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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD _____________ FROM TO _______________
COMMISSION FILE NO. 1-13772
HEALTHPLAN SERVICES CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-378901
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
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(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
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 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 registrant's Common Stock, $0.1 par value,
held by non-affiliates of the registrant, computed by reference to the last
reported price at which the stock was sold on March 16, 1998, was $277,321,341.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 16, 1998 was 14,936,947.
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 1998 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,
1997.
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PART I
THE STATEMENTS CONTAINED IN THIS REPORT OR INCORPORATED BY REFERENCE HEREIN THAT
ARE NOT PURELY HISTORICAL, INCLUDING STATEMENTS REGARDING HEALTHPLAN SERVICES
CORPORATION'S OBJECTIVES, EXPECTATIONS, HOPES, INTENTIONS, BELIEFS, OR
STRATEGIES, ARE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933. IN PARTICULAR, THE WORDS "EXPECT," "ESTIMATE,"
"PLAN," "ANTICIPATE," "PREDICT," "INTEND," "BELIEVE," AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. IT IS IMPORTANT TO NOTE
THAT ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS, AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS. AMONG
THE FACTORS THAT COULD CAUSE SUCH ACTUAL RESULTS TO DIFFER MATERIALLY ARE:
CHANGES IN LEGISLATION; FLUCTUATIONS IN BUSINESS CONDITIONS AND THE ECONOMY;
HEALTHPLAN SERVICES CORPORATION'S ABILITY TO IDENTIFY AND IMPLEMENT STRATEGIC
ACQUISITIONS; CHANGES IN COMPETITION; AND HEALTHPLAN SERVICES CORPORATION'S
ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL.
ITEM 1. BUSINESS
GENERAL
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") is an outsourcing company that
administers health and other benefit plans for large, self-funded companies and
for payors (insurance companies, health maintenance organizations ("HMO's"), and
other risk-takers) that have elected to outsource sales support, distribution,
and "back-office" administrative services. The Company provides these services
to approximately 120,000 small businesses, plan holders, and self-funded
organizations, covering approximately 3 million members in the United States.
The Company functions solely as a service provider generating fee-based income
and does not assume any underwriting risk.
STRATEGY
The Company's strategy is to grow revenue and increase earnings through
broader distribution of existing managed care products, the addition of new
payors, such as HMOs, integrated health care delivery systems, managed care
providers, and self-funded organizations, and the development of new technology
and information-based services. The Company desires to build economies of scale
by adding administrative services contracts with self-funded businesses and
other payors and by opportunistic expansion through acquisition of similar
businesses. The Company also has elected to pursue care management opportunities
through a recently formed joint venture with Sykes Enterprises, Incorporated
(Nasdaq: SYKE) ("Sykes"), a provider of call center services and other business
services to the information technology industry.
SYKES HEALTHPLAN SERVICES, INC.
In December 1997, the Company and Sykes formed Sykes HealthPlan Services,
Inc. ("SHPS"). SHPS offers care management services, technology solutions,
certain customer support services, and other outsourcing capabilities to the
health care and insurance industries. The Company and Sykes each have agreed to
invest up to $17 million in equity and to guarantee equally a line of credit of
$75 million that SHPS has established to fund its growth initiatives. The
shareholders agreement relating to this transaction contains noncompete
provisions that generally prevent the Company and Sykes from competing with each
other or with SHPS. Two executive officers of the Company, James K. Murray III
and Richard M. Bresee, became officers of SHPS in December 1997.
Through its technology solutions and call center operations, SHPS expects
to offer its managed care services to a large population of users interested in
controlling medical loss ratios. In particular, SHPS will seek to provide
utilization, demand, disease, and disability management to its target markets,
which include large, self-funded employers as well as traditional health
insurance carriers, HMO's, integrated provider systems, and third party
administrators. In the first quarter of 1998, the Company began outsourcing its
care management and utilization review services to SHPS.
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On December 31, 1997, SHPS purchased Optimed Medical Systems, Inc. ("OMS")
for $8.2 million in cash. OMS is a developer of clinical protocol systems that
allow managed care payors and providers to prospectively and concurrently
control health care and utilization costs while achieving optimal patient
outcomes.
On February 12, 1998, SHPS entered into an agreement to acquire Health
International, Inc. ("Health International"), a disease management company, for
approximately $22.6 million in cash. Health International provides a
comprehensive managed medical care program that helps improve the quality of
patient care and reduce unnecessary medical costs. On March 9, 1998, SHPS
entered into an agreement to acquire Prudential Services Bureau, Inc. ("PSBI")
of Louisville, Kentucky for $50 million in cash. PSBI provides call center-based
health and welfare benefits and administrative services. The closing of the
Health International and PSBI transactions is contingent upon completion of due
diligence, receipt of satisfactory regulatory approvals, and completion of
required documentation.
THE COMPANY'S SERVICES
The Company provides marketing, distribution, administration, and
information services and solutions for self-funded employee benefit plans,
managed care organizations, insurance companies, and other organizations.
MARKETING AND DISTRIBUTION
The Company provides managed care companies, insurance companies, and
other health care organizations with marketing services that target individuals
and small businesses. The Company helps design managed care products based on
market research, historical experience in the small business market, 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 medical, dental, life, and disability
coverage. On behalf of its payors, the Company prepares and implements
communications programs that are aimed at educating insurance agents about the
benefits offered under particular product offerings.
The Company's distribution activity includes sales support for insurance
agents through a field sales force, telephone sales representatives, and master
brokers. To support this front-end sales and marketing function, the Company has
invested in client-server technology that utilizes personal computer
workstations in a local-area and wide-area network to deliver information and
images to the desktop. Using the Company's automated proposal delivery system, a
Company sales representative can deliver a finished proposal from the computer
desktop to the agent immediately by fax server. The Company also has introduced
an interactive voice response system to provide agents with automatic premium
quotations for individual health products.
The Company maintains relationships with over 100,000 insurance agents,
including master brokers, independent brokers, and career agency groups. In the
case of a career agency relationship, the Company offers the agent group, which
generally works for one life or property and casualty parent company, an
opportunity to distribute products that compliment the products offered by the
group's sponsoring underwriter. These relationships with independent and career
agents provide the Company with a significant distribution conduit to the small
business market in the United States.
The Company continues to seek new distribution channels for its customers'
indemnity and managed care products. In 1996, the Company established a computer
"home page" on the Internet (www.healthplan.com) that provides information about
the Company. Although price quotations for products are not currently available
on the home page, the Company plans to seek opportunities to offer product
quotations through this channel during 1998.
PLAN ADMINISTRATION SERVICES
The Company provides enrollment, premium billing and collection, claims
administration, and customer support services for all types of health plans. As
a provider of enrollment services, the Company performs
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underwriting services, issues enrollment cards, and administers case renewals.
The Company's billing and collection services on behalf of payors include
sending monthly bills to insured parties, receiving premium payments from
insureds, and paying agent commissions. The Company also implements premium
adjustments due to rate changes, employee hiring or termination, and other group
changes. As a provider of claims administration services, the Company verifies
eligibility, calculates copayments, reprices and adjudicates claims, prepares
explanation of benefits forms, and issues checks to claimants and to health care
providers on payor accounts. Through its affiliation with SHPS, the Company also
offers its clients care management and utilization review services. The
Company's customer support representatives respond to plan member questions
regarding claims and other plan benefits.
Through its claims adjudication software and other technology solutions,
the Company streamlines plan administration for its customers. The Company's
claim scanning, optical character recognition, and image technologies allow the
Company's claims professionals to adjudicate claims electronically. To support
its customer service activities, the Company maintains approximately 500 WATS
telephone lines and a comprehensive customized call distribution system for
rating and tracking of calls. The Company also provides an interactive voice
response (IVR) system that allows insureds to check on the status of premium
payment and claims matters automatically.
In addition to enrollment, claims administration, and customer support
services, the Company offers specialized plan administration services tailored
for its self-funded customers. The Company's systems are organized to administer
a broad array of employee benefit plan components as an integrated one-stop
source. Due to the size of its customer base, the Company can offer its
self-funded customers access to regional and national preferred provider
networks and other service providers to control and reduce plan costs. The
Company also offers these customers administrative services for workers
compensation and unemployment compensation programs.
INFORMATION SERVICES
The Company has broad reporting and analytic capabilities relating to all
aspects of its core services. The Company's information services include
preparation of reports regarding agent production, enrollment, and frequency and
types of claims. The Company provides a comprehensive data resource of
financial, utilization, and benefit plan design information for its clients. The
Company also provides regulatory compliance services to its clients, helping
payors structure their employee benefit plans to comply with applicable state
and federal law. The Company intends to continue to enhance its data analysis
and statistical reporting capabilities using its database of administered claims
as well as publicly available data.
THE COMPANY'S CUSTOMERS
The Company provides services for a wide range of health care benefits
plans and employee benefit programs, including self-funded employee benefit
plans and fully insured health plans offered by managed care organizations,
insurance companies, and other health care organizations.
SELF-FUNDED HEALTH PLANS AND EMPLOYEE BENEFIT PROGRAMS (LARGE GROUP
CUSTOMERS)
The Company provides administrative and information services for
self-funded health benefit plans, workers compensation programs, and
unemployment compensation programs. In 1997, the Company provided these services
for approximately 3,000 customers, including large corporations, government
sector employers, associations, and Taft-Hartley benefit plans, which are
employee benefit plans managed jointly by union and management representatives.
The Company's self-funded customers include the health care programs for the
Oklahoma State and Education Employees Group Insurance Board (the "Oklahoma
Board"). The Oklahoma Board has awarded the Company a new three-year contract to
continue as administrator for the Oklahoma Board health care plans after the
current contract expires in June 1998.
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FULLY INSURED BENEFIT PLANS (SMALL GROUP CUSTOMERS)
For over 25 years, the Company has provided services to insurance
companies and other organizations that offer fully insured health benefit plans
for individuals and small businesses. Traditionally, the Company's primary
market was indemnity (fee-for-service) benefit plans, but in recent years the
Company has shifted its focus to "managed indemnity" plans and other managed
care plans that include mechanisms for controlling health care costs. The
Company now provides marketing and administrative services for several managed
care products through relationships with payors, including New England Life
Insurance Company, Kaiser Permanente Insurance Company, and Aetna 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 benefits business, with Connecticut General Life
Insurance Company, a CIGNA company, acting as the reinsurer. This business
accounted for approximately 12.5% of the Company's consolidated revenue in 1997.
In July 1997, the parties agreed to a transition of this business to Midwestern
United Life Insurance Company ("Midwestern United"). Midwestern United is
offering replacement coverage to TMG policyholders beginning in 1998. The
Company will continue to provide marketing and administrative services for this
business. During this transition, the business is experiencing higher than
normal lapse rates and lower than normal margins.
In July 1997, the Company formed an alliance with Seaboard Life Insurance
Company (USA) ("Seaboard Life") to develop and administer health benefit plans
for small businesses. Seaboard Life and the Company have launched the "Access"
products, fully insured, triple-option health benefits products issued by
Seaboard Life for employers with between two and ninety-nine employees. The
Company provides marketing, distribution, and other administrative services for
the Access products.
In 1997, approximately 12.7% of the Company's revenue was derived from a
block of indemnity/preferred provider organization ("PPO") business insured by
United HealthCare Corporation ("United HealthCare") and The Travelers Insurance
Company ("Travelers"). In July 1997, United HealthCare and Travelers agreed to
the transition of a majority of this business to the Seaboard Life Access
products. Beginning in October 1997, Seaboard Life began offering coverage under
its Access products to holders of these United HealthCare and Travelers
policies. As this transition continues, the business is experiencing higher than
normal lapse rates and lower than normal margins.
In October 1997, the Company and Provident American Corporation
("Provident") entered into an agreement under which the Company assumed all of
the policy issuance, billing, and claims services for the individual
indemnity/preferred provider organization ("PPO") health insurance policies of
Provident's life insurance subsidiaries. The Company began providing these
services in January 1998.
Typically, the Company's indemnity 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 also are cancelable
upon a significant change of ownership of the Company. The Company could
experience material adverse effects if the United HealthCare conversion to
Seaboard Life or the TMG conversion to Midwestern United is unsuccessful. A
decision by any one of the Company's major insurance company or managed care
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.
In the third quarter of 1996, Metropolitan Life Insurance Company
completed a merger with New England Life Insurance Company. The Company is
unable to predict what effect, if any, this merger will ultimately have on the
Company's relationship with New England Life Insurance Company.
The Company continues to experience higher lapses than originations in the
managed indemnity business written with some of its carrier payors and it is not
certain when, if ever, this trend will be reversed. Escalating medical costs
have rendered fee-for-service products less competitive, as evidenced by the
explosive growth during this decade of managed care products, which utilize a
higher degree of demand and disease management
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applications. Although the Company continues to work with its managed indemnity
payors to introduce additional care management and other cost-control mechanisms
for their benefit plans, the Company cannot predict whether these managed
indemnity payors will be able to manage their medical loss ratios successfully
and thus offer competitive pricing for their products. Such pricing could have a
direct effect on the Company's ability to maintain and grow managed indemnity
business in the future.
The Company is the administrator for the regional Florida Community Health
Purchasing Alliances ("CHPAs") established by the State of Florida. In 1997, the
Company renegotiated its CHPA contracts. The Company also is the statewide
administrator for North Carolina's State Health Plan Purchasing Alliance
program. Insurance carriers in North Carolina have not shown significant support
for this alliance. The Company's contract with the North Carolina alliance
expires in June 1998. The Company's contract to perform services for the State
of Kentucky health care purchasing alliance program expired on June 30, 1997.
The Company chose not to submit a bid to continue providing services for the
Kentucky alliance and closed its Lexington, Kentucky office at the end of the
contract term. The Company also chose not to renew its alliance contract with
the State of Washington, which terminated on December 31, 1997. Unless the
Company is successful in improving profitability in connection with its CHPA and
North Carolina programs, it may elect to exit the alliance business. In 1997,
approximately 2.7% of the Company's total revenue derived from the alliance
business.
COMPANY HISTORY
The Company's principal operating subsidiary, HealthPlan Services, Inc.,
was founded in 1970 by James K. Murray, Jr., the Company's current Chairman of
the Board and Chief Executive Officer, Charles H. Guy, Jr., and Trevor G. Smith,
who is currently a director of the Company (the "Founders"). The Dun &
Bradstreet Corporation (NYSE: DNB) ("D&B") purchased the business in 1978 and
operated it as a division. In 1994, the Founders, Noel Group, Inc., a
publicly-traded company based in New York (Nasdaq: NOEL) ("Noel") and other
investors formed the Company and purchased the HealthPlan Services business (the
"Predecessor Company") from D&B. On May 19, 1995, the Company completed an
initial public offering of 4,025,000 shares of its Common Stock. The Company is
a Delaware corporation.
INTEGRATION
During 1995, the Company acquired all of the outstanding stock of Third
Party Claims Management, Inc. ("TPCM"), a self-funded employee benefits
administrator with offices in Texas, Tennessee, and California, and
substantially all of the assets of Diversified Group Brokerage Corporation
("DGB"), a self-funded employee benefits administrator based in Connecticut. In
1996, the Company completed the acquisition of Consolidated Group, Inc.
("Consolidated Group"), a provider of administrative and related services for
health care plans designed for individuals and small businesses, and Harrington
Services Corporation ("Harrington"), a provider of administrative services to
large, self-funded benefit plans. The Company continues to integrate the
operations of these companies and of the blocks of business it assumed from TMG
and Provident. The Company's integration plan seeks to achieve economies of
scale by eliminating redundant facilities and operations. During 1997, the
Company began consolidation of personnel and administrative services to its
Tampa, Florida and Merrimack, New Hampshire facilities from the former
Consolidated Group facility in Framingham, Massachusetts and the Brookfield,
Wisconsin facility that the Company assumed in connection with the TMG block of
business. The Company also has consolidated accounting and data center
operations at its Tampa facility. In December 1997, the Company sold contract
rights and certain other assets of the former DGB business to DGB. Effective
December 31, 1997, Consolidated Group and Harrington, along with several other
operating subsidiaries of the Company, were merged into HealthPlan Services,
Inc. Robert R. Parker, formerly the Chief Operating Officer - Large Group
Business of the Company, became President and Chief Operating Officer of the
Company.
INFORMATION TECHNOLOGY
The Company's primary data processing facilities are located in Tampa,
Florida, 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. In
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1997, the Company consolidated one mainframe and three midrange computer systems
obtained in its recent acquisitions into its Tampa data center. The Company also
converted to a common technology platform for these business operations. The
Company intends to consolidate its remaining operations into a common technology
platform and to continue eliminating redundant computer facilities as part of
its ongoing integration of acquired businesses. The Company expects that this
integration will be completed in 1999.
In 1997, the Company began implementing its Year 2000 Compliance Plan.
Through upgrades and installation of new systems, the Company's
accounting/finance, workers compensation, unemployment compensation, and large
group billing systems are now compliant. The Company has begun the transition of
its billing and administrative systems for fully insured products and will
continue work on this project in 1998. The Company has received the new release
of its ERISCO ClaimsFacts claims management system, which is Year 2000
compliant, and intends to implement this release in 1998. The Company's Year
2000 Compliance Plan also provides for updating the Company's interfaces with
external vendors. The Company expects to complete implementation of its Year
2000 Compliance Plan in 1999.
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
also are 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 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 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 also can 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 (the "DOL") 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.
During 1996 and 1997, the Company's Consolidated Group subsidiary
underwent an audit by the DOL in which the DOL raised various questions about
the application of ERISA to the way that Consolidated Group did business. The
Company has responded to all outstanding concerns raised by the DOL in that
audit. Although the DOL has not objected to the Company's responses, there can
be no assurance that the DOL will not in the future
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take positions that could require changes to the way the Company operates or
result in the imposition of administrative fines and penalties.
STOCKHOLDERS
In December 1996, Noel, Automatic Data Processing, Inc (NYSE:AUD) ("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. Upon completion of this transaction on
February 7, 1997, Noel and ADP owned approximately 29% and 9%, respectively, of
the Company's Common Stock. The ADP Agreement provided among other things that:
(i) prior to December 31, 1997, ADP generally could not enter into an agreement
to acquire additional shares of the Company's Common Stock, unless such
acquisition was approved by the Company's Board of Directors, or unless the
Company entertained alternative offers; and (ii) the Company generally could not
take any action prior to December 31, 1997 that could interfere with
"pooling-of-interests" accounting. The Company also agreed to file a shelf
registration statement with respect to ADP's shares within 15 days after the
date of the ADP Agreement. In April 1997, the Company filed Form S-3
Registration Statements with the Securities and Exchange Commission registering
the shares held by Noel and ADP. In April 1997, in connection with a plan of
complete liquidation and dissolution, Noel began distribution of all of its
remaining shares of the Company's Common Stock to Noel stockholders. Beginning
in January 1998, the Company began implementing a share repurchase program under
which the Company is authorized to expend up to $20 million in connection with
the repurchase of its Common Stock. As of March 16, 1998, the Company had
repurchased 172,600 shares of its Common Stock pursuant to this program at a
cost of approximately $4.0 million.
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 (Nasdaq: HRMI) ("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, in
March 1997 the Company purchased 200,000 shares of HRM common stock,
representing approximately 4.5% of HRM shares outstanding at that time, at a
price of $12.50 per share. These shares are not registered under federal or
state securities laws 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, physician hospital organizations, hospitals, and governmental units in the
United States and Canada.
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 information 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 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
The Company had approximately 3,100 employees on March 19, 1998. Except
for some of the employees of American Benefit Plan Administrators, Inc., a
Company subsidiary that administers Taft-Hartley plans, the Company's labor
force is not unionized. The Company believes that its relationship with its
employees is good.
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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. The Company's central data processing facilities are located in Tampa,
Florida, Columbus, Ohio, and 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 1998.
ITEM 3. LEGAL PROCEEDINGS
During 1996 and 1997, the Company's Consolidated Group subsidiary
underwent a DOL audit in which the DOL raised various questions about the
application of ERISA to the way that Consolidated Group did business. The
Company has responded to all outstanding concerns raised by the DOL in that
audit. Although the DOL has not objected to the Company's responses, there can
be no assurance that the DOL will not in the future take positions that could
require changes to the way the Company 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 1997.
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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 for
each quarter during 1996 and 1997, as reported by the New York Stock Exchange
for the periods indicated.
1997 HIGH LOW
---- ---- ---
Fourth quarter ........................ $22.1875 $18.9375
Third quarter ......................... $22.125 $18.375
Second quarter ........................ $19.250 $13.625
First quarter ......................... $23.625 $15.375
1996 HIGH LOW
---- ---- ---
Fourth quarter ........................ $24.500 $16.375
Third quarter ......................... $26.875 $18.000
Second quarter ........................ $29.250 $20.250
First quarter ......................... $28.375 $22.625
The Company paid quarterly dividends on its Common Stock of 12.5 cents per
share (or 50 cents per share on an annualized basis) for the second, third, and
fourth quarters of 1997. Pursuant to the Company's May 17, 1996 credit agreement
with its lenders, as amended, in each year beginning in 1998 the Company may
increase the amount of dividend payments by up to five cents per share on an
annualized basis without the consent of the agent for its lenders. There were
447 holders of record of the Company's Common Stock as of March 16, 1998. The
Company believes that there is a significantly greater number of beneficial
owners that hold the Company's Common Stock in a street name.
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,
1997 and 1996 and for the years ended December 31, 1997, 1996, and 1995, and
have been derived from the audited financial statements of the Company at
December 31, 1994 and the three months ended December 31, 1994 and the
Predecessor Company at September 30, 1994 and December 31, 1993 and for the nine
months ended September 30, 1994 and the year ended December 31, 1993 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, 1997 and 1996 and for the years ended December 31, 1997, 1996, and 1995
appears elsewhere in this Form 10-K. Selected historical financial data of the
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.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
THE COMPANY COMPANY (1)
-------------------------------------------------------------- ----------------------
PRO FORMA THREE NINE
YEAR YEAR YEAR YEAR MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, DEC. 31,
1997 1996 1995 1994(3) 1994 1994 1993
-------- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues ................ $283,349 $ 193,839 $100,250 $107,178 $ 25,233 $81,945 $113,863
Expenses:
Agent commissions ....... 65,674 48,507 36,100 43,260 10,047 33,213 48,380
Other operating
expenses .............. 172,577 117,236 44,133 45,734 10,303 42,138 49,270
Contract
commitments ........... -- 2,685 -- 3,623 3,623 -- --
Restructure charge ...... 1,374 1,425 -- -- -- -- --
Integration
expense ............... 4,885 7,804 -- -- -- -- --
Loss on impairment
of goodwill ........... -- 13,710 -- -- -- -- --
Equity in loss of
joint venture ......... 2,850 -- -- -- -- -- --
Depreciation and
amortization .......... 15,917 10,548 4,386 3,517 870 3,347 4,053
Income (loss) from
operations ............ 20,072 (8,076) 15,631 11,044 390 3,247 12,160
Net income (loss) ...... $ 10,796 $ (6,716) $ 9,535 $ 6,467 $ 231 $ 1,747 $ 6,960
-------- --------- -------- -------- -------- ------- --------
Dividends on
redeemable
preferred
stock ................. -- -- 285 -- 285
Net income (loss)
attributable
to Common
Stock ................. $ 10,796 $ (6,716) $ 9,250 $ 6,467 $ (54)
-------- --------- -------- -------- --------
Basic net income
(loss)
per share ............. $ 0.72 $ (0.47) $ 0.82
Pro forma net
income
per share (2) ......... $ 0.71 $ 0.69 $ 0.03
Diluted net income
(loss)
per share ............. $ 0.71 $ (0.47) $ 0.84
Dividends declared
per share
of common stock ....... $ 0.38 -- --
Average common
shares
outstanding
Basic .............. 15,004 14,181 11,316
Pro forma (2) ...... 13,414 9,339 9,339
Diluted ............ 15,164 14,317 11,380
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, DEC. 31,
1997 1996 1995 1994(3) 1994 1994 1993
---------- ---------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) ............. $ (29,842) $ (26,929) $ 23,013 $(16,050) $(16,050) $ (17,742) $ (21,993)
Total assets ............ 243,324 244,701 112,667 53,189 53,189 27,884 31,851
Total debt .............. 43,694 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) .............. 116,566 108,783 80,966 20,292 1,007 2,170 634
<FN>
(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.
10
<PAGE>
(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) Gives effect to the Acquisition and the Recapitalization as if such
transactions had occurred on January 1, 1994.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following is a discussion of changes in the consolidated results of
operations of the Company for the years ended December 31, 1997, 1996, and 1995.
The Company is an outsourcing company that administers health and other
benefit plans for large, self-funded companies and for payors (insurance
companies, HMOs, and other risk-takers) that have elected to outsource sales
support, distribution, and "back-office" administrative services.
11
<PAGE>
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 revenue for such
periods.
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------- ------- -------
Total revenues ....................... 100.0 % 100.0 % 100.0 %
------- ------- -------
Expenses:
Agent commissions .................. 23.2 % 25.0 % 36.0 %
Personnel .......................... 39.9 % 37.3 % 25.4 %
General and administrative ......... 19.4 % 21.5 % 16.8 %
Pre-operating and contract
start-up costs ................... 0.1 % 0.4 % 1.7 %
Contract commitments ............... - 1.4 % -
Restructure charge ................. 0.5 % 0.7 % -
Integration ........................ 1.7 % 4.0 % -
Loss on impairment of
goodwill ......................... - 7.1 % -
Depreciation and amortization ...... 5.6 % 5.4 % 4.4 %
------ ------- ------
Total expenses ................. 90.4 % 102.8 % 84.3 %
------ ------- ------
Income (loss) before interest
expense, equity in
loss of joint venture, and
income taxes ..................... 9.6 % (2.8)% 15.7 %
Interest expense ..................... 1.5 % 1.4 % 0.1 %
Equity in loss of
joint venture .................... 1.0 % - -
------ ------- ------
Income (loss) before
income taxes ..................... 7.1 % (4.2)% 15.6 %
Provision (benefit) for
income taxes ..................... 3.3 % (0.7)% 6.1 %
------ ------- ------
Net income (loss) .................... 3.8 % (3.5)% 9.5 %
====== ======= ======
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997 increased $89.5 million, or
46.2%, to $283.3 million from $193.8 million in 1996. This increase resulted
primarily from the inclusion of an additional six months of revenues, $71.6
million, from the Company's acquisition of Consolidated Group and Harrington
(effective July 1, 1996). Revenues from the Company's base business (revenues
exclusive of above acquisitions) increased by $17.9 million compared to the same
period in 1996. This increase was primarily a result of the Company's assumption
of the TMG block of business.
Agent commission expense for the year ended December 31, 1997 increased
$17.2 million, or 35.4%, to $65.7 million from $48.5 million in 1996. This
increase resulted primarily from the inclusion of an additional six months of
commissions of $7.1 million related to the Company's 1996 acquisitions. The
Company's commissions as a percentage of operating revenues declined from 25.3%
in 1996 to 23.3% in 1997, as self-funded customer revenues represented a greater
percentage of the Company's total revenues. Traditionally, self-funded customer
commissions represent a lower percent of revenues than fully-insured customer
commissions.
Personnel expense for the year ended December 31, 1997 increased $40.9
million to $113.1 million, or 56.7%, from $72.2 million in 1996. Of this
increase, $34.5 million was attributable to a full year of personnel expenses
from the Company's 1996 acquisitions. The Company's personnel expense as a
percentage of total
12
<PAGE>
revenues increased to 39.9% in 1997 from 37.3% in 1996. This was primarily due
to the full-year impact of the Harrington acquisition and the more
labor-intensive nature of the self-funded customers.
General and administrative expense for the year ended December 31, 1997
increased $13.4 million, or 32.2%, to $55.0 million from $41.6 million in 1996.
Of this increase, $14.3 million is attributable to a full year of expenses from
the Company's 1996 acquisitions being included in the Company's 1997 general and
administrative expenses. The Company's general and administrative expense as a
percentage of total revenue decreased to 19.4% in 1997 from 21.5% in 1996. This
decline is primarily attributable to savings realized in postage,
communications, professional services, and printing costs and the net recovery
of $1.5 million from DGB in 1997.
In 1997, the Company renegotiated its contracts with the Florida Community
Health Purchasing Alliances ("CHPAs") and exited the Kentucky alliance and
Washington alliance businesses. The Company closed its Lexington, Kentucky
office at the end of the contract term. As a result of the Kentucky office
closure, the Company recognized a one-time, non-recurring charge to general and
administrative expense of $0.2 million. No contract commitment expense for the
alliance business was recognized by the Company in 1997.
The Company incurred $1.4 million in restructuring costs for the year
ended December 31, 1997. These costs reflect employee terminations and the
abandonment of property and equipment associated with transferring functions
from the Company's Framingham, Massachusetts office.
Integration expense for the year ended December 31, 1997 was $4.9 million.
Of this expense, $3.2 million related to the integration of information systems
used by the TMG, Consolidated Group, and Harrington businesses, while $1.7
million represented other costs associated with transferring functions from
certain of the Company's offices, the consolidation of treasury functions, and
employee relocations.
Depreciation and amortization expense for the year ended December 31, 1997
increased $5.4 million, or 51.4%, to $15.9 million from $10.5 million in 1996.
Of this increase, $4.5 million related to a full year of depreciation and
amortization from the Company's acquisition of Consolidated Group and
Harrington. Additionally, the Company recognized a $0.4 million acceleration of
amortization for internally developed software related to the Company's exiting
the Kentucky alliance in 1997.
Interest expense for the year ended December 31, 1997 increased to $4.2
million from $2.6 million in 1996. This increase reflects the fact that the
Company's credit facility balance was outstanding for a full year in 1997, as
opposed to six months in 1996.
The Company recorded its 50% share of the $2.9 million loss incurred by
SHPS for the period from inception to December 31, 1997, which was principally
the result of a charge of $2.8 million for the write-off of purchased research
and development associated with the acquisition of OMS by SHPS.
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 September
1, 1995), DGB (effective October 1, 1995), Consolidated Group (effective July 1,
1996), and Harrington (effective July 1, 1996), respectively. Revenues from the
Company's self-funded and alliance customers increased $2.1 million and $5.7
million, respectively, over 1995.
Agent commission 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.
The Company's commissions as a percentage of operating revenues declined from
36.8% in 1995 to 25.3% in 1996, as self-funded customer revenues represented a
greater percentage of total revenues. Self-funded customer
13
<PAGE>
commissions (11.9% of 1996 total revenues) represent a lower percentage of
revenues than fully-insured customer commissions (44.9% of 1996 total revenues).
Personnel expense for the year ended December 31, 1996 increased $46.8
million to $72.2 million, or 184.3%, from $25.4 million in 1995. Of this
increase, $41.3 million was attributable to the Company's acquisitions of TPCM,
DGB, Consolidated Group, and Harrington. Personnel expense for the Company
increased $5.5 million and was primarily related to additional salaries and
wages, overtime, and temporary services related to new activities from the
Company's alliance and self-funded customers, which are more labor-intensive
than fully-insured customers.
General and administrative expense 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 was attributable to costs associated with the
Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington. Costs
for the Company increased by $7.6 million and were primarily attributable to
telephone, postage, printing, and professional services related to the Company's
business activities from alliance and self-funded customers.
Contract commitment expense related 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 were 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. 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 resulted 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 reflected the write-down of the
carrying value of goodwill originally recorded upon the Company's acquisitions
of TPCM and DGB, which reflected their expected future discounted cash flows.
Depreciation and amortization expense for the year ended December 31, 1996
increased $6.1 million, or 138.6%, to $10.5 million from $4.4 million in 1995.
Of this increase, $5.2 million related 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 was primarily attributable to the amortization of internally
developed software for the Company's alliance administration.
LIQUIDITY AND CAPITAL RESOURCES
On May 19, 1995, the Company completed an initial public offering which
generated net proceeds of approximately $51.0 million. The proceeds from this
offering, in conjunction with borrowings against the Company's Line of Credit,
were used in the acquisitions of TPCM and DGB in 1995 and Consolidated Group and
Harrington in 1996.
