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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _______________
Commission File No. 1-13772
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3787901
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
(Address of Principal Executive Offices) (Zip Code)
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 15, 1999, was
$76,702,641.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 15, 1999 was 13,867,822.
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 1999 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,
1998.
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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
OPPORTUNITIES TO ADMINISTER NEW BLOCKS OF BUSINESS; 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, "HealthPlan Services" or the "Company") is a leading
managed health care services company, providing distribution, enrollment,
billing and collection, and claims administration services for health care
payors and providers. HealthPlan Services' customers include insurance
companies, health maintenance organizations ("HMOs") and other managed care
organizations, and organizations with self-funded health care plans. HealthPlan
Services provides these services to approximately 140,000 groups covering over 3
million members in the United States. HealthPlan Services functions solely as a
service provider generating fee-based income and does not assume any
underwriting risk. In May 1998, HealthPlan Services acquired National Preferred
Provider Network, Inc. ("NPPN"), a preferred provider organization network
consisting of over 450,000 physician offices, 4,000 hospitals, and 50,000
ancillary care provider locations in all 50 states and the District of Columbia.
Except for its NPPN subsidiary, the revenue of which is not significant for
reporting purposes, HealthPlan Services operates in one business segment.
STRATEGY
HealthPlan Services' strategy is to improve revenue and operating
profits through 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 electronic commerce and other information technology
services. HealthPlan Services plans to upgrade operating systems and increase
labor efficiency. HealthPlan Services also intends to pursue opportunities to
enhance its product offerings through NPPN; Montgomery Management Corporation, a
managing general underwriter in which HealthPlan Services holds an 80% interest;
and other entities with which HealthPlan Services maintains outsourcing
arrangements.
COMPANY SERVICES
HealthPlan Services provides marketing, distribution, administration,
and transaction processing services and solutions for self-funded employee
benefit plans, managed care organizations, insurance companies, and other
organizations. In December 1998, HealthPlan Services introduced an interactive
electronic Internet site through which certain plan transactions can be
performed electronically. The site, which is accessible through HealthPlan
Services' home page (www.healthplan.com), enhances HealthPlan Services'
capabilities in all aspects of its services.
MARKETING
HealthPlan Services provides managed care companies, insurance
companies, and other health care organizations with marketing services that
target individuals and small businesses. HealthPlan Services 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
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particular needs of the small business employer, including specialized medical,
dental, life, and disability coverage. On behalf of its payors, HealthPlan
Services prepares and implements communications programs that are aimed at
educating insurance agents about the benefits offered under payor product
offerings.
HealthPlan Services' marketing activity includes sales support for
insurance agents through a field sales force and telephone sales
representatives. HealthPlan Services maintains a database of over 100,000
insurance agents, including master brokers, independent brokers, and career
agency groups. In 1998, HealthPlan Services paid commissions to over 25,000 of
these agents. In the case of a career agency relationship, HealthPlan Services
offers the agent group, which generally is affiliated with a life or property
and casualty parent company, opportunities to distribute products that are not
currently underwritten by its parent company and that compliment its existing
product offerings. These relationships with independent and career agents
provide HealthPlan Services with a significant distribution conduit to the small
business market in the United States.
HealthPlan Services has invested in information technology to support
its sales and marketing function. HealthPlan Services' new electronic Internet
site provides agents with underwriting status on pending cases as well as
information on active business. In addition, agents can access electronic forms
through the site and initiate support requests that are delivered automatically
to the appropriate Company department. HealthPlan Services also 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 HealthPlan Services' automated proposal delivery system, a
HealthPlan Services sales representative can deliver a finished proposal from
the computer desktop to an agent immediately by fax server or electronic mail.
HealthPlan Services also maintains an interactive voice response system to
provide agents with automatic premium quotations for individual health products.
HealthPlan Services continues to seek new marketing channels for indemnity
and managed care products. In May 1998, HealthPlan Services entered into an
agreement to perform services for HealthAxis.com, Inc. ("HealthAxis.com"), a
company that provides sales and distribution services for health insurance
products offered through the Internet. HealthPlan Services began providing
administrative services in connection with products offered through
HealthAxis.com in November 1998. In connection with this arrangement, in 1998
HealthPlan Services acquired a minority equity interest in HealthAxis.com for
$5.8 million. In May 1998, HealthPlan Services formed a strategic alliance with
Healtheon Corporation ("Healtheon") to pursue opportunities to market health
insurance products to small businesses through the Internet. Healtheon develops
and manages virtual health care networks to facilitate information exchange
among health care payors, providers, and plan members. In June 1998, HealthPlan
Services entered into an arrangement with The National Federation of Independent
Businesses ("NFIB"), pursuant to which NFIB agreed to endorse products of
selected HealthPlan Services payors to NFIB members. In June 1998, HealthPlan
Services and NationsBanc Insurance Services, Inc. entered into a letter of
intent to market health insurance products to small businesses. To date,
HealthPlan Services has not generated any significant revenue from any of its
new marketing initiatives, and it is not clear when, if ever, significant
revenue will materialize from these ventures.
PLAN ADMINISTRATION SERVICES
HealthPlan Services provides enrollment, premium billing and
collection, claims administration, and customer support services for all types
of health plans. As a provider of enrollment services, HealthPlan Services
performs underwriting support services, issues enrollment cards, and administers
case renewals. HealthPlan Services' billing and collection services on behalf of
payors include sending monthly bills to insured parties, receiving premium
payments from insureds, and paying agent commissions. HealthPlan Services also
implements premium adjustments due to rate changes, employee hiring or
termination, and other group changes. As a provider of claims administration
services, HealthPlan Services verifies eligibility, calculates copayments,
reprices and adjudicates claims, prepares explanation of benefits forms, and
issues checks from payor accounts to claimants and to health care providers.
HealthPlan Services' customer support representatives respond to plan member
questions regarding claims and other plan benefits.
Through its claims adjudication software and other technology
solutions, HealthPlan Services streamlines plan administration for its
customers. HealthPlan Services provides automated billing and collection
services through electronic funds transfer. Through HealthPlan Services' new
electronic Internet site, plan members can access billing information, obtain
forms, and request customer service. HealthPlan Services' new electronic site
compliments its
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established customer service capabilities, which include over 450 toll-free
telephone lines and a comprehensive customized call distribution system for
rating and tracking of calls. HealthPlan Services also provides an interactive
voice response (IVR) system that allows insureds to check on the status of
premium payment and claims matters automatically by telephone. HealthPlan
Services' information technology systems allow Company employees to receive
claims electronically and to image and digitize non-electronic claims.
In addition to enrollment, claims administration, and customer support
services, HealthPlan Services offers specialized plan administration services
tailored for its self-funded customers. HealthPlan Services' 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, HealthPlan
Services can offer its self-funded customers access to national service
providers to control and reduce plan costs. HealthPlan Services also offers
these customers administrative services for workers compensation and
unemployment compensation programs. During 1998, HealthPlan Services acquired
80% of the capital stock of Montgomery Management Corporation ("Montgomery
Management") from Provident Indemnity Life Insurance Company. Montgomery
Management is a full service managing general underwriter that has the authority
to bind stop-loss insurance coverage (on behalf of the insurance companies it
represents) to self-funded group health benefit plans.
HealthPlan Services seeks to enhance its services with value-added
product offerings. Through NPPN, its preferred provider network subsidiary,
HealthPlan Services offers its clients access to regional and national preferred
provider networks in all 50 states and the District of Columbia. In January
1999, HealthPlan Services entered into an agreement with Merck-Medco Managed
Care L.L.C., which manages prescription drugs, to provide pharmacy benefits for
HealthPlan Services' small business and large self-insured customers.
In December 1997, HealthPlan Services and Sykes Enterprises,
Incorporated ("Sykes") formed Sykes HealthPlan Services, Inc. ("SHPS"), a
provider of care management services, technology solutions, certain customer
support services, and other outsourcing capabilities to employers and the health
care and insurance industries. The shareholders agreement relating to this
transaction contained noncompete provisions generally preventing HealthPlan
Services and Sykes from competing with each other or with SHPS. HealthPlan
Services began outsourcing its care management and utilization review services
to SHPS in the first quarter of 1998. In September 1998, HealthPlan Services
sold its interest in SHPS to Sykes. HealthPlan Services' outsourcing
relationship with SHPS, as well as the noncompete restrictions in the
shareholders agreement, have continued after the transfer of HealthPlan
Services' interest in SHPS.
In February 1999, HealthPlan Services, Inc. ("HPS"), HealthPlan
Services' wholly owned subsidiary, signed a definitive agreement to acquire a
19% interest in Florida 1st Health Plans, Inc. ("Florida 1st"), subject to
receipt of regulatory approvals and other required documentation. In connection
with this acquisition, HPS will receive an option to purchase an additional
31.1% interest in Florida 1st. Florida 1st, based in Winter Haven, Florida,
provides third party administration services to self-funded health plans
covering over 110,000 members and offers HMO products covering over 12,000
members.
INFORMATION SERVICES
HealthPlan Services has broad reporting and analytic capabilities
relating to all of its core services. HealthPlan Services' information services
include preparation of reports regarding agent production, enrollment, and
frequency and types of claims. HealthPlan Services provides a comprehensive data
resource of financial, utilization, and benefit plan design information for its
clients. HealthPlan Services also provides regulatory compliance services to its
clients, helping payors structure their employee benefit plans to comply with
applicable state and federal law. HealthPlan Services intends to continue to
enhance its data analysis and statistical reporting capabilities using its
database of administered claims as well as publicly available data.
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HEALTHPLAN SERVICES CUSTOMERS
HealthPlan Services provides services for a wide range of health care
benefit plans and employee benefit programs, including self-funded benefit plans
for employers, associations, and Taft-Hartley trusts, 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)
HealthPlan Services provides administrative and information services
for self-funded health benefit plans, workers compensation programs, and
unemployment compensation programs. In 1998, HealthPlan Services 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. HealthPlan Services' self-funded customers include the health
care programs for the Oklahoma State and Education Employees Group Insurance
Board, the State of South Carolina, the American Veterinary Medical Association
Group Health and Life Insurance Trust, the Hotel Employees and Restaurant
Employees International Union Welfare Fund, and Darden Restaurants.
In June 1998, HealthPlan Services acquired a 50.1% interest in CENTRA
HealthPlan LLC ("CENTRA"). CENTRA is an administrator of self-funded health
plans for approximately 100 large groups, including the State of Washington and
Inland Steel Corporation. CENTRA is headquartered in Richardson, Texas. CENTRA
Benefit Services ("CBS"), the holder of the remaining 49.9% interest in CENTRA,
has the right to put this interest to HealthPlan Services at a contractual price
not to exceed $6.0 million if CENTRA meets certain financial performance
criteria. In February 1999, CBS notified HealthPlan Services that it intends to
exercise its put option. HealthPlan Services is evaluating whether or not CENTRA
has met the necessary financial performance criteria for CBS to exercise this
option.
FULLY INSURED BENEFIT PLANS (SMALL GROUP CUSTOMERS)
For over 25 years, HealthPlan Services has provided services to
insurance companies and other organizations that offer fully insured health
benefit plans for individuals and small businesses. Traditionally, HealthPlan
Services' primary market was indemnity (fee-for-service) benefit plans, but in
recent years HealthPlan Services has shifted its focus to "managed indemnity"
plans and other managed care plans that include mechanisms for controlling
health care costs. HealthPlan Services now provides marketing and administrative
services for several managed care products, including products offered by New
England Life Insurance Company, Kaiser Permanente Insurance Company, and Aetna
U.S. HealthCare, Inc.
Effective January 1, 1997, HealthPlan Services 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 ("CIGNA Re"), acting as the reinsurer. In
July 1997, the parties agreed to a transition of a majority of this business to
Midwestern United Life Insurance Company ("Midwestern United"), with HealthPlan
Services remaining as administrator and CIGNA Re remaining as the reinsurer. TMG
canceled coverage of the portion of the business that was not identified for
transition to Midwestern United. During the transition, which is expected to be
complete in the second quarter of 1999, the business is experiencing higher than
normal lapse rates and lower than normal margins. This business accounted for
approximately 8% of HealthPlan Services' revenues in 1998. In January 1999,
Midwestern United notified its insureds that it will cancel their policies
beginning on July 31, 1999. HealthPlan Services is working with its current
distribution system to direct Midwestern United insureds to suitable replacement
coverage.
In 1997, approximately 12.6% of HealthPlan Services' revenues were
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
"Access" products, which are fully insured, triple-option health benefit
products. The Access products are issued by Seaboard Life Insurance Company
(USA) ("Seaboard Life") and administered by HealthPlan Services. Beginning in
October 1997, Seaboard Life began offering coverage under the Access products to
holders of the United HealthCare and Travelers policies. The business
experienced higher than normal lapse rates and lower than
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normal margins during this transition, which was substantially completed in
1998. In 1998, this business accounted for approximately 6.1% of HealthPlan
Services' consolidated revenue. Effective as of December 31, 1998, the Centris
Group, Inc. ("Centris") acquired Seaboard Life. Centris has informed HealthPlan
Services that it does not wish Seaboard Life to continue as the carrier for the
Access program. HealthPlan Services is engaged in discussions with insurance
carriers that may be interested in replacing Seaboard Life as the insurer for
the program.
In January 1998, HealthPlan Services began providing policy issuance,
billing, and claims services for the individual indemnity/preferred provider
organization health insurance policies of Provident Indemnity Life Insurance
Company ("PILIC") and Provident American Life and Health Insurance Company
("PALHIC"). In 1998, this business accounted for approximately 9% of HealthPlan
Services' revenues. Effective January 1, 1999, Central Reserve Life Insurance
Company, the predecessor of Ceres Group, Inc., acquired PALHIC. HealthPlan
Services is unable to predict whether this merger will have any material effect
on HealthPlan Services' relationship with PALHIC. In February 1999, PILIC and
its parent company, Provident American Corporation ("PAMCO"), asserted a demand
against HealthPlan Services for claims in excess of $27 million. In the event
PAMCO and PILIC elect to pursue such claims, HealthPlan Services will mount a
vigorous defense. The financial effect, if any, of this matter cannot be
determined at this time.
HealthPlan Services continues to experience higher lapses than new
sales in the business written with its payors. Several factors have contributed
to this trend. Escalating medical costs have resulted in less competitive
pricing for managed indemnity products. In recent years there has been a
nationwide increase in the frequency with which employer groups change benefit
plans, due in part to rapid changes in benefit designs offered, higher
first-year commissions for agents, and guaranteed issue legislation and other
new laws that make it easier for employer groups to switch plans without
penalty. These and other factors have resulted in a weakening of HealthPlan
Services' carrier and managed care payors' commitment to the small group market
and consolidation of the industry. HealthPlan Services is not certain when, if
ever, these trends will be reversed. In addition to Seaboard Life and Midwestern
United, the insurers of two of HealthPlan Services' smaller blocks of business,
which together constituted approximately 4.5% of HealthPlan Services' revenues
for 1998, have elected to exit the small business market.
Although HealthPlan Services continues to work with its managed
indemnity payors to introduce additional care management and other cost control
mechanisms for their benefit plans, HealthPlan Services 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. HealthPlan
Services also cannot predict whether it will be able to form alliances with
health care payors that are committed to the small group market for the long
term. The results of Company initiatives in these areas may affect HealthPlan
Services' ability to maintain and grow managed indemnity business in the future.
Typically, HealthPlan Services' indemnity and managed care payors sign
contracts with HealthPlan Services that are cancelable by either party without
penalty upon advance written notice of between 90 days and one year. The loss of
one or more of HealthPlan Services' key insurance carrier or managed care blocks
of business could have a material adverse effect on HealthPlan Services. There
can be no assurance that HealthPlan Services will successfully transition the
Midwestern United or Seaboard Life blocks of business to new carriers or managed
care entities.
On September 30, 1998, HealthPlan Services and the Prudential Insurance
Company of America signed a letter of intent to enter into a long-term
outsourcing arrangement. On January 11, 1999, HealthPlan Services announced that
it did not expect to enter into a contract with Prudential in the near future
because Prudential is continuing to evaluate its situation in the context of the
proposed Aetna U.S. HealthCare acquisition of Prudential.
COMPANY HISTORY
HealthPlan Services' principal operating subsidiary, HealthPlan
Services, Inc. ("HPS"), was founded in 1970 by James K. Murray, Jr., HealthPlan
Services' current Chairman of the Board and Chief Executive Officer, Charles H.
Guy, Jr., and Trevor G. Smith (the "Founders"). The Dun & Bradstreet Corporation
("D&B") purchased the business in 1978 and operated it as a division. In 1994,
the Founders and other investors formed the Company and purchased the HPS
business (the "Predecessor Company") from D&B. On May 19, 1995, HealthPlan
Services completed an initial public offering of 4,025,000 shares of its Common
Stock. HealthPlan Services is a Delaware corporation.
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INTEGRATION
In 1998, HealthPlan Services completed integration of the operations of
two businesses it acquired in July 1996: Consolidated Group, Inc. ("Consolidated
Group"), a provider of administrative services for fully insured health care
plans; and Harrington Services Corporation ("Harrington"), a provider of
administrative services for large, self-funded benefit plans. This integration
included consolidation of personnel and administrative services to its Tampa,
Florida and Merrimack, New Hampshire facilities from the former Consolidated
Group facility in Framingham, Massachusetts. In connection with this
integration, in 1998 HealthPlan Services also consolidated the operations of
former Harrington offices in Atlanta, Georgia and Chicago, Illinois to other
Company facilities. HealthPlan Services also transferred operations to Tampa
from the Brookfield, Wisconsin facility, the lease for which HealthPlan Services
had assumed in connection with the TMG block of business.
In 1998, HealthPlan Services began integration of its newly acquired
CENTRA and NPPN businesses, including integration of technology platforms
associated with the CENTRA acquisition, and closure of the Irving, Texas and
Houston, Texas CENTRA offices. HealthPlan Services expects that it will complete
integration of the CENTRA and NPPN businesses during the first quarter of 1999.
INFORMATION TECHNOLOGY
HealthPlan Services' primary data processing facilities are located in
Tampa, Florida, Columbus, Ohio, and El Monte, California. HealthPlan Services
operates in a three-tiered architectural environment. A large IBM mainframe
supports substantially all of the transactions processed by HealthPlan Services.
In 1998, HealthPlan Services continued the consolidation of its operations into
a common technology platform and the elimination of redundant computer
facilities as part of its ongoing integration of acquired businesses. HealthPlan
Services expects that this integration will be completed in 1999.
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for a discussion of HealthPlan Services'
Year 2000 Compliance Plan.
GOVERNMENT REGULATION
HealthPlan Services 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 HealthPlan Services provides
claims administration services require HealthPlan Services or its employees to
receive regulatory approval or licensure to conduct such business. Provider
networks also are regulated in many states. HealthPlan Services' 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 HealthPlan Services, 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 HealthPlan Services' operating procedure for many years. HealthPlan
Services could risk major erosion and even "rebate" exposure in these states if
state regulators deem HealthPlan Services' 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
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the plan and persons that provide services to the plan. The application of ERISA
to the operations of HealthPlan Services and its customers is an evolving area
of law and is subject to ongoing regulatory and judicial interpretations of
ERISA. Although HealthPlan Services strives to minimize the applicability of
ERISA to its business and to ensure that HealthPlan Services' 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 HealthPlan Services. Any such
contrary positions could require changes to HealthPlan Services' 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 HealthPlan Services and
its industry.
During 1996 and 1997, HealthPlan Services' 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. HealthPlan Services has responded to all outstanding concerns raised
by the DOL in that audit. Although the DOL has not objected to HealthPlan
Services' responses, there can be no assurance that the DOL will not in the
future take positions that could require changes to the way HealthPlan Services
operates or result in the imposition of administrative fines and penalties.
COMPETITION
HealthPlan Services faces competition and potential competition from
traditional indemnity insurance carriers, Blue Cross/Blue Shield organizations,
managed care organizations, third party administrators, PPOs, transaction
processing companies, and health care information companies. HealthPlan Services
competes principally on the basis of the price and quality of services. Many
large insurers and managed care companies offer individual small group products
through captive agents and do not outsource any administrative services in
connection with such products. HealthPlan Services competes for large group
clients with several hundred local and regional third party administrators. In
addition, 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 HealthPlan Services. Many of HealthPlan Services'
competitors and potential competitors are considerably larger and have
significantly greater resources than HealthPlan Services.
EMPLOYEES
HealthPlan Services had approximately 3,300 employees on February 28,
1999. Except for some of the employees of American Benefit Plan Administrators,
Inc., a Company subsidiary that administers Taft-Hartley plans, HealthPlan
Services' labor force is not unionized. HealthPlan Services believes that its
relationship with its employees is good.
TRADEMARKS
HealthPlan Services utilizes various service marks, trademarks, and
trade names in connection with its products and services, most of which are the
property of HealthPlan Services' payors. Although HealthPlan Services considers
its service marks, trademarks, and trade names important in the operation of its
business, the business of HealthPlan Services is not dependent on any individual
service mark, trademark, or trade name.
ITEM 2. PROPERTIES
HealthPlan Services conducts its operations from its headquarters in
Tampa, Florida. HealthPlan Services' central data processing facilities are
located in Tampa, Florida, Columbus, Ohio, and El Monte, California. HealthPlan
Services leases these facilities, as well as substantially all of its other
locations. HealthPlan Services believes that its facilities are adequate for its
present and anticipated business requirements.
ITEM 3. LEGAL PROCEEDINGS
During 1996 and 1997, HealthPlan Services' 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.
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HealthPlan Services has responded to all outstanding concerns raised by the DOL
in that audit. Although the DOL has not objected to HealthPlan Services'
responses, there can be no assurance that the DOL will not in the future take
positions that could require changes to the way HealthPlan Services operates or
result in the imposition of administrative fines and penalties.
In the ordinary course of business, HealthPlan Services may be a party
to a variety of legal actions that affect any business, including employment and
employment discrimination-related suits, employee benefit claims, breach of
contract actions, and tort claims. In addition, because of the nature of its
business, HealthPlan Services could be subject to a variety of legal actions
relating to its business operations, including disputes alleging errors in claim
administration, underwriting, or premium billing. HealthPlan Services currently
has insurance coverage for some of these potential liabilities. Other potential
liabilities may not be covered by insurance, insurers may dispute coverage, or
the amount of insurance may not cover the damages awarded. In the opinion of
HealthPlan Services' management, although the outcome of current claims against
HealthPlan Services is uncertain, in the aggregate they are not likely to have a
material adverse effect on HealthPlan Services' 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 HealthPlan Services' security
holders during the fourth quarter of 1998.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
HealthPlan Services' 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 1997 and 1998, as reported by the New York
Stock Exchange for the periods indicated.
1998 HIGH LOW
---- ---- ---
Fourth quarter.................... $11.500 $10.375
Third quarter..................... $10.875 $ 9.500
Second quarter.................... $17.6875 $17.375
First quarter $26.625 $26.125
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
HealthPlan Services 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 and the first quarter of 1998.
HealthPlan Services paid 13.75 cents per share (or 55 cents per share on an
annualized basis) for the second, third, and fourth quarters of 1998. HealthPlan
Services expects to continue to pay cash dividends in the future. Pursuant to
HealthPlan Services' May 1, 1998 credit agreement with its lenders, as amended,
in each year beginning in 1999 HealthPlan Services may increase the amount of
dividend payments by up to five cents per share on an annualized basis, subject
in certain circumstances to lender consent. There were 393 holders of record of
HealthPlan Services' Common Stock as of March 15, 1999. HealthPlan Services
believes that there is a greater number of beneficial owners that hold
HealthPlan Services' 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 HealthPlan
Services at December 31, 1998 and 1997 and for the years ended December 31,
1998, 1997, and 1996, and have been derived from the audited financial
statements of HealthPlan Services at December 31, 1996, 1995, and 1994 and for
the years ended December 31, 1996 and 1995 and the three months ended December
31, 1994 and the Predecessor Company at September 30, 1994 and for the nine
months ended September 30, 1994 not included herein. The report of
PricewaterhouseCoopers LLP, independent accountants of HealthPlan Services, on
the consolidated financial statements of HealthPlan Services at December 31,
1998 and 1997 and for the years ended December 31, 1998, 1997, and 1996 appears
elsewhere in this Form 10-K. Selected historical financial data of HealthPlan
Services 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 the Predecessor
Company from D&B ("the Acquisition") been completed as of January 1, 1994, nor
are the statements necessarily indicative of HealthPlan Services' future results
of operations or financial position.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
HEALTHPLAN SERVICES COMPANY (1)
------------------------------------------------------------------------------ -----------
PRO FORMA THREE NINE
YEAR MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
--------------------------------------------------- DEC. 31, DEC. 31, SEPT. 30,
1998 1997 1996 1995 1994(3) 1994 1994
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues .......................... $ 289,247 $281,644 $191,493 $ 98,187 $107,077 $25,132 $81,945
Expenses:
Agent commissions.................. 68,449 65,674 48,507 36,100 43,260 10,047 33,213
Other operating expenses........... 200,710 170,556 114,078 40,406 45,633 10,202 42,138
Contract commitments............... - - 2,685 - 3,623 3,623 -
Restructure charge................. 2,052 1,374 1,425 - - - -
Integration expense................ 4,171 4,885 7,804 - - - -
Other expense...................... 1,811 316 812 1,664 - - -
Gain on sale of investments........ (33,240) - - - - - -
Loss on impairment of goodwill..... - - 13,710 - - - -
Equity in loss of joint
venture.......................... 11,849 2,850 - - - - -
Depreciation and amortization...... 15,800 15,917 10,548 4,386 3,517 870 3,347
--------- -------- -------- -------- -------- ------- -------
Income (loss)
from operation................... 17,645 20,072 (8,076) 15,631 11,044 390 3,247
Net income (loss).................. $9,698 $ 10,796 $ (6,716) $ 9,535 $ 6,467 $ 231 $ 1,747
-------
Dividends on redeemable
preferred stock.................. -- -- -- 285 -- 285
--------- -------- -------- -------- -------- -------
Net income (loss) attributable
to Common Stock ................. $ 9,698 $ 10,796 $ (6,716) $ 9,250 $ 6,467 $ (54)
--------- -------- -------- -------- -------- -------
Basic net income (loss)
per share........................ $ 0.68 $ 0.72 $ (0.47) $ 0.82
Pro forma net income
per share (2).................... $ 0.71 $ 0.69 $ 0.03
Diluted net income per share....... $ 0.67 $ 0.71 n/a $ 0.84
Dividends declared per share
of common stock.................. $ 0.54 $ 0.38 -- --
Average common shares
outstanding
Basic........................... 14,353 15,004 14,181 11,316
Pro forma (2)................... 13,414 9,339 9,339
Diluted......................... 14,584 15,164 n/a 11,380
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 PRO FORMA
--------------------------------------------------- DEC. 31, DEC. 31, SEPT. 30,
1998 1997 1996 1995 1994(3) 1994 1994
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit).......... $ (36,813) $ (29,842) $(26,929) $ 23,013 $ (16,050) $(16,050) $ (17,742)
Total assets....................... 276,805 243,324 244,701 112,667 53,189 53,189 27,884
Total debt......................... 97,323 43,694 62,298 1,282 1,300 1,300 1,254
Redeemable preferred stock
(Series A & B), including
accrued dividends................ -- -- -- -- -- 19,285 --
Common stockholders'
equity (divisional equity)....... 91,652 116,566 108,783 80,966 20,292 1,007 2,170
</TABLE>
(1) Represents the historical results of operations of the Predecessor
Company. HealthPlan Services' 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 HealthPlan
Services 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 HealthPlan
Services 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.
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 HealthPlan Services for the years ended December 31, 1998, 1997,
and 1996.
HealthPlan Services is a leading managed health care services company,
providing distribution, enrollment, billing and collection, and claims
administration services for health care payors and providers. HealthPlan
Services functions solely as a service provider generating fee-based income and
does not assume any underwriting risk.
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 HealthPlan
Services' revenue for such periods.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
------- ------- -------
Total revenues ........................ 100.0 % 100.0 % 100.0 %
------- ------- -------
Expenses:
Agent commissions ................... 23.7 % 23.3 % 25.3 %
Personnel ........................... 42.6 % 40.2 % 37.7 %
General and administrative .......... 24.8 % 19.5 % 21.7 %
Contract commitments ................ -- -- 1.4 %
Restructure charge .................. 0.7 % 0.5 % 0.8 %
Integration ......................... 1.4 % 1.7 % 4.1 %
Loss on impairment of goodwill ...... -- -- 7.2 %
Other expense ....................... 0.6 % 0.1 % 0.4 %
Gain on sale of investments, net .... (11.5)% -- --
Depreciation and amortization ....... 5.5 % 5.7 % 5.5 %
Interest expense, net ............... 2.0 % 0.9 % 0.1 %
Equity in loss of joint venture ..... 4.1 % 1.0 % --
------- ------- -------
Total expenses ............... 93.9 % 92.9 % 104.2 %
------- ------- -------
Income (loss) before provision for
income taxes and minority interest 6.1 % 7.1 % (4.2)%
Provision (benefit) for income taxes .. 3.0 % 3.3 % (0.7)%
------- ------- -------
Income (loss) before minority interest 3.1 % 3.8 % (3.5)%
Minority interest ..................... (0.3)% -- --
------- ------- -------
Net income (loss) ..................... 3.4 % 3.8 % (3.5)%
======= ======= =======
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues for the year ended December 31, 1998 increased $7.6 million,
or 2.7%, to $289.2 million from $281.6 million in 1997. New revenues of $20.3
million and $10.0 million recognized as a result of the CENTRA and NPPN
acquisitions, respectively, were offset by a decrease in revenues from fully
insured customers ($3.2 million), primarily related to the transition of the
United HealthCare and Travelers block of indemnity/preferred provider
organization business to Seaboard Life Insurance Company products. This
reduction in fully insured revenues was partially offset by $26.1 million in
revenues from the PILIC/PALHIC block of business. Other revenue decreases were
realized from self-funded customers ($16.7 million), primarily related to the
sale of the contracts of Diversified Group Brokerage, Inc. ("DGB"), in 1997,
along with the loss of three large customers in 1998, and from alliance
customers ($3.5 million) primarily related to HealthPlan Services' exiting the
Kentucky alliance in 1997.
Agent commission expense for the year ended December 31, 1998 increased
$2.7 million, or 4.1%, to $68.4 million from $65.7 million in 1997. This
increase is consistent with the increase in operating revenues for the period
indicated.
12
<PAGE>
Personnel expense for the year ended December 31, 1998 increased $10.2
million, or 9.0%, to $123.3 million from $113.1 million in 1997. This increase
resulted primarily from $16.0 million of personnel expense associated with the
consolidation of CENTRA and NPPN. This increase was offset by reduced salaries
resulting from a reduction of approximately 435 employees in HealthPlan
Services' workforce and the outsourcing of care management services to SHPS.
These services are now included as general and administrative expense.
HealthPlan Services' personnel expense as a percentage of total revenues was
42.6% for the year ended December 31, 1998 compared to 40.2% in 1997.
General and administrative expense for the year ended December 31, 1998
increased $16.9 million, or 30.8%, to $71.8 million from $54.9 million in 1997.
This increase was primarily attributable to $12.5 million of general and
administrative expense associated with the consolidation of CENTRA's and NPPN's
financial results along with $6.7 million of costs associated with HealthPlan
Services' outsourcing of its care management services to SHPS. HealthPlan
Services' general and administrative expense as a percentage of total revenue
increased to 24.8% for the year ended December 31, 1998 from 19.5% in 1997
primarily due to the outsourcing of HealthPlan Services' care management
services to SHPS.
HealthPlan Services recorded $2.1 million in restructuring costs during
the year ended December 31, 1998. These costs reflect employee terminations,
lease terminations, and the abandonment of property and equipment associated
with closing HealthPlan Services' Framingham, Massachusetts, Chicago, Illinois,
and Atlanta, Georgia offices. There were 47, 43, and 48 employees terminated in
the Framingham, Chicago, and Atlanta offices, respectively. These employees
worked in management, claims administration, and information systems. In 1997,
HealthPlan Services 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. HealthPlan
Services' 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 HealthPlan
Services' Tampa, Florida and Merrimack, New Hampshire offices.
Integration expense during the year ended December 31, 1998 was $4.2
million. These costs included $2.1 million in converting the data center and
three claims platforms for CENTRA and $1.9 million in converting the information
systems from HealthPlan Services' Framingham, Massachusetts office to the Tampa
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 HealthPlan Services' offices, the consolidation of treasury
functions, and employee relocations.
Other expense of $1.8 million for the year ended December 31, 1998
reflects costs of $1.4 million associated with the write-off of customer
balances due to a billing system conversion and uncollectability of accounts
among HealthPlan Services' self-funded customers, and costs of $0.4 million
related to the start-up of the PILIC/PALHIC block of business.
During the year ended December 31, 1998, HealthPlan Services sold
370,711 of its shares of Medirisk, Inc. stock and all 200,000 of its shares of
Health Risk Management, Inc. stock, resulting in gains of $5.2 million and $0.2
million, respectively. On September 11, 1998, HealthPlan Services sold its 50%
interest in SHPS to Sykes for $30.6 million and recognized a gain on the sale of
SHPS of $27.9 million.
Depreciation and amortization expense for the year ended December 31,
1998 decreased $0.1 million, or 0.6%, to $15.8 million from $15.9 million in
1997. Some of HealthPlan Services' furniture and fixtures became fully amortized
in 1997. Additionally, HealthPlan Services wrote off internally developed
software related to HealthPlan Services' exiting the Kentucky alliance in 1997.
These reductions were partially offset by amortization of goodwill on HealthPlan
Services' CENTRA and NPPN acquisitions.
Net interest expense for the year ended December 31, 1998 increased to
$5.6 million from $2.5 million in 1997. This increase resulted primarily from
HealthPlan Services' acquisitions of CENTRA and NPPN, along with its share
repurchase program, which began in 1998.
13
<PAGE>
HealthPlan Services recorded its 50% share of the loss incurred by SHPS
through the date of its disposition, which was $11.8 million on a pre-tax basis.
This loss principally resulted from a charge for the write-off of purchased
research and development associated with acquisitions by SHPS.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997 increased $90.1 million,
or 47.0%, to $281.6 million from $191.5 million in 1996. This increase resulted
primarily from the inclusion of an additional six months of revenues, $71.6
million, from HealthPlan Services' acquisition of Consolidated Group and
Harrington (effective July 1, 1996). Revenues from HealthPlan Services' 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
HealthPlan Services' 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 HealthPlan Services' 1996 acquisitions.
HealthPlan Services' 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 HealthPlan Services' 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 HealthPlan Services' 1996 acquisitions. HealthPlan Services' personnel
expense as a percentage of total revenues increased to 40.2% in 1997 from 37.7%
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
HealthPlan Services' 1996 acquisitions being included in HealthPlan Services'
1997 general and administrative expenses. HealthPlan Services' general and
administrative expense as a percentage of total revenue decreased to 19.5% in
1997 from 21.7% 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, HealthPlan Services renegotiated its contracts with the
Florida Community Health Purchasing Alliances and exited the Kentucky alliance
and Washington alliance businesses. HealthPlan Services closed its Lexington,
Kentucky office at the end of the contract term. As a result of the Kentucky
office closure, HealthPlan Services 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 HealthPlan Services in 1997.
HealthPlan Services 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 HealthPlan Services' 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 HealthPlan Services' 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 HealthPlan Services' acquisition of Consolidated Group and
Harrington. Additionally, HealthPlan Services recognized a $0.4 million
acceleration of amortization for internally developed software related to
HealthPlan Services' exiting the Kentucky alliance in 1997.
14
<PAGE>
Interest expense for the year ended December 31, 1997 increased to $2.5
million from $0.3 million in 1996. This increase reflects the fact that
HealthPlan Services' credit facility balance was outstanding for a full year in
1997, as opposed to six months in 1996.
HealthPlan Services 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 an acquisition by SHPS.
YEAR 2000 COMPLIANCE
INTRODUCTION
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in
hardware (such as microchips), operating systems, and other software programs.
HealthPlan Services' Year 2000 ("Y2K") compliance project is intended to prepare
HealthPlan Services' business for the Year 2000. HealthPlan Services defines Y2K
"compliance" to mean that the computer code will process all defined future
dates properly and give accurate results.
PLAN TO ADDRESS YEAR 2000 COMPLIANCE
HealthPlan Services has conducted a review of its computer systems and
capabilities and has created a three-pronged program for addressing issues
related to the Year 2000. This program includes the purchase and implementation
of software packages from vendors, an upgrade of vendor packages to Year 2000
compliant versions, and the internal development and implementation of new
software applications to increase the capabilities of HealthPlan Services'
systems for the future.
The implementation of this plan commenced in 1996 with the upgrade of
the mainframe operating system. HealthPlan Services has since purchased and
replaced its accounting and financial system and workers compensation system and
written and implemented a new system for the unemployment compensation business.
HealthPlan Services has received from the vendor the latest version of its claim
processing software, which is Year 2000 compliant, and is currently implementing
this version for all current accounts. HealthPlan Services also is undertaking
system enhancements to its billing and administration system.
HealthPlan Services has requested Year 2000 compliance information from
its significant customers and vendors, including landlords and other third
parties that are responsible for non-information technology systems such as
security and environmental controls. In particular, HealthPlan Services has
asked each vendor and customer for information regarding (a) the status of the
vendor's or customer's Year 2000 readiness initiative, and (b) information
regarding any expected changes in the vendor's or customer's data interface with
HealthPlan Services. A team of HealthPlan Services information system
professionals is coordinating its Year 2000 compliance efforts and is testing
any new interfaces with vendors and customers.
COST OF PROJECT
Between 1996 and 1998, HealthPlan Services spent $7.9 million for Year
2000 compliance system upgrades and expects to spend $2.4 million in both
capital and modification costs to complete its Year 2000 program. These costs
include the expense of replacing any existing systems with Year 2000 compliant
systems, even in cases where the system would have been replaced or upgraded
regardless of Year 2000 requirements.
STATE OF READINESS, RISKS, AND CONTINGENCY PLANS
HealthPlan Services expects that its systems and software will be Year
2000 compliant by the close of the second quarter of 1999. However, there are
risks relating to the external vendors and customers with which HealthPlan
Services exchanges data. Because HealthPlan Services does not control these
vendors and customers or their resources,
15
<PAGE>
HealthPlan Services can provide no assurance that such vendors and customers
will complete their respective Year 2000 solutions in time for HealthPlan
Services to fully test system interfaces with them. Although HealthPlan Services
does not have a formal Year 2000 contingency plan, its Year 2000 compliance team
will be responding to any disruption in service resulting from a Year 2000
compliance problem in HealthPlan Services systems and software or in a vendor's
or customer's system. There is no assurance, however, that HealthPlan Services
will be able to remedy any disruption in service, in particular any disruption
from a vendor's or customer's failure to be Year 2000 compliant or to inform
HealthPlan Services of a change in its data interface. HealthPlan Services
cannot estimate the cost that would be associated with a disruption in service
resulting from its own or a vendor's or customer's Year 2000 compliance failure.
LIQUIDITY AND CAPITAL RESOURCES
Under HealthPlan Services' May 1, 1998 Amended and Restated Credit
Agreement, as amended, the Company maintains a line of credit of $175.0 million
(the "Line of Credit") with availability equal to a multiple of trailing
earnings before interest expense, income taxes, and depreciation and
amortization expense (with certain adjustments called for in the credit
agreement). This multiple is set at 3.5 through June 30, 1999 and steps down
thereafter to 2.75 during the remaining term of the facility. First Union
National Bank of North Carolina serves as "agency bank," and NationsBank, N.A.
serves as co-agent, with respect to this facility. The credit facility contains
provisions which include the maintenance of certain minimum financial ratios,
limitations on merger and acquisition activity, limitations on capital
expenditures, limitations on dividends and distributions, and limitations on
investment activity. HealthPlan Services' borrowing under the Line of Credit
includes interest ranging from LIBOR plus 75 to 150 basis points to New York
prime plus 0 to 50 basis points. Current rates on LIBOR and New York prime rate
drawings on the Line of Credit at December 31, 1998 were 7.1875% and 7.75%,
respectively. The Line of Credit carries a commitment fee ranging from 0.175% to
0.25% of the unused portion and is secured by the stock of HealthPlan Services'
subsidiaries. The outstanding draw was $91.0 million at December 31, 1998, and
the maximum amount available was $125.0 million.
HealthPlan Services' Line of Credit enables it to pay a quarterly
dividend of up to $0.1375 per share of HealthPlan Services' capital stock (up to
$0.55 per share on an annualized basis). In the second quarter of 1998,
HealthPlan Services increased its dividend to $0.1375 per share. For 1998,
HealthPlan Services declared dividends totaling $7.6 million. These dividends
were paid on April 21, 1998, July 21, 1998, October 20, 1998, and January 19,
1999.
On February 27, 1998, HealthPlan Services acquired 49% of the capital
stock of Montgomery Management Corporation ("Montgomery Management") from
Provident Indemnity Life Insurance Company ("PILIC") for $4.0 million. In
connection with the purchase, HealthPlan Services obtained a warrant from PILIC
to purchase an additional 31% of Montgomery Management for nominal
consideration. On October 26, 1998, HealthPlan Services exercised this warrant
for an additional 31% of Montgomery Management's capital stock at a cost of
$8,060.
During the second quarter of 1997, the Board of Directors authorized
HealthPlan Services to use up to $20.0 million to support a share repurchase
program. HealthPlan Services began implementing this share repurchase program in
the first quarter of 1998. On May 12, 1998, the Board increased to $30.0 million
its authorization to repurchase shares under this program. Through March 15,
1999, HealthPlan Services had acquired 1,306,800 shares under this program at a
cost of approximately $28.3 million.
On May 18, 1998, HealthPlan Services acquired National Preferred
Provider Network, Inc. ("NPPN") for $25.0 million cash and additional contingent
consideration of up to $25.0 million if NPPN achieves certain financial
performance objectives.
On June 16, 1998 HealthPlan Services paid $0.2 million for a 1%
interest in CENTRA and acquired an additional 49.1% interest from CENTRA Benefit
Services ("CBS") in exchange for the payment of $7.4 million ($9.3 million
purchase price net of the payoff of a CBS note), the issuance of $4.0 million in
five-year 5.75% notes convertible into approximately 180,000 shares of
HealthPlan Services' Common Stock, a purchase price holdback of up to $1.2
million, and additional contingent consideration. In additon to such contingent
consideration, CBS has the right to put its remaining 49.9% interest in
16
<PAGE>
CENTRA at a contractual price not to exceed $6.0 million within two years of the
acquisition date if CENTRA meets certain financial performance criteria. If CBS
has not put its remaining interest to HealthPlan Services within two years, CBS
will sell its remaining interest in CENTRA to HealthPlan Services at an
appraised value not to exceed $6.0 million. In February 1999, CBS notified
HealthPlan Services that it intends to exercise its put option. HealthPlan
Services is evaluating whether or not CENTRA has met the necessary financial
performance criteria for CBS to exercise this option.
In December 1997, HealthPlan Services and Sykes formed SHPS. SHPS was
owned 50% by each of the founding companies and provides care management
services, technology solutions, certain customer support services, and other
outsourcing capabilities to the health care and insurance industries. HealthPlan
Services invested $17.0 million in SHPS and guaranteed a line of credit of up to
$37.5 million to fund the activities of SHPS. On September 11, 1998, HealthPlan
Services sold its 50% interest in SHPS to Sykes for $30.6 million and recognized
a gain on the sale of SHPS of $27.9 million. Additionally, HealthPlan Services
was relieved of its obligation associated with SHPS' credit facility.
HealthPlan Services spent $9.1 million for capital expenditures during
the year ended December 31, 1998. Additionally, HealthPlan Services incurred a
cash outlay of $4.2 million for integration costs related to the conversion of
the data center and three claims platforms for CENTRA and the conversion of the
information systems from HealthPlan Services' Framingham, Massachusetts office
to the Tampa office. HealthPlan Services does not expect to incur any material
integration costs in 1999.
During 1998, HealthPlan Services sold 370,711 of its shares of Medirisk
common stock and all 200,000 of its shares of HRM common stock, resulting in
gains of $5.2 million and $0.2 million, respectively.
Based upon current expectations, HealthPlan Services 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.
INFLATION
HealthPlan Services does not believe that inflation had a material
effect on its results of operations for the year ended December 31, 1998 or
1997. There can be no assurance, however, that HealthPlan Services' business
will not be affected by inflation in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HealthPlan Services is exposed to certain market risks inherent in
HealthPlan Services' financial instruments. These instruments arise from
transactions entered into in the normal course of business and, in some cases,
relate to HealthPlan Services' acquisitions of related businesses. HealthPlan
Services is subject to interest rate risk on its existing Line of Credit and any
future financing requirements. HealthPlan Services' fixed rate debt consists
primarily of outstanding balances on its notes issued to C G Insurance Services,
Inc. (CAL/GROUP) and former owner of CENTRA and certain equipment notes, and its
variable rate debt relates to borrowings under its Line of Credit.
See "Liquidity and Capital Resources."
The following table presents the future principal payment obligations
(in thousands) and weighted-average interest rates associated with HealthPlan
Services' existing long-term debt instruments, assuming HealthPlan Services'
actual level of long-term indebtedness of $97.3 million as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term Debt Fixed Rate
(weighted average interest
rate of 6.34%)................... $ 486 $ 419 $ 291 $ 220 $ 4,182 $ 724
Variable Rate (weighted
average interest rate
of 7.16%)......................... -- -- -- -- 91,000 --
</TABLE>
HealthPlan Services' primary market risk exposure relates to (i) the
interest rate risk on long-term and short-term borrowings, (ii) the impact of
interest rate movements on its ability to meet interest expense requirements and
17
<PAGE>
exceed financial covenants, and (iii) the impact of interest rate movements on
HealthPlan Services' ability to obtain adequate financing to fund future
acquisitions.
HealthPlan Services manages interest rate risk on its variable rate
debt through its use of two separate interest rate swap agreements. The
agreements, which expire in September and December 2001, effectively convert
$40.0 million of variable rate debt under the Line of Credit to fixed rate debt
at a weighted average rate of 6.18%.
While HealthPlan Services cannot predict its ability to refinance
existing debt or the impact interest rate movements will have on its existing
debt, management continues to evaluate its financial position on an ongoing
basis.
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.
HealthPlan Services is not required to file any supplementary data under this
item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is included in HealthPlan Services'
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
11, 1999, 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 HealthPlan Services'
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
11, 1999, 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 HealthPlan Services'
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
11, 1999, 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 HealthPlan Services'
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
11, 1999, under "Compensation Committee Interlocks and Insider Participation"
and "Certain Relationships and Related Transactions," and is herein incorporated
by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of HealthPlan
Services 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, 1998 and 1997
Consolidated Statements of Operations - Years ended
December 31, 1998, 1997, and 1996
Consolidated Statement of Changes in Stockholders' Equity -
Years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows - Years ended
December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
(2) All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(3) Exhibits included or incorporated herein:
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).
19
<PAGE>
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
(incorporated by reference to Exhibit 2.7 to the Company's
1997 Annual Report on Form 10-K filed on March 30, 1998).
2.8 Amended and Restated Acquisition Agreement dated May 15, 1998
by and among HealthPlan Services Corporation, National
Preferred Provider Network, Inc., and other parties named
therein.
2.9 Subscription and Asset Contribution Agreement dated June 16,
1998 by and between CENTRA HealthPlan LLC, and its prospective
members: HealthPlan Services, Inc., and CENTRA Benefit
Services, Inc.
2.10 Stock Purchase Agreement dated September 1, 1998 among Sykes
Enterprises, Incorporated, HealthPlan Services Corporation,
and Sykes HealthPlan Services, Inc.
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).
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 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).
20
<PAGE>
10.2 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.
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 Restricted Stock Agreements between the Company and Claudia N.
Griffiths (incorporated by reference to Exhibit 10.10 to the
Company's Form S-1 Registration Statement #33-90472, filed on
May 18, 1995). The same agreement was executed with Steven V.
Hulslander, Gary L. Raeckers, Craig H. Cassady, Richard M.
Bresee, Nola H. Moon, and George E. Lucco.
10.8 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).
10.9 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).
10.10 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).
10.11 (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
21
<PAGE>
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).
10.12 Amended and Restated Credit Agreement dated as of May 1, 1998
by and among HealthPlan Services Corporation, First Union
National Bank, and other lenders named therein, as amended by
the First Amendment thereto dated June 23, 1998, and the
Second Amendment and Waiver dated December 15, 1998.
10.13 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).
10.14 Deferred Compensation Agreement between R.E. Harrington, Inc.
and Robert R. Parker dated May 15, 1987 (compensatory plan)
(incorporated by reference to Exhibit 10.17 to the Company's
1997 Annual Report on Form 10-K filed on March 30, 1998).
10.15 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).
10.16 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).
10.17 HealthPlan Services Corporation 1998 Officer Bonus Plan
Summary (compensatory plan).
10.18 Administrative Services and Business Transfer Agreement
between the Company and TMG Life Insurance Company, dated
December 4, 1996 (incorporated by reference to Exhibit 10.21
to the Company's 1997 Annual Report on Form 10-K filed on
March 30, 1998).
10.19 Deferred Compensation Plan of R.E. Harrington, Inc. dated
January 1, 1998 (compensatory plan).
10.20 Management Agreement dated February 28, 1998 among Midwestern
United Life Insurance Company, HealthPlan Services, Inc., and
Connecticut General Life Insurance Company.
22
<PAGE>
10.21 Administration Services Agreement dated July 1, 1997 between
Seaboard Life Insurance Company and HealthPlan Services, Inc.
10.22 Services Agreement effective February 1, 1998 by and among
Provident Indemnity Life Insurance Company, and Provident
American Life and Health Insurance Company, HealthPlan
Services Corporation, and HealthPlan Services, Inc.
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 PricewaterhouseCoopers 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, 1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, HealthPlan Services 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,
1999.
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/ PHILLIP S. DINGLE
----------------------------------------------
Phillip S. Dingle,
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William L. Bennett, James K. Murray, Jr.,
and Joseph S. DiMartino his or her true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
or her in his or her name, place, and stead, in any and all capacities, to sign
any or all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all that said attorneys-in-fact and agents, each acting
alone, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JAMES K. MURRAY, JR. Chief Executive Officer March 30, 1999
- ---------------------------- and Chairman of the Board
James K. Murray, Jr. (Principal Executive Officer)
/s/ WILLIAM L. BENNETT Vice Chairman of the Board March 30, 1999
- ----------------------------
William L. Bennett
/s/ JOSEPH A. CALIFANO, JR. Director March 30, 1999
- ---------------------------
Joseph A. Califano, Jr.
/s/ JOSEPH S. DIMARTINO Director March 30, 1999
- ---------------------------
Joseph S. DiMartino
/s/ VINCENT D. FARRELL, JR. Director March 30, 1999
- ---------------------------
Vincent D. Farrell, Jr.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JOHN R. GUNN Director March 30, 1999
- ---------------------------
John R. Gunn
/s/ NANCY M. KANE Director March 30, 1999
- ---------------------------
Nancy M. Kane
/s/ DAVID NIERENBERG Director March 30, 1999
- ---------------------------
David Nierenberg
/s/ JAMES G. NIVEN Director March 30, 1999
- ---------------------------
James G. Niven
/s/ ROBERT R. PARKER Director March 30, 1999
- ---------------------------
Robert R. Parker
/s/ MARC I. PERKINS Director March 30, 1999
- ---------------------------
Marc I. Perkins
/s/ TREVOR G. SMITH Director March 30, 1999
- ---------------------------
Trevor G. Smith
/s/ ARTHUR F. WEINBACH Director March 30, 1999
- ---------------------------
Arthur F. Weinbach
</TABLE>
25
<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 the 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, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, 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
assurancce 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.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
March 19, 1999
F-1
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 4,582 $ 1,545
Restricted cash .................................................. 11,373 11,256
Accounts receivable, net of allowance for doubtful
accounts of $1,689 and $150, respectively .................... 21,834 28,900
Refundable income taxes .......................................... -- 1,843
Prepaid expenses and other current assets ........................ 3,604 3,071
Deferred taxes ................................................... 1,448 3,085
--------- ---------
Total current assets ..................................... 42,841 49,700
Property and equipment, net ........................................ 27,172 23,235
Other assets, net of accumulated amortization of
$963 and $689, respectively .................................. 2,744 2,908
Deferred taxes ..................................................... 1,145 4,008
Note receivable .................................................... 3,499 6,334
Investments ........................................................ 6,647 7,595
Intangible assets, net ............................................. 192,757 149,544
--------- ---------
Total assets ............................................. $ 276,805 $ 243,324
========= =========
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 13,917 $ 13,502
Premiums payable to carriers ..................................... 38,146 39,601
Commissions payable .............................................. 5,232 5,484
Deferred revenue ................................................. 3,707 2,015
Accrued liabilities .............................................. 16,769 18,555
Income taxes payable ............................................. 1,397 --
Current portion of long-term debt payable ........................ 486 385
--------- ---------
Total current liabilities ................................ 79,654 79,542
Notes payable ...................................................... 96,837 43,309
Deferred taxes ..................................................... -- 982
Other long-term liabilities ........................................ 2,732 2,925
--------- ---------
Total liabilities ........................................ 179,223 126,758
--------- ---------
Minority interest .................................................. 5,930 --
--------- ---------
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 authorized,
15,174,315 issued at December 31, 1998 and,
15,038,033 at December 31, 1997 ............................... 152 150
Additional paid-in capital ...................................... 109,887 107,325
Treasury stock, 1,276,700 shares ................................ (28,088) --
Retained earnings ............................................... 9,736 7,671
Unrealized appreciation on investments
available for sale, net of tax ............................... (35) 1,420
--------- ---------
Total stockholders' equity ............................... 91,652 116,566
--------- ---------
Total liabilities and stockholders' equity ............... $ 276,805 $ 243,324
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues ........................................ $ 289,247 $ 281,644 $ 191,493
--------- --------- ---------
Expenses:
Agent commissions ...................................... 68,449 65,674 48,507
Personnel .............................................. 123,290 113,141 72,209
General and administrative ............................. 71,777 54,947 41,614
Contract commitments ................................... -- -- 2,685
Restructure charge ..................................... 2,052 1,374 1,425
Integration ............................................ 4,171 4,885 7,804
Loss on impairment of goodwill ......................... -- -- 13,710
Other expenses.......................................... 1,811 316 812
Gain on sale of investments, net ....................... (33,240) -- --
Depreciation and amortization .......................... 15,800 15,917 10,548
Interest expense, net .................................. 5,643 2,468 255
Equity in loss of joint ventures ....................... 11,849 2,850 --
--------- --------- ---------
Total expenses .................................... 271,602 261,572 199,569
--------- --------- ---------
Income (loss) before provision for income taxes
and minority interest ............................. 17,645 20,072 (8,076)
Provision (benefit) for income taxes ................... 8,683 9,276 (1,360)
--------- --------- ---------
Income (loss) before minority interest ................. 8,962 10,796 (6,716)
Minority interest ...................................... (736) -- --
--------- --------- ---------
Net income (loss) ...................................... $ 9,698 $ 10,796 $ (6,716)
========= ========= =========
Basic net income (loss) per share ...................... $ 0.68 $ 0.72 $ (0.47)
Basic weighted average
shares outstanding ................................ 14,353 15,004 14,181
Diluted income (loss) per share ........................ $ 0.67 $ 0.71 n/a
Diluted weighted average
shares outstanding ................................ 14,584 15,164 n/a
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ON
VOTING ADDITIONAL INVESTMENTS
COMPREHENSIVE COMMON PAID-IN TREASURY RETAINED AVAILABLE
INCOME STOCK CAPITAL STOCK EARNINGS FOR SALE TOTAL
------------- --------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Net income .......................... $ 10,796 -- -- -- 10,796 -- 10,796
Unrealized appreciation on
investment available for sale .... 1,420 -- -- -- -- 1,420 1,420
---------
Comprehensive income ................ $ 12,216
========= --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 ........ $ 150 $ 107,325 $ -- $ 7,671 $ 1,420 $ 116,566
Vesting of management stock ......... -- 179 -- -- -- 179
Issuance of 123,500 shares in
connection with stock option plans 2 2,218 -- -- -- 2,220
Issuance of 12,662 shares in
connection with the employee
stock purchase plan .............. -- 162 -- -- -- 162
Issuance of 120 shares in
connection with the directors
compensation plan ................ -- 3 -- -- -- 3
Cash dividends declared ............. -- -- -- (7,633) -- (7,633)
Purchase of 1,276,700
treasury shares .................. -- -- (28,088) -- -- (28,088)
Net income .......................... $ 9,698 -- -- -- 9,698 -- 9,698
Unrealized depreciation on
investment available for sale .... (1,455) -- -- -- -- (1,455) (1,455)
---------
Comprehensive income ................ $ 8,243
========= --------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 ........ $ 152 $ 109,887 $ (28,088) $ 9,736 $ (35) $ 91,652
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ 9,698 $ 10,796 $ (6,716)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation ....................................... 7,607 9,061 5,729
Amortization ....................................... 8,193 6,856 4,819
Gain on sale of investments ........................ (33,240) -- --
Equity in loss of joint venture .................... 11,849 2,850 --
Minority interest .................................. (736) -- --
Loss on impairment of goodwill ..................... -- -- 13,710
Issuance of Common Stock to management ............. 179 235 456
Deferred taxes ..................................... 4,776 6,697 (804)
Changes in assets and liabilities, net of effect from
acquisitions and dispositions:
Restricted cash .................................... (117) (1,194) (9,057)
Accounts receivable ................................ 14,019 (10,919) 1,415
Refundable income taxes ............................ -- 4,240 (5,043)
Prepaid expenses and other current assets .......... 458 960 (286)
Other assets ....................................... 111 (1,138) 565
Accounts payable ................................... (3,300) (7,316) 13,049
Premiums payable to carriers ....................... (2,522) 20,583 1,809
Commissions payable ................................ (347) 604 338
Deferred revenue ................................... 926 455 (490)
Accrued liabilities ................................ (9,119) (8,894) 1,229
Income taxes payable ............................... 3,691 -- (54)
-------- -------- --------
Net cash provided by operating activities ... 12,126 33,876 20,669
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ................ (9,146) (9,837) (5,731)
Sales (purchases) of short-term investments, net ... -- -- 36,723
Cash paid for acquisitions, net of cash acquired ... (40,847) -- (89,484)
Payment for purchase of
The Mutual Group block of business ............. -- (1,623) --
Payment for Provident American contract rights ..... -- (707) --
Proceeds from sale of assets ....................... 1,466 2,780 --
Proceeds from sale of investments .................. 40,152 -- --
Purchases of investments ........................... (18,081) (5,341) (3,311)
Proceeds from notes receivable ..................... 794 6,388 --
Purchases of notes receivable ...................... -- (6,334) (6,388)
-------- -------- --------
Net cash used in investing activities ....... (25,662) (14,674) (68,191)
-------- -------- --------
Cash flows from financing activities:
Net (payments) borrowings under line of credit ..... 51,000 (15,000) 55,000
Net (payments) borrowing on other debt ............. (1,075) (3,593) (12,466)
Cash dividends paid ................................ (7,590) (3,726) --
Distribution of minority interest .................. (46) -- --
Proceeds from exercise of stock options ............ 2,220 655 160
Repurchase of Common Stock ......................... (28,088) -- --
Proceeds from Common Stock issued .................. 152 282 3,815
-------- -------- --------
Net cash (used in) provided by financing
activities ............................... 16,573 (21,382) 46,509
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .. 3,037 (2,180) (1,013)
Cash and cash equivalents at beginning of period ...... 1,545 3,725 4,738
-------- -------- --------
Cash and cash equivalents at end of period ............ $ 4,582 $ 1,545 $ 3,725
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................. $ 6,333 $ 4,900 $ 1,573
======== ======== ========
Net cash paid (refunds received) for income taxes .. $ 214 $ (838) $ 4,968
======== ======== ========
Supplemental disclosure of noncash activities:
Dividends declared but unpaid ...................... $ 1,910 $ 1,879 $ --
======== ======== ========
Common Stock issued for purchase of
Harrington Services Corporation .................... $ -- $ -- $ 30,102
======== ======== ========
</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, 1998
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") is a leading managed health care
services outsourcing company, providing distribution, enrollment, billing and
collection, and claims administration services for health care payors and
providers. The Company provides these services to approximately 140,000 groups
covering over 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.
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 subsidiaries. The Company has
consolidated its investment in CENTRA HealthPlan LLC ("CENTRA") and Montgomery
Management Corporation ("Montgomery Management") and recorded the minority
shareholder's interest on the balance sheet and statement of operations. 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
---------------------
Furniture and fixtures 3-10
Computers and equipment 2-5
Computer software 3 or expected life
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 the Company's investment in Medirisk, Inc. ("Medirisk") (see Note 8)
is classified as available for sale, it is measured at fair market value. Any
increase or decline in the value of investments is recorded as unrealized
appreciation or depreciation 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 $2.1 million incurred by the Company in 1998
relative to the conversion of the data center and three claims platforms for
CENTRA as well as $1.9 million of costs incurred in converting the information
systems from the Company's Framingham, Massachusetts office to the Tampa office
were recorded as 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"), 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 1998, the Company recorded a charge of $2.1 million to reflect the
cost of employee terminations, and the abandonment of property and equipment
associated with closing the Company's Framingham, Massachusetts, Chicago,
Illinois, and Atlanta, Georgia offices. There were 47, 43, and 48 employees
terminated in the Framingham, Chicago, and Atlanta offices, respectively. These
employees worked in management, claims administration, and information systems.
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.
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 77 jobs in management, claims administration, and information
systems operations in its Tampa and Memphis 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
F-8
<PAGE>
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.
AGENT COMMISSIONS
The Company recognizes agent commissions expense in the same period
that the related revenues are recognized.
INCOME TAXES
The Company recognizes deferred assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. For federal income tax purposes,
the Company files a consolidated tax return with its wholly owned subsidiaries.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the income available
to common stockholders by the weighted average number of shares outstanding for
the period, without consideration for common stock equivalents. The calculation
of diluted earnings per share reflects the effect of outstanding options using
the treasury stock method.
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
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.
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.
F-9
<PAGE>
The Company's only financial instruments not reflected at estimated
market value are its two interest rate swaps (see Note 10). The unrecorded fair
value of these swaps as of December 31, 1998 was approximately ($1.1 million).
3. ACQUISITIONS
CENTRA HEALTHPLAN LLC
On June 16, 1998, the Company acquired a 50.1% interest in CENTRA.
