, and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
SECTION 11.9. Resignation of the Agent; Successor Agent. Subject to
the appointment and acceptance of a successor as provided below, the Agent may
resign at any time by giving notice thereof to the Lenders and the Borrower.
Upon any such resignation, the Required Lenders shall have the right to appoint
a successor Agent, which successor shall have minimum capital and surplus of at
least $500,000,000. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty (30)
days after the Agent's giving of notice of resignation, then the Agent may, on
behalf of the Lenders, appoint a successor Agent, which successor shall have
minimum capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its
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duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 11.9 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to
be received by a party hereto (i) on the date of delivery if delivered by hand
or sent by telecopy (which telecopy is contemporaneously transmitted by another
method of communication permitted by this Section), (ii) on the next Business
Day if sent by recognized overnight courier service and (iii) on the third
Business Day following the date sent by certified mail, return receipt
requested. A telephonic notice to the Agent as understood by the Agent will be
deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it
at the following addresses, or any other address as to which all the other
parties are notified in writing.
If to the Borrower: HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Attention: James K. Murray, III
Telephone No.: 813/289-1000
Telecopy No.: 813/289-4570
With a copy to: Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 East Kennedy Blvd.
Tampa, Florida 33601
Attention: David C. Shobe, Esquire
Telephone No.: 813/228-7411
Telecopy No.: 813/229-9401
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If to First Union as First Union National Bank of
Agent: North Carolina
One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina
28288-0608
Attention: Syndication Agency
Services
Telephone No.: 704/383-0281
Telecopy No.: 704/383-0288
With a copy to: The address of First Union set
forth on Schedule 1.1(b) hereto
If to any Lender: To the Address set forth on
Schedule 1.1(b) hereto
(c) Agent's Office. The Agent hereby designates its office located
at the address set forth above, or any subsequent office which shall have been
specified for such purpose by written notice to the Borrower and Lenders, as
the Agent's Office referred to herein, to which payments due are to be made and
at which Loans will be disbursed.
SECTION 12.2. Expenses; Indemnity. The Borrower will pay all
reasonable out-of-pocket expenses of the Agent in connection with: (a) the
preparation, execution and delivery of any waiver, amendment or consent by the
Agent or the Lenders relating to this Agreement or any of the other Loan
Documents, including fees and disbursements of counsel for the Agent, search
fees, recording fees, taxes imposed in connection therewith and title insurance
premiums and (b) upon the occurrence and continuance of an Event of Default,
consulting with one or more Persons, including the administration and
enforcement of any rights and remedies of the Agent and Lenders under the
Credit Facility, including consulting with appraisers, accountants and
attorneys concerning or related to the nature, scope or value of any right or
remedy of the Agent or any Lender hereunder or under any of the other Loan
Documents or any factual matters in connection therewith, which expenses shall
include the reasonable fees and disbursements of such Persons, and (c) defend,
indemnify and hold harmless the Agent and the Lenders, and their respective
parents, Subsidiaries, Affiliates, employees, agents, officers and directors,
from and against any losses, penalties, fines, liabilities, settlements,
damages, costs and expenses, suffered by any such Person in connection with any
claim, investigation, litigation or other proceeding (whether or not the Agent
or any Lender is a party thereto) and the prosecution and defense thereof,
arising out of or in any way connected with the Agreement, any of the other
Loan Documents or the Loans, including without limitation reasonable attorney's
and consultant's fees, except to the extent that any of the foregoing directly
result from the gross negligence or willful misconduct of the party seeking
indemnification therefor. In addition, the Borrower will pay all out-of-pocket
expenses of the Agent in connection with prosecuting or defending any claim in
any way arising out of, related to,
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connected with, or enforcing any provision of, this Agreement or any of the
other Loan Documents, which expenses shall include the fees and disbursements
of counsel and of experts and other consultants retained by the Agent and
Lenders.
SECTION 12.3. Stamp and Other Taxes. The Borrower will pay any and
all stamp, registration, recordation and similar taxes, fees or charges and
shall indemnify the Lenders against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any
of the other Loan Documents or the perfection of any rights thereunder.
SECTION 12.4. Set-off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the
continuance thereof, the Lenders and any assignee or participant of a Lender in
accordance with Section 12.11 are hereby authorized by the Borrower at any time
or from time to time, without prior notice to the Borrower or to any other
Person, any such prior notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured excluding government securities
required by Applicable Law to be held as security for worker's compensation and
similar) and any other indebtedness at any time held or owing by the Lenders,
or any such assignee or participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective of whether or
not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Agent shall have declared any or all of the
Obligations to be due and payable as permitted by Section 10.2 and although
such Obligations shall be contingent or unmatured.
SECTION 12.5. Governing Law. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 12.6. Consent to Jurisdiction. The Borrower hereby
irrevocably consents to the personal jurisdiction of the state and federal
courts located in Mecklenburg County, North Carolina, in any action, claim or
other proceeding arising out of any dispute in connection with this Agreement,
the Notes and the other Loan Documents, any rights or obligations hereunder or
thereunder, or the performance of such
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rights and obligations. The Borrower hereby irrevocably consents to the
service of a summons and complaint and other process in any action, claim or
proceeding brought by the Agent or any Lender in connection with this
Agreement, the Notes or the other Loan Documents, any rights or obligations
hereunder or thereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner specified in Section 12.1.
Nothing in this Section 12.6 shall affect the right of the Agent or any Lender
to serve legal process in any other manner permitted by Applicable Law or
affect the right of the Agent or any Lender to bring any action or proceeding
against the Borrower or its properties in the courts of any other
jurisdictions.
SECTION 12.7. Binding Arbitration; Waiver of Jury Trial.
(a) Jury Trial. TO THE EXTENT PERMITTED BY LAW, THE AGENT, EACH
LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(b) Binding Arbitration. If the provisions of Section 12.7(a) are
held to be unenforceable by a final non- appealable judgment of a court of
competent jurisdiction, then upon demand of any party, 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 other Loan
Documents ("Disputes"), between or among parties to this Agreement or any other
Loan Document 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 demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, claims brought as class actions, claims
arising from Loan Documents executed in the future, or claims concerning any
aspect of the past, present or future relationships arising out or connected
with 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
paragraph shall not apply to any Hedging Agreement that is a Loan Document.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right to proceed in any court of
57
<PAGE> 65
proper jurisdiction or by self help to exercise or prosecute the following
remedies: (i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted in the Loan Documents or
under applicable law or by judicial foreclosure and sale, (ii) all rights of
self help including peaceful occupation of property and collection of rents,
set off, and peaceful possession of property, (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in 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 an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
SECTION 12.8. Reversal of Payments. To the extent the Borrower makes
a payment or payments to the Agent for the ratable benefit of the Lenders or
the Agent receives any payment or proceeds of the Collateral for the Borrower's
benefit which payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Obligations or part
thereof intended to be satisfied shall be revived and continued in full force
and effect as if such payment or proceeds had not been received by the Agent.
SECTION 12.9. Injunctive Relief; Consequential Damages. (a) The
Borrower recognizes that, in the event the Borrower fails to perform, observe
or discharge any of their respective obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lenders.
Therefore, the Borrower agrees that the Lenders, at the Lenders' option, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
(b) The Agent, Lender and Borrower (on behalf of itself and its
Subsidiaries) hereby agrees that no such Person shall have a remedy of punitive
or exemplary damages against any other party to a Loan Document and each such
Person hereby waives any right or claim to punitive or exemplary damages that
they may now have or may arise in the future in connection with any Dispute,
whether such Dispute is resolved through arbitration or judicially.
SECTION 12.10. Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to determine whether it is in compliance
with any covenant contained herein, shall, except as otherwise expressly
contemplated hereby or unless there is an express written direction by the
Agent to the contrary agreed to by the Borrower, be performed in accordance
with GAAP as in effect on the Closing Date. In the event that changes in GAAP
shall be mandated by the Financial Accounting Standards Board, or any similar
accounting body of comparable
58
<PAGE> 66
standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would 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 the Borrower and
the Lenders shall have amended this Agreement to the extent necessary to
reflect any such changes in the financial covenants and other terms and
conditions of this Agreement.
SECTION 12.11. Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Agent and the Lenders, all future
holders of the Notes, and their respective successors and assigns, except that
the Borrower shall not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Agent and the Borrower, which consents shall not be unreasonably withheld (as
long as no Default or Event of Default has occurred and is continuing), assign
to one or more Eligible Assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Loans at the time owing to it and the Notes held by it);
provided that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement;
(ii) if less than all of the assigning Lender's Commitment is to
be assigned, the Commitment so assigned shall not be less than
$10,000,000;
(iii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance in the form of Exhibit E
attached hereto (an "Assignment and Acceptance"), together with any
Note or Notes subject to such assignment;
(iv) such assignment shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with
the Securities and Exchange Commission or apply to or qualify the
Loans or the Notes under the blue sky laws of any state; and
(v) the assigning Lender shall pay to the Agent an assignment
fee of $3,000 upon the execution by such Lender of the Assignment and
Acceptance; provided that no such fee shall be payable upon any
assignment by a Lender to an Affiliate thereof.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Accep-
59
<PAGE> 67
tance, which effective date shall be at least five (5) Business Days after the
execution thereof, (A) the assignee thereunder shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereby and (B) the Lender thereunder shall, to the
extent provided in such assignment, be released from its obligations under this
Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering
an Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Lenders and the amount of the Loans with respect to each
Lender from time to time (the "Register"). The entries in the Register shall
be conclusive, in the absence of manifest error, and the Borrower, the Agent
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 or Lender at any reasonable time and
from time to time upon reasonable prior notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is substantially in the form of Exhibit E:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Borrower;
and
(iv) promptly deliver a copy of such Assignment and Acceptance to
the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Agent, in exchange for the surrendered Note or
Notes, a new Note or Notes to the order of such Eligible Assignee in amounts
equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment 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 form
of the assigned Notes
60
<PAGE> 68
delivered to the assigning Lender. Each surrendered Note or Notes shall be
canceled and returned to the Borrower.