The Company currently has a credit facility ("Line of Credit") with
availability equal to three times trailing earnings before interest expense,
income taxes, and depreciation and amortization expense (with certain
adjustments called for in the credit agreement). First Union National Bank of
North Carolina serves as "agency bank" with respect to this facility. The credit
facility contains provisions which require the Company to maintain certain
minimum financial ratios and impose limitations on acquisition activity and
capital spending. In 1997, the Company reduced its outstanding draw against the
Line of Credit by $15 million. The outstanding draw was $40.0 million at
December 31, 1997. The first principal payment under the Line of Credit is due
on November 30, 1998. The Company has both the intent and ability to refinance
its credit facility on a long-term basis.
14
<PAGE>
In the second quarter of 1997, the Company entered into an amendment of
the terms of its Line of Credit to enable it to pay a quarterly dividend of up
to $0.125 per share of the Company's capital stock (up to $0.50 per share on an
annualized basis). The Company may increase this dividend by up to $0.05 per
share on an annualized basis for each calendar year after 1997, without the
consent of the agency bank. For 1997, the Company declared dividends totaling
$5.6 million. These dividends were paid on July 14, 1997, October 15, 1997, and
January 20, 1998.
During the second quarter of 1997, the Board of Directors authorized the
Company to use up to $20.0 million to support a share repurchase program,
subject to the terms and conditions of a previously announced agreement with
ADP. The Company began implementing this share repurchase program in 1998.
Through March 16, 1998, the Company had acquired 172,600 shares under this
program at a cost of approximately $4.0 million.
On March 5, 1997, the Company and Health Risk Management, Inc. ("HRM"), a
provider of integrated health care management services, 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 October 16, 1997, the Company and Provident announced that they had
entered into an administrative services agreement. In connection with this
agreement, the Company advanced Provident $5.0 million. In addition to service
fees that the Company will retain from collected Provident premium, the Company
will retain $85,000 of collected Provident premium per month during the first
sixty months of the agreement. Under this agreement, in January 1998 Provident
began outsourcing to the Company all of the policy issuance, billing, and claims
services for the individual indemnity/PPO health insurance policies of
Provident's life insurance subsidiaries.
In December 1997, the Company sold contract rights and certain other
assets of the former DGB business to DGB for cash totaling $4.3 million. The
cash consideration, net of the sale of certain property and equipment ($0.1
million), the write-off of interest receivable on the escrow account ($0.4
million), and the write-off of goodwill associated with the DGB acquisition
($2.3 million), resulted in a net recovery of $1.5 million.
In December 1997, the Company and Sykes Enterprises, Incorporated
("Sykes") formed Sykes HealthPlan Services, Inc. ("SHPS"). SHPS is owned 50
percent by each of the founding companies and will provide care management
services, technology solutions, certain customer support services, and other
outsourcing capabilities to the health care and insurance industries. The
Company has agreed to invest up to $17 million in equity in SHPS, of which $5.0
million was invested during 1997. In addition, the Company has agreed to
guarantee $37.5 million of SHPS' $75.0 million credit line.
The Company spent $9.8 million for capital expenditures in 1997.
Additionally, the Company incurred a cash outlay of $4.9 million in 1997 for
integration costs related primarily to systems integration and the transfer of
operations from the Company's Brookfield, Wisconsin and Framingham,
Massachusetts offices. In the first two quarters of 1998, the Company expects to
incur approximately $1.0 million of additional integration cost related to the
consolidation of operations from its Framingham office.
Based upon current expectations, the Company believes that all
consolidated operating 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 data under this Item.
15
<PAGE>
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 12, 1998, 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 12, 1998, under
"Compensation of Executive Officers" and "Additional Information Concerning
Directors," and is herein incorporated by reference.
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 12, 1998, under
"Security Ownership of Certain Beneficial Owners and Management," 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 12, 1998, 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:
Report of Independent Accountants
Consolidated Balance Sheets - December 31,1997 and 1996
Consolidated Statements of Operations - Years ended December 31,
1997, 1996, and 1995
Consolidated Statement of Changes in Stockholders' Equity - Years
ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996, and 1995
Notes to Consolidated Financial Statements
16
<PAGE>
(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:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
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., and the Company
(incorporated by reference to the Noel Group, Inc.'s Current Report
on Form 8-K dated February 7, 1997).
2.7 Shareholder Agreement by and among Sykes Enterprises, Incorporated
and the Company dated December 18, 1997, and Amendment to
Shareholder Agreement dated February 28, 1998.
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 (incorporated by reference to Exhibit 3.2 to the
Company's 1996 Annual Report on Form 10-K, filed on March 31, 1997).
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).
17
<PAGE>
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) (incorporated by reference to
Exhibit 10.4 to the Company's 1996 Annual Report on Form 10-K, filed
on March 31, 1997):
(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 HealthPlan Services Corporation 1996 Employee Stock Option
Plan (compensatory plan) (incorporated by reference to Exhibit 10.6
to the Company's 1996 Annual Report on Form 10-K, filed on March 31,
1997).
10.6 Amended and Restated HealthPlan Services Corporation 1996 Employee
Stock Option Plan (compensatory plan) (incorporated by reference to
Exhibit 4.3 to the Company's Form S-8 Registration Statement
#333-31913, filed on July 23, 1997).
10.7 HealthPlan Services Corporation 1995 Incentive Equity Plan
(compensatory 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
(compensatory 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
18
<PAGE>
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).
(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 (incorporated
by reference to Exhibit 10.14(d) to the Company's 1996 Annual Report
on Form 10-K, filed on March 31, 1997).
(e) Third Amendment to Amended Consolidated and Restated Lease
between Consolidated Group Service Company Limited Partnership and
HealthPlan Services, Inc., dated February 26, 1998.
10.15 (a) 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 (incorporated by reference to Exhibit 10.15 to the
Company's 1996 Annual Report on Form 10-K filed on March 31, 1997).
(b) Letter Agreement regarding Credit Agreement, dated March 28,
1997.
19
<PAGE>
(c) Third Amendment to Credit Agreement, dated May 6, 1997.
(d) Fourth Amendment to Credit Agreement, dated June 13, 1997.
(e) Fifth Amendment to Credit Agreement, dated October 30, 1997.
(f) Sixth Amendment to Credit Agreement, dated March 17, 1998.
10.16 Employment and Noncompetition Agreement, dated June 25, 1996 by and
between R.E. Harrington, Inc. and Robert R. Parker (management
contract) (incorporated by reference to Exhibit 10.19 to the
Company's 1996 Annual Report on Form 10-K filed on March 31, 1997).
10.17 Deferred Compensation Agreement between R. E. Harrington, Inc. and
Robert R. Parker, dated May 15, 1987 (compensatory plan).
10.18 Employment and Noncompetition Agreement dated July 1, 1996 by and
between Consolidated Group, Inc. and Timothy T. Clifford (management
contract) (incorporated by reference to Exhibit 10.20 to the
Company's 1996 Annual Report on Form 10-K filed on March 31, 1997).
10.19 Amended and Restated HealthPlan Services Corporation 1997 Directors
Equity Plan (compensatory plan) (incorporated by reference to
Exhibit 4.3 to the Company's Form S-8 Registration Statement
#333-31915, filed on July 23, 1997).
10.20 HealthPlan Services Corporation 1997 Officer Bonus Plan Summary
(compensatory plan).
10.21 Administrative Services and Business Transfer Agreement between the
Company and TMG Life Insurance Company, dated December 4, 1996.
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 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, 1997.
20
<PAGE>
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 30th day of March, 1998.
HEALTHPLAN SERVICES CORPORATION
By: /s/ JAMES K. MURRAY, JR.
--------------------------------------
James K. Murray, Jr.,
Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
By: /s/ DONALD W. GOULD, JR.
--------------------------------------
Donald W. Gould, Jr.,
Senior 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.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JAMES K. MURRAY, JR. Chief Executive Officer; March 30, 1998
----------------------- and Chairman of the
James K. Murray, Jr. Board (Principal Executive
Officer)
/s/ WILLIAM L. BENNETT Vice Chairman of the March 30, 1998
----------------------- Board; Director
William L. Bennett
----------------------- Director
Joseph A. Califano, Jr.
/s/ JOSEPH S. DIMARTINO Director March 30, 1998
-----------------------
Joseph S. DiMartino
/s/ VINCENT D. FARRELL, JR. Director March 30, 1998
-----------------------
Vincent D. Farrell, Jr.
21
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN R. GUNN Director March 30, 1998
-----------------------
John R. Gunn
/s/ NANCY M. KANE Director March 30, 1998
-----------------------
Nancy M. Kane
/s/ DAVID NIERENBERG Director March 30, 1998
-----------------------
David Nierenberg
/s/ JAMES G. NIVEN Director March 30, 1998
-----------------------
James G. Niven
/s/ MARC I. PERKINS Director March 30, 1998
-----------------------
Marc I. Perkins
/s/ TREVOR G. SMITH Director March 30, 1998
-----------------------
Trevor G. Smith
/s/ JAMES F. CARLIN Director March 30, 1998
-----------------------
James F. Carlin
/s/ ARTHUR F. WEINBACH Director March 30, 1998
-----------------------
Arthur F. Weinbach
22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
HealthPlan Services Corporation
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, 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, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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 18, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 1,545 $ 3,725
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . 11,256 10,062
Accounts receivable, net of allowance for doubtful
accounts of $150 and $99, respectively . . . . . . . . . . . . 28,900 17,899
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . 1,843 6,083
Prepaid expenses and other current assets . . . . . . . . . . . . . 3,071 4,245
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,085 4,481
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 49,700 46,495
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . 23,235 21,102
Other assets, net of accumulated amortization
of $689 and $443, respectively . . . . . . . . . . . . . . . . . 2,908 2,182
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,008 8,327
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,334 6,389
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,595 3,685
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . 149,544 156,521
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 243,324 $ 244,701
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,502 $ 20,905
Premiums payable to carriers . . . . . . . . . . . . . . . . . . . . 39,601 19,018
Commissions payable. . . . . . . . . . . . . . . . . . . . . . . . . 5,484 4,880
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 2,015 1,560
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 18,555 24,344
Current portion of long-term notes payable . . . . . . . . . . . . . 385 2,717
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . 79,542 73,424
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,309 59,581
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982 -
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 2,925 2,913
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . 126,758 135,918
----------- -----------
Commitments and contingencies (Notes 8, 11, and 12)
Stockholders' equity:
Common stock voting, $0.01 par value, 100,000,000 authorized,
15,038,033 issued and outstanding at December 31, 1997 and,
14,974,126 at December 31, 1996 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 107,325 106,153
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 7,671 2,480
Unrealized appreciation on investments available for sale . . . . . 1,420 -
----------- -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . 116,566 108,783
----------- -----------
Total liabilities and stockholders' equity. . . . . . . . . $ 243,324 $ 244,701
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
----------- ----------- -------------
<S> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . . . . . . . . $ 281,644 $ 191,493 $ 98,187
Interest income . . . . . . . . . . . . . . . . . . . . . 1,705 2,346 2,063
----------- ----------- -------------
Total revenues . . . . . . . . . . . . . . . . . . 283,349 193,839 100,250
Expenses:
Agent commissions . . . . . . . . . . . . . . . . . . . 65,674 48,507 36,100
Personnel . . . . . . . . . . . . . . . . . . . . . . . 113,071 72,209 25,433
General and administrative . . . . . . . . . . . . . . 54,973 41,614 16,967
Pre-operating and contract start-up costs . . . . . . . 360 812 1,664
Contract commitments . . . . . . . . . . . . . . . . . - 2,685 -
Restructure charge . . . . . . . . . . . . . . . . . . 1,374 1,425 -
Integration . . . . . . . . . . . . . . . . . . . . . . 4,885 7,804 -
Loss on impairment of goodwill . . . . . . . . . . . . - 13,710 -
Depreciation and amortization . . . . . . . . . . . . 15,917 10,548 4,386
----------- ----------- -------------
Total expenses . . . . . . . . . . . . . . . . . . 256,254 199,314 84,550
----------- ----------- -------------
Income (loss) before interest expense, equity in
loss of joint venture, and income taxes . . . . . . . 27,095 (5,475) 15,700
Interest expense . . . . . . . . . . . . . . . . . . . 4,173 2,601 69
Equity in loss of joint venture . . . . . . . . . . . . 2,850 - -
----------- ----------- -------------
Income (loss) before income taxes . . . . . . . . . . . 20,072 (8,076) 15,631
Provision (benefit) for income taxes. . . . . . . . . . 9,276 (1,360) 6,096
----------- ----------- -------------
Net income (loss) . . . . . . . . . . . . . . . . $ 10,796 $ (6,716) $ 9,535
=========== =========== =============
Dividends on Redeemable
Preferred Stock . . . . . . . . . . . . . . . . . $ - $ - $ 285
=========== =========== =============
Net income (loss) attributable to
common stock . . . . . . . . . . . . . . . . . . . $ 10,796 $ (6,716) $ 9,250
=========== =========== =============
Basic net income (loss) per share . . . . . . . . . . . $ 0.72 $ (0.47) $ 0.82
=========== =========== =============
Basic weighted average
shares outstanding . . . . . . . . . . . . . . . . 15,004 14,181 11,316
=========== =========== =============
Basic pro forma net income per share . . . . . . . . . $ 0.71
=============
Basic pro forma weighted average
shares outstanding . . . . . . . . . . . . . . . . 13,414
=============
Diluted income (loss) per share . . . . . . . . . . . . $ 0.71 $ (0.47) $ 0.84
=========== =========== =============
Diluted weighted average
shares outstanding . . . . . . . . . . . . . . . . 15,164 14,317 11,380
=========== =========== =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
UNREALIZED
APPRECIATION
NON- ON
VOTING VOTING ADDITIONAL INVESTMENTS
COMMON COMMON PAID-IN RETAINED AVAILABLE
STOCK STOCK CAPITAL EARNINGS FOR SALE TOTAL
------ ------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
Vesting of management stock .. -- -- 235 -- -- 235
Issuance of 46,800
shares in connection
with stock option plans .... -- -- 655 -- -- 655
Issuance of 14,569 shares
in connection with
the employee stock
purchase plan .............. -- -- 237 -- -- 237
Issuance of 2,538 shares
in connection with the
directors compensation plan -- -- 45 -- -- 45
Cash dividends declared ..... -- -- -- (5,605) -- (5,605)
Change in unrealized
appreciation on investments
available for sale ......... -- -- -- -- 1,420 1,420
Net income ................... -- -- -- 10,796 -- 10,796
--- ---- --------- -------- ------ ---------
Balance at December 31, 1997 . $-- $150 $ 107,325 $ 7,671 $1,420 $ 116,566
=== ==== ========= ======== ====== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
---------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,796 $ (6,716) $ 9,535
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 9,061 5,729 2,657
Amortization . . . . . . . . . . . . . . . . . . 6,856 4,819 1,729
Equity in loss of joint venture. . . . . . . . . 2,850 - -
Loss on impairment of goodwill . . . . . . . . . - 13,710 -
Issuance of Common Stock to management . . . . . 235 456 332
Deferred taxes . . . . . . . . . . . . . . . . . 6,697 (804) 935
Changes in assets and liabilities, net of effect
from acquisitions and dispositions:
Restricted cash. . . . . . . . . . . . . . . . . (1,194) (9,057) 1,807
Accounts receivable. . . . . . . . . . . . . . . (10,919) 1,415 (702)
Refundable income taxes . . . . . . . . . . . . 4,240 (5,043) (1,041)
Prepaid expenses and other current assets. . . . 960 (286) 136
Other assets . . . . . . . . . . . . . . . . . . (1,138) 565 (188)
Accounts payable . . . . . . . . . . . . . . . . (7,316) 13,049 643
Premiums payable to carriers . . . . . . . . . . 20,583 1,809 (1,262)
Commissions payable . . . . . . . . . . . . . . 604 338 (12)
Deferred revenue . . . . . . . . . . . . . . . . 455 (490) (1,018)
Accrued liabilities. . . . . . . . . . . . . . . (8,894) 1,229 (4,340)
Income taxes payable . . . . . . . . . . . . . . - (54) (135)
---------- ------------- -----------
Net cash provided by operating activities 33,876 20,669 9,076
---------- ------------- -----------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . (9,837) (5,731) (5,286)
Sales (purchases) of short-term
investments, net. . . . . . . . . . . . . . . - 36,723 (36,723)
Cash paid for acquisitions, net of cash acquired - (89,484) (17,403)
Payment for purchase of The Mutual Group block
of business . . . . . . . . . . . . . . . . . (1,623) - -
Payment for Provident American contract rights . (707) - -
Proceeds from sale of assets . . . . . . . . . . 2,780 - -
Purchases of investments . . . . . . . . . . . . (5,341) (3,311) -
Proceeds from note receivable. . . . . . . . . . 6,388 - -
Purchases of notes receivable. . . . . . . . . . (6,334) (6,388) -
---------- ------------- -----------
Net cash used in investing activities . . (14,674) (68,191) (59,412)
---------- ------------- -----------
Cash flows from financing activities:
Net (payments) borrowings under line
of credit (15,000) 55,000 -
Payments on other debt . . . . . . . . . . . . . (3,593) (12,466) (35)
Cash dividends paid. . . . . . . . . . . . . . . (3,726) - -
Net proceeds from initial public offering of
Common Stock . . . . . . . . . . . . . . . . - - 50,806
Proceeds from exercise of stock options . . . . 655 160 -
Proceeds from Common Stock issued. . . . . . . . 282 3,815 -
---------- ------------- -----------
Net cash (used in) provided by
financing activities . . . . . . . . . (21,382) 46,509 50,771
---------- ------------- -----------
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . (2,180) (1,013) 435
Cash and cash equivalents at beginning of period . 3,725 4,738 4,303
---------- ------------- -----------
Cash and cash equivalents at end of period. . . . . $ 1,545 $ 3,725 $ 4,738
========== ============= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . . . . . $ 4,900 $ 1,573 $ 65
========== ============= ===========
Net (refunds received) cash paid for
income taxes . . . . . . . . . . . . . . . . . $ (838) $ 4,968 $ 6,321
========== ============= ===========
Supplemental disclosure of noncash activities:
Dividends declared but unpaid . . . . . . . . . $ 1,879 $ - $ -
========== ============= ===========
Exchange of Redeemable Preferred Stock
Series A and Series B for Common Stock . . . $ - $ - $ 19,570
========== ============= ===========
Common Stock issued for purchase of
Harrington Services Corporation. . . . . . . $ - $ 30,102 $ -
========== ============= ===========
Dividends on Redeemable Preferred Stock. . . . . $ - $ - $ 285
========== ============= ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") is an outsourcing company that
administers health and other benefit plans for large, self-funded companies
and for payors (insurance companies, health maintenance organizations
("HMOs"), and other risk-takers) that have elected to outsource sales
support, distribution, and "back-office" administrative services. The
Company provides these services to approximately 120,000 small businesses,
plan holders, and self-funded organizations, covering approximately 3.0
million members in the United States. The Company functions solely as a
service provider generating fee-based income and does not assume any
underwriting risk.
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 HealthPlan
Services Corporation and its wholly owned subsidiaries. The Company's 50%
owned joint venture investment is accounted for using the equity method.
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.
RESTRICTED CASH
The Company 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.
F-6
<PAGE>
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:
YEARS
----------
Building 30
Furniture and fixtures 3-10
Computers and equipment 2-5
Computer software 3
Leasehold improvements Lease term
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid
commissions (paid to certain agents at the initiation of a policy), rent,
insurance, postage, and repair and maintenance contracts.
INVESTMENTS
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). The effect of SFAS 115 is dependent
upon classification of the investment. As the Company's investments in
Health Risk Management, Inc. ("HRM") and Medirisk, Inc. ("Medirisk") (see
Note 8) are classified as available for sale, they are measured at fair
market value. Any increase or decline in the value of investments is
recorded as unrealized appreciation in the equity section of the balance
sheet. The Company recognizes gains based on average costs.
Investments in common stock and joint ventures in which the Company
exercises significant influence but lacks control are accounted for on the
equity basis. Under the equity method, the Company records its
proportionate share of income and loss of each investment.
INTANGIBLES 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 6).
Other intangibles, such as contract rights, are amortized over either the
term or expected life of the contracts, generally 5-7 years.
OTHER ASSETS
Other assets includes loan origination fees 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.
F-7
<PAGE>
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.
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.
INTEGRATION EXPENSE
Certain costs amounting to $3.2 million incurred by the Company in 1997
relative to the post-acquisition integration of information systems at
Consolidated Group, Inc. and an affiliated company (collectively,
"Consolidated Group") and Harrington Services Corporation, together with
its direct and indirect wholly owned subsidiaries ("Harrington") as well as
the post-assumption integration of information systems for the group
operations of TMG Life Insurance Company's Employee Benefits division ("TMG
block of business") were recorded as integration expense. Other
non-information systems costs amounting to $1.7 million for items such as
the closing of certain of the Company's offices, consolidation of treasury
functions, and employee relocations have also been recorded as integration
expense.
Certain costs amounting to $6.9 million incurred by the Company in 1996 in
relation to the post-acquisition integration of information systems at
Consolidated Group and Harrington are recorded as integration expense.
Other non-information systems costs amounting to $0.9 million for items
such as travel, recruiting, and moving have also been recorded as
integration expense.
RESTRUCTURE CHARGES
In 1997, the Company recorded a charge of $1.4 million to reflect the cost
of exiting its Framingham, Massachusetts office. This charge reflected the
cost of terminating employees and abandoning property and equipment. The
Company's restructure plan included the elimination of approximately 150
jobs in management, administration, and information systems. The
administration and claims services historically performed in Framingham
were assumed in the Company's Tampa, Florida and Merrimack, New Hampshire
offices.
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 ($0.7 million) and
terminating employees ($0.7 million). 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.
F-8
<PAGE>
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
During 1997, Statement on Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," was issued. SFAS 128 was effective for the
year ending December 31, 1997 and required a restatement of previously
reported earnings per share. Under SFAS 128, "basic" earnings per share
replaced the reporting of "primary" earnings per share. Basic earnings per
share is calculated by dividing the income available to common stockholders
by the weighted average number of common shares outstanding for the period,
without consideration for common stock equivalents. "Fully diluted"
earnings per share replaced "diluted" earnings per share under SFAS 128.
The calculation of diluted earnings per share is similar to that of fully
diluted earnings per share under previous accounting pronouncements.
Basic Pro Forma earnings per share was computed based on the weighted
average number of common shares outstanding during the period 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.
Primary earnings per share was not materially different from basic earnings
per share for the years ended December 31, 1996 and 1995.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation. These amounts do not have a material impact on
the financial statements taken as a whole.
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 ("SFAS 123").
DERIVATIVE FINANCIAL INSTRUMENTS
As a matter of policy, the Company does not engage in derivatives trading
or market-making activities. Rather, derivative financial instruments
including interest rate swaps are used by the Company principally in the
management of its interest rate exposures. Amounts to be paid or received
under interest rate swap agreements are accrued as interest rates change
and are recognized over the life of the swap agreements as an adjustment to
interest expense. The fair values of the swap agreements are not recognized
in the consolidated financial statements since they are accounted for as
hedges.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the disclosure of the fair value
of financial instruments, including assets and liabilities recognized and
not recognized in the consolidated statements of financial condition.
The Company's investments, which are readily marketable, are carried at
market value.
F-9
<PAGE>
Management estimates that the aggregate net fair value of other financial
instruments recognized on the consolidated statements of financial
condition (including cash and cash equivalents, receivables and payables,
and short-term borrowings) approximates their carrying value, as such
financial instruments are short-term in nature, bear interest at current
market rates or are subject to repricing.
The Company's only financial instruments not reflected at estimated market
value are its two interest rate swaps (see Note 9). The unrecorded fair
value of these swaps as of December 31, 1997 was approximately $(675,000).
3. ACQUISITIONS
CONSOLIDATED GROUP
On July 1, 1996, the Company acquired all the issued and outstanding stock
of 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. The purchase price of Consolidated Group was allocated to the fair
value of the net assets acquired as follows:
Tangible assets acquired $ 19.7 million
Goodwill 59.7 million
Liabilities assumed (17.5) million
---------------
$ 61.9 million
===============
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 administrative services to
self-funded benefit plans. 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:
Tangible assets acquired $ 27.7 million
Goodwill 66.7 million
Liabilities assumed (31.8) million
---------------
$ 62.6 million
===============
DIVERSIFIED GROUP BROKERAGE
On October 12, 1995, HealthPlan Services, Inc., a wholly owned subsidiary
of the Company ("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. 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. In December 1997, the Company sold the contracts
and certain other assets to DGB for cash totaling $4.3 million. The cash
consideration, net of the sale of certain property and equipment ($0.1
million), the write-off of interest receivable on the escrow account ($0.4
million), and the write-off of goodwill associated with the DGB acquisition
($2.3 million), resulted in a net recovery of $1.5 million.
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"). In
connection with this acquisition, the Company recorded (i) a cash
F-10
<PAGE>
investment of approximately $7.5 million, (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.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following unaudited pro forma consolidated results of operations of the
Company give effect to acquisitions, accounted for as purchases, as if they
occurred on January 1, 1996 (in thousands):
YEAR ENDED
DECEMBER 31,
1996
------------
Revenues $ 269,476
Net loss (7,839)
Net loss per common share (0.52)
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, 1996 or of the results which may occur in the future.
4. BLOCKS OF BUSINESS
PROVIDENT AMERICAN CORPORATION
In October 1997, the Company and Provident American Corporation
("Provident") entered into an agreement under which the Company assumed all
of the policy issuance, billing, and claims services for the individual
health insurance policies of Provident's life insurance subsidiaries. The
Company began providing these services in January 1998. In conjunction with
this agreement, the Company recorded contract rights (see Notes 6 and 8) of
$0.7 million.
TMG LIFE INSURANCE COMPANY'S EMPLOYEE BENEFITS BUSINESS
Effective January 1, 1997, HPSI assumed the administrative responsibilities
for the TMG block of business. As part of the administration and business
transfer agreement (the "Agreement"), the Company agreed to assume a lease
related to a field office located in Brookfield, Wisconsin and pay $1.6
million for certain tangible and intangible assets. In addition, the
Company agreed to employ approximately 220 former TMG employees for a
period of six months. The Company has recorded a liability for certain
obligations assumed in the Agreement, including the closure of the
Brookfield office, an event which the Company announced during the second
quarter and executed during the third quarter of 1997. TMG provides
marketing and administrative services for medical, dental, and group life
benefits to small businesses with approximately 185,000 members and over
$100 million in annual premiums. Connecticut General Life Insurance Company
has assumed financial responsibility for the business as the reinsurer of
new and existing policies. Consistent with the Company's historical policy
of accounting for the assumption of blocks of business (as opposed to the
acquisition of companies), the intangible asset, called "contract rights,"
is being amortized over seven years (see Note 6).
F-11
<PAGE>
5. 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
self-funded customers located throughout the United States to provide third
party marketing, administration, and risk management services. For the year
ended December 31, 1997, the Company's two largest payors accounted for
approximately 12.7% and 12.5%, respectively, of total revenues.
The Company grants credit, without collateral, to some of its self-funded
clients under certain contracts.
6. INTANGIBLE ASSETS
Intangible assets resulting from the excess of cost over the fair value of
the respective net assets acquired was as follows (in thousands):
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
HealthPlan Services goodwill $ 32,841 $ 32,841
Consolidated Group goodwill 59,734 59,734
Harrington goodwill 66,705 66,705
Diversified Group Brokerage goodwill - 2,388
Third Party Claims Management goodwill 490 490
The Mutual Group contract rights 1,224 -
Provident American contract rights 707 -
----------- ----------
161,701 162,158
Accumulated amortization (12,157) (5,637)
----------- ----------
$ 149,544 $ 156,521
=========== ==========
In December 1997, the Company sold the rights for the administration of DGB
customers along with certain other assets back to DGB (see Note 3)
resulting in the recovery of the remaining goodwill balance.
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.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31,
-----------------------
1997 1996
--------- ---------
Land $ 438 $ 438
Building 1,133 1,133
Furniture and fixtures 8,126 7,531
Computers and equipment 13,952 10,192
Computer software 14,100 7,728
Leasehold improvements 3,214 2,949
--------- ---------
40,963 29,971
Less - accumulated depreciation (17,728) (8,869)
--------- ---------
$ 23,235 $ 21,102
========= =========
The Company capitalizes purchased software which is ready for service and
software development costs incurred from the time technological feasibility
of the software is established until the software is ready for use to
provide processing services to customers. Research and development costs
and other computer software maintenance costs related to software
development are expensed as incurred. Software development costs and costs
of purchased
F-12
<PAGE>
software are amortized using the straight-line method over a maximum of
three years or the expected life of the product.
The carrying value of a software and development asset is regularly
reviewed by the Company, and a loss is recognized when the net realizable
value falls below the unamortized cost.
8. INVESTMENTS AND NOTES RECEIVABLE
Investments consists of the following (in thousands):
DECEMBER 31,
-------------------------
1997 1996
---------- -----------
Investments available for sale,
at market (cost of $5,965 and
$2,631) $ 7,385 $ 2,631
Equity method investments 210 1,054
---------- -----------
$ 7,595 $ 3,685
========== ===========
In December 1997, the Company and Sykes Enterprises, Incorporated ("Sykes")
formed Sykes HealthPlan Services ("SHPS"). The new company is owned 50% by
each of the founding companies and will provide care management services,
technology solutions, certain customer support services, and other
outsourcing capabilities to the health care and insurance industries. The
Company has agreed to invest up to $17.0 million in SHPS (of which $5.0
million was invested as of December 31, 1997) and guarantee a line of
credit of $37.5 million to fund the activities of SHPS.
As of December 31, 1997, SHPS completed the acquisition of Optimed Medical
Systems ("OMS"). OMS is a developer of clinical protocol systems that allow
managed care payors and providers to prospectively and concurrently control
health care utilization and costs, while achieving optimal patient
outcomes.
The Company accounts for its investment in SHPS under the equity method of
accounting. As of December 31, 1997, the Company had invested $5.0 million
in SHPS. Of this amount, $2.0 million represented an uncollateralized note
bearing interest at a rate of one percent in excess of the 30-day LIBOR
Rate, accruing daily, and an equity investment of $3.0 million. Effective
February 28, 1998, the note receivable from SHPS was converted to an equity
investment in SHPS. Additionally, the Company recorded its share in the
$2.9 million loss incurred by SHPS for the period from inception to
December 31, 1997, which was principally the result of a charge of $2.8
million for the write-off of purchased research and development associated
with the acquisition of OMS by SHPS. Included in accounts receivable at
December 31, 1997 is an amount of $155,000 due from SHPS.
Summary financial information for SHPS for the period from inception to
December 31, 1997 is as follows (in thousands):
Condensed Income Statement Information
Revenues $ -
Loss from operations (5,700)
Net loss $ (5,700)
Condensed Balance Sheet Information
Current assets $ 3,991
Non-current assets 3,198
Current liabilities 2,198
Non-current liabilities 4,773
Net worth $ 218
F-13
<PAGE>
On February 12, 1998, SHPS announced the signing of a definitive agreement
to acquire Health International, Inc. ("HI"). SHPS expects to close the
transaction on or before March 31, 1998. In conjunction with the
acquisition of HI, SHPS expects to record a non-cash, non-recurring charge
of approximately $8.5 million relating to purchased research and
development. HI is a disease management company that provides a
comprehensive managed medical program for employers and plan administrators
to assist employees and their dependents in improving the quality of their
health care and reducing unnecessary medical costs.
On March 10, 1998, SHPS announced the signing of a definitive agreement to
acquire Prudential Service Bureau, Inc. ("PSBI") of Louisville, Kentucky.
The transaction is expected to be completed on or before March 31, 1998.
PSBI is an outsourcing company formed in 1986 whose core business provides
a wide range of call center-based health and welfare benefits and
administrative services to over 600 customers.
In November 1997, in conjunction with its agreement with Provident to
assume all of the policy issuance, billing, and claims services of
Provident's life insurance subsidiaries, the Company advanced Provident
$5.0 million. The Company will retain $85,000 per month during the first
sixty months of the agreement in addition to the regular service fees
collected. The Company recorded the present value of these payments at the
Company's incremental borrowing rate of 7%, $4.3 million, as a note
receivable and recorded the remaining $0.7 million as contract rights
included in intangible assets.
On March 5, 1997, the Company and 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 December 31, 1997, HRM's shares closed at $10.50 per
share of common stock. The unrealized holding loss has been reported in the
equity section of the balance sheet in accordance with SFAS 115. These
shares are 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. This investment is recorded as available for sale.
