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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 1-13772
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-378901
(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)
Registrant's telephone number, including area code: (813) 289-1000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF NAME OF EXCHANGE
EACH CLASS ON WHICH REGISTERED
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Common Stock $.01 par value......................NYSE
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports 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 during which the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last reported price at which the
stock was sold on March 10, 1997 was $114,264,785.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 10, 1997 was 14,991,126.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders of HealthPlan Services Corporation, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1996.
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PART I
This document contains certain forward-looking statements regarding future
financial condition and results of operations. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions are intended to
identify forward-looking statements. Such statements involve risks,
uncertainties, and assumptions, including industry and economic conditions,
customer actions, and other factors discussed herein and in the Company's other
filings with the Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
ITEM 1. BUSINESS
GENERAL
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company"), including its newly acquired
operating units, Consolidated Group, Inc. ("Consolidated Group") and Harrington
Services Corporation ("Harrington"), is a provider of marketing, administration,
and risk management services and solutions for health and other benefit
programs. The Company provides these services for over 125,000 small businesses,
plan holders, and large, self-funded organizations, covering approximately 2.6
million members in the United States. The Company's clients include managed care
organizations, insurance companies, integrated health care delivery systems,
self-funded benefit plans, and health care purchasing alliances. The Company and
its operating units function solely as service providers generating fee-based
income and do not assume any underwriting risk.
STRATEGY
The Company's strategy is to grow revenue and increase earnings through new
product development, broader distribution of existing managed care products, and
the addition of new payors, such as health maintenance organizations ("HMOs"),
integrated health care delivery systems, and other managed care providers. The
Company desires to build economies of scale by adding administrative services
contracts with larger groups and by opportunistic expansion of its small group
business. The Company also intends to further support the development of
information-based products for its payors and other customers.
RECENT TRANSACTIONS AND COMPANY REORGANIZATION
Health Risk Management, Inc.
On September 12, 1996, the Company entered into a Plan and Agreement of
Merger (the "Merger Agreement") with HealthPlan Services Alpha Corporation, a
Delaware corporation and wholly owned subsidiary of the Company, and Health Risk
Management, Inc., a Minnesota corporation ("HRM"), which provided for the
acquisition of HRM by the Company in a merger transaction (the "HRM Merger"). In
March 1997, the Company and HRM mutually agreed to terminate the Merger
Agreement due to unexpected delays and the parties' unwillingness to consummate
a transaction that might be of less value and dilutive to their respective
shareholders in the near term. In connection with the termination, the Company
purchased 200,000 shares of HRM common stock, representing approximately 4.5% of
HRM shares outstanding, at a price of $12.50 per share. These shares are not
registered under the federal or state securities laws and are subject to
restrictions on transfer. The Company and HRM also have committed to continue
joint marketing of their respective products and services under the terms of a
marketing agreement established in September 1996. HRM provides comprehensive,
integrated health care management, information, and health benefit
administration services to employers, insurance companies, unions, HMOs,
preferred provider organizations ("PPOs"), physician hospital organizations
("PHOs"), hospitals, and governmental units in the United States and Canada.
Consolidated Group, Inc. and Harrington Services Corporation Acquisitions;
Company Reorganization
On July 1, 1996, the Company acquired all of the issued and outstanding
stock of Consolidated Group and three affiliated entities for approximately
$61.9 million in cash. Consolidated Group, headquartered in Framingham,
Massachusetts, specializes in providing medical benefits administration and
other related services for health care plans. As of December 31, 1996,
Consolidated Group provided these services for over 23,000 small businesses
covering approximately 250,000 members. Consolidated Group was founded in 1971
and was a principal competitor of the Company in the small employer market prior
to the acquisition. Upon consummation of this transaction, James F. Carlin, Jr.
and Holyoke L. Whitney, the founders of Consolidated Group, were elected to the
Company's Board of Directors. Between July 1, 1996 and December 31, 1996,
Consolidated Group generated revenues of $32.1 million.
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On July 1, 1996, the Company acquired all of the issued and outstanding
stock of Harrington for $32.5 million cash and 1,400,110 shares of the Company's
Common Stock valued at $30.1 million. Harrington, headquartered in Columbus,
Ohio, provides administrative services to large, self-funded benefit plans
covering approximately 960,000 members as of December 31, 1996. Its revenues
between July 1, 1996 and December 31, 1996 were $42 million.
In the third quarter of 1996, after the consummation of the Consolidated
Group and Harrington acquisitions, the Company implemented a reorganization of
its management structure. In connection with this reorganization, the Company
appointed a chief operating officer for each of its four business units: Small
Group Business, Large Group Business, Health Care Alliances, and The New
England. Timothy T. Clifford, the President and Chief Executive Officer of
Consolidated Group, became Chief Operating Officer - Small Group Business, and
Robert R. Parker, the Chairman and Chief Executive Officer of Harrington, became
Chief Operating Officer - Large Group Business. Richard M. Bresee became Chief
Operating Officer - Health Care Alliances, and Gary L. Raeckers became Chief
Operating Officer - The New England.
Medirisk, Inc. Transaction
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc. ("Medirisk"), a provider of proprietary information products that track the
price and utilization of medical procedures, to purchase $2.0 million of
Medirisk preferred stock. The Company also agreed to purchase up to $10.0
million over four years in the form of senior subordinated notes, for which the
Company would receive detachable warrants to purchase Medirisk common stock at
$0.015 per share. As of December 31, 1996, the Company (i) had purchased $2.0
million of preferred stock of Medirisk, (ii) had loaned Medirisk $6.9 million,
and (iii) had received detachable warrants to purchase 298,150 shares of
Medirisk common stock. Medirisk has used these funds to finance its expansion
through the development of additional products and the acquisition of two health
care information businesses. On January 29, 1997, Medirisk completed an initial
public offering of 2.3 million shares of its common stock at a purchase price of
$11.00 per share, and Medirisk subsequently fully satisfied its debt obligation
to the Company. In connection with the offering, the Company's Medirisk
preferred stock was converted into Medirisk common stock. The Company has not
yet exercised its warrants to purchase Medirisk common stock. As of January 29,
1997, the Company beneficially owned 480,442 shares (representing approximately
11%) of Medirisk common stock on a fully diluted basis, assuming exercise of all
outstanding warrants.
Third Party Claims Management, Inc. and Diversified Group Brokerage
Corporation Acquisitions
During 1995, the Company acquired all of the stock of a small, self-funded
benefits administrator known as Third Party Claims Management, Inc. ("TPCM") and
substantially all of the assets of another administrator known as Diversified
Group Brokerage Corporation ("DGB"). Both TPCM and DGB have experienced
declining revenue due to customer attrition. After performing a review for
impairment of goodwill related to TPCM and DGB, in the third quarter of 1996 the
Company recorded a charge against earnings of $7.1 million relating to the TPCM
transaction and $6.6 million relating to the DGB transaction. The Company has
worked to consolidate the operations of TPCM and DGB, resulting in the
termination of substantially all of the operations at the Memphis, Tennessee and
Irving, Texas offices of TPCM in 1996 and 1997.
THE COMPANY'S PRODUCTS AND SERVICES
The Company provides marketing, administration, and risk management
outsourcing services and solutions for managed care organizations, insurance
companies, integrated health care delivery systems, self-funded benefit plans,
and health care purchasing alliances.
Marketing
Through its Small Group Operating Unit, the Company provides managed
care companies, insurance companies, and integrated health care delivery systems
with marketing services targeting the individual and small business market. The
Company's marketing activity includes sales support for insurance agents through
a direct field sales force, telephone sales representatives, and master brokers.
The Company maintains relationships with over
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100,000 insurance agents, including independent brokers and captive insurance
agents who work exclusively for underwriters that have contracted with the
Company to provide individual and small group health plans through their agent
force. This agent relationship provides the Company with a significant
distribution conduit to the small business market in the United States. The
Company also helps design managed care products based on market research,
actuarial analysis of claims adjudicated, and interaction with payor
organizations. These products often include features that address the particular
needs of the small business employer, including specialized dental and
disability coverage. On behalf of its payors, the Company designs and implements
communications programs that are aimed at educating insurance agents about the
relative merits of particular product offerings. In addition, the Company
develops consumer awareness programs, including advertising and media planning,
for state-sponsored health care purchasing alliances.
Administration
The Company provides enrollment, premium billing and collection, and claims
administration services for all types of benefit plans. The Company's enrollment
services include underwriting, issuance of enrollment cards, and case renewal.
As a provider of billing and collection services, the Company sends monthly
bills on behalf of payors to insured parties, receives premium payments from the
insureds, and pays service fees to agents. The Company also implements premium
changes due to rate changes, employee hiring or termination, and other group
changes. The Company's claims administration services include eligibility
verification, copayment calculation, repricing, claims adjudication, and
preparation of explanation of benefits forms. The Company also processes claims
on behalf of self-funded companies and other payors by issuing checks to health
care providers on payor accounts.
Risk Management
The Company's risk management products include traditional utilization
review services as well as information and analysis services. The Company
provides utilization review through its Care Management units. These units are
staffed by qualified nurses and other qualified medical personnel to provide
precertification approval (a review mechanism for screening costs in advance of
medical care); medical case management (to contain the costs of prolonged and
catastrophic cases); and special claims review services. The Company has broad
reporting and analytic capabilities relating to all aspects of its services. The
Company's information services include preparation of reports regarding agent
production, enrollment, and frequency and type of claims. The Company intends to
continue to enhance its information-based products. In particular, the Company
plans to pursue opportunities with its strategic partner, Medirisk, to develop
information-based products from the Company's database of administered claims.
The Company also hopes to enhance its risk management business unit through its
relationship with HRM.
THE COMPANY'S CUSTOMERS
The Company provides services on behalf of a wide range of health care
payors, including managed care organizations, insurance companies, integrated
health care delivery systems, self-funded benefit plans, and health care
purchasing alliances.
Small Group Customers
Through its Small Group Operating Unit, the Company has over 25 years of
experience in helping insurance companies and other payors access the small
employer market. Since October 1994, the Company has expanded its customer base
from traditional indemnity carriers to include HMOs, PPOs, and other managed
care entities, and has worked with its traditional indemnity carriers to develop
managed care products. The Company provides marketing and administrative
services for several major managed care products through relationships with The
New England Mutual Life Insurance Company and New England Life Insurance Company
(together, "The New England"), United HealthCare Corporation ("United
HealthCare"), Kaiser Permanente Insurance Company, and U.S. Healthcare, Inc.
Effective January 1, 1997, the Company assumed marketing and administrative
services for TMG Life Insurance Company's ("TMG's") medical, dental, and group
life benefit business. Based on TMG's 1996 revenues, the Company expects that
TMG's employee benefits business will generate over $20 million in revenue in
1997. This amount is a forward-looking estimate, however, and is not necessarily
indicative of actual results, which could be different upon the occurrence of
any one of several factors, including greater-than-expected attrition.
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The Company continues to pursue relationships with several new managed care
clients. In July 1995, the Company began providing services in Florida for an
affiliate of Physicians Corporation of America ("PCA"). In the first quarter of
1996, the Company expanded its services to include PCA's Alabama affiliate. In
the fourth quarter of 1996, PCA transferred its Alabama operations to Health
Partners of Alabama, Inc. The Company and Health Partners of Alabama, Inc. are
currently negotiating a continuation of the Alabama relationship. In April 1996,
the Company and an affiliate of Foundation Health Corporation, a national
managed care company, entered into an agreement whereby the Company will be
Foundation's exclusive marketer and administrator in the State of Florida for
individual and small group products (for groups with 15 or fewer employees). In
addition, the Company will market and administer Foundation's individual program
and will offer a dual option PPO/HMO for small groups with between 15 and 50
employees. In July 1996, the Company entered into an agreement with Provident
Indemnity Life Insurance Company to market and administer its managed indemnity
product to individuals in several states.
The Company also has established relationships with integrated delivery
systems. In May 1996, the Company entered into an agreement to provide
administrative services for an affiliate of the Florida Independent Physicians
Association ("FIPA"), a network of independent physicians associations
representing physicians in the State of Florida.
In 1996, the Company explored new distribution channels for its indemnity
and managed care products. In the third quarter of 1996, the Company established
a computer "home page" on the Internet (www.healthplan.com). In addition to
providing information about the Company, the home page offers price quotations
for a Celtic Life Insurance Company product marketed through the Company.
To date, the Company has not generated any significant revenue from any of
its new managed care, integrated delivery system, or distribution relationships,
and it is unclear when, if ever, significant revenue will materialize from these
ventures.
In the first quarter of 1996, the Company and Employers Life Insurance
Company of Wausau ("ELOW") entered into an agreement to offer health care
products to small businesses in several states. In the fourth quarter of 1996,
the Company and ELOW agreed to discontinue this product offering due to
unexpected market conditions. In 1995, the Company entered into a memorandum of
understanding with Coastal Healthcare Group, Inc. ("Coastal") regarding possible
marketing and administrative services arrangements. The Company has not entered
into a definitive agreement with Coastal regarding such arrangements and is not
currently engaged in negotiations with Coastal. In 1995, the Company and Mutual
of Omaha agreed to expand their existing marketing relationship to include
Mutual of Omaha's HMOs. The pricing and other terms of this relationship have
not been negotiated, and the Company is not currently providing services for
Mutual of Omaha's HMO product.
Typically, the Company's insurance and managed care payors sign contracts
with the Company that are cancelable by either party without penalty upon
advance written notice of between 90 days and one year and are also cancelable
upon a significant change of ownership of the Company. The New England, Celtic
Life Insurance Company, and Ameritas Life Insurance Corporation businesses
accounted for approximately 31.0%, 23.0%, and 10.7%, respectively, of the
Company's consolidated revenue in 1995 and approximately 16.2%, 12.5%, and 6.5%,
respectively, of the Company's consolidated revenue for the year ended December
31, 1996. Although this decline is due primarily to the Company's expansion
through acquisition, which has diluted its concentration of revenues from these
sources, it should be noted that the Company continues to experience higher
lapses than originations in the business written with these payors, and it is
not certain when, if ever, this trend will be reversed.
The difficulty experienced by the Company in originating business for the
Company's indemnity payors during the 1990s is representative of the problems
facing the industry in general. Escalating medical costs have rendered
fee-for-service products less competitive, as evidenced by the explosive growth
during this decade of HMO products, which utilize a higher degree of demand and
disease management applications. The Company cannot predict the success with
which indemnity payors will be able to manage their medical loss ratios in the
future, which ability affects the competitive nature of the pricing they can
offer with respect to their products. Such pricing could have a direct effect
on the Company's ability to originate, maintain, and grow indemnity business in
the future.
In the third quarter of 1996, Metropolitan Life Insurance Company
completed a merger with The New England. The Company is unable to predict what
effect, if any, this merger will ultimately have on the Company's relationship
with The New England.
Historically, the majority of Consolidated Group's business was written
with The Travelers Insurance Company, which recently combined with the health
insurance business of Metropolitan Life Insurance Company to form MetraHealth.
Subsequently, MetraHealth was acquired by United HealthCare, one of the nation's
leading HMO companies. Between July 1, 1996 and December 31, 1996, this business
represented approximately 75% of Consolidated Group's revenue, or approximately
13% of the Company's consolidated revenue. The Company is dependent on United
HealthCare's commitment to the small group market and on the Company's ultimate
success in converting the MetraHealth business to United HealthCare's new
products. Should the Company have to move this business to another payor, it
could experience higher than normal lapse rates and lower than normal margins.
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The abandonment of the small group market by either The New England, Celtic
Life Insurance Company, or Ameritas Life Insurance Corporation, indemnity
payors' ability to manage medical costs, and the degree to which the Company is
successful in the MetraHealth conversion, could have a material
adverse effect on the Company. With respect to the business serviced by the
Company, a decision by any one of these payors to administer and distribute a
significant portion of its products directly to small businesses also could have
a material adverse effect on the Company.
Large Group Customers
The Company has been in the administrative services only ("ASO") business
since 1987, when the Company assumed administrative responsibility for the
employee health insurance plan of The Dun & Bradstreet Corporation ("D&B").
Harrington, the Company's newly acquired subsidiary, was founded in 1953 and is
an administrator of self-funded health care plans for large corporations,
government sector employers, Taft-Hartley plans, and associations. In addition
to providing claims administration services, the Large Group Operating Unit also
offers its clients workers' compensation and unemployment cost control programs.
As a result of the TPCM, DGB, and Harrington acquisitions, the Company added
multiple operating facilities throughout the country for its ASO business.
Through these acquisitions, as well as new business sales and case acquisition,
as of December 31, 1996 this business unit provided administrative services to
approximately 3,500 clients with over 850,000 employees, representing
approximately 1.6 million members.
Health Care Purchasing Alliances
During the 1990s, many small businesses were unable to obtain health care
coverage at affordable prices. In response, some states have formed
state-sponsored health care purchasing alliances. Several privately funded
groups also have formed health care purchasing alliances, in some cases with
state support. The Company is the administrator for four state-sponsored health
care purchasing alliances (in Florida, Kentucky, North Carolina, and Washington)
and three private alliances.
In 1996, the alliance unit was still not profitable. The Company's 1996
alliance revenues were $6.5 million, or approximately 3% of the Company's
consolidated revenues. Management continues to review operating procedures to
improve profitability and has entered into discussions with its Florida alliance
customers to renegotiate the existing contracts, which are scheduled to expire
in 1997. Unless the Company is successful in renegotiating its alliance
contracts, it may elect to exit the alliance business.
The Company is currently the administrator for each of the regional
Florida Community Health Purchasing Alliances ("CHPAs") established by the State
of Florida. In the fourth quarter of 1994, and in the third quarter of 1996, the
Company recorded significant charges to reflect the estimated loss the Company
would incur over the life of the Florida CHPA contracts. In February 1995, the
Company was selected as the statewide administrator for North Carolina's State
Health Plan Purchasing Alliance program, which was launched in the fourth
quarter of 1995. Insurance carriers in North Carolina have not yet shown
significant support for this alliance. In the third quarter of 1996, the Company
recorded a charge to reflect the estimated loss the Company would incur over the
life of the North Carolina contract. In April 1995, the Company was selected as
the statewide administrator for Kentucky's health care purchasing alliance
program, which commenced in July 1995. In the third quarter of 1995, the Company
opened an office in Lexington, Kentucky to administer the Kentucky program. The
Kentucky plan is fully operational and was profitable in 1996, with
approximately 270,000 covered members as of December 31, 1996. In February
1997, the Kentucky alliance announced that at the expiration of the current term
of the Company's contract on June 30, 1997, the alliance would break out various
services currently being performed under the contract and seek separate bids for
those services. The Company chose not to submit a formal bid to provide such
services. In December 1995, the Company was selected to develop and implement
statewide marketing and selected administrative services for the "Basic Health
Plan," the State of Washington's health care purchasing alliance program,
beginning in the second quarter of 1996. The Washington contract is still in the
developmental stage, and its ultimate success and acceptance by the residents of
the State of Washington cannot be predicted at this time.
The Company has incurred substantial expenses in connection with the
start-up of its Florida, Kentucky, North Carolina, and Washington alliance
administration contracts and will incur similar start-up expenses in connection
with
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other state health care purchasing alliance business obtained by the Company in
the future. The Company does not anticipate recovering all of its start-up
expenses incurred in connection with the alliance administration contracts
during their initial terms, and there can be no assurance that the health care
purchasing alliance contracts will be profitable for the Company. In addition,
each of the health care purchasing alliance contracts currently held by the
Company contains a broad cancellation provision that enables the alliance to
cancel the contract on relatively short notice without penalty. The Company has
developed marketing expertise and proprietary software to handle the enrollment,
billing, disbursement, and reporting services required under the Alliance
contracts, including client-server technology. The Company believes that its
marketing expertise and proprietary software may provide it with a competitive
advantage in pursuing alliance contracts.
Since 1985, Consolidated Group has worked with Associated Industries of
Massachusetts ("A.I.M.") to offer specially designed health care plans to A.I.M.
member companies. In September 1995, Small Business United of Texas ("SBUT"), a
non-profit business association, selected the Company to provide administrative
services for its affiliated health care purchasing alliance. The Company has not
entered into a definitive agreement with the SBUT alliance. In November 1995,
the Company began administering health care benefits for the South Broward
Hospital District self-funded benefits plans. In January 1996, the Company began
providing claims administration services for some of the member employers of
Healthcare Sarasota, Inc., a coalition of employers in Sarasota, Florida.
INFORMATION TECHNOLOGY
The Company's central data processing facilities are located in Tampa,
Florida; Framingham, Massachusetts; Columbus, Ohio; and El Monte, California.
The Company operates in a three-tiered architectural environment. A large IBM
mainframe and a DEC platform support the large volume of data and transactions
processed by the Company on an annual basis. Since 1990, the Company has
invested in client-server technology to support the front-end sales and
marketing function. The Company utilizes personal computer workstations in a
local-area and wide-area network to deliver information and images to the
desktop. The Company also utilizes a variety of other technologies to meet
specific business needs, including interactive voice response for sales and
services, point-of-service devices for claims processing, and optical character
recognition for entry of data from forms.
The Company completed four acquisitions during 1995 and 1996 and intends to
create a common technology platform for all of its business operations. In
addition, the Company expects to eliminate redundant facilities and personnel as
part of its ongoing integration of acquired businesses. These efforts could take
several years and the costs, which are expected to be significant, cannot be
determined at this time.
GOVERNMENT REGULATION
The Company is subject to regulation under the health care and insurance
laws and other statutes and regulations of all 50 states, the District of
Columbia, and Puerto Rico. Many states in which the Company provides claims
administration services require the Company or its employees to receive
regulatory approval or licensure to conduct such business. Provider networks are
also regulated in many states, and certain states require the licensure of
companies, such as the Company, which provide utilization review services. The
Company's operations are dependent upon its continued good standing under
applicable licensing laws and regulations. Such laws and regulations are subject
to amendment or interpretation by regulatory authorities in each jurisdiction.
Generally, such authorities have relatively broad discretion when granting,
renewing, or revoking licenses or granting approvals. These laws and regulations
are intended to protect insured parties rather than stockholders and differ in
content, interpretation, and enforcement practices from state to state.
Moreover, with respect to many issues affecting the Company, there is a lack of
guiding judicial or administrative precedent. Certain of these laws could be
construed by state regulators to prohibit or restrict practices that have been
significant factors in the Company's operating procedure for many years. The
Company could risk major erosion and even "rebate" exposure in these states if
state regulators were to deem the Company's practices to be impermissible.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
governs the relationships between certain health benefit plans and the
fiduciaries of those plans. In general, ERISA is designed to protect the
ultimate beneficiaries of the plans from wrongdoing by the fiduciaries. ERISA
provides that a person is a fiduciary of a
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plan to the extent that such person has discretionary authority in the
administration of the plan or with respect to the plan's assets. Each employer
is a fiduciary of the plan it sponsors, but there can also be other fiduciaries
of a plan. ERISA imposes various express obligations on fiduciaries. These
obligations include barring a fiduciary from permitting a plan to engage in
certain prohibited transactions with parties in interest or from acting under an
impermissible conflict of interest with a plan. Generally, a party in interest
with respect to a plan includes a fiduciary of the plan and persons that provide
services to the plan. The application of ERISA to the operations of the Company
and its customers is an evolving area of law and is subject to ongoing
regulatory and judicial interpretations of ERISA. Although the Company strives
to minimize the applicability of ERISA to its business and to ensure that the
Company's practices are not inconsistent with ERISA, there can be no assurance
that courts or the United States Department of Labor will not in the future take
positions contrary to the current or future practices of the Company. Any such
contrary positions could require changes to the Company's business practices (as
well as industry practices generally) or result in liabilities of the type
referred to above. Similarly, there can be no assurance that future statutory
changes to ERISA will not significantly affect the Company and its industry.
The Company's Consolidated Group subsidiary is undergoing an audit by the
United States Department of Labor (the "DOL") in which the DOL has raised
various questions about the application of ERISA to the way that subsidiary does
business. This audit is ongoing, and there can be no assurance that the DOL will
not take positions that could require changes to the way this subsidiary
operates, or result in the imposition of administrative fines and penalties.
COMPANY HISTORY
The Company's initial principal operating subsidiary, HealthPlan Services,
Inc. ("HPSI"), was founded in 1970 by James K. Murray, Jr., the Company's
current President and Chief Executive Officer, Charles H. Guy, Jr., and Trevor
G. Smith (the "Founders"), each of whom currently serves as a director of the
Company. D&B purchased the business in 1978 and operated it as a division. Mr.
Murray continued to play an active role in the business until 1987, when he left
to assume roles of increasing responsibility within D&B, which included serving
as president of two of its largest operating divisions. In August 1994, the
Founders, Noel Group, Inc., a publicly-traded company based in New York
("Noel"), and three funds in which Trinity Ventures, Ltd., a privately-held
venture capital company, is the general partner (the "Initial Investors"),
formed the Company to purchase the HealthPlan Services business (the
"Predecessor Company") from D&B, which purchase was consummated on September 30,
1994. HealthPlan Services Corporation is a Delaware corporation.
STOCKHOLDERS
In December 1996, Noel, Automatic Data Processing, Inc. ("ADP"), and the
Company entered into an agreement (the "ADP Agreement") pursuant to which Noel
agreed to sell 1,320,000 shares of the Company's Common Stock to ADP at a
purchase price of $20 per share. This transaction was completed on February 7,
1997. Upon completion of the transaction, Noel and ADP owned approximately 29%
and 9%, respectively, of the Company's Common Stock. The ADP Agreement generally
provides that: (i) ADP may not agree to acquire additional shares of the
Company's Common Stock prior to December 31, 1997, unless such acquisition is
approved by the Company's Board of Directors, or unless the Company entertains
alternative offers; (ii) Noel may not dispose of its remaining shares of the
Company's Common Stock prior to September 30, 1997 other than through a direct
distribution to Noel's shareholders, subject to specified conditions; and (iii)
the Company may not take any action prior to December 31, 1997 that could
interfere with "pooling-of-interests" accounting. The Company also agreed: (i)
to give ADP the opportunity to maintain its percentage ownership interest in the
Company in the event that prior to December 31, 1996 the Company intends to sell
any interest in its Common Stock; (ii) to grant ADP certain piggyback
registration rights; and (iii) to file a shelf registration statement with
respect to ADP's shares within 15 days after the effective date of the ADP
Agreement. The Company expects to file the shelf registration statement shortly
after the filing of this Annual Report on Form 10-K. As required by the ADP
Agreement, Arthur F. Weinbach, President and Chief Executive Officer of ADP, was
elected to the Board of Directors of the Company in February 1997. In May 1996,
Noel's Board of Directors adopted a plan of liquidation and dissolution, which
was approved by Noel's shareholders on March 19, 1997. In connection with Noel's
liquidation, the Company expects to file a Form S-3 Registration Statement with
the Securities and Exchange Commission to register the shares of the Company's
Common Stock held by Noel.
7
<PAGE> 9
COMPETITION
The Company faces competition and potential competition from traditional
indemnity insurance carriers, Blue Cross/Blue Shield organizations, managed care
organizations, third party administrators, utilization review companies, risk
management companies, and health care informatics companies. The Company
competes principally on the basis of the price and quality of services. Many
large insurers have actively sought the claims administration business of
self-funded programs and have begun to offer utilization review and other
managed health care services similar to the services offered by the Company.
Many of the Company's competitors and potential competitors are considerably
larger and have significantly greater resources than the Company.
EMPLOYEES
With the acquisitions of the Consolidated Group and Harrington and the
assumption of the employee benefits business of TMG, the Company employed
approximately 3,400 employees as of March 20, 1997. Except for Harrington's
subsidiary, American Benefit Plan Administrators, Inc., which administers
Taft-Hartley plans, the Company's labor force is not unionized. The Company
believes its relationship with its employees is good.
TRADEMARKS
The Company utilizes various service marks, trademarks, and trade names in
connection with its products and services, most of which are the property of the
Company's payors. Although the Company considers its service marks, trademarks,
and trade names important in the operation of its business, the business of the
Company is not dependent on any individual service mark, trademark, or trade
name.
ITEM 2. PROPERTIES
The Company conducts its operations from its headquarters in Tampa,
Florida; its principal operating units, Small Group and Large Group, are
headquartered in Framingham, Massachusetts and Columbus, Ohio, respectively. The
Company's central data processing facilities are located in its Tampa, Florida,
Framingham, Massachusetts, and Columbus, Ohio headquarters, and in El Monte,
California. The Company leases these facilities, as well as substantially all of
its other locations. The Company believes that its facilities are adequate for
its present and anticipated business requirements. In connection with the
integration of its newly acquired businesses, the Company has begun
consolidating redundant facilities, including data centers, and expects to
continue this consolidation in 1997.
ITEM 3. LEGAL PROCEEDINGS
In 1995, Self Funded Strategies, L.L.C., a former provider of
marketing services for the Company, filed a complaint against the Company
claiming wrongful termination of an exclusive marketing agreement and breach of
contract. The parties to the dispute agreed to binding arbitration, and the
arbitration proceedings occurred during the week of October 29, 1996. The
arbitration panel's decision, rendered in December 1996, is not expected to
materially alter the amount or timing of future payments that the Company is
contractually obligated to make to the plaintiff under the marketing agreement,
and thus is not expected to materially affect the cash flows of the Company's
business.
Pursuant to the Harrington acquisition agreement (the "Harrington
Agreement"), the Company agreed to use its best efforts to file a registration
statement sufficient to permit the public offering and sale of the shares of the
Company's Common Stock issued to the Harrington stockholders in the acquisition,
with such registration statement to become effective on or before October 31,
1996. On October 30, 1996, the Company received a letter from a representative
of Harrington's shareholders stating that the Company was in violation of the
8
<PAGE> 10
Harrington Agreement and reserving all rights under such Agreement. As of the
date hereof, it is not possible for the Company to evaluate what, if any,
damages might result from such notice. In November 1996, the Company filed a
Form S-3 registration statement with the Securities and Exchange Commission
registering the restricted shares of the Company's Common Stock held by the
former Harrington and Consolidated Group shareholders. This registration
statement became effective on February 14, 1997.
The Company's Consolidated Group subsidiary is undergoing a DOL audit in
which the DOL has raised various questions about the application of ERISA to the
way that subsidiary does business. This audit is ongoing, and there can be no
assurance that the DOL will not take positions that could require changes to the
way this subsidiary operates, or result in the imposition of administrative
fines and penalties.
The Company is involved in various claims arising in the normal course of
business. In the opinion of the Company's management, although the outcomes of
these claims are uncertain, in the aggregate they are not likely to have a
material adverse effect on the Company's business, financial condition, or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol HPS. The following table sets forth the high and low sales prices
since the date of its initial public offering, as reported by the New York Stock
Exchange for the periods indicated.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
Fourth quarter .................................. $ 24.50 $16.375
Third quarter ................................... $26.875 $ 18.00
Second quarter .................................. $ 29.25 $ 20.25
First quarter ................................... $28.375 $22.625
1995 HIGH LOW
---- ---- ---
Fourth quarter ................................... $ 27.00 $17.375
Third quarter .................................... $ 22.00 $15.125
From May 19, 1995 until end of Second Quarter .... $ 18.00 $ 14.25
</TABLE>
The Company has not paid any cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. It is the
present intention of the Company's Board of Directors to retain all earnings in
the Company in order to support the future growth of the Company's business.
Pursuant to the Company's May 17, 1996 credit agreement with its lenders, the
Company may not declare or pay any dividends upon any of its capital stock
without the consent of the agent for its lenders. There were approximately 382
holders of record of the Company's Common Stock as of March 10, 1997. The
Company believes that there is a significantly greater number of beneficial
owners that hold the Company's Common Stock in street name.
As of July 1, 1996, the Company paid $32.5 million in cash and issued
1,400,110 shares of its Common Stock, par value $.01 per share, to Harrington
stockholders in exchange for all of the issued and outstanding stock of
Harrington. The value assigned to the shares issued in the Harrington
transaction was $30.1 million, or $21.50 per share. As of July 1, 1996, in
connection with the Consolidated Group transaction, certain former stockholders
of Consolidated Group purchased an aggregate of 160,957 shares of the Company's
Common Stock, par value $.01 per share, for a purchase price of $23 per share,
or an aggregate of $3.7 million. The shares issued in connection with the
Harrington and
9
<PAGE> 11
Consolidated Group transactions were exempt from registration
under Section 4 and Regulation D of the Securities Act of 1933, based on the
value of the shares issued and the nature of the distributions. The Company
did not register such shares at the time of issuance, and in connection with
such issuance filed a Form D with the Securities and Exchange Commission
stating that the shares were exempt from registration under Rule 506 of
Regulation D. Pursuant to registration rights agreements entered into in
connection with the Harrington and Consolidated Group transactions, the Company
filed a Form S-3 Registration Statement with respect to these shares, which
statement became effective on February 14, 1997.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data set forth below have been derived
from the audited consolidated financial statements of the Company at December
31, 1996 and 1995 and for the years ended December 31, 1996 and 1995 and the
three months ended December 31, 1994 and the audited financial statements of the
Predecessor Company at September 30, 1994 and for the nine months ended
September 30, 1994, which appear elsewhere in this Annual Report on Form 10-K
("Form 10-K"), and have been derived from the audited financial statements of
the Company at December 31, 1994 and the Predecessor Company at December 31,
1993 and the year ended December 31, 1993 and the unaudited financial statements
of the Predecessor Company at December 31, 1992 and the year then ended not
included herein. The report of Price Waterhouse LLP, independent accountants of
the Company, on the consolidated financial statements of the Company at December
31, 1996 and 1995 and for the years ended December 31, 1996 and 1995 and the
three months ended December 31, 1994 appears elsewhere in this Form 10-K. The
report of Coopers & Lybrand L.L.P., independent accountants of the Predecessor
Company, on the financial statements of the Predecessor Company at September 30,
1994 and the nine months ended September 30, 1994 appears elsewhere in this Form
10-K. Selected historical financial data of the Company and the Predecessor
Company should be read in conjunction with the related financial statements and
notes thereto appearing elsewhere in this Form 10-K. The pro forma selected
financial data are not necessarily indicative of actual results of financial
position that would have been achieved had the acquisition of HPSI ("the
Acquisition") been completed as of January 1, 1994, nor are the statements
necessarily indicative of the Company's future results of operations or
financial position.
11
<PAGE> 13
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY (1)
----------- -----------------------
Pro Forma Three Nine
Year Year Year Months Months Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
1996 1995 1994(4) 1994 1994 1993 1992
---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues ........... $ 193,839 $100,250 $ 107,178 $ 25,233 $ 81,945 $ 113,863 $ 124,165
Expenses:
Agent commissions... 48,507 36,100 43,260 10,047 33,213 48,380 55,680
Other operating
expenses .......... 117,236 44,133 45,734 10,303 42,138 49,270 45,172
Contract commitments 2,685 - 3,623 3,623 - - -
Restructure charge . 1,425 - - - - - -
Integration expense 7,804 - - - - - -
Loss on impairment
of goodwill ........ 13,710 - - - - - -
Depreciation and
amortization ....... 10,548 4,386 3,517 870 3,347 4,053 3,734
(Loss) income from
operations ......... (8,076) 15,631 11,044 390 3,247 12,160 19,579
Net (loss) income .. $ (6,716) $ 9,535 $ 6,467 $ 231 $ 1,747 $ 6,960 $ 11,559
--------- -------- --------- -------- -------- --------- ---------
Dividends on
redeemable preferred
stock .............. - 285 - 285
Net (loss) income
attributable to
Common Stock ....... $ (6,716) $ 9,250 $ 6,467 $ (54)
--------- -------- --------- --------
Pro forma net income
per share (2) ...... $ 0.71 $ 0.69 $ 0.03
Pro forma weighted
average shares
outstanding (2) .... 13,414 9,339 9,339
Historical weighted
average net (loss)
income per share ... $ (0.47) $ 0.82
Historical weighted
average shares
outstanding ........ 14,266 11,336
<CAPTION>
Pro Forma
Dec.31, Dec.31, Dec.31, Dec.31, Sept.30, Dec.31, Dec.31,
1996 1995 1994(4) 1994 1994 1993 1992
---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) (3) ...... $ (26,929) $ 23,013 $ (16,050) $(16,050) $(17,742) $ (21,993) $ (22,933)
Total assets ....... 244,701 112,667 53,189 53,189 27,884 31,851 19,853
Total debt ......... 62,298 1,282 1,300 1,300 1,254 1,450 -
Redeemable
preferred stock
(Series A & B),
including accrued
dividends .......... - - - 19,285 - - -
Common
stockholders' equity
(divisional equity
(deficit)) ......... 108,783 80,966 20,292 1,007 2,170 634 (1,897)
</TABLE>
12
<PAGE> 14
(Notes from previous page)
(1) Represents the historical results of operations of the Predecessor
Company. The Company's historical financial statements reflect certain
expenses, including expenses attributable to employee benefit programs,
retirement and health plans, treasury, and insurance, which were
incurred by the Predecessor Company and allocated to the Company on a
pro rata basis.
(2) Gives effect to the recapitalization of all 19,000,000 shares of
Preferred Stock (plus the right to receive dividends accrued thereon),
which were exchanged for 1,397,857 shares of Common Stock of the
Company contemporaneously with the consummation of the initial public
offering on May 19, 1995 ("the Recapitalization"), for all periods
presented.
(3) The working capital deficit of the Predecessor Company reflects its
participation in D&B's cash management system, which centrally pooled
all D&B entities' cash balances and resulted in negative working
capital for the Predecessor Company. The working capital deficit of the
Company reflects its assumption in the Acquisition of a $17.0 million
working capital deficit of the Predecessor Company.
(4) Gives effect to the Acquisition and the Recapitalization as if such
transactions had occurred on January 1, 1994.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma statement of operations presents the pro
forma statement of income of the Company for the year ended December 31, 1994
giving effect to: (i) the Acquisition; (ii) the Recapitalization; and (iii) the
Company's initial public offering of common stock on May 19, 1995. The unaudited
pro forma statements of income for the year ended December 31, 1994 assume that
the foregoing transactions had been completed on January 1, 1994. The unaudited
pro forma financial statements give effect only to the adjustments set forth in
the accompanying notes thereto. These unaudited pro forma financial statements
are provided only for comparison and are not necessarily indicative of actual
results of operations.