(f) Participations. Each Lender may sell participations to one or
more banks or other entities in all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Loans and the Notes held by it); provided that:
(i) each such participation shall be in an amount not less than
$5,000,000 unless such participation is to an Affiliate in which case
no minimum amount shall be required;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it
for all purposes of this Agreement;
(v) the Borrower, 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;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this
Agreement or any other Loan Document other than waivers, amendments or
modifications which would reduce the principal of or the interest rate
on any Loan, extend the term or increase the amount of the Commitment,
reduce the amount of any fees to which such participant is entitled,
extend any scheduled payment date for principal of any Loan or, except
as expressly contemplated hereby or thereby, release substantially all
of the Collateral; and
(vii) any such disposition shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with
the Securities and Exchange Commission to apply to qualify the Loans
or the Notes under the blue sky law of any state.
(g) Disclosure of Information; Confidentiality. The Agent and the
Lenders shall hold all non-public information with respect to the Borrower
obtained pursuant to the Loan Documents in accordance with their customary
procedures for handling confidential information. Any Lender may, in
connection with any assignment, proposed assignment, participation or proposed
participation pursuant to this Section 12.11, disclose to the assignee,
participant, proposed assignee or proposed participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower; provided, that prior to any such
61
<PAGE> 69
disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with the Borrower or such Lender to preserve the
confidentiality of any confidential information relating to the Borrower
received from such Lender.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit
any Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
SECTION 12.12. Amendments, Waivers and Consents. Except as set forth
below, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents may be amended or waived by the Lenders, and any
consent given by the Lenders, if, but only if, such amendment, waiver or
consent is in writing signed by the Required Lenders (or by the Agent with the
consent of the Required Lenders) and delivered to the Agent and, in the case of
an amendment, signed by the Borrower; provided, that no amendment, waiver or
consent shall (a) increase the amount or extend the time of the obligation of
the Lenders to make Loans, (b) extend the originally scheduled time or times of
payment of the principal of any Loan or the time or times of payment of
interest on any Loan, (c) reduce the rate of interest or fees payable on any
Loan, (d) permit any subordination of the principal or interest on any Loan,
(e) release any material portion of the Collateral or release any Security
Document (other than as specifically permitted in this Agreement or the
applicable Security Document) or (f) amend the provisions of this Section 12.12
or the definition of Required Lenders, without the prior written consent of
each Lender. In addition, no amendment, waiver or consent to the provisions of
Article XI shall be made without the written consent of the Agent.
SECTION 12.13. Performance of Duties. The Credit Parties'
obligations under this Agreement and each of the Loan Documents shall be
performed by the Credit Parties at their sole cost and expense.
SECTION 12.14. All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Lenders, the Agent and any
Persons designated by the Agent or any Lender pursuant to any provisions of
this Agreement or any of the other Loan Documents shall be deemed coupled with
an interest and shall be irrevocable so long as any of the Obligations remain
unpaid or unsatisfied or the Credit Facility has not been terminated.
SECTION 12.15. Survival of Indemnities. Notwithstanding any
termination of this Agreement, the indemnities to which the Agent and the
Lenders are entitled under the provisions of this Article XII and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Agent and the Lenders against events arising
after such termination as well as before.
SECTION 12.16. Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for conve-
62
<PAGE> 70
nience only, and neither limit nor amplify the provisions of this Agreement.
SECTION 12.17. Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 12.18. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
SECTION 12.19. Term of Agreement; Independent Effect. (a) This
Agreement shall remain in effect from the Closing Date through and including
the date upon which all Obligations shall have been indefeasibly and
irrevocably paid and satisfied in full. No termination of this Agreement shall
affect the rights and obligations of the parties hereto arising prior to such
termination.
(b) The Credit Parties expressly acknowledge and agree that each
covenant contained in Articles VII, VIII and IX hereof shall be given
independent effect. Accordingly, no Credit Party shall engage in any
transaction or other act otherwise permitted under any covenant contained in
any such Article if, before or after giving effect thereto, such Credit Party
shall or would be in breach of any other covenant contained in any such
Article.
63
<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized representatives, all as of the
day and year first written above.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ J. K. Murray, III
--------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
64
<PAGE> 72
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ Joseph H. Lowell
--------------------------------
Name: Joseph H. Lowell
--------------------------
Title: Sr. V.P.
--------------------------
65
<PAGE> 73
BARNETT BANK OF TAMPA, A STATE BANK,
ITS SUCCESSORS OR ASSIGNS, as
Lender
By: /s/ Kimberly A. Bruce
--------------------------------
Name: Kimberly A. Bruce
---------------------------
Title: Assistant Vice President
--------------------------
66
<PAGE> 74
FLEET BANK, N.A., as Lender
By: /s/ Peter C. Hall
--------------------------------
Name: Peter C. Hall
---------------------------
Title: Vice President
--------------------------
67
<PAGE> 75
NATIONSBANK, N.A., as Lender
By: /s/ Martin D. Gavel
--------------------------------
Name: Martin D. Gavel
---------------------------
Title: Asst. Vice President
--------------------------
68
<PAGE> 76
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Drew Severance
--------------------------------
Name: Drew Severance
---------------------------
Title: Vice President
--------------------------
69
<PAGE> 77
SCHEDULE 1.1(b): LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE ADDRESS
- ------ ---------- -------
<S> <C> <C>
First Union $15,000,000 One First Union Center, TW-19
National Bank 20% 301 South College Street
of North Carolina Charlotte, North Carolina
28288-0735
Attention: Tammy B. Anderson
Telephone No.: 704/374-6928
Telecopy No.: 704/383-9144
Barnett Bank of $15,000,000 101 East Kennedy Boulevard
Tampa, a State 20% Tampa, Florida
Bank, its successors 33680-3014
and assigns Attention: Kim Bruce
Telephone No.: 813/225-8136
Telecopy No.: 813/225-8752
Fleet Bank, N.A. $15,000,000 56 East 42nd Street
20% New York, New York
10017
Attention: Peter Hall
Telephone No.: 212/907-5118
Telecopy No.: 212/907-5614
NationsBank, N.A. $15,000,000 Nationsbank Corporate Center
(South) 20% 400 N. Ashley Drive, 2nd Floor
Tampa, Florida
33602
Attention: Drew Severance
Telephone No.: 813/224-5131
Telecopy No.: 813/224-5770
SouthTrust Bank $15,000,000 150 Second Avenue North
of Alabama, 20% Suite 450
National Association St. Petersburg, Florida
33701
Attention: Martin D. Gawel
Telephone No.: 813/823-8237
Telecopy No.: 813/898-5319
</TABLE>
<PAGE> 78
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Credit Agreement referred to below (this
"First Amendment"), is made and entered into as of this 1st day of July,
1996 by and among HEALTHPLAN SERVICES CORPORATION, a corporation organized
under the laws of Delaware (the "Borrower"), certain subsidiaries of the
Borrower identified on the signature pages hereto, the Lenders party to such
Credit Agreement, and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent for
the Lenders.
Statement of Purpose
The Lenders have extended curtain credit facilities to the Borrower
pursuant to the Credit Agreement dated as of May 17, 1996 (as amended, restated
or otherwise modified, the "Credit Agreement"), by and among the Borrower, the
Lenders and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to increase the Aggregate Commitment thereunder to Eighty-Five Million Dollars
($85,000,000), and the Lenders have agreed to do so, but only on the terms and
conditions set forth below in this Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. (a) All capitalized undefined terms used in this
First Amendment shall have the meanings assigned thereto in the Credit
Agreement, (b) "Effective Date" means the date of this Amendment or such later
Business Day upon which each condition described below shall be satisfied or
waived in a manner acceptable to the Agent and required Lenders and (c)
"Harrington Acquisition" means the acquisition of 100% of the outstanding
capital stock of Harrington Services Corporation by HealthPlan Services
Corporation pursuant to that Plan and Agreement of Merger dated May 28, 1996
among such entities, HealthPlan Services Alpha Corporation and Robert Chefitz.
2. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 1.1 is hereby amended by deleting the defined term
"Aggregate Commitment" and substituting the following in lieu thereof the
following:
"'Aggregate Commitment' means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at
any time or from time to time pursuant to the terms hereof. On the
Effective Date, the Aggregate Commitment shall be Eighty-Five Million
Dollars ($85,000,000)."