On January 8, 1996, the Company entered into an agreement with Medirisk, 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.
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 of approximately $0.5 million was
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 exercised these warrants in February of 1998 resulting in an
ownership of 480,442 shares of common stock, which represents an
approximate 11% ownership interest. The average cost was $5.48 per share.
On December 31, 1997, Medirisk's shares closed at $11.00 per share of
common stock. This investment is recorded as available for sale with the
unrealized holding gain reported in the equity section of the balance sheet
in accordance with SFAS 115. The investment was recorded at cost at
December 31, 1996.
9. NOTES PAYABLE AND CREDIT FACILITIES
In 1996, the Company expanded its credit facility (the "Line of Credit")
from $20 million to a new facility of $175 million with availability
limited by formula to three times trailing earnings before interest
expense, income taxes, and depreciation and amortization expense (with
certain adjustments called for in the credit agreement). The maximum amount
available through the Line of Credit as of December 31, 1997 was
approximately $128.4 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
F-14
<PAGE>
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 $3.1 million of interest
expense on the Line of Credit for the year ended December 31, 1997. At
December 31, 1997, the Company classified $5.3 million of borrowings under
its Line of Credit due within one year as long-term debt. The Company has
both the intent and the ability, through its revolving Line of Credit, to
refinance these amounts on a long-term basis.
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, 1997, the Company recorded $0.3 million 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 $57,000 to $80,000 through
November 2008. Interest expense relating to the note payable was
approximately $60,000 and $62,000 for the years ended December 31, 1997 and
1996, respectively.
On July 1, 1996, the Company assumed a mortgage outstanding from
Consolidated Group secured by a building with a net book value at December
31, 1997 of $1.0 million. The interest rate on the mortgage is fixed at
8.75%, with a final payment due in April 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 7.1% to 15.0%, with the final
payment due in July 2004.
The balances outstanding on the above debt instruments are as follows (in
thousands):
DECEMBER 31,
----------------------
1997 1996
-------- -------
Line of Credit $40,000 $55,000
Cal Group Note 1,160 1,214
Consolidated Group Mortgage 1,450 1,481
Harrington Equipment Notes 1,084 1,838
Consolidated Group Notes - 2,237
Consolidated Group Operating Note - 528
-------- -------
$43,694 $62,298
Less: Amounts due within one year (385) (2,717)
-------- --------
Long-term debt $43,309 $59,581
======== ========
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<PAGE>
Future minimum principal payments for all notes as of December 31, 1997 are
as follows (in thousands):
1998 385
1999 12,411
2000 15,015
2001 8,196
2002 211
Thereafter 7,476
-------
$43,694
=======
10. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
DECEMBER 31,
-----------------------
1997 1996
------- -------
Adverse lease commitments $ 4,351 $ 5,266
Salaries and wages 5,308 4,763
Office closure costs 820 462
Interest 178 906
Accrued legal and regulatory 300 500
State and local taxes 500 545
Severance 192 231
Contract commitments 90 1,089
Dividends declared 1,879 -
Sales conferences 596 103
Other 4,341 10,479
------- -------
$18,555 $24,344
======= =======
Adverse lease commitments relate to office and equipment leases assumed by
the Company upon its acquisitions of Consolidated Group and Harrington and
its assumption of the TMG block of business 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 refer to costs connected with the
Company's acquisitions of Consolidated Group and Harrington and its
assumption of the TMG block of business.
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.
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, 1997 is approximately $0.9 million for North
Carolina. The balance at December 31, 1996 was approximately $0.6 million
for Florida and $0.5 million for North Carolina.
A director of the Company also serves as President and Chief Executive
Officer of Automatic Data Processing, Inc. ("ADP"). Beginning in the last
quarter of 1996, ADP and the Company began a market test under which the
Company distributed health insurance products to small business owners
through ADP's licensed sales force. In addition, ADP has provided payroll
and shareholder distribution services for the Company since 1995. During
the year ended December 31, 1997, the Company compensated ADP for these
services in the amount of approximately $110,000.
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<PAGE>
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 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, 1997, 1996, and 1995 was approximately $1.0
million, $0.9 million, and $0.3 million, respectively.
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 two of its subsidiaries. The Company funds the benefit costs
on a current basis because there are no plan assets. The Company incurred
post-retirement benefit cost of $37,000 in 1997 and $38,000 in 1996. At
December 31, 1997 and 1996, an accrued post-retirement liability of $1.4
million is included in the balance in 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 6% in 1998, and 5% in
1999 and thereafter. A 1% increase in the health care cost trend rate would
result in an additional obligation of $88,000 and additional service cost
and interest cost of $12,000.
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan with an officer and former
officer. The deferred compensation, which together with accumulated
interest is accrued but unfunded, is distributable in cash after retirement
or termination of employment, and at December 31, 1997 and 1996, amounted
to approximately $0.9 million. The participants will receive such deferred
amounts, together with interest at 12% annually beginning at retirement or
age 65, whichever comes first.
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
REPURCHASE OF COMMON STOCK
During the second quarter of 1997, the Company's Board of Directors
authorized the Company to use up to $20.0 million to support a share
repurchase program, subject to the terms and conditions of a previously
announced agreement with ADP. The Company did not repurchase any of its
shares of Common Stock through December 31, 1997.
F-17
<PAGE>
LEASE COMMITMENTS
The Company rents office space and equipment under non-cancelable operating
leases. Rental expense under the leases approximated $11.2 million (net of
$1.5 million charged to adverse lease accruals), $7.7 million (net of $0.4
million charged to adverse lease accruals), and $4.0 million for the years
ended December 31, 1997, 1996, and 1995, respectively. Future minimum
rental payments under these leases are as follows (in thousands):
1998 $ 8,200
1999 7,615
2000 5,451
2001 4,400
2002 3,786
Thereafter 11,171
--------
$40,623
========
LITIGATION
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.
13. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------ -------- ------
Current
Federal $2,986 $ 429 $3,211
State 427 61 458
------ -------- ------
3,413 490 3,669
------ -------- ------
Deferred
Federal 5,130 (1,619) 2,116
State 733 (231) 311
------ -------- ------
5,863 (1,850) 2,427
------ -------- ------
Provision (benefit) for
income taxes $9,276 $(1,360) $6,096
====== ======== ======
F-18
<PAGE>
The components of deferred taxes recognized in the accompanying financial
statements are as follows (in thousands):
DECEMBER 31,
-----------------
1997 1996
------- ------
Deferred tax asset - current
Accrued expenses not currently deductible $ 3,085 $4,617
Prepaid expenses currently deductible - (136)
------- ------
3,085 4,481
======= ======
Deferred tax asset (liability) - non-current
Deferred compensation 549 537
Post-retirement benefits 573 641
Depreciation (4,040) (657)
Intangibles 5,737 7,806
Equity in loss of joint venture 1,041 -
Unrealized gain on investments available for sale (834) -
------- ------
$ 3,026 $8,327
======= ======
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 6).
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, 1997 and 1996, based on
the Company's expectations of future taxable income.
The provision for income taxes varies from the federal statutory income tax
rate due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Federal statutory rate applied to pre-tax income (loss) 34.0% (35.0)% 34.0 %
State income taxes net of federal tax benefit 5.0% (5.0)% 5.0 %
Goodwill amortization 5.3% 20.1 % 0.2 %
Tax exempt interest income - (2.6)% (1.3)%
Non-deductible items 1.9% 5.7 % 1.1 %
------- ------- ------
Effective tax rate 46.2% (16.8)% 39.0 %
======= ======= ======
</TABLE>
14. EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with the provisions of SFAS
128, effective for 1997. SFAS 128 requires the Company to report both basic
earnings per share, which is based on the weighted-average number of common
shares outstanding, and all dilutive potential common shares outstanding.
All prior years' earnings per share data have been restated in accordance
with SFAS 128.
F-19
<PAGE>
<TABLE>
<CAPTION>
NET INCOME
ATTRIBUTABLE TO PER SHARE
COMMON STOCK SHARES AMOUNT
--------------- ------ ---------
<S> <C> <C> <C>
1997
Earnings per share of common stock-basic $10,796 15,004 $ 0.72
Effect of dilutive securities:
Stock options 160
------- ------ -------
Earnings per share of common stock--
assuming dilution $10,796 15,164 $ 0.71
======= ====== =======
1996
Earnings per share of common stock-basic $(6,716) 14,181 $ (0.47)
Effect of dilutive securities:
Stock options 136
------- ------ -------
Earnings per share of common stock--
assuming dilution $(6,716) 14,317 $ (0.47)
======= ====== =======
1995
Earnings per share of common stock-basic $ 9,250 11,316 $ 0.82
Preferred stock dividends 285
Effect of dilutive securities:
Stock options 64
------- ------ -------
Earnings per share of common stock--
assuming dilution $ 9,535 11,380 $ 0.84
======= ====== =======
</TABLE>
15. 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 2,590,000 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.
F-20
<PAGE>
A summary of option transactions during each of the three years ended
December 31, 1997 is shown below:
NUMBER WEIGHTED
OF AVERAGE
SHARES OPTION PRICE
-------- ------------
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
Canceled (12,600) 19.35
---------
Under option, December 31, 1996
(278,200 exercisable) 1,443,500 18.54
Granted 613,000 20.37
Exercised (46,800) 14.00
Canceled (41,600) 20.32
---------
Under option, December 31, 1997
(711,200 exercisable) 1,968,100 19.17
=========
There were 621,900 and 378,100 shares available for the granting of options
at December 31, 1997 and 1996, respectively.
The following table summarizes the stock options outstanding at December
31, 1997:
RANGE NUMBER WEIGHTED AVERAGE WEIGHTED
OF OUTSTANDING AT REMAINING AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE
---------------- ----------------- ---------------- --------------
$14.00 - $18.50 969,900 8 years $16.22
19.25 - 25.50 998,200 9 years 22.03
F-21
<PAGE>
MEASUREMENT OF FAIR VALUE
The Company applies APB 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:
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------- -------- ------
Net income (loss) attributable to
common stock (in thousands):
As reported $10,796 $(6,716) $9,250
Pro forma 9,363 (8,596) 8,627
======= ======= ======
Net income (loss) per share:
Basic as reported $ 0.72 $ (0.47) $ 0.82
Basic pro forma 0.62 (0.61) 0.76
Diluted as reported $ 0.71 $ (0.47) $ 0.84
Diluted pro forma 0.62 (0.60) 0.78
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 2.38% for December
31, 1997 and 0.0% for the years ended December 31, 1996 and 1995; expected
volatility of 30% for each of the years ended December 31, 1997 and 1996;
risk-free interest rates of 5.49% to 6.54% for options granted during the
year ended December 31, 1997, 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 all three years.
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 has been
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.
The Company sold 14,569 shares in 1997 and 6,302 shares in 1996 to
employees under the Employee Plan.
F-22
<PAGE>
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, 1997
Revenues $ 68,580 $ 69,113 $ 72,063 $ 73,593
Net income 2,001 3,588 2,408 2,799
Basic net income per common share $ 0.13 $ 0.24 $ 0.16 $ 0.19
Diluted net income per common share $ 0.13 $ 0.24 $ 0.16 $ 0.18
</TABLE>
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Revenues $ 63,962 $ 67,006 $ 31,863 $ 31,008
Net income (5,529) (7,961) 3,440 3,334
Basic net income per common share $ (0.37) $ (0.53) $ 0.26 $ 0.25
Diluted net income per common share $ (0.37) $ (0.53) $ 0.25 $ 0.25
</TABLE>
F-23
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2.7 Shareholder Agreement by and among Sykes Enterprises, Incorporated
and the Company dated December 18, 1997, and Amendment to
Shareholder Agreement dated February 28, 1998.
10.14
(e) Third Amendment to Amended Consolidated and Restated Lease
between Consolidated Group Service Company Limited Partnership and
HealthPlan Services, Inc., dated February 26, 1998.
10.15
(b) Letter Agreement regarding Credit Agreement, dated March 28,
1997.
(c) Third Amendment to Credit Agreement, dated May 6, 1997.
(d) Fourth Amendment to Credit Agreement, dated June 13, 1997.
(e) Fifth Amendment to Credit Agreement, dated October 30, 1997.
(f) Sixth Amendment to Credit Agreement, dated March 17, 1998.
10.17 Deferred Compensation Agreement between R. E. Harrington, Inc. and
Robert R. Parker, dated May 15, 1987 (compensatory plan).
10.20 HealthPlan Services Corporation 1997 Officer Bonus Plan Summary
(compensatory plan).
10.21 Administrative Services and Business Transfer Agreement between the
Company and TMG Life Insurance Company, dated December 4, 1996.
21.1 Subsidiaries of the registrant.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule (For SEC Use Only)
EXHIBIT 2.7
SHAREHOLDER AGREEMENT
by and among
SYKES ENTERPRISES, INCORPORATED
and
HEALTHPLAN SERVICES CORPORATION
-----------------
DECEMBER 18, 1997
-----------------
<PAGE>
TABLE OF CONTENTS
1. ORGANIZATION AND PURPOSE .......................................... 1
1.1. Formation ................................................... 1
1.2. Name ........................................................ 1
1.3. Scope and Purpose of Business ............................... 1
1.4. Articles of Incorporation and Bylaws ........................ 2
1.5. Registered Office/Location of Facilities .................... 2
1.6. Authorized Capital .......................................... 2
1.7. No Partnership or Joint Venture ............................. 2
2. CAPITAL CONTRIBUTIONS ............................................. 2
2.1. Initial Contributions ....................................... 2
2.2. Method of Payment ........................................... 2
2.3. Lending Commitment .......................................... 2
2.4. Issuance of Shares .......................................... 4
3. VOTING OF SHARES AND GOVERNANCE OF NEWCO .......................... 4
3.1. Number of Directors ......................................... 4
3.2. Voting Agreement ............................................ 4
3.3. Vacancies ................................................... 4
3.4. Removal ..................................................... 4
3.5. Actions by Board of Directors to Follow Shareholder Consent . 5
3.6. Actions by Board of Directors Requiring a Super Majority
Vote ..................................................... 5
3.7. Budget and Business Plans ................................... 7
3.8. Dividends ................................................... 7
3.9. Fiscal Year ................................................. 7
3.10. Books and Records ........................................... 7
3.11. Reports ..................................................... 8
3.12. Severance of Business Relationship Upon Deadlock of Board of
Directors or Investor Shareholders or Upon Change of
Control .................................................. 8
4. PREEMPTIVE RIGHTS, RIGHT OF FIRST REFUSAL, TAG-ALONG RIGHTS ....... 10
4.1. Definitions ................................................. 10
4.2. Preemptive Rights ........................................... 11
4.3. Right of First Refusal ...................................... 12
4.4. Sale of Shares to a Third Party ............................. 13
4.5. Determination of Share Value ................................ 14
4.6. Remedy for Violation ........................................ 15
4.7. Endorsement on Certificates Evidencing Shares ............... 16
i
<PAGE>
5. REPRESENTATIONS AND WARRANTIES ................................... 16
5.1. Corporate .................................................. 16
5.2. Authority .................................................. 17
5.3. No Violation ............................................... 17
6. OTHER MATTERS .................................................... 17
6.1. Noncompetition; Confidentiality ............................ 17
6.2. HSR Act Filings ............................................ 20
6.3. Subcontract for Existing Call Center Services of HPS ....... 20
6.4. Support Service Contract ................................... 20
6.5. Sykes Call Center Support .................................. 20
6.6. Guarantee of Acquisition Line of Credit .................... 20
7. CONDITIONS PRECEDENT TO OBLIGATIONS .............................. 21
7.1. Representations and Warrants True on the Closing Date ...... 21
7.2. Compliance With Agreement .................................. 21
7.3. Absence of Suit ............................................ 21
7.4. Consents and Approvals ..................................... 22
8. CLOSING .......................................................... 22
8.1. Documents to be Delivered by Sykes and HPS ................. 22
8.2. Organizing Meeting ......................................... 22
9. TERMINATION ...................................................... 22
9.1. Survival of Agreement ...................................... 22
9.2. Termination ................................................ 22
9.3. Consequences of Termination ................................ 23
9.4. Dissolution of Newco Upon Termination ...................... 23
10. FURTHER ASSURANCE ................................................ 23
11. DISCLOSURES AND ANNOUNCEMENTS .................................... 23
12. ASSIGNMENT; PARTIES IN INTEREST .................................. 23
12.1. Assignment ................................................. 23
12.2. Parties in Interest ........................................ 24
13. RESOLUTION OF DISPUTES ........................................... 24
13.1. Arbitration ................................................ 24
13.2. Arbitrators ................................................ 24
13.3. Procedures; No Appeal ...................................... 24
13.4. Authority .................................................. 25
ii
<PAGE>
13.5. Entry of Judgement ......................................... 25
13.6. Confidentiality ............................................ 25
13.7. Continued Performance ...................................... 25
13.8. Tolling .................................................... 25
13.9 Expenses of Arbitration .................................... 25
14. LAW GOVERNING AGREEMENT .......................................... 25
15. AMENDMENT AND MODIFICATION ....................................... 26
16. NOTICE ........................................................... 26
17. EXPENSES ......................................................... 27
17.1. Brokerage .................................................. 27
17.2. Pre-Closing Expenses ....................................... 27
17.3. Other ...................................................... 27
17.4. Costs of Litigation or Arbitration ......................... 28
18. ENTIRE AGREEMENT ................................................. 28
19. COUNTERPARTS ..................................................... 28
20. HEADINGS ......................................................... 28
21. FURTHER DOCUMENTS ................................................ 28
EXHIBITS
Exhibit A ............................ Articles of Incorporation of Newco
Exhibit B ............................................... Bylaws of Newco
Exhibit C ............................................... Loan Agreements
Exhibit D ......................................................... Notes
Pursuant to applicable law, the Company will furnish supplementally any omitted
Exhibit to the Securities and Exchange Commission upon request.
iii
<PAGE>
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is made and entered into on
December 18, 1997, by and among SYKES ENTERPRISES, INCORPORATED, a Florida
corporation ("Sykes"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("HPS") (Sykes and HPS are sometimes referred to individually as an
"Investor Shareholder" and together with those persons signing from time to time
as a shareholder are referred to individually as a "Shareholder" and
collectively as the "Shareholders").
Upon the formation of Sykes HealthPlan Services, Inc. ("Newco") pursuant to
Section 1.1 below, Newco shall also become a party to this Agreement.
WHEREAS:
A. HPS is a provider of marketing, administration and risk management
services and solutions for health and other benefit programs;
B. Sykes provides information technology outsourcing services,
including information technology support services and information technology
development services and solutions;
C. Sykes and HPS desire to establish a new business venture for the
purpose of providing information technology support services through call
centers for health insurance, managed care and other benefits programs;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. ORGANIZATION AND PURPOSE
1.1. FORMATION. As soon as practicable following the execution of this
Agreement and pursuant to the terms and conditions of this Agreement, Sykes and
HPS shall organize a new Florida corporation.
1.2. NAME. The name of Newco shall be Sykes HealthPlan Services, Inc.
If such name is unavailable, Sykes and HPS shall promptly agree on another name.
1.3. SCOPE AND PURPOSE OF BUSINESS. The purpose of Newco shall be to
build, own and operate call centers focused on customer services related to the
insurance industry, health care management services and such other health
industry related services as may be approved from time to time by the requisite
vote of the Board of Directors of Newco, and to market and sell such services
throughout the United States.
<PAGE>
1.4. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of Newco shall be substantially in the form of Exhibits
A and B hereto, respectively. Each of the Shareholders shall take, and shall
cause the director or directors of Newco elected by it to take, all actions
necessary to ensure that the Articles of Incorporation and Bylaws of Newco do
not at any time conflict with the provisions of this Agreement.
1.5. REGISTERED OFFICE/LOCATION OF FACILITIES. The administrative
offices of Newco shall first be located at Tampa, Florida.
1.6. AUTHORIZED CAPITAL. The aggregate number of shares which Newco
shall initially have authority to issue shall be Ten Million (10,000,000) shares
of Class A voting common stock having a par value of $.01 per share (the
"Shares") and Two Million (2,000,000) shares of Class B nonvoting common stock
having a par value of $.01 per share.
1.7. NO PARTNERSHIP OR JOINT VENTURE. The parties acknowledge that
Newco, as a newly formed Florida corporation, constitutes an independent and
distinct legal entity. Neither this Agreement nor any other document delivered
in connection herewith, nor any prior agreements, actions or omission shall in
any respect be interpreted, deemed or construed as making any Shareholder a
partner or joint venturer with Newco or any other Shareholder or any of them,
and the parties agree not to make any contrary assertion, contention, claim or
counterclaim in any action, suit or other legal proceeding.
2. CAPITAL CONTRIBUTIONS
2.1 INITIAL CONTRIBUTIONS. At the Closing, Sykes and HPS shall each
subscribe for and make initial capital contributions to Newco of $2,959,200.
2.2. METHOD OF PAYMENT. All payments under this Article 2 shall be made
by wire transfer of immediately available funds to an account designated by the
recipient not less than 48 hours prior to the time for payment specified herein.
2.3. LENDING COMMITMENT.
(a) At the Closing, Sykes and HPS shall each commit to make
available to Newco a term loan in the amount of $9,040,800 which shall be drawn
upon by Newco from time to time in increments of $100,000 (the "Loans"). The
Loans shall require quarterly interest only payments with all outstanding
principal and interest due three (3) years from the date hereof. Such lending
commitment and loan shall be evidenced, and described in further detail, by Loan
Agreements in forms of each Exhibit C hereto (the "Loan Agreements"). and the
related forms of promissory notes of Newco also included in Exhibit D hereto
(the "Notes").
(b) Sykes and HPS shall each fund 50% of the total Loans. All
payments by Newco of principal and interest shall be applied pro rata to the
respective loans from Sykes and HPS. Sykes and HPS further covenant among
themselves that in the event action to collect the Loans becomes necessary or
desirable, Sykes and HPS shall coordinate and cooperate, in good
2
<PAGE>
faith, to collect the Loans and shall share the net proceeds (after payment of
all costs and expenses of collection, including reasonable attorneys fees)
ratably so that Sykes and HPS each receive simultaneous payment of an amount
that is equal to the ratio of (A) the total amount of indebtedness of Newco
owned to each of them on the Loans, respectively, from time to time, and at each
relevant time, to (B) the aggregate amount of indebtedness of Newco to both of
them on the Loans, from time to time, and at each relevant time until the
aggregate indebtedness of Newco to each of them has been paid in full. Sykes and
HPS shall promptly give written notice to the other of the occurrence of
"default" or "event of default" or any condition or event that, with notice or
lapse of time, or both, would give such party the right to accelerate payment of
any indebtedness of Newco owned to it under any agreement, instrument or
document to which Newco is a party. Sykes and HPS also shall promptly give
written notice to the other if it demands payment of, or takes action to
collect, its Loan. Sykes and HPS covenant among themselves that they shall not
amend their respective Loan Agreements or take any collateral or security for
their Loans without the consent of the other, it being the intention of both
that their Loan Agreement should contain identical provisions to make their
Loans pari passu to the greatest extent possible. Sykes and HPS covenant among
themselves to execute and deliver such other and further documents and
instrument as may be necessary or desirable to implement fully or evidence
further the provisions of this Section 2.3.(b).
(c) The parties acknowledge that if either Investor Shareholder
defaults in its obligations to fund its share of the Loans, as provided in
subsections (a) and (b) above, and such borrowing has previously been approved
by Newco's Board of Directors pursuant to the terms of the annual Budget adopted
in accordance with Section 3.6, then the nondefaulting Investor Shareholder
shall have the right, but not the obligation, to fund the shortfall pursuant
to a senior convertible note issued by Newco and Newco shall have the right to
borrow from the nondefaulting Investor Shareholder upon the following terms and
conditions: (i) the loan shall be due and payable on demand; (ii) Newco shall
pay interest on the principal balance at five percent (5%) in excess of the
30-day LIBOR Rate; (iii) the senior convertible note (which shall be
subordinate to Newco's senior bank credit facility) shall be senior in payment
and priority to all Loans payable to either Investor Shareholder; (iv) at the
option of the nondefaulting Investor Shareholder, the senior convertible note
shall be convertible, in whole or in part, into Shares, at a conversion price
per share equal to the original purchase price paid for Shares at Closing
(determined by dividing the initial capital contributions from the Investor
Shareholders to Newco by the total number of Shares issued to the Investor
Shareholders, with an appropriate adjustment for any stock splits) if the
defaulting Investor Shareholder does not refinance the senior convertible note
(i.e., fund its pro rate share of all Loans so that the senior convertible note
is repaid by Newco), within six months of the date funds are advanced by the
nondefaulting Investor Shareholder; and (v) if any Investor Shareholder converts
more than $5 million (in the aggregate) of senior convertible notes to Shares,
the super majority voting requirements (including Sections 3.5 and 3.6), voting
agreement concerning election of directors (including Section 3.2, 3.3 and 3.4)
and all other provisions of this Agreement designed to give shared control of
Newco to each Investor Shareholder shall no longer apply, thereby providing,
among other things, that the nondefaulting Investor Shareholder shall have
control of Newco's Board of Directors. The Shareholders and Newco shall have
the right to implement this subsection (c) and Newco shall have the right to
borrow pursuant to the senior convertible notes contemplated
3
<PAGE>
herein, without any further approval or action by any Shareholder or any
director nominated or designated by the defaulting Investor Shareholder, and the
Shareholders covenant among themselves to take such further actions and to
execute and deliver such other and further documents and instruments as may be
necessary or desirable to implement fully or evidence further the provisions of
the Section 2.3(c).
(d) The parties acknowledge and confirm that Sykes and HPS are arm's
length lenders with the respect to the Loans. The parties acknowledge that
Sykes and HPS shall exercise their respective remedies under the Notes and Loan
Agreements to collect the Loans if Newco defaults.
2.4 ISSUANCE OF SHARES. In exchange for the initial capital contribution
described in Section 2.1, Sykes and HPS each shall be issued 5,000,000 Shares
at the Closing.
3. VOTING OF SHARES AND GOVERNANCE OF NEWCO
3.1 NUMBER OF DIRECTORS. Each Shareholder agrees to vote its Shares and
all Shares as to which the Shareholder is entitled to exercise voting power at
any meeting of shareholders in favor of a resolution fixing the number of
directors of Newco at two (2), or such greater number as Sykes and HPS may
mutually agree from time to time.
3.2 VOTING AGREEMENT. Each Shareholder agrees to vote its Shares in favor
of one individual (or if the number of directors is increased to more than two,
one-half of the total directors at each relevant time) who shall be nominated
as a director by Sykes (the "Sykes Directors") and in favor of one individual
(or if the number of directors is increased to more than two, one-half of the
total directors at each relevant time) who shall be nominated as a director
by HPS (the "HPS Directors").
3.3 VACANCIES. In the event of a vacancy on the Board of Directors with
respect to a Sykes Director, each Shareholder agrees to vote it Shares and all
Shares as to which the Shareholder is entitled to exercise voting power for any
individual nominated in writing by Sykes; and in the event of a vacancy on the
Board of Directors with respect to a HPS Director, each Shareholder agrees to
vote its Shares as to which the Shareholder is entitled to exercise voting power
for an individual nominated in writing by HPS. Until any such vacancy is filled,
the Board of Directors shall not take any action unless the Shareholder with the
right to fill the vacancy consents in writing.
3.4. REMOVAL. Newco agrees to call meetings of its Board of Directors to
be held at least quarterly. If at any time between meetings of Shareholders of
Newco, Sykes or HPS shall request the right to remove one or more of the Sykes
Directors or one or more of the HPS Directors, respectively, which were
originally nominated by such party or to elect or appoint to the Board of
Directors a nominee to which it is entitled pursuant to this Article 3, each
party hereto shall use its best efforts to bring about the immediate removal of
such director or the election or appointment of such nominee to the Board of
Directors, as the case may be.
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3.5 ACTIONS BY BOARD OF DIRECTORS TO FOLLOW SHAREHOLDERS CONSENT. The
Board of Directors shall not take any of the following actions, except upon the
prior affirmative vote of not less than 90% of the total number of the then
outstanding shares of the capital stock of Newco entitled to vote thereon, or
with the written consent of such Shareholders:
(a) sale of all or substantially all of the assets of Newco or any
of its subsidiaries;
(b) any material acquisition (including acquisition of stock or
assets) of any other company, business or enterprise;
(c) any merger or consolidation involving Newco or any of its
subsidiaries or the dissolution or liquidation of Newco or any of its
subsidiaries;
(d) any payment of any dividend in cash or property other than
cash by Newco or redemption of any Shares;
(e) any recapitalization, restatement of assets, reduction of
capital or other change in the capitalization of Newco or its subsidiaries;
(f) any issuance or reissuance or agreement to issue or reissue any
capital stock of Newco or any option or warrant for, or any security
convertible into, any capital stock of Newco;
(g) any filing of any registration statement of the Securities Act of
1933, as amended;
(h) the amendment to the Articles of Incorporation or Bylaws of
Newco;
(i) the acquisition by Newco of material assets unrelated to the
business described in Section 1.3 of this Agreement; or
(j) engaging in a material line of business other than the business
described in Section 1.3 of this Agreement.
3.6 ACTIONS BY BOARD OF DIRECTORS REQUIRING A SUPER MAJORITY VOTE. The
Board of Directors shall not take any of the following actions, except upon the
prior affirmative vote of all of the directors:
(a) approval or revision of the annual Budget in form acceptable to
the Board of Directors setting forth the estimated receipts and expenditures of,
capital expenditures of, and reasonable reserves for working capital for, Newco
for the succeeding calendar year;
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(b) capital improvements or expenditures (including capitalized
leases and interest costs) in excess of $50,000 which are not included in the
Budget approved by the Board of Directors:
(c) filing of bankruptcy;
(d) any issuance, reissuance or redemption by Newco of any shares of
its capital stock or securities convertible into or exchangeable for shares of
such stock, including any options, warrants or other rights to purchase or
otherwise acquire any shares of such stock or securities convertible into or
exchangeable for such stock;
(e) any declaration of dividends by Newco;
(f) the selection of corporate officers of Newco and the determination
of the compensation and benefits payable to each such officer;
(g) any proposal for Newco to (i) create, assume or incur, or become
liable in respect of, any indebtedness in excess $100,000 per obligation,
except for accounts payable under the relevant lease would exceed $100,000,
(iii) acquire the securities of, make any other investment in, any other
person, or (iv) make loans, provide guarantees or otherwise extend or pledge
credit to others with respect to any such loan, guarantee, extension or pledge,
except endorsements and extensions of credit in the ordinary course of
operations of Newco;
(h) any proposal for Newco to confess any judgment against Newco or
create, assume, incur, or suffer to be created, assumed or incurred or to
exist, any mortgage, pledge, encumbrance, lien or charge of any kind (each, a
"Lien") upon any of the assets or properties of Newco, or to acquire or hold or
agree to acquire or hold any such assets or properties subject to any such Lien
if such Lien is proposed in connection with any proposal referred to in
paragraph (g) above except in the normal course of business and in
accordance with the Budget approved by the Board of Directors;
(i) any proposal for Newco to sell or transfer any assets of Newco
valued in excess of $10,000 in one or a series of related transactions not in
the ordinary course of business;
(j) any proposal to enter into any contract, obligation, commitment,
capital investment, or any other program involving aggregate expenditures
reasonably estimated to be in excess of $200,000;
(k) any proposal for Newco to acquire the capital stock or assets of
another entity;
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(l) any proposal to select or change Newco's independent auditors,
legal counsel or any outside consultant which shall be paid more than $75,000
during any fiscal year;
(m) make a gift, loan, advance or political contribution to any
person, except loans and advances to employees of up to $2,500 for ordinary
and necessary business expenses;
(m) any decision whether to redeem or to purchase any Shares pursuant
to the Right of First Refusal contained in Section 4.3 of this Agreement or
the assignment of such right to a third party. (In deciding whether to exercise
a Right of First Refusal with respect to a disposing Investor Shareholder's
Shares, any directors designated by, or who is an officer, director, employee
or agent of the disposing Investor Shareholder, shall abstain from voting to
the extent necessary to avoid a conflict of interest and such director's
affirmative vote shall not be necessary to approve such action); and
(o) determination of the Determined Value of Shares pursuant to
Section 4.5 of this Agreement.