CENTRA was formed by an agreement between the Company and CENTRA Benefit
Services, Inc. ("CBS") in which substantially all the assets in CBS's third
party administration business, which administers self-insured employee benefit
plans, were transferred to CENTRA. The Company paid $0.2 million for a 1%
interest in CENTRA and acquired an additional 49.1% interest from CBS in
exchange for the payment of $7.4 million ($9.3 million purchase price net of the
payoff of a CBS note), the issuance of $4.0 million in five year 5.75% notes
convertible into approximately 180,000 shares of the Company's stock, a purchase
price holdback of up to $1.2 million, and additional contingent consideration.
In addition to such contingent consideration, CBS has the right to put its
remaining interest in CENTRA at a contractual price not to exceed $6.0 million
within two years of the acquisition date if it meets certain financial
performance criteria. If CBS has not put its remaining interest to the Company
within two years, CBS will sell its remaining interest in CENTRA to the Company
at an appraised value not to exceed $6.0 million. CENTRA is a major
administrator of self-funded health plans for large corporations and is
headquartered in Richardson, Texas. CENTRA also has processing facilities in
Houston, Texas, Duncan, Oklahoma, Lynnwood, Washington, and Charleston, West
Virginia. The purchase price of CENTRA was allocated to the fair value of the
net assets acquired as follows (in thousands):
Tangible assets acquired $ 8,447
Goodwill 22,334
Liabilities assumed (17,330)
-----------
$ 13,451
===========
NATIONAL PREFERRED PROVIDER NETWORK, INC.
On May 18, 1998, the Company acquired National Preferred Provider
Network, Inc. ("NPPN") for $25.0 million cash and additional contingent
consideration of up to $25.0 million if NPPN achieves certain financial
performance objectives. Headquartered in Middletown, New York, NPPN is a
preferred provider organization network which consists of over 450,000 physician
offices, more than 4,000 hospitals, and 50,000 ancillary care providers covering
all 50 states and the District of Columbia. The purchase price of NPPN was
allocated to the fair value of the net assets acquired as follows (in
thousands):
Tangible assets acquired $ 4,609
Goodwill 25,240
Liabilities assumed (4,849)
-----------
$ 25,000
===========
F-10
<PAGE>
MONTGOMERY MANAGEMENT CORPORATION
On February 27, 1998, the Company acquired 49% of the capital stock of
Montgomery Management from Provident Indemnity Life Insurance Company for $4.0
million. In connection with the purchase, the Company obtained a warrant to
purchase an additional 31% of Montgomery Management for nominal consideration.
On October 26, 1998, the Company exercised this warrant for an additional 31% of
Montgomery Management's capital stock for a cost of $8,060. Montgomery
Management is a full service managing general underwriter that has the authority
to bind health insurance coverage (on behalf of the insurance companies it
represents) to self-funded customers. The purchase price of Montgomery
Management was allocated to the fair value of the net assets acquired as follows
(in thousands):
Tangible assets acquired $ 990
Goodwill 4,008
Liabilities assumed (990)
-----------
$ 4,008
===========
DIVERSIFIED GROUP BROKERAGE
On October 12, 1995, HealthPlan Services, Inc. ("HPSI"), a wholly owned
subsidiary of the Company, 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.
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,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenues $ 308,725 $ 332,736 $ 318,713
Net income (loss) 7,538 8,091 (10,544)
Net income (loss) per common share 0.52 0.53 (0.74)
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 January 1998, HealthPlan Services began providing policy issuance,
billing, and claims services for the individual indemnity/preferred provider
orgainzation health insurance policies of Provident Indemnity Life Insurance
Company ("PILIC") and Provident American Life and Health Insurance Company
("PALHIC"). In conjunction with this arrangement, the Company recorded contract
rights (see Notes 6 and 9) of $0.7 million.
F-11
<PAGE>
TMG LIFE INSURANCE COMPANY'S EMPLOYEE BENEFITS BUSINESS
Effective January 1, 1997, the Company assumed marketing and
administrative services for TMG's medical, dental, and group life benefits
business, with Connecticut General Life Insurance Company, a CIGNA company,
acting as the reinsurer. In conjunction with this agreement, the Company
recorded contract rights (see Note 6) of $0.8 million. In July 1997, the parties
agreed to a transition of a majority of this business to Midwestern United Life
Insurance Company ("Midwestern United"), with the Company remaining as
administrator. TMG canceled coverage of the portion of the business that was not
identified for transition to Midwestern United. During the transition, which is
expected to be complete in the second quarter of 1999, the business is
experiencing higher than normal lapse rates and lower than normal margins. This
business accounted for approximately 8% of the Company's consolidated revenue in
1998. In January 1999, Midwestern United notified its insureds that it will
cancel their policies beginning on July 31, 1999. The Company is working with
its current distribution system to direct Midwestern United insureds to suitable
replacement coverage.
5. CONCENTRATION OF CUSTOMERS
The Company is party to a variety of contracts with insurance
companies, preferred provider organizations, health maintenance organizations,
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 years ended December 31,
1998 and 1997, the Company's two largest payors accounted for approximately 9.0%
and 8.5% and 13.1% and 12.6%, 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,
--------------------------
1998 1997
---------- -----------
HealthPlan Services goodwill $ 32,841 $ 32,841
NPPN goodwill 25,240 -
CENTRA goodwill 22,334 -
Montgomery Management goodwill 4,008 -
Consolidated Group goodwill 59,734 59,734
Harrington goodwill 66,705 66,705
Third Party Claims Management goodwill 490 490
TMG contract rights 774 1,224
Provident contract rights 707 707
---------- -----------
212,833 161,701
Less: Accumulated amortization (20,076) (12,157)
---------- -----------
$ 192,757 $ 149,544
========== ===========
F-12
<PAGE>
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
Land $ - $ 438
Building - 1,133
Furniture and fixtures 10,076 8,126
Computers and equipment 17,801 13,952
Computer software 20,893 14,100
Leasehold improvements 3,107 3,214
------------ ------------
51,877 40,963
Less: Accumulated depreciation (24,705) (17,728)
------------ ------------
$ 27,172 $ 23,235
============ ============
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, costs
associated with the Year 2000 compliance (not associated with other software
modifications), and other computer software maintenance costs related to
software development are expensed as incurred. Software development costs and
costs of purchased 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
Investments consist of the following (in thousands):
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
Investments available for sale,
at market (cost of $6,460 and $5,131) $ 6,405 $ 7,385
Equity method investments 242 210
------------ ------------
$ 6,647 $ 7,595
============ ============
In December 1997, the Company and Sykes Enterprises, Incorporated
("Sykes") formed Sykes HealthPlan Services, Inc. ("SHPS"). The new company was
owned fifty percent (50%) by each of the founding companies and provides care
management services, technology solutions, certain customer support services,
and other outsourcing capabilities to the health care and insurance industries.
The Company invested $17.0 million in SHPS and guaranteed a line of credit of up
to $37.5 million to fund the activities of SHPS. On September 11, 1998, the
Company sold its 50% interest in SHPS to Sykes for $30.6 million and recognized
a gain on the sale of SHPS of $27.9 million. Additionally, the Company was
relieved of its obligations associated with SHPS' credit facility.
The Company accounted for its investment in SHPS under the equity method
of accounting. The Company recorded its 50% share in the loss incurred by SHPS
which was $11.8 million in 1998 and $2.9 million in 1997 on a pre-tax basis.
This loss was principally the result of a charge for the write-off of purchased
research and development associated with SHPS' acquisitions.
In May 1998, the Company invested $5.8 million in a convertible note of
HealthAxis.com, Inc. ("HealthAxis.com") bearing interest at the rate of 5 1/2%.
In October 1998, the note and the accrued interest on the note were converted
into 2,365,365
F-13
<PAGE>
shares of HealthAxis.com representing a 14.6% ownership. HealthAxis.com provides
sales and distribution services for health insurance products offered through
the Internet. The Company began providing administrative services in connection
with products offered through HealthAxis.com in November 1998.
On March 5, 1997, the Company and Health Risk Management, Inc. ("HRM")
mutually agreed to terminate a merger agreement previously entered into on
September 12, 1996. In connection with the termination, the Company purchased
200,000 shares of HRM common stock, representing approximately 4.5% of HRM
shares outstanding, at a price of $12.50 per share. During the first quarter of
1998, the Company sold all of its shares in HRM and recorded a pre-tax gain on
the sale of $0.2 million.
On January 8, 1996, the Company entered into an agreement with
Medirisk, Inc. ("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 its warrants in February of 1998
resulting in an ownership of 480,442 shares of common stock, which represented
an approximate 11% ownership interest. The average cost was $5.48 per share.
During 1998, the Company sold 370,711 of its shares in Medirisk and recorded a
pre-tax gain on the sale of $5.2 million. On December 31, 1998, Medirisk's
shares closed at $5.00 per share of common stock. This investment is recorded as
available for sale with the unrealized holding loss reported in the equity
section of the balance sheet in accordance with Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
9. NOTE RECEIVABLE
In October 1997, in conjunction with HealthPlan Services' agreement to
assume all of the policy issuance, billing, and claims services of PILIC and
PALHIC, which are life insurance subsidiaries of Provident American Corporation
("PAMCO"), the Company advanced PAMCO $5.0 million. The Company will retain
$85,000 per month during the first 60 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. The outstanding balance on this note at December
31, 1998 was $3.5 million.
10. NOTES PAYABLE AND CREDIT FACILITIES
Under HealthPlan Services' May 1, 1998 Amended and Restated Credit
Agreement, as amended, the Company maintains a line of credit of $175.0 million
(the "Line of Credit"), with availability equal to a multiple of trailing
earnings before interest expense, income taxes, and depreciation and
amortization expense (with certain adjustments called for in the credit
agreement). This multiple is set at 3.5 through June 30, 1999 and steps down
thereafter to 2.75 during the remaining term of the facility. First Union
National Bank of North Carolina serves as "agency bank," and NationsBank, N.A.
serves as co-agent with respect to this facility. The credit facility contains
provisions which include the maintenance of certain minimum financial ratios,
limitations on merger and acquisition activity, limitations on capital
expenditures, limitations on dividends and distributions, and limitations on
investment activity. The Company's borrowing under the Line of Credit includes
interest ranging from LIBOR plus 75 to 150 basis points to New York prime plus 0
to 50 basis points. Current rates on LIBOR and New York prime rate drawings on
the Line of Credit at December 31, 1998 were 7.1875% and 7.75%, respectively.
The Line of Credit carries a commitment fee ranging from 0.175% to 0.25% of the
unused portion and is secured by the stock of the Company's subsidiaries. The
outstanding draw was $91.0 million at December 31, 1998, and the maximum amount
available was $125.0 million. The Company incurred $5.6 million of interest
expense on the Line of Credit for the year ended December 31, 1998.
F-14
<PAGE>
The Company has also 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 September and December 2001, effectively convert
$40.0 million of variable debt under the Line of Credit to fixed rate debt at a
weighted average rate of 6.18% plus a margin ranging from 75 to 150 basis
points. For the year ended December 31, 1998, 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., 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 $64,000 to $80,000 through November 2008. Interest expense relating
to the note payable was approximately $57,000 and $60,000 for the years ended
December 31, 1998 and 1997, respectively.
On July 1, 1996, the Company assumed a mortgage outstanding from
Consolidated Group secured by a building with a fixed interest rate of 8.75%.
The building was sold and the mortgage paid off in April 1998.
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 10.7%, with the final
payment due in February 2005. The monthly payment on these notes is $30,000.
On May 18, 1998, the Company assumed certain equipment notes as a
result of prior agreements that had been executed by NPPN ("NPPN Equipment
Notes"). The notes, which are secured primarily by furniture and telephone
equipment have interest rates ranging from 11.0% to 11.6%, with the final
payment due in June 2002. The monthly payment on these notes is $13,000.
In conjunction with the acquisition of CENTRA on June 16, 1998, the
Company issued $4.0 million in five year 5.75% notes convertible into
approximately 180,000 shares of the Company's stock. The notes require
semi-annual payments of accrued interest commencing in January 1999 and
continuing until the outstanding principal is paid in full. Unless earlier
converted pursuant to the terms of the acquisition agreement, the outstanding
principal shall be paid in June 2003.
The balances outstanding on the above debt instruments are as follows
(in thousands):
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
Line of Credit $ 91,000 $ 40,000
CAL/GROUP Note 1,096 1,160
Consolidated Group Mortgage -- 1,450
Harrington Equipment Notes 797 1,084
NPPN Equipment Notes 430 --
CENTRA Note 4,000 --
------------ ------------
97,323 43,694
Less: Amounts due within one year (486) (385)
------------ ------------
Long-term debt $ 96,837 $ 43,309
============ ============
F-15
<PAGE>
Future minimum principal payments for all notes as of December 31, 1998
are as follows (in thousands):
1999 $ 486
2000 419
2001 291
2002 221
2003 95,182
Thereafter 724
-------------
$ 97,323
=============
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
Adverse lease commitments $ 478 $ 4,351
Salaries and wages 7,430 5,308
Office closure costs 1,446 820
Interest 446 178
Accrued legal and regulatory 429 300
State and local taxes 504 500
Severance - 192
Dividends declared 1,910 1,879
Sales conferences 19 596
Care management outsource contract 1,201 -
Other 2,906 4,431
------------ ------------
$ 16,769 $ 18,555
============ ============
Adverse lease commitments relate to office leases assumed by the
Company upon its acquisitions of Harrington and CENTRA 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, Harrington, and CENTRA.
In the first quarter of 1998, the Company began outsourcing its care
management and utilization review services to SHPS (see Note 8). During its 50%
ownership of SHPS until September 11, 1998, the Company incurred $3.4 million of
outsourcing costs. These costs were included as general and administrative
expense.
A director of the Company also serves as Chairman and Chief Executive
Officer of Automatic Data Processing, Inc. ("ADP"). ADP has provided payroll and
shareholder distribution services for the Company since 1995. During the years
ended December 31, 1998 and 1997, the Company compensated ADP for these services
in the amounts of approximately $195,000 and $110,000, respectively.
12. 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'
F-16
<PAGE>
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. The Company converted employees of CENTRA and NPPN
to the Company's plan on January 1, 1999. During 1998, the Company retained
CENTRA's and NPPN's plans. CENTRA's plan included a discretionary match at the
end of each calendar year with immediate vesting, and NPPN's plan included no
match. Expense in connection with these plans for the years ended December 31,
1998, 1997, and 1996 was approximately $0.7 million, $1.0 million, and $0.9
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 $36,000, $37,000, and $38,000 for the years
ended December 31, 1998, 1997, and 1996, respectively. At December 31, 1998 and
1997, 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 5% in 1999 and thereafter. A 1% increase in the health care
cost trend rate would result in an additional obligation of $101,000 and
additional service cost and interest cost of $13,000.
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, 1998 and 1997, amounted to approximately $1.0
and $0.9 million, respectively. Both participants began receiving such deferred
amounts, together with interest at 12% annually, at age 65.
MANAGEMENT STOCK
From the period 1994 through January 1995, certain members of
management received 473,000 shares of Common Stock, which carried limitations on
vesting over a four-year period and restrictions regarding the sale of stock in
a public market. The Company recognized compensation expense based on the
vesting period of the shares. The shares became fully vested in January 1999.
13. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company rents office space and equipment under non-cancelable
operating leases. Rental expense under the leases approximated $15.2 million
(net of $1.6 million charged to adverse lease accruals), $11.2 million (net of
$1.5 million charged to adverse lease accruals), and $7.7 million (net of $0.4
million charged to adverse lease accruals) for the years ended December 31,
1998, 1997, and 1996, respectively. Future minimum rental payments under these
leases are as follows (in thousands):
1999 $ 10,446
2000 7,864
2001 6,630
2002 6,130
2003 5,276
Thereafter 6,183
------------
$ 42,529
============
LITIGATION
In the ordinary course of business, the Company may be a party to a
variety of legal actions that affect any business, including employment and
employment discrimination-related suits, employee benefit claims, breach
F-17
<PAGE>
of contract actions, and tort claims. In addition, because of the nature of its
business, the Company could be subject to a variety of legal actions relating to
its business operations, including disputes alleging errors in claim
administration, underwriting, or premium billing. The Company currently has
insurance coverage for some of these potential liabilities. Other potential
liabilities may not be covered by insurance, insurers may dispute coverage, or
the amount of insurance may not cover the damages awarded. In the opinion of the
Company's management, although the outcome of current claims against the Company
is 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.
In February 1999, Provident Indemnity Life Insurance Company ("PILIC")
and its parent company, PAMCO, asserted a demand against the Company for claims
in excess of $27.0 million. The Company provides administrative services for
individual indemnity/PPO health insurance policies of PILIC. In the event PAMCO
and PILIC elect to pursue such claims, the Company will mount a vigorous
defense. The financial effect, if any, of this matter cannot be determined at
this time.
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.
14. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
-------- -------- --------
Current
Federal ............... $ 3,681 $ 2,986 $ 429
State ................. 650 427 61
------- ------- -------
4,331 3,413 490
------- ------- -------
Deferred
Federal ............... 3,669 5,130 (1,619)
State ................. 683 733 (231)
------- ------- -------
4,352 5,863 (1,850)
------- ------- -------
Provision (benefit) for
income taxes .............. $ 8,683 $ 9,276 $(1,360)
======= ======= =======
The components of deferred taxes recognized in the accompanying
financial statements are as follows (in thousands):
DECEMBER 31,
------------------------
1998 1997
--------- ----------
Deferred tax asset - current
Accrued expenses not currently deductible $ 1,448 $ 3,085
========= ==========
Deferred tax asset (liability) - non-current
Deferred compensation $ 467 $ 549
Post-retirement benefits 523 573
Depreciation (4,300) (4,040)
Intangibles 4,248 5,737
Equity in loss of joint venture 186 1,041
Unrealized gain on investments available
for sale 21 (834)
--------- ----------
$ 1,145 $ 3,026
========= ==========
F-18
<PAGE>
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.
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, 1998 and 1997, based on the
Company's expectations of future taxable income.
The provision for income taxes varies from the federal statutory income
tax rates due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate applied to pre-tax income (loss) 34.0% 34.0% (35.0)%
State income taxes net of federal tax benefit 5.0% 5.0% (5.0)%
Goodwill amortization 6.8% 5.3% 20.1 %
Tax exempt interest income -- -- (2.6)%
Non-deductible items 3.4% 1.9% 5.7 %
-------- ------- ------
Effective tax rate 49.2% 46.2% (16.8)%
======== ======= ========
</TABLE>
15. EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with the provisions of
the Statement on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," 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.
<TABLE>
<CAPTION>
NET INCOME
ATTRIBUTABLE TO PER SHARE
COMMON STOCK SHARES AMOUNT
--------------- -------- -----------
<S> <C> <C> <C>
1998
Earnings per share of common stock-basic $ 9,698 14,353 $ 0.68
Effect of dilutive securities:
Stock options ..................... 51 --
CENTRA convertible notes .......... 180 (0.01)
Earnings per share of common stock-- ... -------- -------- -----------
assuming dilution .................... $ 9,698 14,584 $ 0.67
======== ======== ===========
1997
Earnings per share of common stock-basic $ 10,796 15,004 $ 0.72
Effect of dilutive securities:
Stock options ..................... 160 (0.01)
Earnings per share of common stock-- ... -------- -------- -----------
assuming dilution .................... $ 10,796 15,164 $ 0.71
======== ======== ===========
1996
Loss per share of common stock-basic $ (6,716) 14,181 $ (0.47)
======== ======== ===========
</TABLE>
F-19
<PAGE>
16. 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.
A summary of option transactions during each of the three years ended
December 31, 1998 is shown below:
NUMBER WEIGHTED
OF AVERAGE
SHARES OPTION PRICE
------------ ------------
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
Granted 203,000 11.84
Exercised (123,500) 17.87
Canceled (287,100) 20.31
------------
Under option, December 31, 1998
(922,800 exercisable) 1,760,500 18.23
------------
There were 829,500 and 621,900 shares available for the granting of
options at December 31, 1998 and 1997, respectively.
The following table summarizes the stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
RANGE NUMBER WEIGHTED AVERAGE WEIGHTED
OF OUTSTANDING AT REMAINING AVERAGE
EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE
------------------------- ------------------------ ----------------------- ---------------------
<S> <C> <C> <C> <C>
$ 8.69 - $18.13 920,700 8 years $14.80
18.25 - 26.00 839,800 8 years 21.98
</TABLE>
F-20
<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,
-------------------------------
1998 1997 1996
-------- -------- --------
Net income (loss) attributable to
common stock (in thousands):
As reported $ 9,698 $ 10,796 $ (6,716)
Pro forma 8,528 9,363 (8,596)
======== ======== ========
Net income (loss) per share:
Basic as reported $ 0.68 $ 0.72 $ (0.47)
Basic pro forma 0.59 0.62 (0.61)
Diluted as reported $ 0.67 $ 0.71 $ n/a
Diluted pro forma 0.59 0.62 n/a
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 4.78%, 2.38%, and 0.0%
for the years ended December 31, 1998, 1997, and 1996, respectively; expected
volatility of 30% for each of the years ended December 31, 1998, 1997, and 1996;
risk-free interest rates of 4.15% to 5.62% for options granted during the year
ended December 31, 1998, 5.49% to 6.54% for options granted during the year
ended December 31, 1997, and 6.30% to 6.69% for options granted during the year
ended December 31, 1996; 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 12,662 shares in 1998, 14,569 shares in 1997, and
6,302 shares in 1996 to employees under the Employee Plan.
F-21
<PAGE>
17. 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, 1998
Revenues $74,965 $74,526 $71,740 $68,016
Net income 385 12,256 223 (3,166)
Basic net income per common share $ 0.03 $ 0.88 $ 0.02 $ (0.21)
Diluted net income per common share $ 0.03 $ 0.88 $ 0.02 n/a
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Year ended December 31, 1997
Revenues $68,254 $68,846 $71,780 $72,764
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>
F-22
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
2.8 Amended and Restated Acquisition Agreement dated May 15,1998
by and among HealthPlan Services Corporation, National
Preferred Provider Network, Inc., and other parties named
therein.
2.9 Subscription and Asset Contribution Agreement dated June 16,
1998 by and between CENTRA HealthPlan LLC, and its prospective
members: HealthPlan Services, Inc., and CENTRA Benefit
Services, Inc.
2.10 Stock Purchase Agreement dated September 1,1998 among Sykes
Enterprises, Incorporated, HealthPlan Services Corporation,
and Sykes HealthPlan Services, Inc.
10.12 Amended and Restated Credit Agreement dated as of May 1, 1998
by and among HealthPlan Services Corporation, First Union
National Bank, and other lenders named therein, as amended by
the First Amendment thereto dated June 23, 1998, and the
Second Amendment and Waiver dated December 15, 1998.
10.17 HealthPlan Services Corporation 1998 Officer Bonus Plan
Summary (compensatory plan).
10.19 Deferred Compensation Plan of R.E. Harrington, dated January
1, 1998 (compensatory plan).
10.20 Management Agreement dated February 28, 1998 among Midwestern
United Life Insurance Company, HealthPlan Services, Inc. and
Connecticut General Life Insurance Company.
10.21 Administration Services Agreement dated July 1, 1997 between
Seaboard Life Insurance Company and HealthPlan Services, Inc.
10.22 Services Agreement effective February 1, 1998 by and among
Provident Indemnity Life Insurance Company, and Provident
American Life and Health Insurance Company, HealthPlan
Services Corporation, and HealthPlan Services, Inc.
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 PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
EXHIBIT 2.8
AMENDED AND RESTATED
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, is made this 15th day of May, 1998 and
amends, supplants and replaces the Acquisition Agreement previously executed the
18th day of April, 1998. This Amended and Restated Acquisition Agreement is by
and among HEALTHPLAN SERVICES CORPORATION, a Delaware corporation (hereinafter
referred to as "Buyer"), NATIONAL PREFERRED PROVIDER NETWORK, INC., a New York
corporation ("NPPN"), QUALITY MEDICAL ADMINISTRATORS, INC., a New York
corporation ("Quality") and NATIONAL NETWORK SERVICES, INC., a New York
corporation ("NNS") (NPPN, Quality and NNS are hereinafter each individually
referred to as a "Company" and collectively as the "Companies"), and Ronald J.
Davi, Ronald J. Davi, as trustee under The Ronald J. Davi Irrevocable Qualified
Annuity Trust Agreement I, Ronald J. Davi, as trustee under The Ronald J. Davi
Irrevocable Qualified Annuity Trust Agreement II, and Ronald J. Davi, as trustee
under The Ronald J. Davi Irrevocable Qualified Annuity Trust Agreement III (the
"Trusts") (collectively, "Seller").
W I T N E S S E T H :
WHEREAS, the parties hereto wish to enter into this Acquisition
Agreement pursuant to which Buyer will purchase from Seller all of the issued
and outstanding shares of capital stock of the Companies, upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The capitalized terms used herein will have the
meanings ascribed to them in EXHIBIT 1.1 hereto. Unless the context otherwise
requires, such capitalized terms will include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
ARTICLE 2
COVENANTS AND UNDERTAKINGS.
1
<PAGE>
2.1 PURCHASE AND SALE OF STOCK. Subject to the terms and conditions
hereinafter set forth, at Closing, Seller shall sell, assign, transfer, convey
and deliver to Buyer, free and clear of all liens, claims, charges, security
interests and other encumbrances of any nature whatsoever, and Buyer shall
purchase, 10 shares of the common capital stock of NPPN, 10 shares of the common
capital stock of Quality, and 10 shares of the common capital stock of NNS (the
"Shares") which represent all of the issued and outstanding shares of capital
stock of the Companies. Such sale, transfer, conveyance and delivery shall be
evidenced by the delivery to Buyer of share certificates duly endorsed in blank
or certificates accompanied by duly executed stock powers (with signatures
guaranteed and with all necessary transfer taxes, if any, paid or other revenue
stamps affixed thereto) together with such other documents of transfer as Buyer
shall reasonably request.
<PAGE>
2.2 PURCHASE PRICE.
(a) CONSIDERATION. Buyer, in full payment for the Shares shall
pay the Purchase Price as follows:
(i) The Cash Purchase Price Amount less the Escrow
Amount shall be paid in cash or by other immediately available
funds to Seller (such amount to be allocated among the Seller
parties as set forth on EXHIBIT 2.2) at Closing;
(ii) The Escrow Amount shall be paid in cash or other
immediately available funds at Closing to the Escrow Agent to
be held in escrow pursuant to the terms of the Escrow
Agreement;
(iii) The Additional Payment Amount shall be paid in
cash or other immediately available funds, to Seller (such
amount to be allocated among the Seller parties as set forth
on EXHIBIT 2.2) as set forth in Section 2.2(c) below, within
90 days after the Determination Date.
(b) POST-CLOSING ADJUSTMENT TO PURCHASE PRICE; PROCEDURES AND
DETERMINATION OF THE DEFICIENCY AMOUNT DUE FROM SELLER OR EXCESS NET
WORTH AMOUNT DUE FROM BUYER. The Cash Purchase Price Amount has been
determined based upon the assumption that a post Closing audit of the
Companies will verify that as of the close of business on the Closing
Date, the Companies' Combined Net Worth as determined from the Audited
Closing Balance Sheet prepared in connection with such audit adjusted
by adding back the amount of the Seller's 1998 Sub S Tax Payment
Distributions will not be less than the amount thereof shown on the
Companies' combining
2
<PAGE>
unaudited balance sheet as of 12/31/97 (the "Unaudited 12/31/97 Balance
Sheet") provided to Buyer by Seller and attached as SECTION 3.8 of the
Disclosure Letter. In order to verify the foregoing, Buyer will at its
expense prepare a consolidated final closing balance sheet
consolidating all of the Companies as of the close of business on the
Closing Date in accordance with the procedures set forth below, which
will be audited by Price Waterhouse LLP (the "Audited Closing Balance
Sheet"). To the extent that the Net Worth as determined from the
Audited Closing Balance Sheet of the Companies adjusted by adding back
the amount of the Seller's 1998 Sub S Tax Payment Distributions is less
than the Net Worth determined from the Unaudited 12/31/97 Balance Sheet
(a "Deficiency Amount"), the Seller shall pay back to the Buyer, as an
adjustment to the Purchase Price, the aggregate of such Deficiency
Amount as shown on the Final Statement of Deficiency Amount. (It is
also understood that the Companies will not have less than a $0 (zero)
balance in Working Capital as of the Closing.) Likewise, if the
Companies Combined Net Worth as determined from the Audited Closing
Balance Sheet after adding back the Seller's 1998 Sub S Tax Payment
Distributions exceeds the Companies Combined Net Worth as shown on the
Unaudited 12/31/97 Balance Sheet (an "Excess Net Worth Amount"), the
Buyer will pay to the Seller the Excess Net Worth Amount provided that
the Seller's Working Capital was at least 0 . The payment of the
Deficiency Amount or the Excess Net Worth Amount shall be made within
10 days of the date of determination of the Final Closing Balance
Sheet. The Deficiency Amount or the Excess Net Worth Amount shall be
determined in accordance with the following procedures:
(i) In order to determine the Deficiency Amount or
the Excess Net Worth Amount, if any, within 135 days of the
Closing Date, Buyer will deliver to Seller the Audited Closing
Balance Sheet together with a statement setting forth the
Deficiency Amount, if any, derived therefrom (a "Statement of
Deficiency Amount" or the Excess Net Worth Amount, if any,
"Statement of Excess Net Worth Amount," as the case may be).
Thereafter, Seller shall have 45 days during which its
independent auditors and authorized representatives shall have
full access at all reasonable times to the properties, books,
records and personnel of the Companies relating to periods
prior to the Closing Date for purposes of reviewing and
resolving any disputes concerning the Audited Closing Balance
Sheet and the Statement of Deficiency Amount or the Statement
of Excess Net Worth Amount as the case may be. Seller shall
have 45 days following delivery to Seller of the Audited
Closing Balance Sheet and the Statement of Deficiency Amount
or Statement of Excess Net Worth Amount, as the case may be,
during which to notify Buyer of any dispute. Prior
3
<PAGE>
to the expiration of such 45-day period, if Seller has any
objection to the Audited Closing Balance Sheet or the
Statement of Deficiency Amount or Statement of Excess Net
Worth Amount, as the case may be, Seller shall give written
notice to Buyer of such objection to the Audited Closing
Balance Sheet (a "Seller's Objection Notice") which notice
shall set forth in reasonable detail the basis for such
dispute. If Seller fails to notify Buyer that it is disputing
any item contained in the Audited Closing Balance Sheet or the
Statement of Deficiency Amount or Statement of Excess Net
Worth Amount as the case may be prior to the close of business
on the 45th day after delivery thereof, the Audited Closing
Balance Sheet and Statement of Deficiency Amount or the
Statement of Excess Networth as the case may be provided by
the Buyer shall be final, conclusive and binding and shall be
deemed to be the "Final Closing Balance Sheet" and the "Final
Statement of Deficiency Amount" or the Final Statement of
Excess Net Worth Amount, as the case may be. In the event that
Seller shall so notify Buyer of any dispute, the undisputed
portion of the Deficiency Amount shall be paid to the Buyer by
the Seller (or the undisputed portion of the Excess Net Worth
Amount shall be paid by the Buyer to the Sellers, as the case
may be) and Buyer and Seller shall cooperate in good faith to
resolve such dispute as promptly as practicable. If Buyer and
Seller are unable to resolve any such dispute within 15 days
of Seller's delivery of the Seller's Objection Notice, such
dispute shall be resolved by a Settlement Auditor. In
resolving such dispute, the Settlement Auditor shall make such
revisions to the Audited Closing Balance Sheet and Statement
of Deficiency Amount or Statement of Excess Net Worth Amount,
as the case may be, as it deems appropriate in accordance with
GAAP in order to make a determination of the Deficiency Amount
or Excess Net Worth Amount, as the case may be, if any, in
accordance with GAAP as promptly as practicable provided that
the Deficiency Amount or Excess Net Worth Amount as so
determined must be between (or equal to one of) the amounts
proposed by Seller and Buyer in the dispute. Such
determination shall be final, conclusive and binding on the
parties and shall be deemed a final arbitration award that is
enforceable pursuant to all terms of the Federal Arbitration
Act, 9 U.S.C. "" ET SEQ. (the "Federal Arbitration Act").
The expenses relating to the engagement of the Settlement
Auditor shall be shared equally by Buyer and Seller. In the
event of a dispute, the Closing Balance Sheet and Statement of
Deficiency Amount or Statement of Excess Net Worth
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Amount, as the case may be, as modified by the Settlement
Auditor shall be the "Final Closing Balance Sheet" and the
"Final Statement of Deficiency Amount" or "Final Statement of
Excess Net Worth Amount," as the case may be.
(ii) Upon determination of the Final Closing Balance
Sheet and the Final Statement of Deficiency Amount or Final
Statement of Excess Net Worth Amount, as the case may be, the
Seller shall pay to the Buyer the Final Deficiency Amount or
the Buyer shall pay to the Seller the Final Excess Net Worth
Amount, as the case may be, so determined less any undisputed
portion previously paid pursuant to subparagraph (i) above.
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(c) ADDITIONAL PAYMENT.
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(i) As an additional part of the Purchase Price,
within 90 days of the Determination Date, Buyer shall pay to
Seller an amount equal to the Cumulative Core Business EBIT
multiplied by 3, less the Cash Purchase Price Amount (the
"Additional Payment"); provided that in no event shall the
Additional Payment exceed the sum of Twenty Five Million
Dollars ($25,000,000) (U.S.) and no payment shall be due or
made unless the Cumulative Core Business EBIT of the Company
during the Determination Period is equal to or greater than
twelve percent (12%) of Cumulative Core Business Revenues
during the Determination Period. For purposes of determining
the Core Business Revenues and the Cumulative Core Business
EBIT, the Buyer shall deliver to Seller within 60 days of the
Determination Date, the Companies' consolidated statements of
income, prepared in accordance with GAAP by the Buyer, for the
Determination Period (the "Determination Date Income
Statements"). Seller shall have 45 days following delivery to
Seller of the Determination Date Income Statements during
which to notify Buyer of any dispute of any item contained
therein, which notice shall set forth the basis for such
dispute. During such time period, Seller and its independent
auditors and authorized representatives shall have full access
at all reasonable times to the properties, books, records and
personnel of the Companies relating to periods during the
Determination Period for purposes of reviewing and resolving
any disputes concerning the Determination Date Income
Statements. If Seller fails to notify Buyer of any such
dispute within such 45-day period, the Determination Date
Income Statements shall be final, conclusive and binding. In
the event the Seller notifies the Buyer of any dispute, the
undisputed portion of the Additional Payment shall be paid to
Seller and Buyer and Seller shall cooperate in good faith to
resolve such dispute as promptly as practicable. If Buyer and
Seller are unable to resolve any such dispute within 15 days
of Seller's delivery of such notice, such dispute shall be
resolved by a Settlement Auditor. The Settlement Auditor shall
make such revisions to the Determination Date Income
Statements as it deems appropriate in order to make a
determination of the Additional Payment as promptly as
practicable, provided that the Additional Payment as so
determined must be between (or equal to one of) the amounts
proposed by Seller and Buyer in the dispute. Such
determination shall be final, conclusive and binding on the
parties and shall be deemed a final arbitration award that is
enforceable pursuant to all terms of the Federal Arbitration
Act. The expenses
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relating to the engagement of the Settlement Auditor shall be
shared equally by Buyer and Seller.
(ii) Upon determination of the Additional Payment,
Buyer shall pay to Seller (such amount to be allocated among
the Seller parties as set forth on EXHIBIT 2.2) the Additional
Payment less the undisputed portion previously paid pursuant
to Section 2.2(c)(i).
(iii) Notwithstanding the above, if there is a Change
in control in Buyer, and provided that as of the date of
Change in Control, the Cumulative Core Business EBIT of the
Company through the date of the Change in Control is equal to
or greater than twelve percent (12%) of Cumulative Core
Business Revenues during such time period, the Seller shall
have the option, exercisable within 90 days after the
occurrence of the Change in Control, to accelerate the
Additional Payment, recomputed for purposes of this Section at
the greater of the following amounts (provided that in no
event shall the sum of recomputed Additional Payment exceed
$25,000,000):
(a) Cumulative Core Business EBIT for 12
month period ending on the calendar month preceding
the Change in Control (or such lesser period between
Closing and the Change in Control, if applicable)
multiplied by 9, less the Cash Purchase Price amount;
or
(b) (A) $8,333,333.00 if the Change of
Control occurs within the first anniversary following
Closing, provided that the option described above
cannot be exercised any sooner than the first
anniversary of the Closing Date, (B) $16,666,666 if
the Change of Control occurs between the first and
second anniversaries following Closing, or (C)
$25,000,000 if the Change of Control occurs between
the second anniversary following Closing and the
Determination Date.
(iv) Interest on the Additional Payment shall be
determined using the Determination Date Income Statements and
shall accrue as follows. From July 1, 1999 through June 30,
2000, interest shall accrue at a rate equal to the June 30,
1999 interest rate on newly issued U.S. Treasury Notes having
a maturity of 2 years, on the amount of the Additional Payment
that would have been due had the Determination Date been June
30, 1999. From July 1, 2000 through June 30,
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2001, interest shall accrue at a rate equal to the June 30,
2000 interest rate on newly issued U.S. Treasury Notes having
a maturity of 2 years, on the amount of the Additional Payment
that would have been due had the Determination Date been June
30, 2000. From July 1, 2001 through the date of payment of the
Additional Payment, Interest shall accrue at a rate equal to
the June 30, 2001 interest rate on newly issued U.S. Treasury
Notes having a maturity of 2 years, on the amount of the
Additional Payment.
D. APPROVAL OF ACQUISITIONS BY THE COMPANIES POST CLOSING:
During the Determination Period the Companies will be allowed
to make acquisitions of other PPO businesses which are
complimentary to the core business of the Companies ("Post
Closing PPO Acquisitions") subject to the following
procedures:
(i) In any acquisition involving payment of an
aggregate purchase price, including the potential
amount of any earn outs or other forms of deferred
payments related to such acquisition, of $2 million
or less that is approved by Seller, Buyer will
provide to Companies the necessary capital or
financing to complete the acquisition until the
aggregate purchase price of Post-Closing PPO
Acquisitions equals $10 million (the "PPO Acquisition
Cap");
(ii) In any acquisition involving payment of an
aggregate purchase price, including the potential
amount of any earn outs or other forms of deferred
payments related to such acquisition, in excess of $2
million and less than or equal to $5 million, and
provided such acquisition has been approved by the
CEO of Buyer, Buyer will provide the necessary
capital or financing to complete the acquisition
until the PPO Acquisition Cap is attained;
(iii) With respect to any other Post-Closing PPO
Acquisition, or after the PPO Acquisition Cap has
been reached,
(a) any such acquisition must be approved by
Seller and documented in accordance with
Buyer's acquisition documentation policies,
must add strategic value, must be based upon
a business plan with reasonable assumptions
that indicates an expected return on
investment commensurate with the Buyer's
expectations for acquisitions generally,
must
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pass Buyers due diligence investigation
without finding any significant exposure to
potential material adverse events, whether
of not contingent or fixed, and must not
involve any entity or person who would be
objectional to Buyer on the basis of
reputation or character. For purposes of
this requirement if the business being
proposed for purchase has earnings before
interest and taxes for the preceding 12
months and after the acquisition can be
reasonably expected to have EBIT projected
for the next 24 months after closing which
are equal to or greater than 12% of its
gross revenues, the request will be deemed
to meet this requirement unless Buyer
reasonably believes that it is not
reasonable to assume this performance will
continue after the end of 24 months after
the acquisition;
(b) The proposed acquisition must be
approved by the Buyer's Executive Committee
or Board of Directors; and
(c) The consideration proposed to be paid in
any proposed acquisition including any debt
to be assumed must not exceed
$10,000,000.00; and
(iv) The results from any Post Closing PPO
Acquisition made by Buyer without the prior written
consent of Seller shall not be considered in the
determination of the Determination Date Income
Statements if they shall cause a reduction in the
amount of the Adjustment Payment.
2.3 INTERCOMPANY ACCOUNTS AND SERVICES.
(a) At the Closing, the Seller shall take all actions
necessary to cause each Company to pay or cancel as of the Closing all cash
overdrafts, intercompany payables or receivables, indebtedness and other
accounts between a Company on the one hand, and the Seller or any Affiliate of
the Seller, on the other hand.
(b) At the Closing, except as contemplated by the LLC
Operating Agreement, all data processing, internal accounting, insurance,
personnel, legal, telephone and other services or products provided by the
Seller or its Affiliates to a Company or by a Company to the Seller or its
Affiliates shall terminate without liability or obligation thereafter accruing.
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2.4 EMPLOYEE MATTERS.
(a) TERMINATION OF COMPANY BENEFIT PLANS. Seller shall cause
each Company to take whatever action is reasonably necessary or appropriate to
terminate as of the Closing the participation, sponsorship and/or maintenance of
each Company in all of the Plans except those listed on EXHIBIT 2.4(A).
(b) OBLIGATION TO ASSIST IN TRANSITION. Seller shall, both
before and after the Closing Date, provide Buyer with any information in
Seller's possession or under its control which Buyer shall reasonably request
concerning the employees of each Company, and shall cooperate with, and assist,
Buyer with respect to the commencement of participation of any Employee of a
Company in any of Buyer's Plans or arrangements. In addition, the Seller will
provide the Buyer with the information necessary to comply with any continuation
coverage requirements of Code Section 4980B.
2.5 AFFILIATED CONTRACTS. At or prior to Closing, the Seller shall and
shall have caused its Affiliates to transfer to the Companies any assets or
contracts used primarily in the businesses of a Company which the Seller or its
Affiliates own or with respect to which the Seller or its Affiliates are the
contracting party, as opposed to a Company, including, but not limited to, those
assets and contracts listed on EXHIBIT 2.5.
2.6 GOOD FAITH DEALING. Each of the parties hereto agrees that it will
at all times act in good faith and with fair dealing with respect to its
obligations under this Agreement.
2.7 CLOSING. The Closing will take place at the offices of Fowler,
White, Gillen, Boggs, Villareal and Banker, P.A., 501 East Kennedy Boulevard,
Tampa, Florida at 10:00 a.m., local time, on the Closing Date.
2.8 BUYER STOCK OPTIONS FOR EMPLOYEES OF THE COMPANY OTHER THAN SELLER.
The Buyer shall make available to employees of Companies under its Employee
Stock Option Plan options to purchase its common stock covering up to 50,000
shares of such stock subject to the terms and conditions of the Buyer's Stock
Option Plans provided that grants of such options shall be subject to
consultation and approval of the Buyer's Chief Executive Officer and the
Compensation Committee of the Buyer's Board of Directors.
2.9 HSR ACT FILINGS. As promptly as practicable after the execution of
this Agreement, and in any event not later than the fourteenth (14) business day
following the date of this Agreement, the Buyer and the Companies shall, in
cooperation with each other, make the required filings in connection with the
transactions contemplated by this Agreement under the HSR Act with the Federal
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Trade Commission and the Antitrust Division of the United States Department of
Justice, and, as promptly as practicable from time to time thereafter, each
party shall make all such further filings and submissions, and take such further
action, as may be required in connection therewith. The Buyer and the Companies
shall each request early termination of the waiting period with respect to such
filings. Each party shall furnish the other all information in its possession
necessary for compliance by the other with the provisions of this Section 2.9.
The Buyer and the Companies shall each notify the other immediately upon
receiving any request for additional information with respect to such filings
from either the Antitrust Division of the Department of Justice or the Federal
Trade Commission and the party receiving the request shall use its best efforts
to comply with such request as soon as possible. Neither party shall withdraw
any such filing or submission without the written consent of the other party.
2.10 DELIVERY OF EXHIBITS AND DISCLOSURE LETTER. As promptly as
possible after the execution of this Agreement, Seller and the Companies shall
deliver the Exhibits and the Disclosure Letter to Buyer in form and content
satisfactory to Buyer in its sole discretion. If Seller and the Companies fail
to so deliver the Exhibits and Disclosure Letter by 5:00 P.M., April 22, 1998,
Buyer may terminate this Agreement and abandon the transactions contemplated
hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE COMPANIES
The Seller (for purposes of this Article, only Ronald Davi) and each
Company represent and warrant to Buyer as follows:
3.1 ORGANIZATION. Each of the Companies is a corporation duly
organized, validly existing, and in good standing under the Laws of their
respective states of incorporation listed on SECTION 3.1 of the Disclosure
Letter and each is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the ownership or use of its
assets or properties, or the conduct or nature of its business, makes such
qualification necessary except where the failure to be so qualified is not
reasonably likely to have a Material Adverse Effect upon such Company. No
Company has any Subsidiaries. SECTION 3.1 of the Disclosure Letter sets forth a
true and complete list of each jurisdiction in which each Company is qualified
to do business as a foreign corporation. Attached to SECTION 3.1 of the
Disclosure Letter are true and complete copies of each Company's Articles of
Incorporation and Bylaws, as in effect on the date of this Agreement.
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3.2 AUTHORITY. Ronald J. Davi individually, and as trustee under each
of the Trusts, has full power and authority and each Company has full corporate
power and authority to enter into this Agreement and to perform their
obligations hereunder. The execution, delivery and compliance with the terms of
this Agreement by each Company and the performance by each Company of their
respective obligations hereunder has been duly and validly authorized by all
necessary action on the part of their respective Boards of Directors and
shareholders. This Agreement has been duly and validly executed and delivered by
the Seller and each Company and constitutes a legal, valid, and binding
obligation of the Seller and each Company, enforceable against the Seller and
each Company in accordance with its terms, except to the extent that (a)
enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or conveyance, or similar laws
now or hereafter in effect relating to or limiting creditors' rights generally,
and (b) the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
3.3 NO CONFLICTS. Except as disclosed in SECTION 3.3 of the Disclosure
Letter, neither the execution and delivery by any Company or the Seller of this
Agreement nor the performance of the obligations of any Company (prior to the
Closing Date) or the Seller hereunder will:
(a) conflict with or violate any material Law or Order
applicable to either Seller or any Company or any of their assets or properties;
(b) conflict with or violate any term of the Articles of
Incorporation or Bylaws of any Company;
(c) result in the creation or imposition of any material Lien
upon any Company or any of its assets or properties or conflict with or result
in or constitute a material default under, or give to any Person any right of
termination, cancellation, acceleration, or modification in or with respect to,
any Material Contract to which any Company is a party or by which any of its
assets or properties may be bound; or
(d) require either the Seller or any Company to obtain any
consent, approval, or action of, or make any filing with or give any notice to,
any Governmental Authority or Person who is a party to any Material Contract.
3.4 CAPITAL STOCK. The aggregate number of shares of capital stock that
each Company has the authority to issue,
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including the par value thereof and the number of shares which are issued and
outstanding, is listed in SECTION 3.4 of the Disclosure Letter. All of the
issued and outstanding shares of capital stock of each Company are duly
authorized, validly issued, fully paid, nonassessable, and are owned
beneficially and of record by the Seller, free and clear of all Liens. There are
no outstanding securities, obligations, rights, subscriptions, warrants, options
or (except for this Agreement) other Contracts of any kind that give any Person
the right to (a) purchase or otherwise receive or be issued any shares of
capital stock of any Company (or any interest therein) or any security of any
kind convertible into or exchangeable for any shares of capital stock of any
Company (or any interest therein) or (b) participate in the equity, income, or
(except as a holder of common stock) election of directors or officers of any
Company.
3.5 LITIGATION. Except as disclosed in SECTION 3.5 of the Disclosure
Letter:
(a) there are no actions, suits, investigations, arbitrations,
or similar proceedings pending or, to the knowledge of either the Seller or any
Company, threatened against or involving a Company or any of its assets or
properties, at law or in equity, in, before, or by any Person; and
(b) there is no Order outstanding against or involving any
Company or any of its assets or properties.
3.6 COMPLIANCE WITH LAWS. No Company is or has been in violation (or
with or without notice or lapse of time or both, would be in violation) of any
Law or Order applicable to its business, operations, or affairs, except for
violations that, individually or in the aggregate, do not or may not reasonably
be expected to have a Material Adverse Effect.
3.7 LICENSES.
(a) SECTION 3.7(A) of the Disclosure Letter sets forth a true
and complete list of all jurisdictions in which any Company or Seller is
licensed as an insurance broker, agent, preferred provider organization, third
party administrator or utilization review provider and a true and complete list
of each other License held by each Company or its employees which are required
in connection with the conduct of the business, operations, and affairs of such
Company.
(b) Except as disclosed in SECTION 3.7(B) of the Disclosure
Letter, each Company and its employees hold all Licenses required in connection
with the conduct of the business, operations, or affairs of such Company.
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(c) To the knowledge of each Company and the Seller, such
Company's employees have complied in all material respects with the terms and
conditions of each License disclosed or required to be disclosed in SECTION
3.7(A) of the Disclosure Letter, and all such Licenses are valid and in full
force and effect.
(d) To the knowledge of the Seller and each Company, each
agent, financial advisor, or other Person who has been acting on behalf of
Company in the sale of any customer Contract by or through such Company and who,
at the time of any such involvement, was required to hold any Licenses for such
involvement, has so held all such required Licenses at all required times.
3.8 FINANCIAL STATEMENTS. SECTION 3.8 of the Disclosure Letter contains
true and complete copies of the unaudited combining balance sheet of the
Companies at December 31, 1997 and the related statement of income and cash
flows for the fiscal year then ended (the "Balance Sheet Date"), and the related
statement of income and cash flows for the period then ended, all of which have
been prepared in accordance with GAAP (collectively, the "Financial
Statements"), consistently applied. Such Financial Statements present fairly in
all material respects in accordance with GAAP the financial position, results of
operations and cash flows of the Companies for the periods indicated and reflect
all Liabilities of the Companies as of such date which are required to be
reflected therein in accordance with GAAP.
3.9 NO UNDISCLOSED LIABILITIES. No Company has any Liabilities other
than: (a) Liabilities disclosed on the Balance Sheet, and (b) Liabilities
arising since the Balance Sheet Date in the ordinary course of business and
which, individually or in the aggregate, have not had and may not reasonably be
expected to have a Material Adverse Effect on such Company.
3.10 ASSETS.
(a) ASSETS. Except as disclosed in SECTION 3.10(A) of the
Disclosure Letter, no Company owns (i) any capital stock of any corporation, any
partnership interest in any partnership, or any other equity interest in any
entity, or (ii) any real property. The assets of each Company comprise all of
the assets that are necessary for the present conduct of such Company's
business, operations, and affairs in the ordinary course consistent with past
practice.
(b) LEASED ASSETS. SECTION 3.10(B) of the Disclosure Letter
sets forth all leases and similar Contracts under which each Company leases or
otherwise has the right to use (i) any real
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property or (ii) tangible personal property involving lease payments of more
than $10,000.00 annually. Each Company has, and after the Closing will have, a
valid leasehold interest in or valid right under each such lease to use each
such asset.
(c) OWNED ASSETS. Each Company has, and immediately after the
Closing will have, good and marketable title to each parcel of real property and
all personal property which, except as disclosed in SECTION 3.10(C) of the
Disclosure Letter, is owned and not leased by such Company free and clear of all
Liens (other than any Liens created by Buyer and Permitted Liens). All material
personal property assets owned by each Company are in good operating condition,
normal wear and tear excepted.
(d) ACCOUNTS RECEIVABLE. All accounts receivable of each
Company represent bona fide claims for sales or distribution of products or
services by or through such Company in the ordinary course of business and
consistent with past practice.
(e) INTELLECTUAL PROPERTY. SECTION 3.10(E) of the Disclosure
Letter sets forth a true and complete list and description of all of the
following assets or properties of each Company that are used by such Company in
its business, operations, or affairs: (i) all registered marks, names,
trademarks, service marks, patents, patent rights, assumed names, logos, trade
secrets, copyrights, trade names and service marks; and (ii) all computer
software, programs, and similar systems owned by or licensed to each Company
other than commercially packaged and available shrinkwrap software generally
available to the public. Except as set forth in SECTION 3.10(E) of the
Disclosure Letter, the owned software and licensed software (a) includes Year
2000 date conversion and capabilities including, but not limited to: date data
century recognition; calculations which accommodate same century and
multi-century formulas and date values; correct sort ordering; and date data
interface values that reflect the century; (b) automatically compensates for and
manages and manipulates data involving dates, including single century formulas
and multi-century formulas, and will not cause an abnormal abend or abort within
the application or result in the generation of incorrect values or invalid
outputs involving such date; (c) provides that all date related user interface
functionalities and data fields include the indication of the correct century;
(d) provides that all date related system to system or application to
application data interface functionalities will include the indication of the
correct century; and (e) will continue to comply with clauses (a) through (d)
above. Except as set forth in SECTION 3.10(E), all date processing by owned
software and licensed software will include four digit year format and recognize
and correctly process dates for leap years. Except as disclosed in SECTION
3.10(E) of the Disclosure Letter, the consummation of the transactions
contemplated by this Agreement will not (A) require any consent,
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approval, or action of, filing with, or payment or notice to, any Person in
connection with the ownership or use of such intellectual property and computer
software, programs, and similar systems or (B) invalidate, terminate, or violate
any term applicable to the ownership or use of such intellectual property or
computer software, programs, and similar systems. Except as disclosed in SECTION
3.10(E) of the Disclosure Letter, after the Closing, each Company will have the
right to use, free and clear of any royalty or other payment obligations, such
intellectual property and computer software, programs, and similar systems.
Except as disclosed in SECTION 3.10(E) of the Disclosure Letter, no Company is
in conflict with or in violation or infringement of, and neither the Seller nor
any Company has received any notice of any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any other
Person with respect to any intellectual properties or computer software,
programs, or similar systems disclosed or required to be disclosed in SECTION
3.10(E) of the Disclosure Letter.
3.11 TAXES. Except as otherwise disclosed on SECTION 3.11 of the
Disclosure Letter, (a) (i) the Companies are, and have been since their
respective incorporations, "S Corporations" within the meaning of Section
1361(a)(1) of the Code; (ii) the elections by the Companies to be "S
Corporations" were valid at the time such elections were made and such elections
have not been revoked or terminated; (iii) none of the Companies has ever filed,
or has ever been required to file, any Returns in respect of Taxes with any
corporation or other entity on a consolidated, combined or unitary basis; (iv)
all Returns in respect of Taxes required to be filed with respect to each of the
Companies have been timely filed, none of such Returns contains, or is required
to contain, a disclosure statement under section 6662 of the Code or any similar
provision of state, local, or foreign law, and no extension of time within which
to file any such Return has been requested, which Return has not since been
filed; (v) all Taxes required to be shown on such Returns or otherwise due or
payable have been timely paid and all payments of estimated Taxes required to be
made with respect to each Company under section 6655 of the Code or any
comparable provision of state, local or foreign law have been made; (vi) all
such Tax Returns are true, correct and complete in all material respects; (vii)
no adjustment relating to such Returns has been proposed formally or informally
by any Tax authority and, to the knowledge of the Seller, no basis exists for
such an adjustment; (viii) there are no pending or threatened actions or
proceedings for the assessment or collection of Taxes against any of the
Companies; (ix) there are no Tax liens on any assets of any of the Companies
other than AD VALOREM taxes which are not yet due; (x) there are no outstanding
subpoenas or requests for information currently outstanding that could affect
the Taxes of any of the Companies; (xi) there are no proposed reassessments of
any property owned or leased by any of the
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Companies or other proposals that could increase the amount of any Tax to which
any of the Companies would be subject; (xii) none of the Companies is a party to
any agreement or arrangement that would result, separately or in the aggregate,
in the payment of any "excess parachute payment" within the meaning of section
280G of the Code; (xiii) none of the Companies has been a United States real
property holding corporation within the meaning of section 897(c)(2) of the Code
during the applicable period specified in section 897(c)(1)(A)(ii) of the Code;
(xiv) there are no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which any of the Companies
may be subject; (xv) there are no requests for rulings or information currently
outstanding that could affect the Taxes of any of the Companies or any similar
matters pending with respect to any Tax authority; (xvi) no power of attorney
that is currently in force has been granted with respect to any matter relating
to Taxes that could affect any of the Companies; (xvii) no consent under section
341(f) of the Code has been filed with respect to any of the Companies; (xviii)
no acceleration of the vesting schedule for any property that is substantially
nonvested within the meaning of the regulations under section 83 of the Code
will occur in connection with the transactions contemplated by this Agreement;
(xix) none of the Companies has at any time been a member of any partnership or
joint venture or the holder of a beneficial interest in any trust for any period
for which the statute of limitations for any Tax potentially applicable as a
result of such membership or holding has not expired; (xx) none of the Companies
owes any amount pursuant to any Tax sharing agreement or arrangement and does
not have any liability after the date hereof in respect of any Tax sharing
agreement or arrangement executed or agreed to prior to the date hereof, whether
any such agreement or arrangement is written or unwritten; (xxi) all Taxes
required to be withheld, collected or deposited by each of the Companies have
been timely withheld, collected or deposited and, to the extent required, have
been paid to the relevant Tax authority; (xxii) any adjustment of Taxes of any
of the Companies made by the IRS that is required to be reported by any Company
to any state, local or foreign Tax authority has been so reported and any
additional Tax due as a result thereof has been paid in full; (xxiii) none of
the Companies was acquired in a qualified stock purchase under section 338(d)(3)
of the Code and no elections under section 338(g) of the Code, protective
carryover basis elections, offset prohibition elections or other deemed or
actual elections under section 338 of the Code are applicable to any of the
Companies; (xxiv) none of the Companies has issued or assumed any corporate
acquisition indebtedness, as defined in section 279(b) of the Code or any
obligations described in section 279(a) of the Code; (xxv) as of the Closing,
none of the Companies will have any non-recaptured net section 1231 loss as
defined in section 1231(c) of the Code; (xxvi) the books and records of each of
the Companies reflect reserves that are adequate for the
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payment of all Taxes not yet due and payable that are properly accruable thereon
as of the date thereof (including Taxes being contested), and there is no
difference between the amounts of the book basis and the tax basis of assets
(net of liabilities) that is not accounted for by an accrual on the books for
federal income tax purposes; (xxvii) none of the Companies has had any income
attributable to a transaction (e.g., an installment sale) occurring in or a
change in accounting method made for a period ending at or prior to the Closing
which resulted in a deferred reporting of income from such transaction or from
such change in accounting method; (xxviii) none of the Companies is obligated
under any agreement with respect to industrial development bonds or similar
obligations, with respect to which the excludability from gross income of the
holder for federal income tax purposes could be affected by the transactions
contemplated hereunder; and (xxix) none of the Companies is subject to liability
for any Taxes as a transferee or successor, or by reason of section 1.1502-6 of
the Treasury Regulations (or similar provision of state, local or foreign law).
(b) (i) SECTION 3.11 of the Disclosure Letter (1) lists all
income, franchise and similar Tax Returns (federal, state, local and foreign)
filed with respect to each of the Companies for taxable periods ended on or
after December 31, 1995; (2) indicates for which jurisdictions Returns have been
filed; (3) indicates the most recent income, franchise or similar Return for
each relevant jurisdiction for which an audit has been completed and indicates
all Returns that currently are the subject of audit; (ii) the Seller has
delivered to the Buyer correct and complete copies of all federal, state and
foreign income, franchise, sales and use, real and personal property Tax Returns
and all other Returns, elections relating to Taxes of the Companies, examination
reports, and statements of deficiencies assessed against or agreed to by any of
the Companies since January 1, 1995; (iii) SECTION 3.11 sets forth the following
information with respect to each of the Companies as of the most recent
practicable date (and, in each case, specifying such date): (A) the tax basis of
the Companies in their respective assets and (B) for state Tax purposes, the
amount of any net operating loss, net capital loss, unused credit, unused
foreign tax credit, earnings and profits or excess charitable contribution
allocable to each of the Companies; (iv) the Seller has delivered to the Buyer a
complete and accurate description of all Tax accounting methods for all material
items affecting federal and state income or franchise Taxes; (v) the Seller has
delivered to the Buyer a full description of any and all related party
transactions between any of the Companies and their respective Affiliates; (vi)
the Seller has provided to the Buyer a complete and accurate list of locations
by city and state in which each of the Companies leases any real or personal
property; and (vii) each of the Companies has provided to the Buyer a complete
and accurate description of all changes in
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corporate control or capital structure.
3.12 MATERIAL CONTRACTS. SECTION 3.12 of the Disclosure Letter sets
forth a true and complete list of each Material Contract of each Company. Each
Company has previously delivered to Buyer a true and complete copy of each
Material Contract (including all amendments and supplements thereto). Each
Material Contract is in full force and effect and constitutes a legal, valid,
and binding obligation of such Company and, to the knowledge of the Seller or
each Company, each other party thereto, enforceable against the parties thereto
in accordance with its terms, except to the extent that (a) enforcement may be
limited by or subject to any bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, or similar Laws now or hereafter in effect relating to or
limiting creditors' rights generally and (b) the remedy of specific performance
and injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. No Company nor (to the knowledge of the
Seller or each Company) any other party to any Material Contract is in default
under any Material Contract. Except as disclosed in SECTION 3.12 of the
Disclosure Letter, since the Balance Sheet Date, no Material Contract has been
amended or supplemented in any material respect except for renewals of customer
accounts on terms equal to or more favorable to such Company than existing prior
to renewal.
3.13 EMPLOYEE BENEFIT MATTERS.
(a) SECTION 3.13 of the Disclosure Letter sets forth a true
and complete list of all Plans. Except as set forth in SECTION 3.13 of the
Disclosure Letter, no Company is nor has ever been under common control, or
treated as a single employer, under Section 414(b), (c), (m) or (o) of the Code,
with any other trade or business (whether or not incorporated) with an entity
other than the Companies. Except as set forth in SECTION 3.13 of the Disclosure
Statement, no Company has maintained or contributed or ever been obligated to
contribute to any "employee pension benefit plan," as defined in Section 3(2) of
ERISA, whether or not such plan is subject to Title IV of ERISA or Section 412
of the Code, or any multiemployer plan, as defined in Section 3(37), of ERISA,
or is or has been subject to Section 4063 or 4064 of ERISA. No Company has any
liability to the Pension Benefit Guaranty Corporation or any other party as the
result of its participation in a multiemployer plan. No Company maintains any
Plan which provides post-employment benefits or coverage, including life
insurance or health insurance, for any participant or any beneficiary of a
participant, except as may be required under COBRA and at the expense of the
participant or the participant's beneficiary.
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(b) The Companies have delivered to Buyer a true and complete
copy of (i) each Plan (including all amendments thereto), (ii) each trust
agreement or other funding arrangement with respect to each Plan, (iii) each
summary plan description relating to a Plan, (iv) the most recently filed IRS
Form 5500 relating to each Plan, (v) if applicable, the most recent IRS
determination letter, or application if the letter has not been issued, and (vi)
any other material communications to Plan participants.