(b) Section 1.1 is hereby amended to insert the following defined
term in the correct alphabetical order:
<PAGE> 79
"'Effective Date' shall have the meaning given thereto in the First
Amendment hereto dated as of July 1, 1996 by and among the Borrower,
the Lenders and the Agent."
(c) Schedule 1.1(b) is hereby deleted in its entirety and Schedule
1.1(b) attached hereto shall be substituted in lieu thereof.
(e) Section 9.1 is hereby amended to delete clause (h) of Section
9.1 and to substitute the following in lieu thereof:
"(h) Debt of the Borrower incurred by reason of merger or otherwise
assumed in connection with any Permitted Acquisition in an aggregate
principal amount not to exceed $7,000,000 during the term of the
Credit Facility, the terms and conditions of which (including without
limitation any collateral security therefor) shall be reasonably
acceptable to the Agent and Lenders, and"
3. Conditions. The effectiveness of this Amendment shall be
conditioned upon delivery to the Agent of the following items:
(a) Promissory Notes. The Borrower shall issue and deliver to
the Agent, in exchange for the Promissory Notes issued on the Closing
Date, duly executed Promissory Notes payable to each Lender in the
amount of such Lender's respective Commitment as increased hereby.
(b) Upfront Fees. The Agent shall receive on the Effective
Date for the account of the Lenders an upfront fee equal to one-eighth
of one percent (1/8%) of Ten Million Dollars ($10,000,000) to be
distributed to the Lenders pro rata in accordance with their
respective Commitment Percentages.
(c) Certificate of the Borrower. The Agent shall have
received a certificate dated as of the Effective Date from the
Borrower, in form and substance satisfactory to the Agent, certifying
on behalf of the Credit Parties that all representations and
warranties of the Credit Parties contained in this Amendment and the
Loan Documents are true and correct in all material respects; that no
Credit Party is in violation of any of the covenants contained in the
other Loan Documents; that, after giving effect to the transactions
contemplated by this Amendment, no Default or Event of Default has
occurred and is continuing; and that the Credit Parties have satisfied
each of the closing conditions regarding the First Amendment to be
satisfied thereby.
(d) Certificate of Secretary of the Credit Parties. The Agent
shall have received a certificate of the secretary or assistant
secretary of each Credit Party certifying on behalf
2.
<PAGE> 80
of such Credit Party, as applicable, that the articles of
incorporation and bylaws of such Credit Party delivered to the Agent
on May 17, 1996 have not been repealed, revoked, rescinded or amended
in any respect; that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of such Credit
Party, authorizing the execution, delivery and performance of this
Amendment and the continued effectiveness of the other Loan Documents;
and as to the incumbency and genuineness of the signature of each
officer of such Credit Party executing Loan Documents to which such
Credit Party is a party.
(e) Opinions of Counsel. The Agent shall have received
favorable opinions of counsel to the Credit Parties, dated as of the
Effective Date and addressed to the Agent and Lenders, in form and
substance satisfactory to the Agent.
(f) Joinder. Completion by the Borrower to the satisfaction
of the Agent of the requirements of Section 7.12 of the Credit
Agreement with respect to the Harrington Acquisition.
(g) Acquisition Agreement. Completion to the satisfaction of
the Agent of the transactions set forth in Section 7.2 of the
Agreement and Plan of Merger referred to in the definition of
Harrington Acquisition and any other closing condition set forth
therein.
(h) Pay Off. Receipt of a pay-off letter from Fifth Third
Bank of Columbus in form and substance satisfactory to the Agent with
respect to any indebtedness owing to such bank from Harrington
Services Corporation or any Subsidiary thereof.
(i) Additional Items. Receipt by the Agent of any other
document or instrument reasonably requested by it in connection with
the execution of this Amendment.
4. Limited Amendment. Except as expressly amended herein, the Credit
Agreement and each other Loan Document shall continue to be, and shall remain,
in full force and effect. This Amendment shall not be deemed (a) to be a waiver
of, or consent to, or a modification or amendment of, any other term or
condition of the Credit Agreement or any other Loan Documents or (b) to
prejudice any other right or rights which the Agent or Lenders may now have or
may have in the future under or in connection with the Credit Agreement or the
Loan Documents or any of the instruments or agreements referred to therein, as
the same may be amended, restated or otherwise modified from time to time.
5. Representations and Warranties. By its execution hereof, the
Borrower hereby certifies on behalf of itself and the other Credit Parties that
each of the representations and warranties set
3.
<PAGE> 81
forth in the Credit Agreement and the other Loan Documents is true and correct
as of the date hereof as if fully set forth herein and that as of the date
hereof no Default or Event of Default has occurred and is continuing.
6. Confirmation of Security Documents. Each Credit Party hereby
agrees and confirms that the definition of obligations as used in each Pledge
Agreement and Subsidiary Guaranty Agreement to which it is a party includes the
Credit Agreement as amended hereby.
7. Expenses. The Borrower shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and
delivery of this First Amendment, including without limitation, the reasonable
fees and disbursements of counsel for the Agent, not to exceed Three Thousand
Dollars ($3,000).
8. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
9. Counterparts. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
4.
<PAGE> 82
SCHEDULE 1.1(b): LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE ADDRESS
- ------ ---------- -------
<S> <C> <C>
First Union $17,000,000 One First Union Center, TW-19
National Bank 20% 301 South College Street
of North Carolina Charlotte, North Carolina
28288-0735
Attention: Tammy B. Anderson
Telephone No.: 704/374-6928
Telecopy No.: 704/383-9144
Barnett Bank, N.A. $17,000,000 101 East Kennedy Boulevard
20% Tampa, Florida
33680-3014
Attention: Kim Bruce
Telephone No.: 813/225-8136
Telecopy No.: 813/225-8752
Fleet Bank, N.A. $17,000,000 56 East 42nd Street
20% New York, New York
10017
Attention: Paul Chau
Telephone No.: 212/602-2610
Telecopy No.: 212/602-1321
NationsBank, $17,000,000 Nationsbank Corporate Center
N.A., (South) 20% 400 N. Ashley Drive, 2nd Floor
Tampa, Florida
33602
Attention: Drew Severance
Telephone No.: 813/224-5131
Telecopy No.: 813/224-5770
SouthTrust Bank $17,000,000 420 N. 20th Street
of Alabama, 20% 9th Floor
National Association Birmingham, Alabama
33701
Attention: Southeastern Banking
Telephone No.: 800/239-2300
Telecopy No.: 205/254-4250
</TABLE>
5.
<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the date and year first above written.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ J. K. Murray, III
-------------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
6.
<PAGE> 84
OTHER CREDIT PARTIES:
(CORPORATE SEAL] HEALTHPLAN SERVICES, INC.
By: /s/ J. K. Murray, III
-------------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
7.
<PAGE> 85
(CORPORATE SEAL] THIRD PARTY CLAIMS MANAGEMENT, INC.
By: /s/ J. K. Murray, III
------------------------------------
Name: James K. Murray, III
Title: Executive Vice President
8.
<PAGE> 86
(CORPORATE SEAL] HEALTHCARE INFORMATICS CORPORATION
By: /s/ J. K. Murray, III
------------------------------------
Name: James K. Murray, III
Title: Executive Vice President
9.
<PAGE> 87
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ Joseph H. Lowell
-----------------------------------
Name: Joseph H. Lowell
Title: Senior Vice President
10.
<PAGE> 88
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Martin D. Gavel
------------------------------------
Name: Martin D. Gavel
Title: Assistant Vice President
11.
<PAGE> 89
FLEET BANK, N.A., as Lender
By: /s/ Alex Sade
-----------------------------------
Name: Alex Sade
Title: Vice President
12.
<PAGE> 90
NATIONSBANK, N.A. (SOUTH), as Lender
By: /s/ Drew Severance
-------------------------------------
Name: Drew Severance
Title: Vice President
13.
<PAGE> 91
BARNETT BANK, N.A.,
(as successor by merger to Barnett
Bank of Tampa, a State Bank), as
Lender
By: /s/ Kimberly A. Bruce
-------------------------------------
Name: Kimberly A. Bruce
Title: Assistance Vice President
14.
<PAGE> 1
EXHIBIT 10.4
Employment and Noncompetition Agreement with Robert R. Parker, dated
June 25, 1996.
<PAGE> 2
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made and
entered into this 25th day of June, 1996, by and between R. E. HARRINGTON,
INC., a Delaware corporation (hereinafter called the "Employer"), and ROBERT R.
PARKER (hereinafter called "Employee").
W I T N E S S E T H :
WHEREAS, the Employee is an employee of the Employer; and
WHEREAS, Harrington Services Corporation ("Harrington"), the parent
company of the Employer, is being merged (the "Merger") into HealthPlan
Services Corporation ("HPSC") and in connection with the Merger Employee is
selling 325,698.99 shares of his stock in Harrington to HPSC pursuant to the
terms of the Merger and in connection therewith is receiving a portion of the
proceeds thereof; and
WHEREAS, as consideration for HPSC's consummation of the Merger and the
purchase of the Employee's stock by HPSC, HPSC has requested that, effective as
of the Closing Date of the Merger, Employee enter into an Employment and
Noncompetition Agreement with Employer in substantially the form set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound thereby, agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ Employee, and Employee
hereby accepts employment with Employer upon the terms and conditions
hereinafter set forth.