3.7 BUDGET AND BUSINESS PLANS. Before the beginning of each fiscal year
management of Newco shall prepare and present to the Board of Directors of
Newco for its approval an annual budget and multi-year business plans for Newco
in accordance with timing, format and instructions to be determined by the
Board of Directors of Newco. Newco's management shall use their reasonable
good faith efforts to manage Newco's business pursuant to any business plan
or budget approved by the Board of Directors, as it may be revised from time
to time with approval of the Board.
3.8 DIVIDENDS. Sykes and HPS currently anticipate that all of Newco's
earnings will be retained for development and expansion of Newco's business
and acknowledge and agree that Newco does not anticipate paying any dividends
in the foreseeable future. Notwithstanding the foregoing, dividend policy
shall be vested in the Board of Directors as provided in this Agreement.
3.9 FISCAL YEAR. The fiscal year of Newco shall end on December 31 of
each year. The first fiscal year of Newco shall commence upon completion of the
organization of Newco and shall end on the next succeeding December 31.
3.10 BOOKS AND RECORDS. The Board of Directors of Newco, in
consultation with its auditors, shall establish such books, records and accounts
for Newco as are customary of corporations similarly situated and as accurately
reflect the financial condition and position of Newco in accordance with
generally accepted accounting principles. The books and records of Newco shall
be subject to inspection by any Shareholder during ordinary business hours.
3.11 REPORTS. Newco shall prepare and provide the Shareholders with
unaudited monthly and quarterly financial statements (including a balance sheet
and profit and loss statement), audited annual financial statement and such
other reports as the Shareholders shall reasonably request. Newco's
management shall consult regularly with the Investor Shareholders
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and provide the Investor Shareholders' designated representatives reasonable
access to all books and records of Newco.
3.12 SEVERANCE OF BUSINESS RELATIONSHIP UPON DEADLOCK OF BOARD OF
DIRECTORS OR INVESTOR SHAREHOLDERS. In the event that the Board of Directors or
Investor Shareholders are deadlocked on a material matter, and such deadlock
continues for the longer of (a) three (3) consecutive meetings (including
special meetings) or (b) ninety (90) days, either Sykes or HPS may institute
a severance of business relationship as provided in this Section 3.12.
(a) NOTICE OF INTENT TO PURSUE SEVERANCE. Sykes or HPS may send a
Deadlock Notice to Newco and the other Investor Shareholder proposing a
resolution of the deadlock and providing notice that if the proposal is not
accepted by the other Investor Shareholder within twenty (20) days, Sykes or
HPS may institute a severance of business relationship as provided below. A
"Deadlock Notice" means a written notice to be delivered to Newco and each
other Investor Shareholder by Sykes or HPS which shall state that a deadlock
exists among the Board of Directors or the Investor Shareholders concerning a
material issue, and shall describe Sykes or HPS's proposed resolution of the
deadlock, and shall provide notice that unless the other Investor Shareholder
accepts the proposal within twenty (20) days, Sykes or HPS may institute the
severance of business relationship procedures pursuant to this Section 3.12.
(b) INITIATION OF SEVERANCE. If the deadlock continues to exist for
more than twenty (20) days after mailing of the Deadlock Notice provided in
Section 3.12.(a), for a period of thirty (30) days thereafter, Sykes or HPS, if
it wishes to sever its relationship in Newco with the other Investor
Shareholder, shall notify the other and Newco in writing (the "Severance
Notice") stating that it wishes the severance to take place. If, however,
neither Investor Shareholder delivers a severance notice within thirty (30) days
following the Investor Shareholder's failure to accept the proposed resolution,
then such severance opportunity will lapse as though the Deadlock Notice had
never been given.
(c) VALUATION OF NEWCO. Within five (5) days from the mailing of the
Severance Notice, Sykes and HPS shall mutually select an independent investment
banking firm (with whom neither Sykes nor HPS has an existing relationship at
such time) to determine the fair market value price per share of Newco as a
stand-alone entity (the "Determined Price Per Share"). If the parties cannot
agree upon the selection of such independent investment banking firm, an
investment banking firm who has not previously acted as a lead or co-lead on any
offering for either of the parties or been retained to give investment or
acquisition assistance to either of the parties shall be selected by Newco's
independent outside legal counsel. The expenses relating to the engagement of
such firm shall be shared equally by Sykes and HPS. Sykes and HPS shall have
thirty (30) days after the receipt of the Determined Price Per Share (the
"Negotiation Period") in which to negotiate a mutually agreeable outcome in
which one Investor Shareholder shall sell to the other, all of its Shares at an
agreed upon price per share (the "Severance Price"). In the event that Sykes and
HPS are not able to reach an agreeable outcome during the Negotiation Period,
Sykes and HPS shall then have five (5) business days in which to submit a bid (a
"Severance Bid") containing the price per Share which the bidding Investor
Shareholder is willing to pay for all of the other Investor Shareholder's
Shares. Such
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Serverance Bids shall be submitted to the outside counsel of Newco within five
(5) business days from the end of the Negotiation Period. In addition, each
Severance Bid must be for a price per share which is at least equal to ninety
percent (90%) of the Determined Price Per Share and must be an all cash,
non-contingent, binding offer to purchase all, but not less than all of the
Shares of the other Investor Shareholder. If, however, neither Investor
Shareholder submits a Serverance Bid within such five (5) day period, then such
severance opportunity will lapse as though the Deadlock Notice had never been
given. At the end of such five (5) day period, Newco's outside counsel shall
notify the Investor Shareholders of the highest bid. Thirty (30) days after the
submission of the Severance Bids, the Investor Shareholder which submitted the
highest Severance Bid shall purchase and the other Investor Shareholder shall
sell all of the other Investor Shareholder's Shares at the price stated in the
highest Severance Bid.
(d) CLOSING. The purchase and sale of Shares as described above shall
be closed in Newco's principal business office and all appropriate documents
will be executed and delivered to effect the severance of the relationship and
the sale of the Shares, free and clear of all liens, charges and encumbrances.
The Severance Price shall be paid by the purchasers to the sellers in
immediately available funds.
(e) CONTINUED OPERATION. Newco shall continue to operate during any
period of deadlock or dispute and during the continuance of any default under
this Agreement (or alleged default), and in no event shall a deadlock, dispute
or allegation of default interfere with the right of the directors and officers
of Newco to operate within the scope of business activity contemplated by
Section 1.3 of this Agreement; provided, HOWEVER, that no action may be taken by
the directors and officers that would prejudice the outcome of any matter in
deadlock, any dispute or any allegation of default, except with the consent of
100% of the members of the Board of Directors; provided, HOWEVER, that the
service activities (and all related marketing, administrative, and other
activities) of Newco in accordance with the Business Plan and Budget shall not
be stopped or delayed, except with the consent of 100% of the members of the
Board of Directors.
(f) ONLY EXERCISE IF SUBSTANTIAL BUSINESS DISAGREEMENT. The parties
may only exercise the Severance Provisions of this Section 3.12 if the Investor
Shareholders have a substantial disagreement regarding the management or future
direction of Newco. Examples of areas of potential "substantial disagreements"
include, without limitation, (i) whether Newco should go public, (ii) whether
Newco should be sold, (iii) whether Newco should make a material acquisition
(iv) termination of a senior executive, and (v) whether to approve an annual
business plan and budget. After delivery of a deadlock notice, the potential
Severing Shareholder shall thereafter be available, upon reasonable prior
notice, to meet with the Responding Shareholder (and in the case of Sykes or
HPS, they shall make their respective chairmen and chief executive officers
available to meet with each other) and discuss in good faith the potential
resolution to the substantial disagreement. For a period of sixty (60) days
following the expiration of such thirty (30) days prior written notice period,
either Investor Shareholder may thereafter institute the Severance of Business
Relationship as provided under subsection (b) of this Section 3.12.
Notwithstanding the foregoing, the Responding Shareholder may prevent the
Severance from occurring by accepting and agreeing to the resolution of the
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substantial disagreement proposed by the Severing Shareholder and agreeing to
take such further action as the Severing Shareholder reasonable requests to
implement such resolution. (Such agreement by the Responding Shareholder must be
made by written notice delivered prior to the time that the Responding
Shareholder is otherwise required to elect to buy or sell pursuant to subsection
(c) of this Section 3.12.
(g) APPLICABILITY OF ARBITRATION. The right to initiate a severance of
business relationship as described herein shall supersede the agreement to
arbitrate a dispute contained in Section 13 of this Agreement, except that the
parties shall arbitrate any dispute concerning whether a particular dispute
constitutes a "deadlock on a material matter" as described herein.
(h) REPAYMENT OF LOANS/RELEASE OF GUARANTEES. In the event of a
severance of Business Relationship under this Section 3.12, at the Closing the
purchasing Shareholder shall cause Newco to repay in full all Loans from the
selling Shareholder and shall cause the selling Shareholder to be released from
all guarantees of Newco's indebtedness.
4. PREEMPTIVE RIGHTS, RIGHT OF FIRST REFUSAL, TAG-ALONG RIGHTS
4.1 DEFINITIONS. For purposes of this Article 4, the following terms
shall have the following meanings:
(a) "DISPOSE OF" means any transfer or assignment, whether voluntary
or involuntary to a person other than a Permitted Transferee, whether by sale,
exchange, pledge, encumbrance, judicial attachment, contribution to a trust or
other entity, or otherwise. "Dispose of "shall not include: (i) a pledge of
shares to a responsible financial institution in the United States, as
collateral security for a bona fide loan made by such financial institution,
provided that such financial institution agrees in writing that any disposition
of the pledged shares for the account of the pledging Shareholder in the event
of any default by such Shareholder shall be subject to the obligations imposed
on such Shareholder by this Agreement, including but not limited to the right of
first refusal granted to Newco and the other Shareholders hereunder, or (ii) a
disposition to a wholly owned subsidiary of a Shareholder, so long as such
transferees agree in writing to be bound by the terms of this Agreement.
(b) "DISPOSING SHAREHOLDER" means a Shareholder who desires to Dispose
of all or a part of the shares owned by the Shareholder.
(c) "FIRST REFUSAL NOTICE" means the written notice to be mailed to
Newco and Sykes and HPS by the Disposing Shareholder which shall describe in
adequate detail the terms and conditions offered by, and the identity of, a bona
fide prospective purchaser, lender or other transferee to whom Disposing
Shareholder is considering Disposing of all or a part of the Disposing
Shareholder's shares, which notice shall include a complete copy of the written
offer of such purchaser, lender or other transferee.
(d) "FIRST REFUSAL PRICE" means the price agreed upon between the
Disposing Shareholder and the party or parties electing to exercise a right of
first refusal under the terms
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hereof. In the absence of any agreed upon price, the term shall mean a purchase
or redemption on terms and conditions substantially the same as those described
in the First Refusal Notice given to the other parties hereto in accordance with
the term of this Agreement. In the event such notice describes terms and
conditions that are unique to proposed transaction and cannot readily be assumed
by other parties, e.g., an exchange of shares in return for property or
services, or in the event of a proposed gift, in the absence of an agreed upon
price, the First Refusal Price shall be the Determined Value as provided in
Section 4.5.
(e) "PERMITTED TRANSFEREE" means a wholly owned subsidiary of a
Shareholder, provided, however, that no person shall become a "Permitted
Transferee" without first agreeing to be bound by the terms of this Agreement in
a manner satisfactory to Newco's Board of Directors.
(f) "PRO RATA" means with respect to any right to acquire shares
hereunder, pro rata based upon the number of shares owned by those Shareholders
(assuming more than two parties are Shareholders under this Agreement) who shall
duly exercise their option to acquire any shares offered hereunder. Thus, if
only two Shareholders, each owning ten percent (10%) of Newco's shares, should
elect to exercise their right of first refusal granted in this Agreement, each
of them would have the right to purchase fifty percent (50%) of the shares
available for purchase. "Pro Rata" means with respect to Tag-along Rights, pro
rata based on the ratio of the shares proposed to be sold in the transaction to
the total number of shares then outstanding.
4.2 PREEMPTIVE RIGHTS.
(a) RIGHT OF FIRST REFUSAL FOR PURCHASE OF STOCK SOLD BY NEWCO.
If at any time Newco shall propose to sell any additional securities (including
any stock held in the treasury and securities convertible into additional
stock), Newco shall give the Investor Shareholders a written notice which shall
describe in adequate detail the terms and conditions on which the Company
proposes to sell additional securities, including, if applicable, conditions
offered by, and the identity of, a bona fide prospective purchaser (the "Company
First Refusal Notice") respecting such securities, offering them for disposition
at the First Refusal Price.
(b) TIME FOR ELECTION TO PURCHASE. Any Investor Shareholder
electing to purchase any of the securities so offered for purchase shall notify
Newco and the other Investor Shareholder of that election within the time period
for elections set forth in the Newco First Refusal Notice, which shall be a
reasonable period of time under the circumstances after the date of mailing of
the Company First Refusal Notice. Such notice shall specify the number of
securities that the Shareholder is willing to purchase. In the event that any
electing Investor Shareholder is unwilling to purchase the entire Pro Rata
portion of securities allocable to such Investor Shareholder for purchase, the
portion rejected shall be allocated to the other electing Investor Shareholder
if and to the extent it has indicated in its notice that it is willing to
purchase more than what would be their Pro Rata portion if all Shareholders
elected to exercise in full their right of first refusal. If an election to
purchase shall not have been timely made as to the securities, or any portion
thereof, offered for purchase, the portion of such securities as to which a
right of refusal has not been exercised hereunder may, during a period of sixty
(60) days after
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the expiration of the first refusal period granted herein to the Investor
Shareholders, be sold upon substantially the same terms and conditions described
in the Company First Refusal Notice previously given, provided that the
purchaser executes this Agreement and agrees to be bound by the terms hereof.
If, however, such securities shall not have been so sold, in whole or in part,
within that sixty (60) day period, then a new Company First Refusal Notice must
be sent hereunder to Sykes and HPS in the event that Newco wishes to sell such
securities.
(c) CLOSING OF PURCHASE. If Sykes or HPS elects to purchase all or any
portion of the securities offered by Newco for purchase, the purchase shall be
closed and the securities delivered free and clear of all liens and
encumbrances, (other than any purchase money liens taken back by Newco at the
closing, if applicable) at a closing to be held at the principal offices of
Newco within (30) days after the expiration of the first refusal period granted
herein to the Investor Shareholders.
4.3 RIGHT OF FIRST REFUSAL
(a) RIGHT OF FIRST REFUSAL FOR REDEMPTION OR PURCHASE OF SHARES
DISPOSED OF BY SHAREHOLDERS. If at any time any Shareholder shall desire or be
require to Dispose of all or any of the shares owned by such Shareholder, the
Disposing Shareholder shall give Newco, Sykes and HPS, a First Refusal Notice
respecting those shares offering them for disposition at the First Refusal
Price. If Newco, within twenty (20) days after the date of mailing of the First
Refusal Notice, does not elect to redeem all of the shares offered for
redemption or purchase in accordance with the terms of this Agreement, then for
an additional twenty-five (25) days, the Investor Shareholders shall have the
option of purchasing the remaining shares offered for disposition, Pro Rata, at
the First Refusal Price. If the Investor Shareholders do not elect to purchase
all the remaining shares, the Board of Directors (exclusive of any Director who
is designated by, or who is an officer, director, employee or any agent of, the
Disposing Shareholder or its Affiliate), acting on behalf of Newco, may assign
the right to purchase the remaining shares at the First Refusal Price to one or
more third parties provided that such third parties pay the First Refusal Price
in cash and agree to execute a shareholder agreement acceptable to Newco and
Non-disposing Shareholders and agree to be bound by the terms hereof.
(b) TIME FOR ELECTION TO REDEEM OR TO PURCHASE. Newco, and/or Sykes
and/or HPS, and/or any assignee of Newco who elects to redeem or to purchase any
of the Shares so offered for redemption or purchase shall notify the Disposing
Shareholder, Newco and all other Shareholders of that election within twenty
(20) days after the date of mailing of the First Refusal Notice if the electing
party is Newco, or within forty-five (45) days after such date of mailing if any
Investor Shareholder or an assignee of Newco. Such notice shall specify the
number of shares that the sender is willing to purchase. In the event that any
electing Investor Shareholder is unwilling to purchase the entire Pro Rata
portion of shares allocable to such Investor Shareholder for purchase, the
portion rejected shall be allocated among the other electing Investor
Shareholder if and to the extent it has indicated in its notice that it is
willing to purchase more than what would be its Pro Rata portion if both
Investor Shareholders elected to exercise in full their right of first refusal.
If an election to redeem or to purchase shall not have been timely made, either
by Newco, and/or by the Investor Shareholders, and/or by any
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assignees of Newco, or any combination of the foregoing, as to all (and not less
than all) the shares offered for redemption or purchase, such shares may, during
a period of one hundred twenty (120) days after the expiration of the first
refusal period granted herein, be Disposed of to the purchaser or other
transferee named in, and upon substantially the same terms and conditions
described in, the First Refusal Notice previously given the other parties,
provided that the transferee executes this Agreement and agrees to be bound by
the terms hereof. If, however, such shares shall have not been so Disposed of,
in whole or in part, and the certificates therefor presented for transfer within
that one hundred twenty (120)-day period, then such shares shall again become
restricted as though they had never been offered to Newco or to the Investor
Shareholders in accordance with this Agreement. No Shareholder shall dispose of
shares without first complying with the Right of First Refusal. Shareholders
other than Investor Shareholders shall have no right to purchase shares pursuant
to this Right of First Refusal, except in the capacity as assignor of Newco.
(c) CLOSING OF REDEMPTION OR PURCHASE. If Newco, and/or Sykes and/or
HPS and/or any assignee(s) of Newco elect to purchase collectively all (and not
less than all) the shares offered for redemption or purchase, the redemption
and/or purchase shall be closed and the Disposing Shareholder's shares offered
for redemption or purchase shall be delivered free and clear of all liens and
encumbrances (other than any purchase money liens taken back by the Disposing
Shareholder at the closing, if applicable), at a closing to be held at the
principal offices of Newco within thirty (30) days after the expiration of the
first offer period granted herein to the Investor Shareholders.
4.4 SALE OF SHARES TO A THIRD PARTY.
(a) TAG-ALONG RIGHTS. If, at any time, Sykes or HPS (the "Disposing
Shareholders") propose to sell shares to any one or more third parties who are
not, and following such sale will not be, a wholly owned subsidiary of an
Investor Shareholder (a "Third Party"), the other Investor Shareholder shall
have the right to participate (a "Tag-Along Right") in such sale with respect to
any shares, including any shares issuable upon exercise of any vested options or
warrants (if any) held by such Investor Shareholder, on a Pro Rata basis for the
same consideration per Share and otherwise on the same terms as the Disposing
Shareholders. If circumstances occur which give rise to the Tag-Along Right,
then the Disposing Shareholder shall give written notice to Newco and the other
Investor Shareholder, providing the particulars of the proposed sale to the
Third Party and advising such other Investor Shareholder of its Tag-Along
Rights. This notice shall not be given until the expiration of all rights of
First Refusal under Section 4.3. The other Investor Shareholder may exercise its
Tag-Along Right by written notice to Newco and the Disposing Shareholder within
twenty-five (25) days of the date of mailing of the Disposing Shareholder's
notice stating the number of shares that it wishes to sell, up to the maximum
number permitted herein. If any Investor Shareholder gives written notice
indicating that such Investor Shareholder wishes to sell, such Investor
Shareholder shall be obligated to sell that number of shares specified in its
written acceptance notice upon the same terms and conditions as the Disposing
Shareholder is selling to the Third Party and shall not be subject to the
requirement of Section 4.3. The Tag-Along Right provided in this Section 4.4
shall be in addition to the Right of First Refusal provided in Section 4.3 and
shall not relieve
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the Disposing Shareholder of the obligation to provide the First Refusal Notice
provided herein. No Shareholder, other than an Investor Shareholder, shall have
any Tag-Along Right.
(b) DRAG-ALONG RIGHTS. If, at any time, any Investor Shareholder (the
"Disposing Shareholder") proposes to sell shares to a Third Party, such
Shareholder shall, upon written notice to the Company and the other Shareholders
given at least twenty-five (25) days prior to the proposed sale, have the right
to require each other Shareholder, other than an Investor Shareholder, to
participate (a "Drag-Along Right") in such sale with respect to any shares,
including any shares issuable upon exercise of any vested options, which are
held by any such Shareholder corresponding to the relationship of the aggregate
number of such shares to be sold by the Shareholders to the total number of
shares outstanding for the same consideration per Share and otherwise on the
same terms as the Disposing Shareholder.
(c) COORDINATION WITH OPTIONS. For purposes of Section 4.4. (b), to
the extent that Shares issuable upon exercise of a vested option are to be sold
pursuant to the exercise of a Drag-Along Right, the holders of such options or
securities shall not be required to exercise their options or convert their
securities, as the case may be, until all conditions to the commitment by the
Third Party to purchase the shares into which such options are exercisable or
such securities are convertible pursuant to the exercise of a Drag-Along Right
have been satisfied or waived.
4.5 DETERMINATION OF SHARE VALUE. Whenever the Determined Value of shares
is required to be determined hereunder, the Determined Value shall be agreed
upon by the holder of the shares and Newco within ten (10) days following the
expiration of the applicable notice period. If the interested Shareholders and
Newco are unable to agree upon the Determined Value within such period of time,
Newco shall promptly select a firm experienced in valuing businesses similar to
Newco's business and shall promptly notify the interested Shareholders of its
selection. The interested Shareholders shall have ten (10) days after the
receipt of such notification to accept the firm selected by Newco or to select
another firm experienced in valuing businesses similar to Newco's. If the
interested Shareholders accept the firm selected by Newco, (i) such firm shall
promptly provide to Newco and the interested Shareholders its estimate of the
Determined Value, whereupon such estimate shall be the Determined Value, and
(ii) Newco shall pay the fees charged by such firm. If the interested
Shareholders do not accept the firm selected by Newco, such firm and the firm
selected by a majority of the interested Shareholders shall each promptly submit
to Newco, the interested Shareholders and each other its estimate of the
Determined Value. If the lower of the two estimates is greater or equal to
ninety percent (90%) of the higher of the two estimates, the average of the two
estimates shall be the Determined Value. If the lower estimate is less than
ninety percent (90%) of the higher estimate, the two firms shall select a third
firm experienced in valuing businesses similar to Newco's, which firm shall
select from two estimates the estimate that is closet to such third firm's
estimate of the Determined Value, whereupon such selected estimate shall be the
Determined Value. In the event that a majority of the interested Shareholders do
not accept the firm selected by Newco, each of Newco and the interested
Shareholders (Pro Rata among them based on the relative number of shares owned
by each) shall pay the fees charged by the firm selected by it or them.
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Newco and the interested Shareholders (Pro Rata among them based on the relative
number of shares owned by each) shall share equally the fees charged by the
third firm. The Determined Value shall be determined as of the last day of the
month preceding the date on which the right to purchase the shares arose. In no
event shall the Determined Value reflect a discount for minority interests. The
parties intend that the Determined Value per share shall be equal to the
Determined Value of Newco divided by the total number of shares outstanding
(with reasonable and appropriate adjustments for any vested stock options where
the exercise price of the option is less than the fair market value of the
shares). The Determined Value of shares issuable upon exercise of a vested
option shall be equal to the Determined Value of the underlying shares, less the
exercise price of such option.
4.6 REMEDY FOR VIOLATION. In the event that any person Disposes of any
shares in violation of any of the provisions of this Agreement, such disposition
shall be void. In the event any restriction on transfer herein shall be held
invalid, Newco and the other Shareholders shall have the right to redeem or
purchase, as the case may be, all or any shares disposed of in violation of the
invalidated restrictions from the then holder thereof (a) at the price and on
the terms on which such shares were acquired by such holder, if such shares were
acquired by the holder in a purchase transaction, or (b) at the election of the
redeeming or purchasing parties, or in the case of a transaction that is unique
or the terms of which cannot readily be assumed by other parties, at the
Determined Value of such shares. The rights given by this paragraph shall accrue
first to Newco and then, Pro Rata, to the Investor Shareholders and then, Pro
Rata to the other Shareholders, and then to any assignee(s) of Newco. Newco
shall notify the Shareholders promptly of the final judgment holding the
transfer restriction invalid, and shall have one hundred twenty (120) days after
the date of mailing of such notice to elect to exercise its redemption option by
mailing written notice of such election to the holder of the shares and all the
shares available for redemption or purchase hereunder, each Shareholder shall
have sixty (60) days after the date of mailing of Newco's initial notice to
notify the holder of the shares, Newco and all other Shareholders of such
Shareholder's election to purchase all or any party of such Shareholder's Pro
Rata portion of the shares. If the other Shareholders do not elect to purchase
all the remaining shares, Newco may assign the right to purchase all or any part
of the remaining shares to one or more third parties provided that such third
parties agree to execute this Agreement and agree to be bound by the terms
hereof.
4.7 ENDORSEMENT ON CERTIFICATES EVIDENCING SHARES. Each certificate
representing Shares now or hereafter held by Shareholders or their transferees
and successors, shall be stamped with a legend in substantially the following
form:
"The certificate represents Shares, the sale, disposition, pledge,
encumbrance or other transfer of which is subject to limitations and
restrictions (including without limitation, certain rights of first refusal
and mandatory purchase and sale obligations), and the voting of which is
subject to agreements and restrictions, a full statement of which will be
furnished by Newco to any Shareholder upon request and without charge."
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5. REPRESENTATIONS AND WARRANTIES
Sykes, with respect to Sykes, makes the following representations and
warranties to HPS, and HPS with respect to HPS, makes the following
representations and warranties to Sykes, each of which, in any case, is true and
correct on the date hereof, shall remain true and correct to and including the
Closing Date, shall be unaffected by any investigation heretofore or hereafter
made by Sykes or HPS, as the case may be, or any knowledge of Sykes or HPS, as
the case may be, other than as specifically disclosed in the Schedules to this
Agreement, and shall survive the Closing of the transactions provided for
herein. The term "Company" as used in this Agreement, means either Sykes or HPS,
as the case may be.
5.1 CORPORATE.
(a) ORGANIZATION. Sykes is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. HPS is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
(b) CORPORATE POWER. Company has all requisite corporate power and
authority to own, operate and lease its properties, to carry on its business as
and where such is now being conducted, to enter into this Agreement and the
other documents and instruments to be executed and delivered by it pursuant
hereto and to carry out the transactions contemplated hereby and thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Company pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the Board of Directors of the Company. No other or
further corporate act or proceeding on the part of Company is necessary to
authorize this Agreement or the other documents and instruments to be executed
and delivered by Company pursuant hereto or the consummation of the transactions
contemplated hereby and thereby. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed and delivered
by Company pursuant hereto will constitute, valid binding agreements of Company,
enforceable in accordance with their respective terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
5.3 NO VIOLATION. Neither the execution and delivery of this Agreement or
the other documents and instruments to be executed and delivered by Company
pursuant hereto, nor the consummation by Company of the transactions
contemplated hereby and thereby (a) will violate any statue or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) except for applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), will require any
authorization, consent, approval, exemption or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body, or (c) will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute
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a default) under, or will result in the termination of, or accelerate the
performance required by, or result in the creation of any Lien upon any of the
assets of Company, under any term or provision of the Articles of Incorporation
or Bylaws of Company or of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Company is a party or
by which Company or any of its assets or properties may be bound or affected.
6. OTHER MATTERS
6.1 NONCOMPETITION; CONFIDENTIALITY. Subject to the Closing, and as an
inducement to execute this Agreement and complete the transactions contemplated
hereby, Sykes and HPS each hereby covenant and agree as follows:
(a) COVENANT NOT TO COMPETE. During the term of this Agreement and for
a period of sixty (60) months following the termination or expiration of this
Agreement, (1) Newco agrees that it will not directly or indirectly engage in
any businesses which competes with HPS in the HPS Core Business or which
competes with Sykes in the Sykes Core Business; (2) HPS Agrees that it will not
directly or indirectly engage in any business which competes with Newco in the
Newco Core Business or with Sykes in the Sykes Core Business, provided that
nothing contained herein shall prohibit HPS from continuing to provide Care
Management Services pursuant to contracts with Care Management Services already
in place as of the date hereof; and (3) Sykes agrees that it will not directly
or indirectly engage in any business which competes with Newco in the Newco
Core Business or with HPS in the HPS Core Business. This covenant not to compete
shall have worldwide scope.
For purposes of this Section 6.1, the following terms shall have
the following meanings:
(i) "HPS CORE BUSINESS" means the business of providing
marketing, distribution, enrollment, premium billing and collection, claims
administration, and information services to medical benefits payors and health
care providers, including customer service activities related thereto. While HPS
is in the business of providing Care Management Services to medical benefits
payors and health care providers and will continue to contract with payors and
providers to provide such services in the future, it shall outsource this
business to Newco pursuant to its Care Management Outsourcing Agreement with
Newco except to the extent that it currently has other contractual commitments
with other care management providers to provide such services.
(ii) "CARE MANAGEMENT SERVICES" means the business of providing
utilization review (which includes, but is not limited to, pre-admission
certification, prior authorization, prospective length of stay approvals, second
opinions, concurrent review and discharge planning), catastrophic medical case
management, disease management and demand (24) hours a day, 7 days a week)
management services to benefits payors and health care providers, including
third party administrators, provider organizations such as independent
profession associations and provider management companies.
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(iii) "SYKES CORE BUSINESS" means the business of (A) operating
standalone call centers to provide (1) technical product support services to end
users for computer hardware and software companies, and (2) help desk services
to major companies to provide their employees with help in operating their
equipment and software, (B) providing information technology development
services and solutions to large corporations on a contract or temporary staffing
basis, including software design, development integration and implementation
services, systems support and maintenance (C) providing foreign language
translation and software localization services, and (D) providing a
standalone/physically dedicated call center and related services (both inbound
and outbound) to customers.
(iv) "NEWCO'S CORE BUSINESS" means the business of operating call
centers to provide Care Management Services to medical benefits payors, health
care providers and organizations comprised of such entities and other providers
of Care Management Services, such as third party administrators, provider
organizations and provider management companies.
(v) "COMPETE" means, in addition to the customary and accepted
definition of compete, all of the following:
(A) directly or indirectly engage in, continue in or carry
on any business which competes with such business or its substantially similar
thereto, including owning or controlling any financial interest in any
corporation, partnership, firm or other form of business organization which is
so engaged; and
(B) engage in any practice the purpose of which is to evade
the provisions of this covenant not to compete.
The term "Competes with" shall not include the ownership of securities of
corporations which are listed on a national securities exchange or traded in the
national over-the-counter market in an amount which shall not exceed 5% of the
outstanding shares of any such corporation. The parties agree that the
geographic scope of this covenant not to compete shall extend throughout the
United States and the entire world. The parties agree that the geographic scope
of this covenant not to compete is reasonable because telecommunications is a
global business and Sykes has substantial international operations. In the event
a court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration, geographical scope
or activity, it is expressly agreed that this covenant not to compete shall be
construed so that the remaining provisions shall not be affected, but shall
remain in full force and effect, and any such over broad provisions shall be
deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction. This covenant not to compete has
been separately bargained for and is a material inducement to the willingness of
the Investor Shareholders to invest in Newco and enter into this Agreement.
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(b) COVENANT OF CONFIDENTIALITY. Neither Sykes, HPS nor Newco shall at
any time subsequent to the Closing, except as explicitly requested by Sykes, HPS
or Newco, as the case may be, (i) use for any purpose, (ii) disclose to any
person, or (iii) keep or make copies of documents, tapes, discs or programs
containing, any confidential information concerning any other party hereto. For
purposes hereof, "confidential information" shall mean and include, without
limitation, all Trade Rights in which Sykes, HPS or Newco, as the case may be,
has an interest, all customer lists and customer information, and all other
information concerning processes, apparatus, equipment, services, marketing and
distribution methods of Sykes, HPS or Newco, as the case may be, not previously
disclosed to the public directly by Sykes, HPS or Newco, as the case may be.
(Notwithstanding the foregoing, this provision shall not limit in any way the
Investor Shareholders' rights to consult with management of Newco and inspect
the books and records of Newco.)