(c) Except as set forth in SECTION 3.13 of the Disclosure
Letter, all contributions, premiums or payments required to be made, paid or
accrued with respect to any Plan prior to Closing have been made, paid or
accrued on or before their due dates, including extensions thereof. Each Plan is
now and has been operated in all material respects in accordance with the
requirements of all applicable laws (including, without limitation, the Code and
ERISA) and the Plan documents. Each Plan which is an "employee welfare benefit
plan" under Section 3(1) of ERISA is in good faith compliance with the notice
and continuation requirements of Section 4980B of the Code, COBRA, Part 6 of
Subtitle B of Title I of ERISA and the regulations thereunder. No legal action,
suit, audit, investigation, or claim is pending or, to the knowledge of the
Seller and each Company, threatened with respect to any Plan (other than claims
for benefits in the ordinary course) and, to the knowledge of the Seller and
each Company, no fact, event or condition exists that could give rise to any
such action, suit, or claim.
(d) No "party in interest" as defined in ERISA Section 3(14)
or "disqualified person" as defined in the Internal Revenue Code has engaged in
a "prohibited transaction" within the meaning of ERISA and the Code. All annual
returns for the Plans have been timely filed as required by applicable law. The
consummation of the transactions contemplated hereby will not result in the
entitlement of any current or former Employee to severance pay, unemployment
compensation or any payment contingent upon a change of control.
3.14 MATERIAL CHANGES. Except as disclosed in SECTION 3.14 of the
Disclosure Letter and except as contemplated by this Agreement:
(a) since the Balance Sheet Date, there has not been,
occurred, or arisen any change, event (including without limitation any damage,
destruction, or loss, whether or not covered by insurance), condition,
circumstance, or development of any character that, individually or, in the
aggregate, has or may reasonably be expected to have a Material Adverse Effect
on any Company;
(b) since the Balance Sheet Date, each Company has
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conducted its business, operations, and affairs solely in the ordinary course of
business and consistent with past practice; and
(c) since the Balance Sheet Date, no Company has declared or
paid any dividends or other distributions in respect of its capital stock, nor
has it made, or committed to make, any redemption or other repurchase of any of
its capital stock, provided that the Companies may make S-corporation
distributions equal to the actual tax payable by Seller for taxable years ending
with the Closing Date to the extent such payments are due and have not been paid
as of the date hereof or distributions have not previously been made to Seller
by such Company in order to make such payments.
3.15 OPERATIONS INSURANCE. SECTION 3.15 of the Disclosure Letter
contains a true and complete list of all liability, property, workers'
compensation, directors' and officers' liability, and other similar insurance
Contracts issued to any Company that insure the business, operations, or affairs
of such Company or that affect or relate to the ownership, use, or operation of
the assets or properties of such Company. SECTION 3.15 of the Disclosure Letter
specifies, with respect to each such insurance Contract, the type of coverage,
the name of the insured, the name of the insurer, the amount of annual premium,
the coverage limitations, the date of expiration, any self-insurance retention,
and any deductibles. All such insurance is in full force and effect.
3.16 CUSTOMERS, AGENTS, ETC. Except as set forth in SECTION 3.16 of the
Disclosure Letter, no customer, employer or other Person to whom or through whom
the Company has sold any service or other product, accounted for more than 10%
of the gross revenue of the Company during 1996 and 1997. Except as shown in
SECTION 3.16 of the Disclosure Letter, to the knowledge of the Seller and each
Company, no Person with whom any Company does business intends to terminate or
materially alter its relationship with any Company after the Closing.
3.17 REGIONAL PROVIDER NETWORKS AND LARGE PROVIDER GROUPS. Except as
set forth in SECTION 3.17 of the Disclosure Letter, since January 1, 1998, no
regional provider networks, or provider groups with more than 1,500 provider
members or which are major medical facilities the termination of which would
have a Material Adverse Effect on the Companies, has terminated or failed to
renew any contract with any Company and to the knowledge of the Seller and each
Company no such Provider Network or large provider group or major medical
facility intends to terminate or materially alter its relationship with any
Company after the Closing.
3.18 LABOR MATTERS. Except as disclosed in SECTION 3.18 of
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the Disclosure Letter:
(a) no employee of any Company is represented by any labor
organization in connection with his or her employment by such Company;
(b) no Company is a party to any labor or collective
bargaining Contract with respect to its employees;
(c) there is no labor controversy, labor dispute, labor
arbitration, unfair labor practice charge, grievance, or complaint, strike,
lockout, or work slowdown or stoppage pending or, to the knowledge of the Seller
or each Company, threatened against or involving any Company;
(d) there is no complaint, charge, or claim pending or, to the
knowledge of the Seller or each Company, threatened against or involving any
Company by any Person based on, arising out of, or related to the employment by
a Company of any employee;
(e) no labor or collective bargaining Contract with respect to
employees of any Company is currently being negotiated, and to the knowledge of
the Seller or each Company, no union organizing activities are currently taking
place with respect to any employees of any Company; and
(f) to the knowledge of the Seller and each Company, no
employee of any Company has expressed any intention or desire to terminate his
or her relationship with any Company after the Closing.
3.19 ENVIRONMENTAL COMPLIANCE. Except as disclosed in SECTION 3.19 of
the Disclosure Letter, to the knowledge of the Seller and each Company (a) no
real property at any time owned, or while leased, or operated by any Company has
been used for the storage, treatment, generation, transportation, manufacture,
processing, handling, production, distribution, deposit, burial, use, or
disposal of any Hazardous Substance, and (b) there has been no Release of any
Hazardous Substance (other than de minimus amounts of janitorial and similar
substances used in compliance with law) on or from any such real property. Each
Company has complied with all applicable environmental Laws relating to such
real property and the business, activities, and processing conducted thereon,
except for such noncompliance that, individually or in the aggregate, has not
had and may not reasonably be expected to have a Material Adverse Effect. To the
knowledge of each Company and the Seller, there is not on or in any part of such
real property any underground storage tanks or surface tanks, lines, dikes, or
impoundments. Copies of any environmental studies or other environmental surveys
in any Company's possession which relate to any such properties are
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attached to SECTION 3.19 of the Disclosure Letter
3.20 INTEREST IN COMPETITORS, ETC. Except as disclosed in SECTION 3.20
of the Disclosure Letter, neither the Seller, any Company, any Affiliate of the
Seller, nor, to the knowledge of the Seller or each Company, any employee of any
Company is, directly or indirectly, a principal, officer, director, employee,
shareholder, investor, consultant, advisor, partner, joint venturer, agent,
landlord, tenant, or equity owner in or with any Person who is a competitor,
supplier, manufacturer, vendor, or customer of any Company (other than as a 2%
shareholder of any Company whose stock is publicly traded).
3.21 BOOKS AND RECORDS. The books, records and accounts of each Company
are accurate and complete in all material respects and fairly reflect, in
reasonable detail, the transactions and the assets and liabilities of each
Company. No Company has engaged in any transaction, maintained any bank account
or used any of its funds except for transactions, bank accounts and funds which
have been and are reflected in the normally maintained books and records of such
Company.
3.22 BANK ACCOUNTS. SECTION 3.22 of the Disclosure Letter contains (a)
a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which any
Company has an account or safe deposit box or maintains a banking, custodial,
trading, or other similar relationship and (b) a true and complete list and
description of each such account, box, and relationship, indicating in each case
the account number and the names of the respective officers, employees, agents,
or other similar representatives of any Company who are signatories thereon or
who are authorized to act in connection therewith.
3.23 DISCLOSURE. No representation or warranty made by any Company or
the Seller in this Agreement or in the Disclosure Letter or any certificate or
other document furnished by any Company or the Seller in connection with the
Closing of the transactions contemplated hereby contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading in light of the circumstances in which they
were made.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Florida.
4.2 AUTHORITY. Buyer has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution,
delivery, and compliance with the terms of this Agreement by Buyer and the
performance by Buyer of its obligations hereunder have been duly and validly
authorized by all necessary action on the part of Buyer (including, without
limitation, approval by the Board of Directors of Buyer). This Agreement has
been duly and validly executed and delivered by Buyer and constitutes, a legal,
valid, and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or conveyance, or similar Laws now or hereafter in effect relating to
or limiting creditors, rights generally, and (b) the remedy of specific
performance and injunctive and other forms of equitable relief which are subject
to certain equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3 NO CONFLICTS. Except as disclosed in SECTION 4.3 of the Disclosure
Letter, neither the execution and delivery by Buyer of this Agreement nor the
performance by Buyer of its obligations under this Agreement will:
(a) conflict with or violate any Law or Order applicable to
Buyer or any of its respective assets or properties;
(b) conflict with or violate any term of the Articles of
Incorporation or Bylaws of Buyer;
(c) result in the creation or imposition of any Lien upon
Buyer or any of its assets or properties or conflict with or result in a default
under, or give any Person any right of termination, cancellation, acceleration,
or modification in or with respect to, any Contract to which Buyer is a party or
by which any of Buyer's assets or properties may be bound; or
(d) require Buyer to obtain any consent, approval or
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action of, or make any filing with or give any notice to, any Person.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
At all times during the period between the date hereof and the Closing,
inclusive, the Seller and each Company will comply with all covenants and
provisions of this Article 5, unless otherwise agreed by Buyer in writing.
5.1 CONDUCT OF BUSINESS. Seller will cause each Company to conduct its
business, operations, and affairs solely in the ordinary course of business and
consistent with past practice. Without limiting the generality of the foregoing
and except as otherwise expressly required by this Agreement:
(a) Seller will use, and cause each Company to use, all
commercially reasonable efforts to (i) preserve intact each Company's present
business organizations, relationships, and reputation; (ii) maintain in full
force and effect all Licenses held by each Company; (iii) maintain in full force
and effect all Contracts (other than Contracts which expire and are not renewed
in the ordinary course of business and consistent with past practice); (iv)
continue all marketing and promotional activities, programs, and efforts
relating to the business, operations, and affairs of each Company; (vi) maintain
in good working order and condition (ordinary wear and tear excepted) all assets
of each Company; and (vii) maintain in full force and effect substantially the
same levels of insurance coverage as afforded under the insurance Contracts
disclosed or required to be disclosed in SECTION 3.15 of the Disclosure Letter.
(b) Seller will cause each Company to (i) prepare and timely
file (or cause to be prepared and timely filed) all Tax Returns required to be
filed with any Governmental Authority by each Company; (ii) duly and timely pay
all estimated Taxes necessary to avoid the imposition of penalties for failure
to pay timely estimated Taxes; (iii) duly and timely pay (or cause to be duly
and timely paid) all Taxes indicated by such Tax Returns or otherwise levied or
assessed upon any Company of any of its assets or properties; and (iv) withhold
or collect and pay to the proper Governmental Authority all Taxes that each
Company is required to so withhold or collect and pay, unless such Taxes are
being contested in good faith and, if appropriate, reasonable reserves therefor
have been established and are reflected, in accordance with GAAP, on the books
and records of each Company.
(c) The Seller will cause each Company to continue to
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comply in all material respects with all Laws applicable to its business,
operations, and affairs or to the assets of each Company.
(d) The Seller will cause each Company to refrain from:
(i)selling or otherwise disposing of any of its
assets, permitting any of its assets to be subjected to any
Liens, or otherwise conveying any right, title, or interest in
or to any of its assets, except for the sale, in the ordinary
course of business and consistent with past practice, of
assets having an aggregate fair market value of less than
$50,000 and (ii) the disposal of worn-out or obsolete assets;
(ii) creating, incurring, assuming, guaranteeing, or
otherwise becoming liable for any Liability (except for trade
payables in the ordinary course of business and consistent
with past practice);
(iii) declaring, setting aside, or paying any
dividend or other distribution in respect of its capital stock
or directly or indirectly redeeming, purchasing, or otherwise
acquiring any of its capital stock or any interest in or right
to acquire any such stock, provided that each Company may make
S-corporation distributions equal to the actual tax payable by
Seller for taxable years ending with the Closing Date to the
extent such payments are due and have not been paid as of the
date hereof or distributions have not been made to Seller by
such Company in order to make such payment;
(iv) entering into any Contract or transaction with
any Affiliate; or
(v) incurring any Liability for borrowed money.
5.2 INVESTIGATION BY BUYER. The Seller and each Company will provide
Buyer and Buyer's legal counsel, accountants, financial advisers, and other
representatives with full access during regular business hours to all
facilities, officers, employees, agents, accountants, and books and records of
each Company, and will furnish Buyer and such Persons with copies of such
documents, information, and data concerning each Company, as Buyer or such
Persons may reasonably request. Buyer will not contact or communicate with
employees or customers of Seller without first obtaining the consent of Seller.
5.3 FINANCIAL STATEMENTS AND REPORTS. The Seller and each
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Company will deliver to Buyer (as promptly as practicable after becoming
available) true and complete copies of such financial statements, reports, or
analyses as may be prepared or received by either Seller or any Company that
relate to the business, operations, or affairs of each Company including without
limitation periodic financial statements, normal internal reports (such as those
reflecting monthly cash flow), and special reports (such as those of
consultants).
5.4 EMPLOYEE MATTERS. Seller will refrain, and will cause each Company
to refrain, from directly or indirectly:
(a) making any change to, or amending in any way, the
Contracts, salaries, wages, or other compensation of any officer, director,
employee, agent, consultant, or other similar representative of any Company
whose annual compensation exceeds $50,000, other than changes or amendments that
(A) are made in the ordinary course of business and consistent with past
practice, and (B) do not and will not result in increases of more than 5% in the
salary, wages, or other compensation of any such Person;
(b) adopting or entering into any Plan;
(c) approving any general or company-wide pay increases for
officers, directors, employees, agents, consultants, or other similar
representatives of any Company;
(d) entering into any Contract with any officer, director,
employee, agent, consultant, or other similar representative of any Company; or
(e) hiring any officer, director, employee, agent, consultant,
or other similar representative of any Company whose annual compensation exceeds
$75,000.
5.5 NO CHARTER AMENDMENTS. The Seller will cause each Company to
refrain from amending its Articles or Certificate of Incorporation or Bylaws and
from taking any action with respect to any such amendment.
5.7 NO ISSUANCE OF SECURITIES. The Seller will cause each Company to
refrain from authorizing or issuing any shares of its capital stock or other
equity securities or entering into any Contract or granting any option, warrant,
or right calling for the authorization or issuance of any such shares or other
equity securities, or creating or issuing any securities directly or indirectly
convertible into or exchangeable for any such shares or other equity securities,
or issuing any options, warrants, or rights to purchase any such convertible
securities.
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5.6 RESIGNATIONS OF DIRECTORS. Seller will cause such members (other
than Ronald Davi) of the Board of Directors of each Company and such officers of
each Company as are designated by Buyer to tender, effective on the Closing
Date, their resignations from the Board of Directors or from such offices.
ARTICLE 6
CERTAIN OTHER COVENANTS
6.1 REGULATORY AND THIRD PARTY APPROVALS.
(a) The Seller, each Company, and Buyer, respectively, will
(i) take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals, authorizations, clearances,
and Orders of Governmental Authorities required of such party to consummate the
transactions contemplated by this Agreement, and (ii) cooperate with the other
parties hereto in obtaining, as promptly as practicable, all approvals,
authorizations, clearances, and Orders of Governmental Authorities required of
the other parties to consummate the transactions contemplated by this Agreement.
(b) The Seller and each Company will use all commercially
reasonable efforts, as promptly as practicable, to obtain all consents,
approvals, and actions disclosed or required to be disclosed in SECTION 3.3 of
the Disclosure Letter.
(c) Buyer will use all commercially reasonable efforts, as
promptly as practicable, to obtain all consents, approvals, and actions
disclosed or required to be disclosed in SECTION 4.3 of the Disclosure Letter.
6.2 SATISFACTION OF CLOSING CONDITIONS. The Seller, each Company, and
Buyer shall take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable efforts
to cause to be fulfilled at or prior to the Closing all of the conditions
precedent to such party's obligation to consummate the transactions contemplated
by this Agreement.
6.3 RELEASE OF SELLER GUARANTY. Buyer shall, at or prior to Closing,
use its best efforts to cause the Bank of New York to release Seller from all
liability on personal guarantees on loans to the Companies.
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ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or before the Closing of each of the following conditions (all or
any of which may be waived in whole or in part by Buyer):
(a) NO INJUNCTION. There shall not be in effect on the Closing
Date any valid Order of any Governmental Authority restraining, enjoining, or
otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
(b) CONSENTS, AUTHORIZATIONS, ETC. All approvals,
authorizations, clearances, or Orders of all Governmental Authorities and other
Persons contemplated by Section 6.1 hereof and necessary to permit any party to
perform its obligations under this Agreement shall have been obtained and shall
be in full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Seller and each Company contained in this Agreement (including
the statements of the Seller and each Company contained in the Disclosure
Letter) shall be true in all material respects as of the date of this Agreement
and shall be true in all material respects on and as of the Closing Date as if
made on and as of the Closing Date except to the extent that any failure of any
of the Representations and Warranties (other than those in Section 3.4) to be
true does not cause (either individually or when taken together with all such
other failures to be true) a Material Adverse Effect to any Company.
(d) PERFORMANCE OF AGREEMENT. The Seller and each Company
shall have performed or complied in all material respects with all obligations
that are required to be performed or complied with by the Seller or any Company
pursuant to the terms of this Agreement on or before the Closing Date.
(e) CERTIFICATES. The Seller shall have delivered to Buyer a
certificate, dated the Closing Date, in a form reasonably satisfactory to Buyer,
certifying as to the fulfillment of the conditions set forth in Sections 7.1(a),
7.1(b), 7.1(c), 7.1(d) and 7.1(e) hereof. In addition, the Seller shall and
shall cause each Company to deliver to Buyer one or more certificates of the
Secretary or any Assistant Secretary of each Company and the Seller respectively
certifying as to corporate matters reasonably requested by Buyer and shall
deliver good standing certificates from the jurisdiction of each Company's
incorporation attesting to
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each Company's good standing in such jurisdiction.
(f) OPINIONS OF COUNSEL. The Seller and each Company shall
have delivered to Buyer an opinion, dated as of the Closing Date, of Drinker
Biddle & Reath LLP, as counsel to the Seller and each Company, to the effect set
forth in EXHIBIT 7.1(F) hereto.
(g) LICENSES. Each Company shall own or hold all Licenses that
are necessary in connection with the conduct of the business of such Company as
currently conducted except to the extent that the failure to hold such licenses
does not cause or can not reasonable be expected to cause a Material Adverse
Event to any Company.
(h) DELIVERY OF SHARES. The Seller shall have delivered to
Buyer certificates for the Shares duly endorsed in blank or with stock powers
endorsed in blank duly attached, and such Shares shall be free and clear of any
lien, charge or encumbrance of any nature whatsoever.
(i) LLC OPERATING AGREEMENT. The Seller shall have executed
and delivered to the Buyer the LLC Operating Agreement in substantially the form
of EXHIBIT 7.1(I) hereto.
(j) ESCROW AGREEMENT. The Escrow Agent and the Seller shall
have executed and delivered the Escrow Agreement in substantially the form of
EXHIBIT 7.1(J) hereto.
(k) DUE DILIGENCE REVIEW. The Buyer shall have completed its
due diligence review of the business, assets and liabilities of the Companies,
which review shall have been completed on or before May 15, 1998, and shall not
have notified the Seller on or before May 15, 1998, that as a result of such due
diligence investigation, Buyer does not desire to close the transactions
contemplated hereby.
(l) HSR FILINGS. The waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(m) EMPLOYMENT AGREEMENTS. Ronald J. Davi and such other key
employees of the Companies as mutually agreed to by Buyer and Ronald J. Davi
shall have executed and delivered to Buyer Employment Agreements in
substantially the form of EXHIBIT 7.1(M) hereto.
(n) DELIVERY OF EXHIBITS AND DISCLOSURE LETTER. Seller and the
Companies shall have delivered the Exhibits and Disclosure Letter to Buyer in
form and content satisfactory to Buyer in its sole discretion by 5:00 P.M.,
April 22, 1998.
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7.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE COMPANY. The
obligations of the Seller to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions (all or any of which may be waived in whole or in part by
the Seller and each Company):
(a) NO INJUNCTION. There shall not be in effect on the Closing
Date any valid Order of any Governmental Authority restraining, enjoining, or
otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
(b) CONSENTS, AUTHORIZATIONS, ETC. All approvals,
authorizations, clearances, Orders, consents, and actions of all Governmental
Authorities necessary to permit any party to perform their obligations under
this Agreement shall have been obtained and shall be in full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer contained in this Agreement shall be true in all material
respects as of the date of this Agreement and shall be true in all material
respects on and as of the Closing Date as if made on and as of the Closing Date
except to the extent that any failure of any of the representations and
warranties to be true does not cause (either individually or when taken together
with all such other failures to be true) a Material Adverse Effect to the Buyer.
(d) PERFORMANCE OF AGREEMENT. Buyer shall have performed or
complied in all material respects with all obligations that are required to be
performed or complied with by Buyer pursuant to the terms of this Agreement on
or before the Closing Date.
(e) CERTIFICATES. Buyer shall have delivered to the Seller an
officer's certificate, dated the Closing Date, in a form reasonably satisfactory
to the Seller, certifying as to the fulfillment of the conditions set forth in
Sections 7.2(a), 7.2(b), 7.2(c), 7.2(d) and 7.2(e) hereof. In addition, Buyer
shall deliver to the Seller one or more certificates of the Secretary or any
Assistant Secretary of Buyer certifying as to corporate matters reasonably
requested by the Seller.
(f) OPINION OF COUNSEL. Buyer shall have delivered to the
Seller an opinion, dated as of the Closing Date, of Fowler, White, Gillen,
Boggs, Villareal and Banker P.A., as counsel to Buyer, to the effect set forth
in EXHIBIT 7.2(F) hereto.
(g) DELIVERY OF CONSIDERATION. Buyer shall have delivered to
Seller the Cash Purchase Price Amount less the Escrow Amount and shall have
delivered to the Escrow Agent the Escrow
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Amount.
(h) ESCROW AGREEMENT. The Escrow Agent and the Buyer shall
have executed and delivered the Escrow Agreement substantially in the form of
EXHIBIT 7.1(J) hereto.
(i) LLC OPERATING AGREEMENT. The Buyer shall have executed and
delivered to the Seller the LLC Operating Agreement.
(j) HSR FILINGS. The waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(k) EMPLOYMENT AGREEMENTS. Ronald J. Davi and such other key
employees of the Companies as mutually agreed to by Buyer and Ronald J. Davi
shall have executed and delivered to Buyer Employment Agreements substantially
in the form of EXHIBIT 7.1(M) hereto.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE SELLER. Subject to the provisions of this
Article 8 and Section 9.2 hereof, the Seller will indemnify and hold harmless
the Buyer in respect of the following (i) any amount to be paid to Buyer
pursuant to the post closing adjustment provisions of Section 2.2(b), and (ii)
any and all Damages resulting from or relating to any breach by the Seller or
any Company of any representation, warranty, covenant, or agreement made by the
Seller or any Company in this Agreement, the Disclosure Letter or in any
certificate delivered by the Seller or any Company in connection with this
Agreement, and (iii) any Liability of any Company relating to an event or
occurrence on or prior to the Closing Date which is not reserved for on the
Final Closing Balance Sheet, including but not limited to any lawsuits listed in
SECTION 3.6 of the Disclosure Letter and any matter listed as an exception or
notation in the Seller's certificate delivered at Closing, it being understood
that to the extent that a claim for damages hereunder relates to the termination
of any contract which is terminable at will by the party contracting with any
Company, no claim for damages for lost revenues or profits which might have been
derived by the Companies after the termination shall be included in such
indemnifiable Damages.
8.2 INDEMNIFICATION BY THE BUYER. Subject to the provisions of this
Article 8 and Section 9.2 hereof, the Buyer will indemnify and hold harmless the
Seller from any and all Damages resulting from or relating to any breach by the
Buyer of any representation, warranty, covenant, or agreement made by the Buyer
in this Agreement or in any certificate delivered by the
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Buyer in connection with this Agreement.
8.3 INDEMNIFICATION PROCEDURES.
(a) If an Indemnitee becomes aware of any matter that it
believes is indemnifiable pursuant to this Article 8 (other than pursuant to
SECTION 8.4) and such matter involves (i) any claim made against the Indemnitee
by any Person other than Buyer or Seller or (ii) the commencement of any action,
suit, investigation, arbitration, or similar proceeding against the Indemnitee
by any Person other than Buyer or Seller, the Indemnitee will give the
Indemnifying Party prompt written notice of such claim or the commencement of
such action, suit, investigation, arbitration, or similar proceeding. Such
notice will (A) provide (with reasonable specificity) the basis on which
indemnification is being asserted, (B) set forth the actual or estimated amount
of Damages for which indemnification is being asserted, if known, and (C) be
accompanied by copies of all relevant pleadings, demands, and other papers
served on the Indemnitee.
(b) The Indemnifying Party will have a period of 60 days after
the delivery of each notice required by Section 8.3(a) hereof during which to
respond to such notice. If the Indemnifying Party responds within such 60-day
period that it accepts its indemnification obligation and elects to defend the
claim described in such notice, the Indemnifying Party will be obligated to
compromise or defend (and will control the defense of) such claim, at its own
expense and by counsel chosen by the Indemnifying Party and reasonably
satisfactory to the Indemnitee. The Indemnitee will cooperate fully with the
Indemnifying Party and counsel for the Indemnifying Party in the defense against
any such claim, and the Indemnitee will have the right to participate at its own
expense in the defense of any such claim. If the Indemnifying Party (i) responds
within such 60-day period that it elects not to defend such claim or that it
does not accept responsibility for indemnification, (ii) does not respond within
such 60-day period, or (iii) responds within such 60-day period that it elects
to defend such claim but does not, in fact, take actions reasonably necessary to
defend such claim, the Indemnitee will be free, without prejudice to any of the
Indemnitee's rights hereunder, to compromise or defend (and control the defense
of) such claim, by counsel chosen by the Indemnitee, and to pursue such remedies
as may be available to the Indemnitee under applicable Law. The foregoing
notwithstanding, during the period prior to an allocation of the responsibility
for controlling the defense of a claim hereunder, each party shall take such
action as shall be required to prevent the entry of any default in such action.
(c) Any compromise or settlement of any claim (whether
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defended by the Indemnitee or by the Indemnifying Party) will require the prior
written consent of the Indemnitee and the Indemnifying Party, which consent will
not be unreasonably withheld. If, however, the Indemnitee refuses to consent to
a bona fide offer of compromise or settlement that the Indemnifying Party
desires to accept, the Indemnitee may continue to pursue such claim, free of any
participation by the Indemnifying Party, at the sole expense of the Indemnitee.
In such event, the obligation of the Indemnifying Party to the Indemnitee will
equal the lesser of (i) the amount of the offer of compromise of settlement that
the Indemnifying Party desired to accept, plus the reasonable out-of-pocket
expenses (except for expenses resulting from the Indemnitee's participation in
any defense controlled by the Indemnifying Party) incurred by the Indemnitee
before the date the Indemnifying Party notified the Indemnitee of the offer of
compromise or settlement, or (ii) the actual out-of-pocket amount that the
Indemnitee is obligated to pay as a result of the Indemnitee's continued pursuit
of such claim, plus the reasonable out-of-pocket expenses incurred by the
Indemnitee in connection with such claim.
(d) If an Indemnitee becomes aware of any matter that it
believes is indemnifiable pursuant to this Article 8 (other than Section 8.4)
and such matter involves a claim made by Buyer or Seller, the Indemnitee will
give the Indemnifying Party prompt written notice of such claim. Such notice
will (i) provide (with reasonable specificity) the bases for which
indemnification is being asserted and (ii) set forth the actual or estimated
amount of Damages for which Indemnification is being asserted. The Indemnifying
Party will have a period of 60 days after the delivery of each notice required
by this Section 8.4(d) during which to respond to such notice. If the
Indemnifying Party accepts (in writing) full responsibility for the claim
described in such notice, the actual or estimated amount of Damages reflected in
such notice will be conclusively deemed a Liability that the Indemnifying Party
owes, and will pay (in cash) upon demand, to the Indemnitee. If the Indemnifying
Party responds within such 60-day period that it disputes such claim, the
Indemnifying Party and the Indemnitee agree to proceed in good faith to
negotiate a resolution of such dispute. If all such disputes are not resolved
through negotiations within 60 days after such negotiations begin, either the
Indemnifying Party or the Indemnitee may initiate litigation to resolve such
disputes. If the Indemnifying Party does not respond within 60 days after
delivery of any claim notice required by this Section 8.4(d), the Indemnitee may
initiate litigation to resolve such claim.
8.4 Tax Indemnification.
(a) The Seller will be responsible for, will pay or cause to
be paid, and will indemnify and hold harmless the Buyer
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from and against, any and all Damages for or in respect of each of the
following:
(i) any and all Taxes finally determined to be due
with respect to any taxable period of any Company (or any
predecessor) ending on or before the Closing Date, except to
the extent of current accruals for Taxes in the Balance Sheet;
(ii) any and all Taxes finally determined to be due
from any member of an affiliated, consolidated, combined, or
unitary group (other than any Company) of which any Company
(or any predecessor) is or was a member on or prior to the
Closing Date for which any Company is liable pursuant to
Treasury Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign Law;
(iii) any breach by any Company or the Seller of any
representation, warranty, or covenant contained in Section
3.11 or Section 5.1(b) hereof;
(iv) any breach by the Seller of any representation,
warranty or covenant contained in this Section 8.4; and
(v) any Election Taxes specified in Section 9.3(b)
hereof.
(b) The Buyer will promptly notify the Seller of the
commencement of any claim, audit, examination, or other proposed change or
adjustment by any taxing authority concerning any Tax or other Damages covered
by Section 8.4(a) hereof ("Tax Claim"). The Seller and the Buyer shall jointly
control the defense and settlement of any Tax audit or administrative or court
proceeding relating to a claim made with respect to taxable periods of any
Company ending on or prior to the Closing Date, and each party (including Buyer)
shall cooperate with the other parties at its own expense and keep all other
parties fully informed with respect thereto, including furnishing copies of all
communications with any taxing authority relating to such proceeding, and there
shall be no settlement or closing or other agreement with respect thereto
without the consent of the other parties, which consent will not be unreasonably
withheld. If Buyer or Company fails to consent to a settlement which is
acceptable to Seller, Buyer shall take over the defense of such proceeding at
its sole expense and the liability of Seller hereunder shall be limited to the
lesser of the Settlement amount which was acceptable to Seller but to which
Buyer and/or Company did not consent and the final liability. The Seller shall
promptly notify the Buyer if it decides not to participate in the defense or
settlement of any
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such Tax audit or administrative or court proceeding and the Buyer thereupon
shall be permitted to defend and settle such Tax audit or proceeding.
(c) The Seller will promptly notify the Buyer of the
commencement of any claim, audit, examination, or other proposed change or
adjustment by any taxing authority which may affect the Liability of any Company
for Taxes and the Seller shall keep the Buyer duly informed of the progress
thereof.
(d) Tax Returns shall be prepared in a manner consistent with
past practices. The Seller shall be responsible for filing all Tax Returns
required to be filed by or on behalf of any Company, or with respect to its
assets and operations, for the Pre-Closing Period, and each Company shall, and
the Buyer shall cause each Company to, cooperate in all respects with Seller
with respect to preparation and filing such Tax Returns including, without
limitation, providing Seller with executed copies thereof for filing if such Tax
Returns are due subsequent to the Closing Date. The Buyer shall be responsible
for filing all Tax Returns required to be filed by or on behalf of each Company,
or with respect to its assets and operations, for taxable periods which commence
after the Closing Date.
(e) For purposes of this Agreement, if, for any Taxes, whether
federal, state or local, a taxable period of any Company does not terminate on
the date of the Closing (such non-terminating period, a "Straddle Period"), the
parties shall, to the extent permitted by applicable law, elect with the
relevant taxing authority to treat the Pre-Closing Period portion of such
Straddle Period for all purposes as a short taxable period ending as of the
close of the date of the Closing and such short taxable period shall be treated
as a Pre-Closing Period for purposes of this Agreement. In any case where
applicable law does not permit such an election to be made, then, for purposes
of this Agreement, Taxes for the entire Straddle Period shall be allocated to
the Pre-Closing Period using an "interim closing of the books" method, assuming
that such Straddle Period ended at the close of the date of the Closing and
treating such Straddle Period as a Pre-Closing Period for purposes of this
Agreement, except that exemptions, allowances and deductions calculated on an
annual basis (such as the deduction for depreciation) shall be apportioned on a
per-diem basis. With respect to any Tax Return required to be filed by any
Company for a Straddle Period, the Buyer shall prepare such Tax Return and shall
provide the Seller with (i) a copy of such Straddle Period Return, which shall
have been prepared in accordance with prior practices of such Company and (ii) a
statement setting forth the amount of Tax that is allocable (net of current
accruals for Taxes in the Balance Sheet) to the Seller pursuant to this Section
8.4(e) (the "Statement") at least 30 business days prior to the due date for
filing of such Tax Return
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(including extensions). The Statement shall provide (with reasonable
specificity) the bases on which such Taxes were allocable to the Seller,
including computation of Taxes reflected in such Straddle Period Return. Within
fifteen business days after the Seller's receipt of the Statement, the Seller
will provide the Buyer with written notice indicating whether the Seller agrees
or disagrees with the Statement, including Seller's computation and bases of
disputed allocations and Taxes. If the Seller notifies the Buyer in writing of
agreement with the Statement or if the Seller fails to deliver such written
notice within such fifteen-day period, then not later than five business days
before the due date for payment of Taxes with respect to such Straddle Period
Return, the Seller shall pay to the relevant Company (unless such Company had
established an adequate reserve prior to Closing) an amount equal to the Taxes
shown on the Statement that are allocable to the Seller pursuant to this Section
8.4(e). In the event the Seller provides written notice to the Buyer of any
disagreement with the Statement, or with the computation of Taxes reflected on
such Straddle Period Return, setting forth (with reasonable specificity) the
bases therefor, the parties will negotiate in good faith to resolve such
disagreement. If the parties are able to resolve such disagreement within five
business days after the Buyer's receipt of notice of disagreement, then the
Taxes allocable to the Seller will be adjusted accordingly and the Seller shall
pay such amount to such Company no later than five business days before the due
date for the payment of Taxes with respect to such Tax Return. In the event the
parties are unable to resolve any disagreement within five business days
following each the Buyer's receipt of notice of disagreement, the parties shall
jointly request the Settlement Auditor to resolve any issue in dispute as
promptly as possible and shall cooperate with the Settlement Auditor to resolve
such disagreement. If the Settlement Auditor is unable to make a determination
with respect to any disputed issue within five business days prior to the due
date (including extensions) for the filing of the Tax Return in question, then
the Buyer shall file such Tax Return on the due date (including extensions)
therefor, and shall pay the amount of tax shown as due on such Tax Return,
without such determination having been made. Notwithstanding the filing of such
Tax Return, the Settlement Auditor shall make a determination with respect to
any disputed issue, and the amount of Taxes that are allocated to the Seller
pursuant to Section 8.4(e) hereof shall be as determined by the Settlement
Auditor. The fees and expenses of the Settlement Auditor shall be paid one-half
by the Buyer and one-half by the Seller. In the case of a dispute, (i) the
Seller shall pay to such Company not later than five business days before the
due date for the payment of Taxes with respect to such Tax Return, the amount of
Taxes as to which there is no disagreement and (ii) the Seller shall pay to the
Buyer not later than five business days after notice to the Seller of resolution
thereof, any remaining
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amounts allocable to the Seller as shown in such notice. No payment pursuant to
this Section 8.4(e) will affect the Buyer's right to indemnification pursuant to
Section 8.4(a) hereof should the amount of Taxes as ultimately determined (on
audit or otherwise) for the periods covered by such Tax Returns and which are
the responsibility of the Seller as provided herein or as determined pursuant to
this Section 8.4(e), exceed the amount of the Seller's payment under this
Section 8.4(e). Seller may apply for a refund of any amounts paid by it pursuant
to this Section 8.4(e) which it has disputed as set forth in this Section
8.4(e), and the Buyer and Company shall reasonably cooperate in all respects
with Seller with respect to such refund claim including, without limitation,
providing Seller with appropriate, non-exclusive, power of attorney.
(f) The Seller and each Company will provide (and Buyer will
cause each Company so to provide) to each other full access, at any reasonable
time and from time to time, at the business location at which the books and
records are maintained, after the Closing Date, to such Tax data of each Company
as the Seller or the Buyer or any Company, as the case may be, may from time to
time reasonably request and will furnish, and request the independent
accountants and legal counsel of the Seller, the Buyer or any Company to furnish
to the Seller, Buyer or Company, as the case may be, such additional Tax and
other information and documents in the possession of such Persons as the Seller,
Buyer or any Company may from time to time reasonably request.
(g) Any claim for indemnity hereunder may be made at any time
prior to sixty days after the expiration of the applicable Tax statute of
limitations with respect to the relevant taxable period (including all periods
of extension, whether automatic or permissive).
8.5 INDEMNIFICATION PAYMENTS. Without limiting the rights of Buyer
hereunder, any indemnification payment due, as determined by either (i) written
agreement between the Buyer and the Seller or (ii) a final non-appealable order
of a court of competent jurisdiction, to the Buyer under this Article 8 may be
collected from the Escrow Fund pursuant to the terms of the Escrow Agreement so
long as the Escrow is in existence. Notwithstanding anything to the contrary in
this Article 8, (i) no claim for indemnification under Section 8.1 hereof
(except pursuant to Section 8.1(i) or (iii)) shall be made by an indemnitee
unless and until the aggregate liability with respect to which such Indemnitee
is seeking indemnification hereunder shall equal or exceed $200,000.00, (in
which event, only the amount in excess of $200,000.00 shall be subject to such
indemnification) and (ii) the aggregate amount of the indemnification obligation
of Seller shall not exceed the Purchase Price (excluding any amounts payable
under this Article but including the amount of the Additional Payment).
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Seller and Buyer agree that any payment made pursuant to Section 8.1 hereof will
be treated by the parties on their Tax Returns as a contribution to the capital
of the applicable Company.
ARTICLE 9
MISCELLANEOUS
9.1 TERMINATION. Without limiting the rights or remedies that any party
hereto may otherwise have, this Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of
the Seller, each Company, and Buyer.
(b) at any time after May 31, 1998, by the Seller, each
Company, or Buyer if the transactions contemplated by this Agreement have not
been consummated on or before such date; provided, however, that if Buyer
terminates the Agreement hereunder and Sellers and Companies are not then in
breach of a representation, warranty, covenant or other obligations under this
Agreement, then Buyer shall pay Seller, as a break-up fee to reimburse Seller
for costs and other losses, the sum of $50,000 within three days after
termination; or
(c) at any time on or before May 15, 1998, by the Buyer if
Buyer is not satisfied with the results of its due diligence investigation or if
the Seller and the Companies failed to deliver the Exhibits and Disclosure
Letter by April 22, 1998 in form and content satisfactory to Buyer in accordance
with Section 2.10.
If this Agreement is validly terminated pursuant to Section 9.1 hereof, (i) the
obligations of the parties to effect the transactions contemplated hereby will
terminate, (ii) the provisions of Article 9 hereof will continue to apply
following any such termination, and (iii) no party hereto will be relieved of
any Liability for Damages that such party may have to any other party by reason
of such party's breach of this Agreement (or any representation, warranty,
covenant, or agreement included herein).
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9.2 SURVIVAL; LIMITATIONS ON CLAIMS.
(a) All representations and warranties made by any party in
this Agreement will survive the consummation of the transactions contemplated
hereby, and will remain in full force and effect thereafter until the survival
expiration date therefor (the "Survival Expiration Date"), which shall be the
end of the twelfth month after the Closing Date, except that (i) with respect to
the representations and warranties made by any Company and the Seller in
Sections 3.4 hereof the representation and warranty shall survive indefinitely
and there shall be no Survival Expiration Date, and (ii) with respect to the
representation and warranty made in Section 3.11 hereof, the Survival Expiration
Date shall be 60 days after the expiration of all applicable statutes of
limitations (including all periods of extension, whether automatic or
permissive).
(b) No claim for indemnification may be made under Section 8
of this Agreement after the Survival Expiration Date applicable to such claim
has occurred. Notwithstanding anything in the foregoing to the contrary, any
claim as to which a bona fide claim for indemnification has been asserted prior
to the Survival Expiration Date related thereto may be pursued beyond, the
expiration of such Survival Expiration Date until such claim is resolved by
final, nonappealable judgment or by settlement.
(c) All covenants and agreements respectively made by any
party in this Agreement to be performed after the date hereof will survive the
consummation of the transactions contemplated hereby, and will remain in full
force and effect thereafter, until the expiration of the terms or periods
respectively specified therein or indefinitely in the case of the covenants that
have no such specified term or period.
9.3 TAX ELECTION.
(a) CERTAIN DEFINITIONS. As used in this Agreement:
(i) "Election" means the election to be made by Buyer
and Seller pursuant to Section 338(h)(10) of the Code, as
described in Section 9.3(b) hereof.
(ii) "Election Taxes" means Taxes incurred solely by
reason of the Election.
(iii) "Pre-Closing Period" means any taxable period
which ends on or before the Closing Date, including that
portion of any Straddle Period which is treated as ending on
the Closing Date.
(iv) "Seller Group" means Seller's affiliated
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group, within the meaning of Section 1504(a) of the Code, of
which Seller is the common parent.
(v) "Straddle Period" means any taxable period that
includes (but does not end on) the Closing Date.
(vi) "Straddle Period Return" means a Tax Return
filed for a Straddle Period.
(b) SECTION 338(H)(10) ELECTION.
(i) With respect to the purchase by Buyer of the
Shares pursuant to this Agreement (A) Seller and Buyer shall
jointly make the Election (and any comparable election under
state or local tax law), (B) Seller, Buyer and each Company
shall, on or as promptly as practicable following the Closing
Date, cooperate with each other to take all actions necessary
and appropriate (including filing such forms, returns,
elections, schedules and other documents as may be required)
to effect and preserve a timely Election in accordance with
the provisions of Treasury Regulations Section 1.338(h)(10)-1
(or any comparable provisions of state or local tax law) or
any successor provisions, (C) Seller and Buyer shall report
the purchase by Buyer of the Shares pursuant to this Agreement
consistent with the Election (and any comparable elections
under state or local tax laws) and shall take no position
inconsistent therewith in any Tax Return (unless applicable
state or local tax law does not recognize such election), any
proceeding before any taxing authority or otherwise, and (D)
Seller shall pay all Election Taxes, if any, due as a result
of this Election.
(ii) In connection with the Election, Buyer and
Seller shall agree to the determination of the "Aggregate
Deemed Sales Price" (as defined under applicable Treasury
Regulations) of the Shares and the allocation of such
"Aggregate Deemed Sales Price" among the assets of each
Company. Such determination and allocation shall be prepared
jointly by Seller and Buyer after the Closing Date. In the
event that Seller and Buyer are unable to agree upon such
determination and allocation, such determination and
allocation (to the extent there is disagreement between Seller
and Buyer) shall be made by the Settlement Auditor as promptly
as practicable and shall be final, conclusive and binding on
the parties. The determination of the amount of the "Aggregate
Deemed Sales Price" and the allocations thereof shall be made
in accordance with
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Section 338(b) of the Code and the applicable Treasury
Regulations thereunder. Each of Seller and Buyer shall (A) be
bound by such determination and such allocation for purposes
of determining any Taxes, (B) prepare and file, and cause its
affiliates to prepare and file, its Tax Returns on a basis
consistent with such determination of the "Aggregate Deemed
Sales Price" and such allocation and (C) take no position, and
cause its affiliates to take no position, inconsistent with
such determination and such allocation on any applicable Tax
Return, in any proceeding before any taxing authority or
otherwise (unless applicable state or local tax law does not
recognize such election). In the event that any such
determination or allocation is disputed by any taxing
authority, the party receiving notice of the dispute shall
promptly notify the other party hereto concerning the
commencement of the dispute and the defense or prosecution of
the dispute shall be pursuant to Section 8.4(b) hereof.
(iii) Notwithstanding any other provisions of this
Agreement to the contrary, all sales, use, transfer, gains,
stamp, duties, recording and similar Taxes incurred in
connection with the transactions contemplated by this
Agreement shall be paid by the Seller, and Seller shall, at
its own expense, accurately file or cause to be filed all
necessary Tax Returns and other documentation with respect to
such Taxes and timely pay all such Taxes. If required by
applicable law, Buyer will, and will cause each Company to,
join in the execution of any such Tax Returns or such other
documentation.
9.4 BROKERS. The Seller will indemnify and hold harmless the Buyer in
respect of any and all claims or demands for commission, compensation, or other
Damages by any broker, finder, or other agent (whether or not a present or
former employee or agent of either Seller or any Company) claiming to have been
engaged by the Seller or any Company in connection with the transactions
contemplated by this Agreement, and the Seller will bear the cost of the
reasonable out-of-pocket expenses incurred by the Buyer in investigating,
defending against, or appealing any such claim. Buyer will indemnify and hold
harmless the Seller in respect of any and all claims or demands for commission,
compensation, or other Damages by any broker, finder, or other agent (whether or
not a present or former employee or agent of Buyer) claiming to have been
engaged by Buyer in connection with the transactions contemplated by this
Agreement, and Buyer will bear the cost of the reasonable out-of-pocket expenses
incurred by the Seller in investigating, defending against, or appealing any
such claim.
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9.5 NONCOMPETITION.
(a) During the Term of Noncompetition, the Seller will refrain
from directly or indirectly, whether as a principal, officer, director, employee
(other than as an employee of the Companies or the Buyer), shareholder,
investor, consultant, advisor, partner, joint venturer, broker, agent, equity
owner, or in any other capacity whatsoever, in every state in the United States
(the "Restricted Territory"):
(i) engaging or participating in any business
enterprise (regardless of whether it is a sole proprietorship
or a corporation, partnership, trust, business association, or
other entity) that engages in (x) any business which any
Company was engaged in as of the date of this Agreement or as
of the Closing date (other than the Retail Card Business), or
(y) any business which performs TPA Services. The foregoing
notwithstanding, it is permissible for the Seller to engage in
the Retail Card Business; or
(ii) other than through the sale of permitted
products or services by the Seller as set forth in (i) above,
causing or attempting to cause (A) any person or entity by or
through or to whom any Company sells or distributes its
services or products to terminate or reduce its relationship
or dealings with any Company, or (B) any company whose
services or products are sold by or through any Company to
terminate or reduce its relationship or dealings with any
Company; or
(iii) causing or attempting to cause any employee,
agent, consultant, or independent contractor of any Company to
cease serving any Company in such capacity; or
(iv) hiring or otherwise retaining or soliciting any
Person who, prior to the Closing or at any time during the
Term of Noncompetition, was an employee, consultant or other
contractor of any Company.
(b) The Seller acknowledges that the geographic boundaries of
the Restricted Territory, the scope of prohibited activities, and Term of
Noncompetition contained in Section 9.5(a) hereof (i) are reasonable and no
broader than necessary to protect the investment by Buyer in each Company and
each Company's ongoing business interests and (ii) do not and will not impose
any unreasonable burden upon the Seller.
(c) Buyer and Seller agree that (i) any breach by the
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Seller of any of the provisions contained in this Section 9.5 would cause
irreparable Damage to the Buyer Parties for which monetary damages and other
remedies at law may be inadequate, and (ii) the Buyer Parties will be entitled
as a matter of right to obtain, without posting any bond whatsoever and without
proof of any actual Damage, a restraining order, an injunction, specific
performance, or other form of equitable or extraordinary relief from any court
of competent jurisdiction to restrain any threatened or further breach of this
Section 9.5 or to require such Seller to perform its obligations under this
Section 9.5, which right to equitable or extraordinary relief will not be
exclusive but will be in addition to all other remedies to which the Buyer
Parties may be entitled under this Agreement, at law, or in equity (including
without limitation the right to recover monetary damages).
9.6 PUBLIC ANNOUNCEMENTS. At all times at or before the Closing, the
Seller and each Company, on the one hand, and Buyer, on the other hand, will
consult with one another before issuing or making any reports, statements, or
releases to the public with respect to this Agreement or the transactions
contemplated hereby and will use good faith efforts to agree on the text of a
joint public report, statement, or release or will use good faith efforts to
obtain the other parties' approval of the text of any public report, statement
or release to be made solely on behalf of a party. If such parties are unable to
agree on or approve any such public report, statement, or release and such
report, statement, or release is, based on the advice of legal counsel to a
party, required by Law or appropriate to discharge such party's disclosure
obligations, then such party may make or issue the legally required or
appropriate report, statement, or release upon prior notice to the other parties
hereto.
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9.7 CONFIDENTIALITY.
(a) The Seller will refrain, and will cause each Company and
their respective officers, directors, employees, agents, and other
representatives to refrain, from disclosing to any other Person (i) any
confidential documents or confidential information concerning Buyer or its
Affiliates furnished to it in connection with this Agreement or the transactions
contemplated hereby, and (ii) any documents or information concerning each
Company, unless (A) such disclosure is compelled by judicial or administrative
process or by other requirements of Law and notice of such disclosure is
furnished to Buyer (or, following Closing, each Company); (B) Seller deems it
advisable (upon advice of legal counsel) to disclose any such documents or
information in connection with the requirements of any Law; or (C) such
confidential documents or information can be shown to have been (x) previously
known by the Person receiving such documents or information, or (y) in the
public domain through no fault of the Seller.
(b) For a three-year period after this Agreement is terminated
pursuant to Section 9.1 hereof, Buyer will refrain, and will cause its officers,
directors, employees, agents, and other representatives to refrain, from
disclosing to any other Person any documents or information concerning each
Company furnished to it in connection with this Agreement or the transactions
contemplated hereby, unless (i) such disclosure is compelled by judicial or
administrative process or by other requirements of Law and notice of such
disclosure is furnished to the Seller; (ii) Buyer deems it advisable (upon
advice of legal counsel) to disclose any such documents or information in
connection with the requirements of any Law; or (iii) such documents or
information can be shown to have been (A) previously known by the Person
receiving such documents or information, or (B) in the public domain through no
fault of Buyer.
9.8 EXPENSES. Except as otherwise specifically provided in this
Agreement, each of the Seller and the Buyer will pay all expenses incurred or to
be incurred by it in negotiating this Agreement, in performing its obligations
under this Agreement, and in consummating the transactions contemplated by this
Agreement.
9.9 NOTICES. Any notice or communication given pursuant to this
Agreement must be in writing and (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered by
overnight express, or (d) sent by registered or certified mail, postage prepaid,
as follows:
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(i) If to Seller or any Company (before Closing):
Ronald J. Davi
419 E. Main Street
Middletown, NY 10940
Facsimile number: (914) 343-6113
with copy to:
Drinker Biddle & Reath LLP
105 College Road East, Suite 300
Princeton, New Jersey 08542
Attn: Thomas A. Belton, Esq.
Facsimile number: 609-799-7000
(ii) If to Company (after Closing):
National Preferred Provider Network, Inc.
3501 Frontage Road
Tampa, Florida 33607
Attn: President
Facsimile number: 813-287-6629
with copy to:
Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 East Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attn. David C. Shobe, Esq.
Facsimile number: 813-229-8313
(iii) If to Buyer:
HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Attn: General Counsel
Facsimile number: (813) 287-6629
with copy to:
Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 East Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attn. David C. Shobe, Esq.
Facsimile number: 813-229-8313
All notices and other communications required or permitted under
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this Agreement that are addressed as provided in this Section 9.9 will (A) if
delivered personally or by overnight express, be deemed given upon delivery; (B)
if delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (C) if sent by registered or certified mail,
be deemed given when received. 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, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.
9.10 ENTIRE AGREEMENT. This Agreement, together with the exhibits
hereto and the Disclosure Letter, constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes all
prior communications, agreements, understandings, representations, and
warranties, whether oral or written, between the parties hereto with respect to
the subject matter hereof. There are no oral or written agreements,
understandings, representations, or warranties among the parties hereto with
respect to the subject matter hereof other than those set forth in this
Agreement.
9.11 ASSIGNMENT AND AMENDMENT OF AGREEMENT. This Agreement will be
binding upon the parties hereto and their respective successors and permitted
assignees. Neither this Agreement, any part hereof, nor any right or obligation
hereunder may be assigned by any party hereto without the prior written consent
of the other parties hereto (and any attempt to do so will be void), except that
Buyer may, without the consent of Seller, assign all or any portion of Buyer's
rights or obligations hereunder to any Affiliate of Buyer, provided that Buyer
agrees that such assignment shall not relieve Buyer from any liability it may
have hereunder. This Agreement may be modified or amended only by a writing duly
executed on behalf of each party hereto.
9.12 GOVERNING LAW AND LITIGATION VENUE. This Agreement shall be
governed by the laws of the State of Florida and the laws of United States of
America (regardless of the laws that might be applicable under principles of
conflicts of law) as to all matters, including, but not limited to, matters of
validity, construction, effect, and performance. This Agreement shall be deemed
for all purposes to have been entered into in Hillsborough County, Florida. Any
litigation arising directly or indirectly from a dispute hereunder shall be
litigated solely in the Circuit Court of the State of Florida in Hillsborough
County, Florida or in the United States District Court for the Middle District
of Florida, Tampa Division (unless the actual location of real estate that is
the subject of any suit requires otherwise). The parties hereto submit to the
personal jurisdiction of such courts,
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exclusively, and agree that such courts shall be the sole situs of venue for the
resolution of any such dispute through litigation. Any appeals from the
decisions of the aforementioned courts shall be taken pursuant to the Federal
and Florida Rules of Appellate Procedure, except as the actual location of real
estate that is the subject of suit otherwise requires.
9.13 NO THIRD PARTY RIGHTS. Except as specifically provided in this
Agreement, this Agreement is not intended and may not be construed to create any
rights (including third party beneficiary rights) in any parties other than the
Seller, each Company, Buyer and their respective successors and permitted
assignees.
9.14 INCORPORATION OF EXHIBITS. The exhibits attached hereto are hereby
incorporated into this Agreement and will be deemed a part hereof as if set
forth herein in full. In the event of any conflict between the provisions of
this Agreement and any such exhibit, the provisions of this Agreement will
control.
9.15 HEADINGS, GENDER, ETC. 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. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number also will
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein," "hereby," "hereunder," "hereto," and derivative or similar words will
refer to this entire Agreement, (d) the terms "Article" or "Section" will refer
to the specified Article or Section of this Agreement, and (e) the conjunction
"nor" will denote any one or more, or any combination or all, of the specified
items or matters involved in the applicable list.
9.16 WAIVER AND REMEDIES. Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof. Any
such waiver will be in writing and will be executed by such party. A waiver on
one occasion will not be deemed to be a waiver of the same or any other term or
condition on a future occasion. All remedies, either under this Agreement or by
Law or otherwise afforded, will be cumulative and not alternative.
9.17 INVALID PROVISIONS. 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 hereto 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
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in full force and effect and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom, 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.
9.18 FURTHER ASSURANCES. Each of Buyer (including each Company
following the Closing) and the Seller agree that, from time to time after the
Closing Date, upon the reasonable request of the other party, it will cooperate
with such other party to effect the orderly transfer of the business,
operations, and affairs of each Company. Each such party may, at its own
expense, make such copies of any portions of the relevant books and records as
such party may reasonably require.
9.19 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
[Remainder of page intentionally left blank.]
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Acquisition Agreement
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Agreement this 18th day of April, 1998.
HEALTHPLAN SERVICES CORPORATION
By: /s/ PHILLIP S. DINGLE
---------------------------------
Name: Phillip S. Dingle
Title: SVP and Chief Counsel
"Buyer"
NATIONAL PREFERRED PROVIDER NETWORK,
INC.
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi
Title: President
QUALITY MEDICAL ADMINISTRATORS, INC.
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi
Title: President
NATIONAL NETWORK SERVICES, INC.
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi
Title: President
the "Companies"
RONALD J. DAVI, individually
/s/ RONALD J. DAVI
---------------------------------
THE RONALD J. DAVI IRREVOCABLE
QUALIFIED ANNUITY TRUST
AGREEMENT I
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi, Trustee
<PAGE>
THE RONALD J. DAVI IRREVOCABLE
QUALIFIED ANNUITY TRUST
AGREEMENT II
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi, Trustee
THE RONALD J. DAVI IRREVOCABLE
QUALIFIED ANNUITY TRUST
AGREEMENT III
By: /s/ RONALD J. DAVI
---------------------------------
Name: Ronald J. Davi, Trustee
"Seller"
<PAGE>
LIST OF EXHIBITS
Exhibit 1.1 Definitions
Exhibit 2.2 Purchase Price Allocation
Exhibit 2.4(a) Exceptions to Company Benefit Plan Terminations
Exhibit 2.5 Affiliated Contracts
Exhibit 7.1(f) Opinions of Counsel
Exhibit 7.1(i) LLC Operating Agreement
Exhibit 7.1(j) Escrow Agreement
Exhibit 7.1(m) Employment Agreements
Exhibit 7.2(f) Opinion of Fowler, White, Gillen, Boggs, Villareal and
Banker, P.A.
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
EXHIBIT 2.9
SUBSCRIPTION
AND
ASSET CONTRIBUTION AGREEMENT
THIS SUBSCRIPTION AND ASSET CONTRIBUTION AGREEMENT, is made this 16th
day of June, 1998, by and between CENTRA HealthPlan LLC, a Delaware Limited
Liability Corporation to be formed ("CENTRA LLC" or "LLC"), and its prospective
members: HEALTHPLAN SERVICES, INC., a Florida corporation ("HPS"), and CENTRA
BENEFIT SERVICES, INC., a Minnesota corporation ("CBS" or the "Contributor").
W I T N E S S E T H :
WHEREAS, the Contributor owns or leases certain assets (the
"Contributed Assets") comprising substantially all the assets used in a third
party administration business which administers self-insured employee health
benefit plans under administrative contracts with employers who sponsor such
plans (the "Business"); and
WHEREAS, subject to the terms and conditions of this Agreement, the
Contributor and HPS desire to set forth the terms and conditions under which
they will organize CENTRA LLC, and, at organization, (i) HPS will subscribe for
and contribute $201,400.00 in return for 1% of the Interests in CENTRA LLC and
(ii) the Contributor will contribute the Contributed Assets to the LLC subject
to the assumption by the LLC of certain Assumed Liabilities all as hereinafter
set forth and in return therefor CENTRA LLC will issue to the Contributor 99% of
the Interests in CENTRA LLC; and
WHEREAS, immediately after contribution the Contributed Assets to
CENTRA LLC and receiving from CENTRA LLC 99% of the Interests of CENTRA LLC, HPS
intends to purchase from the Contributor a portion of such Interests of the LLC
totalling 49.1% of the total outstanding Interests of the CENTRA LLC in
accordance with an LLC Interest Purchase Agreement of like date herewith between
the Contributor and HPS.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
parties hereto agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The capitalized terms used herein will have the
meanings ascribed to them in EXHIBIT 1.1 hereto. Unless the context otherwise
requires, such capitalized terms will include the singular and plural and the
conjunctive and disjunctive forms of the terms defined. Additionally,
capitalized terms defined in the LLC Interest Purchase Agreement or the Centra
LLC Operating Agreement which are not otherwise defined herein shall have the
meanings used in those agreements.
ARTICLE 2
COVENANTS AND UNDERTAKINGS.
2.1 FORMATION OF CENTRA LLC AND CONTRIBUTION OF THE CONTRIBUTED ASSETS
AND BUSINESS; ASSUMPTION OF ASSUMED LIABILITIES BY CENTRA LLC. Subject to the
terms and conditions hereinafter set forth, at the Closing (i)the Contributor
and HPS shall organize CENTRA LLC by executing the CENTRA Limited Liability
Company Operating Agreement in substantially the form as set forth in EXHIBIT
2.1(A) attached hereto and filing with the Secretary of State of the State of
Delaware such organizational documents as are required under the Delaware
Limited Liability Company Act, (ii) HPS shall contribute the sum of $201,400.00
to the capital of CENTRA LLC in return for a 1% interest in the LLC, (iii) the
Contributor shall contribute the Contributed Assets to CENTRA LLC, free and
clear of all liens, claims, charges, security interests and other encumbrances
of any nature whatsoever other than Permitted Liens and those associated with
the Assumed Liabilities, in return for a 99% interest in CENTRA LLC, and (iv)
CENTRA LLC shall assume the Assumed Liabilities. CENTRA LLC shall not assume any
of the Excluded Liabilities, which shall be retained by the Contributor in their
entirety. Such contribution, transfer, conveyance and delivery shall be
evidenced by the delivery by Contributor to CENTRA LLC of such documents of
transfer as HPS shall reasonably request.
2.2 POST-CLOSING AUDIT AND CONTRIBUTION REQUIREMENTS OF CONTRIBUTOR;
PROCEDURES AND DETERMINATION OF THE DEFICIENCY AMOUNT DUE FROM CONTRIBUTOR. The
percentage of Interests received by the Contributor for the Contributed Assets
has been determined based upon the assumption that a post-Closing audit of the
opening balance sheet of CENTRA LLC as of the close of business on the Closing
Date will verify that, as of the close of business on the Closing Date, CENTRA
LLC's Adjusted Working Capital will be not less than $701,400.00 and Net
Non-Current Assets as determined
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from the Audited Opening Balance Sheet prepared in connection with such audit
will not be less than the amounts thereof shown on the unaudited consolidated
balance sheet as of 2/28/98 (the "Unaudited 2/28/98 Balance Sheet") provided to
HPS by Contributor and attached as EXHIBIT 3.8 hereto. It is the intent of the
parties that at the Closing the parties will review a trial balance sheet
prepared by Contributor utilizing available information and projections for any
information not available so as to determine in good faith the position of the
Contributor with respect to the working capital of the Business and the changes
in the non-current assets and liabilities of the Business to be contributed.