13
<PAGE> 15
HEALTHPLAN SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Predecessor Pro
Company Company Forma
Nine Months Three Months Year
Ended Ended Ended
Sept. 30, Dec. 31, Pro Forma Dec. 31,
1994 1994 Adjustments 1994
---- ---- ----------- ----
<S> <C> <C> <C> <C>
Revenues $81,945 $ 25,233 $ - $107,178
------- -------- ------- --------
Expenses:
Agent commissions 33,213 10,047 - 43,260
Personnel expenses 24,476 5,972 (3,086)(b) 27,362
General and administrative 12,991 4,331 - 17,322
Contract commitments - 3,623 - 3,623
Staff reductions and office
closings 4,671 - (3,621)(c) 1,050
Depreciation and amortization 3,347 870 (700)(d) 3,517
------- -------- ------- --------
Total expenses 78,698 24,843 (7,407) 96,134
------- -------- ------- --------
Income before income taxes 3,247 390 7,407 11,044
Provision for income taxes 1,500 159 2,918(e) 4,577
------- -------- ------- --------
Net income 1,747 231 4,489 6,467
Dividends on redeemable
preferred stock - 285 (285)(a) -
------- -------- ------- --------
Net income (loss) attributable
to common stock $ 1,747 $ (54) $ 4,774 $ 6,467
======= ======== ======= ========
Pro forma net income
attributable to common
stock per share $ 0.69
========
Pro forma weighted average
shares outstanding--fully diluted $ 9,339
========
</TABLE>
14
<PAGE> 16
HEALTHPLAN SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA FINANCIAL STATEMENT ADJUSTMENTS
The unaudited pro forma financial information reflects the following
unaudited pro forma adjustments (in thousands):
(a) To give effect to the Recapitalization.
(b) To reflect the elimination of actual salaries and benefits for
employees terminated at September 30, 1994 of $1,073 as a
condition of the Acquisition (net of new executives' salaries
and benefits of $602) and the elimination of D&B employee
benefit and incentive compensation programs of $5,556 (net of
newly implemented Company employee benefits programs of
$2,941).
(c) To reflect the elimination of Predecessor Company one-time
severance expenses related to staff reductions, as reflected
on the audited statement of income for the nine months ended
September 30, 1994, of $3,621.
(d) To adjust depreciation and amortization expense to reflect the
allocation of the purchase price for the Acquisition and asset
revaluation of $12 and ($560), respectively, and the
elimination of Predecessor Company amortization on
acquisitions of carrier blocks of $1,248, which had been
calculated on an accelerated basis over periods of up to seven
years.
(e) To reflect the Pro Forma Statement of Income federal and state
tax provision after giving effect to pro forma adjustments
(b), (c), and (d) described above.
2. UNAUDITED PRO FORMA NET INCOME PER COMMON SHARE AND WEIGHTED AVERAGE SHARES
OUTSTANDING
Unaudited pro forma net income per common share amounts and weighted
average shares outstanding in the accompanying Pro Forma Statements of Income
for the year ended December 31, 1994 are based on the weighted average number of
shares during the year assuming that the following events occurred on January 1,
1994: (i) the three-for-two stock split with respect to the Common Stock of the
Company, which was effected in the form of a stock dividend declared by the
Board of Directors on March 8, 1995; and (ii) the Recapitalization.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following is a discussion of material changes in the consolidated
results of operations of the Company for the years ended December 31, 1996 and
1995 and Pro Forma Statements for the year ended December 31, 1994 (see
Item 6, "Unaudited Pro Forma Financial Statements" and "Notes to Unaudited Pro
Forma Financial Statements").
The Company provides marketing, administration, and risk management
services and solutions for benefit programs. The Company's customers include
managed care organizations, insurance companies, integrated health care delivery
systems, self-funded benefit plans, and health care purchasing alliances.
FACTORS AFFECTING PROFITABILITY
The Company's profitability depends on its customers' service requirements,
its ability to meet these requirements efficiently, and the methods of
determining compensation for the Company's services. The factors affecting
service requirements and compensation levels vary depending on the business
unit.
15
<PAGE> 17
Service Requirements
In both the small group and large group businesses, the Company offers
claims payment services, but such services are typically part of the monthly fee
charged, as opposed to a function of the volume of claims filed. Thus, on the
operating side, profitability is heavily reliant on both the volume of claims
filed and the efficiency with which the Company processes claims. The same
principle applies to the Company's other support functions, such as enrollment,
billing, underwriting, customer service, and reporting. In the future, the
Company's efficiency as an administrator of health care benefits will be
influenced by its ability to increase the use of electronic data interchange
("EDI") in the claims collection and input function and its ability to expand
the use of auto adjudication in the claims processing and payment function.
Profitability also will be influenced by the Company's ability to increase
operational efficiencies through consolidation of plants and maximization of
economies of scale.
Compensation
In the small group business, the Company is usually compensated by way of a
percentage of premium collected (sometimes referred to as "premium retention
percentage"), and in some instances the Company charges the covered group a
fixed monthly fee. Premium collected is a function of the premium charged by the
payor on each life in the group. Thus, profitability can be a function of many
factors, including the number of groups in force, the number of lives in force,
the number of lives per group, the related premium retention percentage, and the
overall volume of premium collected on a monthly basis. The Company's ability to
increase lives or groups in force is influenced by new business generated and
cases retained. The success of both is heavily influenced by the competitive
nature of the pricing offered by the payor and its desire to maintain a presence
in its geographic regions and the small group market in general. The Company
believes that a higher percentage of future small group revenue will be derived
from HMO versus traditional indemnity business, and premium retention
percentages are typically lower from HMO business. In addition, it is possible
that competitive pressures or regulatory reform could lower future premium
retention percentages on the Company's indemnity products. The Company's premium
retention percentage declined from almost 20% in January 1996 to approximately
17% in February 1997. Thus, the Company will have to increase sales volume in
the future to maintain the same operating margins.
In the large group and alliance businesses, the Company is typically
compensated on a capitated or per member, per month ("PMPM") basis. This rate is
usually the result of a competitive bidding process, and pricing is typically
fixed for a period of time. Future profitability will be influenced by the
Company's ability to create value-added services that allow it to deviate from
the commodity pricing inherent in the bidding process.
Special Risks Associated With The Alliance Business
Starting in 1994, the Company pursued contracts with state-sponsored health
care purchasing alliances, initially in Florida, and in 1995-1996, with
additional contracts in North Carolina, Kentucky, and Washington. The Company
has incurred substantial expenses in connection with the start up of these
contracts, and, to date, the alliance business has been unprofitable.
The primary material risks associated with alliance contracts are:
1. Private enterprises will not accept the use of a government-sponsored
program and will therefore fail to provide an adequate number of enrollees to
support a revenue base (over which fixed costs may be spread).
2. The number of enrollees per group will be so low that margins are
insufficient to cover the fixed costs of set up for the group.
3. The level of marketing, enrollment, and customer service required will
be materially higher than expected, thereby increasing the variable costs
required under the contract.
4. The independent agents on whom the Company relies to distribute the
product will not be enthusiastic about the alliance program, resulting in lower
than expected enrollment.
16
<PAGE> 18
There can be no assurance that the Company will be able to recoup its
investment in developing its alliance relationships or that these operations
will ultimately be profitable.
FACTORS AFFECTING GROWTH
The Company's growth is affected greatly by its acquisitions of other
administrators. Growth through acquisition involves substantial risks, including
the risk of improper valuation of the acquired business. In addition, the value
of such an acquired business or block of business could be impaired if the
Company is not successful in integrating the business into its existing
operations. These risks are increased when the Company elects to make such
acquisitions on a leveraged basis.
To understand how the Company books acquisitions of administrators in
purchase transactions, an understanding of the unique nature of the business is
essential. Because administrators can operate with a minimal amount of capital,
acquired companies typically have modest tangible asset bases. As evidenced by
the Company's recent experiences at Harrington and Consolidated Group, other
than the underlying business, there are no intangible long-lived assets such as
work force, customer base, or supplier relationships to which the Company could
assign significant value, as these are relationships that routinely turn over
and are replaced in the ordinary course of business. Often, no single customer
of an acquired business constitutes a significant part of the business, and
customers typically have annual contracts which may or may not be renewed.
Renewal rates can vary significantly on an annual basis. Accordingly, values
cannot be assigned to individual customers or contracts. Thus, goodwill, which
is the excess of purchase price over the fair value of net assets acquired, is
often a significant portion of the purchase price.
After performing a review for impairment of goodwill related to each of the
Company's acquired businesses and applying the principles of measurement
contained in FASB 121, the Company recorded a pre-tax charge against earnings of
$13.7 million in the third quarter of 1996, representing approximately 7.6% of
the Company's pre-charge goodwill. The pre-tax charge is attributable to
impairment of goodwill recorded on the following acquisitions: DGB, $6.6
million; and TPCM, $7.1 million.
At the time of the DGB acquisition, the Company projected a 10% to 15%
growth rate in net cash flows at DGB and paid a purchase price which resulted in
$9.8 million of goodwill. Since this acquisition, the DGB business has not
achieved, and does not expect to achieve, the revenue and net cash flow
projections prepared at the time of the acquisition due to, among other things,
higher than originally expected attrition rates resulting in ongoing decreases
in net revenues (due in part to increased pricing resulting from a reinsurance
carrier's departure from DGB's market) and an inadequate distribution system, as
evidenced by an underperforming sales force and greater than anticipated
operating costs. The Company's efforts to correct these deficiencies have not
enabled it to meet its original projections. The Company has determined that its
revised projected cash flows will not fully provide for the recovery of the
goodwill balance of $8.8 million. Accordingly, the Company has written off $6.6
million of goodwill associated with the DGB acquisition. Any further significant
declines in DGB's projected net cash flows may result in additional write-downs
of remaining goodwill.
At the time of the TPCM acquisition, the Company projected a 10% to 15%
growth rate in net cash flows at TPCM and paid a purchase price which resulted
in $8.1 million of goodwill. Since this acquisition, TPCM has not achieved, and
does not expect to achieve, the revenue and net cash flow projections prepared
at the time of the acquisition due to, among other things, higher than
originally expected attrition rates, significantly higher than expected claims
experience (claims filed per enrollee), and greater than anticipated operating
costs due to the inability to obtain economies of scale through integration. The
Company's efforts to correct these deficiencies have not enabled it to meet its
original projections. Lives covered at TPCM decreased by 32,000 during 1996. The
Company has determined that its revised projected cash flows will not fully
provide for the recovery of the goodwill balance of $7.5 million. Accordingly,
the Company has written off $7.1 million of goodwill associated with the TPCM
acquisition. Any further significant declines in TPCM's projected net cash flows
may result in additional write-downs of remaining goodwill.
The Company anticipates reductions in revenue at TPCM and DGB of
approximately 30% and 17%, respectively, in 1997. TPCM and DGB represented
approximately 5% of the Company's consolidated revenue in the fourth quarter of
1996. The Company continually evaluates these operations for opportunities to
reverse these revenue losses and adjust operating
17
<PAGE> 19
costs in response to changing conditions and does not believe these operations
will create any further materially adverse impact on future results of
operations.
There can be no assurance that the Company will successfully and profitably
integrate the businesses of Harrington and Consolidated Group into its existing
operations. In addition, certain costs will be incurred to successfully
integrate these acquired companies. Although Harrington and Consolidated Group
are significantly larger companies with a broader customer base over which to
spread risk, more infrastructure, and longer histories of servicing customers,
and management remains optimistic about the future, there can be no assurance
that adverse renewals will not occur in the future. The Company will continue to
evaluate on a regular basis whether events and circumstances have occurred that
indicate that the carrying amount of goodwill may not be recoverable.
Although the net unamortized balance of goodwill is not considered to be
impaired, any such future determination requiring the write-off of a significant
portion of unamortized goodwill could have a material adverse effect on the
Company's financial results.
Subsequent to the acquisitions of Harrington and Consolidated Group, the
Company now serves approximately 125,000 businesses, plan holders, and
governmental agencies in 50 states, Washington, D.C., and Puerto Rico, covering
approximately 2.6 million members.
RELIANCE ON PAYORS
Typically, the Company's insurance and managed care payors sign contracts
with the Company that are cancelable by either party without penalty upon
advance written notice of between 90 days and one year and are also cancelable
upon a significant change of ownership of the Company. The New England, Celtic
Life Insurance Company, and Ameritas Life Insurance Corporation businesses
accounted for approximately 31.0%, 23.0%, and 10.7%, respectively, of the
Company's consolidated revenue in 1995 and approximately 16.2%, 12.5%, and 6.5%,
respectively, of the Company's consolidated revenue for the year ended December
31, 1996. Although this decline is due primarily to the Company's expansion
through acquisition, which has diluted its concentration of revenues from these
sources, it should be noted that the Company continues to experience higher
lapses than originations in the business written with these payors, and it is
not certain when, if ever, this trend will be reversed. In the third quarter of
1996, Metropolitan Life Insurance Company completed a merger with The New
England. The Company is unable to predict what effect, if any, such merger will
ultimately have on the Company's relationship with The New England.
Historically, the majority of Consolidated Group's business was written
with The Travelers Insurance Company, which recently combined with the health
insurance business of Metropolitan Life Insurance Company to form MetraHealth.
Subsequently, MetraHealth was acquired by United HealthCare, one of the nation's
leading HMO companies. Between July 1, 1996 and December 31, 1996, this business
represented approximately 75% of Consolidated Group's revenue, or approximately
13% of the Company's consolidated revenue. The Company is dependent on United
HealthCare's commitment to the small group market and on the Company's ultimate
success in converting the MetraHealth business to United HealthCare's new
products. Should the Company have to move this business to another payor, it
could experience higher than normal lapse rates and lower than normal margins.
The abandonment of the small group market by either The New England, Celtic
Life Insurance Company, or Ameritas Life Insurance Corporation, indemnity
payors' ability to manage medical losses, and the degree to which the Company is
successful in the MetraHealth conversion, could have a material adverse effect
on the Company. With respect to the business serviced by the Company, a decision
by any one of these payors to administer and distribute a significant portion of
its products directly to small businesses also could have a material adverse
effect on the Company.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which certain items of income and expense bear to the Company's revenues for
such periods.
<TABLE>
<CAPTION>
Company Company Pro Forma
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994 (1)
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 %
------- ------- -------
Expenses:
Agent commissions 25.0 % 36.0 % 40.4 %
Personnel expenses 37.3 % 25.4 % 25.5 %
General & administrative
expenses 21.5 % 16.8 % 16.1 %
Pre-operating and contract
start-up costs 0.4 % 1.7 % -
Contract commitments 1.4 % - 3.4 %
Restructure charge 0.7 % - -
Integration expense 4.0 % - -
Loss on impairment of
goodwill 7.1 % - -
Staff reductions and office
closings - - 1.0 %
Depreciation
& amortization 5.4 % 4.4 % 3.2 %
----- ----- -----
Total expenses 102.8 % 84.3 % 89.6 %
------- ------ ------
Net (loss) income before
interest expense (2.8)% 15.7 % 10.4 %
Interest expense 1.4 % 0.1 % 0.1 %
----- ----- -----
(Loss) income before income (4.2)% 15.6 % 10.3 %
taxes
(Benefit) provision for
income taxes (0.7)% 6.1 % 4.3 %
------ ----- -----
Net (loss) income (3.5)% 9.5 % 6.0 %
====== ===== =====
</TABLE>
(1) See Unaudited Pro Forma Financial Statements and Notes to Unaudited Pro
Forma Financial Statements.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 increased $93.5 million, or
93.2%, to $193.8 million from $100.3 million in 1995. This increase resulted
primarily from additional revenues of $5.9 million, $6.7 million, $32.1 million,
and $42.0 million from the Company's acquisitions of TPCM (effective 9/1/95),
DGB (effective 10/1/95), Consolidated Group (effective 7/1/96), and Harrington
(effective 7/1/96), respectively. Revenues from HealthPlan Services, Inc.
("HPSI") large group and alliance customers increased $2.1 million and $5.7
million, respectively, over 1995.
19
<PAGE> 21
Agent commissions expense for the year ended December 31, 1996 increased
$12.4 million, or 34.3%, to $48.5 million from $36.1 million in 1995. This
increase resulted primarily from $12.6 million of additional commissions related
to the Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington.
HPSI's commissions as a percentage of operating revenues declined from 36.8% in
1995 to 34.2% in 1996, as large group revenues represented a greater percentage
of total HPSI revenues. Large group commissions (11.9% of 1996 HPSI revenues)
represent a lower percentage of revenues than small group commissions (44.9% of
1996 HPSI revenues). If large group revenues continue to represent an
increasingly greater percentage of overall consolidated revenues, agent
commissions as a percentage of revenues are expected to continue to decline.
Personnel expenses for the year ended December 31, 1996 increased $46.8
million to $72.2 million, or 184.3%, from $25.4 million in 1996. Of this
increase, $41.3 million is attributable to the Company's acquisitions of TPCM,
DGB, Consolidated Group, and Harrington. Personnel expenses for HPSI increased
$5.5 million and are primarily related to additional salaries and wages,
overtime, and temporary services related to new activity in HPSI's alliance and
large group business units, which are more labor-intensive than the small group
business unit. Assuming the mix of activity in the Company's business units is
consistent with that of 1996, ongoing personnel expenses as a percentage of
revenues are not expected to change significantly.
General and administrative expenses for the year ended December 31, 1996
increased $24.6 million, or 144.7%, to $41.6 million from $17.0 million in 1995.
Of this increase, $17.1 million is attributable to costs associated with the
Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington. Costs
for HPSI increased by $7.6 million and are primarily attributable to telephone,
postage, printing, and professional services related to HPSI's new business
activities in the alliance and large group business units.
Contract commitment expenses relate to the recognition of losses on adverse
contracts entered into by the Company in previous periods with state-sponsored
health care purchasing alliances in Florida and North Carolina. These losses are
the result of lower than anticipated growth in lives per case and the resulting
excess of cost of service over revenue to be earned over the balance of the
applicable contract periods. Discussions have been ongoing with the related
sponsors (Florida and North Carolina) to obtain revisions in contract terms
sufficient to generate additional revenue or reduced costs. During 1996, the
Company was unable to obtain concessions sufficient to offset the adverse
results expected on the Florida and North Carolina contracts, resulting in the
recognition of a loss of $2.7 million.
Restructure charges result primarily from the Company's closure of its
Memphis facility and downsizing of its corporate offices subsequent to the
acquisitions of Consolidated Group and Harrington.
The loss on partial impairment of goodwill reflects the write-down of the
carrying value of goodwill originally recorded upon the Company's acquisition of
TPCM and DGB, which reflects their expected future discounted cash flows (see
Item 1, "Business - Recent Transactions and Company Reorganization" for related
discussion).
Depreciation and amortization expense for the year ended December 31, 1996
increased $6.2 million, or 140.9%, to $10.6 million from $4.4 million in 1995.
Of this increase, $5.2 million relates to depreciation and amortization on the
Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington ($3.2
million of which is the amortization of goodwill on the acquisitions being
calculated on a straight-line basis over 25 years). An additional increase of
$0.9 million at HPSI is primarily attributable to the amortization of internally
developed software for the Company's alliance administration.
Year Ended December 31, 1995 Compared to Pro Forma Year Ended December 31, 1994
Revenues for the year ended December 31, 1995 decreased $6.9 million, or
6.4%, to $100.3 million from $107.2 million in 1994. This decrease resulted
primarily from a decline of $14.2 million in revenues generated from services
provided through the small group business unit. Declines in revenue from two of
the Company's payors accounted for $8.3 million of this decrease, as such payors
deemphasized their small group indemnity products and developed managed care
products. Additionally, the loss of one payor relationship, the Centennial Life
Insurance Company relationship (which terminated effective January 31, 1995),
resulted in a reduction in revenue of $5.2 million. The decline in small group
revenue was partially offset by an increase in large group revenue of $6.1
million resulting from the Company's 1995
20
<PAGE> 22
acquisitions and an increase in interest income of $2 million primarily from
earnings on the proceeds from the Company's May 19, 1995 initial public
offering.
Agent commissions expense for the year ended December 31, 1995 decreased
$7.2 million, or 16.6%, to $36.1 million from $43.3 million in 1994. This
decrease resulted principally from the decline in revenues for the period.
Agent commissions expense represented approximately 36.8% of operating revenues
for the year ended December 31, 1995 (40.4% in 1994). As a percentage of
revenues, small group agent commissions are significantly greater than large
group agent commissions. Small group agent commissions represented
approximately 45.6% of related customer revenues in 1995 (46.7% in 1994), and
large group agent commissions represented approximately 10.8% of related
customer revenues in 1995 (8.1% in 1994).
Personnel expenses for the year ended December 31, 1995 decreased $2.0
million, or 7.3%, to $25.4 million from $27.4 million in 1994. This decrease was
primarily related to the termination of 125 employees of the Predecessor Company
on September 30, 1994, offset by $2.4 million of additional personnel costs
related to the Company's 1995 acquisitions.
Other operating expenses for the year ended December 31, 1995 decreased
$0.2 million, or 1.2%, to $17.0 million from $17.2 million in 1994. The Company
realized savings in telephone, rent, leased equipment, and consulting fees in
1995, which were offset by $1.4 million of additional expenses related to the
Company's 1995 acquisitions.
The Company incurred $1.7 million in pre-operating and start-up costs
during the year ended December 31, 1995. These costs related primarily to the
state-sponsored health care purchasing alliances in Kentucky and North Carolina
and consisted of salaries and wages and temporary help, printing, and travel
expenses.
Contract commitment expense of $3.6 million for the year ended December 31,
1994 represented the excess of expected future costs over future revenues for
the CHPA contract term expiring in April 1997.
Depreciation and amortization expense for the year ended December 31, 1995
increased $0.9 million, or 25.7%, to $4.4 million from $3.5 million in 1994.
This increase resulted principally from an increase in depreciation related to
the purchase of new telephone and computer hardware equipment and an increase in
the amortization of goodwill related to the Company's 1995 acquisitions.
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 $5.0 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 January 29, 1997, Medirisk completed an initial public offering of
2.3 million shares of its common stock at a purchase price of $11.00 per share,
and Medirisk subsequently fully satisfied its debt obligation to the Company
(see "Notes to Consolidated Financial Statements Investments").
On July 1, 1996, the Company utilized substantially all of the remaining
funds originating from the public offering and borrowed against its line of
credit under its May 17, 1996 credit facility with First Union National Bank of
North Carolina ("First Union") and other lenders ("Line of Credit") to fund the
acquisitions of Harrington and Consolidated Group.
On September 13, 1996, the Company increased its Line of Credit from $85
million to $175 million. First Union serves as "agency bank" with respect to
this facility. Like the Company's previous credit facility with First Union, the
new facility contains provisions which require the Company to maintain certain
minimum financial ratios, impose limitations on acquisition activity and capital
spending, and which prohibit the Company from declaring or paying any dividend
upon any of its capital
21
<PAGE> 23
stock without the consent of First Union. During the third quarter of 1996, the
Company amended the terms of its credit facility to allow it to spread the
effects of the restructuring and integration costs recorded (see "Notes to
Consolidated Financial Statements - Restructure and Integration") over three
years for purposes of calculating funds availability on its Line of Credit.
Similar treatment is in place for calculating compliance with financial
covenants. The outstanding draw against the Line of Credit was $55.0 million at
December 31, 1996.
The Company expects that the decline in cash flows which resulted in the
recording of a $13.7 million charge for the impairment of goodwill will not
result in the Company's inability to meet future operating, investing, and
financing requirements for the near future, especially given that TPCM and DGB
revenues represent approximately 5% of total Company revenue in the fourth
quarter of 1996. Cash flow, as measured by earnings before interest, taxes,
depreciation, and amortization, approximated $225,000 and $1.7 million for the
year ended December 31, 1996 for TPCM and DGB, respectively. In addition, other
than the decline in cash flow that led to the impairment of goodwill in the
third quarter of 1996, the Company knows of no other effects or expected effects
on the Company's results of future operations or financial position. The Company
believes that additional revenue will be provided by new products and sales
generated by other initiatives of the Company, which will offset the impact on
its future operations and cash flows. This statement is forward-looking in
nature, however, and actual results may differ if the Company's initiatives are
unsuccessful.
Although only nine months have passed since the Company's acquisitions of
Harrington and Consolidated Group, management does not foresee any immediate
adverse circumstances similar to TPCM and DGB due to the significantly broader
market base over which to spread risk and Consolidated Group's and Harrington's
longer history of servicing customers. Although management remains optimistic
about the future, there can be no assurance that adverse business conditions
will not occur in the future.
The Company incurred a cash outlay of approximately $7.8 million in 1996
for non-recurring integration costs related primarily to systems integration and
expects to incur an additional cash outlay of approximately $1.5 million in
1997.
Based on current expectations, the Company believes that all consolidated
operating, investing, and financing activities for the foreseeable future will
be met from internally generated cash flow from operations, available cash, or
its existing Line of Credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are listed in Item 14(a)(1)
and are submitted at the end of this Annual Report on Form 10-K. The
Company is not required to file any supplementary financial data under this
Item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is included in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 6, 1997, under
"Proposal 1: Election of Directors," "Additional Information Concerning
Directors," "Executive Officers," and "Section 16(a) Beneficial Ownership
Reporting Compliance," and is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is included in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 6, 1997, under
"Compensation of Executive Officers," and is herein incorporated by reference.
22
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is included in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 6, 1997, under
"Security Ownership of Certain Beneficial Owners and Management," "Compensation
Committee Interlocks and Insider Participation," and "Certain Relationships and
Related Transactions," and is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is included in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 6, 1997, under
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions," and is herein incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of the Company and
its subsidiaries are filed as part of this Form 10-K starting at page
F-1:
Independent Auditors' Reports
Consolidated Balance Sheets - December 31, 1996 and 1995 and September
30, 1994
Consolidated Statements of Operations - Year ended December 31, 1996
and 1995, three months ended December 31, 1994, and nine months ended
September 30, 1994
Consolidated Statements of Changes in Stockholders' Equity - Year
ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Year ended December 31, 1996
and 1995, and nine months ended September 30, 1994
Notes to Consolidated Financial Statements
(2) All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits included or incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
2.1 Amended and Restated Acquisition Agreement, dated August 31, 1995, by
and among HealthPlan Services, Inc., Millennium HealthCare, Inc., and
Third Party Claims Management, Inc. (incorporated by reference to the
Company's Form 8-K Current Report filed on September 15, 1995).
2.2 Asset Purchase Agreement, dated October 1, 1995, by and between
HealthPlan Services, Inc. and Diversified Group Brokerage Corporation,
and Amendment to the Asset Purchase Agreement, dated October 11, 1995,
by and between HealthPlan Services, Inc. and Diversified Group
Brokerage Corporation (incorporated by reference to the Company's Form
8-K Current Report filed on October 27, 1995).
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C>
2.3 Securities Purchase Agreement, dated January 8, 1996 between Medirisk,
Inc. and HealthPlan Services Corporation (incorporated by reference to
Exhibit 10.18 to the Company's 1995 Annual Report on Form 10-K filed
on March 29,1996).
2.4 Acquisition Agreement dated May 17, 1996 between HealthPlan Services
Corporation, 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).
2.5 Plan and Agreement of Merger dated May 28, 1996 between HealthPlan
Services Corporation, HealthPlan Services Alpha Corporation,
Harrington Services Corporation, and Robert Chefitz as Shareholders'
Representative (incorporated by reference to the Company's Form 8-K
Current Report filed on July 15, 1996).
2.6 Stock Purchase Agreement dated December 18, 1996 by and among Noel
Group, Inc., Automatic Data Processing, Inc. (incorporated by
reference to the Noel Group, Inc.'s Current Report on Form 8-K dated
February 7, 1997).
3.1 Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 4.1 to the Company's Form S-8 Registration Statement
#333-07631 filed with respect to the HealthPlan Services Corporation
1996 Employee Stock Option Plan on July 3, 1996).
3.2 By-laws, as amended.
4.1 Excerpts from the Certificate of Incorporation, as amended (included
in Exhibit 3.1).
4.2 Excerpts from the By-laws, as amended (included in Exhibit 3.2).
4.3 Specimen stock certificate (incorporated by reference to Exhibit 4.3
to the Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995).
10.1 Agreement between Celtic Life Insurance Company and the Company dated
April 1, 1981, as amended pursuant to Letter Agreement dated July 9,
1990, Letter Agreement dated December 17, 1990, Letter Agreement dated
December 28, 1991, and Letter Agreement dated May 11, 1994
(incorporated by reference to Exhibit 10.2 to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
10.2 Agreement between New England Mutual Life Insurance Company of Boston
and the Company effective as of June 1, 1987, as amended by Memorandum
dated January 17, 1992 and Memorandum dated February 4, 1994
(incorporated by reference to Exhibit 10.3 to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
10.3 The Agreement between Ameritas (formerly known as Bankers Life
Insurance Company of Nebraska) and the Company effective November 1,
1981, with Administrator's Agreements Addenda A (Arizona), Addenda B
(California), Addenda C (Indiana), Addenda D (Kansas), Addenda E
(Montana), Addenda F (Nevada), Addenda G (Tennessee) (incorporated by
reference to Exhibit 10.4 to the Company's Form S-1 Registration
Statement #33-90472, filed on May 18, 1995).
10.4 Agreements relating to MetraHealth business (originally written with
The Travelers Insurance Company):
(a) Administrative Services Agreement dated November 1, 1989 between
The Travelers Insurance Company and Consolidated Group, Inc.
</TABLE>
24
<PAGE> 26
[S] [C]
(b) Claims Administration Agreement dated November 1, 1989 between
The Travelers Insurance Company and Consolidated Group Claims,
Inc.
10.5 Administrative Services Agreement between the Company and Community
Health Purchasing Alliance District Two (incorporated by reference to
Exhibit 10.6 to the Company's Form S-1 Registration Statement
#33-90472, filed on May 18, 1995). The same contract was executed with
Districts One, Three, Four, Five, Six, Seven, Eight, Nine, Ten and
Eleven.
10.6 HealthPlan Services Corporation 1996 Employee Stock Option Plan.
10.7 HealthPlan Services Corporation 1995 Incentive Equity Plan
(incorporated by reference to Exhibit 10.7 to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
10.8 1995 HealthPlan Services Corporation Directors Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
10.9 Consulting Agreement between the Company and Reveley Resources, Inc.,
dated March 28, 1996 (incorporated by reference to Exhibit 10.19 to
the Company's 1995 Annual Report on Form 10-K, filed on March 29,
1996).
10.10 Restricted Stock Agreements between the Company and Claudia N.
Griffiths (incorporated by reference to Exhibit 10.10 to the Company's
Form S-1 Registration Statement #33-90472, filed on May 18, 1995). The
same agreement was executed with Steven V. Hulslander, Gary L.
Raeckers, Craig H. Cassady, Richard M. Bresee, Nola H. Moon, and
George E. Lucco.
10.11 Subscription Agreement dated as of September 30, 1994 among the
Company, James K. Murray, Jr., Trevor G. Smith and Charles H. Guy, Jr.
(incorporated by reference to Exhibit 10.11 to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
10.12 Stock Purchase Agreement dated as of October 5, 1994 among the
Company, Noel Group, Inc., Trinity Side-by-Side Fund I, L.P., Trinity
Ventures II, L.P., and Trinity Ventures III, L.P. (incorporated by
reference to Exhibit 10.12 to the Company's Form S-1 Registration
Statement #33-90472, filed on May 18, 1995).
10.13 Form of Stock Purchase Agreement dated as of December 15, 1994 among
the Company, Noel Group, Inc. and each of the signatories listed on
the signature pages thereto (incorporated by reference to Exhibit
10.13 to the Company's Form S-1 Registration Statement #33-90472,
filed on May 18, 1995).
10.14 (a) Lease Agreement between the Company and Paragon Group, Inc. (as
agent for Airport Southeast Associates, Ltd.), dated January 26, 1982,
as amended on June 18, 1987 by agreement between the Company and
Concourse Associates Venture (successor in interest to Airport
Southeast Associates) (Concourse Center I, Tampa, Florida)
(incorporated by reference to Exhibit 10.14(a) to the Company's Form
S-1 Registration Statement #33-90472, filed on May 18, 1995).
25
<PAGE> 27
(b) Lease Agreement between the Company and Paragon Group, Inc. (as
agent for Airport Southeast Associates, Ltd.), dated January 26, 1982,
as amended on October 13, 1983, April 3, 1984 by a Supplement to
Amendment of Lease, and as further amended on June 18, 1987 by
agreement between the Company and Concourse Associates Venture
(successor in interest to Airport Southeast Associates) (Concourse
Center II, Tampa, Florida) (incorporated by reference to Exhibit
10.14(b) to the Company's Form S-1 Registration Statement #33-90472,
filed on May 18, 1995).
(c) Second Amendment to Leases dated April 30, 1995 between Concourse
Center Associates Limited Partnership and the Company (Concourse
Centers I and II, Tampa, Florida)(incorporated by reference to Exhibit
10.13(g) to the Company's Annual Report on Form 10-K filed on March
29, 1996).
(d) Amended, Consolidated and Restated Lease dated January 1, 1987
between Consolidated Group, Inc. and Consolidated Group Service
Company Limited Partnership, as amended by First Amendment dated May
23, 1990, and by Second Amendment dated March 27, 1996.
10.15 Credit Agreement dated as of May 17, 1996 by and between the Company,
First Union National Bank of North Carolina, and other lenders named
therein, as amended by the First Amendment thereto dated July 1,
1996, and the Second Amendment thereto dated September 26, 1996.
10.16 Administrative Services Agreement between the Company and the Kentucky
Health Purchasing Alliance dated July 1, 1995 (incorporated by
reference to Exhibit 10.15 to the Company's 1995 Annual Report on Form
10-K filed on March 29, 1996).
10.17 Third Party Administrator Contract between the Company and SCNC
Health Alliance, Inc. dated June 26, 1995. Each of Southeastern North
Carolina Health Alliance, Inc., WNC Health Alliance, Inc., and Eastern
North Carolina Health Plan Purchasing Alliance, Inc. is a party to a
contract with the Company in substantially the same form (incorporated
by reference to Exhibit 10.16 to the Company's 1995 Annual Report on
Form 10-K filed on March 29, 1996).
10.18 Administrative Services Agreement between the Company and the State of
Washington's Health Care Authority dated February 7, 1996
(incorporated by reference to Exhibit 10.7 to the Company's 1995
Annual Report on Form 10-K filed on March 26, 1996).
10.19 Employment and Noncompetition Agreement dated June 25, 1996 by and
between R.E. Harrington, Inc. and Robert R. Parker.
10.20 Employment and Noncompetition Agreement dated July 1, 1996 by and
between Consolidated Group, Inc. and Timothy T. Clifford.
11.1 Statement regarding computation of per share earnings: not required
because the relevant computations can be clearly determined from the
material contained in the financial statements included herein.
21.1 Subsidiaries of the registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule.
(b) The Company did not file any Current Reports on Form 8-K during
the three months ended December 31, 1996.
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Tampa, State of Florida, on the 31st day of March, 1997.
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, Jr.
------------------------------------------
James K. Murray, Jr., President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ James K. Murray III
------------------------------------------
James K. Murray III, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William L. Bennett, James K. Murray, Jr. and
Joseph S. DiMartino his or her true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
or her in his or her name, place and stead, in any and all capacities, to sign
any or all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all that said attorneys-in-fact and agents, each acting
alone, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ William L. Bennett Chairman of the Board; March 31, 1997
- ---------------------- Director
William L. Bennett
/s/ James K. Murray, Jr. President and Chief March 31, 1997
- ------------------------ Executive Officer; Director
James K. Murray, Jr. (Principal Executive Officer)
/s/ Joseph A. Califano, Jr. Director March 31, 1997
- ---------------------------
Joseph A. Califano, Jr.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Joseph S. DiMartino Director March 31, 1997
- -----------------------
Joseph S. DiMartino
/s/ John R. Gunn Director March 31, 1997
- ----------------
John R. Gunn
/s/ Charles H. Guy, Jr. Director March 31, 1997
- -----------------------
Charles H. Guy, Jr.
/s/ Nancy M. Kane Director March 31, 1997
- -----------------
Nancy M. Kane
/s/ David Nierenberg Director March 31, 1997
- --------------------
David Nierenberg
/s/ James G. Niven Director March 31, 1997
- ------------------
James G. Niven
/s/ Trevor G. Smith Director March 31, 1997
- -------------------
Trevor G. Smith
/s/ Samuel F. Pryor, IV Director March 31, 1997
- -----------------------
Samuel F. Pryor, IV
/s/ James F. Carlin, Jr. Director March 31, 1997
- ------------------------
James F. Carlin, Jr.
/s/ Arthur F. Weinbach Director March 31, 1997
- ----------------------
Arthur F. Weinbach
/s/ Holyoke L. Whitney Director March 31, 1997
- ----------------------
Holyoke L. Whitney
</TABLE>
28
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
- -------------- -------------------
<S> <C>
2.1 Amended and Restated Acquisition Agreement, dated August 31,
1995, by and among HealthPlan Services, Inc., Millennium
HealthCare, Inc., and Third Party Claims Management, Inc.
(incorporated by reference to the Company's Form 8-K Current
Report filed on September 15, 1995).
2.2 Asset Purchase Agreement, dated October 1, 1995, by and
between HealthPlan Services, Inc. and Diversified Group
Brokerage Corporation, and Amendment to the Asset Purchase
Agreement, dated October 11, 1995, by and between HealthPlan
Services, Inc. and Diversified Group Brokerage Corporation
(incorporated by reference to the Company's Form 8-K Current
Report filed on October 27, 1995).
2.3 Securities Purchase Agreement, dated January 8, 1996 between
Medirisk, Inc. and HealthPlan Services Corporation
(incorporated by reference to Exhibit 10.18 to the Company's
1995 Annual Report on Form 10-K filed on March 29,1996).
2.4 Acquisition Agreement dated May 17, 1996 between HealthPlan
Services Corporation, 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).