(c) EQUITABLE RELIEF FOR VIOLATIONS. Sykes, HPS, Newco and the other
Shareholders agree that the provisions and restrictions contained in this
Section 6.1 are necessary to protect the legitimate continuing interests of
Sykes, HPS and Newco, and that any violation or breach of these provisions will
result in irreparable injury to Sykes, HPS and Newco, respectively, for which a
remedy at law would be inadequate and that, in addition to any relief at law
which may be available to Sykes, HPS and Newco, respectively, for such violation
or breach and regardless of any other provision contained in this Agreement,
Sykes, HPS and Newco, respectively, shall be entitled to injunctive and other
equitable relief as a court may grant after considering the intent of this
section 6.1.
6.2 HSR ACT FILINGS. To the extend such filings have not been completed
prior to the execution of this Agreement, Sykes and HPS shall, in cooperation
with the other, file any reports or notifications that maybe required to be
filed by it under the HSR act, with the Federal Trade Commission and the
Antitrust Division of the Department of Justice, and shall furnish to the other
all such information in its possession as may be necessary for the completion of
the reports or notifications to be filed by the other. Prior to making any
communications, written or oral, with the Federal Trade Commission, the
Antitrust Division of the federal Department of Justice or any other
governmental agency or authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated hereby, Sykes and HPS
shall consult with each other.
6.3 SUBCONTRACT FOR EXISTING CALL CENTER SERVICES OF HPS. Following the
Closing, and to the extend HPS is not contractually prohibited from doing such
and can obtain the necessary consents, Newco and HPS shall enter into any
agreement (the "Care Management Agreement") providing for the subcontracting of
call center services provided by HPS which relate to utilization review, medical
case management special claims review and other managed care related services.
The scope of such Agreement shall be as may be mutually agreed upon in good
faith by the parties.
6.4 SUPPORT SERVICE CONTRACT. Following the Closing, Newco, Sykes and HPS
shall enter into a contract or contracts providing for various administrative
support services to be provided at actual cost by Sykes and HPS to Newco (the
"Support Service Contract"). The
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scope of such contract or contracts shall be as may be mutually agreed upon in
good faith by the parties.
6.5 SYKES CALL CENTER SUPPORT. Following the Closing, Sykes shall consult,
if asked, with Newco regarding call center technology and shall assist Newco in
designing Newco's call center and training newco's call center staff. The scope
and terms of such support shall be as may be mutually agreed upon in good faith.
6.6 GUARANTEE OF ACQUISITION LINE OF CREDIT.
(a) Sykes and HPS anticipate that Newco may establish a $75,000,000
line of credit with a third party lender for the purpose of providing financing
for the acquisition of companies providing services similar to the business
described in Section 1.3.Sykes and HPS shall each execute guarantees of 50% of
the indebtedness of Newco under any such line of credit in form reasonable
requested by the lender.
(b) Sykes and HPS anticipate that the line of credit will provide for
the release of Sykes and HPS from their respective guarantees upon Newco's
attainment of specified financial performance targets and rations. The
obligations of Sykes and HPS under this Section 6.6 shall terminate upon the
attainment by Newco of the financial performance targets and ratios specified in
such line of credit. The obligations of Sykes and HPS under this Section 6.6
shall also terminate upon the successful completion of the first registered
offering of common stock of Newco, which offering is underwritten on a firm
commitment basis and produces gross proceeds in excess of 1.25 times the total
amount of Newco's outstanding shareholder and bank debt on the date of the
offering. In addition, all guarantees executed by Sykes and HPS shall provide
that upon the completion of such initial public offering, Sykes and HPS will be
released from all guarantees of Newco's indebtedness.
(c) The execution of any guarantee shall not effect the requirement
that any acquisition by Newco be approved by all of the directors of Newco as
provided in Section 3.6(k) of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS
Each and every obligation of Sykes and each and every obligation of HPS to
be performed on the Closing Date shall be subject to the satisfaction prior to
or at the Closing of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by the other party in this Agreement, and in
any instrument, list, certificate or writing delivered by the other party
pursuant to this Agreement, shall be true and correct in all material respects
when made and shall be true and correct in all material respects at and as of
the Closing Date as though such representations and warranties were made or
given on and as of the Closing Date, except for any changes permitted by the
terms of this Agreement or consented to in writing by Sykes or HPS, as the case
may be.
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7.2 COMPLIANCE WITH AGREEMENT. The other parties shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 8.1.
7.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or any
governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Sykes, HPS or any of the shareholders affiliates, officers or
directors of either of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
7.4 CONSENTS AND APPROVALS. All approvals, consents and waivers with
respect to the other party that are required to effect the transactions
contemplated hereby shall have been received, and executed counterparts thereof
shall have be delivered.
8. CLOSING
The closing of this transaction ("the Closing") shall take place at the
offices of Foley & Lardner in Tampa, Florida on December 18, 1997, or at such
other time and place as the parties hereto shall agree upon. Such date is
referred to in this Agreement as the "Closing Date".
8.1 DOCUMENTS TO BE DELIVERED BY SYKES AND HPS. At the Closing, Sykes, HPS
and Newco shall deliver all the following documents, in each case fully executed
or otherwise in proper for:
(a) Sykes and HPS shall deliver to Newco, the payment of the initial
capital contribution referred to in Section 2.1;
(b) Sykes, HPS and Newco shall deliver the Loan Agreements;
(c) All other documents, instruments or writing required to be
delivered by Sykes, HPS or Newco at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Sykes or HPS
may reasonably request.
8.2 ORGANIZATION MEETING. At the Closing, simultaneously with the delivery
of documents referred to in Section 8.1, the Shareholders shall hold an
organization meeting of Newco. At such meeting, (a) the Shareholders shall
appoint the initial Board of Directors of Newco; (b) the newly-elected Board of
Directors shall meet for the purpose of electing officers of Newco; and (c) the
agreements and documents referred to in this Agreement to which Newco is a party
shall be authorized on behalf of Newco.
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9. TERMINATION
9.1 SURVIVAL OF AGREEMENT. It is the intention of the parties that this
Agreement shall survive the formation of Newco and serve as a binding agreement
on the parties and their respective successors and assigns including, without
limitation, any future shareholders of Newco who agree to be bound by the terms
hereof.
9.2. TERMINATION. Notwithstanding the provisions of Section 9.1 hereof,
this Agreement shall terminate, and shall no longer have any force or effect,
upon the earliest of (a) its termination by mutual written consent of Sykes and
HPS, (b) the failure of any of the conditions precedent set forth in Section 7,
(c) any transfer of shares of Newco which results in Newco having no more than
one Shareholder, or (d) the dissolution and liquidation of Newco.
9.3. CONSEQUENCES OF TERMINATION. Upon the termination of this Agreement
pursuant to Section 9.2 above, all rights and obligations under this Agreement
shall immediately terminate except the following which shall survive termination
of this Agreement for any reason: (a) all claims of any Party against the other
party for damages arising out of acts or omissions of such other Party outside
the scope of this Agreement, or in breach of this Agreement, (b) all rights and
obligations of the parties accrued during the term of this Agreement, and (c)
the provisions of Section 2.3.(b) (pro rate repayment of Loans), Section 6.1
(Non-Competition; Confidentiality), and Article 13 (Resolution of Disputes) of
this Agreement.
9.4. DISSOLUTION OF NEWCO UPON TERMINATION. In the event this Agreement is
terminated as herein provided prior to Closing, but Newco shall ready have been
organized and capitalized, Newco shall be promptly liquidated and all capital
contributions shall be returned to the Shareholders, less their pro rate share
of expenses incurred in connection with the negotiation and execution of this
Agreement, the formation of Newco, and the organization and liquidation of
Newco.
10. FURTHER ASSURANCE
From time to time, at the other party's request and without further
consideration, each party to this Agreement will execute and deliver to the
other party such documents and take such other action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
11. DISCLOSURES AND ANNOUNCEMENTS
Both the timing and the content of all disclosure to third parties and
public announcements concerning the transactions provided for in this Agreement
by either Sykes or HPS shall be subject to the approval of the other in all
essential respects, except that approval shall not be required as to any
statements and other information which a party may submit to the Securities and
Exchange Commission, the New York Stock Exchange or the Nasdaq National Market,
or its shareholders or be required to make pursuant to any rule or regulation
of the
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Securities and Exchange Commission, New York Stock Exchange, Nasdaq National
Market, or otherwise required by law.
12. ASSIGNMENT; PARTIES IN INTEREST
12.1. ASSIGNMENT. Except as expressly provided herein, the rights and
obligations of a party hereunder may not be assigned, transferred or encumbered
without the prior written consent of the other parties.
12.2. PARTIES IN INTEREST. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall be deemed to
confer upon any other person any right or remedy under or by reason of this
Agreement.
13. RESOLUTION OF DISPUTES
13.1. ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into pursuant
hereto or the performance by the parties of its or their terms shall be settled
by binding arbitration held in Tampa, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, except
as specifically otherwise provided in this Article 13. Notwithstanding the
foregoing, Newco may, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened violation of
the covenants of Sykes or HPS under Section 6.1 (covenant not to compete) of
this Agreement.
13.2. ARBITRATORS. If the matter in controversy (exclusive of attorney fees
and expenses) shall appear, as at the time of the demand for arbitration, to
exceed $1,500,000, then the panel to be appointed shall consist of one neutral
arbitrator to be mutually agreed upon by the parties; otherwise, the panel shall
be comprised of three neutral arbitrators of whom one shall be selected by each
party within twenty (20) days, and a third arbitrator shall be selected by these
two selected arbitrators. If one of the parties fails to timely select an
arbitrator, the arbitrator that was timely selected shall be the sole
arbitrator. If neither party timely selects an arbitrator, the first arbitrator
selected thereafter shall be the sole arbitrator, no other being appointed.
Where each of the parties timely selects an arbitrator, said arbitrator will
have ten (10) days from the end of the twenty (20)-day period to select the
third arbitrator. In the event the arbitrators are unable to timely agree on the
third arbitrator, either party may petition any official of the American
Arbitration Association for appointment of the third arbitrator and the parties
agree to accept any arbitrator appointed by such official subject to the
limitations hereof. Arbitrators must be reasonably independent of the parties
and their principals. Persons who are hereby expressly disqualified to serve as
arbitrators are principals of the parties, relatives of said principals,
employees of the parties or said principals, persons not residing within 100
miles of Tampa, Florida, attorneys, accountants, and other business persons have
professional or business relationships with the parties or said principals.
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13.3. PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such discovery
as the arbitrator(s) determine appropriate under the circumstances, provided
that any party shall be entitled to reasonable production of documents and not
less than (i) 16 hours of deposition examination and 20 written interrogatories
if the matter in controversy (exclusive of attorneys fees and costs) is
$1,500,000 or less; and (ii) 24 hours of deposition examination and 40 written
interrogatories if the matter in controversy (exclusive of attorneys fees and
costs) exceeds $1,500,000. The arbitrators shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within one hundred
twenty (120) days after the selection of the arbitrator(s). The arbitrator(s)
shall give the parties written notice of the decision, with the reasons therefor
set out, and shall have thirty (30) days thereafter to reconsider and modify
such decision if any party so requests within ten (10) days after the decision.
Thereafter, the decision of the arbitrator(s) shall be final, binding, and
nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration process.
The privileges, including, without limitation, the attorney-client privilege,
shall apply in arbitration.
13.4. AUTHORITY. The arbitrator(s) shall have authority to award relief
from under legal or equitable principles, including interim or preliminary
relief, and to allocate responsibility for the costs of the arbitration and to
award recovery of attorneys fees and expenses in such manner as in determined to
be appropriate by the arbitrator(s).
13.5. ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Each party hereby submits to the in personam jurisdiction of the
Federal and State courts in Hillsborough County, for the purpose of confirming
any such award and entering judgment thereon.
13.6. CONFIDENTIALITY. All proceedings under this Articles 13 and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
13.7 CONTINUED PERFORMANCE. The fact that the dispute resolution procedures
specified in this Article 13 shall have been or may be invoked shall not excuse
any party from performing its obligations under this Agreement and during the
pendency of any such procedure all parties shall continue to perform their
respective obligations in good faith, subject to any rights to terminate this
Agreement that may be available to any party.
13.8 TOLLING. All applicable statues of limitation shall be tolled which
the procedures specified in this Article 13 are pending. The parties will take
such action, if any, required to effectuate such tolling.
13.9. EXPENSES OF ARBITRATION. Except as otherwise may be provided in this
Agreement, the expenses of arbitration will be borne equally by the parties,
provided that each party will bear cost of its own experts, evidence and
attorneys' fees, except that, in the discretion of the arbitrators, any award in
arbitration may include attorney' fees if the arbitrators expressly determine
that the party against whom such an award is entered has caused the dispute to
be submitted to arbitration in bad faith or as a dilatory tactic. No arbitration
will be commenced
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after the date when institution of legal or equitable proceedings based upon the
same subject matter would be barred by the applicable statute of limitations.
14. LAW GOVERNING AGREEMENT
This Agreement may not be modified or terminated orally, and shall be
construed and interpreted according to the internal laws of the State of
Florida, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction.
15. AMENDMENT AND MODIFICATION
The parties may amend, modify and supplement this Agreement in such manner
as may be agreed upon by them in writing.
16. NOTICE
All notices, requests, demands and other communications hereunder shall be
given in writing and shall be: (a) personally delivered; (b) sent by telecopier,
facsimile transmission or other electronic means of transmitting written
documents; or (c) sent to the parties at their respective addresses indicated
herein by registered or certified U.S. mail, return receipt requested and
postage prepaid, or by private overnight mail courier service. The respective
addresses to be used for all such notices, demands or requests are as follows:
(a) If to Sykes, to:
Sykes Enterprises, Incorporated
100 North Tampa Street, Suite 3900
Tampa, FL 33602
Attention: John L. Crites, Jr.,
Vice President and General Counsel
Facsimile: 813-273-0148
(with a copy to)
Martin A. Traber, Esq.
Foley & Lardern
100 North Tampa, Suite 2700
Tampa, FL 33602
or to such other person or address as Sykes shall furnish to HPS in writing.
25
<PAGE>
(b) If to HPS, to:
HealthPlan Services Corporation
3501 Frontage Road
Tampa, FL 33607
Attention: Phil Dingle, Esq.
Facsimile: 813-287-6629
(with a copy to)
David C. Shobe, Esq.
501 Kennedy Blvd., Suite 1700
Tampa, FL 33601
Facsimile: 813-229-8313
or to such other person or address as HPS shall furnish to Sykes in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any party
to this Agreement may change its address for the purposes of this Agreement by
giving notice thereof in accordance with this Section
17. EXPENSES
Regardless of whether or not the transactions contemplated hereby are
consummated:
17.1. BROKERAGE. Sykes and HPS each represent and warrant to each other
that there is not broker involved or in any way connected with the subject
matter of this transaction. Sykes agrees to hold HPS harmless from and against
all claims for brokerage commissions or finder's fees incurred through any act
of Sykes in connection with the execution of this Agreement or the transactions
provided for herein. HPS agrees to hold Sykes harmless from and against all
claims for brokerage commissions or finder's fees incurred through any act of
HPS in connection with the execution of this Agreement or the transactions
provided for herein.
17.2. PRE-CLOSING EXPENSES. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid or reimbursed
in full by Newco. Newco shall pay any filing fees (including, without
limitation, the HSR Act filing fee) and the fee of its registered agent.
26
<PAGE>
17.3. OTHER. Except as otherwise provided herein, each of the parties shall
bear its own expenses and the expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE>
17.4. COSTS OF LITIGATION OR ARBITRATION. The parties agree that (subject
to the discretion, in an arbitration proceeding, of the arbitrator as set forth
in Section 13) the prevailing party in any action brought with respect to or to
enforce any right or remedy under this Agreement shall be entitled to recover
from the other party or parties all reasonable costs and expenses of any nature
whatsoever incurred by the prevailing party in connection with such action,
including without limitation attorneys' fees and prejudgment interest.
18. ENTIRE AGREEMENT
This instrument embodies the entire agreement between the parties hereto
with respect to the transactions contemplated herein, and there have been and
are no agreements, representations or warrants between the parties other than
those set forth or provided for herein. For the purpose of interpretation, no
party shall be deemed the draftsperson of this Agreement or any document
delivered at Closing.
19. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
20. HEADINGS
The headings in this Agreement are inserted for convenience only and shall
not constitute a part hereof.
21. FURTHER DOCUMENTS
The parties each agree to execute all other documents and to take such
other action or corporate proceedings as may be necessary or desirable to carry
out the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
SYKES ENTERPRISES, INCORPORATED
By /s/ JOHN H. SYKES
-----------------------------
John H. Sykes, President
28
<PAGE>
HEALTH PLAN SERVICES CORPORATION
By /s/ JAMES K. MURRAY, JR.
-----------------------------
James K. Murray, Jr., Chairman & CEO
29
<PAGE>
AGREEMENT TO BE BOUND BY AGREEMENT
Effective as of December 18, 1997, Sykes HealthPlan Services, Inc., a
Florida corporation, hereby and agrees to be bound by all of the terms,
covenants, representations, warranties and other provisions of the Agreement by
and between Sykes and HPS dated December 18, 1997 ("Agreement") that are
applicable to Newco, any "Party," the "Parties" (as those terms are defined in
the Agreement) as if Newco was an original signatory of the Agreement.
SYKES HEALTH PLAN SERVICES, INC.
By /s/ DAVID E. GARNER
------------------------
David E. Garner President
30
<PAGE>
AMENDMENT TO
SHAREHOLDER AGREEMENT
THIS AMENDMENT to that certain Shareholder Agreement (the "Shareholder
Agreement") dated December 18, 1997 by and among SYKES HEALTHPLAN SERVICES,
INC., a Florida corporation ("SHPS"), SYKES ENTERPRISES, INCORPORATED, a Florida
corporation ("Sykes"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("HPS") is made and entered into effective as of the 28th day of
February, 1998.
RECITALS:
WHEREAS, Sykes and HPS (each a "Shareholder" and collectively the
"Shareholders") together own all of the outstanding voting common stock of SHPS;
WHEREAS, SHPS became a party to the Shareholder Agreement upon its
incorporation on December 18, 1997;
WHEREAS, the Shareholder Agreement refers to and defines SHPS as
"Newco"; accordingly, all references made herein to "Newco" shall mean SHPS;
WHEREAS, the Shareholder Agreement, and the loan agreements and
promissory notes (the "Loan Documents") contemplated therein and executed
pursuant thereto, provide that the Shareholders shall each commit to make
available to SHPS a term loan in the amount of $9,040,800 to be drawn upon by
SHPS from time to time in increments of $100,000 (the "Lending Commitment");
WHEREAS, the parties hereto wish to amend the provisions of the
Shareholder Agreement to provide for the termination of the Lending Commitment;
and
WHEREAS, the parties wish to have each Shareholder make equal
additional capital contributions to SHPS such that the total capitalization of
SHPS will be increased to $34 million within 90 days of the Closing as that term
is defined in Section 8 of the Shareholder Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree that the Shareholder
Agreement is amended as follows:
1. Section 2.3, "Lending Commitment," is deleted in its entirety and
replaced with the following provision:
"2.3 SUBSEQUENT CAPITAL CONTRIBUTIONS. Each of the Shareholders shall
contribute additional capital to Newco in equal amounts to increase Newco's
capitalization to $34 million within 90 days of the Closing, at such date
and time as specified by Newco."
1
<PAGE>
2. Section 3.13(h) is deleted in its entirety and replaced with the
following provision:
"(h) REPAYMENT OF LOANS/RELEASE OF GUARANTEES. In the event of a
severance of Business Relationship under this Section 3.12, at the Closing
the purchasing Shareholder shall cause Newco to repay in full all loans
from the selling Shareholder and shall use its best efforts to cause the
selling Shareholder to be released from all guarantees of Newco's
indebtedness."
3. Section 8.1(b) of the Shareholder Agreement is deleted.
4. The reference in Section 9.3(c) of the Shareholder Agreement to "Section
2.3(b) (pro rata repayment of Loans)" is deleted.
5. Exhibits C and D to the Shareholder Agreement are deleted.
6. All other provisions of the Shareholder Agreement are hereby ratified
and confirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the 3rd
day of March, 1998, effective as of the day and year first above written.
ATTEST: SYKES HEALTHPLAN SERVICES, INC.
James K. Murray III By: /s/ DAVID E. GARNER
--------------------------
Its: President
SYKES ENTERPRISES, INCORPORATED
Lisa A. McAllister By: /s/ JOHN H. SYKES
--------------------------
Its: President
HEALTHPLAN SERVICES CORPORATION
Mary By: /s/ JAMES K. MURRAY, JR.
-------------------------
Its: Chairman and Chief Executive Officer
2
EXHIBIT 10.14(e)
CONSOLIDATED GROUP BUILDING
THIRD AMENDMENT
TO
AMENDED CONSOLIDATED AND
RESTATED LEASE
This Third Amendment to the Amended, Consolidated and Restated Lease dated
as of January 1, 1987 relating to floors one through five of the Consolidated
Group Building, Pleasant Street Connector, Framingham and Southborough,
Massachusetts (the "Building") as amended to date (the "Lease") is entered into
as of the 26th day of February, 1998, by and between Consolidated Group Service
Company Limited Partnership, a Massachusetts limited partnership (the
"Landlord"), and HealthPlan Services, Inc. ("Tenant"), the successor in interest
to Consolidated Group, Inc.. In consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Lease is hereby further amended
as follows, but is to remain unchanged and in full force and effect in all other
respects:
1. In consideration of the current and anticipated performance of certain
capital expenditures being undertaken on the Building by the Landlord (such
"Capital Improvements" being described on Exhibit I as attached hereto and
incorporated herein), the Tenant hereby confirms that it is paying to the
Landlord upon the date of execution of this Third Amendment, the sum of Two
Hundred Sixty-Two Thousand Five Hundred Dollars ($262,500.00) as Tenant's agreed
upon share of the cost of the Capital
<PAGE>
Improvements. The Capital Improvements shall be completed by the Landlord in a
good and workmanlike fashion consistent with professional industry standards for
the work being performed. The Landlord agrees to exercise reasonable efforts to
perform the Capital Improvements work in a manner reasonably calculated to
minimize the disruption to Tenant's business activities and Tenant's efforts to
sublease the premises. However, the reasonable efforts to be exercised hereunder
shall not require that the Capital Improvements work be performed during
"non-business" hours. The Tenant hereby agrees to vacate all of the fourth floor
of the Building when repair work is being undertaken that effects the fourth
floor space; however, the so-called "executive area" on the fourth floor as
shown on the attached Exhibit II need not be vacated as no work is to be
performed in that area. The Landlord agrees to exercise reasonable efforts to
complete all work to be performed within the fourth floor by one hundred (100)
days after the date hereof.
2. Commencing as of January 1, 1998, the Tenant hereby agrees to pay the
first five thousand dollars ($5,000.00) per calendar year either for necessary
repairs in connection with all damage caused by leaks from the exterior of the
Building's roof, windows and all other exterior surfaces or in order to take
steps to prevent any such leaks from recurring. All such payments by Tenant
shall be exclusive of amounts required to be paid to repair any such leaks
arising hereafter as a result of the negligence or misconduct of Tenant. The
payments provided for in this paragraph 2 shall be in addition to all payments
to be made by Tenant under the Lease. Landlord shall pay all amounts in excess
of said $5,000 per year necessary to exercise best efforts to prevent any leaks
from
2
<PAGE>
occurring and to repair all damage caused by leaks from the exterior of the
Building's roof, windows and other exterior surfaces, not caused by Tenant's
negligence or misconduct.
3. The following language is hereby inserted after the second sentence of
Section 4.2.2 of the Lease in the place of the current language after said
second sentence, all of which is hereby deleted:
As part of Tenant's agreement that this Lease be "net" to Landlord, Tenant
agrees that if Landlord, in Landlord's reasonable discretion, installs or
makes a capital expenditure repair to or makes or installs a new or
replacement capital item for the express purpose of reducing or conserving
the use of energy in the Building, complying with any building code or
other law, regulation, or legal requirement, complying with requirements
of any insurer, or as otherwise relating to the operation of the Building
or the Lot (hereinafter collectively referred to as "Capital Items"), the
cost of the same amortized over its useful life as calculated pursuant to
generally accepted accounting principles at the interest rate used to
finance the item by an arm's length third party or, if there is no such
separate financing, at the prime rate (which shall mean the prime rate in
effect from time to time at the principal Boston office of the Bank of
Boston, or any successor entity), shall be added to Tenant's monthly
payment obligation hereunder as part of the operating expenses. Landlord
hereby agrees that Capital Items shall exclude any capital expenditures
incurred in connection with the expansion of the Building or expansion of
the Lot, and will not be charged to Tenant.
3
<PAGE>
Capital Items as used in this Lease as well as the duration of a "useful
life" for such items shall be determined according to generally accepted
accounting principles.
If the Landlord and Tenant have a reasonable disagreement as to the
characterization of a particular matter as either an operating expense or
a Capital Item, and if the amount in dispute involves at least $5,000.00
or as to the proper length of a Capital Item's useful life, then any such
disagreement shall be resolved in the following manner. If the disputed
amount is less than $5,000.00 then the Landlord's determination shall
prevail as long as it is based on a reasonable judgment. Within twenty
(20) business days after Landlord shall have notified Tenant of its
characterization of a matter as an operating expense or a Capital Item, or
of its estimate of the useful life of a Capital Item (any or all of which
together shall hereinafter be referred to as the "Specified Matter"),
Tenant shall have the option to object to Landlord's Specified Matter in
writing. Failure by Tenant to respond to Landlord's notice within the
twenty (20) business day period shall be deemed an acceptance of
Landlord's Specified Matter. In the event Tenant objects to Landlord's
Specified Matter then the disagreement shall be arbitrated in accordance
with the following procedure. The parties shall each identify one
impartial third party to serve as an Arbitrator, who will then mutually
select a third Arbitrator, with the three Arbitrators to then address any
Specified Matter brought to their attention . Any such arbitrator shall be
a certified public
4
<PAGE>
accountant, having at least fifteen (15) years prior experience in
accounting for commercial real estate holdings. Within ten (10) calendar
days after the parties are notified as to the identity of the Arbitrators,
each party shall submit to the Arbitrators such party's final documentation
in support of its position, along with such supporting information, as it
deems relevant. The Arbitrators shall have forty-five (45) calendar days
after receipt of the two sets of documentation and supporting information,
if any, in which to designate the Arbitrators' final decision. If one of
the parties has not submitted its documentation to the Arbitrators within
the time limits set forth herein, the Arbitrators will designate the
position of the other party as the correct one. The Arbitrators shall
notify the parties of their decision in writing within such forty-five (45)
day period. All costs incurred for the services of the Arbitrators shall be
borne equally by the parties. The decisions designated by the Arbitrators
shall be final and binding and the parties shall have no further recourse
with respect to such determination. If the three Arbitrators are unable to
reach agreement, a common decision reached by two of the three Arbitrators
shall be deemed as final or, in the case of the duration of a useful life,
the two specified time periods which are closest to each other shall be
averaged, or, if all the time periods are equally spaced, then the average
of the three shall be final.
4. The following language is hereby inserted after the words " the cost of
" in the seventh line of Section 3.3 of the Lease: "construction (which shall
include, , the costs of construction incurred pursuant to any statutory,
regulatory or other compliance requirements
5
<PAGE>
which result from Tenant's attempt to make changes and/or additions to the
Premises; however, if such costs are capital in nature and are incurred because
a pre-existing condition must be brought into statutory or regulatory compliance
then such cost shall fall within the definition of Capital Item and shall be
handled in accordance with Section 3 herein, but all other such costs shall be
included within the aforesaid term "construction"),"
5. The parties hereto acknowledge that both this amendment and any
subletting or assigning of the Building or any part thereof is subject to the
consent of any and all parties holding mortgages on the Building in addition to
the consent of the Landlord as provided in the Lease and that Landlord shall
exercise reasonable efforts promptly to obtain any such consents as may be
required from a mortgagee.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals as of the date first above written.
CONSOLIDATED GROUP SERVICE HEALTHPLAN SERVICES, INC.
COMPANY LIMITED PARTNERSHIP
By: Pleasant Street Ventures, Inc.
its sole general partner
By:/s/ JAMES F. CARLIN By:/s/ DONALD R. FITCH
------------------------------- -------------------------
Treasurer Treasurer
6
EXHIBIT 10.15(b)
As of March 28, 1997
Mr. James K. Murray, III
HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Re: HEALTHPLAN SERVICES CORPORATION CREDIT FACILITY
Dear Jack:
Reference is made 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 amended by the Second Amendment thereto dated September 26,
1996 (the "Second Amendment"), and as may be further amended, restated or
otherwise modified, the "Credit Agreement"), by and among HealthPlan Services
Corporation (the "Borrower"), the Lenders party to such Credit Agreement, and
First Union National Bank of North Carolina, as Agent for the Lenders.
Capitalized terms used and not defined herein shall have the meaning given
thereto in the Credit Agreement.
Pursuant to this letter (the "Letter Agreement"), the Borrower and the
Lenders hereby agree that the definition of "Acquisition Restructuring Charge",
as inserted in the Credit Agreement by the Second Amendment, is hereby revised
by deleting the proviso contained in such definition. In addition, EXHIBIT I
attached to the Second Amendment and referred to in such definition of
"Acquisition Restructuring Charge" is hereby replaced by substituting EXHIBIT I
attached hereto in lieu thereof.
Except as expressly modified herein, the Credit Agreement and each other
Loan Document shall continue to be, and shall remain, in full force and effect.
This Letter Agreement 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.
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.
<PAGE>
The Borrower shall pay all reasonable out-of-pocket expenses of the Agent
in connection with the preparation, execution and delivery of this Letter
Agreement, including without limitation, the reasonable fees and disbursements
of counsel for the Agent.
This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina.
This Letter Agreement 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.
IN WITNESS WHEREOF, the parties hereto have caused this Letter Agreement
to be duly executed as of the date and year first above written.
Sincerely,
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/GAIL M. GOLIGHTLY
-----------------------------
Name: Gail M. Golightly
Title: Senior Vice President
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: Vice President
FLEET BANK, N.A., as Lender
By: /s/MARK A. SIEGEL
-------------------------------
Name: Mark A. Siegel
Title: Assistant Vice President
<PAGE>
NATIONSBANK, N.A. (SOUTH), as
Lender
By: /s/TOMMY ADAIR
---------------------
Name: Tommy Adair
Title: Vice President
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/MARTIN D. GAWEL
----------------------
Name: Martin D. Gawel
Title: Vice President
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/RONALD K. RUEVE
----------------------
Name: Ronald K. Rueve
Title: Vice President
THE FIFTH THIRD BANK
OF COLUMBUS, as Lender
By: /s/CHARLES D. HALE
----------------------
Name: Charles D. Hale
Title: Vice President
ACCEPTED AND AGREED TO:
HEALTHPLAN SERVICES CORPORATION
By: /s/JAMES K. MURRAY III
- --------------------------
Name: James K. Murray III
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 10.15(c)
THIRD AMENDMENT
THIS THIRD AMENDMENT to the Credit Agreement referred to below (this
"Third Amendment"), is made and entered into as of this 6th day of May, 1997 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 thereto, 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"), the
Second Amendment thereto dated September 26, 1996 (the "Second Amendment"), the
Letter Agreement thereto dated as of March 28, 1997 (the "Letter Agreement"),
and as may be further amended, restated or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders party thereto (the
"Lenders"), and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, enable the Borrower to purchase on the open market (or
through private purchases) up to 1,000,000 shares of the Borrower's capital
stock for an amount not greater than Twenty Million Dollars ($20,000,000), and
the Lenders have agreed to do so, but only on the terms and conditions set forth
below in this Third 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
Third Amendment shall have the meanings assigned thereto in the Credit Agreement
and (b) "THIRD AMENDMENT EFFECTIVE DATE" means the date of this Third Amendment
or such later Business Day upon which each condition described below in Section
3 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:
(a) Section 9.7 is hereby amended by deleting such Section in
its entirety and substituting the following in lieu thereof:
"Section 9.7. Limitations on Dividends and Distributions. Declare
or pay any dividends upon any of its capital stock; repurchase,
redeem, retire or otherwise
<PAGE>
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, (b) any
Subsidiary of the Borrower may pay cash dividends or make any
other cash distribution thereto, and (c) the Borrower may purchase
on the open market (and/or through private purchases) up to of
1,000,000 shares of its capital stock at a total cash purchase
price of not more than Twenty Million Dollars ($20,000,000), in
accordance with a formal share repurchase plan (the "Repurchase
Plan") adopted by the Board of Directors of the Borrower to be
conducted over a period of not more than twelve (12) months from
the date hereof.