2. TERM. Subject to the provisions of resignation and termination as
hereinafter provided, the term of this Agreement shall commence on July 1, 1996
and shall terminate on June 30, 1999.
3. DUTIES. The Employee is engaged as the Employer's Chairman and Chief
Executive Officer and shall have such duties, responsibilities and
accommodations as may be assigned to him, from time to time, by the Board of
Directors of Employer. Nothing herein shall preclude the Board of Directors of
Employer from changing the duties of Employee if the Board concludes in its
reasonable judgment that such changes are in the Employer's best interests;
provided, however, that at all times during the term of this Agreement Employee
shall serve with the same functions, duties and status of the office of chief
executive officer of the Employer. Employer agrees that Employee shall not be
reassigned to any other office of the Employer without the prior written
consent of the Employee.
4. EXTENT OF SERVICE. Employee shall exclusively devote his entire
working time, energy and attention to his duties in connection with Employer,
provided that Employee may own passive investments.
5. COMPENSATION. During the term of this Agreement, Employer shall pay to
Employee the following compensation, which shall be payable in accordance with
Employer's normal payroll policies applicable to all of Employer's employees
and shall be subject to all authorized and required payroll deductions for
taxes, social security and the like, and contributions to benefit plans:
<PAGE> 3
(a) During the period from July 1, 1996 through June 30, 1999 an
annual salary of no less than $200,000.00 U.S. (the "Annual Base Salary")
provided that the Board of Directors in its sole discretion may increase
such Annual Base Salary at any time during the term of this Agreement and
upon such increase the increased salary shall become the new Annual Base
Salary from the effective date of such increase forward;
(b) In addition to the Annual Base Salary, the Employee shall be
entitled to:
(i) Such bonus or bonuses as the Compensation Committee of HPSC
shall from time to time determine, it being understood that the bonus
plan of the Employer will be patterned on and similar to the senior
officer bonus plan of HealthPlan Services, Inc.
(ii) A stock option grant of 25,000 shares of HPSC common stock
at a strike price equal to the closing price of such stock on the New
York Stock Exchange as of the date of the execution of the Plan and
Agreement of Merger for the Merger or the Closing Date of the Merger,
as selected by the Employee, in accordance with the terms of the
HealthPlan Services Corporation 1995 Incentive Equity Plan, and such
additional stock options as the Board of Directors may from time to
time determine;
(iii) Participate in the employee benefit plans of Employer in
existence from time to time consistent with the terms and conditions of
the Plan and Agreement of Merger for the Merger;
(iv) Severance benefits in accordance with the provisions of
Section 7 hereof.
6. TERMINATION. The foregoing notwithstanding, this Agreement is not to
be considered an agreement for a fixed term or as a guarantee of continuing
employment. Accordingly, subject to the provisions of Section 7 hereof,
Employee's employment may be terminated by Employer with or without Cause (as
defined below) upon immediate written notice to Employee at any time during the
term of this Agreement. Additionally, Employee's employment shall
automatically terminate upon his death or upon a determination that he is
Permanently Disabled (as defined below). Employee may resign as an officer
and, if applicable, director and terminate his employment at any time upon 30
days written notice to Employer. In the event that such termination is by the
Employer for Cause or by the Employee other than as a result of a Constructive
Termination Event, death or Permanent Disability, Employee shall be paid the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and shall be entitled to no salary from that date forward and to
only those benefits which Employer is required by law to provide to Employee.
Upon any termination, Employee shall immediately return any and all property
and records belonging to Employer which are in Employee's possession and shall
vacate Employer's offices in a prompt and professional manner. In addition to
the foregoing, upon termination of Employee's employment with Employer for any
reason, Employee shall resign promptly as an officer and, if applicable,
director of Employer and any subsidiary or parent of Employer. In the event
such termination by the Employer is without cause, or is caused by the death or
Permanent Disability of Employee or in the event that the Employee terminates
his employment as a result of a Constructive Termination Event, Employee shall
be entitled solely to (y) the Severance Benefits provided in Section 7, and (z)
immediate vesting of all unvested options, rights and benefits under any stock
option plan in which Employee has an unvested interest. Notwithstanding
anything contained in this Agreement to the contrary, in the event of any
termination of Employee's employment by either Employee or Employer, whether or
not for Cause, Employee shall be entitled to receive all benefits which are
accrued, vested and/or earned up to the termination date under the terms of any
existing benefit plan, including but not limited to the vested balance of the
Employee's account under any retirement or deferred compensation
2
<PAGE> 4
plan, any benefits under a split dollar insurance program existing for the
benefit of Employee, and any benefits which are legally required to be provided
after termination such as COBRA benefits (the "Legally Earned or Required
Benefits").
7. SEVERANCE BENEFITS.
(a) If during the term of this Agreement, Employee's employment is
terminated (i) by the Employer other than for Cause, as defined below, (ii)
by the Employee as a result of the occurrence of a Constructive Termination
Event, as defined below, which has not been cured by the Employer within 30
days of receipt of written notice from the Employee that such event has
occurred, or (iii) as a result of the Employee's death or Permanent
Disability, as defined below, then upon the occurrence of such event
Employer shall pay to the Employee (or the Employee's estate in the event
of death), as a severance benefit and in complete satisfaction of any and
all claims which Employee may have against Employer or its affiliates,
officers, directors or employees as a result of this Agreement or his
previous employment by Employer, the greater of (i) Employee's Annual Base
Salary remaining to be paid through the term of the Agreement immediately
before such termination or (ii) an amount equal to Employee's Annual Base
Salary at the time of such termination; provided, however, Employer shall
not be obligated to pay any severance benefit until Employee (or Employee's
personal representative in the event of Employee's death or legal guardian
in the event of Permanent Disability which causes Employee to be unable to
do so) has delivered to Employer a complete and unconditional release, in
form reasonably satisfactory to Employer, releasing Employer from any and
all claims which Employee may have against Employer as a result of any
occurrence during Employee's employment and including, but not limited to,
any claim for wrongful termination (the "Employee Release"). The foregoing
notwithstanding, the Employee Release shall not release the Employer from
any of its post termination obligations under this Agreement. Such
severance benefit shall be paid over the remaining term of the Agreement
following such termination or, if longer, over the one (1) year period
following such termination, in equal bi-weekly payments. As used herein:
(A) the term "Cause" means (i) the Employee's violation of his
fiduciary duty to the Employer, (ii) gross or wilful failure by the
Employee to perform the duties of Employee's position, (iii) the
Employee's habitual unexcused absence over an extended period, (iv) the
Employee's disloyalty or insubordination, or other similar misconduct
which is of the nature of disloyalty or insubordination, (v)
embezzlement or misappropriation of Employer funds by the Employee, or
(vi) the Employee's commission of an act involving criminal activity of
a felonious nature or sexual harassment or similar serious breach of
conduct involving moral turpitude, provided that in the event of a
termination for Cause involving insubordination or disloyalty or other
similar conduct which is of the nature of disloyalty or
insubordination, the Employer shall give the Employee written notice of
the conduct constituting such Cause and the Employee shall have thirty
(30) days to correct such conduct and cure any damage suffered by
Employer as a result thereof. If Employee fails to correct such
conduct within such 30-day period, such conduct will be deemed to be
Cause;
(B) the term "Permanent Disability" means the permanent mental or
physical inability of the Employee to perform with reasonable
accommodation the essential duties of Employee's position as existing
on the date of this Agreement which condition causes the Employee to be
unable to perform the duties of his office for a period of six months
in any twelve-month period.
3
<PAGE> 5
(C) the term "Constructive Termination Event" means action by the
Employer which is directed at the Employee specifically and not at all
employees generally and which has the effect of significantly reducing
the Employee's compensation, employment responsibilities, authority, or
the accommodations in which the Employee performs his job, or the
nonpayment by Employer of compensation due and owing to the Employee
under this Agreement, which has not been cured by the Employer within
30 days of receipt of written notice from the Employee that such
nonpayment has occurred.
(b) Following Employer's termination of Employee's employment for any
reason other than Cause or Employee's termination of his employment as a
result of a Constructive Termination Event during the term of this
Agreement, Employer shall maintain in full force and effect, for the
Employee's continued benefit until the earlier of (i) 12 months after such
termination of Employee's employment or (ii) the Employee's commencement of
full time employment with a new employer, all life insurance, medical,
dental, health and accident, and disability plans, programs or arrangements
of the Employer in which the Employee participated on the date of
termination, provided that the Employee's continued participation is
possible under the general terms and provisions of such plans and programs.
(c) After the expiration of the term of this Agreement if Employee is
terminated by Employer for any reason other than Cause, Employee shall be
entitled to receive the standard severance package given to executive
officers of HPSC as well as the Legally Earned or Required Benefits.