2.5 Plan and Agreement of Merger dated May 28, 1996 between
HealthPlan Services Corporation, HealthPlan Services Alpha
Corporation, Harrington Services Corporation, and Robert
Chefitz as Shareholders' Representative (incorporated by
reference to the Company's Form 8-K Current Report filed on
July 15, 1996).
2.6 Stock Purchase Agreement dated December 18, 1996 by and among
Noel Group, Inc., Automatic Data Processing, Inc.
(incorporated by reference to the Noel Group, Inc.'s Current
Report on Form 8-K dated February 7, 1997).
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement #333-07631 filed with respect to the
HealthPlan Services Corporation 1996 Employee Stock Option
Plan on July 3, 1996).
3.2 By-laws, as amended.
4.1 Excerpts from the Certificate of Incorporation, as amended
(included in Exhibit 3.1).
4.2 Excerpts from the By-laws, as amended (included in Exhibit
3.2).
4.3 Specimen stock certificate (incorporated by reference to
Exhibit 4.3 to the Company's Form S-1 Registration Statement
#33-90472, filed on May 18, 1995).
10.1 Agreement between Celtic Life Insurance Company and the
Company dated April 1, 1981, as amended pursuant to Letter
Agreement dated July 9, 1990, Letter Agreement dated December
17, 1990, Letter Agreement dated December 28, 1991, and Letter
Agreement dated May 11, 1994 (incorporated by reference to
Exhibit 10.2 to the Company's Form S-1 Registration Statement
#33-90472, filed on May 18, 1995).
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
10.2 Agreement between New England Mutual Life Insurance Company of
Boston and the Company effective as of June 1, 1987, as
amended by Memorandum dated January 17, 1992 and Memorandum
dated February 4, 1994 (incorporated by reference to Exhibit
10.3 to the Company's Form S-1 Registration Statement
#33-90472, filed on May 18, 1995).
10.3 The Agreement between Ameritas (formerly known as Bankers Life
Insurance Company of Nebraska) and the Company effective
November 1, 1981, with Administrator's Agreements Addenda A
(Arizona), Addenda B (California), Addenda C (Indiana),
Addenda D (Kansas), Addenda E (Montana), Addenda F (Nevada),
Addenda G (Tennessee) (incorporated by reference to Exhibit
10.4 to the Company's Form S-1 Registration Statement
#33-90472, filed on May 18, 1995).
10.4 Agreements relating to MetraHealth business (originally
written with The Travelers Insurance Company):
(a) Administrative Services Agreement dated November 1,
1989 between The Travelers Insurance Company and
Consolidated Group, Inc.
(b) Claims Administration Agreement dated November 1,
1989 between The Travelers Insurance Company and
Consolidated Group Claims, Inc.
10.5 Administrative Services Agreement between the Company and
Community Health Purchasing Alliance District Two
(incorporated by reference to Exhibit 10.6 to the Company's
Form S-1 Registration Statement #33-90472, filed on May 18,
1995). The same contract was executed with Districts One,
Three, Four, Five, Six, Seven, Eight, Nine, Ten and Eleven.
10.6 HealthPlan Services Corporation 1996 Employee Stock Option
Plan.
10.7 HealthPlan Services Corporation 1995 Incentive Equity Plan
(incorporated by reference to Exhibit 10.7 to the Company's
Form S-1 Registration Statement #33-90472, filed on May 18,
1995).
10.8 1995 HealthPlan Services Corporation Directors Stock Option
Plan (incorporated by reference to Exhibit 10.10 to the
Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995).
10.9 Consulting Agreement between the Company and Reveley
Resources, Inc., dated March 28, 1996 (incorporated by
reference to Exhibit 10.19 to the Company's 1995 Annual Report
on Form 10-K, filed on March 29, 1996).
10.10 Restricted Stock Agreements between the Company and Claudia N.
Griffiths (incorporated by reference to Exhibit 10.10 to the
Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995). The same agreement was executed with Steven V.
Hulslander, Gary L. Raeckers, Craig H. Cassady, Richard M.
Bresee, Nola H. Moon, and George E. Lucco.
10.11 Subscription Agreement dated as of September 30, 1994 among
the Company, James K. Murray, Jr., Trevor G. Smith and Charles
H. Guy, Jr. (incorporated by reference to Exhibit 10.11 to the
Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995).
10.12 Stock Purchase Agreement dated as of October 5, 1994 among the
Company, Noel Group, Inc., Trinity Side-by-Side Fund I, L.P.,
Trinity Ventures II, L.P., and Trinity Ventures III, L.P.
(incorporated by reference to Exhibit 10.12 to the Company's
Form S-1 Registration Statement #33-90472, filed on May 18,
1995).
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C>
10.13 Form of Stock Purchase Agreement dated as of December 15, 1994
among the Company, Noel Group, Inc. and each of the
signatories listed on the signature pages thereto
(incorporated by reference to Exhibit 10.13 to the Company's
Form S-1 Registration Statement #33-90472, filed on May 18,
1995).
10.14 (a) Lease Agreement between the Company and Paragon Group,
Inc. (as agent for Airport Southeast Associates, Ltd.), dated
January 26, 1982, as amended on June 18, 1987 by agreement
between the Company and Concourse Associates Venture
(successor in interest to Airport Southeast Associates)
(Concourse Center I, Tampa, Florida) (incorporated by
reference to Exhibit 10.14(a) to the Company's Form S-1
Registration Statement #33-90472, filed on May 18, 1995).
(b) Lease Agreement between the Company and Paragon Group,
Inc. (as agent for Airport Southeast Associates, Ltd.), dated
January 26, 1982, as amended on October 13, 1983, April 3,
1984 by a Supplement to Amendment of Lease, and as further
amended on June 18, 1987 by agreement between the Company and
Concourse Associates Venture (successor in interest to Airport
Southeast Associates) (Concourse Center II, Tampa, Florida)
(incorporated by reference to Exhibit 10.14(b) to the
Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995).
(c) Second Amendment to Leases dated April 30, 1995 between
Concourse Center Associates Limited Partnership and the
Company (Concourse Centers I and II, Tampa,
Florida)(incorporated by reference to Exhibit 10.13(g) to the
Company's Annual Report on Form 10-K filed on March 29, 1996).
(d) Amended, Consolidated and Restated Lease dated January 1,
1987 between Consolidated Group, Inc. and Consolidated Group
Service Company Limited Partnership, as amended by First
Amendment dated May 23, 1990, and by Second Amendment dated
March 27, 1996.
10.15 Credit Agreement dated as of May 17, 1996 by and between the
Company, First Union National Bank of North Carolina, and
other lenders named therein, as amended by the First Amendment
thereto dated July 1, 1996, and the Second Amendment thereto
dated September 26, 1996.
10.16 Administrative Services Agreement between the Company and the
Kentucky Health Purchasing Alliance dated July 1, 1995
(incorporated by reference to Exhibit 10.15 to the Company's
1995 Annual Report on Form 10-K filed on March 29, 1996).
10.17 Third Party Administrator Contract between the Company and
SCNC Health Alliance, Inc. dated June 26, 1995. Each of
Southeastern North Carolina Health Alliance, Inc., WNC Health
Alliance, Inc., and Eastern North Carolina Health Plan
Purchasing Alliance, Inc. is a party to a contract with the
Company in substantially the same form (incorporated by
reference to Exhibit 10.16 to the Company's 1995 Annual Report
on Form 10-K filed on March 29, 1996).
10.18 Administrative Services Agreement between the Company and the
State of Washington's Health Care Authority dated February 7,
1996 (incorporated by reference to Exhibit 10.7 to the
Company's 1995 Annual Report on Form 10-K filed on March 26,
1996).
10.19 Employment and Noncompetition Agreement dated June 25, 1996 by
and between R.E. Harrington, Inc. and Robert R. Parker.
10.20 Employment and Noncompetition Agreement dated July 1, 1996 by
and between Consolidated Group, Inc. and Timothy T. Clifford.
11.1 Statement regarding computation of per share earnings: not
required because the relevant computations can be clearly
determined from the material contained in the financial
statements included herein.
</TABLE>
31
<PAGE> 33
21.1 Subsidiaries of the registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule (For SEC use only)
32
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
HealthPlan Services Corporation
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
HealthPlan Services Corporation and its Subsidiaries (the "Company") at December
31, 1996 and 1995, and the results of their operations and their cash flows for
the years ended December 31, 1996 and 1995 and for the period from inception
(October 1, 1994) through December 31, 1994 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Tampa, Florida
March 14, 1997
F-1
<PAGE> 35
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $3,725 $4,738
Restricted cash ................................................... 10,062 1,005
Short-term investments ............................................ -- 36,723
Accounts receivable, net of allowance for doubtful
accounts of $99 and $23, respectively ......................... 17,899 6,411
Refundable income taxes ........................................... 6,083 1,041
Prepaid commissions ............................................... 223 748
Prepaid expenses and other current assets ......................... 4,022 1,485
Deferred taxes .................................................... 4,481 965
-------- --------
Total current assets ...................................... 46,495 53,116
Property and equipment, net ......................................... 21,102 9,241
Other assets, net ................................................... 2,182 1,463
Deferred taxes ...................................................... 8,327 --
Note receivable ..................................................... 6,389 --
Investments ......................................................... 3,685 --
Goodwill, net ....................................................... 156,521 48,847
-------- --------
Total assets .............................................. $244,701 $112,667
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $18,464 $3,407
Premiums payable to carriers ...................................... 29,536 17,209
Commissions payable ............................................... 4,691 2,897
Deferred revenue .................................................. 1,560 947
Accrued liabilities ............................................... 14,905 5,093
Accrued contract commitments ...................................... 1,089 482
Accrued restructure ............................................... 462 --
Current portion of long-term debt payable ......................... 2,717 68
-------- --------
Total current liabilities ................................. 73,424 30,103
Notes payable ........................................................ 59,581 1,214
Deferred taxes ...................................................... -- 354
Other long-term liabilities ......................................... 2,913 30
-------- --------
Total liabilities ......................................... 135,918 31,701
-------- --------
Commitments and contingencies (Note 12) .............................
Stockholders' equity:
Common stock voting, $0.01 par value, 100,000,000 authorized and 14,974,126
issued and outstanding at December 31, 1996; 25,000,000 authorized and
13,395,357 issued and outstanding at December 31, 1995 ......... 150 134
Additional paid-in capital ....................................... 106,153 71,636
Retained earnings ................................................ 2,480 9,196
-------- --------
Total stockholders' equity ................................ 108,783 80,966
-------- --------
Total liabilities and stockholders' equity ................ $244,701 $112,667
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 36
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(OCTOBER 1, 1994)
FOR THE YEAR ENDED DECEMBER 31, THROUGH
1996 1995 DECEMBER 31, 1994
---- ---- -----------------
<S> <C> <C> <C>
Operating revenues ...................................... $ 191,493 $ 98,187 $ 25,132
Interest income ......................................... 2,346 2,063 101
--------- --------- ---------
Total revenues .................................. 193,839 100,250 25,233
Expenses:
Agent commissions .................................... 48,507 36,100 10,047
Personnel ............................................ 72,209 25,433. 5,972
General and administrative ........................... 41,614 16,967 4,226
Pre-operating and contract start-up costs ............ 812 1,664 --
Contract commitment .................................. 2,685 -- 3,623
Restructure charge ................................... 1,425 -- --
Integration .......................................... 7,804 -- --
Loss on impairment of goodwill ....................... 13,710 -- --
Depreciation and amortization ........................ 10,548 4,386 870
--------- --------- ---------
Total expenses .................................. 199,314 84,550 24,738
--------- --------- ---------
(Loss) income before interest expense
and income taxes ................................ (5,475) 15,700 495
Interest expense ..................................... 2,601 69 105
--------- --------- ---------
(Loss) income before income taxes .................... (8,076) 15,631 390
(Benefit) provision for income taxes ................. (1,360) 6,096 159
--------- --------- ---------
Net (loss) income ............................... $ (6,716) $ 9,535 $ 231
========= ======== =========
Dividends on Redeemable
Preferred Stock ................................. $ - $ 285 $ 285
========= ======== =========
Net income (loss) attributable to
Common Stock .................................... $ (6,716) $ 9,250 $ (54)
========= ======== =========
Pro forma net income per share ....................... $ 0.71 $ 0.03
========= =========
Pro forma weighted average
shares outstanding .............................. 13,414 9,339
========= =========
Historical weighted average net
(loss) income per share ......................... $ (0.47) $ 0.82
========= ========
Historical weighted average
shares outstanding .............................. 14,266 11,336
========= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 37
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------ ------------ -------------- -------------- -----------
Non-voting Voting Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings Total
------------ ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Initial issuance of
Common Stock (October 1, 1994) ............. $ 75 $ -- $ 925 $ -- $ 1,000
Issuance of management stock ................ 5 -- 1,226 -- 1,231
Unvested interest in management stock ....... -- -- (1,170) -- (1,170)
Dividends on Redeemable
Preferred Stock ............................ -- -- -- (285) (285)
Net Income .................................. -- -- -- 231 231
--------- ---------- --------- --------- ---------
Balance at December 31, 1994 ................ $ 80 $ -- $ 981 $ (54) $ 1,007
Issuance of management stock ................ -- -- 30 -- 30
Unvested interest in
management stock ........................... -- -- (27) -- (27)
Vesting of management stock ................. -- -- 330 -- 330
Net proceeds of initial public offering ..... -- 40 50,766 -- 50,806
Conversion of Non-Voting
Common Stock to Voting
Common Stock ............................... (80) 80 -- -- --
Exchange of Redeemable
Preferred Stock Series A
and Series B for Common Stock .............. -- 14 19,556 -- 19,570
Dividends on Redeemable
Preferred Stock ............................ -- -- -- (285) (285)
Net income .................................. -- -- -- 9,535 9,535
--------- ---------- --------- --------- ---------
Balance at December 31, 1995 ................ $ -- $ 134 $ 71,636 $ 9,196 $ 80,966
Vesting of management stock ................. -- -- 456 -- 456
Issuance of 11,400 shares in
connection with stock option plans ......... -- -- 160 -- 160
Issuance of 1,400,110 shares in
connection
with acquisition of Harrington
Services Corporation ........................ -- 14 30,088 -- 30,102
Issuance of 160,957 shares to former
affiliates of Consolidated
Group, Inc. ................................ -- 2 3,700 -- 3,702
Issuance of 6,302 shares in
connection
with the employee stock
purchase plan ............................. -- -- 113 -- 113
Net loss .................................... -- -- -- (6,716) (6,716)
--------- ---------- --------- --------- ---------
Balance at December 31, 1996 ................ $ -- $ 150 $ 106,153 $ 2,480 $ 108,783
========= ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 38
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Page 1 of 2
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION (OCTOBER 1,
FOR THE YEAR ENDED DECEMBER 31, 1994) THROUGH
1996 1995 DECEMBER 31, 1994
--------------- -------------- ------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ......................................... $ (6,716) $ 9,535 $ 231
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation .............................................. 5,729 2,657 511
Amortization of goodwill .................................. 4,464 1,524 307
Amortization of other assets .............................. 355 205 51
Contract commitment, net .................................. 607 (2,633) 3,115
Charge for restructuring, net .............................. 462 -- --
Loss on impairment of goodwill ............................ 13,710 -- --
Issuance of Common Stock to managememt .................... 456 332 62
Deferred taxes ............................................ (804) 935 244
Changes in assets and liabilities, net of effect
from acquisitions:
Restricted cash ........................................... (9,057) 1,807 (2,150)
Accounts receivable ....................................... 1,415 (702) (975)
Refundable income taxes ................................... (5,043) (1,041) --
Prepaid commissions ....................................... 525 200 222
Prepaid expenses and other current assets ................. (811) (64) (56)
Other assets .............................................. 565 (188) --
Accounts payable .......................................... 10,608 643 1,425
Premiums payable to carriers .............................. 12,327 (1,262) 2,061
Commissions payable ....................................... 149 (12) 216
Deferred revenue .......................................... (490) (1,018) (256)
Accrued liabilities ....................................... (7,728) (1,707) (1,835)
Income taxes payable ...................................... (54) (135) 135
-------- -------- --------
Net cash provided by operating activities .............. 20,669 9,076 3,308
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ....................... (5,731) (5,286) (182)
Sales (purchases) of short-term investments, net .......... 36,723 (36,723) --
Payment for purchase of Predecessor Company,
net of cash acquired .................................... -- -- (18,406)
Payment for purchase of Diversified Group
Brokerage ............................................... -- (10,075) --
Payment for purchase of Third Party Claims
Management, net of cash acquired ........................ -- (7,328) --
Cash paid for purchase of Harrington Services
Corporation, net of cash acquired ....................... (29,274) -- --
Payment for purchase of Consolidated Group, Inc.,
net of cash acquired .................................... (60,210) -- --
Increase in investments ................................... (3,311) -- --
Increase in note receivable ............................... (6,388) -- --
-------- -------- --------
Net cash used in investing activities ................... (68,191) (59,412) (18,588)
-------- -------- --------
Cash flows from financing activities:
Net borrowings under line of credit ....................... 55,000 -- --
Payments on other debt .................................... (12,466) (35) (17)
Net proceeds from initial public offering of
Common Stock ............................................ -- 50,806 --
Payments of loan origination costs ........................ -- -- (400)
Issuance of Redeemable Preferred Stock .................... -- -- 19,000
Proceeds from exercise of stock options ................... 160 -- --
Proceeds from Common Stock issued ......................... 3,815 -- 1,000
-------- -------- --------
Net cash provided by financing activities ................ 46,509 50,771 19,583
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......... (1,013) 435 4,303
Cash and cash equivalents at beginning of period ............. 4,738 4,303 --
-------- -------- --------
Cash and cash equivalents at end of period ................... $ 3,725 $ 4,738 $ 4,303
======== ======== ========
</TABLE>
F-5
<PAGE> 39
Page 2 of 2
<TABLE>
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest .................................... $ 1,573 $ 65 $ 122
======== ======== ========
Cash paid for income taxes ................................ $ 4,968 $ 6,321 $ --
======== ======== ========
Supplemental disclosure of non-cash activities:
Exchange of Redeemable Preferred Stock
Series A and Series B for Common Stock ................ $ -- $ 19,570 $ --
======== ======== ========
Issuance of Common Stock to management .................... $ 456 $ 332 $ 62
======== ======== ========
Common Stock issued for purchase of
Harrington Services Corporation .................... $ 30,102 $ -- $ --
======== ======== ========
Dividends on redeemable preferred stock ................... $ -- $ 285 $ 285
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 40
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") provides marketing,
administration, and risk management services and solutions for benefit
programs. The Company provides these services for over 125,000 small
businesses and large, self-funded organizations, covering approximately
2.6 million members in the United States. The Company's customers include
managed care organizations, insurance companies, integrated health care
delivery systems, self-funded benefit plans, and health care purchasing
alliances.
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. Concurrent with the initial public
offering, the Company also exchanged Redeemable Preferred Stock for
1,398,000 shares of Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The Company prepares its financial statements in conformity with generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, (i) HealthPlan Services, Inc., together
with its wholly owned subsidiaries ("HPSI"), (ii) Harrington Services
Corporation, together with its direct and indirect wholly owned
subsidiaries ("Harrington"), (iii) Consolidated Group, Inc., together with
its affiliates ("Consolidated Group"), and (iv) Healthcare Informatics
Corporation. All intercompany transactions and balances have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments that
have original maturities of three months or less. Cash and cash equivalents
consist of bank deposits to meet anticipated short-term needs.
RESTRICTED CASH
The Company has established a bank account for the sole purpose of
administering the contracts with the Florida Community Health Purchasing
Alliances. This cash may be withdrawn only to meet current obligations
connected with servicing these contracts.
SHORT-TERM INVESTMENTS
Investments in marketable securities at December 31, 1995 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 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities." The
effect of SFAS 115 is dependent upon classification of the investment.
Because the investments are classified as available for sale, they were
measured at fair market value, which approximated cost. There were no
investments with maturities of greater than one year. The remainder of the
Company's short-term investments were liquidated in July 1996 in order to
provide a portion of the cash needed for the Harrington and Consolidated
Group acquisitions.
F-7
<PAGE> 41
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Costs of the assets acquired
have been recorded at their respective fair values at the date of
acquisition. Expenditures for maintenance and repairs are expensed as
incurred. Major improvements that increase the estimated useful life of
an asset are capitalized. Depreciation is computed using the straight-line
method over the following estimated useful lives of the related assets:
<TABLE>
<CAPTION>
YEARS
-----------------
<S> <C>
Building 19
Furniture and fixtures 3-10
Computers and equipment 2-5
Computer software 3
Leasehold improvements Lease term
</TABLE>
PREPAID COMMISSIONS
Prepaid commissions consist primarily of commissions paid to certain
agents at the initiation of a policy. These commissions are expensed on a
straight-line basis as revenues related to the policy are earned.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid
rent, insurance, postage, and repair and maintenance contracts.
GOODWILL AND IMPAIRMENT OF LONG-LIVED ASSETS
The excess of cost over the fair value of net assets acquired is recorded
as goodwill and amortized on a straight-line basis over 25 years. The
Company reviews long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. The Company compares the
expected future undiscounted cash flows to the carrying values of the
long-lived assets at the lowest level of identifiable cash flows. When the
expected future undiscounted cash flows are less than the carrying amount,
the asset is written down to its estimated fair value. The Company
calculates estimated fair value as the discounted future value of
anticipated cash flows (see Note 5).
OTHER ASSETS
Other assets consist primarily of loan origination fees and covenants not
to compete, which are amortized over the terms of the respective
agreements.
PREMIUMS PAYABLE
The Company collects insurance premiums on behalf of its insurance carrier
and managed care customers and remits such amounts to the customers when
due.
REVENUE RECOGNITION
Revenues are recognized ratably over contractual periods or as claims
processing and administrative services are being performed. Revenue
collected in advance is recorded as deferred revenue until the related
services are performed.
F-8
<PAGE> 42
ADVERSE CONTRACT COMMITMENTS
On an ongoing basis, the Company estimates the revenues to be derived over
the life of service contracts, as well as the costs to perform the services
connected therewith, in order to identify adverse commitments. This process
includes evaluating actual results during the period and analyzing other
factors, such as anticipated rates, volume, and costs. If the revised
estimates indicate that a net loss is expected over the remaining life of
the contract, the Company recognizes the loss immediately.
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 those new
revenue initiatives.
INTEGRATION EXPENSE
Certain costs amounting to $6.9 million incurred by the Company in relation
to the post-acquisition integration of information systems at Consolidated
Group, Inc. and Harrington Services Corporation are recorded as
integration expense. Other non-information systems costs amounting to
$883,000 for items such as travel, recruiting, and moving have also been
recorded as integration expense.
RESTRUCTURE CHARGES
The Company recognizes a liability for restructuring charges and a
corresponding charge to results of operations when the following
conditions exist: management approves and commits the Company to a plan of
termination of employees, or an exit plan, and establishes the benefits
that current employees will receive upon termination; the benefit
arrangement is communicated to employees; the plan of termination
identifies the number and type of employees; and the exit plan or plan of
termination will begin as soon as possible, and significant changes are not
likely.
In 1996, the Company recorded a restructure charge of $1.4 million to
reflect the cost of exiting certain excess office space ($650,000) and
terminating employees ($775,000). The Company's restructure plan was for
the elimination of an estimated 80 jobs in management, claims
administration, and information systems operations in its Tampa and
Memphis offices. Seventy-seven employees were actually terminated.
AGENT COMMISSIONS
The Company recognizes agent commissions expense in the same period that
the related revenues are recognized.
INCOME TAXES
The Company recognizes deferred assets and liabilities for the expected
future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. For federal income tax
purposes, the Company files a consolidated tax return with its wholly owned
subsidiaries.
EARNINGS PER SHARE
Earnings per share in 1996 and 1995 have been computed based on the
historical weighted average number of shares of Common Stock outstanding
during the period. Pro forma earnings per share was computed in 1995 and
1994 based on the weighted average number of common shares outstanding
during the periods, after giving retroactive effect for the mandatory
conversion of the Company's Redeemable Series A and Series B Preferred
Stock, which occurred upon completion of the Company's initial public
offering, as well as the shares issued at the time of that offering.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, all stock options and common shares issued have been included as
outstanding for the entire period using the treasury stock method.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method currently prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25") and discloses the
pro forma effects of the fair value based method, as prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
3. ACQUISITIONS
CONSOLIDATED GROUP
On July 1, 1996, the Company acquired all the issued and outstanding stock
of Consolidated Group, Inc. and three affiliated entities (collectively,
"Consolidated Group") for approximately $61.9 million in cash. Consolidated
Group, headquartered in Framingham, Massachusetts, specializes in providing
medical benefits administration and other related services for health care
plans. As of December 31, 1996, Consolidated Group provided these services
for over 23,000 small businesses in a variety of industries covering
approximately 250,000 members in 50 states. At December 31, 1996,
Consolidated Group employed approximately 500 people. The purchase price of
Consolidated Group was allocated to the fair value of the net assets
acquired as follows:
<TABLE>
<S> <C>
Tangible assets acquired $ 19.7 million
Goodwill 59.7 million
Liabilities assumed and accrued at purchase (17.5) million
=================
$ 61.9 million
=================
</TABLE>
F-9
<PAGE> 43
HARRINGTON SERVICES CORPORATION
On July 1, 1996, the Company also acquired all the issued and outstanding
stock of Harrington for approximately $32.5 million cash and 1,400,110
shares of the Company's Common Stock valued at $30.1 million. Harrington,
headquartered in Columbus, Ohio, provides administration services to
self-funded benefit plans. As of December 31, 1996, Harrington provided
these services to over 3,000 large, self-funded plans for employers in a
variety of industries covering approximately 960,000 members in 47 states.
At December 31, 1996, Harrington employed approximately 1,500 employees,
with principal offices in Columbus, Ohio, Chicago, Illinois, and El Monte,
California. The purchase price of Harrington, which totaled $62.6 million
in cash and stock, was allocated to the fair value of the net assets
acquired as follows:
<TABLE>
<S> <C>
Tangible assets acquired $ 27.7 million
Goodwill 66.7 million
Liabilities assumed (31.8) million
=================
$ 62.6 million
=================
</TABLE>
DIVERSIFIED GROUP BROKERAGE
On October 12, 1995, HPSI 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. As of December 31, 1996, the DGB business served approximately
300 medium-sized businesses covering 45,000 members. The purchase price
for the DGB business consisted of (i) approximately $5.1 million paid at
closing and (ii) for the seven-year period following the closing date,
semi-monthly payments based on the number of enrollees in accounts that
were DGB accounts as of the closing date, to be reduced by any attrition
of enrollees. HPSI placed $5.0 million in escrow, as required by the
agreement to fund those payments, and the present value of those estimated
payments was recorded as goodwill. Additionally, HPSI assumed
approximately $1.0 million in liabilities related to this purchase. The
success of the DGB business is heavily dependent on its ability to
maintain and grow market share in a narrowly defined geographic market --
the self-funded health care plans of primarily medium-sized businesses
with an emphasis on the New England geographic market (see Note 5).
THIRD PARTY CLAIMS MANAGEMENT, INC.
On August 31, 1995, HPSI acquired all of the issued and outstanding shares
of capital stock of Third Party Claims Management, Inc. ("TPCM"). As of
December 31, 1996, TPCM served approximately 100 mid-to-large sized
organizations covering approximately 140,000 members. In connection with
this acquisition, the Company recorded (i) a cash investment of
approximately $7.5 million, subject to a post-closing adjustment based on
the balance sheet of TPCM as of August 31, 1995, (ii) liabilities of
approximately $2.7 million, representing an assumption of liabilities and
additional accruals related to the transaction, and (iii) an additional
payment equal to $2.00 multiplied by the number of employees enrolled in
any TPCM account as of the anniversary date of the contract which was
administered by the Company on the closing date and continued to be a
TPCM account administered by the Company on the anniversary date. This
payment was estimated at approximately $210,000 by the Company at the
time of the acquisition and was recorded as a liability and an increase
in goodwill resulting from the acquisition. TPCM is focused on providing
services to hospitals and other related health care institutions that
offer self-funded health care benefits. The development of integrated
delivery systems by the entities making up this target market is expected
to increase. The services provided by these customers' system may include
the ability to replace those provided by the Company and possibly result
in competition with the Company (see Note 5).
F-10
<PAGE> 44
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following unaudited pro forma consolidated results of operations of the
Company give effect to all of the above acquisitions, accounted for as
purchases, as if they occurred on January 1, 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR Ended
DECEMBER 31, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Revenues $ 269,476 $ 245,167
Net (loss) income (7,839) 6,897
Net (loss) income per common share (0.53) 0.46
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been
made as of January 1, 1995 or of the results which may occur in the future.
4. CONCENTRATION OF CUSTOMERS
The Company is party to a variety of contracts with insurance companies,
preferred provider organizations ("PPOs"), health maintenance organizations
("HMOs"), integrated delivery systems, health care alliances, and their
business customers located throughout the United States to provide third
party marketing, administration, and risk management services for the small
business market. For the year ended December 31, 1996, the Company's three
largest payors accounted for approximately 16%, 13%, and 13%, respectively,
of total revenues. For the year ended December 31, 1995, the Company's
three largest payors accounted for approximately 31%, 23%, and 11%,
respectively, of total revenues.
The Company grants credit, without collateral, to some of its self-funded
clients under certain contracts.
5 GOODWILL
At December 31, 1996 and 1995, goodwill resulting from the excess of cost
over the fair value of the respective net assets acquired was as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
HealthPlan Services $ 32,841 $ 32,841
Consolidated Group 59,734 -
Harrington 66,705 -
Diversified Group Brokerage 2,388 9,750
Third Party Claims Management 490 8,087
---------------- ----------------
162,158 50,678
Accumulated Amortization (5,637) (1,831)
---------------- ----------------
$ 156,521 $ 48,847
================ ================
</TABLE>
In the third quarter of 1996, the Company recorded a charge for impairment
of goodwill originally recorded upon the acquisitions of DGB and TPCM of
$6.6 million and $7.1 million, respectively. Other adjustments were
recorded to reduce the DGB and TPCM goodwill balances as a result of final
resolution of acquisition contingencies.
DGB, located in Marlborough, Connecticut, is a third party administrator
providing managed health care administrative services to self-funded
employers, typically having between 250 and 2,000 employees in the New
England market. At the time of this acquisition, the Company projected a
10% to 15% growth rate in net cash flows at DGB. Since this acquisition,
DGB has not achieved, and does not expect to achieve, the revenue and net
cash flow projections prepared at the time of the acquisition due to, among
other things, higher than originally expected attrition rates resulting in
F-11
<PAGE> 45
ongoing decreases in net revenues (due in part to increased pricing
resulting from a reinsurance carrier's departure from DGB's market) and an
inadequate distribution system, as evidenced by an underperforming sales
force and greater than anticipated operating costs. The Company's efforts
to correct these deficiencies have not enabled it to meet its original
projections. Accordingly, the Company recorded an impairment charge of $6.6
million associated with the DGB acquisition. Any further significant
declines in the DGB's projected net cash flows may result in additional
write-downs of remaining goodwill.
TPCM is a third party administrator providing managed health care
administrative services to hospitals and other health care institutions
that offer self-funded health care benefits. At the time of this
acquisition, the Company projected a 10% to 15% growth rate in net cash
flows at TPCM. Since this acquisition, TPCM has not achieved, and does not
expect to achieve, the revenue and net cash flow projections prepared at
the time of the acquisition due to, among other things, higher than
originally expected attrition rates, significantly higher than expected
claims experience (claims filed per enrollee), and greater than anticipated
operating costs due to the inability to obtain economies of scale through
integration. The Company's efforts to correct these deficiencies have not
enabled it to meet its original projections. In 1996, TPCM lost one
customer that represented over $1.0 million in annualized revenues
resulting in a decision to close one of its operating facilities.
Accordingly, the Company has recorded an impairment charge of $7.1 million
associated with the TPCM acquisition. Any further significant declines in
TPCM's projected net cash flows may result in additional write-downs of
remaining goodwill.
The Company will continue to evaluate on a regular basis whether events and
circumstances have occurred that indicate the carrying amount of goodwill
may not be recoverable. Although the net unamortized balance of
goodwill at December 31, 1996 is not considered to be impaired, any such
future determination requiring the recognition of an impairment charge
could have a material adverse effect on the Company's results.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Land $ 438 $ -
Building 1,133 -
Furniture and fixtures 14,478 3,433
Computers and equipment 14,961 4,747
Computer software 15,377 3,452
Leasehold improvements 4,076 1,117
------- -------
50,463 12,749
Less - accumulated depreciation (29,361) (3,508)
======= =======
$ 21,102 $ 9,241
======= =======
</TABLE>
7. INVESTMENTS AND NOTES RECEIVABLE
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc., a provider of health care information, to purchase $2.0 million of
Medirisk preferred stock representing a 9% ownership interest and, in
addition, to lend Medirisk up to $10.0 million over four years in the form
of debt for which the Company would receive detachable warrants to purchase
up to 432,101 shares of Medirisk's common stock for $0.015 per share, based
on the amount of debt actually acquired. This investment is recorded at
cost.
On March 13, 1996, Medirisk borrowed $6.9 million from the Company. The
debt bears interest of 10% payable quarterly and is due upon the earliest
to occur of (i) an initial public offering by Medirisk; (ii) a change of
control of Medirisk; or (iii) at maturity on January 8, 2003. In accordance
with the agreement, warrants to purchase 298,150 shares of Medirisk's
common stock were issued to the Company.
The Company discounted the note receivable by the relative fair value of
the warrants, which was determined to be $573,000. The value of the
warrants is accreted to income over the life of the note based on the
maturity date.
On January 28, 1997, Medirisk completed an initial public offering and
satisfied the $6.9 million debt balance in accordance with the agreement.
The remaining value of the warrants will be accreted to income in the first
quarter of 1997. Upon completion of the public offering, Medirisk's
preferred stock was converted to common stock. The Company has agreed not
to sell its shares of Medirisk in the public market for 180 days after the
effective date of the initial public offering without the prior consent of
the offering's underwriters. After the 180 day period has lapsed, the
shares will be eligible for sale in the public market, subject to the
conditions and restrictions of Rule 144 under the Securities Act of 1933.
Assuming full conversion of the warrants issued to the Company, its
ownership amounts to 480,442 shares of common stock after the public
offering, which represents an approximate 11% ownership interest. On March
14, 1997, Medirisk's shares closed at $8.38 per share of common stock.
8. NOTE PAYABLE AND CREDIT FACILITIES
The Company expanded its credit facility (the "Line of Credit") from $20
million to the lesser of (i) three times earnings before interest expense,
income taxes, and depreciation and amortization expense (with certain
adjustments called for in the credit agreement) or (ii) $175 million during
1996. The maximum amount available through the Line of Credit as of
December 31, 1996 was approximately $109 million. The facility operates on
a revolving basis until May 18, 1998, on which date the outstanding balance
shall be paid over a three year period with the first principal payment due
November 30, 1998 and the final payment due April 30, 2001. The Company's
borrowing under the Line of Credit includes interest ranging from
LIBOR plus 125 to 175 basis points to New York prime plus 25 to 75 basis
points. The Line of Credit carries a commitment fee of 0.25% of the unused
portion and is secured by the stock of the Company's
subsidiaries. The agreement contains provisions which include (among other
covenants) maintenance of certain minimum financial ratios, limitations on
capital expenditures, limitations on acquisition activity, and limitations
on the payment of dividends. The Company incurred $2.1 million of interest
expense on the Line of Credit for year ended December 31, 1996.
F-12
<PAGE> 46
Subsequent to obtaining the Line of Credit, the Company entered into two
separate interest rate swap agreements as a hedge against interest rate
exposure on the variable rate debt. The agreements, which expire in October
1999 and September 2001, effectively convert $40.0 million of variable debt
under the Line of Credit to fixed rate debt at a weighted average rate of
6.42% plus a margin ranging from 125 to 175 basis points. For the year
ended December 31, 1996, the Company recorded $110,000 of interest expense
related to the swap agreements. The Company considers the fixed rate and
variable rate financial instruments to be representative of current market
interest rates and, accordingly, the recorded amounts approximate their
present fair market value.
In conjunction with the acquisition of the Company in 1994 by certain
Company officers and Noel Group, Inc. ("Noel"), the Company assumed a note
payable to the Cal Group (the "Cal Group Note") of $1.3 million, which
bears interest at 5% per annum. The note payable requires semi-annual
principal payments in May and November of $18,000 to $78,000 through
November 2008. Interest expense relating to the note payable was
approximately $62,000 and $64,000 for the years ended December 31, 1996 and
1995, respectively.
On July 1, 1996, the Company assumed several notes payable previously
entered into by Consolidated Group (the "Consolidated Group Notes"), which
were secured primarily by computer equipment. The interest rates on those
notes are LIBOR plus 150 to 175 basis points. The Company also assumed an
operating note (the "Consolidated Operating Note"), which is also secured
by purchased equipment and has a fixed interest rate of 7.82%.
Consolidated Group also has a mortgage outstanding secured by a building
with a book value at December 31, 1996 of $1.1 million. The interest rate
on the mortgage is fixed at 8.75%, with the final payment due in May 2016.
On July 1, 1996, the Company assumed certain equipment notes as a result of
a prior agreement that had been executed by Harrington ("Harrington
Equipment Notes"). The notes, which are secured primarily by telephone
equipment, have interest rates ranging from 7.2% to 9.0% with the final
payment due in July 2004.
The balances outstanding on the above debt instruments at December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
Line of Credit $55,000
Cal Group Note 1,214
Consolidated Group Notes 2,237
Consolidated Operating Note 528
Consolidated Group Mortgage 1,481
Harrington Equipment Notes 1,838
-------
$62,298
Less: Amounts due within one year (2,717)
=======
Long-term debt $59,581
=======
</TABLE>
F-13
<PAGE> 47
Future minimum principal payments for all notes as of December 31, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $ 2,717
1998 8,737
1999 16,942
2000 20,455
2001 11,165
Thereafter 2,282
==========
$ 62,298
==========
</TABLE>
As of March 14, 1997, the Company had liquidated approximately $7.5 million
of the above debt before its scheduled maturity, including a pay-off of the
Consolidated Group Notes.