3. CONDITIONS. The effectiveness of this Third Amendment shall be
conditioned upon satisfaction of the following conditions:
(a) CERTIFICATE OF THE BORROWER. The Agent shall have received a
certificate dated as of the Third 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 Third Amendment to be
satisfied thereby.
(b) 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 Third Amendment
Effective Date certifying on behalf of such Credit Party, as
applicable, that the articles of incorporation and bylaws of such
Credit Party previously 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 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.
(c) REPURCHASE PLAN. The Agent shall have received a copy of the
Repurchase Plan.
(d) ADDITIONAL ITEMS. Receipt by the Agent or any other document
or instrument reasonably requested by it in connection with the
execution of this Amendment.
2
<PAGE>
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 Third 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 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 Third Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
8. GOVERNING LAW. This Third Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
9. COUNTERPARTS. This Third Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitutes one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed as of the date and year first above written.
BORROWER:
HEALTHPLAN SERVICES CORPORATION
By: /s/ JAMES K. MURRAY III
------------------------
James K. Murray III
Executive Vice President and
Chief Financial Officer
3
<PAGE>
OTHER CREDIT PARTIES:
HEALTHPLAN SERVICES, INC.
HEALTHCARE INFORMATICS
CORPORATION
THIRD PARTY CLAIMS
MANAGEMENT, INC.
HARRINGTON SERVICES CORPORATION
R.E. HARRINGTON, INC.
AMERICAN BENEFIT PLAN
ADMINISTRATORS, INC.
PROHEALTH, INC.
EMPLOYEE BENEFIT SERVICES, INC.
CONSOLIDATED GROUP, INC.
GROUP BENEFIT ADMINISTRATORS
INSURANCE AGENCY, INC.
CONSOLIDATED CLAIMS, INC. now known
as CONSOLIDATED GROUP, INC.
CONSOLIDATED HEALTH COALITION, INC.
now known as CONSOLIDATED GROUP, INC.
By: /s/ JAMES K. MURRAY III
-------------------------
James K. Murray III
Executive Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ GAIL M. GOLIGHTLY
--------------------------
Name: Gail M. Golightly
Title: Senior Vice President
4
<PAGE>
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: Vice President
NATIONSBANK, N.A.(SOUTH), as Lender
By: /s/ JAMES E. HARDEN, JR.
--------------------------
Name: James E. Harden, Jr.
Title: Vice President
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ MARTIN D. GAWEL
--------------------------
Name: Martin D. Gawel
Title: Vice President
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ JEFF FERRY
--------------------------
Name: Jeff Ferry
Title: 1st Vice President
THE FIFTH THIRD BANK OF COLUMBUS, as Lender
By: /s/ CHARLES D. HALE
-------------------------
Name: Charles D. Hale
Title: Vice President
5
EXHIBIT 10.15(d)
FOURTH AMENDMENT
THIS FOURTH AMENDMENT to the Credit Agreement referred to below (this
"Fourth Amendment"), is made and entered into as of this 13th day of June, 1997
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 thereto, 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 by the
First Amendment thereto dated July 1, 1996 (the "First Amendment"), the Second
Amendment thereto dated September 26, 1996 (the "Second Amendment"), the Letter
Agreement thereto dated as of March 28, 1997 (the "Letter Agreement"), the Third
Amendment thereto dated as of May 6, 1997 (the "Third Amendment"), and as may be
further amended, restated or otherwise modified, the "Credit Agreement"), by and
among the Borrower, the Lenders party thereto (the "Lenders"), and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, permit the establishment of a swingline facility of up
to $10,000,000 and enable the Borrower to pay a quarterly dividend of up to
$.125 per share of the Borrower's capital stock (or up to $.50 per share on an
annualized basis) for 1997, which amount may be increased by the Borrower on an
annualized basis by up to $.05 per share for each calendar year after 1997, and
the Lenders have agreed to do so, but only on the terms and conditions set forth
below in this Fourth 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
Fourth Amendment shall have the meanings assigned thereto in the Credit
Agreement and (b) "Fourth Amendment Effective Date" means the date of this
Fourth 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:
(a) Section 1.1 is hereby amended to insert the following defined
term in the correct alphabetical order:
<PAGE>
"'FIXED CHARGE 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 less the total amount
paid by the Borrower for any open market repurchases (and/or
private purchases) of its capital stock less cash dividends
paid by the Borrower to its shareholders less cash taxes paid
by Borrower, each for the period of four consecutive fiscal
quarters ending on such fiscal quarter end, to (b) Fixed
Charges."
(b) Section 1.1 is hereby amended to insert the following defined
term in the correct alphabetical order:
"'FIXED CHARGES' means as of any date of determination,
without duplication, each calculated for such period in
accordance with GAAP, the sum of (i) interest expense for the
four consecutive fiscal quarter period ending on or
immediately prior to such date of determination plus (ii)
scheduled principal payments with respect to Debt for the
four consecutive fiscal quarter period immediately following
such date of determination."
(c) Section 1.1 is hereby amended to insert the following defined
term in the correct alphabetical order:
"'SWINGLINE FACILITY' means the swingline facility, not to
exceed $10,000,000 in the aggregate, to be entered into
between the Borrower and First Union, on terms and conditions
satisfactory to the Agent.
(d) 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."
(e) 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 adjusted for non cash charges of not more
than $13,710,000 for the quarter ended September 30, 1996,
and 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 (i) for the
<PAGE>
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."
(f) Section 1.1 is hereby amended by deleting the defined terms
"ACQUISITION RESTRUCTURING CHARGE" and "CAPITAL EXPENDITURE ADD-BACK."
(g) Section 8.2 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 8.2. FIXED CHARGE COVERAGE RATIO. As of the end of
any fiscal quarter of the Borrower during the term of the
Credit Facility, permit the Fixed Charge Coverage Ratio to be
less than 1.3 to 1.0."
(h) Section 8.3 is hereby deleted in its entirety.
(i) Section 9.1 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"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 course of
business of the Borrower and its Subsidiaries, not to exceed
an aggregate amount of $6,000,000 outstanding at any time,
(e) Subordinated Debt of the Borrower which is convertible
into common stock thereof not to exceed an aggregate
principal amount of $50,000,000 during the term of the Credit
Facilities, (f) other 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
$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, (i) the Swingline Facility and (j)
Debt of the Borrower, other than that provided for in clauses
(a) through (i) of this
<PAGE>
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."
(j) Section 9.2 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 9.2. LIMITATIONS ON GUARANTEES. Other than
Guarantees created by the Loan Documents, create, incur,
assume or suffer to exist any Guarantee, except (a)
Guarantees securing the Swingline Facility and (b) indemnity
obligations under surety or fidelity insurance coverage (i)
set forth on Schedule 5.1(t) and (ii) incurred in the
ordinary course of business; PROVIDED that the aggregate
amount of such indemnity obligations pursuant to clauses
(b)(i) and (ii) 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."
(k) Section 9.3 is hereby amended by adding the following
subsection "j" to the end of such Section:
"(j) Liens securing Debt under the Swingline Facility."
(l) Section 9.7 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"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, (b)
any Subsidiary of the Borrower may pay cash dividends or make
any other cash distribution thereto, and (c) as long as no
Default or Event of Default has occurred or is continuing or
would result by the action taken, (i) the Borrower may pay a
cash dividend of up to $.125 per share of its capital stock
on a quarterly basis (or $.50 per share on an annualized
basis) for 1997, which amount may be increased by the
Borrower on an
<PAGE>
annualized basis by up to $.05 per share for each calendar
year after 1997, in accordance with the formal dividend plan
adopted by the Board of Directors of the Borrower previously
delivered to the Agent and Lenders, and (ii) the Borrower may
purchase on the open market (and/or through private
purchases) shares of its capital stock in accordance with the
formal share repurchase plan (the "Repurchase Plan," as
amended, restated, or modified, previously delivered to the
Agent and Lenders) adopted by the Board of Directors of the
Borrower."
3. AGREEMENT. The Borrower agrees that it will reduce the amount of
the Aggregate Commitment by an amount equal to the amount of the Swingline
Facility contemporaneous with the closing of the Swingline Facility
4. CONDITIONS. The effectiveness of this Fourth Amendment shall be
conditioned upon satisfaction of the following conditions:
(a) Fourth Amendment. Receipt by the Agent of copies of this
Fourth Amendment executed by the Agent, Borrower, and Lenders.
(b) Upfront Fees. On the Fourth Amendment Effective Date, each
lender shall receive for the account of the Lenders an upfront fee
equal to $5,000.
(c) CERTIFICATE OF THE BORROWER. The Agent shall have received a
certificate dated as of the Fourth 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 Fourth 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 dated as of the Fourth Amendment
Effective Date certifying on behalf of such Credit Party, as
applicable, that the articles of incorporation and bylaws of such
Credit Party previously 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 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.
<PAGE>
(e) DIVIDEND RESOLUTION AND REPURCHASE PLAN. The Agent and each
Lender shall have received a copy of the board resolutions approving
the dividend and Repurchase Plan.
(f) ADDITIONAL ITEMS. Receipt by the Agent or 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 Fourth 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 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. CONSENT TO SWINGLINE FACILITY SECURITY. Each Lender hereby consents
and agrees that the Swingline Facility may be secured, on a pari passu basis,
with the Obligations, by the Collateral and the Subsidiary Guaranty Agreements.
9. EXPENSES. The Borrower shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and delivery
of this Fourth Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
10. GOVERNING LAW. This Fourth Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
11. COUNTERPARTS. This Fourth Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitutes one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the date and year first above written.
<PAGE>
BORROWER:
HEALTHPLAN SERVICES CORPORATION
By: /s/ JAMES K. MURRAY III
--------------------------
James K. Murray III
Executive Vice President and
Chief Financial Officer
OTHER CREDIT PARTIES:
HEALTHPLAN SERVICES, INC.
HEALTHCARE INFORMATICS
CORPORATION
THIRD PARTY CLAIMS
MANAGEMENT, INC.
HARRINGTON SERVICES CORPORATION
R.E. HARRINGTON, INC.
AMERICAN BENEFIT PLAN
ADMINISTRATORS, INC.
PROHEALTH, INC.
EMPLOYEE BENEFIT SERVICES, INC.
CONSOLIDATED GROUP, INC.
GROUP BENEFIT ADMINISTRATORS
INSURANCE AGENCY, INC.
CONSOLIDATED CLAIMS, INC. now known
as CONSOLIDATED GROUP, INC.
CONSOLIDATED HEALTH COALITION, INC.
now known as CONSOLIDATED GROUP, INC.
By: /s/ JAMES K. MURRAY III
--------------------------
James K. Murray III
Executive Vice President
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: /s/ GAIL M. GOLIGHTLY
--------------------------
Name: Gail M. Golightly
Title: Senior Vice President
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: Vice President
NATIONSBANK, N.A. (SOUTH), as Lender
By: /s/ PENNY WHITE
----------------------
Name: Penny White
Title: Senior Vice President
SOUTHTRUST BANK, NATIONAL
ASSOCIATION (formerly knownas SouthTrust
Bank of Alabama, National Association), as
Lender
By: /s/ MARTIN D. GAWEL
----------------------
Name: Martin D. Gawel
Title: Vice President
FLEET BANK, N.A., as Lender
By: /s/ MARK A. SIEGEL
----------------------
Name: Mark A. Siegel
Title: Assistant Vice President
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ JEFF FERRY
----------------------
Name: Jeff Ferry
Title: 1st Vice President
THE FIFTH THIRD BANK OF COLUMBUS, as Lender
<PAGE>
By: /s/ CHARLES D. HALE
----------------------
Name: Charles D. Hale
Title: Vice President
EXHIBIT 10.15(e)
FIFTH AMENDMENT
THIS FIFTH AMENDMENT to the Credit Agreement referred to below (this
"Fifth Amendment"), is made and entered into as of this 30th day of October,
1997 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 (f/k/a 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 by the
First Amendment thereto dated as of July 1, 1996, as amended by the Second
Amendment thereto dated as of September 26, 1996, as amended by the Letter
Agreement dated as of March 28, 1997, as amended by the Third Amendment thereto
dated as of May 6, 1997, as amended by the Fourth Amendment thereto dated as of
June 13, 1997, and as may be further amended, restated or otherwise modified,
the "Credit Agreement"), by and among the Borrower, the Lenders party thereto
and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement to
permit the Borrower to make certain an investment in a corporation to be formed
and capitalized jointly by the Borrower and Sykes Enterprises, Inc. (the "Joint
Venture") and to permit the Borrower to continue an existing investment
consisting of the purchase of certain shares of capital stock of Health Risk
Management, Inc. with an initial purchase price of up to $2,500,000 (the "HMRI
Investment").
Further, the Borrower has requested that the Lenders waive an existing
Event of Default under the Credit Agreement arising out of the HMRI Investment.
The Lenders have agreed to amend the Credit Agreement and waive the Event
of Default, but only on the terms and conditions set forth below in this Fifth
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. All capitalized undefined terms used in this Fifth
Amendment shall have the meanings assigned thereto in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) Section 9.4 of the Credit
Agreement is hereby amended by deleting the word "and" at the end of clause (f)
of Section 9.4 and inserting the following text immediately following clause (f)
of Section 9.4:
<PAGE>
(g) an investment by the Borrower of up to $15,000,000 consisting
of capital stock and indebtedness of a corporation to be formed and
capitalized jointly by the Borrower and Sykes Enterprises, Inc.;
(h) an investment by the Borrower in the form of the ownership of
certain shares of capital stock of Health Risk Management, Inc. with an
initial purchase price of up to $2,500,000; and"
(b) Section 9.4 of the Credit Agreement is hereby further amended by
deleting the "(g)" from the beginning of the current clause (g) of Section 9.4
and inserting "(i)" in lieu thereof.
3. WAIVER. The undersigned Lenders hereby waive the Default and Event of
Default by the Borrower arising under Section 9.4 of the Credit Agreement
resulting from the consummation of the HMRI Investment prior to the effective
date hereof.
4. CONDITIONS. (a) Subject to Section 4(b) below, the effectiveness of
this Fifth Amendment shall be conditioned upon receipt by the Agent of (i) a
copy of this Fifth Amendment duly executed by the Agent, the Borrower and
Lenders constituting Required Lenders and (ii) any other document or instrument
reasonably requested by it in connection with the execution of this Amendment.
(b) The effectiveness of the provisions of Section 2 of this Fifth
Amendment relating to the Joint Venture shall not be effective until receipt by
the Agent of true and correct copies of (as so certified by an officer of HPSC),
and the Agent shall be satisfied with the form and substance of, the following:
(i) all corporate organization documents of the Joint Venture, (ii) the by-laws
of the Joint Venture and (iii) all management and other agreements to which the
Borrower or any Subsidiary thereof is a party concerning the Joint Venture.
5. AGREEMENTS REGARDING JOINT VENTURE. The provisions of Section 9.4 of
the Credit Agreement prohibiting the Borrower from entering into any commitment
or option in respect of certain investments shall not apply to the commitment of
the Borrower, on the terms and conditions previously disclosed to the Agent and
Lenders, to participate in the capitalization of the Joint Venture as permitted
by Section 2 hereof and no Default rate interest shall be payable pursuant to
Section 3.1(d) of the Credit Agreement with respect to the Default and Event of
Default waived in Section 3 hereof.
6. 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 Fifth 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.
<PAGE>
7. 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 (and after giving effect to the
waiver set forth in Section 3 hereof) no Default or Event of Default has
occurred and is continuing.
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
Fifth Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
9. GOVERNING LAW. This Fifth Amendment shall be governed by and construed
in accordance with the laws of the State of North Carolina.
10. COUNTERPARTS. This Fifth 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.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth 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.
[CORPORATE SEAL] HEALTHCARE INFORMATICS CORPORATION
[CORPORATE SEAL] THIRD PARTY CLAIMS MANAGEMENT, INC.
[CORPORATE SEAL] HARRINGTON SERVICES CORPORATION
[CORPORATE SEAL] R.E. HARRINGTON, INC.
[CORPORATE SEAL] AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.
[CORPORATE SEAL] PROHEALTH, INC.
<PAGE>
[CORPORATE SEAL] EMPLOYEE BENEFIT SERVICES, INC.
[CORPORATE SEAL] CONSOLIDATED GROUP, INC.
[CORPORATE SEAL] GROUP BENEFIT ADMINISTRATORS INSURANCE
AGENCY, INC.
[CORPORATE SEAL] CONSOLIDATED GROUP CLAIMS, INC., now
known as CONSOLIDATED GROUP, INC.
[CORPORATE SEAL] CONSOLIDATED HEALTH COALITION, INC., now
known as CONSOLIDATED GROUP, INC.
By: /s/ JAMES K. MURRAY III
----------------------------
Name: James K. Murray III
Title: Executive Vice President
FIRST UNION NATIONAL BANK (f/k/a First Union
National Bank of North Carolina), as Agent and
Lender
By: /s/ GAIL M. GOLIGHTLY
----------------------------
Name: Gail M. Golightly
Title: Senior Vice President
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: Vice President
FLEET BANK, N.A., as Lender
By: /s/ EUGENIE M. SULLIVAN
----------------------------
Name: Eugenie M. Sullivan
Title: Senior Vice President
<PAGE>
NATIONSBANK, N.A. as Lender
By: /s/ JAMES E. HARDEN, JR.
----------------------------
Name: James E. Harden, Jr.
Title: Vice President
SOUTHTRUST BANK, NATIONAL
ASSOCIATION (f/k/a SouthTrust Bank
of Alabama, National Association)
By: /s/ MARTIN D. GAWEL
----------------------------
Name: Martin D. Gawel
Title: Vice President
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ JEFF FERRY
----------------------------
Name: Jeff Ferry
Title: 1st Vice President
THE FIFTH THIRD BANK
OF COLUMBUS, as Lender
By: /s/ CHARLES D. HALE
----------------------------
Name: Charles D. Hale
Title: Vice President
EXHIBIT 10.15(f)
SIXTH AMENDMENT
THIS SIXTH AMENDMENT to the Credit Agreement referred to below (this
"Sixth Amendment"), is made and entered into as of this 17th day of March, 1998
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 (f/k/a 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 by the
First Amendment thereto dated as of July 1, 1996, as amended by the Second
Amendment thereto dated as of September 26, 1996, as amended by the Letter
Agreement dated as of March 28, 1997, as amended by the Third Amendment thereto
dated as of May 6, 1997, as amended by the Fourth Amendment thereto dated as of
June 13, 1997, as amended by the Fifth Amendment dated as of October 30, 1997,
and as may be further amended, restated or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders party thereto and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to permit the Borrower to increase the amount of its present investment in a
corporation formed and capitalized jointly by the Borrower and Sykes
Enterprises, Inc. (the "Joint Venture") and to permit the Borrower to guaranty
certain Debt of the Joint Venture.
The Lenders have agreed to amend the Credit Agreement, but only on the
terms and conditions set forth below in this Sixth 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. All capitalized undefined terms used in this
Sixth Amendment shall have the meanings assigned thereto in the Credit
Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by
deleting the word "and" immediately preceding clause (e) of the definition of
"DEBT" and inserting the clause "(f) all Guarantees" at the end of such clause
(e) immediately prior to the period at the end thereof.
<PAGE>
(b) Section 9.2 of the Credit Agreement is hereby amended by
deleting the period at the end of such Section 9.2 and inserting the following
text in lieu thereof:
"and (c) a Guarantee, in form and substance reasonably
acceptable to the Agent, of up to $37,500,000 of Debt
obligations of a corporation (the "Joint Venture") formed and
capitalized jointly by the Borrower and Sykes Enterprises, Inc.
(the "Joint Venture Guarantee")."
(c) Section 9.4(g) of the Credit Agreement is hereby amended
by deleting the Dollar amount of "$15,000,000" therein and substituting the
Dollar amount "$17,000,000" in lieu thereof.
3. OTHER AGREEMENTS.
(a) The parties hereto agree that for purposes of calculating the
amount of the Borrower's Debt in connection with the Credit Agreement, the Joint
Venture Guarantee shall be valued at $37,500,000.
(b) The parties hereto agree that until such time as the Joint
Venture Guarantee is released or the underlying Debt subject to such Joint
Venture Guarantee is paid in full, the aggregate principal amount of all Loans
(after giving effect to any amount requested) shall not exceed the lesser of (i)
the Aggregate Commitment LESS $37,500,000 and (ii) the Earnings Multiple LESS
$37,500,000.
4. CONDITIONS. The effectiveness of this Sixth Amendment shall be
conditioned upon receipt by the Agent of (i) a copy of this Sixth Amendment duly
executed by the Agent, the Borrower and Lenders constituting Required Lenders,
(ii) receipt of a fully executed copy of the Joint Venture Guarantee, and (iii)
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 Sixth 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 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 (and after giving effect to the
waiver set forth in Section 3 hereof) no Default or Event of Default has
occurred and is continuing.
<PAGE>
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 Sixth Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
8. GOVERNING LAW. This Sixth Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
9. COUNTERPARTS. This Sixth 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.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be duly executed as of the date and year first above written.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ DONALD R. FITCH
-------------------
Name: Donald R. Fitch
Title: Treasurer
OTHER CREDIT PARTIES:
[CORPORATE SEAL] HEALTHPLAN SERVICES, INC.
[CORPORATE SEAL] HEALTHCARE INFORMATICS CORPORATION
[CORPORATE SEAL] AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.
[CORPORATE SEAL] BENEFITS MANAGEMENT CONSULTING, INC.
[CORPORATE SEAL] EMPLOYEE BENEFIT SERVICES, INC.
[CORPORATE SEAL] GROUP BENEFIT ADMINISTRATORS INSURANCE
AGENCY, INC.
[CORPORATE SEAL] HEALTHPLAN SERVICES INSURANCE AGENCY,
INC.
[CORPORATE SEAL] HEALTHPLAN SERVICES INSURANCE AGENCY OF
ILLINOIS, INC.
<PAGE>
[CORPORATE SEAL] PRO HEALTH, INC.
By: /s/ PHILLIP S. DINGLE
-----------------------
Name: Phillip S. Dingle
Title: SVP and Chief Counsel
FIRST UNION NATIONAL BANK (f/k/a First Union
National Bank of North Carolina), as Agent
and Lender
By: /s/ GAIL M. GOLIGHTLY
-----------------------
Name: Gail M. Golightly
Title: Senior Vice President
BARNETT BANK, N.A.,
(as successor by merger to Barnett Bank of
Tampa, a State Bank), as Lender
By: /s/ SADAHRI BERRY
-----------------------
Name: Sadahri Berry
Title: Assistant Vice President
FLEET BANK, N.A., as Lender
By:
-------------------------
Name:
Title:
NATIONSBANK, N.A. as Lender
By: /s/ SADAHRI BERRY
-----------------------
Name: Sadahri Berry
Title: Assistant Vice President
SOUTHTRUST BANK, NATIONAL
ASSOCIATION (f/k/a SouthTrust Bank
of Alabama, National Association)
By: /s/ MARTIN D. GAWEL
-----------------------
Name: Martin D. Gawel
Title: Vice President
<PAGE>
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ JENNIFER GOLDMAN
-----------------------
Name: Jennifer Goldman
Title: Corporate Banking Officer
THE FIFTH THIRD BANK
OF COLUMBUS, as Lender
By: /s/ CHARLES D. HALE
-----------------------
Name: Charles D. Hale
Title: Vice President
EXHIBIT 10.17
R.E. HARRINGTON
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, executed the 15th day of May 1987, is by and between R.E.
HARRINGTON, INC. (hereinafter referred to as the "Corporation"), and Robert R.
Parker, an individual residing in the State of Ohio (hereinafter referred to as
the "Employee").
RECITALS
A. The Employee is employed by the Corporation, and the Corporation
recognizes the valuable services heretofore performed for it by the Employee
and wishes to encourage Employee's continued employment.
B. The Employee wished to be assured that Employee or Employee's family
will be entitled to a certain amount of compensation for some definite period
of time from and after Employee's retirement from active service with the
Corporation, or other termination of such employment whether by reason of
Employee's death or otherwise.
C. The parties hereto wish to provide the terms and conditions upon
which the Corporation shall pay such additional compensation to the Employee or
Employee's family after Employee's retirement or such other termination of
Employee's employment;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the parties hereto agree as follows:
ss.1. SALARY REDUCTION; FORM OF BENEFITS
Employee agrees to reduce his salary from the Corporation by the amount
designated on Schedule A hereto, which is the same amount Employee will receive
from Cordura Corporation as deferred Compensation. Employee will receive no
salary from the Corporation following the execution of this Agreement until the
salary foregone equals the above amount. Employee or his beneficiary will
receive under this Agreement either retirement or termination benefits or death
benefits (but only one), pursuant to ss. 2 and ss.3, below.
<PAGE>
ss.2. RETIREMENT OR TERMINATION BENEFITS
In consideration of Employee's salary reduction pursuant to ss.1, above,
and of Employee's remaining in the employ of the Corporation, upon retirement or
other termination (whether voluntary or involuntary) from the Corporation,
Employee shall receive as deferred compensation the sum $9,041.50 per month
("Monthly Payment") for 180 months, payable as follows (check one upon execution
of this Agreement):
_____ (a) Commencing at age 65.
_____ (b) Commencing at age 55, provided that the Monthly
Payment shall be reduced to $6,763.04.
_____ (c) Commencing at age __ (select 56 to 64), provided
that the Monthly Payment shall be reduced by 0.21%
for each month before Employee's 65th birthday from
the initial Monthly Payment. For example, if
Employee selects age 60 (and payments commence on
his 60th birthday), the Monthly Payment would be
$7,902.27 ($9,041.50 - [60 mos. x .0021 x
$9,041.50].
X (d) Employee elects to defer the making of an
----- election as to the time of commencement and amount
of the Monthly Payments as described above until
no later than the last day of the calendar year
preceding the calendar year in which Employee's
retirement or termination from the Corporation
takes place, provided that the Employee must obtain
the consent of the Corporation (which may be
withheld at its discretion) at such time for any
commencement date other than Employee's 65th
birthday or such Monthly Payments shall commence
upon Employee's attaining age 65 as described in
(a), above.
The Corporation shall not commence making Monthly Payments until
Employee has retired from (or otherwise has terminated employment with the
Corporation, whether voluntarily or involuntarily), unless the Employee has
attained age 65 and is still in the employ of the Corporation, in which event
the Corporation shall commence making the Monthly Payments upon Employee's
attaining age 65. For purposes of calculating the amount of the Monthly Payment,
the actual, rather than earlier elected, commencement date shall govern.
In the event that the Employee should die after the Monthly Payments
have commenced but prior to their completion, the unpaid balance of the Monthly
Payments
2
<PAGE>
due determined above will continue to be paid by the Corporation to the
beneficiary referred to in ss.3, below.
ss.3. DEATH BENEFIT
In consideration of Employee's salary reduction pursuant to ss.1, above,
and of Employee's remaining in the employ of the Corporation, the Corporation
agrees that, in the event of the death of the Employee prior to receiving
Monthly Payments pursuant to ss.1, above, while still in the active employ of
the Corporation, it will commence to pay the Monthly Payments of $9,041.50
determined pursuant to ss.2 (a), above (regardless of the election selected) for
a period of one hundred eighty (180) months commencing on the first day of the
fourth month following Employee's death. In the event that Employee dies
following termination of employment with the Corporation but prior to the
commencement of Monthly Payments pursuant to ss.2, above, the amount of the
payments hereunder shall be equal to the amount of the Monthly Payment selected
pursuant to ss.2, above, but which never commenced. The Corporation shall make
payments under this ss.3 to the Employee's then living beneficiary as designated
in writing to the Corporation, if any, if none; or from and after his or her
death, then to the Employee's then living spouse, if any, if none; or from and
after such spouse's death, then to the then living children of the Employee, if
any, in equal shares; and if none, or from and after their lives, any balance
thereof in one lump sum to the estate of the Employee. A beneficiary designation
form is attached as Schedule B. However, death benefits under this ss. 3 shall
not be payable if the death of Employee results from suicide, whether sane or
insane, within two years after the later of the execution of this Agreement or
the Corporation's purchase of insurance pursuant to ss.7, below; instead the
Company shall pay to such beneficiary the lump sum designated on Schedule A.
ss.4. EMPLOYEE'S ACTIVITIES
In consideration of the foregoing agreements of the Corporation and of
the payments to be made by the Corporation pursuant thereto, the Employee hereby
agrees that, so long as Employee remains in the active employ of the
Corporation, Employee will devote substantially all of Employee's time, skill,
diligence and attention to the business of the Corporation.
ss.5. RELATIONS OF THE PARTIES
Nothing contained in this Agreement, and no action taken pursuant to its
provisions by either party hereto shall create, or be construed to create, a
trust of any kind, or a fiduciary relationship between the Corporation and the
Employee, the Employee's designated beneficiary, other beneficiaries of the
Employee or any other person.
3
<PAGE>
ss.6. EMPLOYEE'S UNSECURED GENERAL CREDITOR STATUS
The payments to the Employee or Employee's designated beneficiary or any
other beneficiary hereunder shall be made from assets which shall continue, for
all purposes, to be a part of the general assets of the Corporation, and no
person shall have, by virtue of the provisions of this Agreement, any interest
in such assets. To the extent that any person acquires a right to receive
payments from the Corporation under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of the Corporation.
ss.7. INSURANCE POLICIES
The Corporation intends to purchase, or has purchased, an insurance
policy or policies insuring the life of the Employee to allow the Corporation to
recover the cost of providing the benefits hereunder. However, neither the
Employee, Employee's designated beneficiary nor any other beneficiary shall have
any rights whatsoever therein; the Corporation shall be the sole owner and
beneficiary thereof and shall possess and may exercise all incidents of
ownership therein.
ss.8. NOT AN EMPLOYMENT CONTRACT
Nothing contained herein shall be construed to be a contract of
employment for any term of years, nor as conferring upon the Employee the right
to continue in the employ of the Corporation in any capacity. It is expressly
understood by the parties hereto that this Agreement relates exclusively to
additional compensation for the Employee's services, payable after termination
of Employee's employment with the Corporation, and is not intended to be an
employment contract.
ss.9. PROHIBITION ON TRANSFER
Neither the Employee, Employee's spouse, nor any other beneficiary under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate or otherwise encumber any part of all of the amounts payable
hereunder, nor shall such amounts be subject to seizure by any creditor of any
such beneficiary, by a proceeding at law or in equity, and no such benefit shall
be transferable by operation of law in the event of bankruptcy, insolvency or
death of the Employee, Employee's spouse, or any other beneficiary hereunder.
Any such attempted assignment or transfer shall be void.
ss.10. NAMED FIDUCIARY
The Corporation is hereby designated as the named fiduciary under this
Agreement. The named fiduciary shall have authority to control and manage the
operation and administration of this Agreement, and its shall be responsible for
establishing and carrying out a funding policy and method consistent with the
objectives of this Agreement.
4
<PAGE>
ss.11. CORPORATION TO MAKE DETERMINATION
The Corporation shall make all determinations as to rights to and
amounts of benefits under this Agreement. Any decision by the Corporation
reducing the payments made hereunder or denying a claim by the Employee or
Employee's beneficiary for benefits pursuant to this Agreement shall be stated
in writing and delivered or mailed to the Employee or such beneficiary. Such
decision shall set forth the specific reasons for the reduction or denial,
written to the best of the Corporations ability in a manner that may be
understood without legal or actual counsel. In addition, the Corporation shall
afford a reasonable opportunity to the Employee or such beneficiary for a full
and fair review of the decision denying such claim.
ss.12. AUTHORITY OF THE CORPORATION'S BOARD OF DIRECTORS
Subject to the foregoing, the Board of Directors of the Corporation
shall have full power and authority to interpret, construe and administer this
Agreement. The interpretation and construction of this Agreement by the Board of
Directors of the Corporation, and any action taken thereunder, shall be binding
and conclusive upon all parties in interest. No member of the Board of Directors
of the Corporation shall, in any event, be liable to any person for any action
taken or omitted to be taken in connection with the interpretation, construction
or administration of this Agreement. so long as such action or admission to act
be made in good faith.
ss.13. AMENDMENT
This Agreement may not be amended, altered or modified, except by a
written instrument signed by the parties hereto, or their respective successors
or assigns, and may not be otherwise terminated except as provided herein.
ss.14. BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
Corporation and its successors and assigns, and the Employee, Employee's
successors, assigns, heirs, executors, administrators and beneficiaries.
ss.15. NOTICE
Any notice, consent or demand required or permitted to be given under
the provisions of this Agreement shall be in writing, and shall be signed by the
party giving or making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail, postage
prepaid, addressed to such party's last known address as shown on the records of
the Corporation. The date of such mailing shall be deemed the date of notice,
consent or demand.