8. NON-COMPETITION.
(a) For a period equal to the longer of the term of this Agreement or
two years after the Closing Date of the Merger, without the written consent
of the Employer, Employee shall not either directly or indirectly engage
(whether for his own account or as a partner, joint venturer, employee,
consultant, agent, contractor, officer, director or shareholder or
otherwise) in any business within the United States which (i) delivers
marketing, distribution, administrative, or cost containment services on
behalf of health care payors, primarily to the small business marketplace,
or (ii) engages in the business of acting as a third party administrator
for health, accident, disability, workers compensation, or other employee
benefit plans whether insured or self-insured; provided, however, that the
foregoing shall not be deemed to prohibit Employee from purchasing and
owning securities of a company traded on a national securities exchange or
on the Nasdaq National Market with which Employee has no relationship so
long as such ownership does not exceed 2% of the outstanding stock of such
company. For purposes of the foregoing, the small business marketplace
shall be deemed to be the market for those businesses which employ 100 or
fewer employees; or
(b) For a period of three years after termination of Employee's
employment for any reason Employee will not:
(i) solicit, contact or encourage (i) any person who is an
employee of the Employer or of any parent, division or subsidiary of
the Employer or (ii) any supplier, vendor, agent or consultant to the
Employer, to terminate its, his, or her relationship with the Employer;
(ii) make any derogatory, defamatory or negative statement about
the Employer or HPSC or any of their officers, directors, or employees
to the press, to any part of the
4
<PAGE> 6
investment community, to the public, or to any person connected
with, employed by or having a relationship to the Employer, provided
that nothing contained herein shall be deemed to prohibit full and
frank discussions of the Employer, HPSC and its subsidiaries and its
affairs in any Board of Directors meeting of the Employer or HPSC
corporation and, during such period as Employee may be a stockholder of
HPSC, at any stockholders' meeting thereof or from testifying
truthfully in any legal proceeding;
(iii) wilfully interfere with or disrupt the operations of the
Employer or HPSC; or
(iv) assist, advise or provide information or support, whether
financial or otherwise, to any person in connection with any proxy
contest, action by written consent or vote of the Employer or HPSC, the
purpose of which is to elect a director or slate of directors who were
not nominated by the then sitting Board of Directors of the Employer or
HPSC, provided, however, that nothing contained herein shall require
the Employee to vote any shares held by him in any particular manner.
(c) For a period of three years after termination of Employee's
employment for any reason other than Cause, Employer and its directors,
chief executive, financial and operating officers shall refrain from making
any negative, derogatory or defamatory statement about Employee.
9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS. While
employed by Employer and after termination of such employment for the
Applicable Period as defined below, Employee shall not disclose, either
directly or indirectly, any Confidential Information or Trade Secrets to any
other person or otherwise use such Confidential Information or Trade Secrets
for any purpose except in connection with his employment with the Employer.
For purposes of the foregoing, the term Trade Secret shall mean information,
including a formula, pattern, compilation, program, device, method, technique,
or process that: (i) derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its
disclosure or use; and (ii) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy, and Confidential Information means
any technical or nontechnical data, formula, pattern, compilation, program,
device, method, technique, drawing, process, know-how, financial data,
financial plan, marketing plan, expansion plan, cost analysis, list of
suppliers or employees, or other proprietary information which is proprietary,
secret and confidential and is not readily and legally available to the public
from sources other than the Employer or HPSC which is not classified as a Trade
Secret. The term "Applicable Period" shall mean two years with respect to
disclosure of Confidential Information or Trade Secrets.
10. SPECIAL INTERPRETIVE AND ENFORCEMENT PROVISION. The prohibited
activities set forth in Sections 8 and 9 above are herein defined as
"Restricted Activities" and the covenants set forth therein are herein defined
as "Restrictive Covenants". If a court determines that any Restricted Activity
is not enforceable or is unreasonable, arbitrary or against public policy, the
Restricted Activity and the related Restrictive Covenant shall be considered
divisible both as to time and geographic area, if applicable, so that the
Employer shall be authorized to enforce such Restrictive Covenant for such
lesser time and if applicable lesser geographic area as the court determines to
be reasonable, non-arbitrary and not against public policy. In the event of a
breach or violation or threatened breach or violation by Employee of the
provisions of any of these Restrictive Covenants, Employer shall be entitled to
an injunction (without the provision of bond by Employer) restraining Employee
from directly or indirectly engaging in the Restricted Activities in breach or
violation of these Restrictive Covenants, and restraining Employee from
5
<PAGE> 7
rendering any services to or participating with any person, firm, corporation,
association, partnership, venture or other entity which would constitute a
violation of a Restrictive Covenant. Nothing herein shall be construed as
prohibiting Employer from pursuing any other remedies available to it by law or
by this Agreement for breach, violation or threatened breach or violation of
the provisions of these Restrictive Covenants, including, by way of
illustration and not by way of limitation, the recovery of damages from
Employee or any other person, firm, corporation or entity. The provisions of
these Restrictive Covenants shall survive the termination of this Agreement for
the purpose of providing Employer with the protection of the covenants of
Employee provided herein. Should an action have to be brought by Employer
against Employee to enforce the Restrictive Covenants, the period of
restriction applicable to such covenant shall be deemed to begin running on the
date of entry of an order granting Employer preliminary injunctive relief and
shall continue uninterrupted for the original intended period of the applicable
Restrictive Covenant. Employee acknowledges and agrees that the intent and
purpose of the Restrictive Covenants is to preclude Employee from engaging in
the Restricted Activities for the full term of the applicable Restrictive
Covenant and that such purpose and effect would be frustrated by measuring the
period of restriction from the date the applicable Restrictive Covenant took
effect where Employee failed to honor these Restrictive Covenants until
directed to do so by court order.
11. CESSATION OF BENEFITS. In the event that (i) Employee materially
breaches Employee's agreements contained herein after a severance benefit
becomes payable hereunder and such breach is not cured to Employer's
satisfaction within ten (10) days of written notice thereof, (ii) Employee
asserts in any litigation that the Restrictive Covenants or the Employee
Release is unenforceable for any reason, or (iii) facts come to the attention
of the Employer which prove Employee, while employed by Employer, was guilty of
committing an act involving embezzlement, misappropriation, theft or fraud, in
addition to any other remedy which Employer may have as a result thereof,
Employer shall be entitled to stop paying any severance benefit then not paid
and recover from Employee the payment of any severance benefits already paid to
Employee hereunder.
12. RELEASE. Except for the Legally Earned or Required Benefits, Employee
hereby completely and unconditionally releases the Employer from any and all
claims which the Employee may have against the Employer as the result of any
occurrence during Employee's employment up to the date of this Agreement. This
release also binds the Employee's heirs, personal representatives, spouse,
beneficiaries, and assigns. This Release also completely releases the
Employer's parents, subsidiaries, predecessors, successors, and affiliates, as
well as its former, present, and future officers, directors, employees,
shareholders, employee benefits plans, and counsel.
13. NOTICES. Any notices, consents, approvals or waivers which are to be
given to any party to this Agreement by any other party or parties to this
Agreement shall be in writing, shall be properly addressed to the party to whom
such notice is directed, and shall be either actually delivered to such party
or sent by United States mail, return receipt requested. Notices shall be
addressed to the parties as follows:
If to Employer: 3401 Loop Road
Columbus, OH 43219
Attn: President
If to Employee: 1176 Blind Brook Drive
Columbus, OH 43235
14. LITIGATION FORUM. The parties hereto agree that this Agreement
shall be deemed for all purposes to have been entered into in Ohio. The
parties hereto agree that all actions or proceedings,
6
<PAGE> 8
directly or indirectly, arising out of or related to this Agreement or
contesting the validity or applicability of this Agreement shall be litigated
exclusively in the Court of Common Pleas in and for Franklin County, or the
United States District Court for the Southern District of Ohio.
15. EXPENSES OF ENFORCEMENT. In the event of any legal proceeding
arising directly or indirectly from this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and costs from the non-prevailing
party (at both the trial and appellate court levels).
16. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement, including all exhibits and
schedules hereto as referenced herein, constitutes the entire agreement
between the parties hereto pertaining to the subject matters hereof, and
supersedes all negotiations, preliminary agreements, and all prior and
contemporaneous discussions and understandings of the parties in connection
with the subject matters hereof. Except as otherwise herein provided, no
covenant, representation or condition not expressed in this Agreement, or
in an amendment hereto made and executed in accordance with the provisions
of subsection (b) of this Section, shall be binding upon the parties hereto
or shall affect or be effective to interpret, change or restrict the
provisions of this Agreement.
(b) AMENDMENTS AND WAIVERS. No change, modification, waiver or
termination of any of the terms, provisions, or conditions of this
Agreement shall be effective unless made in writing and signed or initialed
by all parties hereto. Any waiver of any breach of any provision of this
Agreement shall operate only as to the specific breach waived and shall not
be deemed a waiver of any other breach, whether occurring before or after
such waiver.
(c) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio.
(d) SEPARABILITY. Except as provided in Section 10 hereof, if any
section, subsection or provision of this Agreement or the application of
such section, subsection or provision is held invalid, the remainder of
this Agreement and the application of such section, subsection or provision
to persons or circumstances, other than those with respect to which it is
held invalid, shall not be affected thereby.