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------- -------
<S> <C> <C>
Adverse lease commitments $ 5,215 $ -
Salaries and wages 3,573 1,297
Office consolidation costs 919 325
Interest 906 10
Accrued legal and regulatory 555 683
State and local taxes 545 71
Severance 276 356
Other 2,916 2,351
======= =======
$14,905 $ 5,093
======= =======
</TABLE>
Adverse lease commitments relate to office and equipment leases assumed by
the Company upon its acquisitions of Consolidated Group and Harrington at
prices in excess of market rates or for property that will not be utilized
for the full term of the lease. Severance and office closure costs at
December 31, 1996 refer to costs connected with the Company's acquisitions
of Consolidated Group and Harrington. Through December 31, 1996, $496,000
had been charged against these accruals. Other includes approximately $1.3
million and $1.1 million of other acquisition-related costs at December 31,
1996 and 1995, respectively.
10. ACCRUED CONTRACT COMMITMENTS
Starting in 1994, the Company pursued contracts with state-sponsored health
care purchasing alliances, initially in Florida, and in 1995-1996, in North
Carolina, Kentucky, and Washington. The Company has incurred substantial
expenses in connection with the start-up of these contracts, and, to date,
the alliance business in North Carolina and Florida has been unprofitable.
During the quarter ended December 31, 1994, the Company recorded a pre-tax
charge of approximately $3.6 million related to state-sponsored health care
purchasing alliances in Florida. The Company recorded a pre-tax charge
related to these contracts in the amount of $2.6 million in 1996 resulting
from increased costs and lower than anticipated revenues in Florida and
North Carolina.
The balance of the accrual at December 31, 1996 is approximately $608,000
for Florida and $481,000 for North Carolina. The balance at December 31,
1995 was approximately $482,000 for Florida.
11. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution employee benefit plan established
pursuant to Section 401(k) of the Internal Revenue Code covering
substantially all employees. Through December 31, 1996, the Company matched
up to 50% of the employee contribution limited to 6% of the employee's
salary for its HPSI and Harrington employees, and it matched 50% of the
employee contribution limited to 4% of the employee's salary for its
Consolidated Group employees. Effective January 1, 1997, the Company began
to match one-third of such
F-14
<PAGE> 48
employee contributions limited to 6% of the employee's salary. Under the
provisions of the plan, participants' rights to employer contributions vest
40% after completion of three years of qualified service and increase by
20% for each additional year of qualified service completed thereafter.
Expense in connection with this plan for the years ended December 31, 1996
and 1995 was approximately $884,000 and $339,000, respectively, and for the
period from inception (October 1, 1994) through December 31, 1994 was
approximately $82,000.
POST-RETIREMENT BENEFIT PLAN
Harrington, the Company's wholly owned subsidiary acquired on July 1, 1996,
provides medical and term life insurance benefits to certain retired
employees of its subsidiary, American Benefit Plan Administrators, Inc. The
Company funds the benefit costs on a current basis, and there are no plan
assets. The post-retirement benefit cost incurred since the Company's
acquisition of Harrington is $38,000. At December 31, 1996, an accrued
post-retirement liability of $1.4 million is included in the balance of
other long-term liabilities. Actuarial assumptions used in calculating the
obligation include a discount rate of 7.5% and a health care cost trend
rate of 7% in 1997, 6% in 1998, and 5% in 1999 and thereafter.
MANAGEMENT STOCK
From the period 1994 through January 1995, certain members of management
received 473,000 shares of Common Stock, which carries limitations on
vesting over a four-year period and restrictions regarding the sale of
stock in a public market. Should the employee terminate employment prior to
the completion of the vesting period, the Company will be entitled to
purchase from the executive the number of shares that have not vested at a
purchase price equal to the lower of fair market value or the initial
issuance price. The Company recognizes compensation expense based on the
vesting period of the shares.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company rents office space and equipment under non-cancelable operating
leases. Rental expense under the leases approximated $7.7 million (net of
$422,000 charged to adverse lease accruals) and $4.0 million for the years
ended December 31, 1996 and 1995, respectively, and $932,000 for the period
from inception (October 1, 1994) through December 31, 1994. Future minimum
rental payments under these leases are as follows (in thousands):
<TABLE>
<S> <C>
1997 $10,166
1998 9,107
1999 8,538
2000 6,373
2001 4,962
Thereafter 15,242
-------
$54,388
=======
</TABLE>
LITIGATION
In 1995, a former provider of marketing services for the Company filed a
complaint against the Company claiming wrongful termination of an exclusive
marketing agreement and breach of contract. The parties to the dispute
agreed to binding arbitration, and the arbitration proceedings occurred
during the week of October 29, 1996. The arbitration panel's decision,
rendered in December 1996, is not expected to materially alter the amount
or timing of future payments that the Company is contractually obligated to
make to the plaintiff under the marketing agreement, and this is not
expected to materially affect the cash flows of the Company's business.
Pursuant to the Harrington acquisition agreement (the "Harrington
Agreement"), the Company agreed to use its best efforts to file a
registration statement sufficient to permit the public offering and sale of
the shares of the Company's Common Stock issued to the Harrington
stockholders in the acquisition, with such registration statement to become
effective on or before October 31, 1996. On October 30, 1996, the Company
received a letter from a representative of Harrington's shareholders
stating that the Company was in violation of the Harrington Agreement and
reserving all rights under such Agreement. It is not possible for the
Company to evaluate what, if any, damages might result from such notice. In
November 1996, the Company filed a Form S-3 registration statement with the
Securities and Exchange Commission registering the restricted shares of the
Company's Common Stock held by the former Harrington and Consolidated Group
shareholders. This registration statement became effective on February 14,
1997.
The Company's Consolidated Group subsidiary is undergoing a DOL audit in
which the DOL has raised various questions about the application of ERISA
to the way that subsidiary does business. This audit is ongoing, and there
can be no assurance that the DOL will not take positions that could require
changes to the way this subsidiary operates, or result in the imposition of
administrative fines and penalties.
The Company is involved in various litigation arising in the normal course
of business. In the opinion of the Company's management, although the
outcomes of these claims are uncertain, in the aggregate they are not
likely to have a material adverse effect of the Company's business,
financial condition, or results of operations.
REGULATORY COMPLIANCE
The Company's activities are highly regulated by state and federal
regulatory agencies under requirements that are subject to broad
interpretations. The Company cannot predict the position that may be taken
by these third parties that could require changes to the manner in which
the Company operates.
F-15
<PAGE> 49
13. INCOME TAXES
The (benefit) provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
FOR THE YEAR ENDED FOR THE YEAR ENDED (OCTOBER 1, 1994) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ------------------ ------------------------
<S> <C> <C> <C>
Current
Federal $ 429 $ 3,211 $ 120
State 61 458 15
======= ======= =======
490 3,669 135
======= ======= =======
Deferred
Federal (1,619) 2,116 21
State (231) 311 3
------- ------- -------
(1,850) 2,427 24
======= ======= =======
(Benefit) provision for
income taxes $(1,360) $ 6,096 $ 159
======= ======= =======
</TABLE>
The components of deferred taxes recognized in the accompanying financial
statements are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax asset - current
Accrued expenses not currently deductible $ 4,617 $ 1,120
Prepaid expenses currently deductible (136) (155)
======= =======
$ 4,481 $ 965
======= =======
Deferred tax asset (liability) - non-current
Deferred compensation $ 537 $ -
Post retirement benefits 641 -
Depreciation (657) 80
Intangibles 7,806 (434)
------- -------
$ 8,327 $ (354)
======= =======
</TABLE>
The deferred tax asset resulting from intangibles relates to certain
intangible assets acquired by the Company that are amortizable for tax
purposes and to the tax treatment of the goodwill impairment charge (see
Note 5). A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized. No
valuation allowance is considered necessary at December 31, 1996 and 1995,
based on the Company's expectations of future taxable income.
F-16
<PAGE> 50
The provision for income taxes varies from the federal statutory income tax
rate due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Federal statutory rate applied to pre-tax income (loss) (35.0)% 34.0% 35.0%
State income taxes net of federal tax benefit (5.0)% 5.0% 4.5%
Goodwill amortization 20.1% 0.2% 1.3%
Tax exempt interest income (2.6)% (1.3)% -
Other 5.7% 1.1% -
----- ---- ----
Effective tax rate (16.8)% 39.0% 40.8%
====== ==== ====
</TABLE>
14. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
STOCK OPTION PLANS
The Company's stock option plans authorize the granting of both incentive
and non-incentive stock options for a total of 1,840,000 shares of Common
Stock to key executives, management, consultants, and, with respect to
240,000 shares, to directors. Under the plans, all options have been
granted at prices not less than market value on the date of grant. Certain
non-qualified incentive stock options may be granted at less than market
value. Options generally vest over a four-year period from the date of
grant, with 20% of the options becoming exercisable on the date of the
grant and 20% becoming exercisable on each of the next four anniversaries
of the date of the grant.
A summary of option transactions during each of the two years ended
December 31, 1996 is shown below:
<TABLE>
<CAPTION>
Number Weighted
of Average
Shares Option Price
----------- ----------------
<S> <C> <C>
Under option, December 31, 1994
Granted 545,000 $ 18.11
Exercised - -
-----------
Under option, December 31, 1995
(112,000 exercisable) 545,000 18.11
Granted 922,500 18.75
Exercised (11,400) 14.00
Cancelled (12,600) 19.35
-----------
Under option, December 31, 1996
(278,200 exercisable) 1,443,500 18.54
===========
</TABLE>
There were 372,500 and 795,000 shares available for the granting of
options at December 31, 1996 and 1995, respectively.
The following table summarizes the stock options outstanding at December
31, 1996:
<TABLE>
<CAPTION>
Range Number Weighted Average Weighted
of Outstanding at Remaining Average
Exercise Prices December 31, 1996 Contractual Life Exercise Price
--------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
$14.00 - $18.50 979,500 9 years $16.09
19.38 - 25.50 464,000 9 years 23.72
</TABLE>
F-17
<PAGE> 51
EMPLOYEE STOCK PURCHASE PLAN
Under the 1996 Employee Stock Purchase Plan ("Employee Plan"), the Company
is authorized to issue up to 250,000 shares of common stock to its
employees who have completed one year of service. The Employee Plan is
intended to provide a method whereby employees have an opportunity to
acquire shares of Common Stock of the Company. The Employee Plan was
implemented by consecutive quarterly offerings of the Company's Common
Stock commencing on July 1, 1996.
Under the terms of the Employee Plan, an employee may authorize a payroll
deduction of a specified dollar amount per pay period. The proceeds of that
deduction are used to acquire shares of the Company's Common Stock on the
offering date. The number of shares acquired is determined based on 85% of
the closing price of the Company's Common Stock on the New York Stock
Exchange on the offering date.
During 1996, the Company sold 6,302 shares to employees under the Employee
Plan.
F-18
<PAGE> 52
MEASUREMENT OF FAIR VALUE
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans and employee stock purchase plan.
Accordingly, no compensation cost has been recognized related to these
plans. Had compensation cost for the Company's stock option and employee
stock purchase plans been determined based on the fair value at the grant
dates, as prescribed in SFAS 123, the Company's net income and net income
per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Net (loss) income attributable to
common stock (in thousands):
As reported $ (6,716) $ 9,250
Pro forma (8,596) 8,627
Net income per share:
As reported $ (0.47) $ 0.82
Pro forma (0.60) 0.76
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used
for grants during the applicable year: dividend yield of 0.0% for both
years; expected volatility of 30% for each of the years ended December
31, 1996 and 1995: risk-free interest rates of 6.30% to 6.69% for options
granted during the year ended December 31, 1996 and 5.51% to 7.05% for
options granted during the year ended December 31, 1995; and a weighted
average expected option term of four years for both years.
F-19
<PAGE> 53
15. SUBSEQUENT EVENTS
On February 7, 1997, Noel, Automatic Data Processing, Inc. ("ADP"), and the
Company completed a transaction in which Noel sold to ADP 1,320,000 shares
of the Company's Common Stock at a purchase price of $20 per share. Upon
completion of the transaction, Noel and ADP owned approximately 29% and 9%,
respectively, of the Company's Common Stock. The agreement governing such
purchase generally requires that: (i) ADP may not agree to acquire
additional shares of the Company's Common Stock prior to December 31, 1997,
unless such acquisition is approved by the Company's Board of Directors, or
unless the Company entertains alternative offers; (ii) Noel may not dispose
of its remaining shares of the Company's Common Stock prior to September
30, 1997 other than through a direct distribution to Noel's shareholders,
subject to specified conditions; and (iii) the Company may not take any
action prior to December 31, 1997 that could interfere with
"pooling-of-interests" accounting. On March 19, 1997, Noel's shareholders
approved a plan of liquidation and dissolution. In connection with such
approval, the Company expects to file a Form S-3 Registration Statement
with the Securities and Exchange Commission to register the shares of the
Company's Common Stock held by Noel, after which Noel has announced it
intends to make a distribution of the Company's stock to Noel's
shareholders.
On March 5, 1997, the Company and Health Risk Management, Inc. ("HRM")
mutually agreed to terminate a merger agreement previously entered into on
September 12, 1996. In connection with the termination, the Company
purchased 200,000 shares of HRM common stock, representing approximately
4.5% of HRM shares outstanding, at a price of $12.50 per share. On March
14, 1997, HRM's shares closed at $10.25 per share of common stock. These
shares were not registered and are subject to restrictions on transfer. HRM
provides comprehensive, integrated health care management, information, and
health benefit administration services to employers, insurance companies,
unions, HMOs, PPOs, hospitals, and governmental units in the United States
and Canada.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED; IN THOUSANDS EXCEPT PER
SHARE DATA)
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Revenues $63,963 $67,006 $31,863 $31,007
Net income (5,530) (7,961) 3,441 3,334
Net income per common share $ (0.37) $ (0.53) $ 0.26 $ 0.25
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Year ended December 31, 1995
Revenues $29,361 $24,115 $23,198 $23,576
Net income 2,985 2,623 2,072 1,570
Net income per common share .22 .20 .20 N/A
Net income - pro forma basis 2,985 2,623 2,072 1,855
Pro forma net income per common share $ 0.22 $ 0.20 $ 0.15 $ 0.20
</TABLE>
First quarter earnings per share in 1995 has not been provided, because it
preceded the Company's initial public offering.
F-20
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
Healthcare Informatics Corporation
and
To The Dun & Bradstreet Corporation
We have audited the accompanying statement of financial position of
HealthPlan Services Division (formerly Plan Services Division, a wholly owned
division of The Dun & Bradstreet Corporation) as of September 30, 1994 and the
related statements of income and cash flows for the nine-month period then
ended. These financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthPlan Services Division
as of September 30, 1994 and the results of its operations and its cash flows
for the nine-month period then ended, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, on September 30, 1994,
HealthPlan Services Division was sold to Healthcare Informatics Corporation,
pursuant to a purchase agreement dated September 2, 1994.
Coopers & Lybrand L.L.P.
Tampa, Florida
December 2, 1994
F-21
<PAGE> 55
HEALTHPLAN SERVICES DIVISION
STATEMENT OF FINANCIAL POSITION
September 30, 1994
(in thousands)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 1,255
Accounts receivable 3,252
Prepaid expenses 2,303
-------
Total current assets 6,810
Property and equipment, net 2,715
Computer software, net 1,327
Other intangible assets, net 5,483
Goodwill, net 11,436
Deferred taxes 85
Other assets 28
-------
Total assets $27,884
=======
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Current portion of note payable $ 92
Accounts payable 19,581
Accrued liabilities 3,585
Deferred revenue 1,294
-------
Total current liabilities 24,552
Note payable 1,162
Commitments and contingencies (Notes 9 and 13)
Divisional equity 2,170
-------
Total liabilities and divisional equity $27,884
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 56
HEALTHPLAN SERVICES DIVISION
STATEMENT OF INCOME
Nine-month period ended September 30, 1994
(in thousands)
<TABLE>
<S> <C>
Revenues $81,945
Costs and expenses:
Agents' commissions 33,213
Personnel expenses 24,476
Rent and maintenance 4,106
Postage and communication 3,563
Depreciation and amortization 3,347
Staff reductions and office closings (Note 3) 4,671
Other operating expenses (Note 8) 5,322
-------
78,698
-------
Income before provision for income taxes 3,247
Provision for income taxes 1,500
-------
Net income $ 1,747
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 57
HEALTHPLAN SERVICES DIVISION
STATEMENT OF CASH FLOWS
Nine-month period ended September 30, 1994
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,747
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 3,347
Staff reductions and office closings provisions 4,671
Staff reductions and office closings payments (1,992)
Deferred taxes 2
Accounts receivable 484
Prepaid expenses (269)
Accounts payable (2,312)
Accrued liabilities (892)
Deferred revenue (512)
-------
Net cash provided by operating activities 4,274
-------
Cash flows for investing activities:
Purchase of property and equipment, net (931)
Purchases of and additions to computer software (534)
Acquisitions of other intangible assets
(net of deferred payments) (21)
Other assets 11
-------
Net cash used in investing activities (1,475)
-------
Cash flows for financing activities:
Net amount remitted to The Dun & Bradstreet
Corporation and affiliates (Note 7) (3,602)
Payments on note payable (46)
-------
Net cash used in financing activities (3,648)
-------
Net change in cash (849)
Cash, beginning of period 2,104
-------
Cash, end of period $ 1,255
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 58
HEALTHPLAN SERVICES DIVISION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Organization--HealthPlan Services Division (HSI) (formerly Plan Services
Division, a wholly-owned division of The Dun & Bradstreet Corporation (D&B)), is
engaged in the business of providing distribution and administration services
for group-health-insurance programs throughout the United States.
Basis of Presentation--The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles. On
September 30, 1994, HSI was sold to Healthcare Informatics Corporation, pursuant
to a purchase agreement dated September 2, 1994.
These financial statements present the results of operations for the
nine-month period to September 30, 1994 and financial position at September 30,
1994. Purchase accounting by the acquirer has not been reflected in these
financial statements. Expenses and liabilities which were incurred by HSI in
connection with the sale, which would not otherwise have been incurred, are
reflected in the nine-month period ended September 30, 1994.
See Note 3.
Expense Allocations--D&B provides certain services to, and incurs certain
costs on behalf of its subsidiaries and divisions. These costs, which include
employee benefit and executive compensation programs, retirement savings and
health plans, treasury and business insurance, are allocated to D&B's
subsidiaries, including HSI, on a pro-rata basis. The costs of D&B's general
corporate overheads are not allocated as such costs related to HSI are deemed to
be immaterial. Liabilities related to the benefit plans described above are not
fully reflected in the Statement of Financial Position. As such, these financial
statements may not necessarily be indicative of the financial position or the
results of operations had HSI been operated as an unaffiliated company. However,
management believes that with respect to general and administrative expenses
(see Note 8), the amounts reflected in the Statement of Income are not less than
the amounts HSI would have incurred had HSI been an unaffiliated company in
those periods.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash--Substantially all of the net cash flow of HSI was remitted to D&B
pursuant to a centralized cash management system. The related interest income
which would otherwise have been earned by HSI is not reflected in these
statements. Cash held by D&B has historically resulted in negative working
capital for HSI.
Property and Equipment--Property and equipment are stated at cost, net of
accumulated depreciation computed using the straight-line method over estimated
useful lives of three to ten years. Additions and major renewals are
capitalized. Repairs and maintenance are charged to expense as incurred. Upon
disposal, the related cost and accumulated depreciation are removed from the
accounts, with the resulting gain or loss included in income.
Computer Software--HSI capitalizes the direct expenses of internally
produced software. As of September 30, 1994, capitalized software costs, net of
amortization was (in thousands) $627. Software is generally amortized over three
years. Amortization expense was (in thousands) $184 for the nine months ended
September 30, 1994.
Other Intangible Assets--Other intangible assets represent the costs of
acquiring new blocks of insurance administration business which are deferred and
amortized on an accelerated basis over periods of up to seven years. Amounts
included in the accompanying Statement of Financial Position are net of
accumulated amortization of (in thousands) $3,491 as of September 30, 1994.
Goodwill--Goodwill relates to D&B's original acquisition of HSI and is
being amortized on a straight-line basis over periods of expected benefit, not
exceeding 40 years. Goodwill represents the excess purchase price over the fair
value of identifiable net assets. Amounts included in the accompanying Statement
of Financial Position are net of accumulated amortization of $4,620 (in
thousands) as of September 30, 1994. At the balance sheet date, HSI reviews the
recoverability of goodwill and other intangible assets.
F-25
<PAGE> 59
Revenue Recognition--Revenues consist primarily of fees for services
provided to insurance carriers as a third party administrator. Revenues are
recognized ratably over the applicable contract period, which is generally one
year, and represents the period such services are performed. HSI accounts for
revenues received in advance by deferring such amounts until the related
services are performed. During the nine months ended September 30, 1994, HSI had
three customers that accounted for approximately 27%, 26%, and 11%,
respectively, of revenues.
Agents' Commissions--Agents' commission expense is accrued in the same
period that the related revenues are recognized.
Income Taxes--HSI participates in the consolidated federal income tax
return of D&B. For financial reporting purposes, HSI computes a provision for
income taxes on a separate return basis based on statutory rates in effect.
HSI's current income taxes payable are included in divisional equity in the
accompanying Statement of Financial Position. Effective January 1, 1992 HSI
adopted SFAS No. 109, "Accounting for Income Taxes," applying the provisions of
this statement retroactively to prior years' financial statements.
Postemployment Benefits--Effective January 1, 1993, D&B and HSI adopted
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." HSI accrues
for such costs at the time it is probable that a liability to employees has been
incurred and it can be reasonably estimated. The implementation of this
statement did not have a material impact upon HSI's financial position or
results of operations.
Postretirement Benefits--Effective January 1, 1993, D&B and HSI adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." As a member of D&B's Plan, HSI recognized as net postretirement
benefit cost the required contribution to the plan based upon an allocation and
formula used by D&B. As a participant in D&B's postretirement benefit plan,
amounts related to liabilities to HSI employees existing at the date of adoption
of SFAS No. 106 are not reflected in the accompanying Statement of Financial
Position.
3. STAFF REDUCTIONS AND OFFICE CLOSINGS:
HSI has recorded charges for certain staff reductions and office closings.
In March 1994, HSI closed its Fresno, California processing center and recorded
a charge totaling $1,050,000. Such charge consisted of the following: $355,000
of lease termination costs; $380,000 of severance costs; $175,000 of fixed asset
write-offs; and $140,000 of other office closing costs. On September 30, 1994,
immediately prior to the sale of HSI, as required pursuant to the terms of the
related purchase agreement, HSI terminated 125 employees throughout its Tampa
operations and recorded a severance charge totaling $1,860,000. In addition, HSI
recorded a $1,761,000 charge for severance of two former officers in 1994. All
severance and office closing costs were paid as of September 30, 1994 or assumed
by D&B as part of the sale of HSI.
Subsequent to September 30, 1994, HSI discontinued its contract with The
Centennial Life Insurance Company. The revenues related to Centennial were (in
thousands) $4,680 for the nine months ended September 30, 1994.
F-26
<PAGE> 60
4. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 1994 consists of the following (in
thousands):
<TABLE>
<S> <C>
Computers and equipment $ 13,372
Furniture and fixtures 4,611
Leasehold improvements 3,791
--------
21,774
Accumulated depreciation and amortization (19,059)
--------
Net property and equipment $ 2,715
========
Depreciation expense for the nine months ended September 30, 1994
was (in thousands) $1,284.
5. ACCRUED LIABILITIES:
Accrued liabilities at September 30, 1994 consist of the following (in
thousands):
Accrued salaries and wages $2,315
Deferred payments--other intangible assets 657
Other 613
------
Total accrued liabilities $3,585
======
</TABLE>
6. NOTE PAYABLE:
On May 27, 1993, HSI entered into an agreement with Cal/Group for the
purchase of its claims processing business at a price of $2,000,000. The
purchase price consisted of $500,000 cash paid at closing with the balance in
the form of a note payable of $1,500,000. On March 25, 1994 the original
agreement was modified and the purchase price was reduced by $150,000. This
purchase is collateralized by the claims business. The note payable requires
semi-annual payments of $50,000 to $80,000, including interest at 6%, through
November 2008. Interest paid by the Company was insignificant for the nine
months ended September 30, 1994.
Future minimum principal payments as of September 30, 1994 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1994 (3 months) $ 46
1995 90
1996 97
1997 92
1998 93
Thereafter 836
------
Total $1,254
======
</TABLE>
F-27
<PAGE> 61
7. DIVISIONAL EQUITY:
Divisional equity reflects the historical activity between D&B and HSI. An
analysis of the changes in divisional equity is as follows (in thousands):
<TABLE>
<S> <C>
Balance at beginning of period $ 634
Net income 1,747
Net remittances to D&B (211)
-------
Balance at end of period $ 2,170
=======
</TABLE>
For the nine months ended September 30,1994, net remittances include (in
thousands) $3,391 of non-cash charges related to severance expenses to be paid
by D&B in connection with the purchase agreement. These amounts have been
excluded for purposes of the Statement of Cash Flows. Other non-cash charges and
allocations reflected in net remittances to D&B have not been separately
identified for purposes of the Statement of Cash Flows.
8. OTHER OPERATING EXPENSES:
Other operating expenses for the nine months ended September 30, 1994
consist of the following (in thousands):
<TABLE>
<S> <C>
General and administrative expenses $ 2,188
Professional services 1,488
Insurance, taxes and licenses 451
Travel and entertainment 597
Utilities 384
Advertising and promotion 217
Gain on property and equipment (3)
-------
$5,322
=======
</TABLE>
9. LEASES:
HSI leases certain facilities and equipment under long-term leases which
are accounted for as operating leases.
Future minimum lease payments for long-term operating leases as of
September 30, 1994 are approximately as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1994 (3 months) $ 930
1995 2,780
1996 880
------
Total $4,590
======
</TABLE>
Rent expense for the nine months ended September 30, 1994 was (in
thousands) $3,331.
F-28
<PAGE> 62
10. POSTRETIREMENT AND DEFERRED COMPENSATION PLANS:
HSI's participation in D&B's postretirement medical plan, defined benefit
pension plan and deferred compensation plan terminated as of September 30, 1994.
Prior to September 30, 1994, HSI recognized postretirement benefit costs
based upon an allocation and formula determined by D&B. The amount allocated to
HSI as its share of the total pension costs for the nine months ended September
30, 1994 was (in thousands) $611. The costs allocated to HSI and recognized as
net postretirement benefit costs were not material to HSI's results of
operations for the nine months ended September 30, 1994.
As a participant in D&B's postretirement and deferred compensation plans,
amounts related to liabilities to HSI employees existing at the date of adoption
of new accounting standards for pensions and other postretirement benefits are
not reflected in the accompanying Statement of Financial Position. Amounts due
to D&B relating to HSI's allocated costs under the above plans are included in
divisional equity in the accompanying Statement of Financial Position. The
following information relates to the D&B plans HSI participates in as of
December 31, 1993, the most recent valuation date. Such information is not
available on a separate company or divisional basis.
D&B has defined benefit pension plans covering substantially all associates
in the United States. The benefits to be paid to associates under these plans
are based on years of credited service and average final compensation. Pension
costs are determined actuarially and funded to the extent allowable under the
Internal Revenue Code. Supplemental plans in the United States are maintained to
provide retirement benefits in excess of levels allowed by ERISA.
The status of D&B's U.S. defined benefit pension plans at December 31, 1993
is as follows (millions of dollars):
<TABLE>
<CAPTION>
FUNDED UNFUNDED(1)
------ -----------
1993 1993
---- ----
<S> <C> <C>
Fair value of plan assets $ 1,008.9 $ --
---------- --------
Actuarial present value of benefit obligations:
Vested benefits 708.0 69.1
Non-vested benefits 29.4 7.2
---------- --------
Accumulated benefit obligations 737.4 76.3
Effect of projected future
salary increases 128.1 37.4
---------- --------
Projected benefit obligations 865.5 113.7
---------- --------
Plan assets in excess of (less than)
projected benefit obligations 143.4 (113.7)
Unrecognized net (gain) loss 56.2 38.4
Unrecognized prior service cost 15.4 18.2
Unrecognized net transition (asset)
obligation (93.6) 2.9
Adjustment to recognize minimum
liability -- (22.1)
---------- --------
Prepaid (accrued) pension cost $ 121.4 $ (76.3)
========== ========
</TABLE>
(1) Represents supplemental plans for which grantor trusts (with assets of
$60 million at December 31, 1993) have been established to pay plan
benefits.
The weighted average expected long-term rate of return on pension plan
assets was 9.75% for 1993. At December 31, 1993, the projected benefit
obligations were determined using a weighted average discount rate of 7.25% and
a weighted average rate of increase in future compensation levels of 5.7%. Plan
assets are invested in diversified portfolios that consist primarily of equity
and debt securities.
F-29
<PAGE> 63
In addition to providing pension benefits, D&B provides various medical
benefits for retired associates. Substantially all of D&B's associates in the
United States become eligible for these benefits if they reach normal retirement
age while working for D&B.
Deferred Compensation Plans--HSI also participated in D&B's Profit
Participation Plan and Investment Plan for which substantially all of its
employees were eligible. D&B had also granted stock options to purchase shares
of D&B common stock to certain key employees of HSI. In addition, certain key
employees participated in incentive plans sponsored by D&B the cost of which to
HSI for such plans (in thousands) amounted to $589 for the nine months ended
September 30, 1994.
11. OTHER TRANSACTIONS WITH AFFILIATES:
D&B provides HSI with payroll processing and administration, general
treasury services and various business insurance coverages through policies
issued to D&B. Expenses allocated to HSI for these services, which are included
in the Statement of Income, were (in thousands) $326 for the nine months ended
September 30, 1994. Amounts due to D&B relating to the above activities are
included in divisional equity in the Statement of Financial Position.
HSI provides computer services to an affiliate totaling (in thousands)
$1,312 for the nine months ended September 30, 1994. These amounts are included
in revenues in the Statement of Income.
HSI provides health plan claims administration for D&B, totaling (in
thousands) $1,647 for the nine months ended September 30, 1994. HSI records as
revenues services provided to D&B.
12. FEDERAL INCOME TAXES:
HSI joins in filing a consolidated federal income tax return with D&B and
its affiliates. For financial reporting purposes, HSI computes a provision for
income taxes on a separate-return basis.
The reasons for the difference between HSI's effective income tax rate and
the statutory rate for the nine months ended September 30, 1994 are as
follows (thousands of dollars):
<TABLE>
<S> <C>
Federal income tax calculated at statutory rate
(35% for 1994) $1,136
State income tax, net of federal benefit 220
Goodwill 109
Other 35
------
Income tax provision $1,500
======
</TABLE>
F-30
<PAGE> 64
The income tax provision for the nine months ended September 30, 1994 is
summarized as follows (thousands of dollars):
<TABLE>
<S> <C>
Current:
Federal $1,160
State 338
------
1,498
------
Deferred:
Federal 2
State 0
------
2
------
Income tax provision $1,500
======
</TABLE>
The primary sources of temporary differences that give rise to significant
portions of the deferred tax asset and liability at September 30, 1994 are as
follows (thousands of dollars):
<TABLE>
<S> <C>
Deferred tax assets:
Property and equipment $ 144
Deferred tax liabilities:
Other intangible assets (59)
------
Net deferred tax asset $ 85
======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
HSI is involved in litigation arising during the normal course of its
business. In the opinion of management, the resolution of these matters will not
have a material effect on the financial position or results of operations of
HSI.
F-31
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
HEALTHPLAN SERVICES CORPORATION
(A Delaware Corporation)
(As Amended By The Board of Directors on May 2, 1996)
ARTICLE I
OFFICES
Section l. The registered office of the Corporation in the State of
Delaware shall be in the City of Dover, County of Kent and the name of the
resident agent in charge thereof is National Corporate Research, Ltd.
Section 2. The Corporation may also have offices at such other places,
both within and without the State of Delaware, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section l. All meetings of Stockholders for the election of directors
shall be held at such place within or without the State of Delaware as may be
fixed from time to time by the Board of Directors and stated in the notice of
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of Stockholders shall be held on such date and
at such time as may be fixed from time to time by the Board of Directors and
stated in the notice of meeting or in a duly executed waiver of notice thereof,
at which the Stockholders shall elect, by a plurality vote, a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Special meetings of Stockholders may be held at such time and
place within or without the State of Delaware as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 4. Special meetings of Stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the Chairman of the Board or Chief Executive Officer of the
Corporation, the Board of
<PAGE> 2
Directors or the holders of not less than a majority of all the shares entitled
to vote at the meeting.
Section 5. Written notice of every meeting of Stockholders, stating the
date, time and place where it is to be held and, if the list of Stockholders
required by Article IX, section 7 is not to be at such place at least ten days
prior to the meeting, the place where such list will be, and such other
information as may be required by law shall be given, not less than ten nor
more than sixty days before the meeting, either personally or by mail, upon
each Stockholder entitled to vote at such meeting and upon each Stockholder of
record who, by reason of any action proposed at such meeting, would be entitled
to have his stock appraised if such action were taken. Such notice shall be
deemed given when personally delivered by courier or otherwise or by telephone
or facsimile, or deposited in the mail directed to a Stockholder at his address
as it shall appear on the books of the Corporation unless he shall have filed
with the Secretary of the Corporation a written request that notices intended
for him be mailed to some other address, in which case it shall be mailed to
the address designated in such request. The attendance of any Stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
ARTICLE III
QUORUM AND VOTING OF STOCK
Section l. The holders of a majority of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all meetings of the Stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the Stockholders, the Stockholders present in person or
represented by proxy shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. Notice of the adjourned
meeting shall be given when required by law.
Section 2. If a quorum is present, the affirmative vote of a majority of
the shares of stock represented at the meeting shall be the act of the
Stockholders, unless the vote of a greater or lesser number of shares of stock
is required by law or the certificate of incorporation or pursuant to these
by-laws.
Section 3. Each outstanding share of stock having voting power shall be
entitled to one vote on each matter submitted to a vote at a meeting of
Stockholders. A Stockholder may vote either in person or by proxy executed in
writing by the Stockholder or by his duly authorized attorney-in-fact.
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Section 4. The Board of Directors in advance of any Stockholders' meeting
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
Stockholders' meeting may, and, on the request of any Stockholder entitled to
vote thereat, shall, appoint one or more inspectors. In case any person
appointed as inspector fails to appear or act, the vacancy may be filled by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
Section 5. Whenever Stockholders are required or permitted to take any
action by vote, such action may be taken without a meeting, without prior
notice and without a vote, if a consent in writing setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Notice of taking such action shall be given promptly to
each Stockholder that would have been entitled to vote thereon at a meeting of
Stockholders and that did not consent thereto in writing.
ARTICLE IV
DIRECTORS
Section l. The Board of Directors of the Corporation shall consist
initially of two members. The number of directors constituting the entire
Board may be changed from time to time by resolution adopted by the Board of
Directors or the Stockholders, provided no decrease made in such number shall
shorten the term of any incumbent director.
Section 2. Directors shall be at least eighteen years of age and need not
be residents of the State of Delaware nor Stockholders of the Corporation. The
directors, other than the first Board of Directors, shall be elected at the
annual meeting of the Stockholders and, except as hereinafter provided, each
director elected shall serve until the next succeeding annual meeting of
Stockholders and until his successor shall have been elected and qualified or
their earlier resignation or removal. The first Board of Directors shall hold
office until the first annual meeting of Stockholders or their earlier
resignation or removal.
Section 3. Any or all of the directors may be removed, with or without
cause, at any time by the vote of the Stockholders at a special meeting of
Stockholders called for that purpose. Any director may be removed for cause by
the action of the Directors at a special meeting of the Board of Directors
called for that purpose.
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Section 4. Vacancies and newly created directorships resulting from an
increase in the authorized number of directors may be filled by a majority vote
of the directors in office, although less than a quorum, or by election by the
Stockholders at any meeting thereof. A director elected to fill a vacancy
shall be elected for the unexpired portion of the term of his predecessor in
office. A director elected to fill a newly created directorship shall serve
until the next succeeding annual meeting of Stockholders and until his
successor shall have been elected and qualified or his earlier resignation or
removal.
Section 5. The business affairs of the Corporation shall be managed by
its Board of Directors, which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the
certificate of incorporation or by these by-laws directed or required to be
exercised or done by the Stockholders.
Section 6. The directors may keep the books of the Corporation, except
such as are required by law to be kept within the State, outside the State of
Delaware, at such place or places as they may from time to time determine.
Section 7. The Board of Directors, by the affirmative vote of a majority
of the directors then in office, and irrespective of any personal interest of
any of its members, shall have authority to establish reasonable compensation
of all directors for services to the Corporation as directors, officers or
otherwise.
ARTICLE V
MEETINGS OF THE BOARD OF DIRECTORS
Section l. Meetings of the Board of Directors, regular or special, may be
held either within or without the State of Delaware, at such places as the
Board may from time to time determine.
Section 2. Regular meetings of the Board of Directors may be held without
notice at such time as the Board may from time to time determine. Special
meetings of the Board of Directors may be called by the Chairman of the Board
or Chief Executive Officer on one business day's notice to each director.
Section 3. Notice of a meeting need not be given to any director who
submits a signed waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting prior thereto or at its commencement,
the lack of notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
Section 4. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business unless a greater or lesser number is
required by law or by the
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<PAGE> 5
certificate of incorporation. The vote of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the Board of
Directors, unless the vote of a greater number is required by law or by the
certificate of incorporation. If a quorum shall not be present at any meeting
of directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 5. Any action required or permitted to be taken by the Board of
Directors, or any committee thereof, may be taken without a meeting if all
members of the Board of Directors, or the committee, consent in writing to the
adoption of a resolution authorizing the action. Any such resolution and the
written consents thereto by the members of the Board of Directors or the
committee shall be filed with the minutes of the proceedings of the Board of
Directors or the committee.
Section 6. Any one or more members of the Board of Directors, or any
committee thereof, may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE VI
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1. The Board of Directors, by resolution adopted by a majority of
the entire Board, may designate, from among its members, an Executive Committee
and other committees, each consisting of two or more directors, and each of
which, to the extent provided in the resolution, shall have all the authority
of the Board, except as otherwise required by law. Vacancies in the membership
of a committee shall be filled by the Board of Directors at a regular or
special meeting of the Board of Directors. All committees created by the Board
shall keep regular minutes of their proceedings.