Based upon this trial balance sheet the Contributor will in good faith pay down
bank debt and contribute cash to the Business being transferred as a part of the
Transferred Assets so as to minimize the amount of any Deficiency Amount in
connection with the post closing audit detailed below. This will be accomplished
by Contributor instructing HPS to the extent appropriate to disburse part of the
HPS Interests Cash Purchase Price Amount to CENTRA LLC or to the Contributor's
lender at Closing. Such disbursements shall be documented in a closing cash
disbursements instruction letter from the Contributor to HPS. In order to verify
the LLC's Adjusted Working Capital and Net Non-Current Assets, CENTRA LLC will
at its expense prepare an opening balance sheet after the contributions by
Contributor and HPS contemplated above and after the assumption of the Assumed
Liabilities and will have such opening balance sheet audited by the Tampa office
of Price Waterhouse LLP (the "Audited Opening Balance Sheet"). In connection
with the audit, any account or part of any account receivable included on the
Audited Opening Balance Sheet which is more than ninety (90) calendar days past
due or which is being disputed by the debtor will have a reserve established
therefor by the auditor. To the extent such accounts are subsequently collected
by CENTRA LLC, CENTRA LLC shall reimburse Contributor for the amount of the
reserve so collected. To the extent that the Adjusted Working Capital is less
than $701,400.00(US) and Net Non-Current Assets as determined from the Audited
Opening Balance Sheet is less than $2,772,000.00(US) (each a "Deficiency
Amount"), the Contributor shall make an additional contribution to the CENTRA
LLC, in the aggregate of such Deficiency Amounts as shown on the Final Statement
of Deficiency Amount (a "Deficiency Amount Contribution") provided that if such
Deficiency Amount Contribution is less than $250,000.00 (US), it shall be
payable only from Post Closing Payments due to Contributor from HPS as specified
in the LLC Interest Purchase Agreement. If the Deficiency Amount Contribution is
$250,000.00(US) or more, the Contributor shall pay such amount, in cash or other
readily available funds, to CENTRA LLC within 10 Business Days of final
determination. The Deficiency Amount shall be determined in accordance with the
following procedures:
(i) In order to determine the Deficiency Amount,
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if any, payable by Contributor to CENTRA LLC, within 120 days of the
Closing Date, CENTRA LLC will deliver to Contributor and HPS the
Audited Opening Balance Sheet together with a statement setting forth
the Deficiency Amount, if any, derived therefrom (a "Statement of
Deficiency Amount"). Thereafter, Contributor and HPS shall have 45
days during which its authorized representatives shall have full
access at all reasonable times to the properties, books, records and
personnel of the CENTRA LLC and the Contributor relating to periods
prior to the opening balance sheet for purposes of reviewing and
resolving any disputes concerning the Audited Opening Balance Sheet
and the Statement of Deficiency Amount. Contributor and HPS shall have
30 days following delivery to them of the Audited Opening Balance
Sheet and the Statement of Deficiency Amount during which to notify
CENTRA LLC of any dispute. Prior to the expiration of such 30-day
period, if Contributor or HPS has any objection to the Audited Opening
Balance Sheet or the Statement of Deficiency Amount, such disputing
party (a "Disputing Party") shall give written notice to CENTRA LLC
and the other non-disputing party of such objection to the Audited
Opening Balance Sheet (a "Disputing Party's Objection Notice") which
notice shall set forth in reasonable detail the basis for such
dispute. If neither HPS nor the Contributor notifies CENTRA LLC and
the other that they are disputing any item contained in the Audited
Opening Balance Sheet or the Statement of Deficiency Amount prior to
the close of business on the 30th day after delivery thereof, the
Audited Opening Balance Sheet and Statement of Deficiency Amount
provided by the CENTRA LLC shall be final, conclusive and binding and
shall be deemed to be the "Final Opening Balance Sheet" and the "Final
Statement of Deficiency Amount." In the event that Contributor shall
so notify CENTRA LLC of any dispute it shall notify CENTRA LLC and HPS
of the amount if any which is not in dispute (the "Non Disputed
Deficiency Amount") and such Non Disputed Deficiency Amount shall be
payable to the CENTRA LLC as specified above. The Contributor and HPS
shall cooperate in good faith to resolve any dispute as promptly as
practicable. If CENTRA LLC, HPS and the Contributor are unable to
resolve any such dispute within 15 days of a Disputing Party's
delivery of the Disputing Party's Objection Notice, such dispute shall
be resolved by the Settlement Auditor. In resolving such dispute, the
Settlement Auditor shall make such revisions to the Audited Opening
Balance Sheet and Statement of Deficiency Amount as it deems
appropriate in accordance
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with GAAP in order to make a determination of the Deficiency Amount,
if any, in accordance with GAAP as promptly as practicable provided
that the Deficiency Amount as so determined must be between (or equal
to one of) the high and low amounts proposed by Contributor, HPS and
CENTRA LLC in the dispute. Such determination shall be final,
conclusive and binding on the parties and shall be deemed a final
arbitration award that is enforceable pursuant to all terms of the
Federal Arbitration Act, 9 U.S.C. ?? 1 ET SEQ. (the "Federal
Arbitration Act"). The expenses relating to the engagement of the
Settlement Auditor shall be paid by CENTRA LLC until the Contributor's
Put Right has been exercised, after which the expenses shall be paid
one-half by HPS and one-half by the Contributor. In the event of a
dispute, the Audited Opening Balance Sheet and Statement of Deficiency
Amount, as modified by the Settlement Auditor, shall be the "Final
Opening Balance Sheet" and the "Final Statement of Deficiency Amount."
(ii) Upon determination of the Final Opening Balance Sheet and
the Final Statement of Deficiency Amount, if the Deficiency Amount is
less than $250,000.00, HPS shall deduct the Deficiency Amount shown
thereon less any undisputed portion previously deducted pursuant to
subparagraph (i) above, from the Post Closing Payments as specified in
the LLC Interest Purchase Agreement and shall pay such amount instead
to CENTRA LLC. If the Deficiency Amount is $250,000.00 or more, the
Deficiency Amount, less any undisputed portion previously paid
pursuant to subparagraph (i) above, shall be paid by the Contributor
to CENTRA LLC in cash or other immediately available funds within 10
Business Days of final determination. The payment of or deduction of
the Deficiency Amount shall not be subject to the limitation
provisions of Section 8.4 and 8.6 hereof.
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2.3 EMPLOYEE MATTERS.
(a) EMPLOYEE LEASE AND TRANSFERRED EMPLOYEES. No employees of the
Contributor shall become employees of CENTRA LLC on the Closing Date. On the
Closing Date, CENTRA LLC shall identify to Contributor those employees of the
Contributor that CENTRA LLC would like to lease from the Contributor (the
"Leased Employees") and shall enter into an employee leasing agreement (the
"Employee Lease Agreement") with the Contributor covering such employees in the
form of EXHIBIT 2.3 hereof. From and after the Closing, as between the
Contributor and the Employee, the Contributor shall be solely responsible for
the salary and benefits of the Leased Employees for so long as the Employee
Lease Agreement is in force. No employee liability of Contributor shall be
transferred to or assumed by CENTRA LLC except for the liability of CENTRA LLC
for payments to Contributor under the Employee Lease Agreement for those
employees leased by the CENTRA LLC. Without limiting the foregoing, the
Contributor shall pay and be liable for all payments due or owing to its
employees or former employees (whether or not such employees become Leased
Employees or Transferred Employees) which result from any event occurring on or
prior to the date they become Transferred Employees as contemplated below,
including but not limited to workers' compensation expenses and health care
costs and any severance or other benefit payments due to such employees as a
result of any termination or deemed termination of such employees by Contributor
or as a result of the transactions contemplated hereby. The Contributor will
retain all liability for the amount of any accrued or accruable vacation, sick
leave, personal time and other benefit plans applicable to its employees for all
periods until they become Transferred Employees. The Employee Lease Agreement
may be terminated at any time by agreement of the parties thereto but shall not
extend beyond January 1, 1999, at which time CENTRA LLC shall offer employment
to such of Contributor's employees as it deems appropriate in its sole
discretion (the "Transferred Employees"). Contributor shall have the right to
provide WARN Act notices to its employees when required by law; however any WARN
Act liabilities shall not be an Assumed Liability but shall remain the liability
of the Contributor. CENTRA LLC shall have no liability or responsibility to
those employees who are not offered employment with CENTRA LLC and any
termination or other liabilities to such persons shall be the Contributor's
responsibility. CENTRA LLC shall be responsible for the salaries and other costs
of all Transferred Employees from and after the termination of the Employee
Lease Agreement, and such Transferred Employees will be eligible to participate
in CENTRA LLC-sponsored Plans from and after the termination date of the
Employee Lease Agreement. Nothing contained in this Section 2.3 shall be deemed
to relieve HPS of its liabilities under Section 2.9 hereof.
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2.4 FIDUCIARY ACCOUNTS. At the Closing, the Contributor shall transfer
to CENTRA LLC exclusive control and signature authority over all fiduciary
accounts maintained by Contributor for customers whose contracts are transferred
to CENTRA LLC as a part of the Contributed Assets. Within thirty days of the
Closing, Contributor shall provide to CENTRA LLC a reconciliation and accounting
for each such account.
2.5 TRANSITION MATTERS. At the Closing, CENTRA LLC, HPS and Contributor
shall enter into an Administrative Services Agreement in the form of EXHIBIT 2.5
hereto which sets out certain agreements between them with respect to the
transfer of the Business and its conduct after transfer. In addition to the
matters set forth therein, the parties agree that the Contributor will inform
all stop loss and other insurance carriers who provide coverage to employer
customers of the Business that the administration of such cases including the
claims processing has been irrevocably assigned and transferred to CENTRA LLC,
and Contributor will take such other action as CENTRA LLC may reasonably request
to insure that such responsibilities are transferred.
2.6 CONSENTS. The Contributor, CENTRA LLC and HPS shall cooperate, and
use their best efforts, to make all filings and obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties necessary to consummate the transactions
contemplated by this Agreement. Notwithstanding the foregoing, nothing herein
shall obligate or be construed to obligate HPS or Contributor to make any
payment to any third party in order to obtain the consent or approval of such
third party other than license applications or transfer fees to governmental
authorities. With respect to any required consent or approval which is not
obtained prior to the Closing, the Contributor, CENTRA LLC and HPS shall each
use commercial reasonable efforts to obtain any such consent or approval after
the Closing Date until such consent or approval has been obtained and the
Contributor shall provide CENTRA LLC with the same benefits arising under such
agreements, including performance by the Contributor as agent, and/or
performance by HPS or CENTRA LLC as sub-contractor or sub-agent, if legally and
commercially feasible, PROVIDED that CENTRA LLC shall provide the Contributor
with such access to the premises, books and records and personnel as is
reasonably necessary to enable the Contributor to perform its obligations under
such agreements and CENTRA LLC shall pay or satisfy the corresponding
liabilities for the enjoyment of such benefits to the extent CENTRA LLC would
have been responsible therefor if such consent or approval had been obtained.
CENTRA LLC shall indemnify, defend and hold CBS harmless for any claims,
damages, actions and costs arising from HPS's actions after Closing to the
extent such
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actions result in claims being asserted against CBS by reason of HPS's actions
as a subcontractor or subagent.
2.7 GOOD FAITH DEALING. Each of the parties hereto agrees that it will
at all times act in good faith and with fair dealing with respect to its
obligations under this Agreement.
2.8 CLOSING. The Closing will take place at the offices of Fowler,
White, Gillen, Boggs, Villareal and Banker P.A., 501 East Kennedy Blvd., Tampa,
Florida, at 10:00 a.m. local time on the Closing Date, or by mail, in which
instance the transaction shall be deemed to have been closed in Tampa, Florida,
when signed in that state by CENTRA LLC after delivery of signed documents by
the Contributor and HPS.
2.9 ACCOUNTING FOR CERTAIN CONTRIBUTOR RETAINED EXPENSE ITEMS. At the
Closing, the Contributor will retain as an Excluded Liability responsibility for
the payment of all Designated Expense Items. If the aggregate of all such
Designated Expense Items determined as of March 15, 1999 (including reasonable
reserves for any employee related claims, third party claims which are
unresolved as of such date) exceeds the sum of $2,500,000.00, the excess of such
Designated Expense Items over $2,500,000.00 shall be reimbursed to the
Contributor by CENTRA LLC. Likewise, if the aggregate amount of such Designated
Expense Items are less than $2,500,000.00 as of March 15, 1999 (including
reasonable reserve for any third party claims which are unresolved as of such
date), such shortfall shall be paid by the Contributor to CENTRA LLC. Such
payments ("Retained Expense Reimbursements") will be made by the party charged
therewith within ten Business Days after receipt of an acceptable accounting
thereof from the Contributor, which accounting shall be delivered to CENTRA LLC
and HPS by April 15, 1999. Any dispute with respect to the financial aspects of
the accounting shall be resolved by a Settlement Auditor in accordance with the
Dispute Resolution Procedures. Any other dispute shall be settled in accordance
with the Dispute Resolution Procedures by an arbitrator. Any reserves
established in the above-referenced accounting shall be accounted for between
the parties when the claims related thereto are finally resolved with the amount
of any payments made is excess of the reserve being reimbursed to the party
paying money under the foregoing provisions and the amount of any payments which
are less than the reserve being paid to the party receiving money under the
foregoing provisions. If any claims are received by the Contributor after March
15, 1999 and prior the June 30, 2000, when they are finally determined, they
shall be accounted for in the same manner as they would have been accounted for
had they been resolved prior to March 15, 1999.
2.10 POST CLOSING RECEIPTS. From and after the Closing, the Contributor
will promptly pay over and forward to CENTRA LLC any
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receipts of the Business received by the Contributor from any customer or past
customer or any other revenues which are received by the Contributor which
should have been a part of the Contributed Assets or otherwise belong to the
Business which was contributed to CENTRA LLC pursuant to the terms of this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE CONTRIBUTOR
The Contributor represents and warrants to HPS and CENTRA LLC as
follows:
3.1 CAPACITY TO SELL. The Contributor has the full legal right, power,
and authority to contribute, convey, assign, and transfer the Contributed Assets
to CENTRA LLC pursuant to this Agreement.
3.2 ORGANIZATION. The Contributor is a corporation duly organized,
validly existing, and in good standing under the Laws of Minnesota and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership of the Business and the use of the
Contributed Assets or the conduct or nature of the Business or the Contributed
Assets makes such qualification necessary. SCHEDULE 3.2 attached hereto sets
forth a true and complete list of each jurisdiction in which the Contributor is
qualified to do business as a foreign corporation by reason of its operation of
the Business or the ownership of the Contributed Assets.
3.3 AUTHORITY. The Contributor has full power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution,
delivery and compliance with the terms of this Agreement by the Contributor and
the performance by the Contributor of its obligations hereunder has been duly
and validly authorized by all necessary action on the part of its Board of
Directors. This Agreement has been duly and validly executed and delivered by
the Contributor and constitutes a legal, valid, and binding obligation of the
Contributor, enforceable against the Contributor in accordance with its terms,
except to the extent that (a) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
conveyance, or similar Laws now or hereafter in effect relating to or limiting
creditors' rights generally, and (b) the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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3.4 NO CONFLICTS. Neither the execution and delivery by the Contributor
of this Agreement nor the performance of the obligations of the Contributor
hereunder will:
(a) conflict with or violate any Law or Order applicable to the
Contributor, or any of the Contributed Assets including any Law applicable to
bulk sales of assets;
(b) conflict with or violate any term of the Articles of
Incorporation or Bylaws of the Contributor;
(c) result in the creation or imposition of any Lien upon the
Contributed Assets or conflict with or result in or constitute a default under,
or give to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract which is a part of the
Contributed Assets; or
(d) require the Contributor or CENTRA LLC to obtain any material
consent, approval, or action of, or make any material filing with or give any
notice to, any Person except for those consents, filings and notices listed on
SCHEDULE 3.4.
3.5 LITIGATION. Except as disclosed on SCHEDULE 3.5 hereto:
(a) there are no actions, suits, investigations, arbitrations, or
similar proceedings pending or, to the knowledge of the Contributor or the
Shareholders or any of their officers, directors or employees, threatened
against the Contributor which involve or could result in a Lien against the
Business or the Contributed Assets, at law or in equity, in, before, or by any
Person; and
(b) there is no Order outstanding against or involving the
Contributor, or any of the Contributed Assets.
3.6 COMPLIANCE WITH LAWS. The Contributor is not and has not been in
violation (or with or without notice or lapse of time or both, would be in
violation) of any Law or Order applicable to the Business or the Contributed
Assets, except for violations that, individually or in the aggregate, do not or
may not reasonably be expected to have a Material Adverse Effect on the Business
or the Contributed Assets.
3.7 LICENSES.
(a) SCHEDULE 3.7(a) hereto sets forth a true and complete list
of all jurisdictions in which the Contributor or any of its employees are
licensed as insurance brokers, agents, third
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party administrators or utilization review providers and a true and complete
list of each other License held by the Contributor or its employees in
connection with the conduct of the Business or the ownership of the Contributed
Assets.
(b) Except as disclosed on SCHEDULE 3.7(b), the Contributor and
its employees hold all Licenses required in connection with the conduct of the
Business.
(c) The Contributor and its employees have complied with the
terms and conditions of each License disclosed or required to be disclosed on
SCHEDULE 3.7(a), and all such Licenses are valid, binding, and in full force and
effect.
(d) Except as disclosed on SCHEDULE 3.7(d), to the knowledge of
the Contributor, each Person who has been involved in any way with the sale of
any administrative Contract or other product by or through the Contributor and
who, at the time of any such involvement, was required to hold any Licenses for
such involvement, has so held all such required Licenses at all required times.
3.8 FINANCIAL STATEMENTS. The Contributor has delivered to HPS and to
CENTRA LLC true and complete copies of the unaudited consolidated balance sheet
of the Contributor at December 31, 1997 and the related statements of income and
expense for the fiscal year then ended, together with the Unaudited 2/28/98
Balance Sheet and the related statement of income and expense for the period
then ended (collectively the "Financial Statements"), all of which have been
prepared in accordance with GAAP, consistently applied with prior periods,
except as disclosed in SCHEDULE 3.8 attached hereto. Such Financial Statements
present fairly in all material respects the financial position of the
Contributor for the periods indicated.
3.9 NO UNDISCLOSED LIABILITIES. At Closing, there will be no
Liabilities of the Contributor which encumber or otherwise are attached to the
Contributed Assets, except for the Assumed Liabilities and any Liabilities
arising through CENTRA LLC.
3.10 ASSETS NECESSARY TO THE BUSINESS.
(a) ASSETS. The Contributed Assets, including but not limited to
the Tangible Leased Assets and the Tangible Owned Property , comprise all of the
assets that are currently being used in, and all the assets that are necessary
to, the conduct of the Business in the ordinary course and consistent with past
practice and are adequate for the conduct, after the Closing, of the Business in
the ordinary course consistent with past practice. All of the Contributed Assets
are in operating condition and are
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adequate for use by the CENTRA LLC, after the Closing, in the ordinary course of
the Business consistent with past practice. The Contributor currently has and,
at Closing, will transfer to CENTRA LLC title to all such Contributed Assets
free and clear of any Lien, charge or encumbrance other than Permitted Liens
including but not limited to those set forth in SCHEDULE 3.10(a) attached
hereto.
(b) TANGIBLE LEASED ASSETS. SCHEDULE 3.10(b) attached hereto sets
forth all leases and similar Contracts under which the Contributor leases or
otherwise has the right to use any tangible property or tangible assets
currently used in the Business other than those which are Excluded Assets (the
"Tangible Leases"). All of such leases will be assigned to CENTRA LLC as a part
of the Contributed Assets as soon after Closing as possible in accordance with
the provisions of Section 2.6 hereto. The Contributor has, and after assignment,
the CENTRA LLC will have, a valid leasehold interest in or valid right under
each such Tangible Lease to use each such asset.
(c) TANGIBLE OWNED ASSETS. SCHEDULE 3.10(c) of the Agreement sets
forth all material tangible property owned by the Contributor currently used in
the Business whether real or personal in nature (the "Tangible Owned Property").
All such Tangible Owned Property is included in the Contributed Assets.
(d) INTELLECTUAL PROPERTY. SCHEDULE 3.10(d) of this Agreement
sets forth a true and complete list and description of all of the following
assets or properties of the Contributor that are used in or arise from the
conduct of the Business: (i) all registered marks, names, trademarks, service
marks, patents, patent rights, assumed names, logos, trade secrets, copyrights,
processes, know how, procedures, trade names, service marks, and other
intellectual properties (the "Intellectual Property"); and (ii) all computer
software, programs, and similar systems owned by or licensed to the Contributor
(the "Computer Software"). Except as disclosed on SCHEDULE 3.10(D), the
consummation of the transactions contemplated by this Agreement will not (A)
require any consent, approval, or action of, filing with, or payment or notice
to, any Person in connection with the ownership or use of such Intellectual
Property and Computer Software, or (B) invalidate, terminate, or violate any
term applicable to the ownership or use of such Intellectual Property or
Computer Software. Except as disclosed on SCHEDULE 3.10(d)(i), CENTRA LLC will
have the right to use, free and clear of any royalty or other payment
obligations, such Intellectual Property and Computer Software except to the
extent that such Intellectual Property or Computer Software is expressly
included in the Excluded Assets. Except as disclosed on SCHEDULE 3.10(d)(ii),
the Contributor is not in conflict with or in violation or infringement of, and
the
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Contributor has received no notice of any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any other
Person with respect to any Intellectual Properties or Computer Software
disclosed or required to be disclosed on SCHEDULE 3.10(d)(i)OR(ii).
3.11 TAXES AND TAX RETURNS. CENTRA LLC will not become subject to any
Taxes, interest, penalties or other similar charges as a result of the
Contributor's failure to file timely or accurately, as required by applicable
law, any Tax Return or to pay timely any amount shown to be due thereon,
including, without limitation, any Taxes, interest, penalties or charges
resulting from the obtaining of an extension of time to file any return or to
pay any Tax. As between the parties hereto, Contributor shall be solely liable
for any Taxes, interest, penalties, or charges attributable to the operation of
the Business and the Contributed Assets during any period ending on or before
the Closing Date, and which may be assessed against CENTRA LLC as a transferee
or successor under provisions including, but not limited to, Treas. Reg. "
1.1502-6 (or any similar provisions of state, local or foreign law). No
assessments or notices of deficiency or other communications have been received
by the Contributor relating to the Business with respect to any Tax Return which
has not been paid or discharged. Any tax sharing agreements to which the
Contributor is a party shall be terminated with respect to the Business and the
Contributed Assets as of the Closing and shall thereafter be inoperative with
respect to CENTRA LLC or the Business for any taxable year (whether the current
year, a future year, or a past year). The Contributor as of the Closing will
have duly and timely withheld from all of its employees' salaries, wages, and
other compensation and then, or as soon as thereafter due, paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable Laws.
For purposes of this Section 3.11, any reference to the Contributor
shall include any corporation which merged or was liquidated with and into the
Contributor.
3.12 MATERIAL CONTRACTS. SCHEDULE 3.12 of this Agreement sets forth a
true and complete list of each Material Contract of the Business as of the
Closing Date. Each such Material Contract is in full force and effect and
constitutes a legal, valid, and binding obligation of the Contributor and each
other party thereto, enforceable against the parties thereto in accordance with
its terms, except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer, or similar Laws now or hereafter in effect relating to or limiting
creditors' rights generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief are subject to
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certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. Neither the Contributor nor to the knowledge
of the Contributor any other party to any Material Contract is in default under
any such Material Contract or under any other Contract to which the Contributor
is a party which relates to the Business. Since the Balance Sheet Date, no
Material Contract has been amended or supplemented in any material and adverse
respect.
3.13 MATERIAL CHANGES. Except as disclosed on SCHEDULE 3.13 hereto or
except as contemplated by this Agreement:
(a) since the Balance Sheet Date, there has not been, occurred,
or arisen any change, event (including without limitation any damage,
destruction, or loss, whether or not covered by insurance), condition,
circumstance, or development of any character that, individually or, in the
aggregate, has or may reasonably be expected to have a Material Adverse Effect
on the Business or the Contributed Assets;
(b) since the Balance Sheet Date, the Contributor has conducted
the Business solely in the ordinary course of business and consistent with past
practice; and
(c) since the Balance Sheet Date, Contributor has not declared or
paid any dividends or other distributions in respect of its capital stock, nor
have either made, or committed to make, any redemption or other repurchase of
any of its capital stock, and there has been no increase in or incurrence of any
intercompany payables or subordinated debt and no material change in the fixed
assets, intangible assets (less normal amortization), other assets or
liabilities accounts of the Contributor.
3.14 CUSTOMERS, AGENTS, ETC. Except as set forth on SCHEDULE 3.14
hereto, no customer, employer or other Person to whom or through whom the
Contributor has sold any service or other product related to the Business,
accounted for more than 10% of the gross revenue of the Business during 1997 and
1998. To the knowledge of the management of the Contributor (meaning those
management employees of Contributor who are in positions on the organizational
chart at the level of sales manager and above), no Person with whom the
Contributor does business intends to terminate or materially alter its
relationship with the Business or CENTRA LLC after the Closing.
3.15 COMPANIES WHOSE PRODUCTS ARE SOLD. SCHEDULE 3.15 hereto sets forth
a true and complete list of all Persons whose insurance or other products
related to the Business were sold by or through the Contributor during 1997 and
1998. To the knowledge of the Contributor and the Shareholders, no Person listed
on
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SCHEDULE 3.15 intends to terminate or materially alter its relationship with the
Business or CENTRA LLC after the Closing.
3.16 LABOR MATTERS:
(a) No employee of the Contributor is represented by any labor
organization;
(b) the Contributor is not a party to any labor or collective
bargaining Contract which would cover the Transferred Employees;
(c) there is no material labor controversy, labor dispute, labor
arbitration, unfair labor practice charge, grievance, or complaint, strike,
lockout, or work slowdown or stoppage pending or, to the knowledge of the
Contributor, threatened against or involving the Contributor based on, arising
out of, or related to the employment by the Contributor of any employee;
(d) there is no complaint, charge, or claim pending or, to the
knowledge of the Contributor, threatened against or involving the Contributor by
any Person based on, arising out of, or related to the employment by the
Contributor of any employee, except for the claim of Alice Smith, which claim
does not exceed $12,000.00;
(e) no labor or collective bargaining Contract with respect to
the employees of the Contributor is currently being negotiated, and to the
knowledge of the Contributor, no union organizing activities are currently
taking place with respect to any employees of the Contributor; and
(f) to the knowledge of the Contributor, no employee has
expressed any intention or desire to terminate his or her relationship with the
Business after the Closing.
3.17 ENVIRONMENTAL COMPLIANCE. Contributor has complied with all
applicable environmental Laws relating to real property to be transferred to or
leased by CENTRA LLC which has been owned or occupied by Contributor, and the
business, activities, and processing conducted thereon, except for such
noncompliance that, individually or in the aggregate, has not had and may not
reasonably be expected to have a Material Adverse Effect on the Business or the
Contributed Assets. To the Contributor's knowledge, there is not on or in any
part of such leased real property any underground storage tanks or surface
tanks, lines, dikes, or impoundments which are leaking or discharging any
Hazardous Substance.
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3.18 INTEREST IN COMPETITORS, ETC. Except as listed on SCHEDULE 3.18
(which contains a brief description of such relationship) neither the
Contributor, nor, to the knowledge of the Contributor, any employee of the
Contributor is, directly or indirectly, a principal, officer, director,
shareholder, investor, consultant, advisor, partner, joint venturer or equity
owner in or with, or to the knowledge of the Contributor, employee of, any
Person who is a competitor, supplier, manufacturer, vendor or customer of the
Business. Notwithstanding the foregoing, Contributor, or any of its respective
employees, may own up to 1% of any stock or equity in a publicly-traded company
which is a competitor of the Business.
3.19 ACCOUNTS RECEIVABLE. All accounts receivable which are a part of
the Contributed Assets represent bona fide claims for sales or distribution of
products or services by or through Contributor in the ordinary course of
business and consistent with past practice and are not subject to offset,
reduction or other claim by reason of any action, inaction or practice of the
Contributor. The reserve for bad debts related to such accounts as of the
Closing Date has been established in accordance with GAAP based on historical
experience.
3.20 BANK ACCOUNTS. SCHEDULE 3.20 hereto contains (a) a true and
complete list of the names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which the Contributor
has an account or safe deposit box or maintains a banking, custodial, trading,
or other similar relationship and (b) a true and complete list and description
of each such account, box, and relationship, indicating in each case the account
number and the names of the respective officers, employees, agents, or other
similar representatives of Contributor who are signatories thereon or who are
authorized to act in connection therewith.
3.21 BOOKS AND RECORDS. The books, records and accounts of the Business
accurately and fairly reflect, in reasonable detail, the transactions and the
assets and liabilities of the Business. The Contributor has not engaged in any
transaction, maintained any bank account or used any of its funds except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the Business.
3.22 FIDUCIARY ACCOUNTS. All accounts maintained by the Contributor on
behalf of clients or customers have been maintained in accordance with
applicable principles of fiduciary law and the agreements or understandings
under which they were established. No funds which were supposed to be maintained
therein have been co-mingled with Contributor funds and all such accounts are
reconciled on a monthly basis and no unaccounted for material
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shortage or deficiency exists with respect to such accounts. Signature authority
and control of all such accounts have been transferred to CENTRA LLC as a part
of the Contributed Assets.
3.23 DISCLOSURE. No representation or warranty made by the Contributor
in this Agreement or in any certificate furnished by the Contributor hereunder
and no other factual information (other than estimates, pro forma financial
statements or forecasts) relating to the Business, the Shareholders or the
Contributor furnished by or on behalf of the Contributor to CENTRA LLC's
officers, directors, employees, agents, consultants, or other representatives
for purposes of or in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HPS
HPS hereby represents and warrants to the Contributor and CENTRA LLC as
follows:
4.1 ORGANIZATION. HPS is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Florida.
4.2 AUTHORITY. HPS has full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution,
delivery, and compliance with the terms of this Agreement by HPS and the
performance by HPS of its obligations hereunder have been duly and validly
authorized by all necessary action on the part of HPS. This Agreement has been
duly and validly executed and delivered by HPS and constitutes, a legal, valid,
and binding obligation of HPS, enforceable against HPS in accordance with its
terms, except to the extent that (a) enforcement may be limited by or subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
conveyance, or similar Laws now or hereafter in effect relating to or limiting
creditors, rights generally, and (b) the remedy of specific performance and
injunctive and other forms of equitable relief which are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
4.3 NO CONFLICTS. Except as disclosed in SCHEDULE 4.3 hereto, neither
the execution and delivery by HPS of this Agreement nor the performance by HPS
of its obligations under this
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Agreement will:
(a) conflict with or violate any Law or Order applicable to HPS
or any of its respective assets or properties;
(b) conflict with or violate any term of the Articles of
Incorporation or Bylaws of HPS;
(c) result in the creation or imposition of any Lien upon CENTRA
LLC or any of its assets or properties or conflict with or result in a default
under, or give any Person any right of termination, cancellation, acceleration,
or modification in or with respect to, any Contract to which CENTRA LLC is a
party or by which any of HPS's assets or properties may be bound; or
(d) require HPS to obtain any consent, approval or action of, or
make any filing with or give any notice to, any Person.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
At all times during the period between the date hereof and the Closing,
inclusive, the Contributor will comply with all covenants and provisions of this
Article 5, unless otherwise agreed by HPS and CENTRA LLC in writing.
5.1 CONDUCT OF BUSINESS. The Contributor will conduct the Business
solely in the ordinary course of business and consistent with past practice.
Without limiting the generality of the foregoing and except as otherwise
expressly required by this Agreement:
(a) The Contributor will use all commercially reasonable
efforts to (i) preserve intact the Business's present business organizations,
relationships, and reputation; (ii) maintain in full force and effect all
Licenses held by the Contributor with respect to the Business; (iii) maintain in
full force and effect all Contracts relating to the Business (other than
Contracts which expire and are not renewed in the ordinary course of business
and consistent with past practice); (iv) continue all marketing and promotional
activities, programs, and efforts relating to the Business; (vi) maintain in
good working order and condition (ordinary wear and tear excepted) all of the
Contributed Assets;(vii) maintain in full force and effect substantially the
same levels of insurance coverage as afforded under the insurance Contracts in
force as of the Balance Sheet Date; and (viii) prevent any material adverse
change in the
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Contributor's fixed assets, intangible assets(other than normal amortization),
other assets or liability accounts of the Business.
(b) The Contributor will (i) prepare and timely file (or cause to
be prepared and timely filed, including any extensions thereof) all Tax Returns
required to be filed with any Governmental Authority by the Contributor; (ii)
duly and timely pay all estimated Taxes necessary to avoid the imposition of
Liens or liabilities attaching to the Business or the Contributed Assets; (iii)
duly and timely pay (or cause to be duly and timely paid) all Taxes indicated by
such Tax Returns or otherwise levied or assessed upon the Contributor or any of
its assets or properties; and (iv) withhold or collect and pay to the proper
Governmental Authority all Taxes that the Contributor is required to so withhold
or collect and pay, unless such Taxes are being contested in good faith and, if
appropriate, reasonable reserves therefor have been established and reflected on
the books and records of the Contributor.
(c) The Contributor will continue to comply with all Laws
applicable to the Business or to the Contributed Assets.
(d) The Contributor will refrain from selling or otherwise
disposing of any of the Contributed Assets, permitting any of the Contributed
Assets to be subjected to any Liens, or otherwise creating any right, title, or
interest in or to any of the Contributed Assets.
5.2 INVESTIGATION BY HPS. Before the Closing, the Contributor will
provide HPS and HPS's legal counsel, accountants, financial advisers, and other
representatives with full access to all facilities, officers, employees, agents,
accountants, and books and records of the Contributor which relate to the
Business and will furnish CENTRA LLC and such Persons with copies of such
documents, information, and data concerning the Business, as HPS or such Persons
may reasonably request. After the Closing, the Contributor will cooperate with
HPS and provide access to all records in the Contributor's possession which
relate to the Contributor so as to allow HPS and HPS's accountants to complete
an audit (within 45 days after the Closing) of CENTRA LLC's opening balance
sheet as of the Closing Date.
5.3 FINANCIAL STATEMENTS AND REPORTS. The Contributor will deliver to
HPS (as promptly as practicable after becoming available) true and complete
copies of such financial statements, reports, or analyses as may be prepared or
received by the Contributor that relate to the Business or the Contributed
Assets including without limitation periodic financial statements, normal
internal reports (such as those reflecting monthly cash flow), and special
reports (such as those of consultants).
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5.4 NO NEGOTIATIONS, ETC. Except as contemplated by this Agreement, the
Contributor will and will cause the Shareholders to refrain, and will cause its
officers, directors, employees, agents, and other representatives (including
without limitation any brokers, legal counsel, accountants, or financial
advisers, of the Contributor) to refrain, from directly or indirectly making any
offer or proposal to any Person, providing any information to or assisting any
person who indicates an interest in making an offer for or entering into any
Contract with any Person, to sell or otherwise transfer the Business or the
Contributed Assets. If any such offer or proposal is received from any Person,
the Contributor will promptly advise such Person by written notice of the terms
of this Section 5.4 and will promptly deliver a copy of such notice to CENTRA
LLC.
5.5 EMPLOYEE MATTERS. The Contributor will refrain from directly or
indirectly:
(i) making any change to, or amending in any way, the Contracts,
salaries, wages, or other compensation of any Leased Employee except
for any change in salaries, wages or other compensation pursuant to
annual reviews conducted in the ordinary course of business consistent
with past practice; or
(ii) adopting or entering into any Plan which covers the Leased
Employees.
ARTICLE 6
CERTAIN OTHER COVENANTS
6.1 REGULATORY AND THIRD PARTY APPROVALS.
(a) The Contributor, HPS and CENTRA LLC will (i) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts to obtain, as promptly
as practicable, all approvals, authorizations, clearances, and Orders of
Governmental Authorities respectively required of such party to consummate the
transactions contemplated by this Agreement, and (ii) cooperate with the other
party hereto in obtaining, as promptly as practicable, all approvals,
authorizations, clearances, and Orders of Governmental Authorities required of
the other party to consummate the transactions contemplated by this Agreement.
(b) The Contributor will use all commercially reasonable efforts,
as promptly as practicable, to obtain all
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consents, approvals, and actions disclosed or required to be disclosed on
SCHEDULE 3.4.
(c) HPS will use all commercially reasonable efforts, as promptly
as practicable, to obtain all consents, approvals, and actions disclosed or
required to be disclosed in SCHEDULE 4.3.
6.2 SATISFACTION OF CLOSING CONDITIONS. The Contributor, HPS and CENTRA
LLC shall take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, to cause to be fulfilled at or prior to the Closing all of the
conditions precedent to such party's obligation to consummate the transactions
contemplated by this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO THE OBLIGATIONS OF HPS AND CENTRA LLC. The
obligations of HPS and CENTRA LLC to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or before the Closing of each
of the following conditions (all or any of which may be waived in whole or in
part by CENTRA LLC and HPS):
(a) NO INJUNCTION. There shall not be in effect on the Closing
Date any valid Order of any Governmental Authority restraining, enjoining, or
otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
(b) NO PROCEEDING OR LITIGATION. There shall not be instituted,
pending, or (to the knowledge of the parties hereto) threatened any action,
suit, investigation, arbitration, or similar proceeding in, before, or by any
Governmental Authority or other Person to restrain, enjoin, or otherwise prevent
consummation of any of the transactions contemplated by this Agreement.
(c) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Contributor contained in this Agreement (including the
statements contained in the Schedule hereto) shall be true in all material
respects as of the date of this Agreement and shall be true in all material
respects on and as of the Closing Date as if made on and as of the Closing Date.
(d) PERFORMANCE OF AGREEMENT. The Contributor shall have
performed or complied in all material respects with all obligations that are
required to be performed or complied with by
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the Contributor pursuant to the terms of this Agreement on or before the Closing
Date.
(e) CERTIFICATES. The Contributor shall have delivered to HPS and
CENTRA LLC a certificate, dated the Closing Date, in a form reasonably
satisfactory to HPS and CENTRA LLC, certifying as to the fulfillment of the
conditions set forth in Sections 7.1(a), 7.1(b), 7.1(c), 7.1(d) and 7.1(e)
hereof. In addition, the Contributor shall deliver to HPS and CENTRA LLC one or
more certificates of the Secretary or any Assistant Secretary of the Contributor
certifying as to corporate matters reasonably requested by HPS or CENTRA LLC and
shall deliver to HPS and CENTRA LLC a certificate of good standing from the
state of Contributor's incorporation attesting to the good standing of
Contributor in such jurisdictions.
(f) OPINIONS OF COUNSEL. The Contributor shall have delivered to
HPS and CENTRA LLC an opinion, dated as of the Closing Date, of Briggs & Morgan
P.A., as counsel to the Contributor, to the effect set forth in EXHIBIT 7.1(G)
hereto.
(g) LICENSES AND ADMINISTRATIVE SERVICES AGREEMENTS. The
Contributor shall own or hold all Licenses that are necessary in connection with
the conduct of the Business as currently conducted and shall be in substantial
compliance with all the material terms of all current in-force administrative
services contracts.
(h) LEASE AGREEMENT. The Richardson Lease Agreement shall have
been assigned to CENTRA LLC in form acceptable to HPS and the CENTRA LLC and
shall extend to CENTRA LLC the right to lease the property covered thereby
consisting of a minimum of 90,000 square feet for the 6 months after Closing and
60,000 sq. feet for a minimum of 6 years and six months thereafter. Such lease
shall expressly permit the purchase of the Remaining CENTRA LLC Interests by HPS
pursuant to the terms of the LLC Interest Purchase Agreement without the need
for any approval by the Landlord.
(i) ADMINISTRATIVE SERVICES AGREEMENT. The Contributor and CENTRA
LLC shall have executed and delivered to HPS the Administrative Services
Agreement.
(j) SHAREHOLDER NON-COMPETITION AGREEMENTS. Contributor shall
have delivered to HPS and CENTRA LLC, executed Shareholder Non-Competition
Agreements in the form of Exhibit 7.1(j) from all Shareholders other than Norman
Storbakken.
(k) TRANSFER DOCUMENTS. The Contributor shall have executed and
delivered such transfer documents as HPS and CENTRA LLC and their counsel shall
reasonably request in order to
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transfer, convey and assign all of Contributor's rights, title and interest in
the Business and the Contributed Assets to CENTRA LLC, subject to the assumption
of the Assumed Liabilities.
(l) EXECUTION OF REPRESENTATION LETTER FOR CONTRIBUTOR'S AUDIT.
At or prior to the Closing, CENTRA LLC (and to the extent requested, the
Contributor) shall have executed a representation letter with Price Waterhouse
LLP pursuant to which the CENTRA LLC's Opening Balance Sheet as of the Closing
Date shall be audited at CENTRA LLC's expense.
(m) COMPLETION OF FINANCIAL DUE DILIGENCE. At or prior to
Closing, HPS shall have completed its financial due diligence review and shall
not have notified Contributor that it does not want to close the transaction
based upon such review.
(n) MATERIAL ADVERSE CHANGE. There shall not have accrued any
material adverse change in the Contributor's Business as a whole or in
Contributed Assets or the fixed assets, intangible assets(other than normal
amortization), other assets or liability accounts of the Business.
(o) EMPLOYEE LEASE AGREEMENT. CENTRA LLC and CBS shall have
executed and delivered to each other the Employee Lease Agreement.
(p) STORBAKKEN EMPLOYMENT AGREEMENT Norman Storbakken shall have
executed and delivered to CENTRA LLC the Storbakken Employment Agreement.
7.2 CONDITIONS TO THE OBLIGATIONS OF THE CONTRIBUTOR. The obligations
of the Contributor to consummate the transactions contemplated by this Agreement
are subject to the fulfillment at or before the Closing of each of the following
conditions (all or any of which may be waived in whole or in part by the
Contributor):
(a) NO INJUNCTION. There shall not be in effect on the Closing
Date any valid Order of any Governmental Authority restraining, enjoining, or
otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
(b) NO PROCEEDING OR LITIGATION. There shall not be instituted,
pending, or (to the knowledge of the parties hereto) threatened any action,
suit, investigation, arbitration, or similar proceeding in, before, or by any
Governmental Authority or other Person to restrain, enjoin, or otherwise prevent
consummation of any of the transactions contemplated by this Agreement.
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(c) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of HPS contained in this Agreement shall be true in all material
respects as of the date of this Agreement and shall be true in all material
respects on and as of the Closing Date as if made on and as of the Closing Date.
(d) PERFORMANCE OF AGREEMENT. HPS and the CENTRA LLC shall have
performed or complied in all material respects with all obligations that are
required to be performed or complied with by them pursuant to the terms of this
Agreement on or before the Closing Date.
(e) CERTIFICATES. HPS shall have delivered to the Contributor an
officer's certificate, dated the Closing Date, in a form reasonably satisfactory
to the Contributor, certifying as to the fulfillment of the conditions set forth
in Sections 7.2(a), 7.2(b), 7.2(c), and 7.2(d) hereof. In addition, HPS shall
deliver to the Contributor one or more certificates of the Secretary or any
Assistant Secretary of HPS certifying as to corporate matters reasonably
requested by the Contributor.
(f) OPINION OF COUNSEL. HPS shall have delivered to the
Contributor an opinion, dated as of the Closing Date, of Fowler, White, Gillen,
Boggs, Villareal and Banker P.A., as counsel to HPS, to the effect set forth in
EXHIBIT 7.2(f) hereto.
(g) DELIVERY OF LLC INTEREST PURCHASE AGREEMENT. HPS shall
have executed and delivered to the Contributor the LLC Interest Purchase
Agreement and there shall be no condition to closing thereunder which has not
been satisfied or waived by HPS.
(h) ADMINISTRATIVE SERVICES AGREEMENT. HPS and the CENTRA LLC
shall have executed and delivered to the Contributor the Administrative Services
Agreement.
(i) ASSUMPTION OF LIABILITIES. The transfer documents in form and
substance acceptable to Contributor and its counsel shall have been executed and
delivered by CENTRA LLC to Contributor in order to document CENTRA LLC's
assumption of the Assumed Liabilities.
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ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE CONTRIBUTOR. Subject to the provisions of
this Article 8 and Section 9.2 hereof, the Contributor indemnifies and holds
harmless CENTRA LLC in respect of any and all Damages resulting from or relating
to (i) any breach by the Contributor of any representation, warranty, covenant,
or agreement made to CENTRA LLC by the Contributor in this Agreement or in any
certificate delivered by the Contributor in connection with this Agreement, and
(ii) any Liability of the Contributor (other than the Assumed Liabilities) which
may be asserted against CENTRA LLC by reason of the Contributor's contribution
to CENTRA LLC of the Business and the Contributed Assets or which results from
or is based on events or circumstances arising on or prior to the Closing Date
including but not limited to any liability under any of the law suits listed on
Schedule 3.5 hereto.
8.2 INDEMNIFICATION BY CENTRA LLC. Subject to the provisions of this
Article 8 and Section 9.2 hereof, CENTRA LLC will indemnify and hold harmless
the Contributor in respect of any and all Damages resulting from or relating to
any breach by CENTRA LLC of any representation, warranty, covenant, or agreement
made by CENTRA LLC in this Agreement or in any certificate delivered by CENTRA
LLC in connection with this Agreement.
8.3 INDEMNIFICATION PROCEDURES.
(a) If an Indemnitee becomes aware of any matter that it believes
is indemnifiable pursuant to this Article 8 and such matter involves (i) any
claim made against the Indemnitee by any Person other than HPS, CENTRA LLC or
Contributor or (ii) the commencement of any action, suit, investigation,
arbitration, or similar proceeding against the Indemnitee by any Person other
than HPS, CENTRA LLC or Contributor, the Indemnitee will give the Indemnifying
Party prompt written notice of such claim or the commencement of such action,
suit, investigation, arbitration, or similar proceeding. Such notice will (A)
provide (with reasonable specificity) the basis on which indemnification is
being asserted, (B) set forth the actual or estimated amount of Damages for
which indemnification is being asserted, if known, and (C) be accompanied by
copies of all relevant pleadings, demands, and other papers served on the
Indemnitee.
(b) The Indemnifying Party will have a period of 30 days after
the delivery of each notice required by Section 8.3(a) hereof during which to
respond to such notice. If the Indemnifying Party responds within such 30-day
period that it
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accepts its indemnification obligation and elects to defend the claim described
in such notice, the Indemnifying Party will be obligated to compromise or defend
(and will control the defense of) such claim, at its own expense and by counsel
chosen by the Indemnifying Party and reasonably satisfactory to the Indemnitee.
The Indemnitee will cooperate fully with the Indemnifying Party and counsel for
the Indemnifying Party in the defense against any such claim, and the Indemnitee
will have the right to participate at its own expense in the defense of any such
claim. If the Indemnifying Party (i) responds within such 30-day period that it
elects not to defend such claim or that it does not accept responsibility for
indemnification, (ii) does not respond within such 30-day period, or (iii)
responds within such 30-day period that it elects to defend such claim but does
not, in fact, take actions reasonably necessary to defend such claim, the
Indemnitee will be free, without prejudice to any of the Indemnitee's rights
hereunder, to compromise or defend (and control the defense of) such claim, at
the expense of the Indemnifying Party and by counsel chosen by the Indemnitee,
and to pursue such remedies as may be available to the Indemnitee under
applicable Law.
(c) Any compromise or settlement of any claim (whether defended
by the Indemnitee or by the Indemnifying Party) will require the prior written
consent of the Indemnitee and the Indemnifying Party, which consent will not be
unreasonably withheld. If, however, the Indemnitee refuses to consent to a bona
fide offer of compromise or settlement that the Indemnifying Party desires to
accept, the Indemnitee may continue to pursue such claim, free of any
participation by the Indemnifying Party, at the sole expense of the Indemnitee.
In such event, the obligation of the Indemnifying Party to the Indemnitee will
equal the lesser of (i) the amount of the offer of compromise of settlement that
the Indemnifying Party desired to accept, plus the reasonable out-of-pocket
expenses (except for expenses resulting from the Indemnitee's participation in
any defense controlled by the Indemnifying Party) incurred by the Indemnitee
before the date the Indemnifying Party notified the Indemnitee of the offer of
compromise or settlement, or (ii) the actual out-of-pocket amount that the
Indemnitee is obligated to pay as a result of the Indemnitee's continued pursuit
of such claim, plus the reasonable out-of-pocket expenses incurred by the
Indemnitee in connection with such claim.
(d) If an Indemnitee becomes aware of any matter that it believes
is indemnifiable pursuant to this Article 8 and such matter involves a claim
made by any HPS Party or Contributor, the Indemnitee will give the Indemnifying
Party prompt written notice of such claim (a "Claim Notice"). Such notice will
(i) provide (with reasonable specificity) the basis for which indemnification is
being asserted and (ii) set forth the actual or estimated amount of Damages for
which Indemnification is being asserted.
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The Indemnifying Party will have a period of 30 days after the delivery of each
notice required by this Section 8.3(d) during which to respond to such notice.
If the Indemnifying Party accepts (in writing) full responsibility for the claim
described in such notice, the actual or estimated amount of Damages reflected in
such notice will be conclusively deemed a Liability that the Indemnifying Party
owes, and will pay (in cash) upon demand, to the Indemnitee except that if the
Indemnifying Party is the Contributor, payment shall be accomplished in
accordance with the provisions of Section 8.4 hereof. If the Indemnifying Party
responds in writing to the Indemnified Party (a "Dispute Notice") within such
30-day period that it disputes such claim, the Indemnifying Party and the
Indemnitee agree to proceed in good faith to negotiate a resolution of such
dispute. If all such disputes are not resolved through negotiations within 30
days after receipt by the Indemnitee of the Dispute Notice, either the
Indemnifying Party or the Indemnitee may initiate the Dispute Resolution
Procedure to resolve such disputes. If the Indemnifying Party does not respond
within 30 days after delivery of any Claim Notice required by this Section
8.3(d), the Indemnitee may initiate the Dispute Resolution Procedure to resolve
such claim.
8.4 INDEMNIFICATION LIMITATION AND PAYMENTS. CENTRA LLC, HPS and the
Contributor agree that with the exception of claims which result from a breach
of the representations and warranties of Sections 3.1 and 3.2 hereof, no claim
for indemnification will be payable under this Section 8 until the total of all
indemnifiable claims indemnifiable by an Indemnifying Party pursuant to the
terms of this Agreement which are undisputed or have been finally resolved in
accordance with the foregoing procedures equals or exceeds $350,000 and then
only the amount of such claims in excess of $350,000 shall be payable. Any
payments due from Contributor under this Agreement which do not relate to
Contribution Agreement Unlimited Claims shall be offset only against the
Indemnity Holdback and Contributor shall have no other obligation for such
indemnification claims. Any payments due from Contributor under this Agreement
which relate to Contribution Agreement Unlimited Claims shall be paid to CENTRA
LLC by Contributor in cash unless otherwise offset in HPS's sole discretion
against a Post Closing Payment. Upon offset by HPS, any payments which are due
from the Contributor to CENTRA LLC shall be paid by HPS to CENTRA LLC. The
Contributor and HPS each agree that any payment made to the CENTRA LLC pursuant
to Section 8.1 hereof will be treated by the parties as a loan to CENTRA LLC by
HPS.
8.5 INDEMNITEE ACTIONS. Whenever Indemnitee is entitled or required to
take any action pursuant to the provisions of this Article VIII and the
Indemnitee is CENTRA LLC, HPS may but shall
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not be required to take such action on behalf of CENTRA LLC and is hereby
authorized to pursue as CENTRA LLC's attorney-in-fact and in the name of CENTRA
LLC any and all rights CENTRA LLC may have hereunder against the Contributor or
any third party claimant.
8.6 LIMITATION ON PERIOD DURING WHICH CLAIMS CAN BE MADE AND AMOUNT OF
CLAIMS. No claim for indemnification hereunder can be made after the expiration
of the survival period of the representation or warranty to which such claim
relates as set forth in Section 9.2 hereof provided that any claims made prior
to the expiration of such survival period shall not be extinguished at the
expiration of such survival period but shall continue until finally resolved.
Additionally, HPS shall not be entitled under this Article VIII to offset
against the Indemnity Holdback more than an aggregate $1,150,000.00 in claims
related to breaches of representations and warranties which have a limited
survival period as set forth in Section 9.2 hereof. In order to be considered a
pending claim at the expiration of the survival period specified in Section 9.2
hereof, the Contributor must have been notified of such claim in writing on or
prior to the expiration of such survival period. This limitation shall not apply
to Contribution Agreement Unlimited Claims.
ARTICLE 9
MISCELLANEOUS
9.1 TERMINATION. Without limiting the rights or remedies that any party
hereto may otherwise have, this Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the
Contributor and HPS; or
(b) at any time after June 30, 1998, by the Contributor or HPS
if the transactions contemplated by this Agreement have not been consummated on
or before such date and such failure to consummate is not caused by a breach of
any representation, warranty, covenant, or agreement included in this Agreement
by the party electing to terminate pursuant to this Section 9.1(b).
If this Agreement is validly terminated pursuant to Section 9.1 hereof, (i) the
obligations of the parties to effect the transactions contemplated hereby will
terminate, (ii) the provisions of Section 9.1, 9.5, 9.6 and 9.7 hereof will
continue to apply following any such termination, and (iii) no party hereto will
be relieved of any Liability for Damages that such party may have to any other
party by reason of such party's breach of this
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Agreement, if any (or any representation, warranty, covenant, or agreement
included herein).
9.2 SURVIVAL OF PROVISIONS.
(a) All representations and warranties made by any party in this
Agreement will survive the consummation of the transactions contemplated hereby,
and will remain in full force and effect thereafter, until the last day of the
eighteenth month after the Closing Date, except that the representations and
warranties made by the Contributor in Sections 3.1 and 3.2 will survive the
consummation of the transactions contemplated hereby, will remain in full force
and effect indefinitely thereafter and notwithstanding anything in this
agreement to the contrary any claims related thereto will be paid by the
Contributor without regard to the limitation on payment set forth in Sections
8.3, 8.4 and 8.6 hereof.
(b) All covenants and agreements respectively made by any party
in this Agreement to be performed after the date hereof will survive the
consummation of the transactions contemplated hereby, and will remain in full
force and effect thereafter, until the expiration of the terms or periods
respectfully specified therein or indefinitely in the case of the covenants that
have no such specified term or period.
9.3 BROKERS. Neither the Contributor, nor HPS has paid or has become
obligated to pay any fee or commission to any broker, finder, or intermediary
for or on account of the transactions provided for in this Agreement. The
Contributor will indemnify and hold harmless CENTRA LLC and HPS in respect of
any and all claims or demands for commission, compensation, or other Damages by
any broker, finder, or other agent (whether or not a present or former employee
or agent of the Contributor) claiming to have been engaged by the Contributor in
connection with the transactions contemplated by this Agreement, and the
Contributor, will bear the cost of the reasonable out-of-pocket expenses
incurred by either of them in investigating, defending against, or appealing any
such claim. HPS will indemnify and hold harmless the Contributor and CENTRA LLC
in respect of any and all claims or demands for commission, compensation, or
other Damages by any broker, finder, or other agent (whether or not a present or
former employee or agent of HPS) claiming to have been engaged by HPS in
connection with the transactions contemplated by this Agreement, and HPS will
bear the cost of the reasonable out-of-pocket expenses incurred by Contributor
in investigating, defending against, or appealing any such claim.
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9.4 NON-COMPETITION.
(a) During the Term of Non-competition, the Contributor will
refrain from and will cause any company controlled by either of them to refrain
from directly or indirectly:
(i) engaging or participating in, as a principal, officer,
director, employee, shareholder, investor, consultant, advisor,
partner, joint venturer, broker, agent, equity owner, or in any other
capacity whatsoever, or soliciting customers for, any business
enterprise (regardless of whether it is a sole proprietorship or a
corporation, partnership, trust, business association, or other entity)
that engages (in the Restricted Territories), directly or indirectly,
in the business of acting as a third party administrator for health,
accident or disability plans whether insured or self insured (the
"Third Party Administration Business") (other than through or for the
CENTRA LLC or its Affiliates);
(ii) causing or attempting to cause (A) any Person or entity by
or through or with whom the Business sells or distributes its services
or products to terminate or reduce its relationship or dealings with
CENTRA LLC, or (B) any company whose services or products are sold by
or through the Business to terminate or reduce its relationship or
dealings with CENTRA LLC, or (C) any customer of the Business to
terminate or reduce its relationship or dealings with CENTRA LLC; or
(iii) causing or attempting to cause any employee, agent,
consultant, or independent contractor of the Business to cease serving
CENTRA LLC in such capacity; or
(iv) hiring or otherwise retaining or soliciting any Person who,
prior to the Closing or at any time during the Term of Non-competition,
was an employee, consultant or other contractor of the Business. This
subsection (iv) shall not apply to Contributor Employee David Saidi.
(b) The Contributor acknowledges that the geographic boundaries
contained in the Restricted Territories, scope of prohibited activities, and
Term of Non-competition contained in Section 9.4(a) hereof (i) are reasonable
and no broader than necessary to protect the investment by HPS and CENTRA LLC in
the Contributed Assets and the Business and (ii) do not and will not impose any
unreasonable burden upon the Contributor.
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(c) HPS, CENTRA LLC and the Contributor each agree that (i) any
breach by the Contributor of any of the provisions contained in this Section 9.4
would cause irreparable Damage to the HPS and the CENTRA LLC Parties for which
monetary damages and other remedies at law may be inadequate, and (ii) both HPS
and the CENTRA LLC Parties will be entitled as a matter of right to obtain,
without posting any bond whatsoever and without proof of any actual Damage, a
restraining order, an injunction, specific performance, or other form of
equitable or extraordinary relief from any court of competent jurisdiction to
restrain any threatened or further breach of this Section 9.4 or to require the
Contributor to perform its obligations under this Section 9.4, which right to
equitable or extraordinary relief will not be exclusive but will be in addition
to all other remedies to which HPS or the CENTRA LLC Parties may be entitled
under this Agreement, at law, or in equity (including without limitation the
right to recover monetary damages).
(d) HPS, CENTRA LLC and the Contributor agree that if any portion
of this covenant not to compete is held to be unreasonable, arbitrary or against
public policy, this covenant shall be considered divisible both as to time and
geographical area; and each month of the specified period of non-competition
shall be deemed a separate period of time, and each state within the Restricted
Territory shall be deemed a separate geographical area.
(e) The Contributor agrees to deliver at Closing Shareholder
Non-Compete Agreements signed by each of the Shareholders containing terms and
conditions substantially equivalent to the foregoing provisions and binding the
Shareholders from competing with CENTRA LLC in the same fashion that Contributor
is prohibited from competing with CENTRA LLC.
(f) Notwithstanding the foregoing, Contributor may own up to 2%
of any stock or equity in a publicly traded company which is a competitor of the
Business.
9.5 PUBLIC ANNOUNCEMENTS. At all times at or before the Closing, the
Contributor, on the one hand, and CENTRA LLC, on the other hand, will consult
with one another before issuing or making any reports, statements, or releases
to the public with respect to this Agreement or the transactions contemplated
hereby and will use good faith efforts to agree on the text of a joint public
report, statement, or release or will use good faith efforts to obtain the other
party's approval of the text of any public report, statement or release to be
made solely on behalf of a party. If such parties are unable to agree on or
approve any such public report, statement, or release and such report,
statement, or release is, based on the advice of legal counsel to a party,
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required by Law or appropriate to discharge such party's disclosure obligations,
then such party may make or issue the legally required or appropriate report,
statement, or release upon prior notice to the other parties hereto.
9.6 CONFIDENTIALITY.
(a) The Contributor will refrain, and will cause its officers,
directors, shareholders, employees, agents, and other representatives to
refrain, from disclosing to any other Person (i) any documents or information
concerning CENTRA LLC or its Affiliates furnished to it in connection with this
Agreement or the transactions contemplated hereby, and (ii) any documents or
information concerning the Contributed Assets or Business, unless (A) such
disclosure is compelled by judicial or administrative process or by other
requirements of Law and notice of such disclosure is furnished to HPS and CENTRA
LLC; or (B) such confidential documents or information can be shown to have been
(x) previously known by the Person receiving such documents or information, or
(y) in the public domain through no fault of the Contributor.
(b) If this Agreement is terminated pursuant to Section 9 hereof,
HPS will refrain, and will cause its officers, directors, employees, agents, and
other representatives to refrain, from disclosing to any other Person any
documents or information concerning the Contributor furnished to it in
connection with this Agreement or the transactions contemplated hereby, unless
(i) such disclosure is compelled by judicial or administrative process or by
other requirements of Law and notice of such disclosure is furnished to the
Contributor; (ii) HPS deems it necessary (upon advice of legal counsel) to
disclose any such documents or information in connection with the requirements
of any Law; or (iii) such documents or information can be shown to have been (A)
previously known by the Person receiving such documents or information, or (B)
in the public domain through no fault of HPS.
9.7 EXPENSES. Except as otherwise specifically provided in this
Agreement, the Contributor, HPS and CENTRA LLC will each pay all of their own
expenses incurred or to be incurred by them in negotiating this Agreement, in
performing their obligations under this Agreement, or in consummating the
transactions contemplated by this Agreement.
9.8 NOTICES. Any notice or communication given pursuant to this
Agreement must be in writing and (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered by
overnight express, or (d) sent by registered or certified mail, postage prepaid,
as follows:
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(i) If to Contributor:
CENTRA Benefit Services, Inc.
7803 Glenroy Road, Suite 300
Bloomington, Minnesota 55439
Attn. Michael T. Davies
Facsimile number: 612-831-9072
with copy to:
James Vose
Briggs & Morgan P.A.
2400 IDS Center
Minneapolis, MN 55402
Facsimile number: 612-334-8650
(ii) If to HPS:
HealthPlan Services, Inc.
3501 Frontage Road
Tampa, Florida 33607
Attn. Phil Dingle, General Counsel
Facsimile number: 813-287-6629
with copy to:
Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 East Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attn. David C. Shobe, Esq.
Facsimile number: 813-229-8313
(iii) If to CENTRA LLC:
3501 Frontage Road
Tampa, Florida 33607
Attn. Phillip S. Dingle
Facsimile number: 813-287-6629
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 9.8 will (A) if delivered
personally or by overnight express, be deemed given upon delivery; (B) if
delivered by telefacsimile or
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similar facsimile transmission, be deemed given when electronically confirmed;
and (C) if sent by registered or certified mail, be deemed given when received.
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, but no such
notice will be deemed to have been given until it is actually received by the
party sought to be charged with the contents thereof.
9.9 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior
communications, agreements, understandings, representations, and warranties,
whether oral or written, between the parties hereto with respect to the subject
matter hereof. There are no oral or written agreements, understandings,
representations, or warranties between the parties hereto with respect to the
subject matter hereof other than those set forth in this Agreement.
9.10 ASSIGNMENT AND AMENDMENT OF AGREEMENT. This Agreement will be
binding upon the parties hereto and their respective successors and permitted
assignees. Neither this Agreement, any part hereof, nor any right or obligation
hereunder may be assigned by any party hereto without the prior written consent
of the other party hereto (and any attempt to do so will be void), except that
HPS may, without the consent of the Contributor or CENTRA LLC, assign all or any
portion of its rights or obligations hereunder to any wholly owned subsidiary of
it or of its parent HealthPlan Services Corporation provided that HPS remains
primarily liable for the obligations of HPS hereunder. This Agreement may be
modified or amended only by a writing duly executed on behalf of each party
hereto.