(e) HEADINGS AND CAPTIONS. The titles or captions of sections and
subsections contained in this Agreement are provided for convenience of
reference only, and shall not be considered a part hereof for purposes of
interpreting or applying this Agreement; and, therefore, such titles or
captions do not define, limit, extend, explain, or describe the scope or
extent of this Agreement or any of its terms, provisions, representations,
warranties, conditions, etc., in any manner or way whatsoever.
(f) GENDER AND NUMBER. All pronouns and variations thereof shall be
deemed to refer to the masculine, feminine or neuter and to the singular or
plural as the identity of the person or entity or persons or entities may
require.
(g) BINDING EFFECT ON SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors, heirs and assigns, provided that the rights and
obligations of Employee hereunder are personal to Employee and may not be
assigned or transferred without the consent of Employer except in the event
of a transfer upon death pursuant to a will or the laws of intestate
succession.
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<PAGE> 9
(h) CONTINUANCE OF AGREEMENT. The rights, responsibilities and duties
of the parties hereto and the covenants and agreements herein contained
shall survive the execution hereof, shall continue to bind the parties
hereto, and shall continue in full force and effect until each and every
obligation of the parties hereto, pursuant to this Agreement, shall have
been fully performed.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above-written.
WITNESSES: R. E. HARRINGTON, INC.
/s/ Olga M. Pina By: /s/ J. K. Murray, III
- ---------------------------- -------------------------------
Executive Vice President
Its: Duly Authorized Officer
/s/ Curt P. Creely
- ----------------------------
"EMPLOYER"
/s/ Diana Butts Robert R. Parker
- ---------------------------- -------------------------------
Robert R. Parker, individually
/s/ Leslie Wachaler
- ----------------------------
"EMPLOYEE"
8
<PAGE> 1
EXHIBIT 10.5
Employment and Noncompetition Agreement with Timothy T. Clifford, dated July 1,
1996.
<PAGE> 2
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made and
entered into this 1st day of July, 1996, by and between CONSOLIDATED GROUP,
INC., a Massachusetts corporation and the companies identified on Exhibit A
attached hereto (hereinafter collectively called the "Employer"), and TIMOTHY
T. CLIFFORD (hereinafter called "Employee").
WHEREAS, the Employee is an employee of the Employer; and
WHEREAS, the Employer is being acquired (the "Acquisition") by HealthPlan
Services Corporation ("HPSC") and in connection with such acquisition Employee
is selling 3,000 shares of his stock in the Employer to certain other
shareholders of the Employer (the "Selling Shareholders") in order to
facilitate their sale of all of the shares of the Employer to HPSC pursuant to
the terms of the Acquisition and in connection therewith is receiving a portion
of the proceeds thereof; and
WHEREAS, as consideration for HPSC's consummation of the Acquisition and
the purchase of the Employee's stock by HPSC indirectly through the Selling
Shareholders, HPSC has requested that, effective as of the Closing Date of the
Acquisition, Employee enter into an Employment and Noncompetition Agreement
with Employer in substantially the form set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound thereby, agree as follows:
W I T N E S S E T H :
1. EMPLOYMENT. Employer hereby agrees to employ Employee, and Employee
hereby accepts employment with Employer upon the terms and conditions
hereinafter set forth.
2. TERM. Subject to the provisions of resignation and termination as
hereinafter provided, the term of this Agreement shall commence on June 30,
1996 and shall terminate on June 30, 1998.
3. DUTIES. The Employee is engaged as the Employer's Chairman and Chief
Executive Officer and shall have such duties, responsibilities and
accommodations as may be assigned to him, from time to time, by the Board of
Directors of Employer. Nothing herein shall preclude the Board of Directors of
Employer from changing the duties of Employee if the Board concludes in its
reasonable judgment that such changes are in the Employer's best interests;
provided, however, that at all times during the term of this Agreement Employee
shall serve with the same functions, duties and status of the office of chief
executive officer of the Employer.
4. EXTENT OF SERVICE. Employee shall exclusively devote his entire
working time, energy and attention to his duties in connection with Employer,
provided that Employee may own passive investments in real estate and may own
on a passive basis up to 2% of the outstanding stock in any Company whose
securities are traded on a national securities exchange or on the Nasdaq Stock
Market with which Employee has no relationship. Employer agrees that not less
than sixty percent (60%) of Employee's working time shall be spent in
Employer's offices in Framingham, Massachusetts.
5. COMPENSATION. During the term of this Agreement, Employer shall pay to
Employee the following compensation, which shall be payable in accordance with
Employer's normal payroll policies
<PAGE> 3
applicable to all of Employer's employees and shall be subject to all
authorized and required payroll deductions for taxes, social security and the
like, and contributions to benefit plans:
(a) During the period from June 30, 1996 through June 30, 1998 an
annual salary of no less than $200,000.00 U.S. (the "Annual Base Salary")
provided that the Board of Directors in its sole discretion may increase
such Annual Base Salary at any time during the term of this Agreement and
upon such increase the increased salary shall become the new Annual Base
Salary from the effective date of such increase forward;
(b) In addition to the Annual Base Salary, the Employee shall be
entitled to:
(i) A bonus of $100,000.00, payable upon the execution of this
Agreement (the "Signing Bonus"), and such additional bonus or bonuses
as the Compensation Committee of HPSC shall from time to time
determine. For the period from the effective date of this Agreement
through December 31, 1996, the standard by which Employee's performance
is to be measured if he is to qualify for a bonus, and the bonus grant
awarded, shall be pro-rated for the portion of the calendar year within
that period and shall be based upon the net income figure stated in the
Employer's 1996 budget delivered to HPSC through Tucker Anthony and
shall be calculated in accordance with the formula set forth on Exhibit
A attached hereto (it being understood that the maximum bonus award
which Employee is eligible to receive on a non-pro-rated basis for 1996
is $250,000.00). Thereafter, the bonus plan of the Employer will be
patterned on and similar to the senior officer bonus plan of HealthPlan
Services, Inc.
(ii) A stock option grant of 25,000 shares of HPSC common stock
at a strike price equal to the closing price of such stock on the New
York Stock Exchange as of the date of the execution of the Acquisition
Agreement for the Acquisition or the Closing Date of the Acquisition,
as selected by the Employee, in accordance with the terms of the
HealthPlan Services Corporation 1995 Incentive Equity Plan, and such
other stock options as the Board of Directors may from time to time
determine;
(iii) Participate in the employee benefit plans of Employer in
existence from time to time consistent with the terms and conditions of
the Acquisition Agreement for the Acquisition;
(iv) Severance benefits in accordance with the provisions of
Section 7 hereof.
6. TERMINATION.
(a) The foregoing notwithstanding, this Agreement is not to be
considered an agreement for a fixed term or as a guarantee of continuing
employment. Accordingly, subject to the provisions of Section 7 hereof,
Employee's employment may be terminated by Employer with or without Cause
(as defined below) upon immediate written notice to Employee at any time
during the term of this Agreement. Additionally, Employee's employment
shall automatically terminate upon his death or upon a determination that
he is Permanently Disabled (as defined below). Employee may resign as an
officer and, if applicable, director and terminate his employment at any
time upon 30 days written notice to Employer. In the event that such
termination is by the Employer for Cause or by the Employee other than as a
result of a Constructive Termination Event, for death or Permanent
Disability, (i) Employee shall be paid the bi-weekly portion of his Annual
Base Salary then due through the date of such termination
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and shall be entitled to no salary from that date forward and to only
those benefits which Employer is required by law to provide to Employee;
and (ii) within ten (10) days from the date of such termination, Employee
shall repay to Employer a pro-rated portion of the Signing Bonus equal to
the amount of the Signing Bonus multiplied by a fraction, the numerator of
which is the number of full months remaining in the term of the Agreement
immediately prior to such termination, and the denominator of which is 24.
Upon any termination, Employee shall immediately return any and all
property and records belonging to Employer which are in Employee's
possession and shall vacate Employer's offices in a prompt and professional
manner. In addition to the foregoing, upon termination of Employee's
employment with Employer for any reason, Employee shall resign promptly as
an officer and, if applicable, director of Employer and any subsidiary or
parent of Employer unless Employer indicates in writing to Employee its
desire that Employee retain any such position. In the event such
termination by the Employer is without cause, or is caused by the death or
Permanent Disability of Employee or in the event that the Employee
terminates his employment as a result of a Constructive Termination Event,
Employee shall be entitled solely to (y) the Severance Benefits provided in
Section 7, and (z) immediate vesting of all unvested options, rights and
benefits under any stock option plan in which Employee has an unvested
interest. The foregoing notwithstanding, in the event of any termination
of Employee's employment whether or not for Cause, Employee shall be
entitled to receive all benefits which are accrued, vested and earned up to
the termination date under the terms of any existing benefit plan such as
the vested balance of the employee's account under any retirement or
deferred compensation plan and any benefits which are legally required to
be provided after termination such as COBRA benefits (the "Legally Earned
or Required Benefits").