Section 2. If there shall be designated an Executive Committee, such
committee shall have, in addition to all other powers permitted by law the
power and authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger pursuant to Section 253 of
the Delaware Corporation Law.
ARTICLE VII
NOTICES
Section l. Whenever, under the provisions of the certificate of
incorporation or of these by-laws or by law, notice is required to be given to
any director or Stockholder,
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<PAGE> 6
except as otherwise provided in these by-laws, it shall not be construed to
mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or Stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Except as otherwise provided in these by-laws, notice to
directors may also be given by telegram or by any other means hereinabove
provided for the giving of notice of meetings of Stockholders.
Section 2. Whenever any notice of a meeting is required to be given under
the provisions of the certificate of incorporation or these by-laws or by law,
a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE VIII
OFFICERS
Section 1. The officers of the Corporation shall be appointed by the
Board of Directors and shall be a Chairman of the Board, a Chief Executive
Officer, a Treasurer and a Secretary and such other officers as the Board of
Directors shall determine, each of whom shall be elected by the Board of
Directors.
Section 2. Each officer shall hold office from the time of his election
and qualification until the expiration of the term for which he is elected and
shall have such powers and perform such duties as shall be determined from time
to time by the Board of Directors.
Section 4. The officers of the Corporation, unless removed by the Board
of Directors as herein provided, shall hold office until their successors are
elected and qualified. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 5. The Chairman of the Board shall preside at all meetings of the
stockholders and directors at which he is present and shall in addition perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
THE CHIEF EXECUTIVE OFFICER
Section 6. The Chief Executive Officer shall be the chief executive
officer of the Corporation and shall have general charge of the business and
affairs of the Corporation, subject, however, to the right of the Board of
Directors to confer specified powers on officers
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<PAGE> 7
and subject generally to the direction of the Board of Directors. In the
absence of the Chairman, the Chief Executive Officer shall preside at all
meetings of the Stockholders and directors at which he is present and shall
perform such other duties as may from time to time be assigned to him by the
Board of Directors.
THE TREASURER
Section 7. The Treasurer shall have the general care and custody of all
the funds and securities of the Corporation which may come into his hands,
shall deposit the same to the credit of the Corporation in such bank or banks
or depositories as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation and shall pay out and dispose of the same under the
direction of the Board of Directors. The Treasurer shall have general charge
of all the securities of the Corporation and shall in general perform all
duties incident to the position of Treasurer.
THE SECRETARY
Section 8. The Secretary shall keep the minutes of all proceedings of the
Board of Directors and the minutes of all meetings of the Stockholders and,
unless otherwise directed by such committee, the minutes of each standing
committee, in books provided for that purpose, of which he shall be the
custodian. The Secretary shall attend to the giving and serving of all notices
for the Corporation, have charge of the seal of the Corporation, the stock
certificate books and such other books and papers as the Board of Directors may
direct and shall in general perform all the duties incident to the office of
Secretary and such other duties as may be assigned to him by the Board of
Directors.
Section 9. The Board of Directors may designate any other officers of the
Corporation, including one or more Assistant Secretaries and one or more
Assistant Treasurers, who shall exercise the powers and shall perform the
duties incident to their offices, subject to the direction of the Board of
Directors and the Executive Committee, if any.
ARTICLE IX
CERTIFICATE FOR SHARES
Section l. Every holder of shares of stock in the Corporation shall be
entitled to have a certificate certifying the number of shares owned by him in
the Corporation. Each such certificate shall be numbered and entered in the
books of the Corporation as they are issued. They shall exhibit the holder's
name and the number of shares and shall be signed by the Chairman of the Board,
the Chief Executive Officer and by the Secretary or the Treasurer of the
Corporation and may be sealed with the seal of the Corporation or a facsimile
thereof. When the Corporation is authorized to issue shares of more than one
class, there shall be set
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<PAGE> 8
forth upon the face or back of the certificate a statement that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of the designation, relative rights, preferences, and limitations of
the shares of each class authorized to be issued, and, if the Corporation is
authorized to issue any class of preferred shares in series, the designation,
relative rights, preferences and limitations of each such series so far as the
same have been fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other series.
Section 2. The signatures of the officers of the Corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate has been lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the Corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.
TRANSFERS OF SHARES
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto, and the old
certificate canceled and the transaction recorded upon the books of the
Corporation.
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<PAGE> 9
FIXING RECORD DATE
Section 5. For the purpose of determining Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining Stockholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
Board of Directors shall fix, in advance, a date as the record date for any
such determination of Stockholders. Such date shall not be more than sixty nor
less than ten days before the date of any meeting nor more than sixty days
prior to any other action. When a determination of Stockholders of record
entitled to notice of or to vote at any meeting of Stockholders has been made
as provided in this section, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date for the
adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, and shall be entitled to hold liable for
calls and assessments a person registered on its books as the owner, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
LIST OF STOCKHOLDERS
Section 7. A list of Stockholders as of the record date, certified by the
corporate officer responsible for its preparation or by a transfer agent, shall
be produced at any meeting upon the request thereat or prior thereto of any
Stockholder. If the right to vote at any meeting is challenged, the inspectors
of election, or person presiding thereat, shall require such list of
Stockholders to be produced as evidence of the right of the persons challenged
to vote at such meeting and all persons who appear from such list to be
Stockholders entitled to vote thereat may vote at such meeting.
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<PAGE> 10
ARTICLE X
GENERAL PROVISIONS
DIVIDENDS
Section l. Subject to the provisions of the certificate of incorporation
relating thereto, if any, dividends may be declared by the Board of Directors
or the Executive Committee at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in shares of the capital stock or in the
Corporation's bonds or its property, including the shares or bonds of other
Corporations, subject to any provisions of law and of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall deem to be in the best interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
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<PAGE> 11
ARTICLE XI
AMENDMENTS
By-laws adopted by the Board of Directors may be amended or repealed, or
new by-laws may be adopted, by action of the Board of Directors or by majority
vote at any regular or special meeting of Stockholders at which a quorum is
present or represented, provided notice of the proposed alteration, amendment
or repeal shall have been contained in the notice of such meeting.
* * *
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<PAGE> 1
EXHIBIT 10.4(a)
PART I
ADMINISTRATION SERVICES AGREEMENT
THIS AGREEMENT is made as of the first day of November 1989, between
The Travelers Insurance Company, a corporation organized under the laws of the
State of Connecticut (hereinafter referred to as The Travelers), and
Consolidated Group, Inc. Of Framingham, Massachusetts (hereinafter referred to
as The Trust Administrator).
Article I
Purpose
It is the intention of the parties to provide for the terms under
which The Trust Administrator will provide administration services for the
Group policies listed in Schedule A (each policy on that Schedule hereinafter
being referred to as the "Group Policy"), which Schedule is attached to and
forms a part of this Agreement as amended from time to time.
Article II
Consideration
The consideration for this agreement shall be the mutual promises of
the parties contained herein.
Article III
Independent Contractor
The relationship of the Trust Administrator to The Travelers with
respect to administrative services is that of an independent contractor and
nothing in the Agreement will be construed as creating any other relationship.
The Travelers assumes no liability of any nature or kind for personal or
property damages arising out of the Trust Administrator's performance of this
Agreement, except those liabilities expressly assumed under Article X.
Article IV
Duties of the Trust Administrator
A. The Trust Administrator agrees to perform the following services:
1. Process requests for participation in the Trusts.
2. Arrange for the collection and remittance of premiums. (See
Section B below.)
3. Prepare premium reports and other reports as agreed to between
the parties.
4. Maintain all records necessary for the proper administration
of premium collection.
<PAGE> 2
5. Underwrite all employees in accordance with guidelines agreed
to between the parties, but if such agreement cannot be
reached and all possible solutions are exhausted The Travelers
will retain final decision making capacity.
6. Process enrollment of new employees as they become eligible
and maintain employment records.
7. Issue all certificates (See Section C below.)
8. Perform any other general services required for the efficient
marketing and administration of the insurance provided under
the above policies as may be agreed to between the parties.
9. Process appointments so that all agents are properly licensed
for states in which products are sold and that appropriate
contraction material is provided to The Travelers in a timely
fashion.
10. Provide administration services in accordance with legislative
information and interpretation provided by The Travelers.
B. All insurance charges and premiums collected by the Trust
Administrator on behalf of The Travelers and charges and premiums
returned by The Travelers shall be held by The Trustee and/or a
qualified banking institution in a fiduciary capacity. Such funds
shall be immediately remitted to the person or persons entitled
thereto, or shall be deposited promptly in a fiduciary bank account
established and maintained by the Trust Administrator. If the charges
or premiums in account have been collected on behalf more that one
Insurer, The Trust Administrator shall cause the bank to hold The
Traveler's funds in a designated account on behalf of The Travelers.
The Trust Administrator shall promptly obtain and keep copies of all
bank account records and shall furnish The Travelers with copies of
the records which pertain to it upon demand of The Travelers. The
Trust Administrator may not pay any claim by withdrawing money form
its fiduciary account. Withdrawals from such account shall be made
for (1) remittance to The travelers or (2) remittance of charges and
returned premiums to the person or persons entitled thereto or as
payment to the Trust Administrator of compensation for services
rendered. All net premium payments shall be remitted to The Travelers
within 17 days after receipt by the Trustee.
C. Any policies, certificates, booklets, booklet-certificates,
termination notices or other written communications delivered by The
Travelers to The Trust Administrator for delivery to the
Policyholders, Participant Employers or Insureds, shall be delivered
by The Trust administrator promptly after receipt of instructions from
The Travelers to do so.
D. It shall be the duty of The Trust Administrator to maintain fidelity
coverage, including bonding of employees, in a reasonable amount and
by a carrier satisfactory to The Travelers. The Trust Administrator
shall furnish a certificate of insurance naming The Travelers as a
certificateholder. Said policy shall provide that it cannot be
canceled or modified except on ninety (90) days prior written notice
to The Travelers. The actual amount of the such coverage as
determined by The Travelers as of the effective date of this Agreement
shall be subject to change as of each anniversary of this Agreement,
or more frequently if The Travelers deems that there is a significant
change in the total amount of funds handled.
The Trust Administrator shall also maintain an errors and omissions
liability policy in a reasonable amount and by a carrier satisfactory
to The Travelers providing for indemnification of The Travelers to
cover any loss arising as a result of any real or alleged negligence
on the part of
<PAGE> 3
the Trust Administrator, its agents or employees in any aspect of the
performance of the Trust Administrator's duties under this Agreement.
The Trust Administrator shall cause the issuer of said policy to
deliver to The Travelers evidence of the existence of such policy
which provides protection to The Travelers and shall cause the insurer
to give The Travelers ninety (90) days written notice prior to the
cancellation of, or any material change in, the policy. If the
insurance is canceled, substitute coverage shall be obtained.
E. If any notice of the commencement of any legal proceeding involving
any Travelers Insured is received by The Trust Administrator, or if it
receives any communication from any Insurance Department or other
administrative agency or any other person identifying a complaint by a
Travelers Insured or calling a hearing involving any Travelers
insuring practice, The Trust Administrator shall immediately advise
The Travelers Home Office of the proceeding. The Trust Administrator
shall immediately thereafter forward any correspondence or necessary
files to The Travelers Home Office for determination of appropriate
handling.
F. If any notice of the commencement of any legal proceeding involving
The Trust Administrator is received by The Travelers, or the Travelers
receives any communication from any Insurance Department or other
administrative agency or any other person identifying a complaint
against The Trust Administrator or calling a hearing involving The
Trust Administrator, The Travelers shall immediately advise The Trust
Administrator of the proceeding. The Travelers shall immediately
thereafter forward any copies of necessary correspondence or files to
The Trust Administrator.
G. Adequate books and records of all transactions among The Travelers,
The Trust Administrator, Participant Employers and Insured persons
shall be maintained at The Trust Administrator's administrative office
for the duration of the Agreement and 6 years thereafter, or such
period of time as my be required under the Employee Retirement Income
Security Act of 1974. Such books and records shall be maintained in
accordance with prudent standards or insurance record-keeping. All
books and records pertaining to such administrative transactions shall
be maintained by The Travelers at its office in like fashion.
H. The Trust Administrator shall maintain a file containing any written
letters of complaint received by The Trust Administrator from
Travelers Insureds, Policyholders or service providers for a period of
6 years from receipt of the complaint letter, or such period of time
as may be required under the Employee Retirement Income Security Act
of 1974.
I. The Trust Administrator shall conform to the underwriting and other
standards agreed to between the parties, but if such agreement cannot
be reached and all possible solutions are exhausted The Travelers will
retain final decision making capacity. The Trust Administrator may
presume that its underwriting and other standards are acceptable to
The Travelers unless and until written notice is received from The
Travelers.
J. In the conduct of its business and in the performance of its
obligations under this Agreement, the Trust Administrator shall comply
with all applicable statues, ordinances, rules, and regulations of any
and all federal, state, and municipal regulatory authorities. If
required by state law, the Trust Administrator shall hold a
certificate of registration as a Third Party Administrator issued by
the Department of Insurance or other regulatory body and post any bond
required by any such regulatory body.
The Trust Administrator will promptly notify The Travelers of any
complaint filed against The Travelers with a state regulatory body
received by the Trust Administrator which is related to or arises from
any interpretation of the contract by immediately forwarding such
complaint to The
<PAGE> 4
Travelers, One Tower Square, Hartford, CT 06183, Attention: Employee
Benefits Department, Claim Division.
Article V
Standard of Performance
The Trust Administrator represents to The Travelers that it is
experienced in the field of group insurance administration, that it
will perform its obligations as trust administrator hereunder in a
prudent manner and that it will exercise professional standards of
diligence in the performance of its duties thereunder and the
settlement of disputes with insureds concerning the foregoing.
Article VI
Restriction on Performance
A. It is understood and agreed by the parties that all insured's records
are to be processed with due and careful regard for the individual's
rights of confidentiality.
B. The Trust Administrator shall not sub-contract any of the
administrative function, duties or responsibilities as assigned to and
accepted by it in this agreement without prior written approval by The
Travelers, such approval or denial not to be unreasonably delayed or
withheld.
Article VII
Rights
A. With reasonable notice, The Travelers shall have the right to conduct
periodic audits at any time at the office of The Trust Administrator.
The Travelers shall have the right of access to The Trust
Administrator's premises during the normal business hours of The Trust
Administrator's premises for the purpose of conducting periodic
audits. If The Travelers chooses to conduct an audit at its own
offices, The Trust Administrator shall upon request ship all necessary
records (or true copies thereof) to the designated Travelers office,
at the expense of The Travelers.
B. At all times during the term of this contract and following its
termination for any reason, The Travelers shall have access to all
records respecting Travelers Insureds. Subject to the preservation of
records provisions specified under this contract, The Travelers shall,
at its own expense, be entitled to obtain copies of any and all such
records.
Article VIII
Duties of The Travelers
A. The Travelers will provide The Trust Administrator with the following
items:
1. Certain necessary forms for enrolling new employees and
maintaining employee records, including claim forms for those
cases for which The Travelers processes claims.
2. Statistical premium, claim and retention experience
information and analysis, in a manner mutually agreed upon by
the parties.
3. Agent licensing appointment fees.
4. Notice of laws, regulations, and mandates that apply to The
Travelers insureds and instructions for the administration
thereof.
5. Managed care materials including, but not limited to,
preferred provider directories and updates, enrollment
materials, identification cards and promotional materials.
<PAGE> 5
6. Patient Advocate materials.
7. Claim forms for those cases for which The Travelers pays
claims.
8. The Travelers will exercise due diligence in providing 90 days
advance notice of any change in new business rates and 90 days
advance notice of any rate changes for inforce accounts.
Advance notice will include the planned percentage change for
both of these instances.
B. The Travelers will not allow its own distribution to market the
11/1/89 AnchorPlan or Blue Chip plan design except through the Trust
Administrator's AnchorPlan and Blue Chip products.
C. The Travelers shall be responsible for all necessary Insurance
Department Filings, and shall deliver to the Trust Administrator all
required booklet-certificates and endorsement materials.
D. Where there is a conflict between any guide or instructions provided
by The Travelers and this Agreement, the terms of this Agreement shall
control.
E. With prior notice and authorization, The Travelers will allow
descriptions of other products offered by the Trust Administrator
through other carriers to be included in the AnchorPlan , Blue Chip,
and CGT Preferred brochures. The Travelers will have the right to
review these documents prior to printing.
Article IX
Compensation
A. The Trust Administrator shall retain the difference between gross
monthly premiums, (excluding administration fees due the Trust
Administrator) received from Participant Employers and net monthly
premium payments established by The Travelers. Factors used in
determining gross and net monthly premiums shall be agreed to between
the parties but if such agreement cannot be reached and all possible
solutions are exhausted, The Travelers will retain final decision
making authority. Similarly, compensation payable to the Trust
Administrator shall be agreed to between the parties, but if such
agreement cannot be reached and all possible solutions are exhausted,
the Trust Administrator shall retain final decision making authority
with respect to the compensation paid to the Trust Administrator under
the terms of this agreement. Should the Trust Administrator effect a
change in its compensation, The Travelers reserves the right to change
gross monthly premiums coincident with such change in the Trust
Administrator's compensation.
B. The Trust Administrator's office and operational expenses are its sole
responsibility.
Article X
Indemnification
A. The Trust Administrator agrees to indemnify and hold The Travelers
harmless from any and all liability, loss, damage, fines, punitive
damages, penalties and costs, including expenses and attorneys fees,
which result from any gross negligence, criminal, fraudulent, or
willful misconduct in carrying out its responsibilities in accordance
with the standards set forth in this Agreement, or which result from
any action which exceeds its authority under this Agreement.
The Travelers agrees to indemnify and hold the Trust Administrator
harmless from any and all liability, loss, damage, fines, punitive
damages, penalties and costs, including expenses and attorneys fees,
which result from any gross negligence, criminal, fraudulent, or
willful
<PAGE> 6
misconduct in carrying out its responsibilities in accordance with the
standards set forth in this Agreement, or which result from any action
which exceeds its authority under this Agreement.
B. The Travelers will indemnify the Trust Administrator against any and
all loss, damage, liability, judgment, awards and expense, including
court costs and attorneys fees resulting form any act of any officer
or employee of the Trust Administrator which is performed strictly in
accordance with the instructions, manual, or guidelines agreed to by
The Travelers and which is performed in good faith and without willful
misconduct.
C. In the event that the Trust Administrator is named as a defendant in a
suit arising out of the administration of the policy, The Travelers
agrees to defend and hold harmless the Trust Administrator from the
judgment, the costs, and defense expenses of such litigation, provided
that the Trust Administrator was acting strictly in accordance with
the provisions of this Agreement or the instructions manuals, or
guidelines of The Travelers.
Article XI
Use of Information
Any information, including but not limited to data, business
information, technical information, legal information, specifications,
forms, computer programs and documentation, written, oral, or
otherwise (hereinafter "Furnishing Party") to the other party
hereunder or in contemplation hereof shall remain the property of the
Furnishing Party. All copies of such Information in written, graphic,
or other tangible form, including computer systems discs and tapes,
shall be returned to the Furnishing Party upon the termination of this
Agreement, or upon request at any time. Unless such information was
previously known to be free of any obligation to keep it confidential,
or has been or is subsequently made public, it shall be kept
confidential by the party furnished such information, and shall be
used only upon such terms as may be agreed upon in writing by the
Furnishing Party.
Article XII
Amendment
This Agreement may be amended at any item by a writing agreed to and
signed by both parties
Article XIII
Termination
This Agreement shall terminate on the occurrence of any of the
following events:
1. By mutual consent of the parties.
2. Fraud or embezzlement on the part of the Trust Administrator
or negligence or omissions uncorrected after notice.
3. Material breach of this Agreement.
4. Twelve months following written notice of termination given by
either party to this Agreement to the other party. The notice
shall be mailed, by certified mail, to the other party at its
last known address.
B. Should either party become aware of a materiel breach of this
Agreement, that party must notify the breaching party of the breach
and provide thirty (30) days to correct such breach. Should the
breach remain uncured at the end of thirty (30) days, the breaching
party shall have an additional thirty (30) days to correct the breach,
provided a reasonable effort was made during the initial thirty (30)
day period to correct the breach.
<PAGE> 7
C. Either party may terminate this Agreement without cause upon twelve
months' written notice to the other party. Both parties agree to
provide twelve months notice of cancellation of the group policy. The
parties agree that there will be no announcement or disclosure of
cancellation of the group policy or this administration services
agreement until eight months following the date notice of cancellation
has been given.
D. Upon termination of this Agreement, The Travelers shall have access to
all records representing Travelers insureds and The Travelers shall be
entitled to receive copies of any and all such records, as long as the
cost to the Trust Administrator does not exceed $10,000.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in duplicate to be effective as of the date specified above.
THE TRAVELERS LIFE INSURANCE COMPANY CONSOLIDATED GROUP, INC.
BY: /Illegible/ BY: /Timothy T.Clifford/
--------------------------------- -----------------------------
TITLE: /Illegible/ TITLE: Executive Vice President
------------------------------ --------------------------
DATE: Feb 27, 1991 DATE: Feb. 26, 1991
------------------------------- --------------------------
<PAGE> 1
EXHIBIT 10.4(b)
CLAIM ADMINISTRATION AGREEMENT
THIS AGREEMENT made as of November 1, 1989 by and between The
Travelers Insurance Company, a corporation organized under the laws of
the State of Connecticut, and Consolidated Group Claims, Inc., a
corporation organized under the laws of the State of Massachusetts.
WITNESSETH
WHEREAS, The Travelers Insurance Company (hereinafter, "The
Travelers") is the underwriter of the Group Policies listed in
Schedule A (such policies hereinafter referred to as the "Policy"),
which is attached to and forms a part of this Agreement;
WHEREAS, Consolidated Group Claims, Inc., (hereinafter "Claims
Administrator") wishes to act as said claims administrator and to
perform all "administrative services", as are hereinafter described.
NOW THEREFORE, in consideration of these premises, the parties hereto mutually
agree as follows:
SECTION I: INDEPENDENT CONTRACTOR
The relationship of the Claim's Administrator to The travelers with
respect to administrative services is that of an independent
contractor and nothing in this Agreement will be construed as creating
any other relationship. The Travelers assumes no liability of any
nature or kind for personal or property damages arising out of the
Claims Administrator's performance of this Agreement.
SECTION II: OBLIGATIONS OF CLAIMS ADMINISTRATOR
2.1 - Administrative Services
During the term of this Agreement, the Claims Administrator will be
responsible for the expeditious and competent processing of claims
under the Policy. The Claims Administrator shall continue to process
claims on those accounts for which it paid claims prior to November 1,
1989, as well as for all new business written November 1, 1989 or
later. It shall perform services including but not limited to the
following:
(a) receive notices of claims;
(b) verify the eligibility of claimants;
(c) calculate the amount of the benefits payable in accordance
with the Policy;
(d) refer claims for amounts in excess of $40,000 to The Travelers
for review and approval prior to payment, if requested in
writing by The Travelers;
(e) decline non-covered claims;
(f) issue benefit checks;
(g) make determinations to collect any overpayments and implement
the collection of such overpayments;
(h) administer cost containment measures, as approved by The
Travelers, including but not limited to coordination of
benefits;
(i) produce a monthly report showing the number of claims reviewed
for cost containment and the amount of savings produced; and
(j) provide assistance as requested by The Travelers to research
and resolve aged outstanding checks including but not limited
to making inquiries of claimants.
<PAGE> 2
(k) refer requests for review of denied claims which involve the
alleged application of state mandated benefit requirements to
The Travelers for review prior to response.
(l) identify in a fashion acceptable to The Travelers those Claims
Incurred prior to November 1, 1989 as defined by the
Assumption Agreement between The Travelers Insurance Company,
The Hartford Life Insurance Company, and The Hartford Life and
Accident Insurance Company (hereinafter "The Hartford"), which
were processed by the Claims Administrator. Said Assumption
Agreement is attached to and forms a part of this Claims
Administration Agreement.
2.2 - Maintenance of Records and Reporting to The Travelers
a) The Claims Administrator will maintain all claim records for the
period required by the Employee Retirement Income Security Act of
1974, as from time to time amended. All such records will remain the
property of The Travelers and shall be returned to The Travelers
following the termination of this Agreement.
b) The Claims Administrator will submit reports and data on its
activities in a form, medium, and time frame agreed upon by The
Travelers and The Claims Administrator. The reports shall include but
not be limited those details, as specified by The Travelers, of each
check issued, within one (1) week of its issuance.
If The Travelers notifies the Claims Administrator that the report
data is unacceptable, the Claims Administrator will make every effort
to resubmit the data within 24 hours of the notice. If The Travelers
changes its required format for data reporting, the Claims
Administrator will exercise reasonable efforts to comply with such
changes upon notification from The Travelers, provided that such
changes do no result in unreasonable costs. The Claims Administrator
shall also respond to such other request for reports and data as The
Travelers shall reasonably request.
c) Upon reasonable notice The Claims Administrator will permit
representatives of The Travelers to inspect and audit the Claims
Administrator's files, check control procedures, and check stock on
request during normal business hours. The Claims Administrator shall
exercise best efforts to cooperate to the fullest extent in such
audits.
d) Each month, the Claims Administrator will conduct a quality assurance
review, in accordance with the criteria specified by The Travelers,
and prepare a report of the results of the review by the 15th day of
each month. The number of claims reviewed and reported shall be no
less than 10 claims per claims processor assigned to process claims
under this Agreement. The claims reviewed shall represent a normal
cross section of the claims processed.
2.3 - Handling of Checks
a) The Claims Administrator shall make payments for claims using checks
drawn on The Travelers bank account established at the Connecticut
National Bank. The Claims Administrator shall begin using Travelers
checkstock for automated claims on December 1, 1989. The Claims
Administrator shall begin using Travelers checkstock for weekly
indemnity claims on January 1, 1990 and begin using Travelers
checkstock for manually paid medical claims on March 1, 1990. The
Claims Administrator shall designate in writing to The Travelers the
names of those persons authorized to sign the checks and provide
sample signatures. The Claims Administrator shall promptly notify The
Travelers of any changes in the list of persons so designated. The
Claims Administrator shall also notify The Travelers of the names of
those persons responsible for the security of checkstock and the
signature plate, if applicable. The Travelers shall have the right to
<PAGE> 3
approve or, at any time, disapprove persons authorized by the Claims
Administrator to sign checks.
b) The Travelers will be responsible for determining the banking
specifications, printing specifications and instrument numbering.
Check printing and testing will be the responsibility of The
Travelers. However, subject to the approval of The Travelers, the
Claims Administrator may arrange to have the checks printed by another
check printing vendor, at the expense of The Travelers. All checks,
regardless of vendor, shall be tested and approved by The Travelers.
c) The maximum dollar amount of a check for each claim which may be drawn
by the Claims Administrator without review and approval of The
Travelers shall be $40,000. A supervisory level employee of the
Claims Administrator shall review and approve any check in excess of
$10,000. The Claims Administrator shall not draw multiple checks for
the same claim or expense for the purpose of avoiding this limitation.
d) The Claims Administrator shall employ security procedures which meet
with the approval of The Travelers with respect to the handling of
checks and drafts. The Claims Administrator shall immediately report
to The Travelers any loss or destruction of checks or any unauthorized
use of checks.
e) In addition to any bond required by paragraph 2.6, the Claims
Administrator shall maintain fidelity coverage, including bonding of
employees, in a reasonable amount and by a carrier satisfactory to The
Travelers. The Claims Administrator shall furnish a certificate of
insurance naming The Travelers as a certificateholder. Said policy
shall provide that it cannot be canceled or modified except on ninety
(90) days prior written notice to The Travelers as of the effective
date of this Agreement, or more frequently if The Travelers deems that
there is a significant change in the total amount of funds handled.
If the insurance is canceled, substitute coverage shall be obtained.
The Claims Administrator shall also obtain from a company acceptable
to The Travelers, an errors and omissions liability policy in a
reasonable amount and by a carrier satisfactory to The Travelers
providing for indemnification of The Travelers to cover any loss
arising as a result of any real or alleged negligence on the part of
the Claims Administrator, its agents or employees in any aspect of the
performance of the Claims Administrator's duties under this Agreement.
The Claims Administrator shall cause the issuer of said policy to
deliver to The Travelers evidence of the existence of such policy
which provides protection to The Travelers and shall cause the insurer
to give The Travelers ninety (90) days written notice prior to the
cancellation of, or any material change in, the policy. If the
insurance is canceled, substitute coverage shall be obtained.
2.4 - Standard of Performance
The Claims Administrator represents to The Traveler that it is
experienced in the field of claims administration, that it will
perform its obligation as claims administrator hereunder in a prudent
manner and that it will exercise professional standards of diligence
in the determination of the proper benefits payable thereunder and the
settlement of disputes with insureds concerning the foregoing.
2.5 - Indemnification
a) The Claims Administrator agrees to indemnify and hold The Travelers
harmless from any and all liability, loss, damage, fines, punitive
damages, penalties and costs, including expenses and attorneys fees,
which result from any gross negligence, or criminal, fraudulent, or
willful misconduct in carrying out its responsibilities in accordance
with the standard set forth in this Agreement, or which result from
any action which exceeds its authority under this Agreement.
<PAGE> 4
The Travelers agrees to indemnify and hold the Claims Administrator
harmless from any and all liability, loss, damage, fines, punitive
damages, penalties and costs, including expenses and attorneys fees,
which result from any gross negligence, or criminal, fraudulent, or
willful misconduct in carrying out its responsibilities in accordance
with the standard set forth in this Agreement, or which result from
any action which exceeds its authority under this Agreement.
b) The Travelers will indemnify the Claims Administrator against any and
all loss, damage, liability, judgment, awards and expense, including
court costs and attorneys fees resulting from any act of any officer
or employee of the Claims Administrator which is performed strictly in
accordance with the instructions, manuals or guidelines furnished or
agreed to by The Travelers and which is performed in good faith and
without willful misconduct.
c) In the event that the Claims Administrator is named as a defendant in
a suit arising out of the administration of the Policy, The Travelers
agrees to defend and hold harmless the Claims Administrator form the
judgment, the costs, and the defense expenses of such litigation,
provided that the Claims Administrator was acting strictly in
accordance with the provisions of this Agreement or the instructions,
manuals, or guidelines of The Travelers.
2.6 - Regulatory Authorities
In the conduct of its business and in the performance of its
obligations under this Agreement, the Claims Administrator shall
comply with all applicable statutes, ordinances, rules, and
regulations of any and all federal, state, and municipal regulatory
authorities. If required by state law, the Claims Administrator shall
hold a certificate of registration as a Third Party Administrator
issued by the Department of Insurance or other regulatory body and
post any bond required by any such regulatory body.
The Claims Administrator will promptly notify The Travelers of any
complaint filed against The Travelers with a state regulatory body
received by the Claims Administrator which is related to or arises
from any interpretation of the contract by immediately forwarding such
complaint to The Travelers, One Tower Square, Hartford, CT 06183,
Attention: Employee Benefits Department, Claim Division.
SECTION III - OBLIGATIONS OF THE TRAVELERS
3.1 - Services
The Travelers shall make available to the Claims Administrator such
services of its underwriting and medical departments as shall jointly
be deemed necessary or advisable in connection with the performance of
the Claims Administrator's services hereunder. The Travelers agrees
to provide the Claim Administrator claim and compliance support, in a
format agreeable to the parties. The Claims Administrator may presume
that its claim payment practices are acceptable to The Travelers
unless and until written notice is received from The Travelers. Upon
such written notice, the Claims Administrator shall adhere to claim
payment practices which are acceptable to The Travelers.
The Travelers will send to the Claim Administrator copies of all claim
correspondence which shall be necessary for the Claims Administrator
to perform its obligations under this Agreement, and which have been
sent to Travelers Claims offices.
The Claims Administrator will refer all claims which contain evidence
of misrepresentation which may be grounds for rescission of coverage
to The Travelers. Such information shall be accompanied by
appropriate documentation. The Travelers shall have sole authority to
exercise
<PAGE> 5
any and all rescission rights under the Policy, and shall be
responsible for notification of rescissions to the claimants and the
Claims Administrator.
The Travelers will be responsible for the cost of the claim form used
for claims paid by The Travelers claim office. The Travelers is also
responsible for the cost of its own claim check stock.
The Travelers will be responsible for the cost of the Patient Advocate
Program or any substitute used at the direction of The Travelers in
its stead.
3.2 - Notices and Correspondence
The Travelers will promptly, on days on which it is open for business,
forward to the Claims Administrator all notices of claims and other
relevant correspondence from policyholders which The Travelers may
receive during the term of this Agreement.
3.3 Claim Reports
The Travelers shall produce claim reports based upon data relating to
claim transactions obtained by direct feed from the Claims
Administrator as provided in paragraph 2.2 of this Agreement.
3.4 - Compensation
The Travelers agrees to pay the Claims Administrator in accordance
with the terms specified in Schedule C, which is attached to and forms
a part of this Agreement.
SECTION IV - CONFIDENTIAL INFORMATION AND CONFLICTS OF INTEREST
The Claims Administrator warrants and represents that no trade secrets
or other confidential information of The Travelers, will be wrongfully
disclosed by the Claims Administrator in connection with any of the
services which are to be provided under this Agreement. The Claims
Administrator further warrants and represents that none of the
provisions of this Agreement, nor the services which will be performed
by the Claims Administrator contravene or conflict with any agreement
of the Claims Administrator with, or obligation to, any other person,
firm, or corporation, including agreements, disclosure agreements or
agreements for assignment of inventions, discoveries, or ideas of
improvement.
All records and other material pertaining to claims made under the
Policy, as provided by this Agreement, shall be held by the Claims
Administrator in strict confidence, and, except as may be authorized
by the claimant in writing, the Claims Administrator shall not
disclose to any person (other than The Travelers) such confidential
information at any time, either during the term of this Agreement or
thereafter.
The provisions of this section shall survive any termination or
expiration of this Agreement.
SECTION V - OWNERSHIP OF MATERIALS
Except for any software ownership rights created prior to this
Agreement, any computer software produced by the Claims Administrator
in connection with the performance of its services hereunder, shall be
the sole property of the Claims Administrator and shall remain the
property of the Claims Administrator following the termination of this
Agreement. The Travelers shall have access, by direct feed from the
Claims Administrator, to all data relating to claim
<PAGE> 6
transactions which may be stored on the software; this right of access
shall survive the termination or expiration of this Agreement. All
materials and records furnished by The Travelers to the Claims
Administrator are to be and remain the sole property of The Travelers
and are to be returned to The Travelers within ninety (90) days after
the termination or expiration of this Agreement.
SECTION VI - ASSIGNMENT
This Agreement may not be assigned by either party hereto without the
express written consent of the other party. Any such approval shall
not be unreasonably withheld. Any assignee will be bound by the terms
of this Agreement.
SECTION VII - TERMINATION
This Agreement shall terminate on the occurrence of any of the
following events:
(a) By mutual consent of the parties.
(b) Twelve (12) months following written notice of
termination given by any party to this Agreement to
all other parties. The notice shall be mailed, by
certified mail, to the other parties at their last
known address.
(c) Fraud or embezzlement on the part of the Claims
Administrator, its agents or servants or negligence
or omissions uncorrected after notice.
(d) Material breach of this Agreement.
Either party may terminate this Agreement without cause upon twelve
(12) months written notice to the other party. Both parties agree to
provide twelve (12) months notice of cancellation of the group policy.
The parties agree there will be no announcement or disclosure of
cancellation of the group policy until 8 months following the date
notice of cancellation has been given.
Should either party become aware of a material breach of this
Agreement, that party must notify the breaching party of the breach
and provide thirty (30) days to correct such breach. Should the
breach remain uncured at the end of the thirty (30) days, the
breaching party shall have an additional thirty (30) days to correct
the breach, provided a reasonable effort was made during the initial
thirty (30) day period to correct the breach.
Upon termination or expiration of this Agreement, The Travelers shall
have access to all records representing Travelers insureds and The
Travelers shall be entitled to receive copies of any and all such
records, as long as the cost to the Trust Administrator does not
exceed $10,000.
SECTION VIII - ENTIRE AGREEMENT; MODIFICATION
This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof and supersedes all prior
agreements, whether oral or in writing, with respect to such subject
matter. This Agreement may not be amended except pursuant to an
agreement in writing signed by both parties.
SECTION IX - INTERPRETATION AND CONSTRUCTION
This Agreement will be governed by, and construed in accordance with,
the laws of the State of Connecticut. The title designations of the
numbered sections are for convenience only and will not affect the
interpretation or construction of it.
<PAGE> 7
SECTION X - USE OF INFORMATION
Any information, including but not limited to, data, business
information, technical information, forms, computer programs and
documentation, written, oral or otherwise (hereinafter "Information")
owned and furnished by either party (hereinafter "Furnishing Party")
to the other party hereunder or in contemplation hereof shall remain
the property of the Furnishing Party. All copies of such Information
in written, graphic, or other tangible form, including computer system
discs and tapes, shall be returned to the Furnishing Party upon the
termination of this Agreement, or upon request at anytime, or shall be
otherwise disposed of as directed by the Furnishing Party. Unless
such Information was previously known to be free of any obligation to
keep it confidential by the party furnished such Information, and
shall be used only upon such terms as may be agreed upon in writing by
the Furnishing Party.
<PAGE> 8
IN WITNESS THEREOF, the parties hereto have signed this Agreement as of the
date first above written.
THE TRAVELERS INSURANCE COMPANY
Date Feb. 27, 1991 By /Illegible/
---------------------------- ----------------------------------
(Claims Administrator)
----------------------------------
Date Feb. 27, 1991 By Arthur T. Schultz
---------------------------- ----------------------------------
<PAGE> 9
SCHEDULE C
TO
AGREEMENT
BETWEEN
CONSOLIDATED GROUP CLAIMS, INC.