9.11 GOVERNING LAW. CENTRA LLC and the Contributor agree that this
Agreement is and shall be deemed to be executed and performed in the State of
Florida and this Agreement will be governed by and construed and enforced in
accordance with the Laws of the State of Florida applicable to a Contract
executed and to be performed in such state; and any disputes, controversies and
claims arising out of or relating to this Agreement shall be resolved in Tampa,
Florida utilizing the Dispute Resolution Procedures. CENTRA LLC and Contributor
agree that they are subject to and shall submit to the jurisdiction of the State
of Florida, and any legal action to enforce the provisions of this Agreement or
otherwise in connection with this agreement shall be brought exclusively in the
courts located in Tampa, Florida and any arbitration instituted under the
Dispute Resolution Procedures shall be conducted exclusively in Tampa, Florida.
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9.12 NO THIRD PARTY RIGHTS. Except as specifically provided in this
Agreement, this Agreement is not intended and may not be construed to create any
rights (including third party beneficiary rights) in any parties other than the
Contributor, HPS, CENTRA LLC and their respective successors and permitted
assignees.
9.13 INCORPORATION OF EXHIBITS. The exhibits attached hereto are hereby
incorporated into this Agreement and will be deemed a part hereof as if set
forth herein in full. In the event of any conflict between the provisions of
this Agreement and any such exhibit, the provisions of this Agreement will
control.
9.14 HEADINGS, GENDER, ETC. 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. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number also will
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein," "hereby," "hereunder," "hereto," and derivative or similar words will
refer to this entire Agreement, (d) the terms "Article" or "Section" will refer
to the specified Article or Section of this Agreement, (e) the conjunction "or"
will denote any one or more, or any combination or all, of the specified items
or matters involved in the applicable list, and (f) the words "setoff" or
"offset" are used interchangeably and are intended to have the same meaning.
9.15 WAIVER AND REMEDIES. Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof. Any
such waiver will be in writing and will be executed by such party. A waiver on
one occasion will not be deemed to be a waiver of the same or any other breach
on a future occasion. All remedies, either under this Agreement or by Law or
otherwise afforded, will be cumulative and not alternative.
9.16 INVALID PROVISIONS. 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 hereto 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
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom, 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
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be possible.
9.17 FURTHER ASSURANCES. Each of CENTRA LLC and the Contributor agrees
that, from time to time after the Closing Date, upon the reasonable request of
the other party, it will cooperate with such other party to effect the orderly
transfer of the Contributed Assets and the Business. Each such party may, at its
own expense, make such copies of any portions of the relevant books and records
as the respective party may reasonably require.
9.18 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Agreement this 16th day of June, 1998.
HEALTHPLAN SERVICES, INC.
By: /s/ DONALD W. GOULD, JR.
-----------------------------
Name: Donald W. Gould, Jr.
Title: Senior Vice President & CFO
CENTRA BENEFIT SERVICES, INC
By: /s/ JON K. LINEWEAVER
-----------------------------
Name: Jon K. Lineweaver
Title: Chairman
CENTRA HEALTHPLAN LLC
By: /s/ PHILLIP S. DINGLE
-----------------------------
Name: Phillip S. Dingle
Title: Secretary
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
Exhibit 1.1 Definitions
Exhibit 1.2 Assumed Liabilities
Exhibit 1.3 Excluded Assets
Exhibit 2.1(A) Form of CENTRA LLC Operating Agreement
Exhibit 2.3 Form of Employee Lease Agreement
Exhibit 2.5 Form of Administrative Services Agreement
Exhibit 2.9 Designated Expense Item Equipment Contracts
Exhibit 3.8 Unaudited 2/28/98 Balance Sheet
Exhibit 7.1(f) Form of Opinion of Briggs & Morgan, P.A., as counsel to
the Contributor
Exhibit 7.1(j) Form of Shareholders Non-Competition Agreements
Exhibit 7.2(f) Form of Opinion of Fowler, White, Gillen, Boggs,
Villareal and Banker P.A., as counsel to HPS
Exhibit 7.2(p) Form of Employment Agreement to be executed by Norman
Storbakken and CENTRA LLC
<PAGE>
SCHEDULES
SCHEDULE DESCRIPTION
Schedule 3.2 List of each jurisdiction in which the Contributor are
qualified to do business as a foreign corporation by
reason of its operation of the Business or the
ownership of the Contributed Assets
Schedule 3.4 Required consents, filings and notices
Schedule 3.5 Pending Litigation and Claims
Schedule 3.7(a) List of all jurisdictions in which the Contributor or
any of its employees are licensed as insurance brokers,
agents, third party administrators or utilization
review providers, and List of each other License held
by the Contributor or its employees in connection with
the conduct of the Business or the ownership of the
Contributed Assets
Schedule 3.7(b) Disclosure of licenses not held
Schedule 3.7(d) Disclosure of persons not holding required licenses
Schedule 3.8 Disclosure of exceptions to Financial Statements
delivered to HPS
Schedule 3.10(a) Permitted Liens
Schedule 3.10(b) Tangible Leases
Schedule 3.10(c) Tangible Owned Property
Schedule 3.10(d)(i) List and description of Intellectual Property
Schedule 3.10)d((ii) List of all Computer Software and systems owned by or
licensed to the Contributor
Schedule 3.12 Material Contracts as of the Balance Sheet Date
Schedule 3.13 Material Changes
<PAGE>
Schedule 3.14 Customers, Agents, Etc. accounting for more than 5% of
gross revenue of the Business during 1997 and 1998
Schedule 3.15 List of all Persons whose insurance, or other products
related to the Business were sold by or through the
Contributor during 1997 and 1998
Schedule 3.18 Interest in Competitors
Schedule 3.20 List of the names and locations of all banks, trust
companies, securities brokers, and other financial
institutions at which the Contributor has an account or
safe deposit box or maintains a banking, custodial,
trading, or other similar relationship, and List and
description of each such account, box, and relationship
Schedule 4.3 List of conflicts
[AS REQUIRED BY APPLICABLE LAW, THE COMPANY WILL FURNISH SUPPLEMENTALLY ANY
OMITTED EXHIBIT OR SCHEDULE UPON REQUEST]
EXHIBIT 2.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of
September 1, 1998, among SYKES ENTERPRISES, INCORPORATED, a Florida corporation
("Sykes"), HEALTHPLAN SERVICES CORPORATION, a Delaware corporation ("HPS"), and
SYKES HEALTHPLAN SERVICES, INC., a Florida corporation (the "Company").
BACKGROUND
On December 18, 1997, Sykes and HPS formed a joint venture known as
Sykes HealthPlan Services, Inc. In exchange for Sykes' and HPS' capital
contributions to the Company, the Company issued to each of Sykes and HPS
5,000,000 shares of common stock $.01 par value per share (the "Common Stock")
of the Company. HPS desires to sell to Sykes, and Sykes desires to purchase from
HPS, all of HPS' shares of Common Stock of the Company in accordance with the
terms and subject to the conditions of this Agreement. In consideration of the
mutual covenants, agreements, representations, and warranties set forth in this
Agreement, the parties agree as follows:
TERMS
1. ACQUISITION OF SHARES AND OTHER TRANSACTIONS.
1.1 SALE AND PURCHASE OF SHARES OF COMMON STOCK. Upon the terms and
subject to the conditions contained in this Agreement, on the Closing Date (as
defined below) (i) HPS shall sell and transfer to Sykes, and Sykes shall
purchase from HPS, 5,000,000 shares of Common Stock of the Company (the
"Shares"), which represents all of the shares of Common Stock of the Company
held by HPS, for the Purchase Price (as defined below) and (ii) Sykes shall pay
to HPS the Purchase Price (as defined below).
1.2 PURCHASE PRICE.
(a) AMOUNT. The purchase price for the Shares (the "Purchase Price")
shall be $30,555,000.
(b) MANNER OF PAYMENT. Payment of the Purchase Price will be made at
the Closing (as defined below) by wire transfer in immediately available funds
to an account designated by HPS pursuant to written instructions of HPS
delivered to Sykes before the Closing Date.
1.3 EFFECTIVE DATE. The effective date of the transactions contemplated
by this Agreement will be September 1, 1998.
1.4 ACCOUNTING FOR IPO EXPENSES. The financial accounting effect of the
expenses incurred by the Company directly relating to its initial public
offering registration statement will
<PAGE>
be borne by Sykes.
1.5 SHAREHOLDER AGREEMENT. On the Closing Date, Sykes, HPS, and the
Company shall execute a Termination Agreement with respect to the Shareholder
Agreement dated December 18, 1997, among Sykes, HPS, and the Company (the
"Shareholder Agreement") to be effective upon the Closing. Each of HPS and Sykes
confirm that their respective rights and obligations under Section 6.1
"Non-Competition, Confidentiality," "Section 13 "Resolution of Disputes," and
Section 17.4 "Costs of Litigation or Arbitration" of the Shareholder Agreement
survive Closing and the termination of the Shareholder Agreement; provided,
however, that (a) for a Change of Control (as defined below) of HPS that occurs
on or before the first annual anniversary of this Agreement, Section 6.1 shall
terminate on the first annual anniversary of this Agreement and (b) for a Change
of Control of HPS that occurs after the first annual anniversary of this
Agreement, Section 6.1 shall terminate upon such Change of Control. "Change of
Control" shall mean, with respect to HPS: (i) a sale of substantially all of the
assets of HPS or (ii) any merger or consolidation involving HPS that results in
James K. Murray, Jr. beneficially owning a percentage of the surviving entity to
such merger or consolidation that is less than 50% of his percentage ownership
interest in HPS immediately preceding such merger or consolidation.
2. CLOSING OF TRANSACTION.
2.1 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Foley & Lardner, 100 N. Tampa St., Suite 2700, Tampa, Florida, on the Closing
Date. "Closing Date" shall mean September 15, 1998, or such later date after the
satisfaction or waiver of all of the conditions of the respective parties set
forth in Articles 6 and 7 herein, or such other time and place or time as the
parties may mutually determine.
2.2 ACTIONS AT THE CLOSING. At the Closing, (i) HPS shall deliver to
Sykes certificates evidencing the Shares accompanied by a duly executed stock
transfer power and (ii) Sykes will pay to HPS the Purchase Price.
2.3 OTHER CLOSING DELIVERIES.
(a) At the Closing, (i) HPS will deliver to Sykes documentation
reasonably satisfactory to it confirming the obligation of HPS to continue to
outsource to the Company all of HPS' care management services for HPS'
customers; (ii) Sykes will deliver to HPS certified resolutions of Sykes' board
of directors approving the execution of this Agreement and the transactions
contemplated hereby; (iii) HPS will deliver to Sykes certified resolutions of
HPS' board of directors approving the execution of this Agreement and the
transactions contemplated hereby; (iv) HPS will deliver to Sykes an opinion from
counsel to HPS reasonably satisfactory to Sykes relating to this Agreement and
the transactions contemplated hereby; (v) Sykes will
2
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deliver to HPS an opinion from counsel to Sykes reasonably satisfactory to HPS
relating to this Agreement and the transactions contemplated hereby; (vi) HPS
will deliver to Sykes resignations, effective on or before the Closing, of James
K. Murray, Jr. and William L. Bennett as directors of the Company; (vii) Sykes
will deliver to HPS documentation reasonably satisfactory to HPS releasing HPS
from its guaranty of the Company's obligations under the Company's Credit
Agreement with NationsBank, N.A.; and (viii) Sykes and HPS will deliver to each
other a Termination Agreement with respect to the Shareholder Agreement as set
forth in Section 1.5 hereof.
3. REPRESENTATIONS AND WARRANTIES OF SYKES.
Sykes represents and warrants to HPS the following, as of the execution
date of this Agreement and as of the Closing Date:
3.1 ORGANIZATION AND AUTHORITY. Sykes is a corporation duly organized
and in active status under the laws of the State of Florida, and has full
corporate power and authority to execute and deliver this Agreement, to carry
out its obligations under this Agreement, and to effect the transactions
contemplated by this Agreement.
3.2 AUTHORIZATION, CONSENTS, AND VALIDITY. The execution, delivery, and
performance of this Agreement by Sykes (a) have been duly authorized by all
requisite corporate action of Sykes, (b) except for compliance with the
Shareholder Agreement, does not require any consent, license, approval, waiver,
or authorization from any governmental authority or any other person, and (c)
will not conflict with the articles of incorporation or bylaws of Sykes. This
Agreement has been duly and validly executed by Sykes and is a valid and legally
binding obligation of Sykes, enforceable against it in accordance with its
terms, except to the extent limited by bankruptcy, reorganization, insolvency,
moratorium, and similar laws of general application affecting the rights and
remedies of creditors and by general equity principles.
3.3 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereunder have been carried on by Sykes without the
use of any broker, finder, underwriter, or other intermediary whereby such party
would have a valid claim against Sykes, HPS, or the Company for a brokerage
commission, finder's fee, or other similar payment.
3.4 INVESTMENT INTENT. Sykes acknowledges that the Shares will be
acquired for its own account and without any view to the distribution of any
part thereof without registration under the Securities Act and any applicable
state securities laws. Sykes understands that the Shares may not be sold,
transferred or otherwise disposed of without registration under the Securities
Act and applicable state securities laws, unless exemptions from registration
under those laws are available. Sykes represents that it has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment in the Shares, and has the ability to bear
the economic risks of such investment. Sykes further
3
<PAGE>
acknowledges that, through its ownership interest and board of directors
participation in connection with the Company, Sykes has had access to such
financial and other information from the Company as Sykes deems necessary or
appropriate to evaluate the merits of its investment in the Shares.
3.5 SHAREHOLDER AGREEMENT. Sykes is not aware of any claim of HPS or
Sykes against the other party for damages arising out of acts or omissions of
such other party for a breach of the Shareholder Agreement or that are outside
the scope of the Shareholder Agreement.
4. REPRESENTATIONS AND WARRANTIES OF HPS.
HPS represents and warrants to Sykes the following, as of the execution
date of this Agreement and as of the Closing Date:
4.1 ORGANIZATION AND AUTHORITY. HPS is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
has full corporate power and authority to execute and deliver this Agreement, to
carry out its obligations under this Agreement, and to effect the transactions
contemplated by this Agreement.
4.2 AUTHORIZATION, CONSENTS, AND VALIDITY. The execution, delivery, and
performance of this Agreement by HPS (a) have been duly authorized by all
requisite corporate action of HPS, (b) except for compliance with the
Shareholder Agreement, does not require any consent, license, approval, waiver,
or authorization from any governmental authority or any other person, and (c)
will not conflict with the certificate of incorporation or bylaws of HPS. This
Agreement has been duly and validly executed by HPS and is a valid and legally
binding obligation of HPS, enforceable against it in accordance with its terms,
except to the extent limited by bankruptcy, reorganization, insolvency,
moratorium, and similar laws of general application affecting the rights and
remedies of creditors and by general equity principles.
4.3 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on by HPS without the use of
any broker, finder, underwriter, or other intermediary whereby such party would
have a valid claim against Sykes, HPS, or the Company for a brokerage
commission, finder's fee, or other similar payment.
4.4 OWNERSHIP OF SHARES. The Shares are owned beneficially and of
record by HPS, free and clear of any lien, mortgage, pledge, encumbrance,
security interest, and (other than the Shareholder Agreement) restriction on
transfer.
4.5 RELATIONSHIP WITH THE COMPANY. Attached to Disclosure Schedule 4.5
are all written contracts or other agreements between the Company and HPS or any
affiliate of HPS ("Affiliate") (as that term is defined in Rule 12b-2 of the
Securities Exchange Act of 1934, as amended). Set forth on Disclosure Schedule
4.5 is a description of the terms and conditions of
4
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any oral contracts or other agreements between the Company and HPS or any
Affiliate of HPS. Except as set forth on Disclosure Schedule 4.5, neither HPS
nor any Affiliate of HPS is or has been involved in any business arrangement or
relationship with the Company. With respect to each contract and other agreement
listed in or attached to Disclosure Schedule 4.5, to HPS' knowledge, (i) the
contract or agreement is legal, valid, binding, enforceable, and in full force
and effect, (ii) except as otherwise agreed to by the parties, the contract or
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated by this Agreement, (iii) neither party is in breach or
default, and no event has occurred that, with notice or lapse of time, would
constitute a breach or default, or permit termination, modification, or
acceleration, under such contract or agreement (and the Company represents that
it is not aware of any such breach, default, or event), and (iv) neither party
has repudiated any provision of such contract or agreement.
4.6 SHAREHOLDER AGREEMENT. HPS is not aware of any claim of HPS or
Sykes against the other party for damages arising out of acts or omissions of
such other party for a breach of the Shareholder Agreement or that are outside
the scope of the Shareholder Agreement.
4.7 ACQUISITION NEGOTIATIONS. As of the date of this Agreement and as
of the Closing, HPS is not engaged in any discussions or negotiations with any
third party regarding a sale of all or substantially all of the assets of HPS or
a merger or other consolidation involving HPS.
5. ADDITIONAL AGREEMENTS.
5.1 PUBLIC ANNOUNCEMENTS. Neither Sykes, HPS, nor the Company shall,
without the consent of the other parties, which consent may be withheld for any
or no reason, make or cause to be made any public announcement or issue any
press release with respect to this Agreement or the transactions contemplated
hereby; PROVIDED that the foregoing shall not preclude communications or
disclosures necessary to (a) in the opinion of such party's counsel, comply with
applicable law or (b) comply with accounting and Securities and Exchange
Commission disclosure obligations, in which case (a) or (b) each other party
shall be advised and the parties shall use their respective best efforts to
cause a mutually agreeable release or announcement to be issued.
5.2 ACCESS TO BOOKS AND RECORDS. Following the Closing, upon two
business days advance notice, Sykes shall cause the Company to provide HPS with
reasonable access during normal business hours to such books and records of the
Company and with such cooperation, assistance, and access to personnel of the
Company as HPS may reasonably request for the purpose of permitting HPS to
obtain any information that is reasonably necessary in connection with HPS'
responsibilities with respect to taxes or otherwise as may be required by law.
Sykes agrees to cause the Company to retain all material records or other
documents relating to tax
5
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matters of the Company and its members for taxable periods thorough the Closing
Date until six months after the expiration of the longest applicable statute of
limitations or for such longer period as may be reasonably requested by HPS.
5.3 MUTUAL RELEASE. Each of Sykes, HPS, and the Company does hereby
fully, irrevocably, and unconditionally release and forever discharge the other
parties and its affiliates, and such other party's and its affiliates,
successors, assigns, directors, officers, employees, and agents (collectively,
the "Released Parties"), of and from any and all obligations, debts, causes of
action, suits, controversies, damages, and any and all claims, demands, and
liabilities whatsoever, both in law and at equity, known or unknown, that such
party has as of the date hereof or will have as of the Closing Date or may ever
have had as of or prior to the date hereof against the Released Parties arising
out of the Shareholder Agreement, dated December 18, 1997, and the transactions
contemplated thereby or related thereto, including any claims arising out of
Sykes' and HPS's joint ownership of the Company. Notwithstanding the foregoing,
this release (a) shall not be applicable if this Agreement is terminated
pursuant to Section 8 and (b) shall not relieve Sykes or HPS from any of the
covenants and obligations pursuant to the agreements set forth herein or the
agreements between HPS and the Company set forth on Disclosure Schedule 4.5.
6. CONDITIONS PRECEDENT TO SYKES' OBLIGATIONS.
Sykes' obligations under this Agreement are subject to the fulfillment
of the following conditions, each of which must be satisfied before or at the
Closing, unless waived by Sykes:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of HPS contained in this Agreement shall be true at and as of the
time of Closing as though such representations and warranties were made at and
as of such time.
6.2 PERFORMANCE OF OBLIGATIONS. HPS must have performed every agreement
and obligation required by this Agreement to be performed by it.
6.3 OUTSOURCING AGREEMENT. Receipt by Sykes of documentation reasonably
satisfactory to it confirming the obligation of HPS to continue to outsource to
the Company all of HPS' care management services for HPS' customers.
6.4 BOARD APPROVAL. The board of directors of HPS shall have approved
the execution of this Agreement and the transactions contemplated hereby.
6.5 OPINION. Sykes shall have received from counsel to HPS an opinion
reasonably satisfactory to Sykes relating to this Agreement and the transactions
contemplated hereby.
6.6 BOARD RESIGNATIONS. Sykes shall have received the resignations,
effective on or
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before the Closing, of James K. Murray, Jr. and William L. Bennett as directors
of the Company.
6.7 DUE DILIGENCE. The satisfaction of Sykes with the results of its
due diligence investigation of the Company.
7. CONDITIONS PRECEDENT TO HPS' OBLIGATIONS.
HPS' obligations under this Agreement are subject to the fulfillment of
the following conditions, each of which must be satisfied before or at the
Closing, unless waived by HPS:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Sykes contained in this Agreement shall be true at and as of
the time of Closing as though such representations and warranties were made at
and as of such time.
7.2 PERFORMANCE OF OBLIGATIONS. Sykes must have performed every
agreement and obligation required by this Agreement to be performed by it.
7.3 RELEASE FROM NATIONSBANK LINE OF CREDIT. Receipt by HPS of a
release in form and substance reasonably satisfactory to it from its guaranty of
the Company's obligations under the Credit Agreement dated as of March 27, 1998,
between the Company and NationsBank, N.A., as amended.
7.4 BOARD APPROVAL. The board of directors of Sykes shall have approved
the execution of this Agreement and the transactions contemplated hereby.
7.5 OPINION. HPS shall have received from counsel to Sykes an opinion
reasonably satisfactory to HPS relating to this Agreement and the transactions
contemplated hereby.
8. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by any party in this Agreement or pursuant hereto shall survive the Closing
until the expiration of any applicable statutes of limitations including any
extensions thereof.
8.2 AGREEMENT TO INDEMNIFY.
(a) Sykes and the Company agree to indemnify, defend, and hold
harmless HPS and its affiliates, successors, assigns, directors, officers,
employees, and agents from and against any and all claims, actions, suits,
proceedings, liabilities, obligations, losses, and damages, amounts paid in
settlement, interest, costs and expenses (including reasonable attorney's fees,
court costs and other out-of-pocket expenses) incurred or suffered by HPS
(collectively, the "Losses") by reason of, resulting from, or in connection with
(i) a breach of any
7
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representation or warranty of Sykes or the Company contained in or made pursuant
to this Agreement; and (ii) a breach of any agreement or covenant, or any
failure of Sykes or the Company to perform any of its obligations in this
Agreement.
(b) HPS agrees to indemnify, defend, and hold harmless Sykes and
the Company and their affiliates, successors, assigns, directors, officers,
employees, and agents from and against any and all Losses by reason of,
resulting from, or in connection with (i) a breach of any representation or
warranty of HPS contained in or made pursuant to this Agreement; and (ii) a
breach of any agreement or covenant, or any failure of HPS to perform any of its
obligations in this Agreement.
9. TERMINATION AND WAIVER.
9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date by:
(a) CONDITIONS NOT SATISFIED. (i) Sykes if any of the conditions set
forth in Section 6 are not satisfied by the Closing Date and are not waived by
Sykes; (ii) HPS if any of the conditions set forth in Section 7 are not
satisfied by the Closing Date and are not waived by HPS; or
(b) TIME. Sykes or HPS if the Closing shall not have occurred on or
before September 30, 1998.
9.2 WAIVER OR AMENDMENT OF AGREEMENT. Any term or condition of this
Agreement may be waived or amended at any time prior to the Closing Date by any
party hereto which is entitled to the benefits thereof, by action taken by its
duly authorized representative, whether before or after the action of such
party; PROVIDED, HOWEVER, that such action shall be evidenced by written
instrument duly executed on behalf of such party. The failure of either party to
enforce at any time any provision of this Agreement shall not be construed to be
a waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision.
10. MISCELLANEOUS PROVISIONS.
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10.1 EXPENSES. Each party to this Agreement will bear all the fees,
costs and expenses which are incurred by it in connection with the transactions
contemplated hereby, whether or not such transactions are consummated. In any
legal proceeding arising out of this Agreement, the losing party shall reimburse
the prevailing party, on demand, for all costs incurred by the prevailing party
in enforcing, defending, or prosecuting any claim arising out of this Agreement,
including all reasonable attorneys' fees and costs.
10.2 GOVERNING LAW AND VENUE. The validity, construction, enforcement,
and interpretation of this Agreement are governed by the laws of the State of
Florida and the federal laws of the United States of America, excluding the laws
of those jurisdictions pertaining to resolution of conflicts with laws of other
jurisdictions. Each party to this Agreement (a) consents to the personal
jurisdiction of the state and federal courts having jurisdiction in Hillsborough
County, Florida, (b) stipulates that the proper, exclusive, and convenient venue
for any legal proceeding arising out of this Agreement is Hillsborough County,
Florida, for state court proceedings, and the Middle District of Florida, Tampa
Division, for federal district court proceedings, and (c) waives any defense,
whether asserted by a motion or pleading, that Hillsborough County, Florida, or
the Middle District of Florida, Tampa Division, is an improper or inconvenient
venue.
10.3 COMPLETE AGREEMENT. This Agreement records the final, complete,
and exclusive understanding among the parties regarding the subjects addressed
in it and supersedes any prior or contemporaneous agreement, understanding, or
representation, oral or written, by any of them.
10.4 RIGHTS OF THIRD PARTIES. Nothing in this Agreement, whether
express or implied, is intended or should be construed to confer or grant to any
person, except Sykes, HPS, and the Company, any claim, right, remedy, or
privilege under, or because of, this Agreement or any provision of it.
10.5 EXECUTION AND EFFECTIVENESS. The parties may execute this
Agreement in counterparts. Each executed counterpart will be considered an
original document, and all executed counterparts, together, will constitute the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first above written.
9
<PAGE>
SYKES ENTERPRISES, INCORPORATED
By: /s/ SCOTT J. BENDERT
---------------------------------
Name: SCOTT J. BENDERT
Title: SVP-FINANCE, TREASURER & CFO
Date: 9/11/98
HEALTHPLAN SERVICES CORPORATION
By: /s/ PHILLIP S. DINGLE
---------------------------------
Name: PHILLIP S. DINGLE
Title: SVP & CHIEF COUNSEL
Date: 9/11/98
SYKES HEALTHPLAN SERVICES, INC.
By: /s/ DAVID E. GARNER
---------------------------------
Name: DAVID E. GARNER
Title: PRESIDENT & CEO
Date: 9/14/98
<PAGE>
LIST OF EXHIBITS
Disclosure Schedule 4.5 List of all Contracts and Agreements between the
Company and HPS or any HPS Affiliate
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
EXHIBIT 10.12
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of May 1, 1998,
by and among
HEALTHPLAN SERVICES CORPORATION,
as Borrower,
the Lenders referred to herein,
and
FIRST UNION NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I DEFINITIONS........................................................1
SECTION 1.1 DEFINITIONS.....................................................1
SECTION 1.2 GENERAL........................................................13
SECTION 1.3 OTHER DEFINITIONS AND PROVISIONS...............................14
ARTICLE II CREDIT FACILITY..................................................14
SECTION 2.1 LOANS..........................................................14
SECTION 2.2 PROCEDURE FOR ADVANCES OF LOANS................................14
SECTION 2.3 REPAYMENT OF LOANS.............................................15
SECTION 2.4 PROMISSORY NOTES...............................................16
SECTION 2.5 OPTIONAL PERMANENT REDUCTION OF THE AGGREGATE COMMITMENT.......16
SECTION 2.6 TERMIATION DATE................................................16
SECTION 2.7 USE OF PROCEEDS................................................16
ARTICLE III LETTER OF CREDIT FACILITY.......................................17
SECTION 3.1 L/C COMMITMENT.................................................17
SECTION 3.2 PROCEDIRE FOR ISSUANCE OF LETTER OF CREDIT.....................17
SECTION 3.3 COMMISSIONS AND OTHER CHARGES..................................18
SECTION 3.4 L/C PARTICIPATIONS.............................................18
SECTION 3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER.......................19
SECTION 3.6 OBLIGATIONS ABSOLUTE...........................................19
SECTION 3.7 EFFECT OF APPLICATION..........................................20
ARTICLE IV GENERAL LOAN PROVISIONS..........................................20
SECTION 4.1 INTEREST.......................................................20
SECTION 4.2 NOTICE AND MANNER OF CONVERSION OR CONTINUATION OF LOANS.......22
SECTION 4.3 FEES...........................................................23
SECTION 4.4 MANNER OF PAYMENT..............................................24
SECTION 4.5 CREDITING OF PAYMENTS AND PROCEEDS.............................24
SECTION 4.6 ADJUSTMENTS....................................................25
SECTION 4.7 NATURE OF OBLIGATIONS OF LENDERS REGADING EXTENSIONS
OF CREDIT; ASSUMPTION BY THE ADMINISTRATIVE AGENT............25
SECTION 4.8 CHANGED CIRCUMSTANCES..........................................26
SECTION 4.9 INDEMNITY......................................................27
SECTION 4.10 CAPITAL REQUIREMENS............................................28
SECTION 4.11 TAXES..........................................................28
i
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ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING......................30
SECTION 5.1 CLOSING........................................................30
SECITON 5.2 CONDITIONS TO CLOSING AND INITIAL EXTENSIONS OF CREDIT.........30
SECTION 5.3 CONDITIONS TO ALL LOANS AND LETTER OF CREDIT...................34
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................34
SECTION 6.1 REPRESENTATIONS AND WARRANTIES.................................34
SECTION 6.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC................40
ARTICLE VII FINANCIAL INFORMATION AND NOTICES................................40
SECTION 7.1 FINANCIAL STATEMENTS AND PROJECTIONS...........................40
SECTION 7.2 OFFICER'S COMPLIANCE CERTIFICATE...............................41
SECTION 7.3 NOTICE OF LITIGATION AND OTHER MATTERS.........................41
ARTICLE VIII AFFIFMATIVE COVENANTS..... .....................................42
SECTION 8.1 PRESERVATION OF EXISTENCE AND RELATED MATTERS..................42
SECTION 8.2 MAINTENANCE OF PROPERTY........................................42
SECTION 8.3 INSURANCE......................................................43
SECTION 8.4 ACCOUTING METHODS AND FINANCIAL RECORDS........................43
SECTION 8.5 PAYMENT AND PREFORMANCE OF OBLIGATIONS.........................43
SECTION 8.6 COMPLIANCE WITH LAWS AND APPROVALS.............................43
SECTION 8.7 ENVIRONMENTAL MANAGEMENT.......................................43
SECTION 8.8 COMPLIANCE WITH ERISA..........................................43
SECTION 8.9 COMPLIANCE WITH AGREEMENTS.....................................44
SECTION 8.10 CONDUCT OF BUSINESS............................................44
SECTION 8.11 VISITS AND INSPECTIONS.........................................44
SECTION 8.12 NEW SUBSIDIARIES...............................................44
SECTION 8.13 DIVIDENDS......................................................44
SECTION 8.14 YEAR 2000 COMPATIBILITY........................................44
SECTION 8.15 FURTHER ASSURANCES.............................................45
ARTICLE IX FINANCIAL COVENANTS..............................................45
SECTION 9.1 LEVERAGE RATIO.................................................45
SECTION 9.2 FIXED CHARGE COVERAGE RATIO....................................45
ARTICLE X NEGATIVE COVENANTS.................................................45
SECTION 10.1 LIMITATIONS ON DEBT............................................45
SECTION 10.2 LIMITATIONS ON GUARANTY OBLIGATIONS............................46
SECTION 10.3 LIMITATIONS ON LIENS...........................................47
ii
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SECTION 10.4 LIMITATIONS ON LOANS, ADVANCES, INVESTMENTS AND
ACQUISITIONS...............................................48
SECTION 10.5 LIMITATIONS ON MERGERS AND LIQUIDATION.......................49
SECTION 10.6 RESTRICTIONS ON SALE OF ASSETS, ETC..........................50
SECTION 10.7 LIMITATIONS ON DIVIDENDS AND DISTRIBUTIONS...................50
SECTION 10.8 LIMITATIONS ON EXCHANGE AND ISSUANCE OF CAPITAL STOCK........50
SECTION 10.9 TRANSACTIONS WITH AFFILIATES.................................50
SECTION 10.10 CERTAIN ACCOUNTING CHANGES...................................51
SECTION 10.11 RESTRICTIVE AGREEMENTS.......................................51
SECTION 10.12 MATERIAL CONTRACTS...........................................51
ARTICLE XI DEFAULT AND REMEDIES.............................................51
SECTION 11.1 EVENTS OF DEFAULT............................................51
SECTION 11.2 REMEDIES.....................................................53
SECTION 11.3 RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC..............54
ARTICLE XII THE ADMINISTRATIVE AGENT.........................................55
SECTION 12.1 APPOINTMENT..................................................55
SECTION 12.2 DELEGATION OF DUTIES.........................................55
SECTION 12.3 EXCULPATORY PROVISIONS.......................................55
SECTION 12.4 RELIANCE BY THE ADMINISTRATIVE AGENT.........................55
SECTION 12.5 NOTICE OF DEFAULT............................................56
SECTION 12.6 NON-RELIANCE ON THE ADMINISTRATIVE AGENT AND OTHER LENDERS...56
SECTION 12.7 INDEMNIFICATION..............................................57
SECTION 12.8 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY..........57
SECTION 12.9 RESIGNATION OF THE ADMINISTRATIVE AGENT; SUCCESSOR
ADMINISTRATIVE AGENT.........................................57
ARTICLE XIII MISCELLANEOUS................................................58
SECTION 13.1 NOTICES......................................................58
SECTION 13.2 EXPENSES; INDEMNITY..........................................59
SECTION 13.3 STAMP AND OTHER TAXES........................................60
SECTION 13.4 SET-OFF......................................................60
SECTION 13.5 GOVERNING LAW................................................60
SECTION 13.6 CONSENT TO JURISDICTION......................................60
SECTION 13.7 BINDING ARBITRATION; WAIVER OF JURY TRIAL....................61
SECTION 13.8 REVERSAL OF PAYMENTS.........................................62
SECTION 13.9 INJUNCTIVE RELIEF; CONSEQUENTIAL DAMAGES.....................62
SECTION 13.10 ACCOUNTING MATTERS...........................................62
SECTION 13.11 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.......................63
SECTION 13.12 AMENDMENTS, WAIVERS AND CONSENTS.............................66
SECTION 13.13 PERFORMANCE OF DUTIES........................................66
iii
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SECTION 13.14 ALL POWERS COUPLED WITH INTEREST.............................66
SECTION 13.15 SURVIVAL OF INDEMNITIES......................................66
SECTION 13.16 TITLES AND CAPTIONS..........................................67
SECTION 13.17 SEVERABILITY OF PROVISIONS...................................67
SECTION 13.18 COUNTERPARTS.................................................67
SECTION 13.19 TERM OF AGREEMENT............................................67
EXHIBITS
Exhibit A - Form of Amended and Restated Revolving Credit Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Prepayment
Exhibit D - Form of Notice of Conversion/Continuation
Exhibit E - Form of Officer's Compliane Certificate
Exhibit F - Form of Assignment and Acceptance
Exhibit G - Form Amended and Restated Pledge Agreement
Exhibit H - Form of Amended and Restated Subsidiary Guaranty Agreement
Exhibit I - Form of Notice of Account Designation
SCHEDULES
Schedule 1.1(a) - Carrier Contracts
Schedule 1.1(b) - Lenders and Commitments
Schedule 6.1(a) - Jurisdictions of Organization and Qualification
Schedule 6.1(b) - Subsidiaries and Capitalization
Schedule 6.1(i) - ERISA Plans
Schedule 6.1(l) - Material Contracts
Schedule 6.1(m) - Labor and Collective Bargaining Agreements
Schedule 6.1(s) - Liens
Schedule 6.1(t) - Debt and Guaranty Obligations
Schedule 6.1(u) - Litigation
Schedule 10.4 - Existing Loans, Advances and Investments
[AS REQUIRED BY APPLICABLE LAW, THE COMPANY WILL FURNISH SUPPLEMENTALLY ANY
OMITTED EXHIBIT OR SCHEDULE UPON REQUEST]
iv
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 1st day of May,
1998, by and among HEALTHPLAN SERVICES CORPORATION, a corporation organized
under the laws of Delaware (the "Borrower"), the Lenders who are or may become a
party to this Agreement, and FIRST UNION NATIONAL BANK, as Administrative Agent
for the Lenders.
STATEMENT OF PURPOSE
This Agreement amends and restates the Credit Agreement by and among
the Borrower, the lenders party thereto and the Administrative Agent 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 amended by the Sixth Amendment dated as of
March 17, 1998) (as so amended, the "Existing Facility").
The Borrower has requested and the Lenders have agreed to amend and
restate the Existing Facility and to extend a revolving credit facility to the
Borrower on the terms and conditions of this Agreement. The Borrower and the
Subsidiary Guarantors (as defined below) are and will be members of the same
affiliated group and conduct their operations for their mutual benefit as one
integrated financial enterprise, with each of the Subsidiary Guarantors
benefiting from the business operations of the other members of the affiliated
group. All Extensions of Credit to the Borrower will inure to the benefit of the
Subsidiary Guarantors, directly or indirectly.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"AFFILIATE" means, with respect to a Person, any other Person which
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term "control"
means (a) with respect to an Affiliate of the Borrower or any Subsidiary
thereof, the power to vote ten percent (10%) or more of the securities or other
equity interests of a Person having ordinary voting power, (b) with respect to
an Affiliate of the
<PAGE>
Administrative Agent or any Lender, the power to vote twenty percent (20%) or
more of the securities or other equity interests of a Person having ordinary
voting power, or (c) with respect to any Person, the possession, directly or
indirectly, of any other power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"ADMINISTRATIVE AGENT" means First Union in its capacity as
Administrative Agent hereunder, and any successor thereto appointed pursuant to
Section 12.9.
"ADMINISTRATIVE AGENT'S OFFICE" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
13.1.
"AGGREGATE COMMITMENT" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be One Hundred Seventy-Five Million Dollars
($175,000,000).
"AGREEMENT" means this Amended and Restated Credit Agreement, as
amended, restated or otherwise modified.
"APPLICABLE LAW" means all applicable provisions of constitutions,
laws, statutes, ordinances, rules, treaties, regulations, permits, licenses,
approvals, interpretations and orders of all Governmental Authorities and all
orders and decrees of all courts and arbitrators.
"APPLICABLE MARGIN" shall have the meaning assigned thereto in Section
4.1(c).
"APPLICATION" means an application, in the form specified by the
Issuing Lender from time to time, requesting the Issuing Lender to issue a
Letter of Credit.
"ASSIGNMENT AND ACCEPTANCE" shall have the meaning assigned thereto in
Section 13.11.
"AVAILABLE COMMITMENT" means, as to any Lender at any time, an amount
equal to (a) such Lender's Commitment LESS (b) such Lender's Extensions of
Credit.
"BASE RATE" means, at any time, the higher of (a) the Prime Rate or (b)
the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"BASE RATE LOAN" means any Loan bearing interest at a rate based upon
the Base Rate as provided in Section 4.1(a).
"BORROWER" means HealthPlan Services Corporation, a Delaware
corporation, and its permitted successors and assigns.
2
<PAGE>
"BUSINESS DAY" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina and New York, New York, are open for
the conduct of their commercial banking business, and (b) with respect to all
notices and determinations in connection with, and payments of principal and
interest on, any LIBOR Rate Loan, any day that is a Business Day described in
clause (a) and that is also a day for trading by and between banks in Dollar
deposits in the London interbank market.
"CAPITAL ASSETS" means, with respect to the Borrower and its
Subsidiaries, any asset that would, in accordance with GAAP, be required to be
classified or accounted for as a capital asset on a Consolidated balance sheet
of such Person.
"CAPITAL EXPENDITURES" means, with respect to the Borrower and its
Subsidiaries for any period, the aggregate cost of replacement or acquisition of
all Capital Assets of such Person and its Subsidiaries during such period,
determined on a Consolidated basis in accordance with GAAP.
"CAPITAL LEASE" means any lease of any property by the Borrower or any
Subsidiary thereof at any time as lessee that would, in accordance with GAAP, be
required to be classified or accounted for as a capital lease on a Consolidated
balance sheet of such Person.
"CAPITAL LEASE OBLIGATION" means, with respect to any Capital Lease,
the amount of the obligation of the Borrower or any of Subsidiary thereof that
would, in accordance with GAAP, appear on a Consolidated balance sheet of such
Person as a liability in respect of such Capital Lease.
"CARRIER CONTRACTS" means the collective reference to the
administrative services contracts between the Borrower or any Subsidiary thereof
and the Persons for whom the Borrower or such Subsidiary provides
administrative, marketing or other services with respect to health insurance
plans of such Persons in the ordinary course of the Borrower's or such
Subsidiary's business. Each Carrier Contract which is a Material Contracts is
listed on SCHEDULE 1.1(A) hereto.
"CHANGE IN CONTROL" shall have the meaning assigned thereto in Section
11.1(h).
"CLOSING DATE" means the date of this Agreement or such later Business
Day upon which each condition described in Sections 5.1 and 5.2 shall be
satisfied or waived in all respects in a manner acceptable to the Administrative
Agent.
"CODE" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended, supplemented or otherwise modified.
"COLLATERAL" means the assets, property and interests in property of
the Credit Parties, whether now owned or hereafter acquired, that shall, from
time to time, secure the Obligations as in accordance with the Security
Documents and any property or interest provided in addition to or in
substitution for any of the foregoing.
3
<PAGE>
"COMMITMENT" means, as to any Lender, the obligation of such Lender to
make Loans to and issue or participate in Letters of Credit issued for the
account of the Borrower hereunder in an aggregate principal or face amount at
any time outstanding not to exceed the amount set forth opposite such Lender's
name on SCHEDULE 1.1(b) hereto, as the same may be reduced or modified at any
time or from time to time pursuant to the terms hereof.
"COMMITMENT FEE" shall have the meaning assigned thereto in Section
4.3.
"COMMITMENT PERCENTAGE" means, as to any Lender at any time, the ratio
of (a) the amount of the Commitment of such Lender to (b) the Aggregate
Commitment of all of the Lenders.
"CONSOLIDATED" means, when used with reference to financial statements
or financial statement items of the Borrower and its Subsidiaries, such
statements or items on a consolidated basis in accordance with applicable
principles of consolidation under GAAP.
"CREDIT FACILITIES" means the collective reference to the revolving
credit facility established pursuant to Article II hereof and the L/C Facility.
"CREDIT PARTIES" means the collective reference to the Borrower and the
Subsidiary Guarantors.
"DEBT" means, with respect to the Borrower and its Subsidiaries at any
date and without duplication the sum of the following calculated on a
Consolidated basis in accordance with GAAP: (a) all liabilities, obligations and
indebtedness (including subordinated indebtedness) of the Borrower or any
Subsidiary thereof for borrowed money, whether now or hereafter owing or arising
and whether primary, secondary, direct, contingent, fixed or otherwise and
whether matured or unmatured, including without limitation, all notes payable
and drafts accepted representing extensions of credit and all obligations
evidenced by bonds, debentures, notes or other similar instruments; (b) all
obligations, contingent or otherwise, of the Borrower or any Subsidiary thereof
relative to the face amount of all letters of credit, whether or not drawn,
including without limitation any Reimbursement Obligation, and banker's
acceptances issued for the account of the Borrower or any Subsidiary thereof;
(c) all Capital Lease Obligations of the Borrower or any Subsidiary thereof; (d)
all obligations to pay the deferred purchase price of property or services
(including, without limitation, all unpaid liabilities under earn-out agreements
to the extent such liabilities are required to be recorded under GAAP); (e) all
indebtedness of any other Person secured by a Lien on property owned by the
Borrower or any Subsidiary thereof whether or not such indebtedness shall have
been assumed by the Borrower or any Subsidiary thereof or is limited in
recourse; (f) all net obligations under any Hedging Agreement and (g) all
Guaranty Obligations.
"DEFAULT" means any of the events specified in Section 11.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
4
<PAGE>
"DOLLARS" OR "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means, for any period, Net Income of the Borrower and its
Subsidiaries for such period PLUS the sum of the following for such period to
the extent deducted in determining such Net Income: (a) Interest Expense, (b)
all federal, state, local and foreign income and gross receipt tax expense, (c)
depreciation, amortization and depletion expense and (d) any non-cash loss on
the partial impairment of goodwill, in each case determined on a Consolidated
book basis in accordance with GAAP.
"ELIGIBLE ASSIGNEE" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is at the
time of such assignment (a) a commercial bank organized under the laws of the
United States or any state thereof, having combined capital and surplus in
excess of $500,000,000, (b) a commercial bank organized under the laws of any
other country that is a member of the Organization of Economic Cooperation and
Development, or a political subdivision of any such country, having a combined
capital and surplus in excess of $500,000,000, (c) a finance company, insurance
company or other financial institution which in the ordinary course of business
extends credit of the type extended hereunder and that has total assets in
excess of $1,000,000,000, (d) already a Lender hereunder (whether as an original
party to this Agreement or as the assignee of another Lender), (e) the successor
(whether by transfer of assets, merger or otherwise) to all or substantially all
of the commercial lending business of the assigning Lender, or (f) any other
Person that has been approved in writing as an Eligible Assignee by the Borrower
(so long as no Event of Default has occurred and is continuing) and the
Administrative Agent.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Credit Party or any ERISA Affiliate or (b) has at any time within the preceding
six years been maintained for the employees of any Credit Party or any current
or former ERISA Affiliate.
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of the environment, including, but not limited to, requirements
pertaining to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended, supplemented or otherwise
modified.
"ERISA AFFILIATE" means any Person who together with any Credit Party
is treated as a single employer within the meaning of Section 414(b), (c), (m)
or (o) of the Code or Section 4001(b) or ERISA.
5
<PAGE>
"EURODOLLAR RESERVE PERCENTAGE" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.
"EVENT OF DEFAULT" means any of the events specified in Section 11.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"EXISTING FACILITY" shall have the meaning assigned thereto in the
Statement of Purpose.
"EXTENSIONS OF CREDIT" means, as to any Lender at any time, an amount
equal to the sum of (a) the aggregate principal amount of all Revolving Credit
Loans made by such Lender then outstanding and (b) such Lender's Commitment
Percentage of the L/C Obligations then outstanding.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"FEDERAL FUNDS RATE" means the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Administrative Agent and confirmed in
Federal Reserve Board Statistical Release H.15(519) or any successor or
substitute publication selected by the Administrative Agent. If, for any reason,
such rate is not available, then "Federal Funds Rate" shall mean a daily rate
which is determined, in the opinion of the Administrative Agent, to be the rate
at which federal funds are being offered for sale in the national federal funds
market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be
the same as the rate for the most immediate proceeding Business Day.
"FINAL MATURITY DATE" means May1, 2003.
"FIRST UNION" means First Union National Bank, a national banking
association, and its successors.
"FISCAL YEAR" means the fiscal year of the Borrower and its
Subsidiaries ending on December 31.
"FIXED CHARGE COVERAGE RATIO" means as of any fiscal quarter end of the
Borrower, the ratio of (a) Pro Forma EBITDA LESS the sum of (i) Capital
Expenditures for the period of four (4) consecutive fiscal quarters ending on or
immediately prior to such fiscal quarter end, PLUS (ii) shareholder dividends
for the period of four (4) consecutive fiscal quarters ending on or immediately
prior to such fiscal quarter end, PLUS (iii) stock repurchases (excluding stock
repurchases permitted pursuant to Section 10.7 in an amount not to exceed
$10,000,000 and occurring within eighteen (18) months after the Closing Date)
for the period of four (4) consecutive fiscal quarters ending on or immediately
6
<PAGE>
prior to such fiscal quarter end to (b) the sum of (i) Interest Expense for the
period of four (4) consecutive fiscal quarters ending on or immediately prior to
such fiscal quarter end PLUS (ii) any principal payments due for the succeeding
four (4) fiscal quarters after such fiscal quarter end (excluding principal
payments due hereunder on the Final Maturity Date).
"GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrower and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of the Borrower and its
Subsidiaries.
"GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"GOVERNMENTAL AUTHORITY" means any nation, province, state or other
political subdivision thereof, and any government or any Person exercising
executive, legislative, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" means, with respect to the Borrower and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other obligation of any other Person (determined as if
the definition of Debt referred to such Person) and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of any such Person (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other obligation (whether arising
by virtue of partnership arrangements, by agreement to keep well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement condition or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED, that the term Guaranty Obligation shall not include
endorsements for collection or deposit in the ordinary course of business.
"HAZARDOUS MATERIALS" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Applicable Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Applicable Law, (d) the discharge or emission or release which requires a
permit or license under any Applicable Law or other Governmental Approval, (e)
which are deemed to constitute a nuisance, or trespass or pose a health or
safety hazard to person or neighboring properties, (f) which are materials
consisting of underground or aboveground storage tanks, whether empty, filled or
partially filled with any substance, or (g) which contain, without limitation,
asbestos,
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polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum
hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel,
natural gas or synthetic gas.
"HEDGING AGREEMENT" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Borrower, and any confirming letter
executed pursuant to such hedging agreement, all as amended, restated or
otherwise modified.
"HPSI" means HealthPlan Services, Inc., a Florida corporation, and its
successors and assigns.
"INTEREST EXPENSE" means, for any period, total interest expense of the
Borrower and its Subsidiaries (including without limitation, interest expense
attributable to Capital Leases) determined on a Consolidated basis in accordance
with GAAP.
"INTEREST PERIOD" shall have the meaning assigned thereto in Section
4.1(b).
"ISSUING LENDER" means First Union, in its capacity as issuer of any
Letter of Credit, or any successor thereto.
"L/C COMMITMENT" means the lesser of (a) the Aggregate Commitment and
(b) Thirty Million Dollars ($30,000,000).
"L/C FACILITY" means the letter of credit facility established pursuant
to Article III hereof.
"L/C OBLIGATIONS" means at any time, an amount equal to the sum of (a)
the aggregate undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C PARTICIPANTS" means the collective reference to all the Lenders
other than the Issuing Lender.
"LENDER" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that hereafter becomes a
party to this Agreement as a Lender pursuant to Section 13.11.
"LENDING OFFICE" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"LETTERS OF CREDIT" shall have the meaning assigned thereto in Section
3.1.
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"LEVERAGE RATIO" means as of any fiscal quarter end of the Borrower,
the ratio of (a) Consolidated Debt (excluding net obligations under any Hedging
Agreement) as of such fiscal quarter end to (b) Pro Forma EBITDA as of such
fiscal quarter end.
"LIBOR" means the rate of interest per annum determined on the basis of
the rate for deposits in Dollars in minimum amounts of at least $5,000,000 for a
period equal to the applicable Interest Period which appears on the Telerate
Page 3750 at approximately 11:00 a.m. London time, two (2) Business Days prior
to the first day of the applicable Interest Period. If, for any reason, such
rate does not appear on Telerate Page 3750, then "LIBOR" shall be determined by
the Administrative Agent to be the arithmetic average of the rate per annum at
which deposits in Dollars would be offered by first class banks in the London
interbank market to the Administrative Agent approximately 11:00 a.m. (London
time), two (2) Business Days prior to the first day of the applicable Interest
Period for a period equal to such Interest Period and in an amount substantially
equal to the amount of the applicable Loan.
"LIBOR RATE" means a rate per annum (rounded upwards, if necessary, to
the nearest one-sixteenth of one percent (1/16%) determined by the
Administrative Agent pursuant to the following formula:
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
"LIBOR RATE LOAN" means any Loan bearing interest at a rate based upon
the LIBOR Rate as provided in Section 4.1(a).
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary thereof shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"LOANS" means any revolving loans made to the Borrower pursuant to
Section 2.1 and "Loan" means any of such Loans.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the
Applications, any Hedging Agreement with any Lender (or any Affiliate thereof)
and permitted or required hereunder, the Security Documents and each other
document, instrument and agreement executed and delivered by any Credit Party in
connection with this Agreement, or otherwise referred to herein or contemplated
hereby, all as may be amended, restated or otherwise modified.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
Collateral or other properties of the Credit Parties taken as a whole or (b) the
ability of any Credit Party to perform its obligations under any Loan Document.
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"MATERIAL CONTRACT" means (a) any Carrier Contract or any other
contract or agreement, written or oral, of any Credit Party which in any such
case generates an amount equal to or greater than fifteen percent (15%) of the
revenue of the Borrower (determined on a Consolidated basis) as of the end of
the fiscal quarter ending on or immediately prior to any date of determination
and (b) any contract or agreement not referred to above the cancellation of
which could reasonably be expected to have a Material Adverse Effect.
"MAXIMUM RATE" shall have the meaning assigned thereto in Section
4.1(f).
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Credit Party or any ERISA Affiliate is making,
or is accruing an obligation to make, contributions within the preceding six (6)
years.
"NET INCOME" means, for any period, the net income (or loss) of the
Borrower and its Subsidiaries determined on Consolidated basis for such period
in accordance with GAAP; PROVIDED, that there shall be excluded from such net
income (a) the net income of any Person not a Wholly-Owned Subsidiary of the
Borrower, and the net income of any Person accounted for by the equity method,
except in each case to the extent received by the Borrower or a Wholly-Owned
Subsidiary in a cash distribution and (b) any cash or non-cash gain or loss not
included in total revenues and total expenses as reported by the Borrower.
"NOTES" means the separate amended and restated revolving credit notes
made by the Borrower payable to the order of each Lender, substantially in the
form of EXHIBIT A hereto, evidencing the Credit Facility, and any amendments and
modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part; "Note" means
any of such Notes.
"NOTICE OF ACCOUNT DESIGNATION" shall have the meaning assigned thereto
in Section 2.2(b).
"NOTICE OF BORROWING" shall have the meaning assigned thereto in
Section 2.2(a).
"NOTICE OF CONVERSION/CONTINUATION" shall have the meaning assigned
thereto in Section 4.2.
"NOTICE OF PREPAYMENT" shall have the meaning assigned thereto in
Section 2.3(c).
"OBLIGATIONS" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (b)
the L/C Obligations, (c) all payment and other obligations owing by the Borrower
to any Lender or the Administrative Agent under any Hedging Agreement with any
Lender (or any Affiliate thereof) and permitted or required hereunder, (d) all
obligations under the Swingline Credit Agreement, and (e) all other fees and
commissions (including attorney's fees), charges, indebtedness, loans,
liabilities, financial accommodations, obligations, covenants and duties owing
by the Borrower to the Lenders or the Administrative Agent, of
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every kind, nature and description, direct or indirect, absolute or contingent,
due or to become due, contractual or tortious, liquidated or unliquidated, and
whether or not evidenced by any note, and whether or not for the payment of
money, in each case under or in respect of this Agreement, any Note, any Letter
of Credit or any of the other Loan Documents.
"OFFICER'S COMPLIANCE CERTIFICATE" shall have the meaning assigned
thereto in Section 7.2.
"OTHER TAXES" shall have the meaning assigned thereto in Section
4.11(b).
"OUTSTANDING LETTERS OF CREDIT" means each Letter of Credit issued by
the Issuing Lender and The Fifth Third Bank of Columbus prior to the Closing
Date and permitted under the Existing Facility that remains outstanding as of
the Closing Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"PERMITTED ACQUISITION" means an acquisition permitted pursuant to
Section 10.4(a).
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the Credit
Parties or any ERISA Affiliates or (b) has at any time within the preceding six
years been maintained for the employees of the Credit Parties or any of their
current or former ERISA Affiliates.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"PLEDGE AGREEMENTS" means the collective reference to the amended and
restated pledge agreements executed by the Borrower and HPSI and the Subsidiary
Guarantors in favor of the Administrative Agent for the ratable benefit of
itself and the Lenders, and any other Pledge Agreement executed pursuant to
Section 8.12, each substantially in the form of EXHIBIT G hereto, as amended,
modified or supplemented from time to time.
"PRIME RATE" means, at any time, the rate of interest per annum
publicly announced from time to time by First Union as its prime rate. Each
change in the Prime Rate shall be effective as of the opening of business on the
day such change in the Prime Rate occurs. The parties hereto acknowledge that
the rate announced publicly by First Union as its Prime Rate is an index or base
rate and shall not necessarily be its lowest or best rate charged to its
customers or other banks.
"PRO FORMA EBITDA" means, as of any date of determination, EBITDA for
the period of four consecutive fiscal quarters ending on, or immediately prior
to, such date of determination, as set forth on the applicable Officer's
Compliance Certificate and financial statements attached
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thereto, including on a PRO FORMA basis EBITDA for such period attributable to
any Permitted Acquisition; PROVIDED that EBITDA attributable to any Permitted
Acquisition (a) for the calendar month during which such Permitted Acquisition
is consummated shall be included in Pro Forma EBITDA on an actual or PRO FORMA
basis as determined in accordance with GAAP and (b) for any calendar month
following such Permitted Acquisition which is part of the same fiscal quarter
during which such Permitted Acquisition is consummated shall be included in Pro
Forma EBITDA on an actual basis; PROVIDED, that any other adjustments to Pro
Forma EBITDA in connection with a Permitted Acquisition must be approved in
writing by the Required Lenders.
"REGISTER" shall have the meaning assigned thereto in Section 13.11(d).
"REIMBURSEMENT OBLIGATION" means the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"REQUIRED LENDERS" means, at any date, any combination of holders of at
least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid
principal amount of the Notes, or if no amounts are outstanding under the Notes,
any combination of Lenders whose Commitment Percentages aggregate at least
sixty-six and two-thirds percent (66-2/3%).
"RESPONSIBLE OFFICER" means any of the following: the chief executive
officer or chief financial officer of the Borrower or any other officer of the
Borrower reasonably acceptable to the Administrative Agent.
"SECURITY DOCUMENTS" means the collective reference to the Pledge
Agreements, the Subsidiary Guaranty Agreements and each other agreement or
writing pursuant to which any Credit Party pledges or grants a security interest
in the Collateral securing the Obligations or such Person guaranties the payment
and/or performance of the Obligations.
"SOLVENT" means, as to any Person on a particular date, that such
Person (a) has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage and is able to pay
its debts as they mature, (b) does not reasonably believe that it will incur
debts or liabilities beyond its ability to pay such debts or liabilities as they
mature and (c) is not insolvent within the meaning of the federal bankruptcy
laws, Title 11, U.S.C. Section 101(32).
"SUBORDINATED DEBT" means any unsecured Debt of the Borrower or any
Subsidiary subordinated in right and time of payment to the Obligations on terms
satisfactory to the Administrative Agent and Required Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership or other entity of which more than fifty percent (50%) of the
outstanding capital stock, partnership interest or other equity interests is at
the time, directly or indirectly, owned by such Person. Unless otherwise
specified, references herein to any Subsidiary shall mean a Subsidiary of the
Borrower.
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"SUBSIDIARY GUARANTORS" means each Subsidiary of the Borrower who
executed a Subsidiary Guaranty (a) on the Closing Date or (b) after such date in
accordance with Section 8.12.
"SUBSIDIARY GUARANTY AGREEMENT" means the collective reference to each
unconditional guaranty agreement executed by each Subsidiary Guarantor party
thereto in favor of the Administrative Agent, for the ratable benefit of itself
and the Lenders, substantially in the form of EXHIBIT H hereto, as amended,
modified or supplemented from time to time.
"SWINGLINE CREDIT AGREEMENT" means the Swingline Credit Agreement
between the Borrower and First Union, as lender dated of even date.
"SYKES" means Sykes Enterprises, Incorporated.
"SYKES-HEALTHPLAN GUARANTY" means the Guaranty Agreement dated as of
March 27, 1998 by the Borrower and Sykes to NationsBank, National Association.
"SYKES HEALTHPLAN SERVICES , INC. " means the joint venture between the
Borrower and Sykes.
"TAXES" shall have the meaning assigned thereto in Section 4.11(a).
"TERMINATION DATE" means the earliest of the dates referred to in
Section 2.6.
"UNIFORM CUSTOMS" the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500.
"UCC" means the Uniform Commercial Code as in effect in the State of
North Carolina.
"UNITED STATES" means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary all of the shares of the
capital stock or other ownership matters of which are, directly or indirectly,
owned or controlled by a Credit Party and/or one or more of its Wholly-Owned
Subsidiaries.
SECTION 1.2 GENERAL. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.
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SECTION 1.3 OTHER DEFINITIONS AND PROVISIONS.
(a) USE OF CAPITALIZED TERMS. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) MISCELLANEOUS. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE II
CREDIT FACILITY
SECTION 2.1 LOANS. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Loans to the Borrower from time
to time from the Closing Date through the Termination Date as requested by the
Borrower in accordance with the terms of Section 2.2; PROVIDED, that (a) the
aggregate principal amount of all outstanding Loans (after giving effect to any
amount requested) shall not exceed the Aggregate Commitment LESS the sum of (i)
all outstanding L/C Obligations, (ii) all Outstanding Letters of Credit and
(iii) all outstanding Guaranty Obligations of the Borrower permitted pursuant to
Section 10.2(c) and (b) the principal amount of outstanding Loans from any
Lender to the Borrower shall not at any time exceed such Lender's Available
Commitment. Each Loan by a Lender shall be in a principal amount equal to such
Lender's Commitment Percentage of the aggregate principal amount of Loans
requested on such occasion. Subject to the terms and conditions hereof, the
Borrower may borrow, repay and reborrow Loans hereunder until the Termination
Date.
SECTION 2.2 PROCEDURE FOR ADVANCES OF LOANS.
(a) REQUESTS FOR BORROWING. The Borrower shall give the Administrative
Agent irrevocable prior written notice in the form attached hereto as EXHIBIT B
(a "Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) at least
three (3) Business Days before each requested borrowing date, in the case of a
LIBOR Rate Loan, and at least one (1) Business Day before each requested
borrowing date, in the case of a Base Rate Loan, specifying (i) the date of such
borrowing, which shall be a Business Day, (ii) whether the Loans are to be LIBOR
Rate Loans or Base Rate Loans, (iii) the amount of such borrowing, which shall
be in the case of any Base Rate Loans an aggregate principal amount of $500,000
or any integral multiple of $500,000 in excess thereof and in the case of any
LIBOR Rate Loans an aggregate principal amount of $1,000,000 or any integral
multiple of $500,000 in excess thereof and (iv) the requested duration of any
Interest Period applicable thereto. Notices received after 11:00 a.m. (Charlotte
time) shall be deemed received on the next Business Day. The Administrative
Agent shall promptly notify the Lenders of each Notice of Borrowing.
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(b) DISBURSEMENT OF LOANS. Not later than 2:00 p.m. (Charlotte time) on
the proposed borrowing date, each Lender will make available to the
Administrative Agent, for the account of the Borrower, at the office of the
Administrative Agent in funds immediately available to the Administrative Agent,
such Lender's Commitment Percentage of the Loans to be made on such borrowing
date. The Borrower hereby irrevocably authorizes the Administrative Agent to
disburse the proceeds of each borrowing requested pursuant to this Section 2.2
in immediately available funds by crediting or wiring such proceeds to the
deposit account of the Borrower maintained with the Administrative Agent or by
wire transfer to such account as may be identified in the most recent notice
substantially in the form of EXHIBIT I hereto (a "Notice of Account
Designation") delivered by the Borrower to the Administrative Agent or as may be
otherwise agreed upon by the Borrower and the Administrative Agent from time to
time. Subject to Section 4.7 hereof, the Administrative Agent shall not be
obligated to disburse the portion of the proceeds of any Loan requested pursuant
to this Section 2.3 to the extent that any Lender has not made available to the
Administrative Agent its Commitment Percentage of such Loan.