(b) Upon a termination of employment, whether by Employee or by
Employer, with or without Cause, Employee shall render reasonable
cooperation to Employer in order to insure an orderly and businesslike
transfer of Employee's duties to other personnel designated by the
Employer. Additionally, Employee shall make himself available at
reasonable times upon reasonable prior written notice to consult with
Employer and assist Employer with respect to (i) any matters for which
Employer requests such assistance for a period of ninety (90) days after
such termination, and (ii) any litigation or governmental or
quasi-governmental agency investigation which may be pending at the time of
termination or implemented after termination which relates to any period
during which Employee was employed by Employer for the period during which
such matters are pending; provided, that, in either case, Employer shall
reimburse Employee for any reasonable out-of-pocket expense incurred by
Employee at Employer's request in connection with such consultation or
assistance, and with respect to (ii), Employer shall schedule such
consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not
require more than an average of two days per month without Employee's
consent. A breach of the foregoing provisions by Employee shall be deemed
to be a material breach of this Agreement.
7. SEVERANCE BENEFITS.
(a) If during the term of this Agreement, Employee's employment is
terminated (i) by the Employer other than for Cause, as defined below, (ii)
by the Employee as a result of the occurrence of a Constructive Termination
Event, as defined below, which has not been cured by the Employer within 30
days of receipt of written notice from the Employee that such event has
occurred, or (iii) as a result of the Employee's death or Permanent
Disability, as defined below, then upon the occurrence of such event
Employer shall pay to the Employee (or the Employee's estate in the event
of death), as a severance benefit and in complete satisfaction of any and
all claims which Employee may have against Employer or its affiliates,
officers, directors or
3
<PAGE> 5
employees as a result of this Agreement or his previous employment by
Employer, the greater of (i) Employee's Annual Base Salary remaining to be
paid through the term of the Agreement immediately before such termination
or (ii) Two Hundred Fifty Thousand Dollars ($250,000.00); provided,
however, Employer shall not be obligated to pay any severance benefit until
Employee (or Employee's personal representative in the event of Employee's
death or legal guardian in the event of Permanent Disability which causes
Employee to be unable to do so) has delivered to Employer a complete and
unconditional release, in form reasonably satisfactory to Employer,
releasing Employer from any and all claims which Employee may have against
Employer as a result of any occurrence during Employee's employment and
including, but not limited to, any claim for wrongful termination (the
"Employee Release"). The foregoing notwithstanding, the Employee Release
shall not release the Employer from any of its post termination obligations
under this Agreement. Such severance benefit shall be paid over the
remaining term of the Agreement following such termination or, if longer,
over the one (1) year period following such termination in equal bi-weekly
payments. As used herein:
(A) the term "Cause" means (i) the Employee's violation of his
fiduciary duty to the Employer, (ii) gross or wilful failure by the
Employee to perform the duties of Employee's position, (iii) the
Employee's habitual unexcused absence over an extended period, (iv) the
Employee's disloyalty or insubordination, or other similar misconduct
which is of the nature of disloyalty or insubordination, (v)
embezzlement or misappropriation of Employer funds by the Employee, or
(vi) the Employee's commission of an act involving criminal activity of
a felonious nature or sexual harassment or similar serious breach of
conduct involving moral turpitude, provided that in the event of a
termination for Cause involving insubordination or disloyalty or other
similar conduct which is of the nature of disloyalty or
insubordination, the Employer shall give the Employee written notice of
the conduct constituting such Cause and the Employee shall have thirty
(30) days to correct such conduct and cure any damage suffered by
Employer as a result thereof. If Employee fails to correct such
conduct within such 30-day period, such conduct will be deemed to be
Cause;
(B) the term "Permanent Disability" means the permanent mental or
physical inability of the Employee to perform with reasonable
accommodation the essential duties of Employee's position as existing
on the date of this Agreement which condition causes the Employee to be
unable to perform the duties of his office for a period of six months
in any twelve-month period.
(C) the term "Constructive Termination Event" means action by the
Employer which is directed at the Employee specifically and not at all
employees generally and which has the effect of significantly reducing
the Employee's compensation, employment responsibilities, authority, or
the accommodations in which the Employee performs his job, or the
nonpayment by Employer of compensation due and owing to the Employee
under this Agreement, which has not been cured by the Employer within
30 days of receipt of written notice from the Employee that such
nonpayment has occurred.
(b) Following Employer's termination of Employee's employment for any
reason other than Cause or Employee's termination of his employment as a
result of a Constructive Termination Event during the term of this
Agreement, Employer shall maintain in full force and effect, for the
Employee's continued benefit until the earlier of (i) 12 months after such
termination of Employee's employment or (ii) the Employee's commencement of
full time employment with a new employer, all life insurance, medical,
dental, health and accident, and
4
<PAGE> 6
disability plans, programs or arrangements of the Employer in which the
Employee participated on the date of termination, provided that the
Employee's continued participation is possible under the general terms and
provisions of such plans and programs.
(c) After the expiration of the term of this Agreement if Employee is
terminated by Employer for any reason other than Cause, Employee shall be
entitled to receive the standard severance package given to executive
officers of HPSC.
8. NON-COMPETITION.
(a) For a period equal to the longer of the term of this Agreement or
two years after the Closing Date of the Acquisition, without the written
consent of the Employer, Employee shall not either directly or indirectly
engage (whether for his own account or as a partner, joint venturer,
employee, consultant, agent, contractor, officer, director or shareholder
or otherwise) in any business within the United States which delivers
marketing, distribution, administrative, or cost containment services on
behalf of health care payors, primarily to the small business marketplace,
provided, however, that the foregoing shall not be deemed to prohibit
Employee from purchasing and owning securities of a company traded on a
national securities exchange or on the Nasdaq National Market with which
Employee has no relationship so long as such ownership does not exceed 2%
of the outstanding stock of such company. For purposes of the foregoing,
the small business marketplace shall be deemed to be the market for those
businesses which employ 24 or fewer employees; or
(b) For a period of three years after termination of Employee's
employment for any reason Employee will not:
(i) solicit, contact or encourage (i) any person who is an
employee of the Employer or of any division or subsidiary of the
Employer or (ii) any supplier, vendor, agent or consultant to the
Employer, to terminate its, his, or her relationship with the Employer;
(ii) make any derogatory, defamatory or negative statement about
the Employer or HPSC or any of their officers, directors, or employees
to the press, to any part of the investment community, to the public,
or to any person connected with, employed by or having a relationship
to the Employer, provided that nothing contained herein shall be deemed
to prohibit full and frank discussions of the Employer, HPSC and its
subsidiaries and its affairs in any Board of Directors meeting of the
Employer or its parent corporation and, during such period as Employee
may be a stockholder of HPSC, at any stockholders' meeting thereof;
(iii) wilfully interfere with or disrupt the Employer's operations; or
(iv) assist, advise or provide information or support, whether
financial or otherwise, to any person in connection with any proxy
contest, action by written consent or vote of the Employer or HPSC, the
purpose of which is to elect a director or slate of directors who were
not nominated by the then sitting Board of Directors of the Employer or
HPSC, provided, however, that nothing contained herein shall require
the Employee to vote any shares held by him in any particular manner.
5
<PAGE> 7
(c) For a period of three years after termination of Employee's
employment for any reason other than Cause, Employer and its directors,
chief executive, financial and operating officers shall refrain from making
any negative, derogatory or defamatory statement about Employee.
9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS. While
employed by Employer and after termination of such employment for the
Applicable Period as defined below, Employee shall not disclose, either
directly or indirectly, any Confidential Information or Trade Secrets to any
other person or otherwise use such Confidential Information or Trade Secrets
for any purpose except in connection with his employment with the Employer.
For purposes of the foregoing, the term Trade Secret has the meaning ascribed
thereto in Chapter 93, Section 42, Massachusetts Statutes, or any revision or
successor thereto, and Confidential Information means any technical or
nontechnical data, formula, pattern, compilation, program, device, method,
technique, drawing, process, know-how, financial data, financial plan,
marketing plan, expansion plan, cost analysis, list of suppliers or employees,
or other proprietary information which is proprietary, secret and confidential
and is not readily and legally available to the public from sources other than
the Employer which is not classified as a Trade Secret. The term "Applicable
Period" shall mean two years with respect to disclosure of Confidential
Information or Trade Secrets.