5
<PAGE>
ss.16. GOVERNING LAW
This Agreement, and the rights of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
CORPORATION:
R.E. HARRINGTON, INC.
By: /s/ ROBERT J. COVERT
--------------------
Title: V.P. & Treasurer
EMPLOYEE:
/s/ ROBERT R. PARKER
--------------------
Robert R. Parker
SCHEDULE A
Salary Reduction Amount
6
EXHIBIT 10.20
HEALTHPLAN SERVICES CORPORATION
1997 OFFICER BONUS PLAN
PLAN SUMMARY
The Compensation Committee of the Board of Directors of the Company
adopted an officer bonus plan for 1997. The plan, which was not set forth in a
formal document, provided the terms under which certain employees of the
Company, including the Company's executive officers, would receive bonuses.
Pursuant to the plan, executive officers would have received 1997 bonuses if the
Company's earnings per share for 1997 had exceeded $1.11, net of bonus accruals.
EXHIBIT 10.21
ADMINISTRATIVE SERVICES AND BUSINESS TRANSFER AGREEMENT
This Administrative Services and Business Transfer Agreement
("Agreement") is entered into as of this 4th day of December, 1996, by and
between TMG Life Insurance Company, a North Dakota insurance company ("TMG"),
and HealthPlan Services, Inc., a Florida corporation ("HPS").
RECITALS
WHEREAS, TMG has issued the group life, AD&D, medical and dental
insurance policies described on Exhibit A ("Policies") in the states identified
in such exhibit;
WHEREAS, TMG wishes to exit the group life, AD&D, medical and
dental insurance business as soon as reasonably practical;
WHEREAS, in accordance with such desire, TMG has entered into a
definitive reinsurance agreement attached hereto as Exhibit B ("Treaty") with
Connecticut General Life Insurance Company, a Connecticut insurance company
("CGLIC"), pursuant to which TMG will cede to CGLIC, and CGLIC will reinsure
from TMG, the Inforce Business and the New Business (both as defined in the
Treaty) effective as of January 1, 1997 ("Effective Date"), on the terms and
conditions set forth in the Treaty;
WHEREAS, pursuant to the Treaty, CGLIC has assumed reinsurance
with respect to substantially all of TMG's insurance risk under the Ceded
Business (as defined in the Treaty);
WHEREAS, TMG intends to be relieved of its role as the primary
or "fronting" carrier not later than December 31, 1998 by an insurance carrier
recommended by CGLIC; and
WHEREAS, TMG and HPS wish to enter into an arrangement pursuant
to which HPS will provide certain administrative and other services on behalf of
TMG with respect to the Policies and the New Business and to enter into certain
other agreements, in each case as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, TMG and HPS hereby agree as follows.
I. ADMINISTRATIVE SERVICES.
A. GENERAL PRINCIPLE.
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<PAGE>
TMG hereby authorizes HPS to manage, administer, market and
operate the Policies (including the individual conversion policies identified on
Exhibit A under the heading "individual conversion policies") and the New
Business (collectively, "Administered Business") as set forth in this Agreement.
HPS's obligations set forth in this Article I shall commence on the Effective
Date and shall expire as provided in Section VIII(B).
TMG and HPS acknowledge that TMG will attempt to contract with
Ameritas to reinsure and perform administrative services with respect to certain
dental policies that TMG has administered. In the event that Ameritas does not
agree to administer all aspects of such dental business, TMG and HPS agree to
negotiate in good faith an arrangement pursuant to which HPS will administer
such business on behalf of TMG on such terms and conditions (including
compensation) as the parties may agree.
HPS acknowledges and agrees that the Treaty obligates TMG to
provide to CGLIC certain reports and remittances and to perform certain claims
audit functions, claims and claims adjustment expense functions, subrogation
functions, and other obligations with respect to the administration of the Ceded
Business (collectively, "Treaty Requirements"). Notwithstanding anything in this
Agreement to the contrary, HPS hereby agrees to perform the Treaty Requirements
on behalf of TMG, such that TMG will at all times be in compliance with the
Treaty Requirements.
B. UNDERWRITING AUTHORITY AND BASIC SERVICES.
Commencing on the Effective Date, TMG authorizes and delegates
to HPS the responsibility to, and HPS hereby agrees to:
1. Prepare underwriting, marketing, and claims services,
interpretation, and administration guidelines with respect to the Administered
Business, including appropriate service standards, and update and revise such
guidelines as necessary from time to time during the term of this Agreement
("Guidelines"). HPS shall, on or before March 1, 1997, submit the Guidelines to
TMG and CGLIC, and shall not implement the Guidelines until TMG and CGLIC have
approved the Guidelines in writing. TMG shall review the Guidelines and notify
HPS if it approves or rejects the Guidelines on or before the 30th day after TMG
receives the Guidelines. HPS shall perform its duties under this Agreement in
accordance with the approved Guidelines. Until the Guidelines have been approved
by TMG and CGLIC, HPS shall perform its duties under this Agreement in
accordance with TMG's guidelines as in effect as of Closing (as defined in
Article VI), which TMG shall deliver to HPS on or before the Closing Date (also
as defined in Article VI), subject to whatever changes or modifications as HPS
reasonably believes are necessary in accordance with good insurance business
practices about which HPS shall notify TMG (provided that HPS shall indemnify
TMG pursuant to Section VII(A) in the event that TMG objects to such changes or
modifications and thereafter incurs any liability in respect thereof.
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<PAGE>
After initial approval of the Guidelines, HPS may submit
proposed changes or additions thereto for TMG and CGLIC review and approval and,
in such event, TMG agrees to respond to such proposals in writing within thirty
(30) days after receiving such proposals from HPS. In the absence of Guidelines
on a matter that is not addressed in this Agreement, HPS may seek and rely upon
written instructions from TMG and, if none are forthcoming within ten (10)
business days after HPS's request therefor, HPS shall be entitled to act on such
matter in accordance with its own best judgment.
2. Collect and receive premiums (including any administration
fees) on, and perform billing services related to, the Administered Business.
HPS shall hold all such premiums in trust, shall not commingle such premiums
with any of its other funds, except for the fees payable to HPS in connection
herewith, and shall deposit such premium into the Premium Account as provided in
Section I(I).
3. As TMG's representatives, prepare and submit to all
applicable regulatory authorities rate filings approved by TMG and CGLIC with
respect to the Administered Business and develop rate structures for the
Administered Business from time to time that comply with applicable Law.
4. Deliver all requisite notices and other communications to the
policyholders as TMG's representative under the Administered Business.
5. Process any policy cancellations, non-renewals, and
endorsements related to the Administered Business as TMG's representative.
6. As TMG's representative, cancel or non-renew coverage under
the Administered Business only pursuant to the relevant policy terms and in
accordance with applicable Law or as specifically instructed by TMG.
7. Prepare all actuarial certifications related to the
Administered Business required by Law or reasonably requested by TMG.
8. Make such calculations and estimates as shall enable TMG
and/or CGLIC to establish and maintain loss, unearned premium and all other
reserves with respect to the Administered Business at the direction and with the
oversight of CGLIC and, as appropriate, TMG.
9. Bind coverage for New Business on behalf of TMG to qualifying
risks accepted or acceptable under the then current Guidelines, and, as TMG's
representative, issue all related notices required by Law.
10. Prepare and develop policy forms for the New Business,
obtain all requisite regulatory approvals for such policy forms, and ensure that
all such policy forms comply with applicable Law.
-3-
<PAGE>
11. Make reasonable efforts to market the New Business in
accordance with the Guidelines provided, however, that HPS may not employ any
advertisement that refers to TMG without TMG's prior written consent, which TMG
agrees will not unreasonably be withheld, delayed or conditioned.
C. CLAIMS ADMINISTRATION.
Commencing on the Effective Date, TMG hereby authorizes HPS to
administer, and HPS hereby agrees to administer, any and all claims arising
under the Administered Business regardless of when such claims are incurred
(collectively, "Claims"). Without limiting the generality of the previous
sentence, as TMG's representative, HPS shall:
1. Diligently adjust and settle all Claims in accordance with
applicable Law and the Guidelines.
2. Receive and process the Claims in accordance with applicable
Law and the Guidelines.
3. Examine each Claim and determine whether a claimant asserting
a Claim ("Claimant") is entitled to compensation under applicable Law and the
Guidelines and, if a Claimant is so entitled to compensation, arrange for the
prompt payment of such Claim from the Claims Account (as defined in Section
I(6)) provided, however, that HPS shall not pay, without the prior written
approval of TMG, any Claims paid or incurred on any insured within the previous
twelve months in excess of the lesser of (i) $100,000 or (ii) one percent of
TMG's policyholder surplus as set forth in its most recent annual statutory
financial statement, about which TMG shall notify HPS on or before April 1st of
each year in which this Agreement is in effective.
4. Pay all allocated loss adjustment expenses related to any
Claim from the Claims Account ("Allocated Loss Adjustment Expenses") which shall
include all fees, costs and expenses related to independent adjusters and
investigators, experts, witnesses, attorneys, taxes, court costs, settlements,
judgments, post-judgment interest, and other reasonable and necessary fees,
costs and expenses incurred in connection with the investigation, defense and
settlement of Claims, but not HPS's salaries, benefits, administrative costs,
normal overhead, or other internal costs or expenses.
5. Promptly notify each Claimant if his Claim has been denied in
whole or in part, and the reasons for such denial.
6. Investigate any Claims that are not supported by sufficient
factual documentation.
7. Settle any disputes concerning a Claim on reasonable terms
and conditions, in accordance with the Guidelines, or as directed in writing by
TMG provided, however, that (i) HPS shall not settle any disputed Claim for more
than $100,000 without the
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<PAGE>
prior approval of TMG and (ii) HPS shall obtain from the Claimant an
unconditional release of TMG, TMG's reinsurers and their respective affiliates
in respect of the disputed Claim.
8. Make such calculations as shall enable TMG and/or CGLIC to
establish loss reserves for each Claim in accordance with instructions provided
by CGLIC and TMG on or before the third business day of each month for the prior
month (provided, that if, for reasons beyond the control of and not the fault of
HPS, such calculations cannot be made as of such date, HPS shall provide to TMG
reasonable estimates of such calculations on such date and shall provide to TMG
the actual calculations as soon as is practical), revise such reserves as
circumstances warrant, and notify TMG of the amount of the reserves, but HPS
shall have no liability for the under or overestimation of such reserves
provided that such under or overestimation was not caused by HPS's negligence.
9. Analyze all Claims to determine whether TMG and/or CGLIC, as
the case may be, is entitled to any right of subrogation in respect of such
Claim, and make reasonable efforts to enforce such subrogation rights on behalf
of TMG.
10. Retain any professional or other third party services
previously approved of by TMG in writing, which shall not be unreasonably
withheld, to assist in the adjustment of any Claims as may be reasonably
appropriate in accordance with the Guidelines.
11. Assist (in particular, provide Claims file information and
supporting documents) TMG in TMG's litigation or arbitration of any disputed
Claim that cannot be settled on a reasonable basis.
12. Report all Claims to TMG in a timely manner in accordance
with the reports required pursuant to Section I(F)(5).
13. Send to TMG a copy of any Claim file that TMG may request or
as soon as it becomes known that the Claim (i) has the potential to exceed an
amount equal to the lesser of the amount set forth in Section I(C)(3) or an
amount established by any relevant Governmental Entity; (ii) involves a coverage
dispute; (iii) exceed HPS's Claims settlement authority set forth in Section
I(C)(7); (iv) is open for more than six months; or (v) is closed by payment of
an amount greater than the lesser of the amount set forth in Section I(C)(7) or
an amount set by any relevant Governmental Entity. All Claim files will be the
joint property of TMG and HPS; provided, however, that in the event an order of
liquidation is entered against TMG, such files shall become the sole property of
TMG or its estate, in which case HPS shall have reasonable access to and the
right to copy such files on a timely basis.
D. LEGAL COMPLIANCE.
1. HPS shall comply, and shall take whatever action as may be
necessary to cause the Administered Business and TMG with respect to the
Administered Business to comply with all laws, rules, regulations, ordinances,
and orders (collectively, "Laws") related to the Administered Business, the
Claims or this Agreement including all Laws concerning
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<PAGE>
reporting requirements, licensure, policy form compliance and unfair claims
practices. HPS hereby represents and warrants to TMG that, as of the date of
this Agreement and as of Closing, it will possess all licenses, permits and
approvals as are reasonably necessary for it to perform its obligations under
this Agreement except where the absence of such licenses, permits and approvals
will not have a material adverse effect on the ability of HPS to perform its
obligations under this Agreement. Notwithstanding anything contained herein to
the contrary, however, TMG expressly acknowledges that the absence of compliance
with any Laws related to policy form compliance during the first twelve (12)
months following the Effective Date shall be attributable to TMG and not HPS,
except where such absence is caused by any breach by HPS of any of its
obligations under this Agreement or by HPS's negligence or error.
2. Without limiting the generality of Section I(D)(1), HPS shall
(1) (a) respond to inquiries, complaints, requests or proceedings received from
or initiated by any governmental authority, body, agency, commission, department
or instrumentality of any type (together, "Governmental Entity"); (b) make all
required filings with any Governmental Entity; (c) be responsible for the
delivery of reports, communications and notices to or from any Governmental
Entity; and (d) participate in and help TMG respond to financial and market
conduct examinations, in each case related to the Administered Business; and (2)
obtain and maintain all licenses, permits and approvals required under
applicable Law to perform its obligations under this Agreement.
E. TMG's COOPERATION.
On or after the Effective Date, TMG agrees to use its best
efforts and shall cause its officers and employees to use their best efforts to
render all reasonable and necessary cooperation promptly to HPS and HPS's
officers and employees in the performance of HPS's obligations under the
provisions of this Article I and under the other provisions of this Agreement;
provided, however, that HPS shall reimburse TMG for any reasonable out-of-pocket
costs and expenses for which TMG shall receive advance approval from HPS and
that TMG incurs in connection with such cooperation in excess of $10,000 on an
annual basis.
F. RECORD RETENTION AND REPORTS.
1. At or immediately following the Closing TMG shall turn over
the HPS originals or copies of all books, records, files and electronically
stored data (the "Transferred Records") sufficient to enable HPS to establish
all necessary initial records for the Administered Business. TMG shall use its
best efforts to insure that the Transferred Records will be accurate and
complete and reflect all actions taken, claims made and paid, and their status
as of the Closing. HPS may rely on the Transferred Records and shall have no
liability to TMG for any error, inaccuracy, incompleteness therein or in respect
of missing records.
2. Commencing as of the Effective Date, HPS shall use its best
efforts to maintain its books, records and files that relate to this Agreement,
the Administered Business or any Claim (collectively, "Records") in accordance
with all Laws and Guidelines, but only to
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the extent such information relates to collected premiums and Claims. Without
limiting the generality of the previous sentence, the Records shall (i) show all
policies, all premiums written and collected, all acquisition costs, all Claims,
all losses related to the Claims and Allocated Loss Adjustment Expenses, and the
loss experience of all risks by class and by state, in each case with respect to
the Administered Business, and (ii) include all statistical information required
to be furnished to any insurance regulatory authority. The parties agree to
abide by all Laws that relate to the confidentiality and treatment of medical
and other insurance Records.
3. HPS shall maintain the Records until the later of (i) the
fifth anniversary of the expiration of the last policy that is part of the
Administered Business, (ii) the completion of a financial examination by the
North Dakota Department of Insurance concerning the Administered Business, (iii)
the expiration of the period in which any tax authority may audit TMG for the
year to which such Records pertain, or (iv) such longer period as is required by
Law.
4. HPS may, on or before the 180th day after this Agreement
expires or is terminated, transfer the Records to a place designated by TMG and,
upon doing so, shall be deemed relieved of the requirements set forth in the
previous paragraph. The Records, including the Transferred Records, shall at all
times remain the property of TMG. Subject to such restrictions as may be or
become applicable pursuant to Law, (i) HPS and TMG shall allow each other and
their respective designees (including any Governmental Entity), at the other
party's cost, to review and photocopy such Records as are in their possession at
any time during normal business hours and days upon at least four (4) days prior
written notice and (ii) TMG shall allow HPS and its designees (including any
Governmental Entity), at HPS's cost, to review and photocopy any books, records,
and files of TMG that do not constitute part of the Transferred Records but
which contain information about which HPS should reasonably be aware in order to
perform its obligations under this Agreement, at any time during normal business
hours and days upon at least four (4) days prior written notice ("Historical
Records"). HPS shall promptly reimburse TMG for the costs and expenses that TMG
incurs to retrieve the Historical Records for HPS.
5. HPS shall provide to TMG the reports listed and described in
Exhibit C, at the intervals stipulated in such Exhibit, and in the formats or
containing the information also stipulated in such Exhibit (provided, that if,
for reasons beyond the control of and not the fault of HPS, such reports cannot
be made as of any due date, HPS shall provide to TMG reasonable estimates of any
data or information to be included in such report and shall provide to TMG the
actual report as soon as is practicable).
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G. NOTIFICATION.
HPS shall notify TMG of (1) on a weekly basis, any complaints
that any Governmental Entity or attorney makes to HPS; (2) any litigation or
arbitration proceeding that has been commenced against HPS or TMG related to any
loss arising under the Administered Business or any Claim on or before the fifth
business day after HPS is notified or becomes aware of such a proceeding; and
(3) any notice or other communication from any Governmental Entity in which such
Governmental Entity requests information from TMG, or threatens to take any
action against TMG including the denial, suspension, or termination of any
license held or requested by TMG.
H. CLAIMS ACCOUNT.
TMG shall maintain a claims account ("Claims Account") upon
which HPS shall be authorized to draw checks or drafts to pay Claims and
Allocated Loss Adjustment Expenses. The Claims Account shall be owned by TMG and
shall be so identified on check stock.
I. PREMIUM ACCOUNT AND POLICY REGISTER.
1. HPS shall establish and shall deposit all gross premiums
(which shall also include any administration fees) related to the Administered
Business into an account established by HPS (the "Premium Account"). All funds
deposited into the Premium Account shall be recorded on the Policy Register (as
defined below). HPS shall make all cash adjustments for premium refunds and
other required cash transfers with regard to premium payments in accordance with
the Guidelines. HPS shall have sole and exclusive authority to make withdrawals
from the Premium Account.
On or before the last day of each month, HPS shall furnish to
TMG a report of gross written premium in respect of the Administered Business
for the previous month in a policy register format established by HPS, setting
forth policies bound or endorsed by policy number, the name of the insured,
policy effective and termination date, policy issuance date, premium due, and
the amount actually received, and the amounts due therefrom to TMG, CGLIC,
agents, and HPS (the "Policy Register"). Within two (2) days thereafter, HPS
shall transfer, by Automated Clearing House Transfer, to an account specified by
TMG, the remittance due TMG pursuant to the Treaty.
2. TMG agrees that HPS may pay, on TMG's behalf, to the extent
that the sums on deposit therein are adequate from the Premium Account, all sums
due to HPS under this Agreement.
3. Notwithstanding anything to the contrary set forth in this
Agreement, in the event any proceeding is brought by TMG to recover premium,
return premium and any other trust funds from HPS, HPS hereby waives it rights
to assert any and all counterclaims, crossclaims, or offsets of any kind, it
being the agreement of the parties that no claims of HPS
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as creditor may be asserted as a defense or offset to TMG's claim for premium,
return premium, and any other trust funds. HPS shall retain the right to bring
any separate action it may deem appropriate for the recovery of any claims it
may have as a creditor of TMG, but the pendency of any such separate claim shall
not delay or hinder TMG's right to recover any premium, return premium or other
trust funds then due or to execute and levy on a judgment therefor.
J. LIMITATIONS.
Notwithstanding anything in this Agreement to the contrary, HPS
shall not:
1. Bind reinsurance or retrocessions on behalf of TMG.
2. Commit TMG to participate in insurance or reinsurance
syndicates.
3. Collect payment from any reinsurer or commit TMG to a claim
settlement with any reinsurer without TMG's prior approval. If such approval is
given HPS, shall promptly forward to TMG an appropriate written report.
4. Appoint any producer or subagent.
5. Employ any individual at the same time as such individual is
employed by TMG.
6. Permit any subproducer to sit on TMG's board of directors.
7. Be obligated to prepare statutory or GAAP financial
statements on behalf of TMG provided, however, that HPS (i) shall cooperate with
TMG and provide to TMG such information and reports related to the Administered
Business as TMG may reasonably request to prepare such financial statements and
(ii) assist TMG in connection with any audit or review that may be conducted
with respect to such financial statements; provided, however, that TMG shall
reimburse HPS for any reasonable out-of-pocket costs and expenses for which HPS
shall receive advance approval from TMG and that HPS incurs in connection with
any such audit or review in excess of $10,000 on an annual basis.
8. Cause to be issued any new certificates on behalf of TMG (i)
in the states of Massachusetts, Maryland, New Hampshire, New Jersey, New York,
South Carolina, Vermont, or Washington, and (ii) in the event that TMG decides,
on or before December 31, 1997, to terminate or otherwise transfer all
Administered Business issued in Florida ("Florida Business"), then Florida,
after the date TMG decides to terminate such business. Further, HPS shall not
renew any certificates for policies in force provided that TMG has given HPS
thirty (30) days advance written notice of its intent to cancel such
certificates, in addition to the applicable statutory period for such
termination and notification.
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II. CONSIDERATION FOR ADMINISTRATIVE SERVICES
In consideration of the services that HPS shall perform pursuant
to Article I of this Agreement, TMG shall pay to HPS the following amounts in
the following manner:
1. Seven Hundred Fifty Thousand Dollars ($750,000) by cashier's
check or wire transfer of immediately available funds to an account designated
by HPS on or before January 31, 1997;
2. Thirteen and one-half percent (13-1/2%) of TMG's share of
gross earned premium (which shall also include any administration fees) due on
or after the Effective Date on any Administered Business that does not
constitute Fully Ceded Business (as defined in the next sentence) that TMG
actually receives (regardless of when TMG receives such amount); provided,
however, that TMG shall be obligated to pay to HPS only ten percent (10%) of
TMG's share of such gross earned premium under any business that is written in
respect of the Cleveland Clinic Florida Health Plan. The term "Fully Ceded
Business" shall mean Ceded Business (as defined in the Treaty) excluding the
Florida Ceded Business (also as defined in the Treaty) if CGLIC's liability for
the Florida Ceded Business is calculated pursuant to Article II(A) of Exhibit B
to the Treaty as of the Effective Date.
3. Six and 50/100 Dollars ($6.50) for each Claim under the Fully
Ceded Business that HPS administers that was received by TMG before the
Effective Date in excess of a number of claims equal to (i) the number of claims
incurred under the Fully Ceded Business about which TMG was notified on or after
December 17, 1996 but before the Effective Date plus (ii) the lesser of (a) the
number of claims incurred in respect of the Fully Ceded Business received by TMG
prior to December 17, 1996 but that remain pending on such date, or (b) a number
of claims equal to four times the average daily claims received by TMG during a
business day in December under the Fully Ceded Business.
4. Six and 50/100 Dollars ($6.50) for each Claim that HPS
administers which is incurred before the Effective Date but received after such
date on all Administered Business that is not Ceded Business.
5. In the event that TMG decides, on or before December 31,
1997, to terminate or otherwise transfer the Florida Business, three dollars
($3.00) for each Claim under the Florida Business that HPS administers which is
incurred before the Effective Date but received on or after such date, on or
before December 31, 1997.
6. HPS's compensation with respect to the Fully Ceded Business
shall be set forth in a separate agreement between HPS and CGLIC.
7. On a monthly basis, HPS may retain from the Premium Account
in accordance with Section I(B)(2) all amounts payable to it pursuant to
Sections II(2), (3), (4), & (5).
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III. ADDITIONAL COVENANTS OF HPS.
A. EMPLOYEES.
1. On or before December 11, 1996, HPS shall make an offer to
employ a minimum of 220 of the individuals that TMG currently employs in its
Employee Benefit Division in a position that is reasonably comparable to their
current position of employment with TMG, in order to assist HPS in performing
its services under this Agreement. On or before December 9, 1996, HPS shall
deliver to TMG a true, complete, and correct list of each employee to whom HPS
has made such offer ("Employees"). HPS agrees to employ all such persons who
accept the HPS offer of employment within the period for which the offer is
open, effective on the Effective Date. The terms of such employment shall be in
accordance with HPS's personnel policies in existence on the date of this
Agreement and shall last at least until June 30, 1997, assuming good behavior
and standard HPS employee performance, regardless of how the Administered
Business performs after the Closing Date. HPS shall extend employee benefits to
each of the Employees who accepts such offer, which shall be similar to such
employee benefits as HPS makes available to its other employees. HPS shall also
credit such Employees with service time earned at TMG for purposes of
calculating the amount of personal time off to which such Employees are entitled
(and TMG agrees to provide all necessary records for the calculation thereof),
and not for any other benefits or purposes. HPS will waive (i) any waiting
period that would otherwise apply to the ability of such Employees to
participate in HPS's 401k plan or any employee welfare benefit plan; and (ii)
any pre-existing condition with respect to any employee welfare benefit plan.
The parties agree that HPS is assuming no liability of TMG of
any kind or character in respect of the Employees. TMG represents and warrants
that (a) as of December 31, 1996, all benefits of the Employees shall be fully
paid or funded (including any accrued liability of TMG under any pension or
retirement plan) and all salary, bonuses, accrued vacation and other
compensation and any reimbursements or other liquidated claim of the Employees
shall have been fully paid or provided for, except for any amounts that TMG will
pay, fund or provide for in the ordinary course of business (b) there are no
collective bargaining or other similar labor contracts in effect with respect to
the Employees, and (c) none of the individual Employees is a party to any
written, individual employment contract with TMG.
2. On or before the Closing Date HPS will offer to Mr. E.
Edwards a consulting relationship on reasonable and customary terms and
conditions, pursuant to which Mr. Edwards would provide to HPS such services as
HPS may reasonably require at a rate of $1,000 per day.
3. HPS shall cooperate with TMG to comply with (i) any plant
closing, mandatory severance benefit, or similar Law and (ii) any other Law
related to employment, employee benefits, or labor relations in connection with
the transactions contemplated in this Agreement, but such cooperation shall not
result in any liability of HPS to the Employees for
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any matter (other than accrued vacation pay) for any period prior to the
Effective Date, as to which TMG shall indemnify HPS pursuant to Section VII(B).
B. PERSONAL PROPERTY.
1. Proprietary Computer Software.
HPS shall lease the Maxcare, ASK and CAS systems, and any other
subsystem owned by TMG and attached to or embedded within Maxcare, ASK, and CAS,
on a month to month basis for so long as HPS may require for a monthly lease
payment equal to Nine Thousand Six Hundred Dollars ($9,600) in accordance with a
"net-net" lease (i.e., HPS shall be responsible for, amongst other matters,
maintenance and support for such systems), that TMG and HPS will negotiate in
good faith to execute at Closing ("Maxcare Lease"). For sake of clarity, the
parties acknowledge and agree that HPS will not purchase the "Medstat" system.
2. Computer Hardware.
HPS shall purchase from TMG all of the application systems, data
bases and computer hardware identified on Exhibit D ("Computer Hardware")
pursuant to a bill of sale that TMG and HPS will negotiate in good faith to
execute at Closing ("Hardware Bill of Sale") for the purchase price identified
in Exhibit D. Good title to and possession of such Computer Hardware shall be
conveyed to HPS by such bill of sale, free of all security interests, liens,
encumbrances, and the rights and claims of third parties as of the Closing Date,
such Computer Hardware to be in good operating condition and fully functional on
that date.
3. Other Personal Property.
HPS shall purchase from TMG such other personal property
identified on Exhibit E to this Agreement ("Other Personal Property") in
accordance with a bill of sale that TMG and HPS will negotiate in good faith to
execute at Closing ("Personal Property Bill of Sale") for the purchase price
identified in Exhibit E. Good title to and possession of such Other Personal
Property shall be conveyed to HPS by the personal property Bill of Sale, free of
all security interests, liens, encumbrances and the rights and claims of third
parties as of the Closing Date, such Other Personal Property to be in good
condition on said date. HPS shall license from TMG, in accordance with a license
agreement that TMG and HPS will negotiate in good faith to execute at Closing
("Trademark License Agreement"), on a nonexclusive basis the trademarks attached
hereto as Exhibit F ("Trademarks") at no additional cost for so long as any
policy forms or other written materials that TMG provides to HPS at Closing and
which incorporate any Trademark remain unused, it being agreed that, after
Closing, HPS shall not employ any Trademark on any policy form or other
materials that it creates.
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C. REAL PROPERTY LEASE.
HPS shall lease from TMG the real property ("Real Property")
identified in the lease attached hereto as Exhibit G ("Lease"), on the terms and
conditions set forth in the Lease.
D. THIRD PARTY CONTRACTS.
On the Effective Date, HPS hereby assumes and agrees to pay,
perform and discharge all of TMG's obligations under the contracts identified on
Exhibit H ("Third Party Contracts") which arise for periods on or after the
Effective Date. TMG represents and warrants that (except as previously disclosed
to HPS in writing) as of the Closing Date; (a) each Third Party Contract will be
in full force and effect as of the Closing Date, (b) all sums to be paid by TMG
in respect of all periods or matters accrued to the Effective Date shall have
been fully paid, (c) TMG shall not be in default pursuant to any of the
provisions of the Third Party Contract, nor shall TMG have committed any act or
omitted or defaulted on any required performance or payment which with notice or
the passage of time, or both, would render TMG in default thereunder, (d) none
of the payments required of TMG under any Third Party Contract is a "balloon" or
requires other than payments in equal, regular installments, and (e) TMG has
paid no security deposits under any such contract nor prepaid for any periods
after the Effective Date. In the event that the other party to any Third Party
Contract is entitled to receive any payment in connection with TMG's assignment
or HPS's assumption of such Third Party Contract, HPS shall be solely
responsible for such payment.
E. MINIMUM PAYMENT.
On or before the Effective Date, HPS shall pay to TMG, by wire
transfer of immediately available funds to an account to be identified by TMG or
by certified check, the amount of One Million Dollars ($1,000,000) ("Minimum
Payment"). TMG shall apply the Minimum Payment against HPS's monetary
obligations under the Maxcare Lease, the Hardware Bill of Sale, the Personal
Property Bill of Sale and the Trademark License. At the Closing, the parties
agree to execute a memorandum specifying their allocations of the Minimum
Payment ("Minimum Purchase Price Allocation Memorandum") to the assets purchased
by HPS thereunder and agree that such price allocations will be used on their
respective tax returns. HPS's payment of the Minimum Payment shall not relieve
it of any monetary obligations under such documents in excess of One Million
Dollars ($1,000,000).
F. COOPERATION ON FLORIDA BUSINESS.
In the event that TMG decides on or before December 31, 1997 to
terminate or otherwise transfer the Florida Business, HPS shall take such
actions as TMG may reasonably, properly and lawfully request to assist TMG in
its efforts to terminate or otherwise transfer the Florida Business; but HPS
shall not be required to take any action which is, in its reasonable judgment or
in the reasonable opinion of its counsel, contrary to applicable Law or the
terms of the Policies.
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G. INSURANCE.
HPS shall, at its sole cost and expense, maintain errors and
omissions insurance coverage from an insurance carrier that is reasonably
acceptable to TMG with a per occurrence limit of not less than $5,000,000.