SECTION 2.3 REPAYMENT OF LOANS.
(a) REPAYMENT ON FINAL MATURITY DATE. The Borrower shall repay the
outstanding principal amount of all Loans in full, together with all accrued but
unpaid interest thereon and any other outstanding Obligations, on the Final
Maturity Date.
(b) MANDATORY REPAYMENT OF EXTENSIONS OF CREDIT. (i) If at any time the
outstanding principal amount of all Loans exceeds the Aggregate Commitment LESS
(a) all outstanding L/C Obligations, (b) all Outstanding Letters of Credit and
(c) all outstanding Guaranty Obligations of the Borrower permitted pursuant to
Section 10.2(c), the Borrower shall repay immediately upon notice from the
Administrative Agent, by payment to the Administrative Agent for the account of
the Lenders, Extensions of Credit in an amount equal to such excess. Each such
repayment shall be accompanied by any amount required to be paid pursuant to
Section 4.9.
(c) OPTIONAL REPAYMENTS. The Borrower may at any time and from time to
time repay the Loans, in whole or in part, not later than 11:00 a.m. (Charlotte
time) upon at least three (3) Business Days' irrevocable notice to the
Administrative Agent with respect to LIBOR Rate Loans and one (1) Business Day
irrevocable notice with respect to Base Rate Loans, in the form attached hereto
as EXHIBIT C (a "Notice of Prepayment") specifying the date and amount of
repayment and whether the repayment is of LIBOR Rate Loans, Base Rate Loans, or
a combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of such notice, the Administrative Agent shall promptly
notify each Lender. If any such notice is given, the amount specified in such
notice shall be due and payable on the date set forth in such notice. Partial
repayments shall be in an aggregate amount of $500,000 or a whole multiple of
$500,000 in excess thereof with respect to Base Rate Loans and $1,000,000 or a
whole multiple of $500,000 in excess thereof with respect to LIBOR Rate Loans.
Each such repayment shall be accompanied by any amount required to be paid
pursuant to Section 4.9.
(d) LIMITATION ON REPAYMENT OF LIBOR RATE LOANS. Notwithstanding the
provisions of Section 2.3(c), the Borrower may not repay any LIBOR Rate Loan on
any day other than on
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the last day of the Interest Period applicable thereto unless such repayment is
accompanied by any amount required to be paid pursuant to Section 4.9.
SECTION 2.4 PROMISSORY NOTES. Each Lender's Loans and the obligation of
the Borrower to repay such Loans shall be evidenced by a Note executed by the
Borrower payable to the order of such Lender representing the Borrower's
obligation to pay such Lender's Commitment or, if less, the aggregate unpaid
principal amount of all Loans made and to be made by such Lender to the Borrower
hereunder, PLUS interest and all other fees, charges and other amounts due
thereon. Each Note shall be dated the date hereof and shall bear interest on the
unpaid principal amount thereof at the applicable interest rate per annum
specified in Section 4.1.
SECTION 2.5 OPTIONAL PERMANENT REDUCTION OF THE AGGREGATE COMMITMENT.
The Borrower shall have the right at any time and from time to time, upon at
least five (5) Business Days prior written notice to the Administrative Agent,
to permanently reduce, in whole at any time or in part from time to time,
without premium or penalty, (i) the entire Aggregate Commitment at any time or
(ii) portions of the Aggregate Commitment, from time to time, in an aggregate
principal amount not less than $1,000,000 or any whole multiple of $500,000 in
excess thereof; PROVIDED, that each such permanent reduction shall be
accompanied by a payment of principal sufficient to reduce the aggregate
outstanding Extensions of Credit of the Lenders after such reduction to an
amount equal to the sum of (a) the Aggregate Commitment as so reduced LESS (b)
all outstanding Guaranty Obligations of the Borrower permitted pursuant to
Section 10.2(c), by accrued interest on the amount so paid and by any payment
required under Section 4.9 hereof (and, if applicable furnishing of cash
collateral satisfactory to the Administrative Agent for any L/C Obligations in
excess of the Aggregate Commitment as so reduced). Any reduction of the
Aggregate Commitment to zero shall be accompanied by payment of all outstanding
Obligations and termination of the Credit Facility (and furnishing of cash
collateral satisfactory to the Administrative Agent for all L/C Obligations) and
shall result in the termination of the Commitments and the Credit Facility. Such
cash collateral shall be applied in accordance with Section 11.2(b). If the
reduction of the Aggregate Commitment requires the repayment of any LIBOR Rate
Loan, such reduction may be made only on the last day of the then current
Interest Period applicable thereto unless such repayment is accompanied by any
amount required to be paid pursuant to Section 4.9 hereof.
SECTION 2.6 TERMINATION DATE. The Credit Facility shall terminate and
all outstanding Obligations shall be paid in full on the earliest of (a) the
Final Maturity Date, (b) the date of termination by the Borrower pursuant to
Section 2.5, and (c) the date of termination by the Administrative Agent on
behalf of the Lenders pursuant to Section 11.2(a).
SECTION 2.7 USE OF PROCEEDS. The Borrower shall use the proceeds of the
Extensions of Credit (a) to refinance the Existing Facility, (b) to finance the
Permitted Acquisitions, (c) to finance the repurchase of the Borrower's common
stock and (d) for working capital and general corporate requirements of the
Borrower and its Subsidiaries, including the payment of certain fees and
expenses incurred in connection with the transactions contemplated hereby.
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ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.1 L/C COMMITMENT. Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue standby letters of credit ("Letters of
Credit") for the account of the Borrower on any Business Day from the Closing
Date through but not including the Termination Date in such form as may be
approved from time to time by the Issuing Lender; PROVIDED, that the Issuing
Lender shall have no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (a) the L/C Obligations would exceed the L/C Commitment
or (b) the Available Commitment of any Lender would be less than zero. Each
Letter of Credit shall (i) be denominated in Dollars in a minimum amount of
$100,000; PROVIDED, that there may be five (5) Letters of Credit denominated in
an amount less than $100,000 so long as such amount is reasonably acceptable to
the Administrative Agent, (ii) be a standby letter of credit issued to support
obligations of the Borrower or any of its Subsidiaries, contingent or otherwise,
incurred in connection with any purpose permitted pursuant to Section 2.7, (iii)
expire on a date no later than one (1) year from the date of issuance, which
date shall be no later than the Termination Date and (iv) be subject to the
Uniform Customs and, to the extent not inconsistent therewith, the laws of the
State of North Carolina. The Issuing Lender shall not at any time be obligated
to issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any Applicable Law. References herein to "issue" and derivations thereof with
respect to Letters of Credit shall also include extensions or modifications of
any existing Letters of Credit, unless the context otherwise requires.
SECTION 3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at the Administrative Agent's Office an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
shall process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall, subject to Section 3.1 and Article V hereof,
promptly issue the Letter of Credit requested thereby (but in no event shall the
Issuing Lender be required to issue any Letter of Credit earlier than three (3)
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing
Lender shall furnish to the Borrower a copy of such Letter of Credit and furnish
to each Lender a copy of such Letter of Credit and the amount of each Lender's
L/C Participation therein, all promptly following the issuance of such Letter of
Credit.
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SECTION 3.3 COMMISSIONS AND OTHER CHARGES.
(a) The Borrower shall pay to the Administrative Agent, for the account
of the Issuing Lender and the L/C Participants, a letter of credit commission
with respect to each Letter of Credit in an amount equal to the product of (i)
the face amount of such Letter of Credit TIMES (ii) an annual percentage equal
to the Applicable Margin with respect to LIBOR Rate Loans in effect on the
issuance date. Such commission shall be payable quarterly in arrears on the last
Business Day of each calendar quarter and on the Termination Date.
(b) In addition to the foregoing commission, the Borrower shall pay the
Issuing Lender an issuance fee of 0.10% per annum on the face amount of each
Letter of Credit, payable quarterly in arrears on the last Business Day of each
calendar quarter and on the Termination Date.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the Issuing Lender and the L/C Participants all
commissions received by the Administrative Agent in accordance with their
respective Commitment Percentages.
SECTION 3.4 L/C PARTICIPATIONS.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not reimbursed in full by the Borrower in accordance with the terms of
this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand
at the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Commitment Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit, the Issuing Lender shall notify each L/C Participant of the amount
and due date of such required payment and such L/C Participant shall pay to the
Issuing Lender the amount specified on the applicable due date. If any such
amount is paid to the Issuing Lender after the date such payment is due, such
L/C Participant shall pay to the Issuing Lender on demand, in addition to such
amount, the product of (i) such amount, TIMES (ii) the daily average Federal
Funds Rate as determined by the Administrative Agent during the period from and
including the date such payment is due to the date on which such payment is
immediately available to the Issuing Lender, TIMES (iii) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator
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<PAGE>
of which is 360. A certificate of the Issuing Lender with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
With respect to payment to the Issuing Lender of the unreimbursed amounts
described in this Section 3.4(b), if the L/C Participants receive notice that
any such payment is due (A) prior to 1:00 p.m. (Charlotte time) on any Business
Day, such payment shall be due that Business Day, and (B) after 1:00 p.m.
(Charlotte time) on any Business Day, such payment shall be due on the following
Business Day.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its
Commitment Percentage of such payment in accordance with this Section 3.4, the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its PRO RATA
share thereof; PROVIDED, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
SECTION 3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft paid under any Letter of
Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges
or other costs or expenses incurred by the Issuing Lender in connection with
such payment. Each such payment shall be made to the Issuing Lender at its
address for notices specified herein in lawful money of the United States and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this Article III from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate which would be payable on any
outstanding Base Rate Loans which were then overdue. If the Borrower fails to
timely reimburse the Issuing Lender on the date the Borrower receives the notice
referred to in this Section 3.5, the Borrower shall be deemed to have timely
given a Notice of Borrowing hereunder to the Administrative Agent requesting the
Lenders to make a Base Rate Loan on such date in an amount equal to the amount
of such drawing and, regardless of whether or not the conditions precedent
specified in Article V, have been satisfied, the Lenders shall make Base Rate
Loans in such amount, the proceeds of which shall be applied to reimburse the
Issuing Lender for the amount of the related drawing and costs and expenses.
SECTION 3.6 OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
Article III (including without limitation the Reimbursement Obligation) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender or any beneficiary of a Letter of Credit.
The Borrower also agrees with the Issuing Lender that the Issuing Lender shall
not be responsible for, and the Borrower's Reimbursement Obligation under
Section 3.5 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
any claims whatsoever of a Borrower against any beneficiary of such Letter of
Credit or any such
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<PAGE>
transferee. The Issuing Lender shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Lender's gross negligence or willful
misconduct. The Borrower agrees that any action taken or omitted by the Issuing
Lender under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Customs and,
to the extent not inconsistent therewith, the UCC shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender to the
Borrower. The responsibility of the Issuing Lender to the Borrower in connection
with any draft presented for payment under any Letter of Credit shall, in
addition to any payment obligation expressly provided for in such Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Letter of Credit in connection with such presentment are in
conformity with such Letter of Credit.
SECTION 3.7 EFFECT OF APPLICATION. To the extent that any provision of
any Application related to any Letter of Credit is inconsistent with the
provisions of this Article III, the provisions of this Article III shall apply.
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1 INTEREST.
(a) INTEREST RATE OPTIONS. Subject to the provisions of this Section
4.1, at the election of the Borrower, the aggregate principal balance of the
Notes or any portion thereof shall bear interest at the Base Rate or the LIBOR
Rate PLUS, in each case, the Applicable Margin as set forth below; provided that
the LIBOR Rate shall not be available until three (3) Business Days after the
Closing Date. The Borrower shall select the rate of interest and Interest
Period, if any, applicable to any Loan at the time a Notice of Borrowing is
given pursuant to Section 2.2 or at the time a Notice of Conversion/Continuation
is given pursuant to Section 4.2. Each Loan or portion thereof bearing interest
based on the Base Rate shall be a "Base Rate Loan", each Loan or portion thereof
bearing interest based on the LIBOR Rate shall be a "LIBOR Rate Loan". Any Loan
or any portion thereof as to which the Borrower has not duly specified an
interest rate as provided herein shall be deemed a Base Rate Loan.
(b) INTEREST PERIODS. In connection with each LIBOR Rate Loan, the
Borrower, by giving notice at the times described in Section 4.1(a), shall elect
an interest period (each, an "Interest Period") to be applicable to such Loan,
which Interest Period shall be a period of one (1), two (2) or three (3) months
with respect to each LIBOR Rate Loan; PROVIDED that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any LIBOR Rate Loan and, in the case of immediately
successive Interest Periods,
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each successive Interest Period shall commence on the date on which the next
preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, that if any Interest Period with respect to a
LIBOR Rate Loan would otherwise expire on a day that is not a Business Day but
is a day of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iii) any Interest Period with respect to a LIBOR Rate Loan
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the relevant
calendar month at the end of such Interest Period;
(iv) no Interest Period shall extend beyond the Final Maturity
Date; and
(v) there shall be no more than five (5) Interest Periods
outstanding at any time.
(c) APPLICABLE MARGIN. The Applicable Margin provided for in Section
4.1(a) with respect to the Loans (the "Applicable Margin") shall be determined
by reference to the Leverage Ratio as of the end of the fiscal quarter
immediately preceding the delivery of the applicable Officer's Compliance
Certificate as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
LEVERAGE RATIO LIBOR APPLICABLE MARGIN BASE RATE APPLICABLE MARGIN
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than 1.75 to 1.00 0.750% 0.00%
- -----------------------------------------------------------------------------------------------------
Less than 2.25 to 1.00 but greater
than or equal to 1.75 to 1.00 1.00% 0.00%
- -----------------------------------------------------------------------------------------------------
Less than 3.00 to 1.00 but greater
than or equal to 2.25 to 1.00 1.25% 0.25%
- -----------------------------------------------------------------------------------------------------
Greater than or equal to 3.00 to 1.00 1.50% 0.50%
- -----------------------------------------------------------------------------------------------------
</TABLE>
; PROVIDED, that notwithstanding the foregoing, for purposes of determining the
Applicable Margin, the Leverage Ratio shall be deemed to be less than 3.00 to
1.00 but greater than or equal to 2.25 to 1.00 until the fifth (5th) Business
Day following receipt by the Administrative Agent of quarterly financial
statements for the Borrower and its Subsidiaries and the accompanying Officer's
Compliance Certificate setting forth the Leverage Ratio as of the fiscal quarter
ending March 31, 1998. Thereafter, adjustments, if any, in the Applicable Margin
shall be made by the Administrative Agent on the fifth (5th) Business Day after
receipt by the Administrative Agent of quarterly financial statements for the
Borrower and its Subsidiaries and the accompanying Officer's Compliance
Certificate setting forth the Leverage Ratio of the Borrower and its
Subsidiaries as of the most recent fiscal quarter end. Subject to Section
4.1(d), in the event the Borrower fails to deliver such financial statements and
certificate within the time required by
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Section 7.1 hereof, the Applicable Margin shall be the highest Applicable Margin
set forth above until the delivery of such financial statements and certificate.
(d) DEFAULT RATE. Subject to Section 11.3, at the discretion of the
Administrative Agent and Required Lenders, upon the occurrence and during the
continuance of an Event of Default, (i) the Borrower shall no longer have the
option to request, convert or continue LIBOR Rate Loans, (ii) all outstanding
LIBOR Rate Loans shall bear interest at a rate per annum two percent (2%) in
excess of the rate then applicable to LIBOR Rate Loans, as applicable, until the
end of the applicable Interest Period and thereafter at a rate equal to two
percent (2%) in excess of the rate then applicable to Base Rate Loans, and (iii)
all outstanding Base Rate Loans shall bear interest at a rate per annum equal to
two percent (2%) in excess of the rate then applicable to Base Rate Loans.
Interest shall continue to accrue on the Notes after the filing by or against
the Borrower of any petition seeking any relief in bankruptcy or under any act
or law pertaining to insolvency or debtor relief, whether state, federal or
foreign.
(e) INTEREST PAYMENTS; INTEREST AND FEE COMPUTATION. Interest on each
Base Rate Loan shall be payable in arrears on the last Business Day of each
calendar quarter commencing June 30, 1998 and interest on each LIBOR Rate Loan
shall be payable on the last day of each Interest Period applicable thereto, and
if such Interest Period extends over three (3) months, at the end of each three
(3) month interval during such Interest Period. Interest on Base Rate Loans
shall be computed on the basis of a 365-366 day year and assessed for the actual
number of days elapsed. Interest on LIBOR Rate Loans and any fees and other
commissions provided hereunder shall be computed on the basis of a 360-day year
and assessed for the actual number of days elapsed.
(f) MAXIMUM RATE. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by Applicable Law and the Lenders shall at the Administrative
Agent's option (i) promptly refund to the Borrower any interest received by
Lenders in excess of the maximum lawful rate or (ii) shall apply such excess to
the principal balance of the Obligations. It is the intent hereof that the
Borrower not pay or contract to pay, and that neither the Administrative Agent
nor any Lender receive or contract to receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be paid by the Borrower
under Applicable Law.
SECTION 4.2 NOTICE AND MANNER OF CONVERSION OR CONTINUATION OF LOANS.
Provided that no Event of Default has occurred and is then continuing, the
Borrower shall have the option to (a) convert at any time all or any portion of
its outstanding Base Rate Loans in a principal amount equal to $1,000,000 or any
whole multiple of $500,000 in excess thereof into one or more LIBOR Rate Loans,
(b) upon the expiration of any Interest Period, (i) convert all or any part of
its outstanding LIBOR Rate Loans in a principal amount equal to $500,000 or a
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<PAGE>
whole multiple of $500,000 in excess thereof into Base Rate Loans or (ii)
continue such LIBOR Rate Loans as LIBOR Rate Loans. Whenever the Borrower
desires to convert or continue Loans as provided above, the Borrower shall give
the Administrative Agent irrevocable prior written notice in the form attached
as EXHIBIT D (a "Notice of Conversion/Continuation") not later than 11:00 a.m.
(Charlotte time) three (3) Business Days before the day on which a proposed
conversion or continuation of such Loan is to be effective specifying (A) the
Loans to be converted or continued, and, in the case of any LIBOR Rate Loan to
be converted or continued, the last day of the Interest Period therefor, (B) the
effective date of such conversion or continuation (which shall be a Business
Day), (C) the principal amount of such Loans to be converted or continued, and
(D) the Interest Period to be applicable to such converted or continued LIBOR
Rate Loan. The Administrative Agent shall promptly notify the Lenders of such
Notice of Conversion/Continuation.
SECTION 4.3 FEES.
(a) COMMITMENT FEE. Commencing on the Closing Date, the Borrower shall
pay to the Administrative Agent, for the account of the Lenders, a
non-refundable commitment fee (the "Commitment Fee") at a rate per annum at the
percentage set forth below opposite the corresponding Leverage Ratio on the
average daily unused portion of the Aggregate Commitment (Letters of Credit
issued pursuant to Article III and Guaranty Obligations permitted pursuant to
Section 10.2(c) shall be deemed to be usage for the purpose of calculating the
commitment fee):
- ------------------------------------------------------------------------------
LEVERAGE RATIO COMMITMENT FEE
- ------------------------------------------------------------------------------
Less than 1.75 to 1.00 0.175%
- ------------------------------------------------------------------------------
Less than 2.25 to 1.00 but greater than or 0.200%
equal to 1.75 to 1.00
- ------------------------------------------------------------------------------
Less than 3.00 to 1.00 but greater than or 0.225%
equal to 2.25 to 1.00
- ------------------------------------------------------------------------------
Greater than or equal to 3.00 to 1.00 0.250%
- ------------------------------------------------------------------------------
The Commitment Fee shall be payable in arrears on the last Business Day of each
fiscal quarter during the term of this Agreement commencing June 30, 1998, and
on the Termination Date. The Commitment Fee shall be distributed by the
Administrative Agent to the Lenders PRO RATA in accordance with the Lenders'
respective Commitment Percentages. Notwithstanding any of the foregoing to the
contrary, for purposes of determining the Commitment Fee, the Leverage Ratio
shall be deemed to be less than 3.00 to 1.00 but greater than or equal to 2.25
to 1.00 until the fifth (5th) Business Day following receipt by the
Administrative Agent of quarterly financial statements for the Borrower and its
Subsidiaries and the accompanying Officer's Compliance Certificate setting forth
the Leverage Ratio as of the fiscal quarter ending March 31, 1998. Thereafter
Adjustments, if any, in the Commitment Fee shall be made by the Administrative
Agent on the fifth (5th) Business Day after receipt by the Administrative Agent
of quarterly
23
<PAGE>
financial statements for the Borrower and its Subsidiaries and the accompanying
Officer's Compliance Certificate setting forth the Leverage Ratio of the
Borrower and its Subsidiaries as of the most recent fiscal quarter end. Subject
to Section 4.1(d) in the event the Borrower fails to deliver such financial
statements and certificate within the time required by Section 7.1 hereof, the
Commitment Fee shall be the highest Commitment Fee set forth above until the
delivery of such financial statements and certificate.
(b) ADMINISTRATIVE AGENT'S AND OTHER FEES. In order to compensate the
Administrative Agent for structuring and syndicating the Loans and for its
obligations as Administrative Agent hereunder, the Borrower agrees to pay to the
Administrative Agent, for its account, the fees set forth in the separate fee
letter agreement executed by the Borrower dated March 23, 1998. The
administrative fee referred to therein shall be payable on a per annum basis in
advance on the Closing Date and annually in advance on each anniversary thereof.
SECTION 4.4 MANNER OF PAYMENT. Each payment by the Borrower on account
of the principal of or interest on the Loans or of any fee, commission or other
amounts (including the Reimbursement Obligation) payable to the Lenders under
this Agreement or any Note shall be made not later than 1:00 p.m. (Charlotte
time) on the date specified for payment under this Agreement to the
Administrative Agent at the Administrative Agent's Office for the account of the
Lenders (other than as set forth below) PRO RATA in accordance with their
respective Commitment Percentages (except as specified below), in Dollars, in
immediately available funds and shall be made without any set-off, counterclaim
or deduction whatsoever. Any payment received after such time but before 2:00
p.m. (Charlotte time) on such day shall be deemed a payment on such date for the
purposes of Section 11.1, but for all other purposes shall be deemed to have
been made on the next succeeding Business Day. Any payment received after 2:00
p.m. (Charlotte time) shall be deemed to have been made on the next succeeding
Business Day for all purposes. Upon receipt by the Administrative Agent of each
such payment, the Administrative Agent shall distribute to each Lender at its
address for notices set forth herein its PRO RATA share of such payment in
accordance with such Lender's Commitment Percentage (except as specified below)
and shall wire advice of the amount of such credit to each Lender. Each payment
to the Administrative Agent of the Issuing Lender's fees or L/C Participants'
commissions shall be made in like manner, but for the account of the Issuing
Lender or the L/C Participants, as the case may be. Each payment to the
Administrative Agent of Administrative Agent's fees or expenses shall be made
for the account of the Administrative Agent and any amount payable to any Lender
under Sections 4.8, 4.9, 4.10, 4.11 or 13.2 shall be paid to the Administrative
Agent for the account of the applicable Lender.
SECTION 4.5 CREDITING OF PAYMENTS AND PROCEEDS. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 11.2, all payments received by the
Lenders upon the Notes and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrower hereunder, then to all indemnity obligations then
due and payable by the Borrower hereunder, then to all Administrative Agent's
and Issuing Lender's fees then due and payable, then to all commitment and other
fees and commissions then due and payable, then to accrued and unpaid interest
on the
24
<PAGE>
Notes, the Reimbursement Obligation and any termination payments due in respect
of a Hedging Agreement with any Lender (or any Affiliate thereof) and permitted
or required hereunder (PRO RATA in accordance with all such amounts due), then
to the principal amount of the Notes and Reimbursement Obligation and then to
the cash collateral account described in Section 11.2(b) hereof to the extent of
any L/C Obligations then outstanding, in that order.
SECTION 4.6 ADJUSTMENTS. If any Lender (a "Benefitted Lender") shall at
any time receive any payment of all or part of the Obligations owing to it, or
interest thereon, or if any Lender shall at any time receive any collateral in
respect to the Obligations owing to it, (whether voluntarily or involuntarily,
by set-off or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect to the Obligations
owing to such other Lender, or interest thereon, such Benefitted Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Extensions of Credit, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; PROVIDED, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Lender, such purchase shall be rescinded, and the purchase price
and benefits returned to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Extensions of Credit may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
SECTION 4.7 NATURE OF OBLIGATIONS OF LENDERS REGARDING EXTENSIONS OF
CREDIT; ASSUMPTION BY THE ADMINISTRATIVE AGENT. The obligations of the Lenders
under this Agreement to make the Loans and issue or participate in Letters of
Credit are several and are not joint or joint and several. Unless the
Administrative Agent shall have received notice from a Lender prior to a
proposed borrowing date that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of the amount to be borrowed
on such date (which notice shall not release such Lender of its obligations
hereunder), the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the proposed borrowing date in
accordance with Section 2.2 (b) and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If such amount is made available to the Administrative
Agent on a date after such borrowing date, such Lender shall pay to the
Administrative Agent on demand an amount, until paid, equal to the product of
(a) the amount of such Lender's Commitment Percentage of such borrowing, TIMES
(b) the daily average Federal Funds Rate during such period as determined by the
Administrative Agent, TIMES (c) a fraction the numerator of which is the number
of days that elapse from and including such borrowing date to the date on which
such Lender's Commitment Percentage of such borrowing shall have become
immediately available to the Administrative Agent and the denominator of which
is 360. A certificate of the Administrative Agent with respect to any amounts
owing under this Section shall be conclusive, absent manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three (3) Business Days of such
borrowing date, the Administrative Agent shall be entitled to recover such
amount made
25
<PAGE>
available by the Administrative Agent with interest thereon at the rate per
annum applicable to Base Rate Loans hereunder, on demand, from the Borrower. The
failure of any Lender to make its Commitment Percentage of any Loan available
shall not relieve it or any other Lender of its obligation, if any, hereunder to
make its Commitment Percentage of such Loan available on such borrowing date,
but no Lender shall be responsible for the failure of any other Lender to make
its Commitment Percentage of such Loan available on the borrowing date.
SECTION 4.8 CHANGED CIRCUMSTANCES.
(a) CIRCUMSTANCES AFFECTING LIBOR RATE AVAILABILITY. If with respect to
any Interest Period the Administrative Agent or any Lender (after consultation
with Administrative Agent) shall determine that, by reason of circumstances
affecting the foreign exchange and interbank markets generally, deposits in
eurodollars, in the applicable amounts are not being quoted via Telerate Page
3750 or offered to the Administrative Agent or such Lender for such Interest
Period, then the Administrative Agent shall forthwith give notice thereof to the
Borrower. Thereafter, until the Administrative Agent notifies the Borrower that
such circumstances no longer exist, the obligation of the Lenders to make LIBOR
Rate Loans and the right of the Borrower to convert any Loan to or continue any
Loan as a LIBOR Rate Loan shall be suspended, and the Borrower shall repay in
full (or cause to be repaid in full) the then outstanding principal amount of
each such LIBOR Rate Loans together with accrued interest thereon, on the last
day of the then current Interest Period applicable to such LIBOR Rate Loan or
convert the then outstanding principal amount of each such LIBOR Rate Loan to a
Base Rate Loan as of the last day of such Interest Period.
(b) LAWS AFFECTING LIBOR RATE AVAILABILITY. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it unlawful
or impossible for any of the Lenders (or any of their respective Lending
Offices) to honor its obligations hereunder to make or maintain any LIBOR Rate
Loan, such Lender shall promptly give notice thereof to the Administrative Agent
and the Administrative Agent shall promptly give notice to the Borrower and the
other Lenders. Thereafter, until the Administrative Agent notifies the Borrower
that such circumstances no longer exist, (i) the obligations of the Lenders to
make LIBOR Rate Loans and the right of the Borrower to convert any Loan or
continue any Loan as a LIBOR Rate Loan shall be suspended and thereafter the
Borrower may select only Base Rate Loans hereunder, and (ii) if any of the
Lenders may not lawfully continue to maintain a LIBOR Rate Loan to the end of
the then current Interest Period applicable thereto as a LIBOR Rate Loan, the
applicable LIBOR Rate Loan shall immediately be converted to a Base Rate Loan
for the remainder of such Interest Period.
(c) INCREASED COSTS. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration
26
<PAGE>
thereof, or compliance by any of the Lenders (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of such Authority, central bank or comparable agency:
(i) shall subject any of the Lenders (or any of their
respective Lending Offices) to any tax, duty or other charge with respect to any
Note, Letter of Credit or Application or shall change the basis of taxation of
payments to any of the Lenders (or any of their respective Lending Offices) of
the principal of or interest on any Note, Letter of Credit or Application or any
other amounts due under this Agreement in respect thereof (except for changes in
the rate of tax on the overall net income of any of the Lenders or any of their
respective Lending Offices imposed by the jurisdiction in which such Lender is
organized or is or should be qualified to do business or such Lending Office is
located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any of the Lenders (or any of their respective Lending Offices) or
shall impose on any of the Lenders (or any of their respective Lending Offices)
or the foreign exchange and interbank markets any other condition affecting any
Note;
and the net result of any of the foregoing is to increase the costs to any of
the Lenders of maintaining any LIBOR Rate Loan or issuing or participating in
Letters of Credit or to reduce the yield or amount of any sum received or
receivable by any of the Lenders under this Agreement or under the Notes in
respect of a LIBOR Rate Loan or Letters of Credit or Application, then such
Lender shall promptly notify the Administrative Agent, and the Administrative
Agent shall promptly notify the Borrower of such fact and demand compensation
therefor and, within fifteen (15) days after such notice by the Administrative
Agent, the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or Lenders for such increased cost or reduction.
The Administrative Agent will promptly notify the Borrower of any event of which
it has knowledge which will entitle such Lender to compensation pursuant to this
Section 4.8(c); PROVIDED, that the Administrative Agent shall incur no liability
whatsoever to the Lenders or the Borrower in the event it fails to do so. The
amount of such compensation shall be determined, in the applicable Lender's sole
discretion, based upon the assumption that such Lender funded its Commitment
Percentage of the LIBOR Rate Loans in the London interbank market and using any
reasonable attribution or averaging methods which such Lender deems appropriate
and practical. A certificate of such Lender setting forth the basis for
determining such amount or amounts necessary to compensate such Lender shall be
forwarded to the Borrower through the Administrative Agent and shall be
conclusively presumed to be correct save for manifest error.
SECTION 4.9 INDEMNITY. The Borrower hereby indemnifies each of the
Lenders against any loss or expense which may arise or be attributable to each
Lender's obtaining, liquidating or employing deposits or other funds acquired to
effect, fund or maintain any Loan (a) as a consequence of any failure by the
Borrower to make any payment when due of any amount due hereunder in connection
with a LIBOR Rate Loan, (b) due to any failure of the
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Borrower to borrow on a date specified therefor in a Notice of Borrowing or
Notice of Continuation/Conversion or (c) due to any payment, prepayment or
conversion of any LIBOR Rate Loan on a date other than the last day of the
Interest Period therefor. The amount of such loss or expense shall be
determined, in the applicable Lender's sole discretion, based upon the
assumption that such Lender funded its Commitment Percentage of the LIBOR Rate
Loans in the London interbank market and using any reasonable attribution or
averaging methods which such Lender deems appropriate and practical. A
certificate of such Lender setting forth the basis for determining such amount
or amounts necessary to compensate such Lender shall be forwarded to the
Borrower through the Administrative Agent and shall be conclusively presumed to
be correct save for manifest error.
SECTION 4.10 CAPITAL REQUIREMENTS. If either (a) the introduction of,
or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request issued after the date hereof from any
central bank or comparable agency or other Governmental Authority (whether or
not having the force of law), has or would have the effect of reducing the rate
of return on the capital of, or has affected or would affect the amount of
capital required to be maintained by, any Lender or any corporation controlling
such Lender as a consequence of, or with reference to the Commitments and other
commitments of this type, below the rate which the Lender or such other
corporation could have achieved but for such introduction, change or compliance,
then within five (5) Business Days after written demand by any such Lender, the
Borrower shall pay to such Lender from time to time as specified by such Lender
additional amounts sufficient to compensate such Lender or other corporation for
such reduction. A certificate as to such amounts submitted to the Borrower and
the Administrative Agent by such Lender, shall, in the absence of manifest
error, be presumed to be correct and binding for all purposes.
SECTION 4.11 TAXES.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the Borrower
hereunder or under the Notes or the Letters of Credit shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholding, and all liabilities with respect
thereto excluding, (i) in the case of each Lender and the Administrative Agent,
income and franchise taxes imposed by the jurisdiction under the laws of which
such Lender or the Administrative Agent (as the case may be) is organized or is
or should be qualified to do business or any political subdivision thereof, (ii)
in the case of each Lender, income and franchise taxes imposed by the
jurisdiction of such Lender's Lending Office or any political subdivision
thereof and (iii) in the case of each Lender and the Agent, income and franchise
taxes imposed by the United States (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note or
Letter of Credit to any Lender or the Administrative Agent, (A) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.11) such Lender or the Administrative Agent (as the case may be)
receives an amount equal to the amount such party would have received had no
such deductions been made, (B) the Borrower shall make such
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deductions, (C) the Borrower shall pay the full amount deducted to the relevant
taxing authority or other authority in accordance with applicable law, and (D)
the Borrower shall deliver to the Administrative Agent evidence of such payment
to the relevant taxing authority or other authority in the manner provided in
Section 4.11(d).
(b) STAMP AND OTHER TAXES. In addition, the Borrower shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or security interest in respect thereto (hereinafter referred to as
"Other Taxes").
(c) INDEMNITY. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 4.11) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including,
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor.
(d) EVIDENCE OF PAYMENT. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 13.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.
(e) DELIVERY OF TAX FORMS. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Administrative Agent, on the Closing Date or
concurrently with the delivery of the relevant Assignment and Acceptance, as
applicable, (i) two United States Internal Revenue Service Forms 4224 or Forms
1001, as applicable (or successor forms) properly completed and certifying in
each case that such Lender is entitled to a complete exemption from withholding
or deduction for or on account of any United States federal income taxes, and
(ii) an Internal Revenue Service Form W-8 or W-9, or successor applicable forms,
as the case may be, to establish an exemption from United States backup
withholding taxes. Each such Lender further agrees to deliver to the Borrower,
with a copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or
W-9, or successor applicable forms or manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, certifying in the case of a Form
1001 or 4224 that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes (unless in any such case an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders such forms inapplicable or
the exemption to which such forms relate unavailable and such Lender
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notifies the Borrower and the Administrative Agent that it is not entitled to
receive payments without deduction or withholding of United States federal
income taxes) and, in the case of a Form W-8 or W-9, establishing an exemption
from United States backup withholding tax.
(f) SURVIVAL. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 4.11 shall survive the payment in full of the
Obligations and the termination of the Commitments.
ARTICLE V
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1 CLOSING. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P., at 10:00 a.m. on May 1, 1998, or on
such other date as the parties hereto shall mutually agree.
SECTION 5.2 CONDITIONS TO CLOSING AND INITIAL EXTENSIONS OF CREDIT. The
obligation of the Lenders to close this Agreement and to make the initial Loan
or issue the initial Letter of Credit is subject to the satisfaction of each of
the following conditions:
(a) EXECUTED LOAN DOCUMENTS. The following Loan Documents, in form and
substance reasonably satisfactory to the Administrative Agent and each Lender:
(i) this Agreement;
(ii) the Notes;
(iii) the Pledge Agreements; and
(iv) the Subsidiary Guaranty Agreements
shall have been duly authorized, executed and delivered to the Administrative
Agent by the applicable Credit Parties, shall be in full force and effect and no
default shall exist thereunder, and such Credit Parties shall have delivered
original counterparts thereof to the Administrative Agent.
(b) COLLATERAL
(i) FILINGS AND RECORDINGS. All filings and recordations that
are necessary to perfect the security interests of the Lenders in the Collateral
shall have been filed or recorded in all appropriate locations and the
Administrative Agent shall have received evidence satisfactory
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to the Administrative Agent that such security interests constitute valid and
perfected first priority Liens therein subject only to Liens permitted by
Section 10.3.
(ii) PLEDGED STOCK. The Administrative Agent shall have
received original stock certificates evidencing the capital stock pledged
pursuant to the Pledge Agreements, together with an appropriate undated stock
power for each certificate duly executed in blank by the registered owner
thereof.
(iii) UCC-11 SEARCHES. The Credit Parties shall have delivered
the results of UCC-11 searches of all filings made against such Credit Parties
under the Uniform Commercial Code as in effect in any state in which any of
their offices or Collateral is located, indicating among other things that their
assets are free and clear of any Lien, except for the Liens permitted by Section
10.3.
(iv) INSURANCE. The Administrative Agent shall have received
certificates of insurance and certified copies of insurance policies in the form
required under Section 8.3 and the Security Documents and otherwise in form and
substance reasonably satisfactory to the Administrative Agent.
(c) CLOSING CERTIFICATES AND OPINIONS; ETC.
(i) OFFICER'S CERTIFICATE OF THE BORROWER. The Administrative
Agent shall have received a certificate dated as of the Closing Date from a
Responsible Officer, in form and substance satisfactory to the Administrative
Agent, to the effect that all representations and warranties of the Credit
Parties contained in this Agreement and the other Loan Documents are true,
correct and complete in all material respects; that no Credit Party is in
violation of any of the covenants contained in this Agreement and the other Loan
Documents; that, after giving effect to the transactions contemplated by this
Agreement, no Default or Event of Default has occurred and is continuing; and
that the Credit Parties have satisfied each of the closing conditions to be
satisfied thereby which has not been waived by the Administrative Agent and
Required Lenders.
(ii) CERTIFICATE OF SECRETARY OF EACH CREDIT PARTY. The
Administrative Agent shall have received a certificate of the secretary or
assistant secretary of each Credit Party certifying on behalf of such Credit
Party, as applicable, that attached thereto is a (A) true and complete copy of
the articles of incorporation of such Credit Party and all amendments thereto;
certified as of a recent date by the appropriate Governmental Authority in its
jurisdiction of incorporation; (B) a true and complete copy of the bylaws of
such Credit Party; (C) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of such Credit Party,
authorizing, in the case of the Borrower, the borrowings contemplated hereunder
and, in the case of each of the Credit Parties, the execution, delivery and
performance of this Agreement and the other Loan Documents; and as to the
incumbency and genuineness of the signature of each officer of such Credit Party
executing Loan Documents to which such Credit Party is a party; and (D) a true
and complete copy of each certificate required to be delivered pursuant to
Section 5.2(c)(iii).
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(iii) CERTIFICATES OF GOOD STANDING. The Administrative Agent
shall have received certificates of good standing from the jurisdiction of
incorporation of each Credit Party and, to the extent requested by the
Administrative Agent, certificates of authority to do business from each
jurisdiction where any Credit Party is authorized to do business.
(iv) OPINIONS OF COUNSEL. The Administrative Agent shall have
received favorable opinions of counsel to the Credit Parties, dated as of the
Closing Date and addressed to the Administrative Agent and Lenders, in form and
substance satisfactory to the Administrative Agent; which opinion shall cover,
without limitation, perfection of the Administrative Agent's security interest
in the Collateral to the extent such security interest can be perfected by
filing UCC-1 financing statements.
(v) TAX FORMS. The Administrative Agent shall have received
copies of the United States Internal Revenue Service forms required by Section
4.11(e) hereof.
(d) CONSENTS; DEFAULTS.
(i) GOVERNMENTAL AND THIRD PARTY APPROVALS. All necessary
approvals, authorizations and consents, if any be required, of any Person and of
all Governmental Authorities and courts having jurisdiction with respect to the
transactions contemplated by this Agreement and the other Loan Documents shall
have been obtained.
(ii) PERMITS AND LICENSES. All permits and licenses, including
permits and licenses required under Applicable Laws, necessary to the conduct of
business by the Credit Parties shall have been obtained and remain in full force
and effect.
(iii) NO INJUNCTION, ETC. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby, or which, in the Administrative
Agent's discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement and such other Loan Documents.
(iv) NO MATERIAL ADVERSE CHANGE. There shall not have occurred
any material change in the Collateral, business, properties, business prospects,
financial condition or results of operations of the Credit Parties, or in any
event, condition or state of facts that could reasonably be expected to have a
Material Adverse Effect.
(v) NO EVENT OF DEFAULT. No Default or Event of Default shall
have occurred and be continuing.
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(e) FINANCIAL MATTERS.
(i) FINANCIAL STATEMENTS. The Administrative Agent shall have
received (A) audited Consolidated financial statements for the Fiscal Year of
the Borrower and its Subsidiaries ended December 31, 1997 and (B) such other
financial information as may be reasonably requested by the Administrative
Agent.
(ii) FINANCIAL CONDITION CERTIFICATE. The Borrower shall have
delivered to the Administrative Agent a certificate on behalf of itself and the
Credit Parties, in form and substance satisfactory to the Administrative Agent,
and certified as accurate in all material respects by a Responsible Officer,
that (A) payables are current and not past due more than ninety (90) days
(except for those being contested in good faith by HPSI) and each Credit Party
is Solvent, (B) the Borrower's and HPSI's liquidity position as of the date of
such certificate is not materially different from the December 31, 1997
financial statements previously furnished to the Administrative Agent, (C)
attached thereto is a PRO FORMA balance sheet of the Borrower and its
Subsidiaries setting forth on a PRO FORMA basis the financial condition of the
Borrower and its Subsidiaries as of that date, reflecting on a PRO FORMA basis
the effect of the transactions contemplated herein, including all material fees
and expenses in connection therewith, and evidencing compliance by the Borrower
on a PRO FORMA basis with the financial covenants contained in Articles IX and X
hereof, (D) the financial projections previously delivered to the Administrative
Agent represent the good faith opinion of the Borrower and senior management
thereof as to the projected results contained therein and (E) attached thereto
is a calculation of the Applicable Margin as of the Closing Date in accordance
with Section 4.1(c).
(iii) PAYMENT AT CLOSING; FEE LETTERS. There shall have been
paid by the Credit Parties to the Administrative Agent and the Lenders the fees
set forth or referenced in Section 4.3 and any other accrued and unpaid fees or
commissions due hereunder (including, without limitation, legal fees and
expenses), and to any other Person such amount as may be due thereto in
connection with the transactions contemplated hereby, including all taxes, fees
and other charges in connection with the execution, delivery, recording, filing
and registration of any of the Loan Documents. The Administrative Agent shall
have received duly authorized and executed copies of the fee letter agreement
referred to in Section 4.3(b).
(f) MISCELLANEOUS.
(i) NOTICE OF BORROWING. The Administrative Agent shall have
received a Notice of Borrowing from the Borrower in accordance with Section
2.2(a), and a Notice of Account Designation specifying the account or accounts
to which the proceeds of any Loans made after the Closing Date are to be
disbursed.
(ii) PROCEEDINGS AND DOCUMENTS. All opinions, certificates and
other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance to
the Lenders. The Lenders shall have received copies of all other instruments and
other evidence as the Lender may reasonably
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request, in form and substance satisfactory to the Lenders, with respect to the
transactions contemplated by this Agreement and the taking of all actions in
connection therewith.
(iii) DUE DILIGENCE AND OTHER DOCUMENTS. The Credit Parties
shall have delivered to the Administrative Agent such other documents,
certificates and opinions as the Administrative Agent reasonably requests,
certified by a Responsible Officer as a true and correct copy thereof.
(iv) EXISTING FACILITY. The Borrower shall have paid in full
all amounts outstanding under the Existing Credit Facility.
SECTION 5.3 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The
obligations of the Lenders to make any Loan or issue any Letter of Credit is
subject to the satisfaction of the following conditions precedent on the
relevant borrowing or issue date, as applicable:
(a) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by the Credit Parties contained in Article VI and in the
other Loan Documents shall be true and correct on and as of such borrowing or
issuance date with the same effect as if made on and as of such borrowing date,
except for any representation and warranty made as of an earlier date, which
representation and warranty shall remain true and correct as of such earlier
date.
(b) NO EXISTING DEFAULT. No Default or Event of Default shall have
occurred and be continuing hereunder (i) on the borrowing date with respect to
such Loan or after giving effect to the Loans to be made on such date or (ii) or
the issue date with respect to such Letter of Credit or after giving affect to
such Letters of Credit on such date.
(c) OFFICER'S COMPLIANCE CERTIFICATE; ADDITIONAL DOCUMENTS. The
Administrative Agent shall have received the current Officer's Compliance
Certificate and each additional document, instrument, legal opinion or other
item of information reasonably requested by it.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 6.1 REPRESENTATIONS AND WARRANTIES. To induce the
Administrative Agent and Lenders to enter into this Agreement and to induce the
Lenders to make the Loans or issue or participate in the Letters of Credit, the
Borrower hereby represents and warrants to the Administrative Agent and Lenders
that:
(a) EXISTENCE; POWER; QUALIFICATION. Each Credit Party is a duly
organized, validly existing corporation organized under the laws of the state of
its incorporation and is in good standing or active status, as applicable, under
the corporate laws of such state, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter
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proposed to be conducted and is duly qualified (or otherwise licensed) and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification and
authorization except where the failure to so qualify could reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, the
jurisdictions in which the Credit Parties are organized and qualified to do
business, including each State where the Borrower or any Subsidiary thereof is
licensed as a third party administrator of insurance plans or licensed for
utilization review services, are described on SCHEDULE 6.1(a).
(b) OWNERSHIP. Each Credit Party as of the Closing Date is listed on
SCHEDULE 6.1(b). The capitalization of the Credit Parties as of the Closing Date
consists of the number of shares, authorized, issued and outstanding, of such
classes and series, with or without par value, described on SCHEDULE 6.1(b). All
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. The shareholders of the Subsidiaries of the Borrower and
the number of shares owned by each as of the Closing Date are described on
SCHEDULE 6.1(b). As of the Closing Date, there are no outstanding stock purchase
warrants, subscriptions, options, securities, instruments or other rights of any
type or nature whatsoever, which are convertible into, exchangeable for or
otherwise provide for or permit the issuance of capital stock of the
Subsidiaries of the Borrower, except as described on SCHEDULE 6.1(b).
(c) AUTHORIZATION OF AGREEMENT, LOAN DOCUMENTS AND BORROWINGS. Each
Credit Party has the corporate right, power and authority and has taken all
necessary corporate and other action to authorize the execution, delivery and
performance of each of the Loan Documents to which it is a party in accordance
with their respective terms. Each of the Loan Documents has been duly executed
and delivered by the duly authorized officers of the Credit Parties party
thereto, and constitutes the legal, valid and binding obligation of each such
Credit Party enforceable in accordance with its respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws, the enforcement of creditors' rights in general and the
availability of equitable remedies.
(d) COMPLIANCE OF AGREEMENT, LOAN DOCUMENTS AND BORROWING WITH LAWS,
ETC. The execution, delivery and performance by each Credit Party of the Loan
Documents to which each such Person is a party, in accordance with their
respective terms, the borrowings hereunder and the transactions contemplated
hereby do not and will not, by the passage of time, the giving of notice or
otherwise, (i) require any Governmental Approval not previously obtained or
violate any Applicable Law relating to the Credit Parties, (ii) conflict with,
result in a breach of or constitute a default under the articles of
incorporation, by-laws or other organizational documents of any Credit Party or
any indenture, agreement or other instrument to which such Person is a party or
by which any of its properties may be bound or any Governmental Approval
relating to such Person, or (iii) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by such Person other than Liens arising under the Loan
Documents.
(e) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. Each Credit Party (i)
has all Governmental Approvals required by any Applicable Law for it to conduct
its business (except where the failure to have any such approval could not
reasonably be expected to have a Material
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Adverse Effect), each of which is in full force and effect, is final and not
subject to review on appeal and is not the subject of any pending or, to the
best of its knowledge, threatened attack by direct or collateral proceeding, and
(ii) is in compliance with each Governmental Approval applicable to it and in
all material respects with all other Applicable Laws relating to it or any of
its respective properties, except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect.
(f) TAX RETURNS AND PAYMENTS. Each Credit Party has duly filed or
caused to be filed all federal, state, local and other tax returns required by
Applicable Law to be filed, and has paid, or made adequate provision for the
payment of, all federal, state, local and other taxes, assessments and
governmental charges or levies upon it and its property, income, profits and
assets which are due and payable. No Governmental Authority has asserted any
Lien or other claim against any Credit Party with respect to unpaid taxes which
has not been discharged or resolved. The charges, accruals and reserves on the
books of each Credit Party in respect of federal, state, local and other taxes
for all fiscal years and portions thereof since the formation of such Credit
Party are in the judgment of such Credit Party adequate, and the Credit Parties
do not anticipate any additional taxes or assessments for any of such years.
(g) FRANCHISES, INTELLECTUAL PROPERTY AND COMPUTER EQUIPMENT.
(i) Except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, each Credit Party owns or possesses
rights to use all franchises, licenses, copyrights, copyright applications,
patents, patent rights or licenses, patent applications, trademarks, trademark
rights, trade names, trade name rights, copyrights and rights with respect to
the foregoing which are required to conduct its business as now and presently
planned to be conducted without any conflict with the rights of others. No event
has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such rights, and the Credit Parties
are not liable to any Person for infringement under Applicable Law with respect
to any such rights as a result of their business operations.
(ii) Except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, each Credit Party has such title to
or the right to use, by license or other agreement, all computer software
programs used thereby as are necessary to permit the Credit Parties to conduct
their operations as currently conducted, without any known conflict with the
rights of others or any known use by others which conflicts, in any material
respect, with the rights of the Credit Parties.
(h) ENVIRONMENTAL MATTERS. The Credit Parties and their properties and
operations are not in violation in any material respect of any applicable
Environmental Law; (ii) without limitation of clause (i) above, the Credit
Parties and their properties and operations are not in violation in any material
respect of any Environmental Law, or subject to any existing, pending or
threatened investigation, inquiry or proceeding by any Governmental Authority or
to any remedial obligations under any Environmental Law; and (iii) all material
notices, permits, licenses or similar authorizations, if any, required to be
obtained or filed by the Credit Parties relating to Hazardous Materials,
including, without limitation, past or present treatment, storage,
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disposal or release of any Hazardous Materials or solid waste by the Credit
Parties into the environment, have been obtained or applications for such
permits and licenses have been filed and the Credit Parties are in full
compliance in all material respects with the requirements of such permits,
licenses or authorizations.
(i) ERISA. Except as set forth on SCHEDULE 6.1(i) as of the Closing
Date, the Credit Parties and each ERISA Affiliate are in compliance in all
material respects with applicable provisions of ERISA and the regulations and
published interpretations thereunder with respect to all Employee Benefit Plans
except for any required amendments for which the remedial amendment period as
defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit
Plan that is intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified, and each trust
related to such plan has been determined to be exempt under Section 501(a) of
the Code. No material liability has been incurred by any Credit Party or any
ERISA Affiliate which remains unsatisfied with respect to any Employee Benefit
Plan or any Multiemployer Plan.
(j) MARGIN STOCK. None of the Credit Parties are engaged principally or
as one of their activities in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" (as each such term is defined
or used in Regulations U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any of the Loans or Letters of Credit will
be used for purchasing or carrying margin stock or for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation T, U
or X of such Board of Governors. If requested by the Administrative Agent, the
Borrower will furnish to the Administrative Agent and Lenders a statement or
statements in conformity with the requirements of said Regulation T, U or X to
the foregoing effect.
(k) GOVERNMENT REGULATION. No Credit Party is an "investment company"
or a company "controlled" by an "investment company" (as each such term is
defined or used in the Investment Company Act of 1940, as amended) and no Credit
Party is, or after giving effect to any Extension of Credit will be, subject to
regulation under the Public Utility Holding Company Act of 1935 or the
Interstate Commerce Act, each as amended, or any other Applicable Law which
limits its ability to incur or consummate the transactions contemplated hereby.
(l) MATERIAL CONTRACTS. SCHEDULE 6.1(l) sets forth a complete and
accurate list of all Material Contracts of the Credit Parties in effect as of
the Closing Date and not listed on any other Schedule hereto; other than as set
forth in SCHEDULE 6.1(l), each such Material Contract is, and after giving
effect to the consummation of the transactions contemplated by the Loan
Documents will be, in full force and effect in accordance with the terms
thereof; and there are no material defaults by the Credit Parties (other than as
may be disclosed on SCHEDULE 6.1(l)) or, to the best of the Credit Parties'
knowledge after due inquiry, by any other party under any such Material
Contract. To the extent requested by the Administrative Agent, the Credit
Parties have delivered to the Administrative Agent a true and complete copy of
each Material Contract required to be listed on SCHEDULE 6.1(l).
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(m) EMPLOYEE RELATIONS. Each Credit Party has a stable work force in
place and is not, except as set forth on SCHEDULE 6.1(m) as of the Closing Date,
party to any collective bargaining agreement nor has any labor union been
recognized as the representative of its employees. The Credit Parties know of no
pending, threatened or contemplated strikes, work stoppage or other collective
labor disputes involving its employees.
(n) BURDENSOME PROVISIONS. None of the Credit Parties is a party to any
indenture, agreement, lease or other instrument, or subject to any corporate or
partnership restriction, Governmental Approval or Applicable Law which is so
unusual or burdensome as in the foreseeable future could have a Material Adverse
Effect. The Credit Parties do not presently anticipate that future expenditures
needed to meet the provisions of federal or state statutes, orders, rules or
regulations of a Governmental Authority will be so burdensome as to have a
Material Adverse Effect.
(o) FINANCIAL STATEMENTS. The Consolidated balance sheet of the
Borrower and its Subsidiaries as of December 31, 1997 and the related statements
of income and retained earnings and cash flows for the periods then ended,
copies of which have been furnished to the Administrative Agent, when read
together with the other financial information pertaining to the Credit Parties
which has heretofore been furnished in writing to the Administrative Agent,
fairly present the assets, liabilities and financial position of the Credit
Parties as at such dates, and the results of the operations and changes of
financial position for the periods then ended. All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved except
as indicated in the notes thereto. The Credit Parties have no material Debt,
obligation or other unusual forward or long-term commitment which is required to
be reflected and is not fairly reflected in the foregoing financial statements
or in the notes thereto, all as required by GAAP.
(p) NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has been
no material adverse change in the properties, businesses, results of operations,
or financial or other condition of the Credit Parties taken as a whole,
including, but not limited to, any material adverse change resulting from any
fire, explosion, accident, drought, storm, hail, earthquake, embargo, act of
God, or of the public enemy or other casualty (whether or not covered by
insurance).
(q) SOLVENCY. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, each Credit Party, the Borrower and each of
its Subsidiaries will be Solvent.
(r) TITLES TO PROPERTIES. Each Credit Party has such title to the real
property owned in fee or leased by it as is appropriate to the conduct of its
business, and valid and legal title to all of its personal property and assets,
including, but not limited to, those reflected on the Consolidated balance
sheets of the Borrower and its Subsidiaries delivered pursuant to Section
6.1(o), except those which have been disposed of by the Credit Parties
subsequent to such date which dispositions have been in the ordinary course of
business.
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(s) LIENS. Except for Liens existing on the Closing Date and described
on SCHEDULE 6.1(s), none of the properties and assets owned by the Credit
Parties is subject to any Lien, except Liens permitted pursuant to Section 10.3.
No financing statement under the Uniform Commercial Code of any state which
names the Credit Parties or any of their respective trade names or divisions as
debtor and which has not been terminated, has been filed in any state or other
jurisdiction and none of the Credit Parties has signed any such financing
statement or any security agreement authorizing any secured party thereunder to
file any such financing statement, except to perfect those Liens listed on
SCHEDULE 6.1(s).
(t) DEBT AND GUARANTY OBLIGATIONS. SCHEDULE 6.1(t) is a complete and
correct listing of all Debt and Guaranty Obligations of the Borrower and its
Subsidiaries as of the Closing Date. The Borrower and its Subsidiaries have
performed and are in compliance with all of the terms of such Debt and Guaranty
Obligations and all instruments and agreements relating thereto, and no default
or event of default, or event or condition which with notice or lapse of time or
both would constitute such a default or event of default on the part of the
Credit Parties exists with respect to any such Debt or Guaranty Obligation. To
the extent requested by the Administrative Agent, the Credit Parties have
delivered to the Administrative Agent a true and complete copy of each
instrument and agreement evidencing such Debt and Guaranty Obligation.
(u) LITIGATION. Except as set forth on SCHEDULE 6.1(u) as of the
Closing Date, there are no actions, suits or proceedings pending nor, to the
knowledge of any Credit Party, threatened against or in any other way relating
adversely to or affecting any Credit Party or any of their respective properties
in any court or before any arbitrator of any kind or before or by any
Governmental Authority which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect. There are no material outstanding or
unpaid judgments against any Credit Parties.
(v) ABSENCE OF DEFAULTS. (i) No event has occurred or is continuing
which constitutes a Default or an Event of Default and (ii) no event has
occurred and is continuing which constitutes, or which with the passage of time
or giving of notice or both would constitute, a default or event of default by
any Credit Party under any Material Contract (other than this Agreement) or
judgment, decree or order to which any Credit Party is a party or by which any
Credit Party or any of their respective properties may be bound or which would
require any Credit Party to make any payment thereunder prior to the scheduled
maturity date therefor, any of which events referred to in this clause (ii)
could reasonably be expected to have a Material Adverse Effect.
(w) ACCURACY AND COMPLETENESS OF INFORMATION. All written information,
reports and other papers and data produced by or on behalf of the Credit Parties
and furnished to the Lenders were, at the time the same were so furnished,
complete and correct in all respects to the extent necessary to give the
recipient a true and accurate knowledge of the subject matter. No document
furnished or written statement made to the Administrative Agent or the Lenders
by the Credit Parties in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contains or will
contain any untrue statement of a fact material to the creditworthiness of the
Credit Parties or omits or will omit to state a fact necessary in order to
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make the statements contained therein not misleading. The Credit Parties are not
aware of any facts which it has not disclosed in writing to the Administrative
Agent which could reasonably be expected to have a Material Adverse Effect.
SECTION 6.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties set forth in this Article VI and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement. All representations and warranties
made under this Agreement shall be made or deemed to be made at and as of the
Closing Date, shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement or any borrowing hereunder.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been paid and satisfied in full and the
Credit Facility terminated, unless consent has been obtained in the manner set
forth in Section 13.12 hereof, the Borrower will furnish or cause to be
furnished to the Administrative Agent at the Administrative Agent's Office set
forth in Section 13.1 hereof and to the Lenders at their respective addresses as
set forth on SCHEDULE 1.1(b), or such other office as may be designated by the
Administrative Agent and Lenders from time to time:
SECTION 7.1 FINANCIAL STATEMENTS AND PROJECTIONS.
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within forty-five (45) days after the end of each fiscal quarter, an
unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as of
the close of such fiscal quarter of each Fiscal Year and unaudited Consolidated
statements of income, retained earnings and cash flows for the fiscal quarter
then ended and that portion of the Fiscal Year then ended, including the notes
thereto, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared by the Borrower
in accordance with GAAP and, if applicable, containing disclosure of the effect
on the financial position or results of operations of any change in the
application of accounting principles and practices during the period, and
certified by the chief financial officer of the Borrower to present fairly in
all material respects the financial condition of the Borrower and its
Subsidiaries as of their respective dates and the results of operations of the
Borrower and its Subsidiaries for the respective periods then ended, subject to
normal year-end adjustments.
(b) ANNUAL FINANCIAL STATEMENTS. As soon as practicable and in any
event within ninety (90) days after the end of each Fiscal Year, an audited
Consolidated balance sheet of the Borrower and its Subsidiaries as of the close
of such Fiscal Year, together with audited Consolidated statements of income,
retained earnings and cash flows for the Fiscal Year then
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ended, including the notes thereto, all in reasonable detail setting forth in
comparative form the corresponding figures for the preceding Fiscal Year and
prepared by an independent certified public accounting firm acceptable to the
Administrative Agent in accordance with GAAP, and, if applicable, containing
disclosure of the effect on the financial position or results of operation of
any change in the application of accounting principles and practices during the
year, and accompanied by a report thereon by such certified public accountants
that is not qualified with respect to scope limitations imposed by the Borrower
or with respect to accounting principles followed by the Borrower not in
accordance with GAAP.
(c) ANNUAL PROJECTIONS. As soon as practicable and in any event within
ninety (90) days after the end of each Fiscal Year, annual projections for the
Borrower and its Subsidiaries for the following Fiscal Year indicating projected
balance sheets and earnings for such Fiscal Year.
(d) OTHER FINANCIAL INFORMATION. Such other information regarding the
operations, business affairs and financial condition of the Credit Parties and
any Subsidiary thereof as the Administrative Agent or any Lender may reasonably
request.
SECTION 7.2 OFFICER'S COMPLIANCE CERTIFICATE. At each time financial
statements are delivered pursuant to Sections 7.1 (a) or (b) and at such other
times as the Administrative Agent shall reasonably request, a certificate of a
Responsible Officer of the Borrower in the form of EXHIBIT E attached hereto (an
"Officers Compliance Certificate").
SECTION 7.3 NOTICE OF LITIGATION AND OTHER MATTERS. Prompt (but in no
event later than five (5) Business Days after any Credit Party obtains knowledge
thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or before
any Governmental Authority and all actions and proceedings in any court or
before any arbitrator against or involving any Credit Party or any of their
properties, assets or businesses which could reasonably be expected to have a
Material Adverse Effect;
(b) any labor controversy that has resulted in, or threatens to result
in, a strike or other work action against any Credit Party which could
reasonably be expected to have a Material Adverse Effect;
(c) any attachment, judgment, lien, levy or order that may be assessed
against or threatened against any Credit Party which could reasonably be
expected to have a Material Adverse Effect;
(d) (i) any Default or Event of Default or (ii) any event which
constitutes or which with the passage of time or giving of notice or both would
constitute a default or event of default under any other Material Contract to
which any Credit Party is a party or by which any Credit Party or any of such
Credit Party's respective property may be bound, which default or event of
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default referred to in this clause (ii) could reasonably be expected to have a
Material Adverse Effect;
(e) any violation of ERISA or any liability incurred under any Employee
Benefit Plan or Multiemployer Plan which could reasonably be expected to have a
Material Adverse Effect;
(f) any event which makes any of the representations set forth in
Section 6.1 inaccurate in any material respect (provided that all Schedules must
be updated by the Credit Parties only at each fiscal quarter end by forwarding
any such updates to the Administrative Agent with the applicable Officer's
Compliance Certificate); and
(g) any proposed amendment, change or modification to, or waiver of any
provision of, or any termination of, any Material Contract which could
reasonably be expected to have a Material Adverse Effect.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner
provided for in Section 13.12, the Borrower will, and will cause each of its
Subsidiaries to:
SECTION 8.1 PRESERVATION OF EXISTENCE AND RELATED MATTERS. Except as
permitted by Section 10.5, preserve and maintain its separate corporate
existence and all material rights, franchises, licenses and privileges necessary
to the conduct of its business; and qualify and remain qualified and authorized
to do business in each jurisdiction in which the failure to so qualify could
reasonably be expected to have a Material Adverse Effect.