10. SPECIAL INTERPRETIVE AND ENFORCEMENT PROVISION. The prohibited
activities set forth in Sections 8 and 9 above are herein defined as
"Restricted Activities" and the covenants set forth therein are herein defined
as "Restrictive Covenants". If a court determines that any Restricted Activity
is not enforceable or is unreasonable, arbitrary or against public policy, the
Restricted Activity and the related Restrictive Covenant shall be considered
divisible both as to time and geographic area, if applicable, so that the
Employer shall be authorized to enforce such Restrictive Covenant for such
lesser time and if applicable lesser geographic area as the court determines to
be reasonable, non-arbitrary and not against public policy. In the event of a
breach or violation or threatened breach or violation by Employee of the
provisions of any of these Restrictive Covenants, Employer shall be entitled to
an injunction (without the provision of bond by Employer) restraining Employee
from directly or indirectly engaging in the Restricted Activities in breach or
violation of these Restrictive Covenants, and restraining Employee from
rendering any services to or participating with any person, firm, corporation,
association, partnership, venture or other entity which would constitute a
violation of a Restrictive Covenant. Nothing herein shall be construed as
prohibiting Employer from pursuing any other remedies available to it by law or
by this Agreement for breach, violation or threatened breach or violation of
the provisions of these Restrictive Covenants, including, by way of
illustration and not by way of limitation, the recovery of damages from
Employee or any other person, firm, corporation or entity. The provisions of
these Restrictive Covenants shall survive the termination of this Agreement for
the purpose of providing Employer with the protection of the covenants of
Employee provided herein. Should an action have to be brought by Employer
against Employee to enforce the Restrictive Covenants, the period of
restriction applicable to such covenant shall be deemed to begin running on the
date of entry of an order granting Employer preliminary injunctive relief and
shall continue uninterrupted for the original intended period of the applicable
Restrictive Covenant. Employee acknowledges and agrees that the intent and
purpose of the Restrictive Covenants is to preclude Employee from engaging in
the Restricted Activities for the full term of the applicable Restrictive
Covenant and that such purpose and effect would be frustrated by measuring the
period of restriction from the date the applicable Restrictive Covenant took
effect where Employee failed to honor these Restrictive Covenants until
directed to do so by court order.
11. CESSATION OF BENEFITS. In the event that (i) Employee materially
breaches Employee's agreements contained herein after a severance benefit
becomes payable hereunder and such breach is not cured to Employer's
satisfaction within ten (10) days of written notice thereof, (ii) Employee
asserts in
6
<PAGE> 8
any litigation that the Restrictive Covenants or the Employee Release is
unenforceable for any reason, or (iii) facts come to the attention of the
Employer which prove Employee, while employed by Employer, was guilty of
committing an act involving embezzlement, misappropriation, theft or fraud, in
addition to any other remedy which Employer may have as a result thereof,
Employer shall be entitled to stop paying any severance benefit then not paid
and recover from Employee the payment of any severance benefits already paid to
Employee hereunder.
12. RELEASE. Employee hereby completely and unconditionally releases the
Employer from any and all claims which the Employee may have against the
Employer as the result of any occurrence during Employee's employment up to the
date of this Agreement. This release also binds the Employee's heirs, personal
representatives, spouse, beneficiaries, and assigns. This Release also
completely releases the Employer's parents, subsidiaries, predecessors,
successors, and affiliates, as well as its former, present, and future
officers, directors, employees, shareholders, employee benefits plans, and
counsel.
13. NOTICES. Any notices, consents, approvals or waivers which are to be
given to any party to this Agreement by any other party or parties to this
Agreement shall be in writing, shall be properly addressed to the party to whom
such notice is directed, and shall be either actually delivered to such party
or sent by United States mail, return receipt requested. Notices shall be
addressed to the parties as follows:
If to Employer: Consolidated Group, Inc.
15 Pleasant Street
Framingham, MA 01701
Attention: President
If to Employee: Timothy T. Clifford
41 Rolling Meadow Drive
Holliston, MA 01746
14. LITIGATION FORUM. The parties hereto agree that this Agreement
shall be deemed for all purposes to have been entered into in Massachusetts.
The parties hereto agree that all actions or proceedings, directly or
indirectly, arising out of or related to this Agreement or contesting the
validity or applicability of this Agreement shall be litigated exclusively in
the Superior Court Department of the Massachusetts Trial Court, or the United
States District Court for the District of Massachusetts.
15. EXPENSES OF ENFORCEMENT. In the event of any legal proceeding
arising directly or indirectly from this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and costs from the non-prevailing
party (at both the trial and appellate court levels).
16. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement, including all exhibits and
schedules hereto as referenced herein, constitutes the entire agreement
between the parties hereto pertaining to the subject matters hereof, and
supersedes all negotiations, preliminary agreements, and all prior and
contemporaneous discussions and understandings of the parties in connection
with the subject matters hereof. Except as otherwise herein provided, no
covenant, representation or condition not expressed in this Agreement, or
in an amendment hereto made and executed in accordance with the provisions
of subsection b. of this Section, shall be binding upon the parties hereto
or shall affect or be effective to interpret, change or restrict the
provisions of this Agreement.
7
<PAGE> 9
(b) AMENDMENTS AND WAIVERS. No change, modification, waiver or
termination of any of the terms, provisions, or conditions of this
Agreement shall be effective unless made in writing and signed or initialed
by all parties hereto. Any waiver of any breach of any provision of this
Agreement shall operate only as to the specific breach waived and shall not
be deemed a waiver of any other breach, whether occurring before or after
such waiver.
(c) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts.
(d) SEPARABILITY. Except as provided in Section 10 hereof, if any
section, subsection or provision of this Agreement or the application of
such section, subsection or provision is held invalid, the remainder of
this Agreement and the application of such section, subsection or provision
to persons or circumstances, other than those with respect to which it is
held invalid, shall not be affected thereby.
(e) HEADINGS AND CAPTIONS. The titles or captions of sections and
subsections contained in this Agreement are provided for convenience of
reference only, and shall not be considered a part hereof for purposes of
interpreting or applying this Agreement; and, therefore, such titles or
captions do not define, limit, extend, explain, or describe the scope or
extent of this Agreement or any of its terms, provisions, representations,
warranties, conditions, etc., in any manner or way whatsoever.
(f) GENDER AND NUMBER. All pronouns and variations thereof shall be
deemed to refer to the masculine, feminine or neuter and to the singular or
plural as the identity of the person or entity or persons or entities may
require.
(g) BINDING EFFECT ON SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors, heirs and assigns, provided that the rights and
obligations of Employee hereunder are personal to Employee and may not be
assigned or transferred without the consent of Employer except in the event
of a transfer upon death pursuant to a will or the laws of intestate
succession.
(h) CONTINUANCE OF AGREEMENT. The rights, responsibilities and duties
of the parties hereto and the covenants and agreements herein contained
shall survive the execution hereof, shall continue to bind the parties
hereto, and shall continue in full force and effect until each and every
obligation of the parties hereto, pursuant to this Agreement, shall have
been fully performed.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above-written.
WITNESSES: CONSOLIDATED GROUP, INC.
/s/ Olga M. Pina By: /s/ J. K. Murray, III
- ---------------------------- --------------------------
Its: Duly Authorized Officer
- ----------------------------
8
<PAGE> 10
WITNESSES: GROUP BENEFIT ADMINISTRATORS
INSURANCE AGENCY, INC.
/s/ Olga M. Pina By: /s/ J. K. Murray, III
- ------------------------------ --------------------------------
Its: Duly Authorized Officer
- ------------------------------
WITNESSES: CONSOLIDATED GROUP CLAIMS, INC.
/s/ Olga M. Pina By: /s/ J. K. Murray, III
- ------------------------------ --------------------------------
Its: Duly Authorized Officer
- ------------------------------
WITNESSES: CONSOLIDATED HEALTH COALITION, INC.
/s/ Olga M. Pina By: /s/ J. K. Murray, III
- ------------------------------ --------------------------------
Its: Duly Authorized Officer
- ------------------------------
"EMPLOYER"
/s/ Imelda Monaghan /s/ Tim Clifford
- ------------------------------ ---------------------------------
Timothy T. Clifford, individually
- ------------------------------
"EMPLOYEE"
9
<PAGE> 11
EXHIBIT A
Companies who are a party to the Employment and Noncompetition Agreement
(collectively, the "Employer"):
Consolidated Group, Inc.
Group Benefit Administrators Insurance Agency, Inc.
Consolidated Group Claims, Inc.
Consolidated Health Coalition, Inc.
1996 Bonus Formula:
Employee shall receive a bonus of up to $125,000 (the "1996 Bonus Amount"),
based upon the Employer's actual net income for 1996 as shown on the financial
statements prepared by the Employer's accountants (the "Actual 1996 Net
Income") as compared to the Employer's target net income for 1996 of
$4,800,000.00 (the "Target Net Income"). The amount of the bonus shall be
calculated as follows:
<TABLE>
Employer's Actual 1996 Net
Income as a percentage of Percentage of 1996
the Target Net Income Bonus Amount Earned
-------------------------- -------------------
<S> <C>
0% - 60% 0%
60% - 79% 60%
80% - 99% 80%
100% and above 100%
</TABLE>
In its sole discretion, the Compensation Committee of HealthPlan Services
Corporation may increase, but shall not decrease the Employee's bonus as
computed under this formula.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF HEALTHPLAN SERVICES CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,511
<SECURITIES> 30,040
<RECEIVABLES> 8,189
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,921
<PP&E> 15,098
<DEPRECIATION> 5,265
<TOTAL-ASSETS> 123,883
<CURRENT-LIABILITIES> 34,111
<BONDS> 1,186
0
0
<COMMON> 134
<OTHER-SE> 87,798
<TOTAL-LIABILITY-AND-EQUITY> 123,883
<SALES> 0
<TOTAL-REVENUES> 62,870
<CGS> 0
<TOTAL-COSTS> 51,146
<OTHER-EXPENSES> 586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 11,105
<INCOME-TAX> 4,331
<INCOME-CONTINUING> 6,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,774
<EPS-PRIMARY> 0
<EPS-DILUTED> .50
</TABLE>