And
THE TRAVELERS INSURANCE COMPANY
Compensation shall be paid to the Claims Administrator for the
performance of duties under this Agreement in the amount of 3.5% of
net paid premium. Such compensation shall not be returned to The
Travelers should premiums be returned to participating employers as a
result of any rescission action
<PAGE> 10
SCHEDULE A
----------
POLICIES
--------
<TABLE>
<S> <C> <C>
1-4 LIVES 5-14 LIVES KEMPER TAKOVER NON-NY
- --------- ---------- ---------------------
GL-D-15760-15766 GL-F15760-15766 GL-22736-22742
GRH-D-15760-15766 GRH-F-15760-15766 GRH-22736-22742
1-14 LIVES 15-99 LIVES 10-35 LIVES
- ---------- ----------- -----------
ADD-6120-6126 GL-L-15760-15766 GL-E-15760-15766
GRH-L-15760-15766 GRH-E-15760-15766
ADD-L-6120-6126
TEXAS OHIO ANCHORPLAN
- ----- ---- ----------
GL-TX-19874-19880 GL-15961-15989 GL-19874-19880
GRH-TX019874019880 GRH-15961-15989 GRH-19874-19880
ADD-TX-6127-6133 ADD-6134-6162 ADD-6127-6133
GL-32238 - 32266
GRH-32238 - 32266
KEMPER TAKEOVER-NY HARTFORD LIFE FLORIDA
- ------------------ ------------- -------
GRH-14653-14659 GL-14484-14490 GL-23027-23052
GRH-14484-14490 GRH-23027-23052
ADD-6227-6252
NEW YORK ILLINOIS, INDIANA, MICHIGAN, WISCONSIN
- -------- --------------------------------------
GL -204039-204045 GL-32231 - 32237
GRH-204039-204045 GRH-32231 -32237
</TABLE>
<PAGE> 11
AMENDMENT NO. 2
The Terms and Conditions of the License Agreement for the Practice
Review System, effective August 1, 1991 by and between Value Health
Services, Inc., and The Travelers Insurance Company, as amended. (The
"Agreement") is hereby further amended as follows:
Section 2.1 of the Agreement shall be amended by adding after the
first sentence the following:
"In addition, VHS hereby grants to Consolidated Group Claims,
Inc. Of 15 Pleasant Street Connector, Framingham, Massachusetts
("C.G.C.") a non-exclusive, non-transferable license to use the system
solely to process information related to Traveler's business. No
other rights are granted hereby and C.G.C. shall have no access to the
source code. C.G.C. agrees that its use of the system shall be
subject to the terms and conditions of the Agreement including, but
not limited to, the confidentiality provisions.
This document shall be referred to as Amendment No. 2. The
terms of the Agreement, the Amendment signed April of 1992 and this
Amendment No. 2 shall be construed so as to be consistent with one
another. In the event of a conflict, this Amendment No. 2 shall
control with respect to the subject matter hereof. All provision of
the Agreement remain in full force and effect.
VALUE HEALTH SERVICES THE TRAVELERS INSURANCE COMPANY
NAME: /Illegible/ NAME: Unsigned
------------------------------ --------------------------------
TITLE: TITLE:
----------------------------- -------------------------------
DATE: DATE:
------------------------------ --------------------------------
CONSOLIDATED GROUP CLAIMS, INC.
NAME: /Arthur T. Schultz/
------------------------------
TITLE: President
-----------------------------
DATE: 5/3/93
------------------------------
<PAGE> 1
EXHIBIT 10.6
HEALTHPLAN SERVICES CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
As adopted
June 15, 1996
<PAGE> 2
As adopted
June 15, 1996
HEALTHPLAN SERVICES CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I DEFINITIONS
(a) "Agreement" 1
(b) "Board" 1
(c) "Code" 1
(d) "Committee" 1
(e) "Company" 1
(f) "Director" 1
(g) "Employee" 1
(h) "Employer" 1
(i) "Fair Market Value" 1
(j) "Insider" 2
(k) "ISO" 2
(l) "1934 Act" 2
(m) "Option" 2
(n) "Optionee" 2
(o) "Option Price" 2
(p) "Parent" 2
(q) "Plan" 2
(r) "Purchasable" 2
(s) "Reload Option" 2
(t) "Stock" 3
(u) "Stock Option Agreement" 3
(v) "Subsidiary" 3
ARTICLE II THE PLAN 3
Section 2.l Name 3
Section 2.2 Purpose 3
Section 2.3 Effective Date 3
Section 2.4 Termination Date 3
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III ELIGIBILITY 4
ARTICLE IV ADMINISTRATION 4
Section 4.1 Duties and Powers of the Committee 4
Section 4.2 Interpretation; Rules 4
Section 4.3 No Liability 4
Section 4.4 Majority Rule 4
Section 4.5 Company Assistance 5
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN 5
Section 5.1 Limitations 5
Section 5.2 Antidilution 5
ARTICLE VI OPTIONS 6
Section 6.1 Types of Options Granted 6
Section 6.2 Option Grant and Agreement 6
Section 6.3 $100,000 Limitation 7
Section 6.4 Option Price 7
Section 6.5 Exercise Period 7
Section 6.6 Option Exercise 7
Section 6.7 Nontransferability of Option 8
Section 6.8 Termination of Employment 8
Section 6.9 Employment Rights 8
Section 6.10 Certain Successor Options 9
ARTICLE VII CONDITIONS TO ISSUING STOCK 9
ARTICLE VIII TERMINATION, AMENDMENT AND
MODIFICATION OF PLAN 10
ARTICLE IX MISCELLANEOUS 10
Section 9.1 Replacement Grants 10
Section 9.2 Forfeiture for Competition 10
Section 9.3 Plan Binding on Successors 10
Section 9.4 Gender 10
Section 9.5 Headings No Part of Plan 10
</TABLE>
-ii-
<PAGE> 4
HEALTHPLAN SERVICES CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Agreement" shall mean an agreement between the
company and an Optionee pursuant to which the terms and conditions of any
Options granted to such Optionee are specified.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the United States Internal Revenue
Code of 1986, as amended, including effective date and transition rules
(whether or not codified). Any reference herein to a specific section or
sections of the Code or any rules or regulations promulgated thereunder shall
be deemed to include a reference to any corresponding provision of future law
or rule or regulation.
(d) "Committee" shall mean the Executive Committee of the
Board, or a committee of Directors appointed from time to time by the Board,
having the duties and authority set forth herein in addition to any other
authority granted by the Board.
(e) "Company" shall mean HealthPlan Services Corporation,
a Delaware corporation, and any successor to it.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any employee of the Company or
any Subsidiary of the Company.
(h) "Employer" shall mean the corporation that employs an
Optionee.
(i) "Fair Market Value" of the shares of Stock on any
date shall mean:
(1) the closing or last sale price on the principal
securities exchange on which the shares of Stock
are traded or, if there is no such sale on the
relevant date, then on the last previous day on
which a sale was reported, or
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<PAGE> 5
(2) if there is no price as specified in (1), the
amount determined in good faith by the Committee
or the Board based on such relevant facts, which
may include opinions of independent experts, as
may be available to the Committee or the Board.
(j) "Insider" shall mean an individual who is, on the
relevant date, an officer, director or ten percent (10%) beneficial owner of
any class of the Company's equity securities that is registered pursuant to
Section 12 of the 1934 Act, all as defined under Section 16 of the 1934 Act.
(k) "ISO" shall mean an Option that complies with and is
subject to the terms, limitations and conditions of Code Section 422 and any
regulations promulgated with respect thereto.
(l) "1934 Act" shall mean the Securities Exchange Act of
1934, as the same may be amended from time to time.
(m) "Option" shall mean a contractual right to purchase
Stock granted pursuant to the provisions of Article VI hereof.
(n) "Optionee" shall mean a person to whom an Option has
been granted hereunder.
(o) "Option Price" shall mean the price at which an
Optionee may purchase a share of Stock pursuant to an Option.
(p) "Parent" shall mean any corporation (other than the
corporation with respect to which the determination is being made) in an
unbroken chain of corporations ending with the corporation with respect to
which the determination is being made if, at the time of the grant (or
modification) of the Option, each of the corporations other than the
corporation with respect to which the determination is being made owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(q) "Plan" shall mean the HealthPlan Services Corporation
1996 Employee Stock Option Plan as set forth herein, as amended from time to
time.
(r) "Purchasable," when used to describe Stock, shall
refer to Stock that may be purchased by an Optionee under the terms of this
Plan and the applicable Stock Option Agreement.
(s) "Reload Option" shall mean an Option that is granted,
without further action of the Committee or the Board; (i) to an Optionee who
surrenders or authorizes the
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<PAGE> 6
withholding of shares of Stock in payment of amounts specified in paragraphs
6.6(c) or 6.6(d) hereof, (ii) for the same number of shares as is so paid,
(iii) as of the date of such payment and at an Option Price equal to the Fair
Market Value of the Stock on such date, and (iv) otherwise on the same terms
and conditions as the Option whose exercise has occasioned such payment,
subject to such contingencies, conditions or other terms as the Committee shall
specify at the time such exercised Option is granted.
(t) "Stock" shall mean the $0.01 par value common stock
of the Company or, in the event that the outstanding shares of such stock are
hereafter changed into or exchanged for shares of a different class of stock or
securities of the Company or some other corporation, such other stock or
securities.
(u) "Stock Option Agreement" shall mean an agreement
between the Company and an Optionee setting forth the terms of an Option.
(v) "Subsidiary" shall mean any corporation (other than
the corporation with respect to which the determination is being made) in an
unbroken chain of corporations beginning with the corporation with respect to
which the determination is being made if, at the time of the grant (or
modification) of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
ARTICLE II
THE PLAN
2.l NAME. This plan shall be known as the "HealthPlan Services
Corporation 1996 Employee Stock Option Plan."
2.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Company, its shareholders, and any Subsidiary of the Company, by offering
certain Employees an opportunity to acquire or increase their proprietary
interests in the Company by granting such persons Options. These grants will
promote the growth and profitability of the Company, and any Subsidiary of the
Company, because Optionees will be provided with an additional incentive to
achieve the Company's objectives through participation in its success and
growth.
2.3 EFFECTIVE DATE. The Plan shall become effective on June 15, 1996.
2.4 TERMINATION DATE. No further Options shall be granted hereunder
on or after June 15, 2006, but all Options granted prior to that time shall
remain in effect in accordance with their terms.
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<PAGE> 7
ARTICLE III
ELIGIBILITY
The persons eligible to participate in this Plan shall consist only of
Employees who are not Insiders whose participation the Committee or the Board
determines is in the best interests of the Company.
ARTICLE IV
ADMINISTRATION
4.1 DUTIES AND POWERS OF THE COMMITTEE. The Plan shall be
administered by the Committee or the Board. The Committee or Board shall keep
minutes of its meetings and shall make such rules and regulations for the
conduct of its business as it may deem necessary. The Committee or Board shall
have the power to act by unanimous written consent in lieu of a meeting, and
shall have the right to meet telephonically. In administering the Plan, the
Committee's or the Board's actions and determinations shall be binding on all
interested parties. The Committee or the Board shall have the power to grant
Options in accordance with the provisions of the Plan. Subject to the
provisions of the Plan, the Committee or the Board shall have the discretion
and authority to determine those individuals to whom Options will be granted,
the number of shares of Stock subject to each Option, such other matters as are
specified herein, and any other terms and conditions of the Agreement
applicable thereto. To the extent not inconsistent with the provisions of the
Plan, the Committee or the Board shall have the authority to amend or modify an
outstanding Agreement relative to an Option, or to waive any provision
thereof, provided that the Optionee consents to such action.
4.2 INTERPRETATION; RULES. Subject to the express provisions of
the Plan, the Committee or Board also shall have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the details and provisions of each Agreement, and
to make all other determinations necessary or advisable in the administration
of the Plan, including, without limitation, the amending or altering of any
Options granted hereunder as may be required to comply with or to conform to
any federal, state or local laws or regulations.
4.3 NO LIABILITY. Neither any member of the Board nor any member
of the Committee shall be liable to any person for any act or determination
made in good faith with respect to the Plan or any Option granted hereunder.
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<PAGE> 8
4.4 MAJORITY RULE. To the extent consistent with applicable law
and the Certificate of Incorporation and Bylaws of the Company, a majority of
the members of the Committee shall constitute a quorum, and any action taken by
a majority at a meeting at which a quorum is present, or any action taken
without a meeting evidenced by a writing executed by all the members of the
Committee, shall constitute the action of the Committee.
4.5 COMPANY ASSISTANCE. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 LIMITATIONS. Subject to any antidilution adjustment pursuant to
the provisions of Section 5.2 hereof, the maximum number of shares of Stock
that may be issued and sold hereunder shall be 500,000 shares. Shares subject
to an Option may be either authorized and unissued shares or shares issued and
later acquired by the Company; provided, however, that shares of Stock with
respect to which an Option has been exercised shall not again be available for
issuance hereunder. The shares covered by any unexercised portion of an Option
that has terminated for any reason may again be granted under this Plan, and
such shares shall not be considered as having been optioned or issued in
computing the number of shares of Stock remaining available for grant
hereunder.
5.2 ANTIDILUTION.
(a) In the event that the outstanding shares of Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, stock
split or stock dividend, or in the event that any spin-off, spin-out or other
distribution of assets materially affects the price of the Company's stock:
(i) The aggregate number and kind of shares of
Stock for which Options may be granted
hereunder shall be adjusted proportionately
by the Committee or the Board; and
(ii) The rights of Optionees (concerning the
number of shares subject to Options and the
Option Price) under outstanding Options shall
be adjusted proportionately by the Committee
or the Board.
(b) If the Company shall be a party to any reorganization
in which it does not
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<PAGE> 9
survive, involving merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company, the Committee or the Board, in its
discretion, may:
(i) declare that all Options granted under the
Plan shall become exercisable immediately
notwithstanding the provisions of the
respective Agreements regarding
exercisability or vesting, and that all such
Options shall terminate 30 days after the
Committee gives written notice of the
immediate right to exercise all such Options
and of the decision to terminate all Options
not exercised within such 30-day period; or
(ii) notify all Optionees that all Options granted
under the Plan shall be assumed by the
successor corporation or substituted with
Options Stock issued by such successor
corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in paragraph 5.2(b), the provisions
of such paragraph shall apply. In all other instances, the adoption of a plan
of dissolution or liquidation of the Company shall cause every Option
outstanding under the Plan to terminate to the extent not exercised prior to
the adoption of the plan of dissolution or liquidation by the shareholders,
provided that the Committee or the Board in its discretion may declare all
Options granted under the Plan to be exercisable at any time on or before the
fifth business day following such adoption notwithstanding the provisions of
the respective Agreements regarding exercisability. The Committee's or Board's
actions under this provision and the Optionee's exercise of Options under this
provision shall be subject, however, to the limitations set forth in Article VI
hereof.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee or the Board, and any such adjustment may
provide for the elimination of fractional share interests. The adjustments
required under this Article V shall apply to any successors of the Company and
shall be made regardless of the number or type of successive events requiring
such adjustments.
ARTICLE VI
OPTIONS
6.1 TYPES OF OPTIONS GRANTED. Within the limitations provided
herein, Options may be granted to one Employee at one or several times or to
different Employees at the same time or at different times, in either case
under different terms and conditions, as long as the terms and conditions of
each Option are consistent with the provisions of the Plan. Without limitation
of the foregoing, Options may be granted subject to conditions based on the
financial performance of the Company or any other factor the Committee deems
relevant.
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<PAGE> 10
6.2 OPTION GRANT AND AGREEMENT. Each Option granted or modified
hereunder shall be evidenced (a) by either minutes of a meeting or a written
consent of the Committee or the Board, and (b) by a written Stock Option
Agreement executed by the Company and the Optionee. The terms of the Option,
including the Option's duration, time or times of exercise, exercise price,
whether the Option is intended to be an ISO, and whether the Option is to be
accompanied by the right to receive a Reload Option, shall be stated in the
Stock Option Agreement. Separate Stock Option Agreements shall be used for
Options intended to be ISO's and those not so intended.
6.3 $100,000 LIMITATION. Except as provided below, the Committee
shall not grant an ISO to, or modify the exercise provisions of outstanding
ISO's held by, any person who, at the time the ISO is granted (or modified),
would thereby receive or hold any incentive stock options (as described in Code
section 422) of the Employer and any Parent or Subsidiary of the Employer, such
that the aggregate Fair Market Value (determined as of the respective dates of
grant or modification of each option) of the stock with respect to which such
incentive stock options are exercisable for the first time during any calendar
year is in excess of $100,000; provided, that the foregoing restriction on
modification of outstanding ISO's shall not preclude the Committee from
modifying an outstanding ISO if, as a result of such modification and with the
consent of the Optionee, such Option no longer constitutes an ISO; and provided
that, if the $100,000 limitation described in this Section 6.3 is exceeded, an
Option that otherwise qualifies as an ISO shall be treated as an ISO up to the
limitation and the excess shall be treated as an Option not qualifying as an
ISO. The preceding sentence shall be applied by taking options intended to be
ISO's into account in the order in which they were granted.
6.4 OPTION PRICE. The Option Price under each Option shall be
determined by the Committee or the Board. However, the Option Price shall not
be less the Fair Market Value of the Stock on the date that the Option is
granted (or, in the case of an ISO that is subsequently modified, on the date
of such modification).
6.5 EXERCISE PERIOD. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option intended to be an ISO shall provide that
such Option shall not be exercisable after the expiration of ten years from the
date of grant (or modification) of the Option.
6.6 OPTION EXERCISE.
(a) Unless otherwise provided in the Stock Option Agreement,
an Option may be exercised at any time or from time to time during the term of
the Option as to any or all whole shares that have become Purchasable under the
provisions of the Option, but not at any time as to less than 100 shares unless
the remaining shares that have become so Purchasable are less than 100 shares.
The Committee shall have the authority to prescribe in any Stock Option
Agreement that the Option may be exercised only in accordance with a vesting
schedule during the term of the Option.
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<PAGE> 11
(b) An Option shall be exercised by (i) delivery to the
Treasurer of the Company at its principal office of written notice of exercise
with respect to a specified number of shares of Stock, and (ii) payment to the
Company at that office of the full amount of the Option Price for such number
of shares.
(c) The Option Price shall be paid in full upon the exercise
of the Option; provided, however, that the Committee may provide in a Stock
Option Agreement that, in lieu of cash, all or any portion of the Option Price
may be paid by tendering to the Company shares of Stock duly endorsed for
transfer and owned by the Optionee, to be credited against the Option Price at
the Fair Market Value of such shares on the date of exercise (however, no
fractional shares may be so transferred, and the Company shall not be obligated
to make any cash payments in consideration of any excess of the aggregate Fair
Market Value of shares transferred over the aggregate option price).
(d) In addition to and at the time of payment of the Option
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state and local income, employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations, together
with additional taxes not exceeding the actual additional taxes to be owed by
the Optionee as a result of such exercise, may, upon the irrevocable election
of the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and timing of any such election
as the Committee may from time to time determine to be necessary or appropriate
to satisfy the conditions of the exemption set forth in Rule 16b-3 under the
1934 Act.
(e) The holder of an Option shall not have any of the rights
of a stockholder with respect to the shares of Stock subject to the Option
until such shares have been issued and transferred to him upon the exercise of
the Option.
6.7 NONTRANSFERABILITY OF OPTION. No Option or any rights therein
shall be transferable by an Optionee otherwise than by will or the laws of
descent and distribution. During the lifetime of an Optionee, an Option
granted to that Optionee shall be exercisable only by such Optionee (or by such
Optionee's guardian or other legal representative, should one be appointed).
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<PAGE> 12
6.8 TERMINATION OF EMPLOYMENT. The Committee or the Board shall
have the power to specify, with respect to the Options granted to any
particular Optionee, the effect upon such Optionee's right to exercise an
Option of the termination of such Optionee's employment under various
circumstances, including but not limited to the death or disability of the
employee which effect may include immediate or deferred termination of such
Optionee's rights under an Option, or acceleration of the date at which an
Option may be exercised in full.
6.9 EMPLOYMENT RIGHTS. Options granted under the Plan shall not
be affected by any change of employment so long as the Optionee continues to be
an Employee. Nothing in the Plan or in any Stock Option Agreement shall confer
on any person any right to continue in the employ of the Company or any
Subsidiary of the Company, or shall interfere in any way with the right of the
Company or any such Subsidiary to terminate such person's employment at any
time.
6.10 CERTAIN SUCCESSOR OPTIONS. To the extent not inconsistent with
the terms, limitations and conditions of Code section 422, and any regulations
promulgated with respect thereto, an option issued in respect of an Option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 425(a).
ARTICLE VII
CONDITIONS TO ISSUING STOCK
The Company shall not be required to issue or deliver any shares of
Stock purchased upon the full or partial exercise of any Option granted
hereunder until all of the following conditions are fulfilled:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other
qualification of such shares that the Company shall determine to be necessary
or advisable under any federal or state law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, or the Company's determination that an exemption is available from such
registration or qualification;
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the Company shall determine to be
necessary or advisable; and
(d) The lapse of such reasonable period of time following
exercise as shall be appropriate for reasons of administrative convenience.
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<PAGE> 13
Unless the shares of Stock covered by the Plan shall be the subject of
an effective registration statement under the Securities Act of 1933, as
amended, stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant
to applicable federal and state securities laws.
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<PAGE> 14
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, (i) cause the Committee to cease granting
Options, (ii) terminate the Plan, or (iii) in any respect amend or modify the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
the Board amends the Plan) may not amend the Plan to change or modify the class
of persons that may participate in the Plan.
No termination, amendment or modification of the Plan shall affect
adversely the rights of an Optionee under any outstanding Option without the
consent of the Optionee or his or her legal representative.
ARTICLE IX
MISCELLANEOUS
9.1 REPLACEMENT GRANTS. At the sole discretion of the Committee,
an Optionee may be given an election to surrender an Option in exchange for a
new Option.
9.2 FORFEITURE FOR COMPETITION. If an Optionee provides services
to a person or entity that the Committee or Board reasonably determines to be a
competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent or otherwise, such
services being of a nature that can reasonably be expected to involve the
skills and experience used or developed by the Optionee while an Employee, then
that Optionee's rights under any Options outstanding hereunder shall be
forfeited and terminated, subject to a determination to the contrary by the
Committee or the Board.
9.3 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon
the successors of the Company.
9.4 GENDER. Whenever used herein, the masculine pronoun shall
include the feminine gender.
9.5 HEADINGS NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference, and do not constitute a part
of the Plan.
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<PAGE> 1
EXHIBIT 10.14(d)
AMENDED, CONSOLIDATED AND RESTATED LEASE
Consolidated Group Service Company
Limited Partnership, Landlord
and
Consolidated Group, Inc., Tenant
Dated as of January 1, 1987
<PAGE> 2
AMENDED, CONSOLIDATED AND RESTATED LEASE
This Amended, Consolidated and Restated Lease is made and entered into
as of the first day of January 1987, by and between Consolidated Group Service
Company Limited Partnership, a Massachusetts Limited Partnership (hereinafter
called "Landlord") and Consolidated Group, Inc., a Massachusetts corporation
(hereinafter called "Tenant").
Reference is made to a Lease between Landlord and Tenant dated June
15, 1983, as amended, relating to floors 1- 3 of the Consolidated Group
Building, Pleasant Street Connector, Framingham, MA.
FURTHER REFERENCE is made to a lease between Landlord and Tenant dated
March 15, 1984, as amended, relating to the fourth floor of the Consolidated
Group Building, Pleasant Street Connector, Framingham, MA.
FURTHER REFERENCE is made to a lease between Landlord and Tenant which
Term Commencement Date is July 1, 1985, as amended, relating to the fifth floor
of the consolidated Group Building, Pleasant Street Connector, Framingham, MA.
FURTHER REFERENCE is made to Landlord and Tenant's desire to amend the
Annual Fixed Rent Rate and to Consolidate the aforementioned leases into one
lease relating to the entire five floors of the consolidated Group Building,
Pleasant Street Connector, Framingham, MA (the "Lease").
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, receipt of which is
hereby acknowledged, the aforementioned leases, as amended, are hereby further
amended and consolidated into one Lease which is restated in full as follows:
<PAGE> 3
LEASE
CONSOLIDATED GROUP BUILDING
Table of contents by Article and Section
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. Reference Data
1.1 Subjects Referred To 6
1.2 List of Exhibits 7
II.
Premises and Term
2.1 Premises 8
2.2 Common Facilities 8
2.3 Landlord's Reservations 9
2.4 Term 9
2.5 Tenant's Option to Renew 9
III. Construction
3.1 Initial Construction 12
3.2 Preparation of Premises for Occupancy 14
3.3 Tenant Changes and Additions 15
3.4 General Provisions Applicable to
Construction 17
3.5 Construction Representatives 18
IV. Rent
4.1 Fixed Rent 18
4.2 "Triple Net" Provisions 19
4.2.1 Tenant's Share of Taxes, Assessments
and Insurance 19
4.2.1.1 Real Estate Taxes 19
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
4.2.1.2 Betterment Assessments 21
4.2.1.3 Tax Fund Payments 23
4.2.1.4 Insurance 24
4.2.2 Tenant's Operating Expense Obligations 28
4.2.2.1 Janitorial Service, Including Rubbish
Removal and Pest Control 29
4.2.2.2 Landscaping and Snow Removal 30
4.2.2.3 Maintenance 30
4.2.3 Utilities 30
4.3 Lot 31
4.4 Accounting 31
4.5 Payment of Additional Rent 31
V. Landlord's Covenants
5.1 Landlord's Covenants 32
5.2 Interruptions 33
VI. Tenant's Covenants
6.1.1 Fixed Annual Rent 35
6.1.2 Repairs and Yielding Up 35
6.1.3 Occupancy and Use 35
6.1.4 Rules and Regulations 36
6.1.5 Safety Appliances 36
6.1.6 Assignment and Subletting 37
6.1.7 Indemnity 38
6.1.8 Tenant's Liability Insurance 38
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
6.1.9 Tenant's Workmen's Compensation
Insurance 39
6.1.10 Landlord's Right of Entry 39
6.1.11 Loading 39
6.1.12 Tenant's Property 40
6.1.13 Labor or Materialmen's Liens 40
6.1.14 Attorney's Fees 40
VII. Casualty and Taking
7.1. Casualty and Taking 41
7.2 Reservation of Award 43
VIII. Rights of Mortgagee
8.1 Subordination 44
8.2 Entry Other than For Foreclosure 45
8.3 Entry for Foreclosure 46
8.4 No Prepayment 46
8.5 No Release or Termination 47
8.6 Mortgagee's Election 47
8.7 No Modification, Etc. 48
8.8 Continuing Offer 48
8.9 Implementation 49
IX. Defaults
9.1 Events of Default 49
9.2 Tenant's Obligations After Termination 52
9.3 Landlord's Default 55
X. Miscellaneous
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
10.1 Measurement 55
10.2 Titles 56
10.3 Notice of Lease 56
10.4 Consent 56
10.5 Notice 56
10.6 Bind and Inure 57
10.7 No Surrender 57
10.8 No Waiver, Etc. 57
10.9 No Accord and Satisfaction 58
10.10 Cumulative Remedies 59
10.11 Partial Invalidity 59
10.12 Landlord's Right to Cure Tenant's Default 59
10.13 Estoppel Certificate 60
10.14 Waiver of Subrogation 61
10.15 Brokerage 62
10.16 Security Deposit 62
10.17 IDT Lease 62
XI. Arbitration 64
</TABLE>
<PAGE> 7
LEASE
CONSOLIDATED GROUP BUILDING
Article I
REFERENCE DATA
1.1 Subjects referred to:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
Landlord: Consolidated Group Service Company Limited
Partnership, a Massachusetts Limited Partnership
Address of Landlord: 20 Speen Street
Framingham, MA 01701
Building: The office building situated on Pleasant Street Connector,
Framingham and Southborough, Massachusetts, upon the Lot (the "Lot") more
particularly described on Exhibit E attached hereto.
Tenant: Consolidated Group, Inc.
Address of Tenant: Consolidated Group Building
Pleasant Street Connector
Framing, Massachusetts 01701
Total Rentable Floor Area of Floors 1-4; 71,580 square feet.
Total Rentable Floor Area of the Fifth Floor: 21,011 square feet
Total Rentable Floor Area of the Building: 92,591 square feet.
Tenant's Space: Floors 1 through 5; 89,822 square feet total.
Term: From the Scheduled Term Commencement Date for the applicable Tenant
Space until the earlier of (i) February 27, 1989 of (ii) the earlier
termination of the Lease (the "Initial Term") with four (4) successive five (5)
year extension options, but only if exercised for all five (5) floors.
Annual Fixed Rent Rate: Floors 1-5: $1,549, 429.44 @ $17.25 per square foot.1
Base Year for Calculating Landlord's Operating Expenses: 1985
- -----------------------------
1 This number includes a $3.60 per square foot increase, effective as of
the date of this Lease.
<PAGE> 8
Permitted Uses: General office use
Public Liability Insurance Limits:
Bodily Injury: $3,000,0000 each person;
$5,000,000 each accident.
Property Damage: $1,000,000 each accident
Broker: None
Assignment to Affiliates permitted without prior written consent (see Section
6.1.6)
1.2 Exhibits
The exhibits listed below in this section are incorporated in the
Lease by reference and are to be construed as part of this Lease:
Exhibit A - Site Plan and Plan Showing Tenant's Space.
Exhibit B - Memorandum of work and installations to be initially performed and
furnished in the Premises.
Exhibit C - Landlord's Services.
Exhibit D - Rules and Regulations.
Exhibit E - Description of Lot.
<PAGE> 9
ARTICLE II
PREMISES AND TERM
2.1 Premises
Landlord hereby leases to Tenant, subject to and with the benefit of
the provisions of this Lease, Tenant's Space in the Building on the Lot
referred to in Section 4.3 below and described in Exhibit A, excluding exterior
faces of exterior walls, the common stairways, stairwells, elevators and
elevator wells, and pipes, ducts, conduits, wires and appurtenant fixtures
serving exclusively or in common other parts of the Building, and if Tenant's
Space includes less than the entire rentable area of any floor, excluding the
central core area of such floor. Tenant's Space, with said exclusions, is
hereinafter sometimes referred to as "the Premises".
2.2 Common Facilities
Tenant shall have, as appurtenant to the Premises, rights to use in
common with others now or hereafter entitled thereto, subject to reasonable
rules of general applicability to tenants of the Building from time to time
made by landlord of which Tenant is given notice: (a) the common facilities of
the Building and Lot including common walkways, driveways, lobbies, hallways,
ramps, stairways, elevators, loading platform, and the parking area; (b) the
common pipes, ducts, conduits, wires and appurtenant equipment serving the
Premises; and (c) if the Premises include less than the entire rentable area of
any floor, the common toilets and other common facilities in the central core
area of such floor.
2.3 Landlord's Reservations
Landlord reserves the right from time to time without unreasonable
interference with Tenant' use: (a) to install, repair, replace, use, maintain
and relocate for service to the Premises and to other parts of the Building,
pipes, ducts, conduits, wires and appurtenant fixtures wherever located in the
Building, and (b) to alter or relocate any other common facility, provided that
the substitutions are substantially equivalent or better. Installations,
replacements and relocations referred to in this Section 2.3 shall be located
as far as practicable in the central core area, above ceiling surfaces, below
floor surface or within the perimeter walls of the Premises.
2.4 Term
To have and to hold for a period commencing with the Scheduled Term
Commencement Date, and continuing for the Term unless sooner terminated as
provided in Section 3.2 or 7.1 or in Article IX, or unless renewed pursuant to
Section 2.5
<PAGE> 10
2.5 Option to Extend
Tenant shall have the option, to be exercised as hereinafter provided,
to extend the term of this Lease for four (4) successive periods of five (5)
years each following the expiration of the Initial Term (each of such periods
being hereinafter referred to as an "Extension Term"), upon the condition that
there is no then existing default in the performance of any condition of this
Lease as to which a notice of default has been given to the Tenant. If Tenant
is in default at such time but Tenant commences diligently to correct the
default within the applicable cure period and thereafter diligently pursues
such correction to completion within the applicable cure period, then Tenant
shall not be deemed to be in default for the purpose of this Section 2.5. If
Tenant does not correct such default as provided above, Tenant's exercise of
this option shall be deemed void. Each Extension Term shall be upon the same
terms and conditions as provided in this Lease, except for the Annual Fixed
Rent which shall be the fair market rent determined as provided herein. As
used in this Section, the terms "fair market rent," "fair market rental" or
"fair market rental value" shall mean the market rent for comparable
first-class suburban office buildings in the Framingham area (but it shall be
neither the highest nor the lowest market rent for such properties) less
standard expenses for such properties for the items which Tenant is obligated
to pay hereunder (notwithstanding the fact that Tenant may choose to spend more
or less than the standard amount for such items).
Landlord shall provide Tenant with written notice of Landlord's good
faith determination of the fair market rent as of the commencement date of the
applicable Extension Term at least fifteen (15) months prior to the expiration
of the Initial Term ("Landlord's Rental Notice"). If Tenant gives Landlord
written notice that it rejects such determination ("Tenant's Rental Rejection
Notice") within sixty (60) days of the giving of the Landlord's Rental Notice,
then the Annual Fixed Rent for such Extension Term shall be determined by two
(2) appraisers who are members of the American Institute of Real Estate
Appraisers, one to be appointed by each of the parties within fourteen (14)
days of Landlord's receipt of Tenant's Rental Rejection Notice, with the cost
thereof to be paid by the appointing party. If such appraisers cannot agree on
the Annual Rent within forty-five (45) days of their appointment, they shall
within ten (10) days after the expiration of such 45-day period select a third
member of the American Institute of Real Estate Appraisers, and the cost
thereof shall be shared equally by Landlord and Tenant. A written declaration
as to the Annual Rent signed by any two of the appraisers so chosen shall be
final and binding on the parties hereto (such Annual rent shall be the average
of the closest two appraisals). This declaration shall be given within ninety
(90) days of Tenant's Rental Rejection Notice. If Tenant does not give
Tenant's Rejection Notice as provided above, then the Annual Fixed Rent as set
forth in Landlord's Rental Notice shall be final and binding on the parties
hereto.
<PAGE> 11
ARTICLE III
CONSTRUCTION
3.1 Initial Construction
Tenant shall, on or before Tenant's Basic Approval Date, submit such
information as may be required for preparation of preliminary plans and
specifications for Tenant's Space, and , on or before Tenant's Final Plan
Delivery Date, shall deliver to Landlord for approval complete sets of
construction drawings and specifications prepared by a registered architect or
engineer, sufficient for contract bidding and work completion, showing: (a)
the locations desired for partitions, doors, electrical switches, outlets,
lighting fixtures, and floor tile and paint colors selected so far as same are
to be provided by the Landlord pursuant to the plan or Tenant's space
referenced in Exhibit A, and (b) any changes or additions required by Tenant in
the partitioning, flooring, ceiling and wall coverings, wall openings,
electric, plumbing, heating, air-conditioning and ventilating systems and in
other facilities for Tenant's Space specified in Exhibits A and B.
Architectural and engineering services required for preparation of such
construction drawings and specifications and any changes therein shall be
performed by Landlord's architect and engineer and the costs thereof paid by
Tenant to the extent they exceed the allowances as provided in Exhibit B. All
of Tenant's changes and additions and installation of furnishings shall be
coordinated with any work being performed by Landlord and in such manner as to
maintain harmonious labor relations and not damage the Building or Lot or
interfere with Building operations. Except for installation of furnishings,
all such work shall be performed by Landlord's general contractor and the costs
thereof paid by the Tenant as provided in Exhibit B. Landlord will not
approve: (a) any alterations or additions requiring unusual expense to
readapt the Premises in the Building to normal office use on lease termination
or increasing the cost of construction, insurance or taxes on the Building or
of Landlord's services called for by Section 5.1 unless Tenant first gives
assurances acceptable to Landlord for payment of such increased cost and that
such readaptation will be made prior to such termination without expense to
Landlord, or (b) any alterations or additions which will delay completion of
the premises or the Buildings or result in a net credit to Tenant under the
provisions of Exhibit B attached to this Lease. All changes and additions
shall be part of the Building except such items as by writing at the time of
approval the parties agree shall be removed by Tenant on termination of this
Lease, or Landlord agrees that Tenant may then elect to remove or leave.
Notwithstanding the foregoing, the construction drawings and
specifications with respect to the Plan A Space shall be prepared by landlord's
architect and engineer and the cost thereof paid by Landlord.
<PAGE> 12
3.2 Preparation of Premises for Occupancy
Landlord agrees to use reasonable efforts to have the Premises ready
for occupancy on or before the Scheduled Term Commencement Date which shall,
however, be extended for a period equal to that of any delays due to
governmental regulations, unusual scarcity of or inability to obtain labor,
equipment or materials, labor difficulties, casualty or other causes reasonably
beyond Landlord's control. The Premises shall be deemed ready for occupancy on
the later of : (a) the date estimated for such readiness in a notice delivered
to Tenant at least fifteen (15) days before such date; (b) the date on which
(i) the Premises, together with the common facilities for access and service
thereto, have been completed, except for items of work and mechanical
adjustment of equipment and fixtures which because of season or weather or
nature of the item cannot practically be done at the time and are not necessary
to make the Premises reasonably tenantable for the Permitted Uses, or are not
completed due to delays caused by requests made by Tenant for further
alterations or additions after Tenant's approval of construction drawings and
specifications and (ii) there has been delivered to Tenant a registered
architect's or engineer's certificate to such completion.
Landlord shall complete as soon as conditions practically permit all
items and work excepted under clause (b) above and Tenant shall not use the
premises in such manner as to increase the cost of completion. Landlord shall
permit Tenant access for installing equipment and furnishings in the Premises
prior to the Term when it can be done without material interference with
remaining work.
If Landlord permits Tenant to occupy the premises for the Permitted
Uses prior to the date on which the Premises would otherwise be deemed ready
for occupancy pursuant to this Section 3.2 and the Tenant does so occupy the
Premises prior to such date, the Premises shall be deemed ready for occupancy
on the date Tenant's occupancy of the Premises for the Permitted Uses
commences.