SECTION 8.2 MAINTENANCE OF PROPERTY. In addition to the requirements of
any of the Security Documents, protect and preserve all properties useful in and
material to its business, including copyrights, patents, trade names and
trademarks; maintain in good working order and condition, other than ordinary
wear and tear excepted all buildings, equipment and other tangible real and
personal property, and from time to time make or cause to be made all renewals,
replacements and additions to such property reasonably necessary for the conduct
of its business.
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SECTION 8.3 INSURANCE. In addition to the requirements of any of the
Security Documents, maintain insurance with financially sound and reputable
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses or as may be required by Applicable Law, and on
the Closing Date and from time to time thereafter deliver to the Administrative
Agent upon its request (a) a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby, and (b) a certified copy of the policies of insurance.
SECTION 8.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete in all material respects) as may be required or as may be necessary
to permit the preparation of financial statements in accordance with GAAP
consistently applied and in compliance with the regulations of any Governmental
Authority having jurisdiction over it or any of its properties.
SECTION 8.5 PAYMENT AND PERFORMANCE OF OBLIGATIONS. Pay and perform (a)
all Obligations, (b) all taxes, assessments and other governmental charges that
may be levied or assessed upon it or its property (other than those being
contested in good faith by appropriate proceedings if adequate reserves are
maintained to the extent required by GAAP) and (c) all other indebtedness,
obligations and liabilities in accordance with customary trade practices the
failure to make payment of which could reasonably be expected to have a Material
Adverse Effect.
SECTION 8.6 COMPLIANCE WITH LAWS AND APPROVALS. Observe and remain in
compliance in all material respects with all Applicable Laws and maintain in
full force and effect all Governmental Approvals, in each case applicable or
necessary to the conduct of its business including, without limitation, all
Environmental Laws and all Governmental Approvals required thereunder.
SECTION 8.7 ENVIRONMENTAL MANAGEMENT. In addition to and without
limiting the generality of Section 8.6, maintain its business premises (whether
leased or owned in fee) free of any Hazardous Materials the removal of which is
required under Environmental Laws; and adopt and maintain prudent management,
disposal, clean-up and other practices as may be required by Environmental Laws
for all other Hazardous Materials located on its business premises.
SECTION 8.8 COMPLIANCE WITH ERISA. In addition to and without limiting
the generality of Section 8.6, make timely payment of contributions required to
meet the minimum funding standards set forth in ERISA with respect to any
Employee Benefit Plan; not take any action or fail to take action the result of
which could be a material liability to the PBGC or to a Multiemployer Plan; not
participate in any prohibited transaction that could result in any material
civil penalty under ERISA or material tax under the Code; furnish to the
Administrative Agent upon the Administrative Agent's request such information
about any Employee Benefit Plan as may be reasonably requested by the
Administrative Agent; and operate each Employee Benefit Plan in such a manner
that will not incur any material tax liability under Section 4980B of the
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Code or any material liability to any qualified beneficiary as defined in
Section 4980B of the Code.
SECTION 8.9 COMPLIANCE WITH AGREEMENTS. Comply with each term,
condition and provision of all leases, agreements and other instruments entered
into in the conduct of its business including, without limitation, all Material
Contracts, where the failure to so comply would reasonably be expected to have a
Material Adverse Effect.
SECTION 8.10 CONDUCT OF BUSINESS. Remain engaged primarily in the
business of (a) third party administration of healthcare, life and disability
plans and the marketing of such plans and any other business reasonably related
thereto, including the medical informatics business and (b) other lines of
business approved in connection with a Permitted Acquisition.
SECTION 8.11 VISITS AND INSPECTIONS. Permit representatives of the
Administrative Agent and Lenders, upon reasonable notice to the Borrower, from
time to time during normal business hours, as often as may be reasonably
requested, to visit and inspect its properties; inspect, audit and make extracts
from its books, records and files, including, but not limited to, management
letters prepared by independent accountants; and discuss with its partners,
principal officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business prospects.
SECTION 8.12 NEW SUBSIDIARIES. Prior to such time as a Subsidiary of
the Borrower (which is not then a Credit Party) owns assets in excess of $1,000
or conducts business or consummates any Permitted Acquisition, cause to be
executed and delivered to the Administrative Agent (i) a supplement
substantially in the form attached as Exhibit A to the Pledge Agreement,
executed by the Borrower, if the Borrower is the parent thereof, or Exhibit A to
the Pledge Agreement executed by HPSI, if HPSI is the parent thereof, or, if
such new Subsidiary is not a direct Wholly-Owned Subsidiary of either such
Credit Party, an additional Pledge Agreement executed by the parent thereof, in
each case pledging 100% of the capital stock of such new Subsidiary in form and
content satisfactory to the Administrative Agent, (ii) a Subsidiary Guaranty
substantially in the form of the EXHIBIT H, executed by such new Subsidiary and
(iii) corresponding closing documents and legal opinions referred to in Section
5.2 with respect to such new Subsidiary and such other documents reasonably
requested by the Administrative Agent and Required Lenders consistent with the
terms of this Agreement, in order that such Subsidiary shall become bound by all
of the terms, covenants and agreements contained in the Loan Documents and that
the capital stock of such Subsidiary shall become Collateral for the
Obligations.
SECTION 8.13 DIVIDENDS. To the extent necessary in order that the
Borrower be able to make any payment required hereunder, cause its Subsidiaries
to pay dividends or make other cash distributions to the Borrower.
SECTION 8.14 YEAR 2000 COMPATIBILITY. Prior to June 30, 1999, take all
actions reasonably necessary to assure that Borrower's computer based systems
are able to operate and effectively process data which includes dates prior to,
on and after January 1, 2000. At the
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request of the Administrative Agent, the Borrower shall provide reasonable
assurances satisfactory to the Administrative Agent of the Borrower's Year 2000
compatibility.
SECTION 8.15 FURTHER ASSURANCES. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Administrative
Agent or any Lender may reasonably require to document and consummate the
transactions contemplated hereby and to vest completely in and insure the
Administrative Agent and the Lenders their respective rights under this
Agreement, the Notes, the Letters of Credit and the other Loan Documents.
ARTICLE IX
FINANCIAL COVENANTS
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner set
forth in Section 13.12 hereof, the Borrower and its Subsidiaries on a
Consolidated basis will not:
SECTION 9.1 LEVERAGE RATIO. As of the end of any fiscal quarter of the
Borrower during the period set forth below, permit the Leverage Ratio to exceed
the corresponding ratio set forth below:
Closing Date through June 30, 2000 3.50 to 1.00
July 1, 2000 through June 30, 2001 3.25 to 1.00
July 1, 2001 through June 30, 2002 3.00 to 1.00
Thereafter 2.75 to 1.00
SECTION 9.2 FIXED CHARGE COVERAGE RATIO. As of the end of any fiscal
quarter of the Borrower during the term of this Credit Facility, permit the
Fixed Charge Coverage Ratio to be less than 2.50 to 1.00.
ARTICLE X
NEGATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner set
forth in Section 13.12 hereof, the Borrower has not and will not permit any of
its Subsidiaries to:
SECTION 10.1 LIMITATIONS ON DEBT. Create, incur, assume or suffer to
exist any Debt other than:
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(a) the Obligations;
(b) existing Debt described as of the Closing Date on SCHEDULE
6.1(t) hereto and not otherwise permitted pursuant to this Section 10.1 or
Section 10.2 (but not the increase thereof);
(c) the Outstanding Letters of Credit; PROVIDED, that the
Outstanding Letters of Credit shall terminate on the earlier to occur of (i) the
date of expiry of such Outstanding Letter of Credit pursuant to the terms and
conditions thereof (without any renewal or extension thereof) and (ii) the date
of issuance of any new Letter of Credit pursuant to the terms hereof;
(d) Debt under any Hedging Agreement reasonably acceptable to
the Administrative Agent;
(e) Guaranty Obligations permitted pursuant to Section 10.2;
(f) Subordinated Debt of the Borrower which shall not exceed
an aggregate principal amount of $5,000,000 incurred during the term of the
Credit Facility;
(g) Debt of the Borrower incurred by reason of merger or
otherwise assumed in connection with any Permitted Acquisition in an aggregate
principal amount not to exceed $15,000,000 during the term of the Credit
Facility, the terms and conditions of which (including without limitation any
collateral security therefor) shall be reasonably acceptable to the
Administrative Agent and Lenders;
(h) Debt of the Borrower, other than that provided for in
clauses (a) through (g) of this Section, incurred in the ordinary course of
business of the Borrower and its Subsidiaries not to exceed an aggregate
principal amount of $5,000,000 outstanding at any time; PROVIDED, that none of
the Debt permitted to be incurred by this Section shall restrict, limit or
otherwise encumber (by covenant or otherwise) the ability of any Subsidiary of
the Borrower to make any payment to the Borrower or any of its Subsidiaries (in
the form of dividends, intercompany advances or otherwise) for the purposes of
enabling the Borrower to pay the Obligations.
.
SECTION 10.2 LIMITATIONS ON GUARANTY OBLIGATIONS. Other than Guaranty
Obligations created by the Loan Documents, create, incur, assume or suffer to
exist any Guaranty Obligations, except:
(a) indemnity obligations under surety or fidelity insurance
coverage (i) set forth on SCHEDULE 6.1(t) and (ii) incurred in the ordinary
course of business; PROVIDED that the aggregate amount of such indemnity
obligations pursuant to clauses (i) and (ii) LESS the amount of any such
obligations secured by the Outstanding Letters of Credit does not exceed
$12,000,000;
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(b) Guaranty Obligations securing the Swingline Credit
Agreement;
(c) the Sykes-Healthplan Guaranty in the amount of $37,500,000
on terms and conditions as set forth therein on the Closing Date;
(d) other Guaranty Obligations on terms and conditions
acceptable to the Administrative Agent and the Lenders not in excess of
$2,500,000 in the aggregate outstanding at any time.
SECTION 10.3 LIMITATIONS ON LIENS. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its owned property, real or
personal (including without limitation capital stock or other ownership
interests), whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired or which are
being contested in good faith and by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary course
of business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar claims or to secure the
performance of tenders, bids, contracts, statutory obligations and other similar
obligations;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements, and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do not,
in any case, materially detract from the value of such property or impair the
use thereof in the ordinary conduct of business;
(e) (i) purchase money Liens securing any purchase money Debt permitted
under Section 10.1(h); PROVIDED, that the Lien attaches only to the asset being
purchased and does not exceed 100% of the purchase price of such asset and (ii)
Liens securing Debt permitted under Section 10.1(h) incurred in connection with
Capitalized Leases;
(f) Liens in favor of the Administrative Agent for the benefit of
itself and the Lenders arising under the Loan Documents;
(g) Liens not otherwise permitted by this Section 10.3 and in existence
on the Closing Date (i) listed on SCHEDULE 6.1(s) and (ii) which may be
reflected on the Lien search reports to be
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delivered to the Administrative Agent and Lenders after the Closing Date as
described on SCHEDULE 6.1(s) to the extent that such Liens evidence the
interests of lessors under Capital Leases (as long as the corresponding Capital
Lease Obligation is otherwise permitted hereunder) and operating leases, in each
case in the property subject to such lease, and such other Liens as permitted by
the Administrative Agent and Required Lenders;
(h) extensions, renewals or replacements of any Lien referred to in
clauses (a) through (g) above provided that such extension, renewal or
replacement is limited to the property originally encumbered thereby; and
(i) Liens securing the Swingline Credit Agreement.
SECTION 10.4 LIMITATIONS ON LOANS, ADVANCES, INVESTMENTS AND
ACQUISITIONS. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, partnership or joint venture (including without
limitation the creation or capitalization of any Subsidiary) interests, evidence
of Debt or other obligation or security, substantially all or a material portion
of the assets of any other Person or any other investment or interest whatsoever
in any other Person; or make or permit to exist any loans, advances or
extensions of credit to, or any accounts or notes receivable from, or any
investment in cash or by delivery of property in, any Person; or enter into any
commitment or option in respect of the foregoing, except:
(a) investments by the Borrower in the form of acquisitions of all or
substantially all of the business or a line of business of any other Person
(whether by the acquisition of capital stock or other equity ownership
interests, assets or any combination thereof) which are consummated in
accordance with the following requirements of this Section 10.4(a) (any such
acquisition, a "Permitted Acquisition"): (i) the acquired Person shall be and
substantially all of the acquired assets shall be utilized in the similar line
of business as the Borrower as described in clause (a) of Section 8.10 or as
otherwise approved in writing by the Required Lenders, (ii) no Default or Event
of Default shall have occurred and be continuing or be created by the relevant
Permitted Acquisition as evidenced by a certificate of the Borrower delivered on
the closing date thereof to the Administrative Agent and the Required Lenders in
form and substance satisfactory to the Administrative Agent and demonstrating
pro forma compliance with the financial covenants set forth in Article IX and
the other terms of the Loan Documents, (iii) a description of the relevant
Permitted Acquisition in reasonable detail and the corresponding documentation
shall be furnished by the Borrower to the Lenders at least ten (10) Business
Days prior to the closing date thereof (to be followed by any changed pages and
fully executed copies promptly after the creation thereof) and (iv) the Borrower
shall have received the prior written approval of the Required Lenders;
PROVIDED, that clause (iv) of this Section set forth above shall not be
applicable to any proposed Permitted Acquisition the aggregate cash or any other
consideration (including, without limitation, all equity consideration, all
assumed Debt and the present value, as reasonably estimated by the Borrower, of
all future earn-out payments to be made through and including the date which is
one (1) year after the Final Maturity Date) for which is less than Thirty
Million Dollars ($30,000,000) as long as the aggregate cash or any other
consideration (including, without limitation, all equity consideration, all
assumed Debt and the present value, as reasonably estimated by the Borrower with
a discount rate equal to the Prime Rate in effect at
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the time of such determination, of all future earn-out payments to be made
through and including the date which is one (1) year after the Final Maturity
Date) for such proposed Permitted Acquisition and each other Permitted
Acquisition closed during the same Fiscal Year as such proposed Permitted
Acquisition does not equal or exceed Seventy-Five Million Dollars ($75,000,000);
(b) investments in treasury bills, certificates of deposits and bankers
acceptances of banks with capital and surplus in excess of $500,000,000, open
market commercial paper maturing within ninety (90) days and having the highest
or second highest rating of either Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group, a Division of McGraw-Hill Corporation, (provided that the
fair market value of any investment in such commercial paper having the second
highest rating of Moody's Investor Service or third highest rating of Standard &
Poor's Ratings Group, a Division of McGraw-Hill Corporation shall not exceed ten
percent (10%) of the fair market value of all commercial paper investments
permitted by this paragraph (b), commercial paper and governmental securities
repurchase obligations issued by banks with capital and surplus in excess of
$500,000,000 and money market mutual funds and accounts containing solely the
investments permitted under this clause (b);
(c) investments in Subsidiary Guarantors and the existing loan advances
and investments set forth in SCHEDULE 10.4; PROVIDED that any investment by the
Borrower and its Subsidiaries in Sykes HealthPlan Services, Inc. shall not
exceed $17,000,000 (excluding the amount of the Guaranty Obligations permitted
under Section 10.2(c));
(d) trade accounts created in the ordinary course of business;
(e) deposits for utilities under security deposits, leases and similar
prepaid expenses incurred in the ordinary course of business;
(f) loans and advances to employees (i) in connection with reasonable
travel and business expenses in the ordinary course of business in an aggregate
amount not in excess of $50,000 outstanding at any time or (ii) as permitted by
Section 10.9; and
(g) other investments not to exceed Twenty-Five Million Dollars
($25,000,000) in the aggregate during the term of the Credit Facility LESS the
aggregate amount of the Borrower's investment in the Sykes HealthPlan Services,
Inc. unless otherwise approved in writing by the Required Lenders.
SECTION 10.5 LIMITATIONS ON MERGERS AND LIQUIDATION. Merge, consolidate
or enter into any similar combination with any other Person or liquidate,
wind-up or dissolve itself or suffer any liquidation or dissolution except (a)
any Wholly-Owned Subsidiary of the Borrower may merge into the Borrower or with
any other Wholly-Owned Subsidiary thereof (provided that a Credit Party is the
surviving entity) and (b) any Wholly-Owned Subsidiary may merge into the Person
such Wholly-Owned Subsidiary was formed to acquire in connection with an
acquisition permitted by Section 10.4.
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SECTION 10.6 RESTRICTIONS ON SALE OF ASSETS, ETC. Sell, lease,
transfer, assign, exchange or otherwise dispose of any of its assets (including,
without limitation, accounts receivable and any transaction the primary purpose
of which is to accomplish the sale-leaseback of any asset) or liquidate,
dissolve or enter into any transaction for the purpose of winding up its
business affairs other than (a) the sale of assets in the ordinary course of
business of the Borrower or applicable Subsidiary (including sales of assets in
connection with office consolidations consummated in the ordinary course of
business) (b) the sale of obsolete assets no longer used in the business of the
Borrower or applicable Subsidiary and (c) any conveyance in connection with a
merger permitted by Section 10.5.
SECTION 10.7 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 (c) the Borrower may purchase on the open market (and/or
through private purchases) shares of its capital stock at a total repurchase
price of not more than Fifty Million Dollars ($50,000,000) during the term
hereof, in accordance with a formal share repurchase plan (the Repurchase Plan")
adopted by the Board of Directors of the Borrower and (d) as long as no Default
or Event of Default has occurred or is continuing or would result by the action
taken, the Borrower may pay a cash dividend up to .1375 per share of its stock
on a quarterly basis (or $.55 per share on an annualized basis) for 1998, which
amount may be increased by the Borrower on an annualized basis by up to $.05 per
share for each calendar year after 1998, in accordance with the formal dividend
plan adopted by the Board of Directors of the Borrower and previously delivered
to the Administrative Agent and the Lenders.
SECTION 10.8 LIMITATIONS ON EXCHANGE AND ISSUANCE OF CAPITAL STOCK.
Issue, sell or otherwise dispose of any class or series of capital stock that,
by its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would be,
(a) convertible or exchangeable into Debt or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or has,
or upon the happening of an event or passage of time would have, a redemption or
similar payment due.
SECTION 10.9 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, (a)
make any loan or advance to, or purchase, assume or guarantee any note or other
obligation to or from, any of its officers, partners or other Affiliates, or to
or from any member of the immediate family of any of its officers, partners or
other Affiliates, or subcontract any operations to any of its Affiliates, or (b)
enter into, or be a party to, any transaction with any of its Affiliates, except
with respect to each such clause (a) and (b) pursuant to the reasonable
requirements of its business (it being hereby agreed that loans to executive
officers of the Borrower or its Subsidiaries not to exceed at any one time in an
aggregate outstanding principal amount of $500,000 are pursuant to the
reasonable requirements of the Borrower's business) and upon fair and reasonable
terms that
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are fully disclosed to the Administrative Agent and are no less favorable to it
than it would obtain in a comparable arm's length transaction with a Person not
its Affiliate.
SECTION 10.10 CERTAIN ACCOUNTING CHANGES. Change its Fiscal Year end,
or make any change in its accounting treatment and reporting practices for the
purposes of compliance with the Loan Documents, subject to the provisions of
Section 13.10.
SECTION 10.11 RESTRICTIVE AGREEMENTS. Enter into any agreement which
contains any covenants materially more restrictive than the provisions of
Articles VIII, IX and X hereof, or which restricts, limits or otherwise
encumbers its ability to incur Liens on or with respect to any of its assets.
SECTION 10.12 MATERIAL CONTRACTS. Amend, modify, cancel, terminate or
otherwise make any change in any Material Contract in any manner that could
reasonably be expected to have a Material Adverse Effect.
ARTICLE XI
DEFAULT AND REMEDIES
SECTION 11.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) DEFAULT IN PAYMENT OF PRINCIPAL OF LOANS AND REIMBURSEMENT
OBLIGATIONS. The Borrower shall default in any payment of principal of any Loan
or the Note or Reimbursement Obligation when and as due (whether at maturity, by
reason of acceleration or otherwise).
(b) OTHER PAYMENT DEFAULT. The Borrower shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan, Note or Reimbursement Obligation or the payment of any
other Obligation and such default shall continue unremedied for five (5)
Business Days after the due date thereof.
(c) MISREPRESENTATION. Any representation or warranty made or deemed to
be made by any Credit Party under this Agreement, any Loan Document or Security
Document, or any amendment supplement or other modification hereto or thereto,
shall at any time prove to have been incorrect or misleading in any material
respect when made.
(d) DEFAULT IN PERFORMANCE OF CERTAIN COVENANTS. Any Credit Party shall
(i) default in the performance or observance of any covenant or agreement
contained in Sections 7.1, 7.2, 7.3(d) or Articles IX or X of this Agreement or
(ii) default in any material respect of the performance or observance of any
covenant or agreement contained in Sections 5 or 6 of any Pledge Agreement.
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(e) DEFAULT IN PERFORMANCE OF OTHER COVENANTS AND CONDITIONS. Any
Credit Party shall default in the performance or observance of any term,
covenant, condition or agreement contained in this Agreement (other than as
specifically provided for otherwise in this Section 11.1) or any other Loan
Document and such default shall continue for a period of thirty (30) days after
written notice thereof has been given to the Borrower by the Administrative
Agent.
(f) DEBT CROSS-DEFAULT. Any Credit Party shall (i) default in the
payment of any Debt (other than the Notes) or any Reimbursement Obligation) the
aggregate outstanding amount of which is in excess of $100,000 beyond the period
of grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Debt was created; or (ii) default in the observance
or performance of any other agreement or condition relating to any Debt (other
than the Notes) or any Reimbursement Obligation) the aggregate outstanding
amount of which is in excess of $100,000 or contained in any instrument or
agreement evidencing, securing or relating thereto or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Debt (or a
trustee or Administrative Agent on behalf of such holder or holders) to cause,
with the giving of notice if required, any such Debt to become due prior to its
stated maturity (any applicable grace period having expired).
(g) OTHER CROSS-DEFAULTS; CANCELLATION AND TERMINATION. Any Credit
Party shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any Material Contract (other than
the Credit Agreement) the breach of which could have a Material Adverse Effect.
Any Carrier Contract or other agreement to which the Borrower or any Subsidiary
thereof is a party or any group of such Carrier Contracts or agreements which
individually or in the aggregate generated an amount equal to or greater than
fifteen percent (15%) of the revenue of the Borrower (determined on a
Consolidated basis) for the fiscal quarter ending on or most recently ended
prior to any date of determination shall be canceled or terminated during the
term of the Credit Facility.
(h) CHANGE OF CONTROL. (i) The Borrower shall cease to own and control
100% of the issued and outstanding common stock of HPSI free and clear of any
Liens (except as created by the Pledge Agreement executed by the Borrower) or
100% of the voting power of HPSI entitled to vote in the election of members of
the board of directors of HPSI or (ii) any person or group of persons (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended)
shall obtain ownership or control in one or more series of transactions of more
than twenty percent (20%) of the voting power of the Borrower entitled to vote
in the election of members of the board of directors of the Borrower or more
than such percentage of the issued and outstanding common stock of the Borrower.
(i) VOLUNTARY BANKRUPTCY PROCEEDING. Any Credit Party shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect); (ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts; (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary
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case under such bankruptcy laws or other laws; (iv) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee, or liquidator of itself
or of a substantial part of its property, domestic or foreign; (v) admit in
writing its inability to pay its debts as they become due; (vi) make a general
assignment for the benefit of creditors; or (vii) take any corporate action for
the purpose of authorizing any of the foregoing.
(j) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall
be commenced against any Credit Party in any court of competent jurisdiction
seeking (i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts; or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like for any
such Person or for all or any substantial part of their respective assets,
domestic or foreign, and such case or proceeding shall continue undismissed or
unstayed for a period of sixty (60) consecutive calendar days, or an order
granting the relief requested in such case or proceeding (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall be
entered.
(k) FAILURE OF AGREEMENTS. Any material provision of this Agreement or
of any other Loan Document shall for any reason cease to be valid and binding on
any Credit Party, or any Credit Party shall so state in writing, or any Security
Document shall for any reason cease to create a valid and perfected first
priority Lien on, or security interest in, any of the Collateral purported to be
covered thereby, in each case other than in accordance with the express terms
hereof or thereof.
(l) JUDGMENT OR ATTACHMENT. Any final judgments or orders for the
payment of money which exceed $500,000 in an amount individually or in the
aggregate shall be entered against any Credit Party by any court or warrants or
writs of attachment or execution or similar processes shall be issued against
any property of the any Credit Party which exceeds $500,000 in value
individually or in the aggregate and such judgments or order warrants or
processes as applicable, shall continue undischarged or unstayed for a period of
forty-five (45) days.
(m) LOSS OF LICENSE. Any license for third party administration or
utilization review services of the Borrower or any Subsidiary thereof shall be
revoked, canceled or otherwise terminated, which event would reasonably be
expected to have a Material Adverse Effect.
SECTION 11.2 REMEDIES. Upon the occurrence of an Event of Default, with
the consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower:
(a) ACCELERATION; TERMINATION OF FACILITIES. Declare the principal of
and interest on the Loans and the Notes and the Reimbursement Obligations at the
time outstanding, and all other amounts owed to the Lenders and to the
Administrative Agent under this Agreement or any of the other Loan Documents
(including, without limitation, all L/C Obligations, whether or not
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the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder, but excluding any Hedging Agreement) and all
other Obligations (other than Obligations owing under any Hedging Agreement), to
be forthwith due and payable, whereupon the same shall immediately become due
and payable without presentment, demand, protest or other notice of any kind,
all of which are expressly waived, anything in this Agreement or the other Loan
Documents to the contrary notwithstanding, and terminate the Credit Facility and
any right of the Borrower to request borrowings or Letters of Credit thereunder;
PROVIDED, that upon the occurrence of an Event of Default specified in Section
11.1(i) or (j), the Credit Facility shall be automatically terminated and all
Obligations (other than Obligations owing under any Hedging Agreement) shall
automatically become due and payable.
(b) LETTERS OF CREDIT. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph, require the Borrower at such
time to deposit in a cash collateral account opened by the Administrative Agent
an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay the
other Obligations. After all such Letters of Credit shall have expired or been
fully drawn upon, the Reimbursement Obligation shall have been satisfied and all
other Obligations shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower.
(c) RIGHTS OF COLLECTION. Exercise on behalf of the Lenders all of its
other rights and remedies under this Agreement, the other Loan Documents and
Applicable Law, in order to satisfy all of the Obligations.
SECTION 11.3 RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The
enumeration of the rights and remedies of the Administrative Agent and the
Lenders set forth in this Agreement is not intended to be exhaustive and the
exercise by the Administrative Agent and the Lenders of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between the Borrower, the Administrative Agent and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default.
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ARTICLE XII
THE ADMINISTRATIVE AGENT
SECTION 12.1 APPOINTMENT. Each of the Lenders hereby irrevocably
designates and appoints First Union as Administrative Agent of such Lender under
this Agreement and the other Loan Documents and each such Lender irrevocably
authorizes First Union as Administrative Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and such
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or such other Loan Documents, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against the Administrative Agent.
SECTION 12.2 DELEGATION OF DUTIES. The Administrative Agent may execute
any of its respective duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by the Administrative Agent with reasonable care.
SECTION 12.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent
nor any of its officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates shall be (a) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or the other Loan Documents (except for actions occasioned solely by
its or such Person's own gross negligence or willful misconduct), or (b)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Credit Party or any officer thereof
contained in this Agreement or the other Loan Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Administrative Agent under or in connection with, this Agreement or the
other Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of any Credit Party to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Credit Parties.
SECTION 12.4 RELIANCE BY THE ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
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and statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 13.11 hereof. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement and the other Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders (or, when expressly required hereby or by
the relevant other Loan Document, all the Lenders) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action except for its own gross negligence or
willful misconduct. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Notes in accordance with a request of the Required Lenders (or, when expressly
required hereby or by the relevant other Loan Document, all the Lenders), and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Notes.
SECTION 12.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless it has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, it shall promptly give notice
thereof to the Lenders. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; PROVIDED that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders, except to the extent that other provisions of
this Agreement expressly require that any such action be taken or not be taken
only with the consent and authorization or the request of the Lenders or
Required Lenders, as applicable.
SECTION 12.6 NON-RELIANCE ON THE ADMINISTRATIVE AGENT AND OTHER
LENDERS. Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its respective officers, directors, employees, agents,
attorneys-in-fact, Subsidiaries or Affiliates has made any representations or
warranties to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Credit Parties, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Credit Parties and made its own decision to make its Loans and issue or
participate in Letters of Credit hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and
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the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Credit Parties. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or by the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Credit
Parties which may come into the possession of the Administrative Agent or any of
its respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates.
SECTION 12.7 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such and (to the extent not reimbursed
by the Borrower or the Subsidiary Guarantors and without limiting the obligation
of the Borrower to do so), ratably according to the respective amounts of their
Commitment Percentages, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes or any Reimbursement
Obligation) be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of this Agreement or the other Loan
Documents, or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
PROVIDED that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's bad faith, gross negligence or willful misconduct. The agreements in
this Section 12.7 shall survive the payment of the Notes, any Reimbursement
Obligation and all other amounts payable hereunder and the termination of this
Agreement.
SECTION 12.8 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its respective Subsidiaries and Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Credit Parties as though the Administrative Agent were not an Administrative
Agent hereunder. With respect to any Loans made or renewed by it and any Note
issued to it and with respect to any Letter of Credit issued by it or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
SECTION 12.9 RESIGNATION OF THE ADMINISTRATIVE AGENT; SUCCESSOR
ADMINISTRATIVE AGENT. Subject to the appointment and acceptance of a successor
as provided below, the Administrative Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Administrative
Agent, which successor shall have minimum capital and surplus of at least
$500,000,000. If no successor Administrative Agent shall have been so appointed
by the Required Lenders and shall have accepted such appointment within thirty
(30) days after the Administrative Agent's giving of notice of resignation, then
the Administrative
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Agent may, on behalf of the Lenders, appoint a successor Administrative Agent,
which successor shall have minimum capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Section 12.9 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Administrative Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NOTICES.
(a) METHOD OF COMMUNICATION. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand or
sent by telecopy, (ii) on the next Business Day if sent by recognized overnight
courier service and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to the
Administrative Agent as understood by the Administrative Agent will be deemed to
be the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.
(b) ADDRESSES FOR NOTICES. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to the Borrower: HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Attention: Philip S. Dingle, General Counsel
Telephone No.: 813/289-1000
Telecopy No.: 813/289-0490
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With a copy to: Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A.
501 East Kennedy Blvd.
Tampa, Florida 33601
Attention: David C. Shobe, Esquire
Telephone No.: 813/228-7411
Telecopy No.: 813/229-9401
If to First Union as First Union National Bank
Administrative Agent: One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: 704/374-2698
Telecopy No.: 704/383-0288
With a copy to: The address of First Union set forth on
SCHEDULE 1.1(b) hereto
If to any Lender: To the Address set forth on SCHEDULE 1.1(b)
hereto
(c) ADMINISTRATIVE AGENT'S OFFICE. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrower and Lenders, as the Administrative Agent's Office referred to herein,
to which payments due are to be made and at which Loans will be disbursed and
Letters of Credit issued.
SECTION 13.2 EXPENSES; INDEMNITY. The Borrower will (a) pay all
out-of-pocket expenses of the Administrative Agent in connection with: (i) the
preparation, execution and delivery of this Agreement and each other Loan
Document, whenever the same shall be executed and delivered, including without
limitation all out-of-pocket syndication and due diligence expenses and (subject
to the limitations set forth in the commitment letter dated as of March 23, 1998
from the Administrative Agent to the Borrower) reasonable fees and disbursements
of counsel for the Administrative Agent and (ii) the preparation, execution and
delivery of any waiver, amendment or consent by the Administrative Agent or the
Lenders relating to this Agreement or any other Loan Document, including without
limitation reasonable fees and disbursements of counsel for the Administrative
Agent, (b) pay all reasonable out-of-pocket expenses of the Administrative Agent
and each Lender actually incurred in connection with the administration and
enforcement of any rights and remedies of the Administrative Agent and Lenders
under the Credit Facility, including consulting with appraisers, accountants,
engineers, attorneys and other Persons concerning the nature, scope or value of
any right or remedy of the Administrative Agent or any Lender hereunder or under
any of the other Loan Document or any factual matters in connection therewith,
which expenses shall include without limitation the reasonable fees and
disbursements of such Persons, and (c) defend, indemnify and hold harmless the
Administrative Agent and the Lenders, and their respective parents,
Subsidiaries, Affiliates,
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employees, agents, officers and directors, from and against any losses,
penalties, fines, liabilities, settlements, damages, costs and expenses,
suffered by any such Person in connection with any claim, investigation,
litigation or other proceeding (whether or not the Administrative Agent or any
Lender is a party thereto) and the prosecution and defense thereof, arising out
of or in any way connected with the Agreement, any of the other Loan Document or
the Loans, including without limitation reasonable attorney's and consultant's
fees, except to the extent that any of the foregoing directly result from the
gross negligence or willful misconduct of the party seeking indemnification
therefor. In addition, the Borrower will pay all out-of-pocket expenses of the
Administrative Agent in connection with prosecuting or defending any claim in
any way arising out of, related to, connected with, or enforcing any provision
of, this Agreement or any of the other Loan Documents, which expenses shall
include the fees and disbursements of counsel and of experts and other
consultants retained by the Administrative Agent and Lenders.
SECTION 13.3 STAMP AND OTHER TAXES. The Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Lenders against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the other Loan Documents or the perfection of any rights thereunder.
SECTION 13.4 SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the continuance
thereof, the Lenders and any assignee or participant of a Lender in accordance
with Section 13.11 are hereby authorized by the Borrower at any time or from
time to time, without prior notice to the Borrower or to any other Person, any
such prior notice being hereby expressly waived, to set off and to appropriate
and to apply any and all deposits (general or special, time or demand,
including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured excluding government securities required
by Applicable Law to be held as security for worker's compensation and similar)
and any other indebtedness at any time held or owing by the Lenders, or any such
assignee or participant to or for the credit or the account of the Borrower
against and on account of the Obligations irrespective of whether or not (a) the
Lenders shall have made any demand under this Agreement or any of the other Loan
Documents or (b) the Administrative Agent shall have declared any or all of the
Obligations to be due and payable as permitted by Section 11.2 and although such
Obligations shall be contingent or unmatured.
SECTION 13.5 GOVERNING LAW. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 13.6 CONSENT TO JURISDICTION. The Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Notes and the
other Loan Documents, any rights or
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obligations hereunder or thereunder, or the performance of such rights and
obligations. The Borrower hereby irrevocably consents to the service of a
summons and complaint and other process in any action, claim or proceeding
brought by the Administrative Agent or any Lender in connection with this
Agreement, the Notes or the other Loan Documents, any rights or obligations
hereunder or thereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner specified in Section 13.1.
Nothing in this Section 13.6 shall affect the right of the Administrative Agent
or any Lender to serve legal process in any other manner permitted by Applicable
Law or affect the right of the Administrative Agent or any Lender to bring any
action or proceeding against the Borrower or its properties in the courts of any
other jurisdictions.
SECTION 13.7 BINDING ARBITRATION; WAIVER OF JURY TRIAL.
(a) JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE ADMINISTRATIVE
AGENT, EACH LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE
OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(b) BINDING ARBITRATION. Upon demand of any party, whether made before
or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Agreement, the
Notes or any other Loan Documents ("Disputes"), between or among parties to this
Agreement, the Notes or any other Loan Document shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, claims brought as
class actions, claims arising from Loan Documents executed in the future, or
claims concerning any aspect of the past, present or future relationships
arising out of or connected with the Loan Documents. Arbitration shall be
conducted under and governed by the Commercial Financial Disputes Arbitration
Rules (the "Arbitration Rules") of the American Arbitration Association and
Title 9 of the U.S. Code. All arbitration hearings shall be conducted in
Charlotte, North Carolina. The expedited procedures set forth in Rule 51, ET
SEQ. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted. Notwithstanding the foregoing,
this paragraph shall not apply to any Hedging Agreement that is a Loan Document.
(c) PRESERVATION OF CERTAIN REMEDIES. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right
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to proceed in any court of proper jurisdiction or by self help to exercise or
prosecute the following remedies: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted in
the Loan Documents or under applicable law or by judicial foreclosure and sale,
(ii) all rights of self help including peaceful occupation of property and
collection of rents, set off, and peaceful possession of property, (iii)
obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and in filing an
involuntary bankruptcy proceeding, and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in a
Dispute.
SECTION 13.8 REVERSAL OF PAYMENTS. To the extent the Borrower makes a
payment or payments to the Administrative Agent for the ratable benefit of the
Lenders or the Administrative Agent receives any payment or proceeds of the
Collateral for the Borrower's benefit which payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds repaid, the Obligations or part
thereof intended to be satisfied shall be revived and continued in full force
and effect as if such payment or proceeds had not been received by the
Administrative Agent.
SECTION 13.9 INJUNCTIVE RELIEF; CONSEQUENTIAL DAMAGES.
(a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its respective obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Lenders. Therefore, the Borrower agrees that the Lenders, at the Lenders'
option, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
(b) The Administrative Agent, Lenders and Borrower (on behalf of itself
and its Subsidiaries) hereby agree that no such Person shall have a remedy of
punitive or exemplary damages against any other party to a Loan Document and
each such Person hereby waives any right or claim to punitive or exemplary
damages that they may now have or may arise in the future in connection with any
Dispute, whether such Dispute is resolved through arbitration or judicially.
The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may arise
in the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
SECTION 13.10 ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to
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determine compliance with any covenant contained herein, shall, except as
otherwise expressly contemplated hereby or unless there is an express written
direction by the Administrative Agent to the contrary agreed to by the Borrower,
be performed in accordance with GAAP as in effect on the Closing Date. In the
event that changes in GAAP shall be mandated by the Financial Accounting
Standards Board, or any similar accounting body of comparable standing, or shall
be recommended by the Borrower's certified public accountants, to the extent
that such changes would modify such accounting terms or the interpretation or
computation thereof, such changes shall be followed in defining such accounting
terms only from and after the date the Borrower and the Lenders shall have
amended this Agreement to the extent necessary to reflect any such changes in
the financial covenants and other terms and conditions of this Agreement.
SECTION 13.11 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Administrative Agent and the Lenders,
all future holders of the Notes, and their respective successors and assigns,
except that the Borrower shall not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) ASSIGNMENT BY LENDERS. Each Lender may, with the consent of the
Administrative Agent and the Borrower (so long as no Default or Event of Default
has occurred and is continuing), which consents shall not be unreasonably
withheld, assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Agreement (including, without
limitation, all or a portion of the Extensions of Credit at the time owing to it
and the Notes held by it); PROVIDED that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and obligations under
this Agreement;
(ii) if less than all of the assigning Lender's Commitment is
to be assigned, the Commitment so assigned shall not be less than $5,000,000;
(iii) the parties to each such assignment shall execute and
deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance in the form of EXHIBIT F attached hereto
(an "Assignment and Acceptance"), together with any Note or Notes subject to
such assignment;
(iv) such assignment shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission or apply to or qualify the Loans or the Notes
under the blue sky laws of any state; and
(v) the assigning Lender shall pay to the Administrative Agent
an assignment fee of $3,000 upon the execution by such Lender of the Assignment
and Acceptance; PROVIDED that no such fee shall be payable upon any assignment
by a Lender to an Affiliate thereof.
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Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereby
and (B) the Lender thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.
(c) RIGHTS AND DUTIES UPON ASSIGNMENT. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) REGISTER. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the amount of the Extensions of
Credit with respect to each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Lenders may treat each person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
or Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) ISSUANCE OF NEW NOTES. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is substantially in the form of EXHIBIT F:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the
Borrower; and
(iv) promptly deliver a copy of such Assignment and Acceptance
to the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or Notes, a new Note or Notes to the order of such Eligible Assignee in
amounts equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes delivered to the assigning Lender. Each surrendered Note
or Notes shall be canceled and returned to the Borrower.
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(f) PARTICIPATIONS. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Extensions of Credit and the Notes held by it); PROVIDED that:
(i) each such participation shall be in an amount not less
than $3,000,000 unless such participation is to an Affiliate in which case no
minimum amount shall be required;
(ii) such Lender's obligations under this Agreement
(including, without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by
it for all purposes of this Agreement;
(v) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right
to approve any waivers, amendments or other modifications to this Agreement or
any other Loan Document other than waivers, amendments or modifications which
would reduce the principal of or the interest rate on any Loan or Reimbursement
Obligation, extend the term or increase the amount of the Commitment, reduce the
amount of any fees to which such participant is entitled, extend any scheduled
payment date for principal of any Loan or, except as expressly contemplated
hereby or thereby, release substantially all of the Collateral; and
(vii) any such disposition shall not, without the consent of
the Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission to apply to qualify the Loans or the Notes
under the blue sky law of any state.
(g) DISCLOSURE OF INFORMATION; CONFIDENTIALITY. The Administrative
Agent and the Lenders shall hold all non-public information with respect to the
Borrower obtained pursuant to the Loan Documents in accordance with their
customary procedures for handling confidential information; PROVIDED, that the
Administrative Agent may disclose information relating to this Agreement may
disclose information relating to this Agreement to Gold Sheets and other similar
bank trade publications, such information to consist of deal terms and other
information customarily found in such publications and PROVIDED FURTHER, that
the Administrative Agent and the Lenders may disclose any such information to
their counsel and accountants and to the extent they reasonably believe that
such disclosure is required by law or requested by any regulatory authority. Any
Lender may, in connection with any assignment, proposed assignment,
participation or proposed participation pursuant to this Section 13.11, disclose
to the assignee, participant, proposed assignee or proposed participant, any
information relating to the Borrower
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furnished to such Lender by or on behalf of the Borrower; PROVIDED, that prior
to any such disclosure, each such assignee, proposed assignee, participant or
proposed participant shall agree with the Borrower or such Lender to preserve
the confidentiality of any confidential information relating to the Borrower
received from such Lender.
(h) CERTAIN PLEDGES OR ASSIGNMENTS. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
SECTION 13.12 AMENDMENTS, WAIVERS AND CONSENTS. Except as set forth
below, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents (other than any Hedging Agreement, the terms and
conditions of which may be amended, modified and waived by the parties thereto)
may be amended or waived by the Lenders, and any consent given by the Lenders,
if, but only if, such amendment, waiver or consent is in writing signed by the
Required Lenders (or by the Administrative Agent with the consent of the
Required Lenders) and delivered to the Administrative Agent and, in the case of
an amendment, signed by the Borrower; PROVIDED, that no amendment, waiver or
consent shall (a) increase the amount or extend the time of the obligation of
the Lenders to make Loans or issue or participate in Letters of Credit, (b)
extend the originally scheduled time or times of payment of the principal of any
Loan or Reimbursement Obligation or any fees or the time or times of payment of
interest on any Loan or Reimbursement Obligation, (c) reduce the rate of
interest or fees payable on any Loan or Reimbursement Obligation, (d) reduce the
principal amount of any Loan or Reimbursement Obligation, (e) permit any
subordination of the principal or interest on any Loan or Reimbursement
Obligation, (f) release any material portion of the Collateral or release any
Security Document (other than as specifically permitted or contemplated in this
Agreement or the applicable Security Document) or (g) amend the provisions of
this Section 13.12 or the definition of Required Lenders, without the prior
written consent of each Lender. In addition, no amendment, waiver or consent to
the provisions of (a) Article XII shall be made without the written consent of
the Administrative Agent and (b) Article III without the written consent of the
Issuing Lender.
SECTION 13.13 PERFORMANCE OF DUTIES. The Credit Parties' obligations
under this Agreement and each of the Loan Documents shall be performed by the
Credit Parties at their sole cost and expense.
SECTION 13.14 ALL POWERS COUPLED WITH INTEREST. All powers of attorney
and other authorizations granted to the Lenders, the Administrative Agent and
any Persons designated by the Administrative Agent or any Lender pursuant to any
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Credit Facility has not been
terminated.
SECTION 13.15 SURVIVAL OF INDEMNITIES. Notwithstanding any termination
of this Agreement, the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this Article XIII and any other
provision of this Agreement and the Loan
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Documents shall continue in full force and effect and shall protect the
Administrative Agent and the Lenders against events arising after such
termination as well as before.
SECTION 13.16 TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 13.17 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 13.18 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
SECTION 13.19 TERM OF AGREEMENT.
(a) This Agreement shall remain in effect from the Closing Date through
and including the date upon which all Obligations shall have been indefeasibly
and irrevocably paid and satisfied in full. The Administrative Agent is hereby
permitted to release all Liens on the Collateral in favor of the Administrative
Agent, for the ratable benefit of itself and the Lenders, upon repayment of the
outstanding principal of and all accrued interest on the Loans, payment of all
outstanding fees and expenses hereunder and the termination of the Lender's
Commitments. No termination of this Agreement shall affect the rights and
obligations of the parties hereto arising prior to such termination.
(b) The Credit Parties expressly acknowledge and agree that each
covenant contained in Articles VII, VIII, IX and X hereof shall be given
independent effect. Accordingly, no Credit Party shall engage in any transaction
or other act otherwise permitted under any covenant contained in any such
Article if, before or after giving effect thereto, such Credit Party shall or
would be in breach of any other covenant contained in any such Article.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized representatives, all as of the day
and year first written above.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ DONALD FITCH
----------------------------------------
Name: Donald Fitch
Title: Treasurer
<PAGE>
ADMINISTRATIVE AGENT:
FIRST UNION NATIONAL BANK
By: /s/ DOUGLAS M. BURNETT
--------------------------------------
Name: Douglas M. Burnett
Title: Vice President
LENDERS:
FIRST UNION NATIONAL BANK
By /s/ GAIL M. GOLIGHTLY
--------------------------------------
Name: Gail M. Golightly
Title: Senior Vice President
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ DAVID M. CAWRSE
--------------------------------------
Name: David M. Cawrse
Title: First Vice President & Manager
SUNTRUST BANK, TAMPA BAY
By /s/ RONALD K. RUEVE
--------------------------------------
Name: Ronald K. Rueve
Title: Vice President
FLEET NATIONAL BANK
By /s/ THOMAS ENGELS
--------------------------------------
Name: Thomas Engels
Title: Vice President
<PAGE>
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By /s/ MARTIN D. GAWEL
--------------------------------------
Name: Martin D. Gawel
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ ROBERT B. BENOIT
--------------------------------------
/s/ DANA W. HEMENWAY
-----------------------------------
Name: Robert B. Benoit
Title: Senior Vice President
Name: Dana W. Hemenway
Title: Vice President
NATIONSBANK, N.A.
By: /s/ HENRY PENNELL
--------------------------------------
Name: Henry Pennell
Title: Assistant Vice President
AMSOUTH BANK
By /s/ LIZA L. HOOVER
--------------------------------------
Name: Liza L. Hoover
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By /s/ STEPHANIE FREEMAN
--------------------------------------
Name: Stephanie Freeman
Title: Banking Officer
<PAGE>
THE FIFTH THIRD BANK OF COLUMBUS
By /s/ CHARLES D. HALE
--------------------------------------
Name: Charles D. Hale
Title: Vice President
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Credit Agreement referred to below (this
"First Amendment"), is made and entered into as of this 23rd day of June, 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, as Administrative Administrative 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 1, 1998 (as amended, restated
or otherwise modified, the "Credit Agreement"), by and among the Borrower, the
Lenders and the Administrative Agent.
The Lenders executed a Waiver and Consent dated as of June 15, 1998
pursuant to which their consent was required as a condition of the effectiveness
of paragraph three (3) of such consent. The Lenders have not issued such
consent, and, therefore, paragraph three (3) shall not become effective.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, revise certain of the financial covenants and certain
other provisions of the Credit Agreement, and the Lenders have agreed to do so,
but only on the terms and conditions set forth below in this Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. (a) All capitalized undefined terms used in this First
Amendment shall have the meanings assigned thereto in the Credit Agreement and
(b) "EFFECTIVE DATE" means the date of this Amendment or such later Business Day
upon which each condition described below shall be satisfied or waived in a
manner acceptable to the Administrative Agent and required Lenders.
2. AGREEMENTS. The Administrative Agent and the Lenders hereby consent
to the adjustments to EBITDA of Centra Benefit Services, Inc. for purposes of
determining compliance with the financial covenants set forth in Article IX as
more fully set forth on Schedule 1 hereto.
3. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
(a) Section 1.1 is hereby amended as follows:
<PAGE>
(i) by deleting the parenthetical in section (a) (iii) of the
definition of Fixed Charge Coverage Ratio and inserting in its place
the following: "(excluding stock repurchases permitted pursuant to
Section 10.7 in an amount not to exceed $26,800,858 and occurring on or
prior to June 17, 1998)"; and
(ii) by deleting the second proviso in the definition of PRO
FORMA EBITDA, which proviso begins on line 10 of such definition.
(b) Section 2.2(a) is hereby amended by substituting the
attached Exhibit B for the Exhibit B referred to therein.
(c) Section 9.1 is hereby amended by deleting the time periods
and ratios set forth therein, and inserting the following time periods and
ratios:
Closing date through June 30, 1999 3.50 to 1.00
July 1, 1999 through June 30, 2001 3.25 to 1.00
July 1, 2001 through June 30, 2002 3.00 to 1.00
Thereafter 2.75 to 1.00
(d) Section 10.4 is hereby amended by deleting the phrase "ten
(10) Business Days and inserting "five (5) Business Days" in lieu
thereof:
4. CONDITIONS. The effectiveness of this Amendment shall be conditioned
upon delivery to the Administrative Agent of the following items:
(a) EXECUTION. Receipt by the Administrative Agent of this
Amendment duly executed by the Borrower, Administrative Agent and the
Lenders constituting Required Lenders.
(d) ADDITIONAL ITEMS. Receipt by the Administrative Agent of
any other document or instrument reasonably requested by it in
connection with the execution of this Amendment.
5. LIMITED AMENDMENT. Except as expressly amended herein, the Credit
Agreement and each other Loan Document shall continue to be, and shall remain,
in full force and effect. This 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 Administrative 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.
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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. GOVERNING LAW. This First Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
9. COUNTERPARTS. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
[Signature Pages Intentionally Omitted]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date and year first above written.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ DONALD FITCH
-----------------------------------------
Name: Donald Fitch
Title: Treasurer
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By: /s/ GAIL M. GOLIGHTLY
-----------------------------------------
Name: Gail M. Golightly
Title: Senior Vice President
CREDIT LYONNAIS ATLANTA AGENCY, as
Lender
By /s/ DAVID M. CAWRSE
-----------------------------------------
Name: David M. Cawrse
Title: First Vice President & Manager
SUNTRUST BANK, TAMPA BAY, as Lender
By /s/ RONALD K. RUEVE
-----------------------------------------
Name: Ronald K. Rueve
Title: Vice President
<PAGE>
FLEET NATIONAL BANK, as Lender
By /s/ THOMAS ENGELS
-----------------------------------------
Name: Thomas Engels
Title: Vice President
SOUTHTRUST BANK, NATIONAL
ASSOCIATION, as Lender
By /s/ STEPHEN C. GREEN
-----------------------------------------
Name: Stephen C. Green
Title: Group Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ ROBERT B. BENOIT
-----------------------------------------
/s/ DANA W. HEMENWAY
-----------------------------------
Name: Robert B. Benoit
Title: Senior Vice President
Name: Dana W. Hemenway
Title: Vice President
NATIONSBANK, N.A.
By: /s/ SADAHRI W. BERRY
-----------------------------------------
Name: Sadahri W. Berry
Title: Vice President
AMSOUTH BANK
By /s/ LIZA L. HOOVER
-----------------------------------------
Name: Liza L. Hoover
Title: Assistant Vice President
<PAGE>
HIBERNIA NATIONAL BANK
By /s/ CHRISTOPHER B. PITRE
-----------------------------------------
Name: Christopher B. Pitre
Title: Vice President
<PAGE>
THE FIFTH THIRD BANK OF COLUMBUS
By /s/ MARK RANSOM
-----------------------------------------
Name: Mark Ransom
Title: Vice President
<PAGE>
SECOND AMENDMENT AND WAIVER
THIS SECOND AMENDMENT AND WAIVER to the Credit Agreement referred to
below (this "Second Amendment"), is made and entered into as of this 15th day of
December, 1998 by and among HEALTHPLAN SERVICES CORPORATION, a corporation
organized under the laws of Delaware (the "Borrower"), the Lenders party to the
Credit Agreement (as defined below) and identified on the signature pages
hereto, and FIRST UNION NATIONAL BANK, as Administrative Agent for the Lenders.
This Second Amendment shall have an Effective Date (as defined below) determined
in accordance with Section 4 below.
STATEMENT OF PURPOSE
The Lenders have extended certain credit facilities to the Borrower
pursuant to the Amended and Restated Credit Agreement dated as of May 1, 1998
(as amended by the First Amendment thereto dated as of June 19, 1998, certain
waivers thereto, and as further amended, restated or otherwise modified, the
"Credit Agreement"), by and among the Borrower, the Lenders and the
Administrative Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, revise certain of the covenants and other provisions of
the Credit Agreement on a permanent basis. In addition, the Borrower has
requested that the Lenders amend certain covenants and provisions of the Credit
Agreement for a limited period of time. The Lenders have agreed to amend the
Credit Agreement, but only on the terms and conditions set forth below in this
Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized undefined terms used in this Second
Amendment shall have the meanings assigned thereto in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement shall be amended by deleting
the definitions of "Aggregate Commitment", "EBITDA" and "Net Income" in their
entirety and inserting the following in lieu thereof:
"AGGREGATE COMMITMENT" means the aggregate amount of the
Lenders' Commitments hereunder, as such amount may be reduced or
modified at any time or from time to time pursuant to the terms hereof.
On the Closing Date, the Aggregate Commitment shall be One Hundred
Seventy-Five Million Dollars ($175,000,000); PROVIDED that, for all
purposes (other than (a) the calculation of the Commitment Percentage
of any Lender and (b) the calculation of the Commitment Fee contained
in
<PAGE>
Section 4.3(a) of the Credit Agreement) until the earlier to occur of
(x) the end of the Amendment Period or (y) such time as EBITDA, as of
the end of any fiscal quarter during the Amendment Period, exceeds
$10,000,000 in each of the immediately preceding two (2) consecutive
fiscal quarters during the Amendment Period, the Aggregate Commitment
hereunder shall be deemed to be One Hundred Twenty-Five Million Dollars
($125,000,000).
"EBITDA" means, for any period, Net Income of the Borrower and
its Subsidiaries for such period PLUS the sum of the following for such
period to the extent deducted in determining such Net Income: (a)
Interest Expense, (b) all federal, state, local and foreign income and
gross receipt tax expense, (c) depreciation, amortization and depletion
expense and (d) any non-cash loss on the partial impairment of
goodwill, in each case determined on a Consolidated book basis in
accordance with GAAP; PROVIDED, that EBITDA for the fiscal quarter
ending (i) December 31, 1997 shall be deemed to equal $13,146,000, (ii)
March 31, 1998 shall be deemed to equal $11,938,000, (iii) June 30,
1998 shall be deemed to equal $7,402,000 and (iv) September 30, 1998
shall be deemed to equal $27,442,000."
"NET INCOME" means, for any period, the net income (or loss)
of the Borrower and its Subsidiaries determined on a Consolidated basis
for such period, without duplication, in accordance with GAAP PLUS all
non-recurring non-cash charges PLUS all non-recurring cash charges not
to exceed $1,000,000 in the aggregate (for both non-recurring cash
charges and non-recurring non-cash charges) for any fiscal quarter;
except that any non-recurring cash and non-cash charges may exceed
$1,000,000 in the aggregate for any fiscal quarter to the extent
approved in writing by the Required Lenders; PROVIDED, that there shall
be excluded from such net income (a) the net income of any Person not a
Wholly-Owned Subsidiary of the Borrower, and the net income of any
Person accounted for by the equity method, except in each case (i) to
the extent received by the Borrower or a Wholly-Owned Subsidiary in a
cash distribution or (ii) to the extent consented to by the
Administrative Agent in its sole discretion and (b)(i) prior to the
fiscal quarter ending September 30, 1999, any non-recurring cash or
non-cash gain and (ii) for any period of four (4) consecutive fiscal
quarters following the fiscal quarter ending September 30, 1999, the
aggregate amount of all non-recurring cash or non-cash gains during
such period in excess of $5,000,000; PROVIDED, that any non-recurring
cash or non-cash gains during such period in an aggregate amount less
than $5,000,000 may be included in such net income upon approval in
writing by the Required Lenders."
(b) Section 1.1 of the Credit Agreement shall be amended by inserting
the following new definitions in correct alphabetical order:
"AMENDMENT EFFECTIVE DATE" means the Effective Date (as
defined in the Second Amendment).
"AMENDMENT PERIOD" means the period commencing on the
Amendment Effective Date and ending on the earlier (but in no event
earlier than September 30, 1999) to occur of:
2
<PAGE>
(a) the last day of the reporting period for the fiscal quarter ending
December 31, 1999 or (b) the last day of any fiscal quarter of the
Borrower in which the Borrower is in compliance with the financial
covenants contained in Sections 9.1 and 9.2 of this Agreement as such
financial covenants existed prior to giving any effect to the Second
Amendment.
"CASH FLOW RATIO" means, as of any fiscal quarter end of the
Borrower, the ratio of (a) EBITDA for the fiscal quarter then ending
LESS the sum of (i) Capital Expenditures for the fiscal quarter then
ending PLUS (ii) shareholder dividends for the fiscal quarter then
ending to (b) Interest Expense for the fiscal quarter then ending.
"SECOND AMENDMENT" means the Second Amendment and Waiver dated
as of December 15, 1998 by and among the Borrower, the Lenders and the
Administrative Agent."
(c) The proviso contained in Section 4.1(c) of the Credit Agreement
shall be deleted in its entirety and the following shall be inserted in lieu
thereof:
"; PROVIDED, that notwithstanding the foregoing, during the
Amendment Period, the Applicable Margin with respect to Base Rate Loans
shall be 0.25% and the Applicable Margin with respect to LIBOR Rate
Loans shall be 1.50%."
(d) The third sentence in Section 4.3(a) of the Credit Agreement shall
be deleted in its entirety and the following shall be inserted in lieu thereof:
"Notwithstanding any of the foregoing to the contrary, during
the Amendment Period, the Commitment Fee shall be 0.250%."
(e) During the Amendment Period, the following Section 9.3 shall be
added to Article IX of the Credit Agreement for such Amendment Period:
"SECTION 9.3 MINIMUM EBITDA. As of the last day of any fiscal
quarter referred to below, permit EBITDA exclusive of any non-recurring
cash and non-cash gains to be less than the corresponding amount set
forth below:
FISCAL QUARTER AMOUNT
-------------- ------
October 1, 1998 - December 31, 1998 $6,000,000
January 1, 1999 - March 31, 1999 $7,500,000
April 1, 1999 - June 30, 1999 $8,000,000
July 1, 1999 - September 30, 1999 $9,500,000
October 1, 1999 - December 31, 1999 $10,500,000
(f) During the Amendment Period, the following Section 9.4
shall be added to Article IX of the Credit Agreement for such Amendment Period:
3
<PAGE>
"SECTION 9.4 CAPITAL EXPENDITURES. Permit Capital Expenditures
to exceed $10,000,000 in the aggregate for any period of four (4)
consecutive fiscal quarters."
(g) During the Amendment Period, the following Section 9.5 shall be
added to Article IX of the Credit Agreement for such Amendment Period:
"SECTION 9.5 CASH FLOW RATIO. As of the last day of any fiscal
quarter, permit the Cash Flow Ratio to be less than the corresponding
ratio set forth below:
FISCAL QUARTER RATIO
October 1, 1998 - December 31, 1998 0.85 to 1.00
January 1, 1999 - March 31, 1999 1.65 to 1.00
April 1, 1999 - June 30, 1999 1.90 to 1.00
July 1, 1999 - September 30, 1999 2.70 to 1.00
October 1, 1999 - December 31, 1999 3.25 to 1.00
(h) During the Amendment Period, Section 10.4(a) of the Credit
Agreement is hereby deleted in its entirety and the following Section 10.4(a)
shall be inserted in lieu thereof for such Amendment Period:
"(a) investments by the Borrower in the form of acquisitions
of all or substantially all of the business or a line of business of
any other Person (whether by the acquisition of capital stock or other
equity ownership interests, assets or any combination thereof) which
are consummated in accordance with the following requirements of this
Section 10.4(a) (any such acquisition, a "Permitted Acquisition"): (i)
the acquired Person shall be and substantially all of the acquired
assets shall be utilized in the similar line of business as the
Borrower as described in clause (a) of Section 8.10 or as otherwise
approved in writing by the Required Lenders, (ii) no Default or Event
of Default shall have occurred and be continuing or be created by the
relevant Permitted Acquisition as evidenced by a certificate of the
Borrower delivered on the closing date thereof to the Administrative
Agent and the Required Lenders in form and substance satisfactory to
the Administrative Agent and demonstrating pro forma compliance with
the financial covenants set forth in Article IX and the other terms of
the Loan Documents, (iii) a description of the relevant Permitted
Acquisition in reasonable detail and the corresponding documentation
shall be furnished by the Borrower to the Lenders at least five (5)
Business Days prior to the closing date thereof (to be followed by any
changed pages and fully executed copies promptly after the creation
thereof) and (iv) the Borrower shall have received the prior written
approval of the Required Lenders."
(i) Section 10.4(g) of the Credit Agreement is hereby amended as
follows:
4
<PAGE>
(i) During the Amendment Period, Section 10.4(g) of the Credit
Agreement is hereby deleted in its entirety and the following Section
10.4(g) shall be inserted in lieu thereof for such Amendment Period:
"(g) other investments not to exceed Seven Million
Five Hundred Thousand Dollars ($7,500,000) in the aggregate
during the Amendment Period unless otherwise approved in
writing by the Required Lenders." For purposes of determining
compliance with this Section 10.4(g) reductions to the basket
amount shall be permanent and the basket amount shall not be
reset or otherwise increased by the proceeds of investments
which are liquidated during the term hereof except to the
extent the total amount of the net cash proceeds received from
the liquidation of any such investment are used by the
Borrower to repay the Loans and Letters of Credit under the
Credit Facilities."