H. APPROVALS.
HPS shall take all action that may be reasonably necessary to
receive all requisite material third party, governmental, judicial, regulatory,
corporate and other consents, waivers, authorizations and approvals
(collectively, "Approvals") that are the responsibility of HPS, which shall be
identified on a list ("Approvals List") that HPS and TMG shall cooperate with
each other to prepare as soon as reasonably practical after the date of this
Agreement, but in any event not later than December 13, 1996.
I. AGREEMENT TO CONSUMMATE.
HPS shall use its best efforts to do all things reasonably
necessary, proper or advisable under applicable Law to consummate and make
effective, as soon as reasonably practical, this Agreement and the exhibits
attached hereto ("Ancillary Documents") and the transactions contemplated hereby
and thereby. At any time before or after the Closing Date, if any further action
is necessary, proper or advisable to carry out the purposes of this Agreement or
any Ancillary Document then, as soon as reasonably practical, HPS shall take, or
cause to be taken, such action as may be reasonably requested by TMG. HPS shall
promptly notify TMG after it obtains knowledge of the occurrence, or failure to
occur, of any event which causes or is likely to cause (i) a breach of its
covenants or agreements contained in this Agreement or any Ancillary Document or
(ii) the failure of the satisfaction of any condition necessary for Closing to
occur.
J. SYSTEM SUPPORT.
From and after Closing, HPS agrees to provide to TMG such
application system support as TMG may request from time to time at a cost equal
to the fair market value for such support to be established by memorandum
executed on behalf of both parties at or before the Closing.
K. UPDATE TO EXHIBIT A
HPS agrees to cooperate with TMG in good faith to produce and
deliver at Closing an updated version of Exhibit A to this Agreement (which will
replace the Exhibit A attached to this Agreement on the date hereof), which will
be true, complete and accurate as of Closing.
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IV. ADDITIONAL COVENANTS OF TMG.
A. MARKETING SUPPORT.
TMG shall recommend to its customers under the Administered
Business to continue such business in force and shall recommend HPS as
replacement provider and administrator for the services currently provided by
TMG in connection with the Administered Business by supplying mailing lists,
written letters of introduction and/or recommendation and participating in
meetings with HPS's sales representatives; provided, however, that TMG shall not
be obligated to incur any out-of-pocket expenses related to such assistance
after the Effective Date.
B. TRANSITION.
From the date of this Agreement until the Closing Date, TMG
shall afford HPS all reasonable opportunities to inspect TMG's records relating
to TMG's business and the Administered Business. Areas of interest include,
without limitation, computer software and hardware operations, Employee
performance and compensation (but subject to any state law regarding the
confidentiality of employee records), general business and financial, actuarial
and pricing, operations, information systems, contract, compliance and
regulatory support, master brokers, and distribution. To that end, TMG shall
make available all documents, records, data, and information relating to the
areas of interest and to vendor arrangements, including provider networks and
utilization review procedures, performance of TMG's master brokers, and any
other information necessary to perform all due diligence that may be reasonably
required in connection with this Agreement.
C. THIRD PARTY CONTRACTS.
At the Closing, TMG shall assign to HPS all of TMG's rights,
title and interest in and to the Third Party Contracts. TMG shall use its best
efforts to obtain the consent of all relevant third parties to such assignment.
D. PERFORMANCE AND EXECUTION OF ANCILLARY DOCUMENTS.
At the Closing, TMG shall (i) lease to HPS the Maxcare, ASK, and
CAS Systems (and all integrated or attached subsystems owned by TMG) in
accordance with the Maxcare Lease; (ii) sell to HPS the Computer Hardware
pursuant to the Hardware Bill of Sale; (iii) sell to TMG the Other Personal
Property in accordance with the Personal Property Bill of Sale; and (iv) lease
to TMG the Real Property in accordance with the Lease.
E. CONDUCT OF BUSINESS.
Prior to Closing, TMG shall continue to conduct its affairs with
respect to, and service, the Reinsured Policies in the ordinary course of
business in substantially the same manner that TMG has conducted such affairs
prior to the date of this Agreement. TMG hereby
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represents and warrants that, to its knowledge, its administration is in
material compliance with all applicable laws, regulations, governmental orders
and guidelines, in conformity with the terms of the Policies.
F. NONCOMPETITION.
Except as otherwise provided in this Agreement, neither TMG nor
any affiliate of TMG shall, directly or indirectly:
(1) From the Effective Date until the earlier to occur of the
effective date of termination of the Agreement or December 31, 1999, knowingly
solicit, contact, or encourage any agent who has received commissions or service
fees with respect to the Administered Business or the Ceded Business, for the
purpose of encouraging any such agent to place any business that is of a type
which constitutes part of the Administered Business (it being expressly
understood that TMG may contact and solicit such agents to place, amongst other
things, individual life, medical, and dental insurance business), without the
prior written consent of HPS;
(2) From the Effective Date until the earlier to occur of the
effective date of termination of this Agreement or December 31, 1999, knowingly
solicit, contact, or encourage any of its customers or policyholders under the
Administered Business or the Ceded Business, for the purpose of encouraging any
such customer or policyholder to obtain insurance that is of a type which
constitutes part of the Administered Business (it being expressly understood
that TMG may contact and solicit such customers or policyholders to place,
amongst other things, individual life, medical, and dental insurance business),
without the prior written consent of HPS; or
(3) From the Effective Date until December 31, 1997, knowingly
solicit, contact, or encourage (i) any person who is an employee of HPS or of
any parent, division or subsidiary of HPS or (ii) any supplier, vendor, agent or
consultant to HPS, to terminate its, his or her relationship with HPS.
(4) Tortiously interfere with HPS's business.
G. APPROVALS.
TMG shall take all action that may be reasonably necessary to
receive all Approvals identified as TMG's responsibility in the Approvals List.
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H. AGREEMENT TO CONSUMMATE.
TMG shall use its best efforts to do all things reasonably
necessary, proper or advisable under applicable Law to consummate and make
effective, as soon as reasonably practical, this Agreement and the Ancillary
Documents and the transactions contemplated hereby and thereby. At any time
before or after the Closing Date, if any further action is necessary, proper or
advisable to carry out the purposes of this Agreement or any Ancillary Document
then, as soon as reasonably practical, TMG shall take, or cause to be taken,
such action as may be reasonably requested by HPS. TMG shall promptly notify HPS
after it obtains knowledge of the occurrence, or failure to occur, of any event
which causes or is likely to cause (i) a breach of its covenants or agreements
contained in this Agreement or any Ancillary Document or (ii) the failure of the
satisfaction of any condition necessary for Closing to occur.
I. UPDATE TO EXHIBIT A.
TMG agrees to cooperate with HPS in good faith to produce and deliver at
Closing an updated version of Exhibit A to this Agreement (which will replace
the Exhibit A attached to this Agreement on the date hereof), which will be
true, complete and accurate as of Closing.
J. RETURN OF DEPOSIT.
On or before the second business day after the date of this Agreement,
TMG shall return to HPS, by wire transfer of immediately available funds to an
account designated by HPS, the Deposit that HPS paid to TMG pursuant to the
letter of intent between the parties dated November 13, 1996.
K. PROMOTIONS.
TMG shall promptly reimburse HPS for TMG's Pro Rata Share (as defined in
this paragraph below) of the costs and expenses that HPS incurs in connection
with the "Pro Beach," "Big Kahuna," and "All Star" promotions (collectively,
"Promotions") in effect on the date of this Agreement, which TMG represents
shall not exceed Four Thousand Dollars ($4,000), Four Thousand Dollars ($4,000),
and Sixteen Hundred Dollars ($1,600), respectively, for each agent or broker who
qualifies for the prize awarded in connection with such Promotion ("Qualifying
Broker"). TMG shall be given credit for all amounts that it has prepaid or
expensed as of the Closing Date in connection with the Promotions. The term "Pro
Rata Share" for each Qualifying Broker shall mean a fraction, the numerator of
which equals the qualifying sales (in dollars) made by such Qualifying Broker
during the period beginning on the commencement of the relevant Promotion
through the Effective Date and the denominator of which equals the total
qualifying sales (in dollars) made by such Qualifying Broker during the period
beginning on the commencement of such Promotion through the date that the
qualification period for such Promotion expires.
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V. CONDITIONS TO CLOSING.
A. HPS'S OBLIGATIONS.
The obligations of HPS to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment prior to or at
the Closing of the following conditions precedent.
1. TMG shall have performed all of the obligations, covenants
and conditions to be performed by it at or prior to the Closing.
2. TMG shall have delivered to HPS a certificate executed by its
duly authorized representative and dated as of the Closing Date to the effect
that TMG has performed or complied with the terms and conditions applicable to
it of this Agreement ("TMG's Compliance Certificate").
3. There shall have not occurred a material adverse event with
respect to the Policies that was caused by the conduct of TMG prior to Closing.
4. Each of the Approvals which are the responsibility of TMG
shall have been obtained and be in full force and effect, any conditions or
directions contained in such Approvals shall have been fully satisfied, and such
Approvals shall not modify the terms and conditions of this Agreement or the
Ancillary Documents, and the transactions contemplated herein and therein, in
any material respect.
5. The Closing under the Treaty shall have occurred, and the
Treaty shall be in full force and effect.
6. At or prior to Closing, TMG shall have delivered to HPS:
a. TMG's Compliance Certificate;
b. Evidence reasonably satisfactory to HPS that
all of the Approvals to be obtained by TMG have been obtained;
c. The Maxcare Lease, duly executed by TMG and
possession of the computer software described therein in the condition
required by this Agreement;
d. The Hardware Bill of Sale duly executed by TMG
and possession of the Hardware in the condition required by this Agreement;
e. The Personal Property Bill of Sale duly executed
by TMG and possession of the Personal Property in the condition required by this
Agreement;
-18-
<PAGE>
f. The Lease duly executed by TMG and possession
of the premises described therein in substantially the same condition such
premises are in on the date of this Agreement;
g. Possession of the Transferred Records and
Employee records of accrued vacation time in the condition required by this
Agreement;
h. A copy of the Treaty, as fully executed;
i. The Trademark License Agreement duly executed
by TMG; and
j. The Minimum Purchase Price Allocation
Memorandum.
7. No action, suit or proceeding before any court, any
Governmental Entity, or any other person or entity shall have been commenced or
threatened, and no investigation by any Governmental Entity, or any other person
or entity shall have been commenced or threatened which (i) seeks to restrain,
prevent or change the transactions contemplated in this Agreement and the
Ancillary Documents, (ii) questions or validity or legality of such
transactions, or (iii) seeks damages in connection with, or imposes conditions
on, such transactions.
B. TMG'S OBLIGATIONS.
The obligations of TMG to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment prior to or at
the Closing of the following conditions precedent.
1. HPS shall have performed all of the obligations, covenants
and conditions to be performed by it at or prior to the Closing.
2. HPS shall have delivered to TMG a certificate executed by its
duly authorized representative and dated as of the Closing Date to the effect
that HPS performed or complied with the terms and conditions of this Agreement
applicable to it ("HPS's Compliance Certificate").
3. Each of the Approvals which are the responsibility of HPS
shall have been obtained and be in full force and effect, any conditions or
directions contained in such Approvals shall have been fully satisfied, and such
Approvals shall not modify the terms and conditions of this Agreement or the
Ancillary Documents, and the transactions contemplated herein and therein, in
any material respect.
4. The Closing under the Treaty shall have occurred, and the
Treaty shall be in full force and effect.
5. At or prior to Closing, HPS shall have delivered to TMG:
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<PAGE>
a. HPS's Compliance Certificate;
b. Evidence reasonably satisfactory to TMG that
all of the Approvals to be obtained by HPS have been obtained;
c. The Maxcare Lease, duly executed by HPS;
d. The Hardware Bill of Sale duly executed by HPS;
e. The Personal Property Bill of Sale duly executed
by HPS;
f. The Lease duly executed by HPS;
g. The Minimum Purchase Price Allocation
memorandum;
h. The Trademark License Agreement, duly executed
by HPS; and
i. A true, complete, and correct copy of any
contract between HPS or any of its affiliates on the one hand, and CGLIC or any
of its affiliates on the other, that affects or relates to this Agreement or
the Treaty.
6. Payment by HPS, by wire transfer of immediately available
funds, of any payment due by it under this Agreement or any Ancillary Document
in excess of the Minimum Payment.
7. No action, suit or proceeding before any court, any
Governmental Entity, or any other person or entity shall have been commenced or
threatened, and no investigation by any Governmental Entity, or any other person
or entity shall have been commenced or threatened which (i) seeks to restrain,
prevent or change the transactions contemplated in this Agreement and the
Ancillary Documents, (ii) questions or validity or legality of such
transactions, or (iii) seeks damages in connection with, or imposes conditions
on, such transactions.
VI. CLOSING
The Closing of the transactions contemplated by this Agreement
and the Ancillary Documents ("Closing") shall take place at 10 AM, CST, on
January 2, 1997 ("Closing Date") at the offices of Foley & Lardner, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202, or at such other place and time as
HPS and TMG may agree, and shall become effective as of the Effective Date.
-20-
<PAGE>
VII. INDEMNIFICATION
A. INDEMNIFICATION OF TMG.
(a) From and after the Closing Date, HPS shall indemnify, defend
and hold TMG and its directors, officers, employees, and agents ("TMG
Indemnities") harmless against any and all damages (including direct, special,
consequential, punitive and/or exemplary damages), losses, deficiencies,
liabilities, obligations, debts, commitments, judgments, awards, settlements,
demands, claims, suits, causes of action, assessments, costs and expenses
(including legal fees and other expenses reasonably incurred in investigating
and defending against the same) (collectively, "Liabilities") asserted against,
resulting to, imposed upon, or incurred by TMG or the TMG Indemnities, directly
or indirectly, by reason of, arising out of or resulting from (i) any failure to
comply with or breach of any of the covenants, agreements, representations or
warranties of HPS in this Agreement or the Ancillary Documents; (ii) the
negligence or misconduct of HPS in connection with this Agreement; or (iii)
HPS's failure to comply with the Claim "concur and consent" notification
provisions of the Treaty.
B. INDEMNIFICATION OF HPS.
In addition to any other indemnifications as are contained in
the Treaty, from and after the Closing Date, TMG shall indemnify, defend and
hold HPS and its directors, officers, employees, and agents ("HPS Indemnities")
harmless against any and all Liabilities asserted against, resulting to, imposed
upon, or incurred by HPS or the HPS Indemnities, directly or indirectly, by
reason of, arising out of, or resulting from (i) acts or omissions of TMG
arising out of or occurring prior to the Effective Date and related to the
Administered Business, (ii) any failure by TMG to comply with or breach of any
of the covenants, agreements, representations or warranties of TMG in this
Agreement or the Ancillary Documents, or (iii) TMG's failure to comply with all
requirements of state insurance Laws and regulations in its capacity as a ceding
insurer of the Reinsured Business under the Treaty during the first twelve
months following the Effective Date.
C. EXCLUSIVE NATURE OF REMEDY. The indemnification rights under Sections
VII(A) and VII(B) shall be the sole and exclusive legal remedy of the parties
with respect to this Agreement or the Ancillary Documents. Notwithstanding the
foregoing, the parties expressly reserve all equitable remedies they may now or
in the future have.
D. NOTIFICATION AND CONTROL OF DEFENSE. Any party entitled to
indemnification under this Agreement shall (i) give prompt notice to the party
from whom indemnification is sought of any Liability with respect to which it
seeks indemnification; and (ii) permit such indemnifying party to assume and
control defense of such Liability with Counsel reasonably satisfactory to the
indemnified party; provided, however, that any party entitled to indemnification
hereunder shall have the right to employ separate counsel and to participate in
the defense of such Liability, but the fees and expenses of such separate
counsel shall be paid by the party employing separate counsel unless (1) the
indemnifying party has agreed to pay such fees and expenses or (2) the
indemnifying party has failed to assume the defense of such
-21-
<PAGE>
Liability and to employ counsel reasonably satisfactory to such party. So long
as the indemnifying party is defending any such Liability actively and in good
faith, the indemnified party shall not settle such Liability. The indemnified
party shall make available to the indemnifying party or its representatives all
records and other materials required by them and in the possession or in the
control of the indemnified party, for the use of the indemnifying party and its
representatives in defending any such Liability, and shall in other respects
give reasonable cooperation in such defense to the indemnifying party its
counsel and, if applicable, its insurers and/or indemnitors and their counsel.
If the indemnifying party, within a reasonable time after notice
of any such Liability, fails to defend such Liability actively and in good
faith, then the indemnified party will have the right to undertake the defense,
compromise or settlement of such Liability or to consent to the entry of a
judgment with respect to such Liability, on behalf of and for the account and
risk of the indemnifying party, and the indemnifying party shall thereafter have
no right to challenge the indemnified party's defense, compromise, settlement or
consent to judgment therein. Notwithstanding anything to the contrary in this
Agreement, (i) if there is a reasonable probability that a Liability may
materially and adversely affect the indemnified party, the indemnified party
shall have the right to defend, compromise or settle such a Liability; provided,
however, that the indemnified party shall not have such right if the exercise of
such right by the indemnified party makes void or violates the terms of any
contract of indemnification by which the indemnifying party is itself
indemnified against loss unless the indemnified party agrees to indemnify the
indemnifying party for any loss that the indemnifying party incurs because any
such contract of indemnification becomes void or is violated, and (ii) the
indemnifying party shall not, without the prior written consent of the
indemnified party, settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such Liability.
VIII. TERMINATION AND BREAKUP FEE
A. TERMINATION PRIOR TO EFFECTIVE DATE.
1. MECHANICS. This Agreement may be terminated on or prior
to the Effective Date only as follows:
a. By the mutual written consent of TMG and HPS;
b. By TMG or HPS if, without fault of the
terminating party, the Closing shall not have occurred on or before December 31,
1996 or such later date as the Parties may mutually agree;
c. By HPS if a condition to the obligations of HPS
has not been satisfied (and which has not been waived in writing by HPS) and
will not be satisfied on or before December 31, 1996; and
-22-
<PAGE>
d. By TMG if a condition to the obligations of TMG
has not been satisfied (and has not been waived in writing by TMG) and will not
be satisfied on or before December 31, 1996.
2. EFFECT. If this Agreement is terminated as described in
Section VIII(A) and the transactions contemplated hereby are not consummated,
this Agreement shall become null and void and of no further force and effect,
except for Article IX.
B. EXPIRATION ON OR AFTER THE EFFECTIVE DATE.
1. TERM. After the Effective Date, and assuming Closing occurs,
this Agreement shall remain in effect until, and expire only when, HPS has
administered the last Claim incurred with respect to the Administered Business,
unless earlier terminated in accordance with this Section VIII(B), the parties
hereby acknowledging that the Treaty creates incentives to relieve TMG of the
insurance risk under the Administered Business on or before December 31, 1998.
2. TERMINATION MECHANICS FOR CAUSE AFTER CLOSING.
a. CAUSE - TMG. After Closing, this Agreement
shall terminate 30 days after TMG notifies HPS in writing of its intent to
terminate this Agreement because HPS has materially breached any of its
covenants or obligations set forth in this Agreement, which breach remains
uncured on the expiration of such 30 day period.
b. CAUSE - HPS. After Closing, this Agreement
shall terminate 30 days after HPS notifies TMG in writing of its intent to
terminate this Agreement because TMG has materially breached any of its
covenants or obligations set forth in this Agreement, which breach remains
uncured on the expiration of such 30 day period.
c. TERMINATION OF UNDERWRITING. TMG may suspend,
upon written notice to HPS, HPS's underwriting authority and settlement
authority while any dispute is pending which concerns the cause for any
termination.
3. INSOLVENCY OR REORGANIZATION. This Agreement shall
terminate automatically in the event that:
a. HPS (i) becomes insolvent, (ii) becomes unable
to pay its debts as they mature, (iii) makes an assignment for the benefit of
its creditors or to an agent authorized to liquidate any substantial amount of
its property or (iv) becomes the subject of any bankruptcy, insolvency or
similar proceeding which, as to an involuntary petition under the federal
bankruptcy code, is not dismissed within one hundred twenty (120) days after
commencement without a judicial determination adverse to HPS; or
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<PAGE>
b. TMG notifies HPS of the termination of this
Agreement because HPS has sold substantially all of its assets to another
entity, dissolved, wound up its affairs, ceased its corporate existence, ceased
to operate its business in substantially the same manner as operated on the date
of this Agreement, or is contemplating any such sale, dissolution, winding up or
cessation of existence or business.
4. EFFECT. If TMG shall terminate this agreement for cause
after the Closing, notwithstanding such termination, (1) Article X and any
obligation due on or before the date of termination shall survive such
termination and (2) HPS shall, at TMG's election, continue to administer all
Claims incurred on or before the termination date in accordance with Article I
upon the same terms and conditions and for the same compensation (if any) as
provided in this Agreement, it being agreed that in no event shall HPS have any
obligation to continue to administer Claims unless it shall be compensated for
doing so at the rates and at the intervals (if any) provided in this Agreement,
which shall continue to govern such continuing work of HPS even though this
Agreement shall have been terminated for all other purposes. If, following TMG's
termination of this Agreement for cause after the Closing, TMG elects to
administer such Claims itself or through a designee, HPS shall immediately
return all open Claim files to TMG, and HPS shall be liable for all expenses in
connection with or arising from TMG's administration of such Claims.
IX. MISCELLANEOUS
A. ARBITRATION.
Any dispute or other matter in question between TMG and HPS
arising out of or relating to this Agreement and the Ancillary Documents shall
be settled by arbitration. In order to initiate an arbitration, TMG or HPS (as
the case may be) shall deliver a written notice of demand for arbitration to the
other party.
HPS and TMG shall appoint an individual as arbitrator and the
two so appointed shall then promptly appoint a third arbitrator. If either party
refuses or neglects to appoint an arbitrator within forty (40) Business Days of
receipt of a written notice of demand for arbitration, the other party may
appoint the second arbitrator. If the two arbitrators do not agree on a third
arbitrator within forty (40) Business Days of their appointment, each of the
arbitrators shall, at the end of such period, nominate three individuals as
arbitrators. Each arbitrator shall, on or before the tenth (10th) Business Day
after such nomination, decline two of the nominees presented by the other
arbitrator. On the fifth (5th) Business Day after the last nominee has been so
declined, the third arbitrator shall be chosen from the remaining two nominees
by drawing lots. Each arbitrator appointed or nominated by HPS, TMG, or any
other arbitrator, and each umpire shall be an active or former officer of an
insurance or reinsurance company or Lloyd's of London Underwriters, and shall
not have a personal, financial, or other conflict of interest in the result of
the arbitration.
-24-
<PAGE>
The arbitration hearings shall be held in Milwaukee, Wisconsin.
Each party shall submit its case to the arbitrators within sixty (60) Business
Days of the selection of the third arbitrator or within such longer period as
may be agreed by the arbitrators. The decision rendered by a majority of the
arbitrators shall be final and binding on HPS and TMG. Such decision shall be a
condition precedent to any right of legal action arising out of the arbitrated
dispute which HPS and TMG may have against each other. Judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
HPS and TMG shall pay (i) the fees and expenses of its own
arbitrator, (ii) one-half of the fees and expenses of the third arbitrator and
(iii) one-half of the other expenses that HPS and TMG jointly incur directly
related to the arbitration proceeding. Other than as set forth above, HPS and
TMG shall bear their own costs in connection with any such arbitration
including, (i) all legal, accounting, and other professional fees and expenses
and (ii) all other costs and expenses HPS and TMG incur to prepare for such
arbitration.
Except as provided above, the arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
B. CONFIDENTIALITY.
The parties acknowledge and agree that they may deliver to each
other information about them and their business which is nonpublic, confidential
or proprietary in nature. All such information, regardless of the manner in
which it is delivered, is referred to as "Proprietary Information." However,
Proprietary Information does not include information which (a) is or becomes
generally available to the public other than as a result of a disclosure by the
other party, (b) was available to the other party on a nonconfidential basis
prior to its disclosure by the disclosing party or (c) becomes available to the
other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing party,
the other party shall (a) except as required by law (including laws, regulations
and governmental orders, rulings and guidelines applicable to disclosures of
publicly-held companies or their subsidiaries), keep all Proprietary Information
confidential and not disclose or reveal any Proprietary Information to any
person other than those employed by the other party or on behalf of the other
party who are actively and directly participating in the transactions
contemplated in this Agreement, the Ancillary Documents and the Treaty
("Involved Person"); (b) cause each Involved Person to keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than another Involved Person and (c) not use the Proprietary
Information, and ensure that each Involved Person does not use the Proprietary
Information, for any purpose other than in connection with the transactions
contemplated in this Agreement, the Ancillary Documents and the Treaty. Each
party shall and shall cause its respective officers, directors, agents,
employees and representatives (together, "Representatives"), promptly upon
demand, to return all Proprietary Information and copies thereof. In addition,
in the event that Closing does not occur on or before December 31, 1996, then
upon demand by TMG, HPS shall, and shall cause its Representatives, immediately
to return to TMG all information (regardless of whether such information
constitutes Proprietary Information) that TMG has provided to it in
-25-
<PAGE>
connection with any due diligence or transactions review that HPS has conducted
and any copies thereof.
C. RELATIONSHIP; NO IMPLIED ASSUMPTION OF LIABILITIES.
TMG and HPS acknowledge and agree that this Agreement does not
create a partnership or joint venture relationship between them. The parties
agree that neither of them is assuming any liability, agreeing to pay any
amount, or undertaking performance of any task or obligation not expressly set
forth herein.
D. AMENDMENT AND WAIVER.
This Agreement may not be amended, or its terms modified or
waived, except by an instrument in writing signed on behalf of each of the
parties.
E. PUBLICITY.
HPS and TMG shall not issue any press release or make any public
announcement concerning this Agreement or the transactions contemplated hereby
without the prior written approval of the other party.
F. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and bind the
parties and their respective successors and assigns. Neither this Agreement nor
any right or obligation hereunder nor any part hereof may be assigned by any
party without the prior written consent of the other party.
G. GOVERNING LAW.
This Agreement will be governed by and construed in accordance
with the internal laws of the State of Wisconsin; provided, however, that the
enforceability and validity of Section IX(A) shall be governed by 9 U.S.C. ? 1
et. seq.
H. ENTIRE AGREEMENT.
This Agreement and the Ancillary Documents supersede all prior
discussions and agreements (including the Letter of Intent between CGLIC, TMG
and HPS dated November 13, 1996) between, and contains the sole and entire
agreement between, the parties with respect to the subject matter hereof.
I. NO THIRD PARTY BENEFICIARIES.
This Agreement is for the benefit of the parties only and does
not confer any right, benefit, or privilege upon any person or entity that is
not a party to this Agreement.
-26-
<PAGE>
J. EXHIBITS.
The Exhibits to this Agreement are made a part of this Agreement
as if fully set forth herein. In the event of any conflict between the Exhibits
and the text of this Agreement, the text of this Agreement shall control.
K. EXPENSES.
Except as expressly set forth in this Agreement, the parties
shall bear their own costs, fees and expenses incurred in connection with the
preparation, execution, delivery and performance of this Agreement and the
Ancillary Documents, including legal fees and the fees of any broker, finder or
other intermediary entitled by law or contract to charge a fee; and each party
agrees to indemnify and defend the other from any claims for such fees arising
from its own actions and contracts.
L. HEADINGS.
The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
M. INTERPRETATION.
Any reference in this Agreement to an article, section,
subsection, paragraph, schedule or exhibit shall, unless otherwise specified,
refer to such article, section, subsection, paragraph, schedule or exhibit in
this Agreement. The words "including," "included," and "include" shall be deemed
to be followed by the phrase "without limitation," wherever used in this
Agreement.
N. SEVERABILITY.
If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future Law, and if the rights or
obligations of any party under this Agreement will not be materially and
adversely affected thereby, (a) such provision will be fully severable, (b) this
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect, and (d) in
lieu of such illegal, invalid, or unenforceable provision, there will be added
automatically as a part of this Agreement, a legal, valid, and enforceable
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible to accomplish the purpose of the unenforceable,
illegal or invalid provision.
-27-
<PAGE>
O. NOTICES.
Any notice or communication given pursuant to this agreement
must be in writing and shall be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested), if
transmitted by facsimile, acknowledged as received by electronic confirmation
from the addressee's telephone number and confirmed by courier or a recognized
overnight delivery service, or if delivered by courier or a recognized overnight
delivery service, providing a receipt or other proof of delivery, as follows:
If to TMG:
Mr. Ken L. Evason
President
The Mutual Group (U.S.), Inc.
401 North Executive Drive
Brookfield, Wisconsin 53005
Facsimile Telephone Number:
(414) 797-2376
If to HPS:
HealthPlan Services, Inc.
3501 Frontage Road
Tampa, FL 33607
Attention: General Counsel
Facsimile Telephone Number:
(813) 287-6629
All notices and other communications required or permitted under
this Agreement that are addressed as provided in this Section will, whether sent
by mail, facsimile, courier, or overnight delivery service be deemed given upon
the first business day after actual delivery to the party to whom such notice or
other communication is sent (as evidenced by the return or other receipt or
shipping invoice signed by a representative of such party or other third-party
proof of delivery or by the facsimile confirmation). Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address.
-28-
<PAGE>
P. COUNTERPARTS; AUTHORITY.
This Agreement may be executed simultaneously in any number of
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument.
Each of the undersigned officers of the parties hereby
represents and warrants on behalf of the party for which he is a signatory that
all requisite director, shareholder and third-party actions or consents
necessary to authorize the execution and delivery of this Agreement have been
fully and finally taken, that he has been duly authorized by such actions and
consents to execute and deliver this Agreement on behalf of the party for which
he signs, that this Agreement represents the duly authorized, legal, valid and
binding action of the party for which he is a signatory and that this Agreement
is enforceable by and against the party for which he signs in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally, and general equitable
principles.
IN WITNESS WHEREOF, TMG and HPS have caused this Agreement to be
executed on their behalf by its duly authorized officers as of the date first
written above.
TMG LIFE INSURANCE COMPANY
By: /s/ KEN L. EVASON
-----------------
Title: President
HEALTHPLAN SERVICES, INC.
By: /s/ TIM CLIFFORD
----------------
Title: Chief Operating Office
-29-
<PAGE>
EXHIBIT A
Policies
EXHIBIT B
Treaty
EXHIBIT C
Reports
EXHIBIT D
Hardware List
EXHIBIT E
Personal Property List
EXHIBIT F
Trademarks
EXHIBIT G
Real Property Lease
EXHIBIT H
Third Party Contracts
-30-
EXHIBIT 21.1
HEALTHPLAN SERVICES CORPORATION
SUBSIDIARIES
HEALTHPLAN SERVICES, INC. (FL)
(D/B/A HCI HEALTHPLAN SERVICES; HPS SELECT BROKERAGE
SERVICES; HARRINGTON BENEFIT SERVICES; R. E. HARRINGTON, INC.)
HEALTHPLAN SERVICES INSURANCE AGENCY, INC. (MA)
HEALTHPLAN SERVICES INSURANCE AGENCY OF ILLINOIS, INC. (IL)
HEALTHCARE INFORMATICS CORPORATION (FL)
GROUP BENEFIT ADMINISTRATORS INSURANCE AGENCY, INC. (MA)
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)
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-92708, 33-97050, 333-07631, 33-97048,
333-31913, 333-31915, and 33-00150) and in the Prospectuses constituting part of
the Registration Statements on Form S-3 (Numbers 333-16079, 333-24261, and
333-24333) of HealthPlan Services Corporation of our report dated March 18,
1998, appearing on page F-1 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Tampa, Florida
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,801
<SECURITIES> 0
<RECEIVABLES> 29,050
<ALLOWANCES> (150)
<INVENTORY> 0
<CURRENT-ASSETS> 49,700
<PP&E> 40,963
<DEPRECIATION> (17,728)
<TOTAL-ASSETS> 243,324
<CURRENT-LIABILITIES> 79,542
<BONDS> 43,309
0
0
<COMMON> 150
<OTHER-SE> 116,416
<TOTAL-LIABILITY-AND-EQUITY> 243,324
<SALES> 0
<TOTAL-REVENUES> 283,349
<CGS> 0
<TOTAL-COSTS> 256,254
<OTHER-EXPENSES> 2,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,173
<INCOME-PRETAX> 20,072
<INCOME-TAX> 9,276
<INCOME-CONTINUING> 10,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,796
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