3.3 Tenant Changes and Additions
Tenant may, from time to time after commencement of the Term, make
changes and additions to the Premises in accordance with plans and
specifications therefor first approved by Landlord, which Landlord will not
approve if they will require unusual expense to readapt the Premises to normal
office use on lease termination or will increase the cost of insurance or taxes
on the Building or of Landlord's services called for by Section 5.1, unless
Tenant first gives assurances acceptable to Landlord for payment of such
increased cost and that such readaptation will be made prior to such
termination without expense to Landlord. All such changes and additions shall
be part of the Building except Tenant's business equipment, business
furnishings and other special items relating to Tenant's business. Such other
special items include only those items which the parties agree in writing at
the time of approval shall be removed by Tenant on termination of the Lease, or
which Landlord agrees that Tenant may elect to remove or leave, provided that
the Building is not damaged by removal nor reduced below the then
<PAGE> 13
building standard. All of Tenant's changes and additions and installation of
furnishings shall be coordinated with any work being performed by Landlord and
in such manner as to maintain harmonious labor relations and not to damage the
Building or Lot or interfere with Building operation and, except for
installation of furnishings, shall be performed by Landlord's general
contractor or contractors or workmen first approved by Landlord. Except for
work by Landlord's general contractor, Tenant before its work is started shall
secure all licenses and permits necessary therefor; deliver to Landlord a
statement of the names of all its contractors and subcontractors and the
estimated cost of all labor and material to be furnished by them; cause each
contractor to carry workmen's compensation insurance in statutory amounts
covering all of the contractor's and subcontract's employees, comprehensive
public liability insurance with such limits in no event less than $300,000 for
each person and $500,000 for each accident, and property damage insurance With
limits of not less than $100,000 (all such insurance to be written insuring
Landlord and Tenant as well as the contractors); and to deliver to Landlord
certificates of all such insurance. Tenant agrees to pay promptly when due the
entire cost of any work done on the Premises by Tenant, its agent, employees,
or independent contractors, and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to attach to the
Premises. Tenant agrees immediately to discharge any such liens which may so
attach.
3.4 General Provisions Applicable to Construction
All construction work required or permitted by this Lease, whether by
landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building. Either party
may inspect the work of the other at reasonable times, and shall promptly give
notice of observed defects. Landlord's obligations under Section 3.1 shall be
deemed to have been performed when Tenant commences to occupy the Premises for
the Permitted Uses except for latent defects or for items which are incomplete
or do not conform with the requirements of Section 3.1 as to which Tenant shall
in either case have given notice to Landlord within 60 days after such
commencement. With respect to heating, ventilation and air conditioning, the
60-day period shall begin with the commencement of the respective heating or
air conditioning season. If Tenant shall nor have commenced to occupy the
Premises for the Permitted Uses within 30 days after they are deemed ready for
occupancy as provided in Section 3.2, a certification of completion by a
licensed architect or registered engineer shall be conclusive evidence that
Landlord has performed all such obligations except for items stated in such
certificate to be incomplete or not in conformity with such requirements.
3.5 Construction Representatives
Each party authorizes the other to rely in connection with the
original design and construction upon approval and other actions on the party's
behalf by any Construction Representative of the party named in Article I above
or any person hereafter designated in substitution or addition by notice to the
party relying.
<PAGE> 14
ARTICLE IV
RENT
4.1 Fixed Rent
Tenant agrees to pay, without any offset or deduction whatever except
as made in accordance with the provisions of this Lease, fixed rent to Landlord
at the Annual Fixed Rent Rate, in equal installments of 1/12th of the Annual
Fixed Rent Rate in advance on the first day of each calendar month included in
the Term; and for any portion of a calendar month at the beginning or end of
the Term, at that rate payable in advance for such portion.
4.2 "Triple Net" Provisions
In order that this Lease be net to Landlord, Tenant covenants and
agrees as follows:
4.2.1 Tenant's Share of Taxes, Assessments and Insurance
To pay to Landlord, as Additional Rent, 100% of all real estate taxes,
betterment assessments, and insurance costs with respect to the Building as
provided in this Section 4.2.1.
4.2.1.1 Real Estate Taxes
Tenant shall pay to Landlord all taxes levied or assessed by, or
becoming payable to, the municipality or any governmental authority having
jurisdiction of the Premises, for or in respect of the Premises, allocated as
aforesaid, or which may become a lien on the Premises, for each tax period
wholly included in the Initial Term and, if exercised, the Extension Terms, all
such payments to be made within ten (10) days after Tenant receives Landlord's
notice of Tenant's Share; provided that for any fraction of a tax period
included in the Initial Term or, if exercises, the Extension Terms at the
beginning or end thereof, Tenant shall pay to Landlord the fraction of taxes so
levied or assessed or becoming payable which is allocable to such included
period, which payment shall be due within ten (10) days after receipt of
invoice therefor, but, with respect to a payment on account of a fraction of a
tax period at the beginning of the Initial Term, such payment shall not be due
prior to ten (10) days before such payment may be made without interest or
penalty. Any payment based upon an estimate shall be adjusted as soon as the
amount of such payment becomes final. If Tenant shall deem itself aggrieved by
any such tax or charge and shall elect to contest the payment thereof, Tenant
may make such payment under protest or it postponement of such payment does not
jeopardize Landlord's title to the Premises, Tenant may postpone the same
provided that it shall secure such payment and the interest and penalties
thereon by causing to be delivered to Landlord cash or other adequate security
in form and amount reasonably
<PAGE> 15
satisfactory to Landlord, which amount shall not be greater than one hundred
and twenty-five per cent (125%) of the unpaid balance of the contested tax or
charge. Either party paying tax shall be entitled to recover, receive and
retain for its own benefit all abatements and refunds of such tax, unless it
has previously been reimbursed by the other party. Neither party shall
discontinue any abatement proceedings begun by it without first giving the
other party written notice of its intent so to do and reasonable opportunity to
be substituted in such proceedings. Nothing contained in this Lease shall,
however, require Tenant to pay any franchise, corporate, estate, inheritance,
succession, capital levy or transfer tax of Landlord, or any income, profits or
revenue tax or charge upon the rent payable by Tenant under this Lease.
Landlord hereby authorizes Tenant to pick up bills for such taxes
directly from the taxing authority so long as Tenant is the tenant of the
entire Premises and Tenant shall promptly deliver a copy thereof to Landlord.
Landlord agrees to cooperate with Tenant in this regard pursuant to Tenant's
reasonable requests.
4.2.1.2 Betterment Assessments
Tenant shall pay to Landlord Tenant's Share of each installment of any
public, special or betterment assessment levied or assessed by or becoming
payable to any municipality or other governmental authority having jurisdiction
of the Premises, for or in respect of the Premises for each installment period
partially or wholly included in the Initial Term and, if exercised, the
Extension Terms, all such payments to be made not less than ten (10) days prior
to the last date on which the same may be made without interest or penalty;
provided that for any fraction of an installment period included in the Initial
Term and Extension Terms, if exercised, at the beginning or end thereof, Tenant
shall pay to Landlord the fraction of such installment allocable to such
included period, which payment shall be due within ten (10) days after receipt
of invoice therefor, but, with respect to a payment on account of a fraction of
an installment period at the beginning of the Initial Term, such payment shall
not be due prior to ten (10) days before such payment may be made without
interest or penalty. Landlord shall elect to pay any such assessment in
installments over the longest period permitted by law; provided that if such
longest period is not at least (20) years, then Tenant shall only be obligated
to pay Tenant's Share based upon one twentieth of such assessment for each year
of the Term, beginning with the date the assessment is levied (unless the
improvement which is the basis for the assessment has a useful life of less
than twenty (20) years) and Landlord shall be obligated to pay any difference.
Tenant may prosecute appropriate proceedings to contest the validity or amount
of any assessment with respect to which Tenant is required to make payments as
hereinbefore provided, such proceedings to be conducted jointly with any other
parties, including Landlord, who have contributed to the payment of such
assessments, and Tenant agrees to save Landlord harmless from all reasonable
costs and reasonable expenses to the extent incurred on account of Tenant's
participation in such proceedings. Landlord shall cooperate with Tenant with
respect to such proceedings so far as reasonably necessary. Landlord shall
promptly furnish to Tenant a copy of any notice of any public, special or
betterment assessment received by landlord
<PAGE> 16
concerning the Premises. Upon execution of the Lease, Landlord shall notify
Tenant of the amount of any current or anticipated betterment assessment of
which Landlord has notice.
4.2.1.3 Tax Fund Payments
If any holder of a first mortgage on the Premises requires Landlord to
make tax fund payments to it, Tenant shall as Additional Rent, on the first day
of each month of the applicable Term, pay Tenant's Share of tax fund payments
to Landlord. "Tax fund payments" refer to such payments as such mortgagee
shall reasonably determine to be sufficient to provide in the aggregate a fund
adequate to pay all taxes and assessments referred to in subsections 4.2.1.1
and 4.2.1.2 of this Section 4.2.1 when they become due and payable, and all
such payments shall to the extent thereof relieve Tenant of its obligations
under said subsections. If the aggregate of said Tenant's Share of tax fund
payments is not adequate to pay all said taxes and assessments, Tenant shall
pay to Landlord the amount by which such aggregate of Tenant's Share is less
than the amount equal to Tenant's Share of all said taxes and assessments, such
payment to be made on or before the later of (a) ten (10) days after receipt by
Tenant of written notice from Landlord of such amount, or (b) the 30th day
prior to the last day on which such taxes and assessments may be paid without
interest or penalty. If Tenant shall have made the aforesaid payments,
Landlord shall on or before the last day on which the same may be paid without
interest or penalty, pay to the proper authority charged with collection
thereof all taxes and assessments referred to in said subsections 4.2.1.1 and
4.2.1.2 and furnish Tenant, upon request, reasonable evidence of such payment.
Any balance remaining after such payment by Landlord shall be accounted for to
Tenant annually (or more frequently, if appropriate) by crediting the same to
such payments next becoming due from Tenant. In addition, at the expiration of
the Term, Landlord shall make an equitable adjustment to Tenant on account of
Tenant's Share of tax fund payments, provided that if Tenant is in default,
Landlord may apply such amounts to amounts due Landlord under the Lease. All
payments made by Tenant pursuant to this subsection 4.2.1.3 shall to the extent
thereof relieve Tenant of its obligations under said subsections 4.2.1.1 and
4.2.1.2.
4.2.1.4 Insurance
Tenant shall pay to Landlord Tenant's Share of all premiums, charges
and costs for the following insurance coverage's on the Building which the
Landlord shall obtain and maintain in full force and effect, all such payments
to be made within ten (10) day after Tenant receives Landlord's notice of
Tenant's Share, provided that for any premium year included in the Initial Term
or the Extension Terms, if exercised at the beginning or end thereof, Tenant
shall pay Landlord the fraction of such annual premium allocable to such
included period.
4.2.1.4 (a) Fire and extended coverage insurance in an amount at
least equal to the full insurable value of the Building (including the
Premises), as such value may from
<PAGE> 17
time to time be determined by agreement or by appraisal by an accredited
insurance appraiser which may be required by either party whenever three (3)
years have elapsed since the last such agreement or appraisal, or alterations
or additions increasing cost have been made, the cost thereof to be paid by the
party requesting such appraisal. Landlord shall also obtain comprehensive
policies of insurance against breakage of glass, the replacement of which shall
be Landlord's responsibility.
4.2.1.4 (b) Comprehensive liability insurance insuring Landlord and
Tenant against all claims and demands for any injury to person or property
which may be claimed to have occurred in or about the Building or the Premises
or on the sidewalks, roadways, walks, ways or parking and loading areas
adjoining the Building, in amounts which shall be equal to the limits set forth
in Section 1.1.
4.2.1.4 (c) Rent insurance for the benefit of Landlord against loss
of rent due to fire and risks now or hereafter embraced by Extended Coverage
insurance, for the Annual Rent and Additional Rent for one year (or such
greater value as a mortgagee of the Premises shall reasonably require), such
amount to be applied by Landlord to the payment of such Annual Rent and
Additional rent hereunder as it becomes due until the restoration of the
Premises. In the event there remain proceeds of such insurance after such
restoration is completed and Tenant shall have commenced to pay the full rent
as provided herein, such remaining proceeds actually held by Landlord shall be
delivered to Tenant.
4.2.1.4 (d) Policies for insurance required under the provisions of
this Section 4.2.1.4. shall be obtained from responsible companies qualified to
do business in the Commonwealth of Massachusetts and in good standing therein.
In the event provision for any such insurance is to be by a blanket insurance
policy, the policy shall allocate a specific and sufficient amount of coverage
to the Premises and, in the case of liability insurance, to Tenant.
4.2.1.4 (e) All insurance which is carried by either party with
respect to the Premises, whether or not required, (if either party so requests
and it can be so written, and if it does not result in additional premium, or
if the requesting party agrees to pay and does pay any additional premium)
shall include provisions which either designate the other party as one of the
insured or deny to the insurer acquisition by subrogation of rights of recovery
against the other party to the extent such rights have been waived by the
insured party prior to the occurrence of loss or injury, insofar as, and to the
extent that such provisions may be effective without making it impossible to
obtain insurance coverage from responsible companies qualified to do business
in the Commonwealth of Massachusetts (even though extra premium may result
therefrom). Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions. Each party hereby waives all
rights of recovery against the other for loss or injury against which the
waiving party is protected by insurance containing said provisions, reserving,
however, any rights with respect to any excess of loss or injury over the
amount recovered by such insurance. Tenant and Landlord shall jointly
participate in the
<PAGE> 18
adjustment of loss on any insurance carried on the Building and if Landlord
rebuilds the Building after damage or destruction, Tenant agrees upon request
promptly to endorse and deliver to Landlord any checks or other instruments in
payment of loss in which Landlord is named as payee. Landlord and Tenant agree
not to unreasonable withhold consent to any insurance settlement. Landlord
agrees to remit to Tenant any portion of such settlement attributable to the
improvements and renovations (and replacements thereof or substitutions
therefor) set forth in Tenant's Plans or attributable to alterations, additions
or improvements made by Tenant pursuant to Section 4.2 hereof, after first
deducting any portion of such settlement attributable to damage to the Premises
exclusive of such alterations, additions, improvements and renovation described
above. Tenant shall not be required to name the mortgagee of the Premises as
an insured on Tenant's fire and extended coverage policy unless Landlord
obtains from such mortgagee a written agreement running to the benefit of
Landlord and Tenant that insurance proceeds received by such mortgagee shall be
applied to rebuilding as provided in Article VI hereof unless this lease shall
be terminated as provided in Article VI. However, if Landlord obtains such an
agreement from Landlord's mortgagee (or mortgagees), Tenant shall name such
mortgagee or mortgages as a loss payee on all fire and extended coverage
insurance policies carried by it.
4.2.2 Tenant's Operating Expense Obligations
To provide the following services to the entire Building and Lot pursuant to
maintenance and service contracts for such services, the form, price and
substance of which shall be first approved by Landlord in writing. In the
event Landlord shall approve such contracts (which approval shall not be
unreasonably withheld or delayed), and except as otherwise provided in this
Section 4.2.2, including subsections thereof, Tenant shall be responsible for
100% of the cost of such contracts. Notwithstanding the provisions of
Subsections 4.2.2.1 through 4.2.2.3, Tenant shall not be required to provide or
pay for repairs, maintenance and/or improvements requiring capital
expenditures, except for repairs, maintenance and/or improvements required by
Tenant's failure to comply with its obligations under any of the Leases.
"Capital expenditures" as used in this Lease shall mean capital expenditures as
described in Section 263 (a) of the Internal Revenue Code of 1954, as amended,
(the "Code") and expenditures for which a deduction is allowed under Sections
179 and 190 of the Code, as contrasted with ordinary and necessary business
expenses currently deductible in full under Section 162 (a) of the Code.
4.2.2.1 Janitorial Service, Including Rubbish Removal and Pest Control
Tenant shall provide janitorial service including rubbish removal and pest
control for the entire Building, which services shall include the services set
forth in Exhibit C.
<PAGE> 19
4.2.2.2 Landscaping and Snow Removal
Tenant shall maintain the grounds, drives and parking areas of the Lot and
Building and shall cause the removal of snow and ice from all parking areas,
side walks, walkways and entrances to the Building, and the roof (if
necessary).
4.2.2.3 Maintenance
Tenant shall be responsible for all maintenance of the Building, its
components, roof and equipment, including the elevators and exterior window
washing, which maintenance shall be provided by Tenant's employees and
contractors of by maintenance and service contracts. Notwithstanding the
foregoing, Landlord shall reimburse Tenant for the reasonable cost of labor and
materials in connection with reasonable repairs required prior to February 27,
1987 to the roof, foundation, facade, floors, ceilings, elevators, and HVAC,
plumbing, electrical, sprinkler and other mechanical systems serving the
Building which are first placed in service on or before March 15, 1984, and any
usual fees associated with the initial complete occupancy of a building (such
as HVAC re-balancing).
4.2.3 Utilities
Tenant shall pay directly to the proper authorities charged with the collection
thereof all charges for water, sewer, gas, electricity, telephone and other
utilities or services used or consumed in the Building.
4.3 Lot
"Lot" means all the land described in Exhibit E, or any parts thereof,
plus any addition thereto resulting from the change of any abutting street
line.
4.4 Accounting
Landlord shall have the right from time to time to change the periods
of accounting under Section 4.2 to any annual period other than a calendar
year, and upon any such change, all items referred to in said Section 4.2 shall
be appropriately apportioned. In all statements rendered under Section 4.2
amounts for periods partially within and partially without the accounting
periods shall be appropriately apportioned. Any costs which are not
determinable at the time of a statement shall be included therein on the basis
of Landlord's estimate, and Landlord shall render promptly after determination
of such costs a supplemental statement and appropriate adjustment shall be made
according thereto. All statements shall be prepared on an accrual basis of
accounting.
<PAGE> 20
4.5 Payment of Additional Rent
Except as otherwise specifically provided in this Lease any sum,
amount, item or charge designated or considered as additional rent in this Lease
shall be paid by Tenant to Landlord on the first day of the month following the
date on which Landlord notifies Tenant of the amount payable, or on the
fifteenth day after the giving of such notice, whichever shall be later. Any
such notice shall specify in reasonable detail the basis of such additional
rent. On the first day of each month following that month in which notice of
additional rent is given, Tenant shall pay to Landlord one-twelfth (1/12) of the
amount reasonably estimated by the Landlord to be the amount of additional rent
which shall be payable by the Lessee for the then current year. Reasonably
estimated amounts shall where possible be based on actual cost experience. When
the actual, rather than reasonably estimated, amount of such additional rent has
been ascertained, Landlord shall notify Tenant of the amount due, if any, giving
credit for the monthly payments theretofore made by Tenant and crediting the
overage, if any, against additional rent to become due. Tenant shall pay any
balance due within ten (10) days after receipt of such notice.
ARTICLE V
LANDLORD'S COVENANTS
5.1 Landlord's Covenants
Landlord covenants:
5.1.1 To furnish, through Landlord's employees or independent
contractors, the services listed in Exhibit C.
5.1.2 To furnish, through Landlord's employees or independent
contractors, reasonable additional building operation services upon reasonable
advance request of Tenant at equitable rates from time to time established by
Landlord to be paid by Tenant.
5.1.3 Except as otherwise provided in Article VII, to make such repairs
to the roof, exterior walls and glass floor slabs and common areas and
facilities of the Building as may be necessary to keep them in serviceable
condition.
5.1.4 That Landlord has the right to make this Lease and that Tenant,
on paying the rent and performing its obligations in this Lease, shall
peacefully and quietly have, hold and enjoy the Premises throughout the term,
subject to all terms and provisions hereof.
5.2 Interruptions
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from power losses and shortages, the necessity of Landlord's
entering the Premises for any of the
<PAGE> 21
purposes in the Lease authorized, or for repairing the premises or any portion
of the Building or Lot however the necessity may occur. In case Landlord is
prevented or delayed from making any repairs, alterations or improvements, or
furnishing any services or performing any other covenant or duty to be performed
on Landlord's part, by reason of any cause reasonably beyond Landlord's control
including without limitation the causes set forth in Section 3.2 hereof as being
reasonably beyond Landlord's control, Landlord shall not be liable to Tenant
therefor, nor, except as expressly otherwise provided in Section 7.1, shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the
Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary by reason of
accident or emergency, or until necessary repairs have been completed, provided,
however, that in each instance of stoppage, Landlord shall exercise reasonable
diligence to eliminate the cause thereof. Except in case of emergency repairs,
Landlord will give Tenant reasonable advance notice of any contemplated stoppage
and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by
reason thereof.
ARTICLE VI
TENANT'S COVENANTS
6.1 Tenant's Covenants
Tenant covenants during the Term and such further time as Tenant
occupies any part of the Premises:
6.1.1 To pay when due all fixed rent and additional rent, all taxes
which may be imposed on Tenant's personal property on the Premises (including
without limitation, Tenant's fixtures and equipment) regardless to whomever
assessed, and all charges by landlord or public utilities for telephone, and gas
services and service inspections therefor, and all charges by public utilities
for installation of metering devices (which charges shall be apportioned on a
floor area basis for multi-tenanted floors), and all charges of Landlord for
services rendered pursuant to Section 5.1.2.
6.1.2 Except as otherwise provided in Article VII and Section 5.1.3, to
keep the Premises in good order, repair and condition, reasonable wear and
damage by fire and casualty only excepted, and at the expiration or termination
of this Lease peaceably to yield up the Premises and all changes and additions
therein in such order, repair and condition, first removing all goods, effects,
and fixtures of Tenant and any items the removal of which is required by any
agreement and which Tenant elects to remove, and
<PAGE> 22
repairing all damage caused by such removal and restoring the Premises and
leaving them clean and neat;
6.1.3. Not to injure or deface the Premises Building or Lot, nor to
permit in the Premises any auction sale, or nuisance, or the emission from the
Premises of any objectionable noise or odor, nor to use or devote the Premises
or any part thereof for any purpose other than the Permitted Uses, nor any use
thereof which is improper, offensive, contrary to law or ordinance, or liable to
invalidate of increase the premiums for any insurance on the Building or its
contents or liable to render necessary any alteration or addition to the
Building;
6.14. Not to obstruct in any manner any portion of the Building not
hereby leased or any portion thereof or of the Lot used by Tenant in common with
others; not without prior consent of Landlord to permit the painting or placing
of any signs or the placing of any curtains, blinds, shades, awnings, aerials or
flagpoles, or the like, visible from outside the Premises; and to comply with
the Rules and Regulations set forth in Exhibit D and all other reasonable Rules
and Regulations hereafter made by Landlord, of which Tenant has been given
notice, for the case and use of the Building and Lot and their facilities and
approaches; Landlord shall not be liable to Tenant for the failure of other
tenants of the Building to conform to such Rules and Regulations;
6.1.5. To keep the Premises equipped with all safety appliances
required by law or ordinance or any other regulation of any public authority
because of any use made by Tenant other than normal office use, and to procure
all licenses and permits so required because of such use and, if requested by
Landlord, to do any work so required because of such use, it being understood
that the foregoing provisions shall not be construed to broaden in any way
Tenant's Permitted Uses;
6.1.6. Not without prior consent of Landlord to assign this Lease or
sublet the Premises, provided, however, that in the event Tenant assigns or
sublets all or part of the Premises to an affiliate of Tenant, such prior
consent of Landlord shall not be required (for purposes of this Lease, the term
"affiliate" shall mean any individual or entity, including, without limitation,
a corporation, trust, partnership, a unincorporated organization, directly or
indirectly controlling or controlled by or under direct or indirect common
control with Consolidated Group, Inc.); as additional rent, to reimburse
Landlord promptly for reasonable legal and other expense incurred by Landlord in
connection with any request by Tenant for consent to assignment or subletting;
no assignment or subletting and no consent of Landlord thereto shall affect the
continuing primary liability of Tenant (which, following assignment, shall be
Joint and several with the assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any subsequent instance; and no
assignment shall be binding upon Landlord or any of Landlord's mortgagees,
unless Tenant shall deliver to Landlord an instrument in recordable form which
contains a covenant of assumption by the assignee running to Landlord and all
persons claiming by, through or under Landlord, but the failure or refusal of
the assignee to execute such instrument of assumption shall not release or
<PAGE> 23
discharge assignee from its liability as Tenant hereunder nor shall execution of
such instrument of assumption affect the continuing primary liability of Tenant.
6.1.7. To defend, with counsel approved by Landlord, save harmless, and
indemnify Landlord from any liability or injury, loss, accident or damage to any
person or property, and from any claims, actions, proceedings and expenses and
costs in connection therewith (including without limitation reasonable counsel
fees), (i) arising from the omission, fault, willful act, negligence or other
misconduct of Tenant or from any use made or thing done or occurring on the
Premises not due to the omission, fault, willful act, negligence or other
misconduct of Landlord or (ii) resulting from the failure of Tenant to perform
and discharge its covenants and obligations under this Lease;
6.1.8. To maintain public liability insurance in the Premises in the
amounts which shall, at the beginning of the Term, be at least equal to the
limits set forth in Section 1.1, and, from time to time during the Term shall be
for such higher limits, if any, as are customarily carried in the area in which
the Premises are located on property similar to the Premises and used for
similar purposes and to furnish Landlord with the certificates thereof;
6.1.9. To keep all Tenant's employees working in the Premises covered
by workmen's compensation insurance in statutory amounts and to furnish Landlord
with certificates thereof;
6.1.10. To permit Landlord and Landlord's agents to examine the
Premises at reasonable times and, if Landlord shall so elect, to make any
repairs or replacement Landlord may deem necessary to avert an emergency, to
remove, at Tenant's expense, any changes, additions, signs, curtains, blinds,
shades, awnings, aerials, flagpoles, or the like, not consented to in writing,
and to show the Premises to prospective tenants during the twelve (12) months
preceding expiration of the Term and to prospective purchasers and mortgagees at
all reasonable times upon reasonable appointment with Tenant;
6.1.11. Not to place a load upon the Premises exceeding an average rate
of 80 pounds of live load per square foot of floor area; and not to move any
safe, vault or other heavy equipment in, about or out of the Premises except in
such manner and at such times as Landlord shall in each instance authorize;
Tenant's business machines and mechanical equipment which cause vibration or
noise that may be transmitted to the Building structure or to any other leased
space in the Building shall be placed and maintained by Tenant in settings of
cork, rubber, spring, or other type of vibration eliminators sufficient to
eliminate such vibration or noise;
6.1.12. All the furnishings, fixtures, equipment, effects and property
of every kind, nature and description of Tenant and all persons claiming by,
through or under Tenant which, during the continuance of this Lease or any
occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on
the Premises or elsewhere in the Building, shall be at the sole risk and hazard
of Tenant, and if the whole or any part
<PAGE> 24
thereof shall be destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes, by theft or
from any other cause, no part of said loss or damage is to be charged to or to
be borne by Landlord.
6.1.13. Not to suffer or permit any liens to stand against the Premises
by reason of work, labor services or materials done for or at the request of
Tenant. Tenant shall cause any such liens to be discharged within thirty days
after the date of the filing thereof.
6.1.14. In case Landlord shall, without any fault on its part, be made
party to any litigation commenced by or against Tenant or by or against any
parties in possession of the Premises or any party thereof claiming under
Tenant, to pay, as additional rent, all costs, including without limitation,
reasonable counsel fees incurred by or imposed upon Landlord in connection with
such litigation, and as additional rent, also to pay all such costs and fees
incurred by Landlord in connection with the successful enforcement by Landlord
of any obligations of Tenant under this Lease.
ARTICLE VII
CASUALTY AND TAKING
7.1 Casualty and Taking
In case during the Term all or any substantial part of the Premises are
damaged materially by fire or other casualty or by action of public or other
authority in consequence thereof, or are taken by eminent domain or Landlord
receives compensable damage by reason of anything lawfully done on pursuance of
public or other authority, this Lease shall terminate at Landlord's or Tenant's
election, which may be made notwithstanding the fact that Landlord's entire
interest may have been divested, by notice given to the other within 60 days
after the occurrence of the event giving rise to the election to terminate,
which notice shall specify the effective date of termination. Tenant shall also
have the right to terminate as described above, (a) in the event of substantial
damage to or taking of the Building or Lot which renders Tenant unable to
conduct his business in the Premises, or (b) in the event of damage to the
Premises in the last ninety (90) days of the Term, or if Tenant has exercised
the option to renew in Section 2.5 within the last (90) days of the Renewal
Term, which damage renders the Premises untenantable for more than fifteen (15)
days.
In case during the Term all or any substantial part of the Building or
the lot are damaged materially by fire or other casualty or by action of public
or other authority in consequence thereof, or are taken by eminent domain or
Landlord receives compensable damage by reason of anything lawfully done in
pursuance of public or other authority, this Lease shall terminate at Landlord's
election, which may be made notwithstanding the fact that Landlord's entire
interest may have been divested, by notice given to Tenant within 60 days after
the occurrence of the event giving rise to the election to terminate, which
notice shall specify the effective date of termination.
<PAGE> 25
The effective date of any termination by Landlord or Tenant under this
Section shall be not less than 15 nor more than 30 days after the date of such
notice of termination. For all purposes of this Section 7.1, damage or taking
shall be considered substantial if the time needed for Landlord to do the
construction work necessary to put the Premises or such remainder in proper
condition for use and occupation is reasonably estimated by Landlord to exceed
six months, or it more than 30% of the Lot, the Building or the Premises are so
taken. In case of any such damage or taking, Landlord shall notify Tenant within
30 days after the occurrence thereof of Landlord's estimate of the time needed
to do the construction work necessary to put the premises or such remainder in
proper condition for use and occupancy, or of the percentage of the Building,
Lot or Premises taken.
If in any such case the Premises are rendered unfit for use and
occupation and the Lease is not so terminated, Landlord shall use due diligence
(following the expiration of all periods in which diligence (following the
expiration of all periods in which either party may terminate this Lease
pursuant to the foregoing Provisions of this Section 7.1) to put the Premises,
or in case of taking what may remain thereof (excluding any items installed or
paid for by Tenant which Tenant may be required to remove pursuant to Section
3.1 or 3.3), into proper condition for use and occupation and a just proportion
of the fixed rent and additional rent according to the nature and extent of the
injury shall be abated until the Premises or such remainder shall have been put
by Landlord in such condition and in case of a taking which permanently reduces
the area of the Premises, a just proportion of the fixed rent and additional
rent shall be abated for the remainder of the Term.
7.2 Reservation of Award
Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises and Building and Lot and the leasehold hereby
created, or any one or more of them, accruing by reason of exercise of eminent
domain or by reason of anything lawfully done in pursuance of public or other
authority . Tenant hereby releases and assigns to Landlord all Tenant's rights
to such awards, and covenants to deliver such further assignments and assurances
thereof as Landlord may from time to time request hereby irrevocably designating
and appointing Landlord as its attorney-in-fact to execute and deliver in
Tenant's name and behalf all such further assignment thereof. It is agreed and
understood, however, that Landlord does not reserve to itself, and Tenant does
not assign to Landlord, any damages payable for (i) movable trade fixtures
installed by Tenant or anybody claiming under Tenant at its own expense or
fixtures or items the removal of which is required or permitted by any agreement
given pursuant to Section 3.1 or 3.3., or (ii) relocation expenses recoverable
by Tenant from such authority in a separate action.
<PAGE> 26
ARTICLE VIII
RIGHTS OF MORTGAGE
8.1 Subordination
The Lease shall be subject and subordinate to any first mortgage on the
Building, now or at any time hereafter in effect, unless the holder of such
mortgage elects by notice to Tenant to have this Lease superior to its mortgage.
In addition, Landlord shall have the option to subordinate this Lease to any
other mortgage or deed of trust which includes the Premises as part of the
mortgaged premises, provided that the holder thereof enters into an agreement
with Tenant by the terms of which (a) in the event of acquisition of title by
such holder through foreclosure proceeding or otherwise, and provided Tenant is
not in default hereunder, the holder will agree to recognize the rights of
Tenant under this lease and to accept Tenant as tenant of the Premises under the
terms and conditions of this Lease and (b) Tenant will agree to recognize the
holder of such mortgage as Landlord in such event. This agreement shall be made
to expressly bind and inure to the benefit of the successors and assigns of
Tenant and of the holder and upon anyone purchasing said Premises at any
foreclosure sale. Any such mortgage to which the Lease shall be subordinated may
contain such terms, provisions and conditions as the holder deems usual or
customary. The Lot or Building, or both, are separately and together hereinafter
in this Article VIII referred to as "the mortgaged premises". The word
"mortgagee" as used in this Lease shall include the holder for the time being
whenever the context permits.
8.2 Entry Other Than for Foreclosure
Upon entry and taking possession of the mortgaged premises for any
purpose other than foreclosure, the holder of a mortgage shall have all rights
of Landlord and during the period of such possession, the duty to perform all
Landlord's obligations under this Lease. No such holder shall be liable to
perform any other of Landlord's covenants and obligations under this Lease.
8.3 Entry for Foreclosure
Except as otherwise provided in Section 8.2 hereof, no such holder of a
mortgage shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder shall
enter and take possession of the mortgaged premises for the purpose of
foreclosing a mortgagee. Upon entry for the purpose of foreclosing a mortgage,
such holder shall be liable to perform all of the subsequent obligations of
Landlord subject to the provisions of Section 8.6 and subject to and with the
benefit of the provisions of Section 10.5, provided that a discontinuance of any
foreclosure proceeding shall be deemed a conveyance under said provisions to the
owner of the equity of the mortgaged premises.
<PAGE> 27
8.4 No Prepayment
No fixed rent, additional rent, or any other charge shall be paid more
than ten days prior to the due dates thereof and payments made in violation of
this provision shall (except to the extent that such payments are actually
received by a mortgagee in possession or in the process of foreclosing its
mortgage) be a nullity as against such mortgagee and Tenant shall be liable for
the amount of such payments to such mortgagee.
8.5 No Release or Termination
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i) Tenant
shall have first given written notice of Landlord's act or failure to act to
Landlord's mortgagees of record, if any, specifying the act or failure to act on
the part of Landlord which could or would give basis to Tenant's rights; and
(ii) such mortgagees, after receipt of such notice, have failed or refused to
correct or cure the condition complained of within a reasonable time thereafter;
but nothing contained in this Section 8.5 shall be deemed to impose any
obligation on any such mortgagee to correct or cure any such condition.
"Reasonable time" as used above means and includes a reasonable time to obtain
possession of the mortgaged premises, if the mortgagee elects to do so, and a
reasonable time to correct or cure the condition if such condition is determined
to exist.
8.6 Mortgagee's Election
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to substantial completion of Landlord's obligations under
Article III, any holder of a mortgage on the mortgaged premises enters and takes
possession thereof for the purpose of foreclosing the mortgage, such holder may
elect, by written notice given to Tenant and Landlord at any time within 90 days
after such entry and taking of possession, not to perform Landlord's obligations
under Article III and in such event such holder and all persons claiming under
it shall be relieved of all obligations to perform, and all liability for
failure to perform, said Landlord's obligations under Article III and Tenant may
terminate this Lease and all its obligations hereunder by written notice to
Landlord and such holder given within 30 days after the day on which such holder
shall have given its notice as aforesaid.
8.7 No Modification, etc.
No assignment of this Lease and no agreement to make or accept any
surrender, termination or cancellation of this Lease and no agreement to modify
so as to reduce the rent, change the Term, or otherwise materially change the
rights of Landlord under this
<PAGE> 28
Lease, or to relieve Tenant of any obligations or liability under this Lease,
shall be valid unless consented to in writing by Landlord's mortgagees of
record, if any.
8.8 Continuing Offer
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a continuing offer to any person, corporation or other entity, which by
accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee; such
mortgagee is hereby constituted a party to this Lease as an obligee hereunder to
the same extent as though its name were written hereon as such, and such
mortgagee shall be entitled to enforce such provisions in its own name.
8.9 Implementation
Tenant agrees on request of Landlord to execute and deliver from time
to time any agreement which may reasonably be deemed necessary to implement the
provisions of this Article VIII.
ARTICLE IX
DEFAULTS
9.1 Events of Default
If Landlord contends that Tenant has neglected or failed to perform any
of Tenant's covenants, agreements or obligations hereunder, Landlord shall
notify Tenant in writing accordingly specifying the alleged neglect or failure.
Such notice having been given by Landlord Tenant shall:
(A) In the case of alleged failure to pay fixed rent, make payment in
full within seven (7) days after notice thereof; and
(B) In the case of alleged neglect or failure to perform any of
Tenant's covenants, agreements or obligations hereunder other than the
obligation to pay fixed rent, (i) correct the matters complained of in such
notice within thirty (30) days after notice thereof (or if more than 30 days are
reasonably required to complete such correction, begin such correction within
such 30 days and thereafter prosecute the curing of such default to completion
with due diligence), or (ii) notify Landlord within such 30 day period that
Tenant disputes the matters contained in such notice and at the same time serve
on Landlord a copy of a demand for arbitration of the matter disputed and
otherwise proceed to arbitration under Article XI hereof. If the decision of the
arbitrator pursuant to Section XI is adverse to Tenant, in whole or in part,
Tenant shall forthwith begin to correct the matters complained of by Landlord or
that portion thereof as to which the decision shall have been adverse to Tenant,
and Tenant shall complete the
<PAGE> 29
same within thirty (30) days after such decision or, if more than thirty (30)
days are reasonably required to complete such correction, shall begin the
correction within said thirty days and thereafter prosecute the correction of
such default to completion with due diligence. If so requested by either party,
the arbitrator shall establish the time in excess of thirty days reasonably
required for such completion and the same shall be completed within such time,
subject to unavoidable delay.
(a) If Tenant fails to comply with subparagraph (A) above with respect
to fixed rent defaults or if Tenant fails to comply with either subclause (i) or
(ii) of subparagraph (B) above with respect to nonperformance of any other
covenant, agreement or obligation contained herein, or (b) if any assignment
shall be made by Tenant or any guarantor of Tenant for the benefit of creditors,
or (c) if Tenant's leasehold interest shall be taken on execution, or (d) if a
lien or other involuntary encumbrance is filed against Tenant's leasehold
interest or Tenant's other property, including said leasehold interest, and is
not discharged within ten (10) days thereafter or (e) if a petition is filed by
Tenant or any guarantor of Tenant for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (f) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against Tenant or any guarantor of
Tenant and such involuntary petition is not dismissed within sixty (60) days
thereafter, then, and in any of such cases, Landlord and the agent and servants
of Landlord lawfully may, in addition to and not in derogation of any remedies
for any preceding breach of covenant, immediately or at any time thereafter and
without demand or notice and with or without process of law (forcibly, if
necessary) enter into and upon the Premises or any part thereof in the name of
the whole or mail a notice of termination addressed to Tenant at the Premises,
and repossess the same as of Landlord's former estate and expel Tenant and those
claiming through or under Tenant and remove its and their effects (forcibly, if
necessary) without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears of rent or
prior breach of covenant and upon such entry or mailing as aforesaid this Lease
shall terminate.
9.2 Tenant's Obligations After Termination
9.2.1 In the event that this Lease is terminated under any of the
provisions contained in Section 9.1 or shall be otherwise terminated for breach
of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
(discounted over the balance of the lease term at a rate of six (6%) percent)
over the fair market rental value of the Premises for said residue of the Term.
In calculating the rent reserved there shall be included, in addition to the
fixed rent and all additional rent, the value of all other considerations agreed
to be paid or performed by Tenant for said residue. Tenant further covenants as
an additional and cumulative obligation after any such termination to pay
punctually to Landlord all the sums and perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by
<PAGE> 30
Tenant under paragraph 9.2.2 below, Tenant shall be credited with any amount
paid to Landlord as compensation in accordance with this Section 9.2 and also
with the net proceeds of any rent obtained by Landlord by reletting the
Premises, after deducting all Landlord's expenses in connection with such
reletting, including, without limitation, all repossession costs, brokerage
commissions, fees for legal services and expense of preparing the Premises for
such reletting. Tenant agrees that Landlord may (i) relet the Premises or any
part or parts thereof, for a term or terms which may at Landlord's option be
equal to, less than, or greater than the period which would otherwise have
constituted the balance of the Term and may grant such concessions and free rent
as Landlord in its sole judgment considers advisable or necessary to relet the
same, and (ii) make such alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable or necessary to relet the
same. Any action of Landlord in accordance with this Section 9.2 or any failure
of Landlord to relet or to collect rent after reletting shall not operate or be
construed to release or reduce Tenant's liability as aforesaid.
9.2.2 In lieu of any other damages or indemnity and in lieu of full
recovery by Landlord of all sums payable under paragraph 9.2.1 above, Landlord
may by written notice to Tenant, at any time after this Lease is terminated
under any of the provisions contained in Section 9.1 or is otherwise terminated
for breach of any obligation of Tenant and before such full recovery, elect to
recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal
to the aggregate of the fixed rent and additional rent accrued under Article IV
in the twelve (12) months ended next prior to such termination plus the amount
of fixed rent and additional rent of any kind accrued and unpaid at the time of
termination and less the amount of any recovery by Landlord under paragraph
9.2.1 up to the time of payment of such liquidated damages.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency, by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statue or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater than, equal to, or less than the amount of the loss or damages referred
to above.
9.3 Landlord's Default
Landlord shall not be deemed to be in default hereunder unless its
default shall continue for thirty (30) days, or such additional time as is
reasonably required to correct its default, provided that Landlord shall,
subject to his arbitration rights set forth below, begin such correction within
such 30 day period and thereafter prosecute the curing of such default to
completion with due diligence after written notice thereof has been given by
Tenant to Landlord specifying the nature of the alleged default. Landlord shall
have the right to dispute Tenant's allegation of default using the arbitration
procedure set forth in Article 9.1 (B) (ii) above. In no event hereunder shall
Tenant be entitled to a right of set-off. In the event of Landlord's default,
Tenant shall be obligated to continue to pay rent in full.
<PAGE> 31
ARTICLE X
MISCELLANEOUS
10.1 Measurement
For all purposes of this Lease, all floor areas shall be computed
generally in accordance with the current standard method of floor measurement of
office buildings used in the greater Boston area. In such computation common
areas shall be included to the extent therein provided notwithstanding their
exclusion from the Premises.
10.2 Titles
The titles of the Articles are for convenience only and are not to be
considered in construing this Lease.
10.3 Notice of Lease
Upon request of either party both parties shall execute and deliver
after the Lease Term begins a notice of this Lease in form appropriate for
recording or registration, and if this Lease is terminated before the Lease Term
expires, an instrument in such form acknowledging the date of termination.
10.4 Consent
Except where otherwise provided herein, whenever any approval, consent,
authorization or the like by Landlord or Tenant is expressly required by this
Lease, the approval, consent, authorization or the like shall not be delayed or
withheld unreasonably.
10.5 Notice
Whenever any notice, approval, consent, request or election is given or
made pursuant to this Lease it shall be in writing. Communications and payments
shall be addressed if to Landlord at Landlord's Original Address or at such
other address as may have been specified by prior notice to Tenant, and if to
Tenant, at Tenant's Original Address or at such other address as may have been
specified by prior notice to Landlord. Any communication or notice so addressed
shall be deemed duly served if mailed by registered or certified mail, return
receipt requested.
10.6 Bind and Inure
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that only the original Landlord named
herein shall be liable for obligations accruing before the beginning of the
Term, and thereafter the original
<PAGE> 32
Landlord named herein and each successive owner of the Premises shall be liable
only for the obligations accruing during the period of its ownership. Whenever
the Premises are owned by a trustee or trustees, the obligations of Landlord
shall be binding upon Landlord's trust estate, but not upon any trustee or
beneficiary of the trust individually.
10.7 No Surrender
The delivery of keys to any employee of Landlord or to Landlord's agent
or any employee thereof shall not operate as a termination of this Lease or a
surrender to the Premises.
10.8 No Waiver, Etc.
The failure of Landlord or of Tenant to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease or any of the Rules and Regulations referred to in Section 6.1.4 shall not
be deemed a waiver of such violation nor prevent a subsequent act, which would
have originally constituted a violation from having all the force and effect of
an original violation. The failure of Landlord to enforce any of said Rules and
Regulations against any other tenant in the Building shall not be deemed a
waiver of any such Rules and Regulations. The receipt by Landlord of fixed rent
or additional rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to be a waiver of such breach by Landlord or by Tenant,
unless such waiver be in writing signed by the Party so waiving. No consent or
waiver express or implied, by Landlord or Tenant to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
10.9 No Accord and Satisfaction
No acceptance by Landlord of a lesser sum than the fixed rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy provided in this Lease.
10.10 Cumulative Remedies
The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provisions of this Lease. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled to the restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of this
<PAGE> 33
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
10.11 Partial Invalidity
If any term of this Lease, or the application thereof to any person or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
10.12 Landlord's Right to Cure Tenant's Default
If Tenant shall at any time default in the performance of any
obligation under this Lease, Landlord shall have the right, but shall not
obligated, to enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provisions for such substituted
performance by Landlord is made in this Lease with respect to such default.
Except in case of emergency, these rights shall be exercised only after ten (10)
days prior written notice from Landlord to Tenant of Landlord's intention to do
so: In performing such obligation, Landlord may make any payment of money or
perform any other act. All sums so paid by Landlord (together with interest at
the rate of eighteen per cent (18%) per annum) and all necessary incidental
costs and expenses in connection with the performance of any such act by
Landlord shall be deemed to be additional rent under this Lease and shall be
payable to Landlord immediately on demand. Landlord may exercise the foregoing
rights without waiving any other of its rights or releasing Tenant from any of
its obligations under this Lease.
10.13 Estoppel Certificates
Both parties agree from time to time, upon not less than fifteen (15)
days' prior written request by the other party, to execute, acknowledge and
deliver to the other party a statement in writing certifying that this Lease is
unmodified and in full force and effect and that Tenant has no defenses, offsets
or counterclaims against its obligations to pay the fixed rent and additional
rent and to perform its other covenants under this Lease and that there are no
uncured defaults of Landlord or Tenant under this Lease (or, if there have been
any modifications that the same is in full force and effect as modified and
stating the modifications and, if there are any defenses, offsets, counterclaims
or defaults, setting them forth in reasonable detail), and the dates to which
the fixed rent, additional rent and other charges have been paid. Any such
statement delivered pursuant to this Section 10.13 may be relied upon by any
prospective purchaser or mortgagee of the Premises or any prospective assignee
of any mortgage of the Premises. Tenant agrees to execute one or more estoppel
letters substantially in the form attached hereto as Exhibit H if so requested.
<PAGE> 34
10.14 Waiver of Subrogation
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall, if the other party so requests
and if it can be so written without additional premium, or with an additional
premium which the other party agrees to pay, include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury of
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause of endorsement to the extent
of the indemnification received thereunder.
10.15 Brokerage
Tenant represents and warrants that it has dealt with no broker in
connection with this transaction other than the Broker named in Section 1.1.
Tenant agrees to defend, indemnify and save Landlord from and against any and
all claims for a commission arising out of this Lease, other than from the
Broker.
10.16 Security Deposit
Upon the execution of this Lease, Tenant shall pay the Security Deposit
set forth in Section 1.1, if any, to Landlord, which shall be held as security
for Tenant's performance under this Lease. The Security Deposit shall be
refunded to Tenant at the end of the Term, subject to Tenant's satisfactory
compliance with the conditions of this Lease.
Tenant hereby agrees not to look to the mortgagee, as mortgagee,
mortgagee in possession, or successor in title to the property, for
accountability for any security deposit required by Landlord hereunder, unless
said sums have actually been received by said mortgagee as security for Tenant's
performance of this Lease.
10.17 IDT Lease
Tenant's rights to a portion of the Premises are subject to the rights
of IDT under the IDT Lease. Landlord and Tenant agree as follows with respect to
the IDT Lease:
(a) Landlord hereby assigns to Tenant all of its rights and obligations
under the IDT Lease as of the Scheduled Term Commencement Date for the 1986
Additional Premises, and Tenant hereby accepts this assignment and agrees to
perform all of Landlord's obligations under the IDT Lease except those which
Landlord is obligated to perform under the terms of this Lease.
(b) Landlord represents that all rent due from IDT is paid through
August 31, 1986 and that the IDT Lease sets forth the entire agreement between
Landlord and IDT.
<PAGE> 35
(c) In the event of a default by IDT under the IDT Lease, Landlord will
make available to Tenant Landlord's management and legal expertise to assist in
normal landlord actions resulting from a default.
(d) Landlord will, at no cost to Tenant, complete the standard
escalator reports and billing statements suitable for presentation to IDT until
such time as IDT has left the building.
(e) Landlord will not approach IDT for the purpose of relocation
without first discussing relocation with and obtaining permission from Tenant.
In the event Tenant wishes to relocate IDT, Landlord will provide non-monetary
assistance in this relocation.
(f) In the event IDT does not exercise any of its options to renew
under the IDT Lease, Tenant shall have the right of first refusal at the
expiration of the initial term or any subsequent term of the IDT Lease, as the
case may be, to lease that portion of the Premises covered by the IDT Lease.
ARTICLE XI
ARBITRATION
In the event of a dispute between Landlord and Tenant with respect to
any matter set forth in Article III hereof, such dispute shall be arbitrated by
three arbitrators appointed as follows: Landlord and Tenant shall each appoint a
fit and impartial person as arbitrator who shall have at least ten (10) years'
experience in the Boston Metropolitan Area in a calling connected with the
subject matter of the dispute. Written notice of such appointment shall be given
by each party to the other within 15 days of the date upon which written notice
is given by one party to the other demanding arbitration and the arbitrators so
appointed shall appoint a third arbitrator who shall likewise have had ten (10)
years' experience in the Metropolitan Boston Area in a calling connected with
the subject matter of the dispute. If the arbiters fail to agree upon a third
arbiter within 15 days of the date upon which the later of such written notices
of appointment of the first two arbiters is given, such third arbiter shall be
appointed by a Justice of the Superior Court of the Commonwealth of
Massachusetts in Middlesex County upon ten (10) days' notice of the institution
of proceedings for such Court appointment, or by any other Court sitting in
Middlesex County succeeding to the jurisdiction and functions exercised by the
Superior Court of the Commonwealth of Massachusetts. Any award that shall be
made in such arbitration by the arbiters or a majority of them shall be binding
and shall have the same force and effect as a judgment made in a court of
competent jurisdiction and both Landlord and Tenant shall have the right to
apply to the Superior court of the Commonwealth of Massachusetts in Middlesex
County, or to any other court sitting in Middlesex County succeeding to the
jurisdiction and functions exercised by the Superior Court of the Commonwealth
of Massachusetts, for a decree, judgment or order upon said arbitration or award
upon ten (10) days' notice to the other party. The fees, costs and expenses of
arbitration, other than fees or attorneys for the parties, expert witnesses and
<PAGE> 36
other witness' fees, shall be borne equally between the parties unless the
arbiters determine that some other division shall under the circumstances be
more equitable.
Executed as a sealed instrument as of January 1, 1987.
LANDLORD:
CONSOLIDATED GROUP SERVICE
COMPANY LIMITED PARTNERSHIP
By PLEASANT STREET VENTURES,
INC. Its General Partner
By: /Woolsey S. Conover/
--------------------
Woolsey S. Conover, President
TENANT:
CONSOLIDATED GROUP, INC.
Date: January 1, 1987 By: /Woolsey S. Conover/
--------------------
Woolsey S. Conover, President
<PAGE> 37
FIRST AMENDMENT TO AMENDED, CONSOLIDATED AND RESTATED LEASE
This First Amendment to Amended, Consolidated and Restated Lease is
made and entered into as of May 23, 1990, by and between Consolidated Group
Service Company Limited Partnership, a Massachusetts limited partnership (the
"Landlord") and Consolidated Group, Inc., a Massachusetts corporation (the
"Tenant").
Reference is made to an Amended, Consolidated and Restated Lease dated
January 1, 1987, between Landlord and Tenant, relating to floors 1 through 5 of
the Consolidated Group Building, Pleasant Street Connector, Framingham and
Southborough, Massachusetts (the "Lease").
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged notwithstanding any provision to the contrary in the Lease, the
Lease is hereby further amended as follows:
1. The initial term of the Lease shall be extended so that the
expiration date shall be February 28, 2000;
2. Upon the expiration stated in paragraph 1 hereof, the Tenant shall
have the four (4) options to extend the term of the lease for periods of five
(5) years each, upon the terms and conditions stated in the Lease, as if the
initial term hereof were the initial term thereof;
3. Tenant hereby agrees not to look to the mortgagee, as mortgagee,
mortgagee in possession, or successor in title to the property, for
accountability for any security deposit required by the Landlord hereunder,
unless said sums have actually been received by said mortgagee as security for
the Tenant's performance of this Lease;
4. Tenant hereby agrees not to handle, store or dispose of any
hazardous or toxic waste or substance upon the Premises which is prohibited by
any federal, state or local statutes, ordinances or regulations. Tenant hereby
covenants to indemnify and hold Landlord, its successors and assigns, harmless
from any loss, damage, claims, costs, liabilities or cleanup costs arising out
of Tenant's use, handling, storage or disposal of any such hazard or toxic
wastes or substances on the premises.
5. Tenant and Landlord hereby agree that the Tenant's Space in the
Building equals 92,591 square feet, and as such the Tenant leases the entire
Building.
6. Tenant hereby agrees that the Annual Fixed Rent is $1,597,195.
In all other respects, the terms of the Lease shall remain in full
force and effect.
Executed in triplicate under seal as of the date first above written.
<PAGE> 38
CONSOLIDATED GROUP SERVICE
COMPANY LIMITED PARTNERSHIP
By: Pleasant Street Venture,
Inc., its general partner
By: /James F. Carlin/
CONSOLIDATED GROUP, INC.
By: /Donald R. Fitch, Jr./
----------------------
Treasurer
<PAGE> 39
SECOND AMENDMENT TO AMENDED, CONSOLIDATED AND RESTATED LEASE
This Second Amendment to Amended, Consolidated and Restated Lease is
made and entered into as of March 27, 1996, by and between Consolidated Group
Service Company Limited Partnership, a Massachusetts limited partnership (the
"Landlord") and Consolidated Group, Inc., a Massachusetts corporation (the
"Tenant").
Reference is made to an Amended, Consolidated and Restated Lease dated
as of January 1, 1987, between Landlord and Tenant, relating to floors 1 through
5 of the Consolidated Group Building, Pleasant Street Connector, Framingham and
Southborough, Massachusetts as once amended to date (the "Lease").
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged notwithstanding any provision to the contrary in the Lease, the
Lease is hereby further amended as follows:
1. The initial Term of the Lease shall be extended so that the
expiration shall be May 31, 2003;
2. Upon the expiration of the Term set forth in paragraph 1 hereof, the
Tenant shall have the four (4) options to extend the term of the Lease for
periods of five (5) years each, upon the terms and conditions already stated in
the Lease.
3. Tenant hereby agrees not to look to The Manufactures Life Insurance
Company in its capacity as mortgagee, mortgagee in possession, or successor in
title to the property, for accountability for any security deposit required by
the Landlord hereunder, unless said sums have actually been received by said
mortgagee.
4. Tenant and Landlord hereby agree that the Tenant's Space in the
Building equals 92,591 square feet, and as such the Tenant leases the entire
Building.
5. Tenant hereby agrees that as of the date hereof the Annual Fixed
Rent is $1,597,195.
6. All references in the Lease to "IDT" and the "IDT Lease" including,
but not limited to, those set forth in Section 10.17 of the Lease, are hereby
deleted, and the Lease shall be construed in all respects as though the Tenant
has leased the entire building from Landlord.
In all other respects, the terms of the Lease shall remain unmodified
and in full force and effect.
<PAGE> 40
Executed in triplicate under seal as of the date first above written.
CONSOLIDATED GROUP SERVICE
COMPANY LIMITED PARTNERSHIP
By: Pleasant Street Ventures, Inc., its sole
general partner
By: /Woolsey S. Conover/
--------------------
Woolsey S. Conover, President
CONSOLIDATED GROUP, INC.
By: /Donald Fitch/
--------------
Con Fitch, Treasurer
<PAGE> 1
EXHIBIT 10.15
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.
<PAGE> 2
"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 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.
2
<PAGE> 3
"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.
"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.
3
<PAGE> 4
"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.
"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
4
<PAGE> 5
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.
"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
5
<PAGE> 6
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.
6
<PAGE> 7
"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 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
7
<PAGE> 8
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 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.
8
<PAGE> 9
"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 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
9
<PAGE> 10
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 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
10
<PAGE> 11
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).
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<PAGE> 12
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.
"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.
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<PAGE> 13
"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 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.
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<PAGE> 14
"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 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.
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<PAGE> 15
"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.
15
<PAGE> 16
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
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<PAGE> 17
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 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
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<PAGE> 18
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 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
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<PAGE> 19
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:
<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
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<PAGE> 20
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:
(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
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<PAGE> 21
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:
21
<PAGE> 22
<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 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
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<PAGE> 23
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.
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
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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 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
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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
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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.
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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
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.
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(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
(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
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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 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,
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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).
(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
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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.
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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:
(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
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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.
(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
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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.
(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
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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:
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(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 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
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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 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)
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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
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.
(v) 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
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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.
(vi) 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 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
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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).
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(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 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,
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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 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
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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 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
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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.
(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
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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
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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 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.
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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 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
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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.
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.
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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)
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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 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
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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;
(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;
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(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 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
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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 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
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(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 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.
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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.
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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.
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
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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 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
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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 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
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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:
(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
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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.
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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 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
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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 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
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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 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,
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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 duties and obligations hereunder. After any retiring
Agent's
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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
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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, 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
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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 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
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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 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.
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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.
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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 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;
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(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 Acceptance, 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.
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(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 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;
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(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 disclosure, each such assignee,
proposed assignee, participant or proposed participant shall agree with the
Borrower or such Lender
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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
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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 convenience 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.
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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/ James K. Murray III
-------------------------------
Name: James K. Murray, III
Title: Executive Vice President
Chief Financial Officer
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FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ Joseph H. Gawel
------------------------------
Name: Joseph H. Gawel
Title: S.V.P.
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BARNETT BANK OF TAMPA, A STATE BANK,
ITS SUCCESSORS OR ASSIGNS, as
Lender
By: /s/ Kimberly A. Bruce
-------------------------------
Name: Kimberly A. Bruce
Title: A.V.P.
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FLEET BANK, N.A., as Lender
By: /s/ Peter C. Hall
----------------------------
Name: Peter C. Hall
Title: V.P.
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NATIONSBANK, N.A., as Lender
By: /s/ Drew Severance
-----------------------------
Name: Drew Severance
Title: V.P.
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SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Martin D. Gawel
-----------------------------
Name: Martin D. Gawel
Title: A.V.P.
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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> 86
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Credit Agreement referred to below (this
"First Amendment"), is made and entered into as of this 1 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 certain 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:
<PAGE> 87
(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:
"`Effective Date' shall have one 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.
2
<PAGE> 88
(b) Upfront Fees. The Agent shall receive on the
Effective Date for the account of the Lenders an upfront fee for each
Lender equal to one-eighth of one percent (1/8%) of Ten Million
Dollars ($10,000,000).
(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 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
3
<PAGE> 89
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 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
4
<PAGE> 90
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.
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.
5
<PAGE> 91
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/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
OTHER CREDIT PARTIES:
HEALTHPLAN SERVICES, INC.
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: EVP & CFO
HEALTHCARE INFORMATICS CORPORATION
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: E.V.P.
THIRD PARTY CLAIMS MANAGEMENT, INC.
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: E.V.P.
6
<PAGE> 92
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ Joseph Towell
--------------------------------
Name: Joseph Towell
Title: SVP
7
<PAGE> 93
BARNETT BANK OF TAMPA, A STATE BANK,
ITS SUCCESSORS OR ASSIGNS, as
Lender
By: /s/ Kimberly A. Bruce
------------------------------
Name: Kimberly A. Bruce
Title: A.V.P.
8
<PAGE> 94
FLEET BANK, N.A., as Lender
By: /s/ Alex Sade
--------------------------------
Name: Alex Sade
Title: V.P.
9
<PAGE> 95
NATIONSBANK, N.A. (SOUTH), as Lender
By: /s/ Drew Severence
--------------------------------
Name: Drew Severence
Title: V.P.
10
<PAGE> 96
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Martin D. Gawel
--------------------------------
Name: Martin D. Gawel
Title: AVP
11
<PAGE> 97
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 of $17,000,000 101 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. $17,000,000 56 East 42nd Street
20% New York, New York
10017
Attention: Peter Hall
Telephone No.: 212/907-5118
Telecopy No.: 212/907-5614
NationsBank, $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 $17,000,000 150 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> 98
SECOND AMENDMENT
THIS SECOND AMENDMENT to the Credit Agreement referred to below (this
"Second Amendment"), is made and entered into as of this 26 day of September,
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 Existing Lenders have extended certain credit facilities to the
Borrower pursuant to the Credit Agreement dated as of May 17, 1996 (as amended
by the First Amendment thereto dated July 1, 1996 (the "First Amendment"), and
as may be further amended, restated or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders party thereto on the
Closing Date (the "Existing Lenders"), and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, increase the Aggregate Commitment thereunder to One
Hundred Seventy-Five Million Dollars ($175,000,000), and the Lenders have
agreed to do so, but only on the terms and conditions set forth below in this
Second 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
Second Amendment shall have the meanings assigned thereto in the Credit
Agreement and (b) "Second Amendment Effective Date" means the date of this
Second Amendment or such later Business Day upon which each condition described
below in Section 4 shall be satisfied or waived in a manner acceptable to the
Agent and Required Lenders.
2. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
<PAGE> 99
(a) Section 1.1 is hereby amended by deleting the definition of
"Aggregate Commitment" in its entirety and substituting the following in lieu
thereof:
"`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
Second Amendment Effective Date, the Aggregate Commitment shall be One
Hundred and Seventy-Five Million Dollars ($175,000,000)."
(b) Section 1.1 is hereby amended by deleting the definition of
"Capital Expenditures" in its entirety and substituting the following in lieu
thereof:
"`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; provided that for purposes of calculating the Interest
Coverage Ratio hereunder, the Capital Expenditure Add-Back shall be
added to Capital Expenditures for each fiscal quarter commencing with
the fiscal quarter ending on December 31, 1996 through and including
the fiscal quarter ending December 31, 1999."
(c) Section 1.1 is hereby amended by deleting the definition of
"Earnings Multiple" in its entirety and substituting the following in lieu
thereof:
"`Earnings Multiple' means, as of any date of determination, Pro Forma
EBITDA times three (3)."
(d) Section 1.1 is hereby amended by deleting the definition of "Pro
Forma EBITDA" in its entirety and substituting the following in lieu thereof:
"'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,
2
<PAGE> 100
including on a pro forma basis EBITDA for such period attributable to
any Permitted Acquisition; provided that (a) EBITDA attributable to
any Permitted Acquisition (i) 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, (ii) 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 and (b) the Acquisition Restructuring
Charge (or any reversal of any portion thereof) shall be excluded,
during the fiscal quarter or quarters, as applicable, in which such
charge (or reversal) is treated as expensed (or reversed) by the
Borrower, from the calculation of Pro Forma EBITDA and such treatment
of the Acquisition Restructuring Charge shall remain in effect for
each subsequent calculation of Pro Forma EBITDA which includes any
such fiscal quarter."
(e) Section 1.1 is hereby amended by inserting the following
defined term in the correct alphabetical order:
"`Acquisition Restructuring Charge' means an amount equal to the total
restructuring charges, as described in column B of Exhibit I hereto,
expensed in connection with the acquisitions by the Borrower of
Consolidated Group, Inc. (including certain affiliated companies) and
Harrington Services Corporation in an aggregate amount not to exceed
Thirteen Million Six Hundred Ninety-Five Thousand One Hundred
Eighty-Seven Dollars ($13,695,187); provided such charges are expensed
by the Borrower no later than the fiscal quarter ending on December
31, 1996."
"` Capital Expenditure Add-Back' means an amount equal to the
Acquisition Restructuring Charge divided by twelve (12); provided,
that if any portion of the Acquisition Restructuring Charge is
subsequently reversed (and thus added back to income), the Capital
Expenditure Add-Back shall be reduced by the amount of such reversal
divided by the total number of fiscal quarters from such reversal
date (including the quarter in which such reversal is taken) through
and including the fiscal quarter ending December 31, 1999."
3
<PAGE> 101
"`Second Amendment Effective Date' shall have the meaning given thereto
in the Second Amendment hereto dated as of September __, 1996 by and
among the Borrower, the Lenders and the Agent."
(f) Schedule 1.1(b) is hereby deleted in its entirety and Schedule
1.1(b) attached hereto shall be substituted in lieu thereof.
(g) Section 8.1 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 8.1 Leverage Ratio. As of the end of any fiscal quarter of
the Borrower during the corresponding time period, permit the Leverage
Ratio to exceed (a) 2.50 to 1.00 from the Closing Date through June
29, 1996 and (b) 3.00 to 1.00 at June 30, 1996 and thereafter."
(h) Section 8.3 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 8.3. Capital Expenditures. Make Capital Expenditures during
any period of four consecutive fiscal quarters ending during the
applicable period set forth below in an aggregate amount in excess of
the corresponding amount set forth below:
<TABLE>
<S> <C>
From the Second Amendment
Effective Date through
December 31, 1999 $12,450,000
January 1, 2000 and
thereafter $17,000,000"
</TABLE>
3. Additional Lenders; Commitments. The Fifth Third Bank of
Columbus and SunTrust Bank, Tampa Bay (collectively, the "Additional Lenders")
are hereby added as "Lenders" under the Credit Agreement as if each such
Additional Lender was a Lender party thereto on the Closing Date. Each Lender
shall have the Commitment set forth opposite its name on Schedule 1.1(b)
hereto. On the Second Amendment Effective Date, the Agent shall effect such
4
<PAGE> 102
transfers of funds as are necessary in order that the outstanding Loans reflect
the Commitments of all the Lenders as set forth herein.
4. Conditions. The effectiveness of this Second Amendment shall
be conditioned upon satisfaction of the following conditions:
(a) Promissory Notes and Delivery Affidavits. The
Borrower shall have issued and delivered to the Agent duly executed
Promissory Notes payable to each Lender in the amount of such Lender's
respective Commitment as set forth in this Second Amendment. Each
Existing Lender shall return to the Agent for cancellation and
forwarding to the Borrower each Promissory Note delivered thereto in
connection with the First Amendment. Further, the Borrower shall have
executed and delivered all delivery affidavits and such other
documents evidencing execution and delivery of such Promissory Notes
as are reasonably requested by any Lender.
(b) Upfront Fees. The Agent shall have received (a) for
the account the Lenders an amendment fee of Five Thousand Dollars
($5,000) for each Lender, (b) for the account of the Existing Lenders
an upfront fee equal to one-eighth of one percent (1/8%) of the
incremental portion of such Existing Lender's Commitment as increased
by this Second Amendment and (c) for the account of the Additional
Lenders an upfront fee equal to one-eighth of one percent (1/8%) of
the Commitment of such Additional Lenders.
(c) Certificate of the Borrower. The Agent shall have
received a certificate dated as of the Second Amendment 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 Second
Amendment to be satisfied thereby.
5
<PAGE> 103
(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 dated as of the Second Amendment
Effective Date certifying on behalf of such Credit Party, as
applicable, that the articles of incorporation and bylaws of such
Credit Party previously delivered to the Agent have not been repealed,
revoked, rescinded or amended in any respect since such delivery date;
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
Second Amendment Effective Date and addressed to the Agent and
Lenders, in form and substance satisfactory to the Agent.
(f) Additional Items. Receipt by the Agent of any other
document or instrument reasonably requested by it in connection with
the execution of this Amendment.
5. 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 Second 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.
6. Representations and Warranties. By its execution hereof, the
Borrower hereby certifies on behalf of itself and the
6
<PAGE> 104
other Credit Parties that each of the representations and warranties set 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.
7. 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.
8. Expenses. The Borrower shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and
delivery of this Second Amendment, including without limitation, the reasonable
fees and disbursements of counsel for the Agent.
9. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
10. Counterparts. This Second 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.
[SIGNATURE PAGES FOLLOW]
7
<PAGE> 105
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the date and year first above written.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
OTHER CREDIT PARTIES:
[CORPORATE SEAL] HEALTHPLAN SERVICES, INC.
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: EVP & CFO
[CORPORATE SEAL] HEALTHCARE INFORMATICS CORPORATION
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: EVP
[CORPORATE SEAL] THIRD PARTY CLAIMS MANAGEMENT, INC.
By: /s/ James K. Murray, III
-------------------------------
Name: James K. Murray, III
Title: EVP
8
<PAGE> 106
[CORPORATE SEAL] HARRINGTON SERVICES CORPORATION
By: /s/ James K. Murray III
---------------------------
Name: James K. Murray, III
Title: E.V.P.
[CORPORATE SEAL] R.E. HARRINGTON, INC.
By: /s/ James K. Murray III
---------------------------
Name: James K. Murray III
Title: E.V.P.
[CORPORATE SEAL] AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.
By: /s/ James K. Murray III
---------------------------
Name: James K. Murray III
Title: E.V.P.
[CORPORATE SEAL] PROHEALTH, INC.
By: /s/ James K. Murray III
---------------------------
Name: James K. Murray III
Title: E.V.P.
[CORPORATE SEAL] EMPLOYEE BENEFIT SERVICES, INC.
By: /s/ James K. Murray III
---------------------------
Name: James K. Murray III
Title: E.V.P.
9
<PAGE> 107
[CORPORATE SEAL] CONSOLIDATED GROUP, INC.
By: /s/ James K. Murray III
----------------------------
Name: James K. Murray III
Title: EVP
[CORPORATE SEAL] GROUP BENEFIT ADMINISTRATORS INSURANCE
AGENCY, INC.
By: /s/ James K. Murray III
----------------------------
Name: James K. Murray III
Title: EVP
[CORPORATE SEAL] CONSOLIDATED GROUP CLAIMS, INC.
By: /s/ James K. Murray III
----------------------------
Name: James K. Murray III
Title: EVP
[CORPORATE SEAL] CONSOLIDATED HEALTH COALITION, INC.
By: /s/ James K. Murray III
----------------------------
Name: James K. Murray III
Title: EVP
10
<PAGE> 108
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ Gail M. Doughty
----------------------------
Name: Gail M. Doughty
Title: SVP
11
<PAGE> 109
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: AVP
12
<PAGE> 110
FLEET BANK, N.A., as Lender
By: /s/ Cameron D. Gateman
-----------------------------
Name: Cameron D. Gateman
Title: V.P.
13
<PAGE> 111
NATIONSBANK, N.A. (SOUTH), as Lender
By: /s/ James E. Harden
-----------------------------
Name: James E. Harden
Title: V.P.
14
<PAGE> 112
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Martin D. Gawel
-----------------------------
Name: Martin D. Gawel
Title: A.V.P.
15
<PAGE> 113
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ Jorge Arneta
-----------------------------
Name: Jorge Arneta
Title: V.P.
16
<PAGE> 114
THE FIFTH THIRD BANK
OF COLUMBUS, as Lender
By: /s/ Charles D. Hale
-----------------------------
Name: Charles D. Hale
Title: V.P.
17
<PAGE> 1
EXHIBIT 10.19
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
<PAGE> 2
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 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
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<PAGE> 3
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 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;
3
<PAGE> 4
(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 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
4
<PAGE> 5
(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
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.
5
<PAGE> 6
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 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
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<PAGE> 7
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, 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.
7
<PAGE> 8
(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: R. E. HARRINGTON, INC.
/s/ Olga M. Pina By: /s/ James K. Murray, III
- ---------------------------------- -------------------------------------
James K. Murray, III,
/s/ Curt P. Creely Its: Duly Authorized Officer
- ----------------------------------
"EMPLOYER"
/s/ Dianna Butts /s/ Robert R. Parker
- ---------------------------------- ----------------------------------------
Robert R. Parker, individually
/s/ Leslie Wachaler
- ----------------------------------
"EMPLOYEE"
8
<PAGE> 1
EXHIBIT 10.20
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.
<PAGE> 2
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:
(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
<PAGE> 3
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 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
3
<PAGE> 4
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) 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
4
<PAGE> 5
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.
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;
5
<PAGE> 6
(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.
(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
6
<PAGE> 7
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. 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.
7
<PAGE> 8
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 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.
8
<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: CONSOLIDATED GROUP, INC.
/s/ Olga M. Pina By: /s/ James, K. Murray, III
- --------------------------------- ----------------------------------
James K. Murray, III
Its: Duly Authorized Officer
WITNESSES: GROUP BENEFIT ADMINISTRATORS
INSURANCE AGENCY, INC.
/s/ Olga M. Pina By: /s/ James, K. Murray, III
- --------------------------------- ----------------------------------
James K. Murray, III
Its: Duly Authorized Officer
WITNESSES: CONSOLIDATED GROUP CLAIMS, INC.
/s/ Olga M. Pina By: /s/ James, K. Murray, III
- --------------------------------- ----------------------------------
James K. Murray, III
Its: Duly Authorized Officer
WITNESSES: CONSOLIDATED HEALTH COALITION, INC.
/s/ Olga M. Pina By: /s/ James, K. Murray, III
- --------------------------------- ----------------------------------
James K. Murray, III
Its: Duly Authorized Officer
"EMPLOYER"
9
<PAGE> 10
/s/ Amelda Monaghan /s/ Timothy T. Clifford
- --------------------------------- -------------------------------------
Timothy T. Clifford, individually
"EMPLOYEE"
10
<PAGE> 1
EXHIBIT 21.1
HEALTHPLAN SERVICES CORPORATION
SUBSIDIARIES
HEALTHPLAN SERVICES, INC. (FL) (d/b/a HCI HealthPlan
Services in several states)
THIRD PARTY CLAIMS MANAGEMENT, INC. (CT)
HEALTHPLAN SERVICES INSURANCE AGENCY, INC. (MA)
HEALTHCARE INFORMATICS CORPORATION (FL)
HEALTHPLAN SERVICES ALPHA CORPORATION (DE)
CONSOLIDATED GROUP, INC. (MA) (d/b/a CGI Insurance Administrators
or CGI Insurance Administrators, Inc. in several states)
GROUP BENEFIT ADMINISTRATORS INSURANCE AGENCY, INC. (MA)
HARRINGTON SERVICES CORPORATION (DE)
R. E. HARRINGTON, INC. (DE)
CONSOLIDATED BENEFITS SERVICES, INC. (GA)
AMERICAN BENEFIT PLAN ADMINISTRATORS, INC. (CA)
PROHEALTH, INC. (DE) (d/b/a Harrington ProHealth
or ProHealth CompCare in several states)
BENEFIT MANAGEMENT CONSULTANTS, INC. (MO)
EMPLOYEE BENEFITS SERVICES, INC. (LA)
HARRINGTON SOUTHWEST, INC. (MO)
COMPETITIVE CARE ALLIANCE (GA)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
HealthPlan Services Corporation on Form S-3 (File No. 333-16079) and on Form
S-8 (File Nos. 33-00150, 33-97050, 33-97048, 33-92708, 333-07641, 333-07631) of
our report dated December 2, 1994, on our audit of the financial statements of
HealthPlan Services Division (formerly Plan Services Division, a wholly-owned
division of The Dun & Bradstreet Corporation), as of September 30, 1994, and
for the nine-month period then ended, which report is included in this Annual
Report on Form 10-K.
Coopers & Lybrand L.L.P.
Tampa, Florida
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 and Form S-8 of HealthPlan Services Corporation of our
report dated March 14, 1997, appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Tampa, Florida
March 31, 1997
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,787
<SECURITIES> 0
<RECEIVABLES> 17,998
<ALLOWANCES> (99)
<INVENTORY> 0
<CURRENT-ASSETS> 46,495
<PP&E> 50,463
<DEPRECIATION> (29,361)
<TOTAL-ASSETS> 244,701
<CURRENT-LIABILITIES> 73,424
<BONDS> 59,581
0
0
<COMMON> 150
<OTHER-SE> 108,633
<TOTAL-LIABILITY-AND-EQUITY> 244,701
<SALES> 0
<TOTAL-REVENUES> 193,839
<CGS> 0
<TOTAL-COSTS> 185,604
<OTHER-EXPENSES> 13,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,601
<INCOME-PRETAX> (8,076)
<INCOME-TAX> (1,360)
<INCOME-CONTINUING> (6,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,716)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