(ii) Following the Amendment Period, Section 10.4(g) of the
Credit Agreement is hereby deleted in its entirety and the following
Section 10.4(g) shall be inserted in lieu thereof:
"(g) other investments not to exceed Seventeen
Million Five Hundred Thousand Dollars ($17,500,000) in the
aggregate during the term of the Credit Facility (other than
any investment in Sykes HealthPlan Services, Inc., prior to
the Amendment Period) unless otherwise approved in writing by
the Required Lenders LESS any investments made under this
Section 10.4(g) during the Amendment Period LESS $5,000,000
invested by the Borrower in HealthAxis.com, Inc." For purposes
of determining compliance with this Section 10.4(g) reductions
to the basket amount shall be permanent and the basket amount
shall not be reset or otherwise increased by the proceeds of
investments which are liquidated during the term hereof except
to the extent the total amount of the net cash proceeds
received from the liquidation of any such investment are used
by the Borrower to repay the Loans and Letters of Credit under
the Credit Facilities."
(j) Section 10.7(c) of the Credit Agreement shall be deleted in its
entirety and the following Section 10.7(c) shall be inserted in lieu thereof:
"(c) the Borrower may purchase on the open market (and/or
through private purchases) shares of its capital stock (each a "Stock
Repurchase") at a total repurchase price of not more than Thirty
Million Dollars ($30,000,000) during the term of the Credit Facility,
in accordance with a formal share repurchase plan (the Repurchase
Plan") adopted by the Board of Directors of the Borrower; PROVIDED,
that so long as EBITDA is greater than $10,000,000 for any fiscal
quarter, the Borrower may make additional Stock Repurchases at a total
repurchase price of not more than $2,500,000 during the ninety (90) day
period following the date financial statements are delivered for such
fiscal quarter; PROVIDED, FURTHER that the total aggregate
consideration for all Stock Repurchases shall not exceed $40,000,000 in
the aggregate during the term of the Facility."
5
<PAGE>
(k) Section 10.7(d) of the Credit Agreement shall be deleted in its
entirety and the following Section 10.7(d) shall be inserted in lieu thereof:
"(d) as long as no Default or Event of Default has occurred or
is continuing or would result by the action taken, the Borrower may pay
a cash dividend up to $.1375 per share of its stock on a quarterly
basis (or $.55 per share on an annualized basis) for 1998, which amount
may be increased by the Borrower on an annualized basis by up to $.05
per share for each calendar year after 1998, in accordance with the
formal dividend plan adopted by the Board of Directors of the Borrower
and previously delivered to the Administrative Agent and the Lenders;
PROVIDED, that during the Amendment Period such increase must be
approved in writing by the Required Lenders."
3. WAIVER. During the Amendment Period, Section 9.2 of the Credit
Agreement is hereby waived except to the extent the Borrower can demonstrate
compliance with such covenant for the purpose of terminating the Amendment
Period. Notwithstanding the foregoing, the Borrower shall continue to calculate
and report the Fixed Charge Coverage Ratio on a quarterly basis at all times
during the term hereof.
4. CONDITIONS. The effectiveness of this Amendment shall be conditioned
upon the following:
(a) EXECUTION. This Second Amendment shall become effective
(the "Effective Date") upon receipt by the Administrative Agent of this
Second Amendment duly executed by the Borrower, Administrative Agent
and the Lenders constituting Required Lenders;
(b) AMENDMENT FEE. Receipt by the Administrative Agent of the
Amendment Fee (described in Section 7 below); and
(c) ADDITIONAL ITEMS. Receipt by the Administrative Agent of
any other document or instrument reasonably requested by it in
connection with the execution of this Amendment.
5. LIMITED AMENDMENT AND WAIVER. Except as expressly amended herein,
the Credit Agreement and each other Loan Document shall continue to be, and
shall remain, in full force and effect. This Amendment shall not be deemed (a)
to be a waiver of, or consent to, or a modification or amendment of, any other
term or condition of the Credit Agreement or any other Loan Documents or (b) to
prejudice any other right or rights which the Administrative 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
6
<PAGE>
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. AMENDMENT FEE. The Borrower shall pay to the Administrative Agent,
for the account of each Lender executing this Second Amendment on or before
December 15, 1998, an amendment fee (the "Amendment Fee") equal to 0.125% of
such Lender's Commitment.
6. GOVERNING LAW. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
7. COUNTERPARTS. This Second Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
[Signature Pages Follow]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the date and year first above written.
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION,
as Borrower
By: /s/ DONALD FITCH
-----------------------------------------
Name: Donald Fitch
Title: Treasurer
[Signature Pages Continue]
<PAGE>
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By /s/ THOMAS L. STITCHBERRY
-----------------------------------------
Name: Thomas L. Stitchberry
Title: Senior Vice President
[Signature Pages Continue]
<PAGE>
CREDIT LYONNAIS ATLANTA AGENCY, as
Lender
By /s/ DAVID M. CAWRSE
-----------------------------------------
Name: David M. Cawrse
Title: First Vice President & Manager
[Signature Pages Continue]
<PAGE>
SUNTRUST BANK, TAMPA BAY, as Lender
By /s/ HAROLD BITLER
-----------------------------------------
Name: Harold Bitler
Title: First Vice President
[Signature Pages Continue]
<PAGE>
FLEET NATIONAL BANK, as Lender
By /s/ THOMAS ENGELS
-----------------------------------------
Name: Thomas Engels
Title: Vice President
[Signature Pages Continue]
<PAGE>
SOUTHTRUST BANK, NATIONAL
ASSOCIATION, as Lender
By /s/ DIANNE M. FLANNERY
-----------------------------------------
Name: Dianne M. Flannery
Title: Vice President
[Signature Pages Continue]
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH, as
Lender
By: /s/ IAN REECE
-----------------------------------------
Name: Ian Reece
Title: Senior Credit Officer
[Signature Pages Continue]
<PAGE>
NATIONSBANK, N.A., as Lender
By: /s/ SADAHRI BERRY
-----------------------------------------
Name: Sadahri Berry
Title: Vice President
[Signature Pages Continue]
<PAGE>
AMSOUTH BANK, as Lender
By /s/ LIZA L. HOOVER
-----------------------------------------
Name: Liza L. Hoover
Title: Assistant Vice President
[Signature Pages Continue]
<PAGE>
HIBERNIA NATIONAL BANK, as Lender
By /s/ CHRISTOPHER PITRE
-----------------------------------------
Name: Christopher Pitre
Title: Vice President
By
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
[Signature Pages Continue]
EXHIBIT 10.17
HEALTHPLAN SERVICES CORPORATION
1998 OFFICER BONUS PLAN
PLAN SUMMARY
The Compensation Committee of the Board of Directors of the Company approved an
officer bonus plan for 1998. The plan provided the terms under which executive
officers of the Company would receive bonuses. Pursuant to the plan, 1998
bonuses were dependent primarily on the Company's financial performance and
achievement of specified strategic corporate objectives.
EXHIBIT 10.19
Deferred Compensation Plan of
R. E. Harrington, Inc.
This Agreement, made as of January 1, 1988 by and between R. E. Harrington,
Inc., a Corporation organized and existing under the laws of the State of
Delaware, hereinafter referred to as "Corporation", and Robert R. Parker, a key
Employee and Executive of the Corporation, hereinafter referred to as
"Executive".
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties agree as
follows:
1. The Corporation agrees to employ the Executive and the Executive agrees
to serve the Corporation in such capacity as the Board of Directors of
the Corporation (the "Board), may designate from time to time,
beginning January 1, 1988 and continuing until terminated by either
party on at least 90 days prior written notice to the other.
2. During the term of employment, the Executive will devote all time,
attention, skill and efforts to the performance of duties on behalf of
the corporation.
3. The Corporation shall pay the Executive on the effective date of this
Agreement and continuing during the term of employment a salary payable
bi-weekly. The amount of compensation will be determined from time to
time by the Board. Further, deferred compensation will be provided
pursuant to paragraph 4 below.
(a) The Corporation shall accrue the following additional amounts
of compensation, but shall not pay such amounts to the
Executive when accrued, but rather in accordance with the
terms of paragraph 5 of this Agreement. Periodically the
Corporation shall transfer the amounts accrued to an
irrevocable individual trust specifically established for the
benefit of the Executive and designated survivor.
(1) $1083.20 per month effective January 1, 1988
(2) $ 993.86 per month effective January 1, 1989.
(3) $ 867.34 per month effective January 1, 1990.
(b) The trustee for the above mentioned trust will be a bank
selected by the Corporation.
(c) All trust assets will be held separate and apart from other
Corporation funds, to be used exclusively for the purposes set
forth in the trust agreement.
(d) The trust assets are available only to pay benefits to the
Executive or designated survivor. Reversion will only be
permitted upon the insolvency of the
<PAGE>
Corporation. The Corporation has an express duty to notify the
trustee of such insolvency. When the trustee receives the
notice of insolvency the trustee must suspend payments and
hold payments for general creditors or follow an appropriate
court order. The Executive or designated survivor will qualify
as a general creditor to the trust assets should the
Corporation become insolvent.
5. The benefits to be paid as deferred compensation are to be paid as
follows:
(a) If the Executive's employment hereunder is terminated on or
after the Executive has reached the age of 50, the Corporation
as of such date of termination, shall pay the Executive an
amount equal to the fair market value of the assets in the
trust created for this Agreement. Such amount shall be paid in
120 monthly installments, or in an amount of lesser monthly
installments, or in a lump sum at any time as requested by the
Executive. Not withstanding the foregoing, the total amount
payable to the Executive shall be appropriately increased or
decreased to reflect the appreciation or depreciation in value
and the net income or loss of funds which remain invested in
the trust. If the Executive should die on or after the
installment payments are made, the unpaid balance will
continue to be paid to the Executive's designated beneficiary
in the same manner as set forth above.
(b) Should the Executive's employment hereunder be terminated for
any reason other than death or disability, but before the
Executive is 50 years of age, the amount in the trust will
continue to be invested as the Board in its discretion may
determine. No payments shall be made until the Executive is 50
years of age at which time payments will be made as described
in paragraph 5(a).
(c) Should the Executive's employment be terminated because of
disability of death before the Executive has reached the age
of 50 and while in the employ of the Corporation, the
Corporation shall make monthly payments to the Executive or to
be designated beneficiary in the same manner and to the same
extent as provided in paragraph 5(a).
(d) Should both the Executive and the designated beneficiary die
before all monthly payments are made by the Corporation, the
remaining value of the trust shall be determined as of the
date of death of the designated beneficiary and shall be paid
as promptly as possible in one lump sum to the estate of the
designated beneficiary.
(e) The designated beneficiary referred to in this Agreement may
be established by the Executive upon completion of a form
provided by the Corporation and delivered to the Corporation
before the Executive's death. Prior to the death and without
the consent of any prior beneficiary, the Executive may change
the person to be the designated beneficiary as the Executive
so chooses. Should no beneficiary be designated or should the
designated beneficiary predecease the
<PAGE>
Executive, the installment payments payable under paragraph
5(a) shall be payable to the Executive's estate.
(f) The Executive shall be deemed to have become disabled for
purposes of this Agreement if the Board determines on the
basis of medical evidence that the Executive is permanently
mentally or physically disabled and cannot for the remainder
of life, engage in further employment for the Corporation.
(g) The installment payments to be made to the Executive under
paragraphs 5(a) and 5(c) shall commence on the first day of
January following the date of termination of employment.
Installment payments to be made to the Executive under
paragraph 5(b) shall commence as of the first day of the month
following the date on which the Executive reaches age 50. The
installment payments to be paid to a designated beneficiary
shall commence on a date selected by the Corporation, but
within six months from the date of death of the Executive.
(h) Notwithstanding anything herein contained to the contrary, the
Board shall have the right in its sole discretion to vary the
manner and time of making the installment distributions
provided in this paragraph and may make such distributions in
lump sums or over a shorter or longer period of time as it may
find appropriate.
6. The right of the Executive or any other person to the payment of
deferred compensation or other benefits under this Agreement shall not
be assigned, transferred, pledged or encumbered except by will or by
the laws of descent distribution.
7. Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ of the Corporation as an
executive or in any other capacity.
8. The Board shall have full power and authority to interpret, construe
and administer this Agreement and the Board's interpretations and
construction thereof, and action thereunder, including any valuation of
the trust fund shall be binding and conclusive on all persons for all
purposes. No member of the Board shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to willful
misconduct or lack of good faith.
9. No alteration or modification of the terms and conditions of this
Agreement shall be valid or of any force or effect unless in each
instance it is contained in a written instrument expressing such
alternation or modification which is signed by both the corporation and
the Executive.
10. This Agreement shall be binding upon and insure the benefit of the
Corporation, its successors an assigns as well as to the heirs,
executors, administrators and legal representatives of the Executive.
<PAGE>
11. This Agreement shall be construed in accordance with and governed by
the laws of the State of Ohio.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by
its Chairman of the Board of Directors and the Executive has signed this
Agreement as of the day and year first written above.
R. E. HARRINGTON, INC.
By: /S/ HAROLD RAPAPORT /S/ ROBERT R. PARKER
- --------------------------------------- -----------------------------------
Title: CHRIMAN, KBD. OF DIRECTORS PRESIDENT
- --------------------------------------- -----------------------------------
<PAGE>
AMENDMENT TO DEFERRED COMPENSATION PLANS
OF
R. E. HARRINGTON, INC.
WITH
ROBERT R. PARKER, ROBERT J. COVERT AND WARREN G. BLUE
The Deferred Compensation Plans of Robert R. Parker, Robert J. Covert and Warren
G. Blue dated January 1, 1988 are hereby amended by substituting the following
for Paragraph 4(b):
"The Trustees for the above mentioned Trust will be selected by the
Corporation and the Plan Administrator shall be the Corporation's Director of
Human Resources."
Dated this 8th day of November, 1994.
R. E. HARRINGTON, INC. /s/ ROBERT R. PARKER
---------------------------
Robert R. Parker
/s/ ROBERT J. COVERT
- ---------------------- ---------------------------
Board of Directors Robert J. Covert
/s/ WARREN G. BLUE
---------------------------
Warren G. Blue
EXHIBIT 10.20
MANAGEMENT AGREEMENT
THIS AGREEMENT is entered into this 28th day of February, 1998 among
Midwestern United Life Insurance Company ("Midwestern"), HealthPlan Services,
Inc. ("HPS"), and Connecticut General Life Insurance Company ("CGLIC").
RECITALS
WHEREAS, effective January 1, 1998 (the "Effective Date"), Midwestern
will issue and HPS will, through its Master Broker distribution system and NML
Group Specialists (the "Distribution Force"), market the group life, AD&D, and
Health insurance policies described on Exhibit "A," and subsequently agreed upon
additional group policies (the "Group Policies"), in the states identified in
Exhibit "A";
WHEREAS, Midwestern has entered into a definitive reinsurance agreement
attached hereto and made a part hereof as Exhibit "B" (the "Treaty") with CGLIC,
pursuant to which Midwestern will cede to CGLIC, and CGLIC will reinsure from
Midwestern, the Group Policies, on the terms and conditions set forth in the
Treaty; and
WHEREAS, pursuant to the Treaty, CGLIC has assumed reinsurance with
respect to the ceded business (as defined in the Treaty).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURPOSE
The parties seek to achieve solid annual growth in in-force and new
premiums, sales, numbers of employers and insured employees, size of the
Distribution Force, profitability, business retention, overall quality, and
customer satisfaction. It is the intention of the parties to provide for the
terms under which HPS will provide marketing and field distribution as well as
administrative services for the Group Policies issued by Midwestern and
administered by HPS, and such additional policies as may be submitted for sale
and administration hereunder, and accepted by HPS, each of which shall thereupon
become a Group Policy. Midwestern and CGLIC shall at all times be and remain the
issuer and reinsurer respectively while this Agreement is in force.
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ARTICLE II
RELATIONSHIPS
A. The relationship of HPS to Midwestern is that of independent
contractor and nothing in the Agreement will be construed as creating any other
relationship.
B. Midwestern, CGLIC, and HPS acknowledge and agree that this Agreement
does not create a partnership or joint venture relationship among them. The
parties agree that none of them is assuming any liability, agreeing to pay any
amount, or undertaking performance of any task or obligation not expressly set
forth herein.
C. CGLIC's role with respect to any and all Group Policies referred to
in this Agreement is solely that of reinsurer. Nothing contained in the
Agreement shall be deemed or construed to constitute an agreement on the part of
CGLIC to assume responsibilities of Midwestern with respect to any Group Policy
or to create any direct relationship with any policyholder, beneficiary or other
party claiming an interest thereunder. To the extent CGLIC has rights and
obligations under this Agreement that relate to such Group Policies, such rights
and obligations are in place solely for the purpose of providing the conditions
acceptable to CGLIC to assure reinsurance liabilities with respect to such Group
Policies, and in the furtherance of performance of such reinsurance liabilities.
ARTICLE III
REPRESENTATIONS
A. HPS hereby represents and warrants to Midwestern and CGLIC that:
1. HPS is a corporation duly organized, validly existing, and
in good standing under the laws of Florida with full power and
authority (corporate or otherwise) to own or lease its properties and
to conduct its business in the manner and in the places where such
properties are owned or leased or such business is currently conducted,
and to consummate the transactions contemplated by this Agreement. It
is qualified or has applied to do business as a foreign corporation in
each jurisdiction in which the Group Policies are marketed and
distributed. For example, if required by state law, HPS shall hold or
apply for a valid license or certificate of registration as a third
party administrator or as a managing general agent, as applicable, from
the Departments of Insurance or other regulatory bodies having
jurisdiction and post any bond required by any such regulatory bodies.
2. The execution, delivery, and performance of this Agreement,
and all other documents contemplated by the Agreement by or on behalf
of HPS, have each been duly and validly authorized by HPS, and, when
executed and delivered, this Agreement and such other documents
executed by HPS will be a valid and binding obligation of HPS
enforceable against HPS in accordance with their respective terms.
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3. The execution, delivery, and performance of this Agreement
and other documents contemplated hereby by HPS does not, and the
consummation of the transactions contemplated hereby will not (a)
violate the provision of any applicable law, the Articles of
Organization or By-Laws of HPS or (b) violate any material provision
of, or result in a default or acceleration of any obligation under, or
result in any change in the rights or obligations of HPS under any
material mortgage, lien, lease, agreement, contract, instrument, order,
arbitration award, judgment, or decree to which HPS is a party or by
which HPS is bound, or to which any property of HPS is subject.
B. Midwestern hereby represents and warrants to HPS and CGLIC that:
1. Midwestern is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate or otherwise)
to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or
such business is currently conducted, and to consummate the
transactions contemplated by the Agreement. Midwestern is qualified to
do business as a foreign corporation in all states except New York.
2. The execution, delivery, and performance of the Agreement,
and all other documents contemplated by this Agreement by or on behalf
of Midwestern, have each been duly and validly authorized by
Midwestern, and, when executed and delivered, the Agreement and such
other documents executed by Midwestern will be valid and binding
obligations of Midwestern enforceable against Midwestern in accordance
with their respective terms.
3. The execution, delivery, and performance of this Agreement
and other documents contemplated hereby by Midwestern does not, and the
consummation of the transactions contemplated hereby will not, violate
any material provision of, or result in a default or acceleration of
any obligation under, or result in any change in the rights or
obligations of Midwestern under, any material mortgage, lien, lease,
agreement, contract, instrument, order, arbitration award, judgment, or
decree to which Midwestern is a party or by which Midwestern is bound,
or to which any property of Midwestern is subject.
ARTICLE IV
DUTIES OF HPS
A. HPS agrees to perform, subject to the terms of this agreement and
consistent with the reinsurance agreement and the rules and practices of
Midwestern and CGLIC, the following services for (and to the extent possible) in
Midwestern's name in all U.S. states, identified on Exhibit "A", in which the
Group Policies, and related forms, are required to be filed, have been filed and
approved:
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1. MARKETING/SALES
(a) Provide marketing (in accordance with guidelines
provided by Midwestern and such other guidelines as might
hereafter be agreed upon by the parties) and sales services,
advice and strategy, including product development, product
promotion, creation of sales materials and the distribution of
products through independent agents appointed and approved by
HPS on behalf of Midwestern in accordance with Midwestern's
guidelines. Included within HPS' management responsibilities
relating to marketing activities will be the management of the
Distribution Force. In order to facilitate the delivery of
such services, HPS shall submit, on or before the 1st day of
September in each year of the Term hereof, a business plan in
a format agreed to by the parties consisting of relevant
financial and sales information. In connection with the
proposals contained in such business plan, Midwestern, CGLIC,
and HPS will establish and agree on certain goals, milestones,
and strategies to be targeted for attainment during the
calendar year following the submission date, including without
limitation HPS' use of any sales or marketing contests to
enhance the performance of HPS' producers. HPS will provide
the additional number of qualified marketing and sales
personnel dedicated exclusively (subject to Article XIV.D) to
Midwestern services that are, in HPS' reasonable judgment,
sufficient to achieve the specified goal, milestones, or
strategies presented. At any time in response to a material
change in the law, legal or business environment, Midwestern
and/or CGLIC may terminate HPS' authority to underwrite and/or
issue new or renewal policies in any state or terminate HPS'
authority to underwrite any sub-class of business that is the
subject of this Agreement.
(b) Develop standard forms of policies and special
benefit provisions, approved by Midwestern and CGLIC, for
issuance by Midwestern, and other desirable marketing and
sales forms;
(c) Prepare for Midwestern's and CGLIC's review and
approval marketing and other information materials related to
such policies, provisions, or forms.
(d) Provide forms and materials necessary for
enrolling new employers and employees, as well as any other
administrative materials needed for the proper administration
of the Group Policies.
(e) Process employer requests for participation in
the Multiple Employer Trust.
(f) HPS shall schedule and conduct regular
communication meetings with the dedicated marketing and sales
personnel and the Distribution Force to discuss service and
product issues. The parties may attend any product,
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marketing or sales meetings, and regional sales director
("RSD") meetings connected with the Group Policies.
(g) Provide ongoing oversight of the Distribution
Force; for example, production information, education, market
conduct and compliance.
(h) Provide fair and accurate advertising, sales
materials, and proposals approved by the parties, in
accordance with the Midwestern "Guidelines for Advertising
Marketing Materials" and in accordance with insurance
regulations; provide a process for the parties' approval of
materials prepared by Master Brokers, brokers, or agents.
(i) Facilitate, as applicable, in conjunction with
HPS' marketing of the Group Policies, life and health
conversion policies issued on the paper of Gerber Life
Insurance Company.
2. BILLING, COLLECTION AND RATE SETTING
(a) Develop pricing methodologies and suggest rates
for all products, subject to Midwestern's and CGLIC's
approval, that in HPS' judgment will optimize the gross
margins on sales while achieving acceptable volume. Review and
make recommendations with respect to modification or
discontinuance of any products that in HPS' judgment may not
be sold profitably at competitive market rates subject to
Midwestern's and CGLIC's approval. HPS will perform actuarial
services to support its rate proposals but shall not be
required to perform statutory actuarial certifications on
Midwestern's behalf. CGLIC will provide to Midwestern an
actuarial certification of rates.
(b) Perform billing services, and arrange for the
collection and remittance of premiums in accordance with
procedures as outlined on Exhibit "C" Cash Handling and
Financial Settlement Procedures.
(i) RECEIPT OF PREMIUM PAYMENTS. HPS shall
receive and credit all Premium payments made by
participating employers, and shall make all cash
adjustments for Premium refunds and other required
cash transfers with respect to such Premium payments.
Any Premium payments that are received by HPS shall
be deemed to have been received by Midwestern, but
the payment of return Premium amounts by Midwestern
to HPS shall not be deemed payment to an insured or
claimant until such payment is received by such
insured or claimant. Nothing in this section shall
limit any right of Midwestern against HPS resulting
from HPS' failure to make payments to Midwestern or
to any insured claimant.
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(ii) REMITTANCE. HPS shall immediately remit
each Premium payment it receives from a participating
employer to Midwestern by depositing such payment in
an account through which only Midwestern premium will
be processed, then into an HPS account at a bank
selected by HPS (the "Premium Account"). HPS shall
have sole and exclusive authority to make withdrawals
from the Premium Account.
(iii) RECONCILIATION. On or before noon
E.S.T. on the last business day of each month, HPS
shall deliver to Midwestern and CGLIC a
reconciliation report relating to Premium payments it
received in the Premium Account in the previous month
(the "Reconciliation Report"), which Reconciliation
Report shall set forth (i) the total amount of
Premium payments deposited in the Premium Account
during such previous month, as adjusted for Premium
refunds and other required cash transfers under this
Agreement with respect to such Premium payments (the
"Collected Premium"), and (ii) the Remittance Due
with respect to such previous month. For purposes of
this Agreement, "Remittance Due" shall mean, with
respect to any month, an amount equal to the
Collected Premium for such month, minus the
compensation provided in Article IX.A. At the time
that HPS delivers the Reconciliation Report to
Midwestern and CGLIC, HPS shall transfer, by
Automated Clearing House Transfer, to an account
specified by Midwestern and CGLIC, the Remittance Due
with respect to the previous month. HPS may retain
all interest earned on the Premium Account. HPS may
offset the Remittance Due to Midwestern and CGLIC for
each month by any amount that Midwestern and CGLIC
owes to HPS or that HPS owes to Midwestern and CGLIC,
pursuant to this Agreement. In the event of such
offset, HPS shall indicate the nature and amount of
such offset in the applicable Reconciliation Report.
Notwithstanding any other provisions in this section,
the first Reconciliation Report to be provided by HPS
to CGLIC and Midwestern may be provided to CGLIC and
Midwestern by no later than March 31, 1998.
(iv) REPORTS. In addition to the
Reconciliation Reports described in section (iii)
above, HPS shall provide Midwestern and CGLIC with
data regarding Premium billing and remittance as are
reasonably required by Midwestern and CGLIC for
statutory and GAAP accounting, in a format and on a
timetable to be mutually agreed upon by the parties.
HPS shall maintain records of cash receipts and
disbursements relating to the program as required by
laws and regulations applicable to third party
administrators.
(v) DEPOSITS. Any Premium payment received
from an employer prior to the final coverage
determination with respect to such
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employer (any "Deposit") shall not at that time be
deemed to be a "Premium" for purposes of this section
or any other provision of this Agreement. In the
event that such employer is not accepted for coverage
under a Policy, then HPS shall return the employer's
undeposited check to such employer in accordance with
procedures reasonably required by Midwestern and
CGLIC.
3. CLAIMS
(a) HPS shall provide all claims handling services,
including medical and limited litigation management (as
defined below), necessary to resolve health, life, and AD&D
claims presented under the Group Policies, subject to the
claims settlement guidelines to be agreed upon. For the
purposes of this contract, an Insured is defined as a person
who is covered for insurance under the Group Policy to whom or
on behalf of whom Midwestern agrees to pay benefits. Claims
handling services include the following:
(i) HPS shall promptly process all claims
submitted by or on behalf of the Insured in
accordance with policy terms and the rights of the
Insured and pursuant to a claim manual, generated by
Midwestern and CGLIC, or any other manual or
procedures reviewed and approved by Midwestern and
CGLIC (the "Claims Manual"). All claims must be
reported to Midwestern and CGLIC within the period
set forth in Article V. HPS shall make prompt
payments for claims using checks drawn on a
Midwestern bank account designated the "Claims
Payment Account" established at a bank chosen by
Midwestern and funded by CGLIC. All interest earned
on monies contained in the Claims Payment Account
shall be for the sole use of the benefit obligations
arising under the Group Policies.
HPS shall designate in writing the names of those
persons it wishes Midwestern to authorize to sign
checks and shall provide sample signatures for
approval by Midwestern and CGLIC and approval will be
presumed if no response is given within thirty (30)
days. All checks shall be paid on checks or drafts as
authorized or specified by Midwestern. HPS shall
promptly notify Midwestern of any changes in the list
of persons so identified with check signature
authority. HPS shall also notify Midwestern of the
names of those persons responsible for the security
of the check stock and the signature plate, if
applicable. Midwestern shall have the right to sign
checks; however, the parties agree to cooperate to
the end that Midwestern shall at all times have in
effect designations whereby at least four (4) of HPS'
personnel have claims settlement and check signing
authority.
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(ii) All HPS personnel designated as having
claims settlement and check signing authority
pursuant to Article IV.A(3)(a)(i), above, shall have
a maximum limit of such authority of $50,000 per
claim. To the extent that authority in excess of
$50,000 is required on a given claim, HPS will seek
additional authority from Midwestern and CGLIC.
(iii) HPS shall receive notices of claims.
(iv) HPS shall verify the eligibility of
claimants.
(v) HPS shall calculate the amount of the
benefits payable in accordance with the applicable
Group Policy.
(vi) HPS shall decline non-covered claims
with an appropriate explanation of the policy
provision(s) upon which such declination is based,
consistent with the policy, state law, insurance
regulations, and federal law.
(vii) HPS shall issue benefit checks.
(viii) HPS shall administer cost containment
measures including, but not limited to: coordination
of benefits, vendor reporting, utilization review,
case management (the last two of which may be
performed by a subcontractor of HPS at the cost to
HPS) in accordance with procedures set forth in
Article VI.
(ix) HPS shall provide assistance as
requested by Midwestern to research and resolve aged
outstanding checks including, but not limited to,
making inquiries of claimants.
(x) HPS shall report requests for review of
denied claims, rescissions, or ERISA appeals promptly
to Midwestern and CGLIC prior to response on all
issues involving the application or lack thereof of
federal or state regulatory requirements.
(xi) HPS shall promptly review claims and
pay approved claims consistent with the parties'
written claims policy.
(xii) HPS shall identify underpayments or
overpayments, correct underpayments, and implement
reasonable collection efforts for overpayments,
including direct recapture from the provider or
policyholder, recapture via reduction of future
payments, and/or using a vendor to collect such
payments.
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(xiii) HPS shall report to Midwestern any
local, state, or federal taxes and withholding, if
applicable.
(xiv) HPS or its designee shall produce a
monthly report showing the number of claims reviewed
for cost containment purposes and the results. All
claims that have the potential to exceed, on an
occurrence basis, $50,000 and all claims that come
within the parameters set forth on the ICD-9 list
contained in the approved claims policies shall be
included in the monthly report.
(xv) HPS shall receive and respond promptly
to inquiries from the Insured regarding its benefits
including, but not limited to, questions concerning
coverage, deductibles, other financial thresholds and
claim status.
(xvi) HPS shall monthly report complaints in
accordance with insurance regulations and according
to the format currently used by HPS or otherwise
reasonably requested by Midwestern.
(xvii) HPS shall report on all aged and
unresolved claims, monthly, outlining issues
involved.
(xviii) For purposes hereof, HPS'
performance of "Litigation Management" shall include
making recommendations as to available counsel to
defend, if necessary, Midwestern and/or CGLIC,
coordinating with such counsel at the initial stage
of litigation to ensure that counsel has received
copies of the complaint and other relative documents,
ensuring that HPS personnel are available, if
necessary, to serve as witnesses in connection with
the litigation, and otherwise reasonably assisting
Midwestern and/or CGLIC as necessary in connection
with such defense. Notwithstanding anything contained
herein to the contrary, HPS shall not make decisions
for or on behalf of Midwestern and/or CGLIC in
connection with such litigation, which decisions will
be made by the appropriate party/defendant. HPS shall
report to Midwestern and CGLIC on a monthly basis the
status of all unresolved litigation.
(b) HPS will submit reports and data on its
activities in a form, medium, and time frame agreed upon by
Midwestern, CGLIC, and HPS. The reports shall include, but not
be limited to, those details as specified by Midwestern and of
each check issued within one (1) week of its issuance.
If Midwestern and/or CGLIC notify HPS that such report data is
unacceptable because of the form in which data are submitted
or the need for further information or clarification, HPS will
make every effort to resubmit the data
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specified as unacceptable within twenty-four (24) hours of the
notice but in no event later than ten (10) days after HPS'
receipt of such notice. If Midwestern and CGLIC change their
required format for data reporting, HPS will comply with such
changes upon notification from Midwestern and/or CGLIC,
provided that such changes do not result in unreasonable
costs. HPS shall also respond to such other requests for
reports and data as Midwestern and CGLIC shall reasonably
request.
(c) HPS will permit representatives of Midwestern
and/or CGLIC or state insurance department to audit and
inspect files and record, and review practices regarding Group
Policy business. HPS shall cooperate to the fullest extent in
such audits, the cost of which shall be borne by Midwestern
and CGLIC; however, in no event shall Midwestern and CGLIC be
responsible for HPS' costs relating to labor, legal,
accounting, and the like which are incurred by HPS in the
normal course of business in assisting or cooperating with
such audits.
(d) Each quarter during the term, HPS will conduct a
quality assurance review, in accordance with quality assurance
criteria specified by Midwestern and CGLIC and prepare a
report of the results of the review by the 15th day of the
month following the end of such quarter. The number of claims
reviewed and reported shall be no less than ten (10) claims
per claims processor assigned to process claims under the
Agreement. The claims reviewed shall represent a normal cross
section of the claims processed.
(e) HPS may arrange to have checks printed. All
checks, regardless of vendor, shall be tested and approved by
HPS. The parties contemplate that checks may eventually be
prepared by laser print.
(f) HPS shall employ security and internal control
procedures that meet with generally accepted and reasonably
prudent standards concerning the handling of checks and
drafts. HPS shall immediately report to Midwestern and CGLIC
any loss or destruction of checks or any unauthorized use of
checks.
(g) HPS shall maintain fidelity coverage, including
bonding of employees, in a reasonable amount. Such fidelity
coverage shall have a maximum deductible of $100,000 per
occurrence, or $500,000 in the aggregate, and shall have, at
minimum, limits of $5,000,000 per occurrence, $10,000,000 in
the aggregate. A certificate of insurance evidencing such
coverage shall be provided to Midwestern and CGLIC at least
annually. Midwestern and CGLIC expressly acknowledge that in
accordance with such policy, HPS is the first named insured.
Accordingly, any losses or payments received by HPS shall be
forwarded to Midwestern and CGLIC to the extent of their
respective interests Said policy shall provide that it cannot
be canceled or materially modified except on thirty (30) days
prior written notice to Midwestern and CGLIC.
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HPS shall also maintain an errors and omissions liability
policy in a reasonable amount providing for indemnification to
cover any loss arising as a result of any real or alleged
negligence on the part of HPS, its officers, agents, or
employees under this Agreement. Such errors and omissions
coverage shall have a maximum deductible of $100,000 per
occurrence, or $500,000 in the aggregate, and shall have, at
minimum, limits of $6,000,000 per occurrence, $10,000,000 in
the aggregate. HPS shall cause the issuer of said policy to
deliver to Midwestern and CGLIC a certificate evidencing such
coverage to Midwestern at least annually. Said policy shall
provide that it cannot be canceled or materially modified
except on thirty (30) days prior written notice to Midwestern
and CGLIC.
(h) HPS shall notify Midwestern and CGLIC, in a
format reasonably acceptable to them, of claims (i) that have
incurred expenses in excess of $10,000 and arise from an ICD-9
code; (ii) that have been pending for more than three (3)
months; (iii) referred for case management; (iv) that involve
an attorney whether or not legal proceedings have been
initiated; (v) that involve a complaint or potential action by
a regulatory agency; and (vi) that may involve rescission of
coverage. Midwestern and CGLIC reserve the right to request
claim files.
(i) HPS or a subcontractor of its choosing shall
pursue on behalf of Midwestern and CGLIC all subrogation and
loss transfer opportunities, where applicable, at the cost to
HPS, and shall credit Midwestern with collected net proceeds,
if any.
4. ELIGIBILITY AND UNDERWRITING
(a) HPS shall verify eligibility and underwrite all
employers and their covered employees and dependents in
accordance with such underwriting guidelines as will hereafter
be promulgated by Midwestern and CGLIC and in accordance with
Midwestern's reasonable and lawful instructions or as required
by state or federal law or regulation. Midwestern and CGLIC
will retain ultimate underwriting authority. HPS will make
underwriting decisions in accordance with each criteria set
forth in the underwriting guidelines promulgated by Midwestern
and CGLIC, which will include levels of expected
profitability.
(b) HPS shall perform the risk selection process
including, but not limited to, completion of underwriting
questionnaires, and making underwriting recommendations.
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(c) HPS shall process non-renewals, cancellations,
and renewals, following guidelines approved by, or
instructions from, Midwestern and CGLIC.
(d) Pursuant to Article VII, Midwestern and CGLIC
reserve the right to audit, on a monthly basis, HPS'
underwriting decisions and shall retain the right to modify
the applicable criteria from time to time upon reasonable
advance written notice to HPS.
(e) Midwestern and/or CGLIC shall retain the right to
cancel or non-renew any policy of insurance where permitted by
law. In the event, of such cancellation or non-renewal,
Midwestern and CGLIC will agree to discuss whether such
cancellation or non-renewal warrants an increase in HPS'
compensation hereunder. Such discussions, which in no way
shall be binding, shall only take place if the remaining
subject business was profitable to Midwestern and CGLIC over
the previous twelve months prior to HPS' request for an
increase in compensation.
(f) HPS shall not issue or renew on behalf of
Midwestern any insurance which is not covered by reinsurance.
5. ADMINISTRATIVE SERVICES
(a) HPS shall perform necessary and desirable
customer services, including but not limited to responding to
calls concerning benefits, underwriting status, billing, and
claim eligibility, to insureds and agents in the name of
Midwestern, in compliance with all applicable insurance
department requirements, and preparing timely responses to
complaints other than litigation, which is separately
addressed herein.
(b) HPS shall process appointments ensuring that all
agents and enrollers are properly licensed for states in which
products are solicited and that appropriate agent appointment
information is provided to Midwestern and CGLIC in a timely
fashion. HPS will pay and is solely and exclusively
responsible for all Distribution Force compensation (and any
expense reimbursement). Midwestern has no compensation or
expense reimbursement liability or responsibility of any kind
to the Distribution Force. For the periods during which HPS is
receiving compensation pursuant to Article IX hereof, HPS
indemnifies and holds the parties harmless from any claim or
liability from the Field Force, but only to the extent that
such claim or liability relates to field force compensation or
expense reimbursement, including, without limitation, costs,
expenses, and attorneys fees. "Compensation" shall also
include, without limitation, any benefits and awards. There is
no compensation to HPS from Midwestern other than the
compensation described in Article IX. HPS will
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prepare and distribute HPS service fee statements and HPS
checks to Master Brokers and Agents.
(c) HPS is not responsible for paying agent initial
or renewal appointment fees, but HPS is responsible for paying
all costs associated with investigations and background checks
performed, including those performed on all new Master Brokers
and Agents not affiliated with HPS on January 1, 1998.
(d) HPS shall process enrollment of new employees as
they become eligible and maintain employment records.
(e) HPS shall issue and deliver all policies,
certificates, and any other related forms.
(f) HPS shall perform any other general services
required for the efficient marketing and administration of the
insurance provided under the Group Policies as may be agreed
to by the parties and in accordance with law.
(g) HPS shall supply data to assist Midwestern and
CGLIC in supporting its statutory accounting, GAAP accounting,
and tax accounting statements and/or returns, agent licensing
and statistical reports, production reports, and field
oversight reports, which reports will contain such items as
"Earned Premium," "Paid Claims," "Loss Reserve Calculation,"
"Incurred Claims," and such other necessary information as the
parties may reasonably request.
(h) HPS shall furnish Midwestern and CGLIC with such
other reports as Midwestern and/or CGLIC may reasonably
request from time to time.
(i) HPS shall provide, operate, maintain and manage
all data and software systems necessary, timely, and
accurately with mutually acceptable formats, to collect,
process, systems and electronic interfaces, and report
Midwestern's Group Policies, underwriting, claims, and
marketing information. HPS system upgrades shall be made from
time to time during the term of this Agreement, at the expense
of HPS, to optimize the processing of Group Policy data and
servicing of Group Policies and electronic interfacing between
the three parties and accommodate laws, regulations and
compliance. Such systems should include appropriate security
and back up systems and off site data backup and business
continuation so that all data is protected from electrical or
computer failure or interruptions, as well as periodic copying
and off line storage of data. HPS is responsible for ensuring
that all data and software systems will be compliant with
"year 2000" requirements by no later than June 30, 1999. Year
2000 readiness includes but is not limited to the following:
that operating systems, application software, and computer
hardware execute correctly with "run dates" both prior to and
after the year 2000; that no date
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value will cause interruptions in computer operations,
equipment, or hardware for dates that span across year end or
century end; that application software produces accurate
results from all calculations, manipulations, and comparisons
involving dates; that leap year logic accurately identifies
and processes the year 2000 as a leap year; that data is
maintained in a format which is accurately portrayed in a
format acceptable to other year 2000 compliant users of the
data.
(j) HPS shall provide all computer produced and
manually produced forms required e.g., for policy issuance
(including those to be used for policy billing, cancellation
notices, reinstatements, certificates of insurance, etc.),
claims management, and general correspondence.
(k) If "Group Policies" are issued to a multiple
employer trust, HPS shall serve as the trust administrator.
(l) HPS is responsible, subject to Midwestern and
CGLIC's prior approval, to make arrangements for utilization
management and case management services. HPS will ensure that
these entities and individuals have, subject to HPS due
diligence, all the necessary credentials, state licenses,
certificates, or registrations.
(m) HPS is responsible, subject to Midwestern's and
CGLIC's prior financial approval, for identifying and making
arrangements with appropriate "provider networks" and
negotiating financial applicable discounts for health care
services delivered through those networks. The parties shall
discuss appropriate network selection and oversight criteria.
HPS shall make best efforts to assure that all network
contracts include indemnity and hold harmless provisions in
favor of HPS and Midwestern for liabilities arising from
provider services.
(n) HPS is responsible for issuing certifications of
prior coverage as required by law or regulation to terminating
employees and/or dependents covered under Group Policies.
(o) HPS shall bear the cost of establishing and
maintaining the trust to which group master policies are
issued for the Group Policies.
(p) HPS shall issue the necessary group master
policies and updates in the trust.
6. COMPLIANCE
(a) All marketing, distribution, and administrative
services provided by HPS and its Distribution Force and all
services provided by HPS under this Agreement shall be
rendered in compliance with all life and health insurance
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laws or regulations of any state in the United States and
applicable federal laws or regulations presently or
hereinafter in effect. It is HPS' responsibility to update and
implement in a timely manner the practices, procedures,
benefits, data processing systems and policy production and
claim facilities as necessary to maintain compliance with
applicable regulations and laws to enable Midwestern to remain
current with regulatory changes as they occur. Costs arising
as a result of such duties shall be borne by HPS.
(b) HPS shall provide Midwestern with copies of its
Annual Report, Form 10-K, Form 10-Q, and such other Securities
and Exchange Commission filings as are publicly available,
including press releases.
(c) Upon two hundred forty (240) days advance written
notification (inclusive of applicable department of insurance
notification) given by CGLIC and/or Midwestern to HPS of
either CGLIC's or Midwestern's desire to withdraw in whole or
in part from the issuance by Midwestern of, or CGLIC's
reinsurance of, any or all Group Policies from any
jurisdiction, HPS will take all necessary steps to implement
the withdrawal of the identified business from that
jurisdiction in accordance with statutory and federal
requirements.
(d) HPS is responsible for any regulatory filing and
licensing (but HPS will be reimbursed for agent appointment,
renewal, or termination fees actually paid) related to
marketing the Group Policies, including but not limited to
registration of PPO networks, small employer reinsurance pool
participation. HPS, on Midwestern's behalf, shall file such
policies, certificates, booklets, booklet-certificates, rates,
rate manuals, advertising, actuarial-certificates, provisions,
or forms and other materials with appropriate regulatory
authorities. HPS also shall monitor relevant legislative and
regulatory activity and implement in a timely manner when
changes are required in policy forms. HPS is responsible to
make the necessary changes with Midwestern's and CGLIC's prior
approval and file such changes with the appropriate regulatory
authorities as necessary. To the extent that Midwestern and
CGLIC incur any penalties, assessments, or liabilities by
state or federal government action as a result of HPS' failure
to timely notify Midwestern and CGLIC of any such legislative
or regulatory changes and HPS' failure to act in good faith,
HPS shall indemnify Midwestern and CGLIC for those penalties,
assessments, or liabilities and related expenses, costs and
attorneys' fees.
(e) HPS is responsible for maintaining files and
records for completing and submitting information requested by
regulatory authorities on behalf of Midwestern or, otherwise
required to be maintained including but not limited to
advertising files.
(f) HPS will cooperate fully in the event that
Midwestern is involved in a regulatory authority examination.
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(g) HPS on behalf of Midwestern shall file or provide
minimum benefits in all states where policies are solicited,
subject to the filing requirements in each state.
(h) HPS is responsible for its tax information at
source reporting such as 1099s, including, for example,
payments to its Distribution Force and to the providers.
B. HPS shall deliver to policyholders, participant employers, or
insurers any policies, certificates, booklets, booklet-certificates, termination
notices, or other written communications including, without limitation, current
or future regulatory-mandated forms and such other documents as might be
requested by Midwestern and/or CGLIC.
C. If any notice of the commencement of any legal proceeding involving
any Midwestern insured, Midwestern, or CGLIC is received by HPS, or if it
receives any communication from any Insurance Department or other administrative
agency or any other person relating to a complaint by a Midwestern insured or
relating to a hearing involving any Midwestern or CGLIC insurance practice, HPS
shall advise Midwestern and CGLIC of the proceeding within five (5) business
days of receipt by HPS. HPS shall immediately thereafter forward copies of any
correspondence or necessary files in its possession to Midwestern and/or CGLIC
for determination of appropriate handling.
D. If any notice of the commencement of any legal proceeding involving
HPS is received by Midwestern, or Midwestern receives any communication from any
Insurance Department or other administrative agency or any other person relating
to a complaint against HPS or relating to a hearing involving HPS, Midwestern
shall advise HPS of the proceeding within five (5) business days of receipt by
Midwestern. Midwestern shall immediately thereafter forward any copies of
necessary correspondence or files in its possession to HPS.
E. HPS shall conform to all underwriting standards as will hereafter be
adopted by Midwestern and/or CGLIC and all other standards agreed to between the
parties after consultations, but if agreement cannot be reached, HPS agrees to
act in accordance with the reasonable and lawful directions of Midwestern and
CGLIC. HPS may presume that its underwriting and other standards, previously
reviewed by CGLIC, are acceptable to Midwestern until written notice to the
contrary is received from Midwestern and/or CGLIC.
F. HPS acknowledges that Midwestern has responsibilities respecting
Group Policies marketing, distribution, claims, administration, regulatory
compliance and market conduct of the Distribution Force. Further, Midwestern has
obligations under its reinsurance treaty with CGLIC respecting the Group
Policies. The purpose of this agreement is for HPS to undertake and perform
directly these responsibilities. Notwithstanding anything in this agreement to
the contrary, HPS will perform Midwestern's foregoing responsibilities and
treaty requirements. To the extent that the terms and conditions of the
following articles and exhibits of the Treaty conflict with any provision of
this Agreement, the terms of this
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Agreement shall control: Articles IX, X, XI, XII, XIII, XV, and XVIII; Exhibits
A, B, C, D, E, and F.
G. HPS shall not:
1. Bind reinsurance or retrocession on behalf of Midwestern;
2. Commit Midwestern to participate in insurance or
reinsurance syndicates;
3. Without Midwestern's and CGLIC's prior approval, pay or
commit Midwestern to pay a claim over an amount which would exceed
$50,000;
4. Collect any payment from a reinsurer or commit Midwestern
to any claim settlement with a reinsurer without prior approval of
Midwestern.;
5. Permit any Distribution Force member to serve on HPS' board
of directors;
6. Jointly employ any individual who is employed with
Midwestern;
7. Appoint a sub-agent pursuant to the applicable MGA
statutes;
8. Borrow money or incur debts or liabilities on behalf of
Midwestern;
9. Employ persons on behalf of Midwestern; or
10. Except as otherwise provided herein, enter into any
contract in Midwestern's name without Midwestern's prior approval.
H. MARKET CONDUCT: HPS will maintain a market conduct and compliance
function to provide communications, enforcement, legislative and regulatory
updates, and implementation, education, and focus on quality. The HPS market
conduct and compliance function should report to HPS' General Counsel. In
connection with such function, HPS shall, for example:
1. Conduct regular on site visits (including compliance and
market conduct reviews) of Master Broker offices at least quarterly
(and Midwestern may participate in such visits);
2. Ensure that members of the Distribution Force are
performing consistently with their contracts with HPS and, in
particular, the HPS Code of Conduct, all as approved by Midwestern;
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3. To enforce Master Broker market conduct and oversight over
their assigned agents; for example, as outlined in this HPS Code of
Conduct;
4. Regularly review agent recruitment work flows and
practices, agent training, content and use of HPS materials
comprehension and use of the quoting system, and the presentation of
HPS products;
5. Review a random sample of new business case files to
evaluate the entire proposal, sales and enrollment process, and
correspondence from the quote through the issue and delivery process
(including, but not limited to, reviewing the new business checklist,
required documentation, and the quality of the HPS case submissions);
6. Review a random sample of renewal cases to ensure the
completion of the process and documentation;
7. Otherwise, keep the Distribution Force current of such
industry and company-specific regulation and practices of the parties
as are appropriate under the circumstances; and
8. For all new Master Brokers, utilize the Distribution Force
Code of Conduct Agreements attached hereto as Composite Exhibit "D."
Existing Master Brokers use their existing Master Broker Contract and
signed Master Broker Code of Conduct.
ARTICLE V
STANDARD OF PERFORMANCE
HPS represents to Midwestern that it is well qualified and experienced
in the field of group health, life, and AD&D insurance marketing and
administration and that HPS will perform its obligations hereunder in a proper
and timely manner, in good faith, and in the best interests of Midwestern and
its reinsurers.
HPS agrees to certain minimum performance standards as are identified
below and to adhere to such other standards that might reasonably be hereafter
propounded by Midwestern and for CGLIC:
A. CLAIM SERVICE
1. Accuracy Dollars Paid: 98% shall be paid accurately;
2. Turnaround Time: 95% of completed claims shall be processed
within ten (10) working days of receipt;
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3. Accuracy of procedural processing: 95% of field data shall
be entered accurately; Data Fields measured include charge entered,
ICD-9 diagnosis, CPT4 service codes, Cause codes, etc.;
4. Work-on-hand shall not exceed twenty (20) business days;
5. Complaints and lawsuits: Midwestern and CGLIC to be
notified with five (5) days of HPS' receipt;
6. Unresolved claims and complaints responded to within thirty
(30) days.
B. ADMINISTRATION
1. Telephone calls: 80% shall be answered by customer service
within forty-five (45) seconds;
2. Abandonment Rates: no more than 5% during any period
audited;
3. Response to Telephone Inquiries: 95% within two (2) working
days;
4. Response to Written Inquiries: 80% within ten (10) working
days, 100% within fifteen (15) working days of receipt.
5. New Case Analysis: 95% of new case submissions shall be
reviewed within three (3) working days of receipt, and 100% of new case
submissions shall be reviewed within five (5) days of receipt.
6. New Case Administration: 90% of new sold cases shall be
processed within five (5) days of date sold; "sold date" calculated as
the date on which rate quotation has been accepted by the group and all
relevant information has been received by HPS;
7. Certificate Issuance: 90% of certificates and
identification cards, as applicable, shall be mailed within fifteen
(15) days after the issued date or renewal date;
8. Enrollment changes: 95% of changes in enrollment status
shall be processed within five (5) working days after requested change
is received;
9. Response to department of insurance complaints within
applicable time frame.
C. PENALTIES. HPS shall perform services under this Agreement in
accordance with the standards set forth in this Article V. Failure to meet such
standards for circumstances within the control of HPS may result in the
penalties specified herein for each standard. Compliance with these standards
shall be measured by review of the documentation maintained
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and reported by HPS and such periodic audits as Midwestern and/or CGLIC may
conduct in accordance with this Agreement. Effective July 1, 1998, the following
penalties shall apply for noncompliance with the above performance standards:
1. Claim Service -- failure to achieve compliance with 2 out
of 6 of the requirements set forth in Article V.A. above shall result
in a penalty of 3.0% of HPS' compensation (defined to include only
HPS' 8.7% portion of the compensation referred to in Article IX) for
the month reviewed.
2. Administration -- failure to achieve compliance with 3 out
of 9 of the requirements set forth in Article V.B. above shall result
in a penalty of 1.5% of HPS' compensation (defined to include only
HPS' 8.7% portion of the compensation referred to in Article IX) for
the month reviewed.
3. The parties expressly acknowledge that penalties shall not
be effective until the quarter commencing July 1, 1998. Within thirty
(30) days after the end of such quarter and of each quarter thereafter,
Midwestern and/or CGLIC shall submit to HPS its proposed penalty for
each month during such quarter, in accordance with the formulas
established above. Within ten (10) days after its receipt of such
proposed penalty, HPS may submit a response to rebut Midwestern's
and/or CGLIC's findings and/or submit additional information that may
affect the results of the review. Within ten (10) days after its
receipt of HPS' submissions, Midwestern and/or CGLIC shall, in its sole
discretion, deliver the final penalty assessment to HPS, which shall be
paid in accordance with the procedures established in Article IV.A.2(b)
and reflected in the Reconciliation Report prepared by HPS.
4. Notwithstanding anything contained herein to the contrary,
in no event shall the sum of all penalties assessed against HPS exceed
Thirty Thousand Dollars ($30,000) for any month or Three Hundred
Thousand Dollars ($300,000) for any 12 month period commencing July 1,
1998; nor shall HPS pay duplicate penalties to Midwestern and/or CGLIC.
5. To the extent penalties are assessed in a breach of
contract action or arbitration or otherwise related to failure to meet
performance standards in connection herewith, such damages will be
reduced by the dollar amount of any penalties that have been imposed
under this Article V.
ARTICLE VI
RESTRICTION ON PERFORMANCE
A. The parties agree that all Insured's and Insurers' records shall be
processed with due regard for rights to privacy and confidentiality.
B. HPS will not subcontract any of its management or administrative
functions, duties, or responsibilities without prior written approval by
Midwestern and CGLIC, which
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approval Midwestern and CGLIC shall not unreasonably withheld. Outside vendors
retained by HPS to provide goods or render services, excluding professional,
legal, or accounting services, in connection with the Group Policies shall be
subject to Midwestern's and CGLIC's prior approval, which shall not unreasonably
be withheld. Subcontracting does not relieve HPS of its responsibilities or
liabilities under this Agreement. In the event Midwestern and CGLIC, in their
reasonable discretion, determining that any specific vendor or sub-contracted
function is critical to the performance of this Agreement by HPS, Midwestern and
CGLIC may require HPS to establish a back-up contingency plan to assure
continuing fulfillment of such critical function, which plan must be
satisfactory to Midwestern and CGLIC. Notwithstanding anything contained herein
to the contrary, Midwestern and CGLIC acknowledge and accept that HPS may
subcontract in the name of HPS its care management and utilization review
responsibilities to other entities, consistent herewith.
C. HPS shall continue to maintain an appropriate disaster recovery
plan.
ARTICLE VII
AUDIT AND ACCESS RIGHTS
A. Upon reasonable prior written notice, or upon such notice as is
otherwise specified herein, and at their expense (such expenses not to include
HPS' labor, legal, accounting costs, and the like), Midwestern and/or CGLIC or
their agents shall have the right to conduct periodic audits of HPS' Group
Policy administration, underwriting, marketing, compliance, market conduct, and
claim operations at the offices of HPS, and Midwestern and/or CGLIC shall have
the right of access to HPS' premises during normal business hours for such
purpose. If Midwestern and/or CGLIC choose to conduct an audit at their own
offices, HPS shall, upon request, ship all necessary records (or complete and
accurate copies thereof) to the designated Midwestern or CGLIC office, at the
expense of Midwestern or CGLIC.
B. At all times during the term of this Agreement and following its
termination for any reason, Midwestern and/or CGLIC shall have access to all
records of Group Policies of Midwestern for so long as they are maintained by
HPS pursuant to Article IV, Sections G and H. Midwestern and/or CGLIC shall, at
their own expense, be entitled to obtain copies of any and all such records.
C. Commencing as of the Effective Date, HPS shall maintain its books,
records, and files that relate to this Agreement, the business administered
hereunder, or any claim (collectively, "Records") in accordance with all laws,
guidelines, regulations and accounting and audit to the extent that HPS
possesses such data. The Records shall at all times remain the property of
Midwestern.
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ARTICLE VIII
DUTIES OF MIDWESTERN
A. Midwestern, in connection with the Group Policy administration
provided by HPS hereunder, agrees as follows:
1. Midwestern shall, upon request of HPS, review and approve
forms and materials needed to enroll new employers and new employees
and maintain employee records.
2. Midwestern will provide ninety (90) days advance written
notice to HPS of any change in new business rates and ninety (90) days
advance notice of any rate changes for Group Policies, and such notices
will specify the percentage change in both instances. Midwestern
acknowledges that it must provide one hundred twenty (120) days advance
written notice of any material changes to the program, where "material
change" is defined to include changes requiring computer programming
amendments or reprinting of marketing and supporting materials.
3. Midwestern will take all steps necessary to establish and
maintain in good standing its status as a licensed insurer in all
states except New York, except that HPS shall provide such information
and assistance regarding HPS' duties and responsibilities hereunder
that may be helpful in connection with Midwestern's obtaining and
maintaining a license to issue life and health insurance policies and
to perform related activities. Midwestern will advise HPS in writing of
all limitations under federal, state, or local authorities on its
authority to underwrite insurance business (after Midwestern becomes
aware of any such limitations).
4. Midwestern shall prepare and file all federal, state, and
local income tax returns required to be filed by it with data supplied
to Midwestern by HPS.
5. Midwestern shall prepare and file securities filings or
statutory statements required by any state regulatory authority with
data supplied to Midwestern by HPS.
6. Midwestern shall make premium tax returns, and any other
applicable taxes, imposed on Midwestern in connection with Midwestern's
receipt of revenues from the Group Policies with data supplied to
Midwestern by HPS.
7. Midwestern will make best efforts to assure that all
policies or certificates issued contain appropriate disclaimers of any
liabilities arising from provider services.
B. If there arises any conflict between any guidelines or instructions
provided by Midwestern, CGLIC, and HPS and this Agreement, the terms of this
Agreement shall control.
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ARTICLE IX
COMPENSATION
A. HPS will receive as it sole and exclusive compensation from
Midwestern and CGLIC a fee and Distribution Force appointment, renewal, and
termination fees actually paid and received by Midwestern under the Treaty. The
fee is equal to 23.7% of the Net Monthly Premiums collected with respect to
Group Policies. For purposes of this Agreement, "Net Monthly Premiums" shall
mean the gross amount of all premiums received by HPS on behalf of Midwestern
with respect to the Group Policies during any calendar month during the Term (or
a fraction thereof at the beginning and termination of the Term), less the
amount of any return premiums or premium adjustments given or remitted to Group
policyholders during such period. At such time as the annual gross premium
connected herewith is less than $80 million or exceeds $200 million, the parties
shall engage in discussions, which in no way shall be binding, concerning HPS'
compensation hereunder.
B. HPS may charge, and retain for its own account, employers and/or
policyholders additional administrative fees, including late fees and NSF fees,
with respect to certain products or services, provided the amount and scope of
such administrative fees are in compliance with state regulations and, if
required by law, that the rate filing accommodates the inclusion of such fees.
Any future changes to such additional administrative fees must be approved by
Midwestern and CGLIC.
C. Subject to the restrictions set forth in Article IV.A(1)(a) --
including, without limitation, the requirement that HPS secure Midwestern's and
CGLIC's prior approval of all marketing activities -- HPS shall be solely
responsible for all Distribution Force fees, costs and expense incurred by HPS
in connection with the services provided hereunder including, without
limitation, special production incentive costs which Midwestern and CGLIC have
not specifically agreed in advance to pay or share in and all of HPS' own
license and appointment costs.
D. The compensation defined under this Article covers all expenditures
of HPS for services defined in the Agreement, including but not limited to HPS'
administration costs, marketing and sales costs, underwriting and issuing of
policies, Distribution Force compensation and expenses, computer systems
(including software), agent due diligence (in accordance with Article
IV.A(5)(c)), accounting, claims, administration, legal, personnel, compliance,
market conduct, and other direct and indirect expenses for marketing, sales, and
administration of Midwestern Group Policies.
ARTICLE X
INDEMNIFICATION
A. 1. Notwithstanding any other provision in this Agreement, HPS agrees
to indemnify, defend, and hold Midwestern and CGLIC harmless from all liability,
loss, damage, judgments, magnified or punitive damages, penalties and costs,
including expenses and
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reasonable attorney fees, which result from any negligence or misconduct in
breach of this Agreement in performing HPS' obligations under this Agreement.
2. Midwestern agrees to indemnify, defend, and hold HPS harmless from
all liability, loss, damage, judgments, magnified, or punitive damages,
penalties and costs, including expenses and reasonable attorneys fees, which
result from any negligence or misconduct in breach of this Agreement in
performing Midwestern's obligations under this Agreement.
3. CGLIC agrees to indemnify, defend, and hold HPS harmless from all
liability, loss, damage, judgments, magnified, or punitive damages, penalties
and costs, including expenses and reasonable attorneys fees, which result from
any negligence or misconduct in breach of this Agreement in performing its
obligations under this Agreement.
4. CGLIC agrees to indemnify, defend, and hold Midwestern harmless from
all liability, loss, damage, judgments, magnified, or punitive damages,
penalties and costs, including expenses and attorneys fees, which result from
any negligence, lack of good faith, breach of this Agreement or the Treaty, or
misconduct in breach of this Agreement in performing its obligations under this
Agreement.
B. Notwithstanding the provisions of the foregoing Paragraph A,
Midwestern and/or CGLIC agrees to indemnify and defend HPS against all losses,
damages, liabilities, suits, administrative proceedings, judgments, awards and
expenses, including court costs, reasonable attorneys fees and other litigation
expenses resulting from any act of HPS or that of any officer or employee of HPS
which is performed in accordance with specific instructions or such underwriting
guidelines that are hereafter promulgated by Midwestern and/or CGLIC and which
is performed in good faith and without negligence or misconduct.
ARTICLE XI
USE OF INFORMATION
Any confidential information, including but not limited to general
business data, business information, technical information, legal information,
specifications, forms, computer programs and documentation, whether furnished in
written, oral, or electronic form or otherwise ("Information"), owned and
furnished by either party ("Furnishing Party") to the other party hereunder or
in contemplation hereof shall remain the property of the Furnishing Party. All
copies of such Information in written, graphic, or other tangible form,
including computer systems discs and tapes, shall be returned to the Furnishing
Party upon request at any time. Unless such Information is supplied free of any
obligation of confidentiality, or has been or subsequently enters the public
domain (without fault of the party too which it is furnished), or is required by
law to be disclosed by any party, the Information shall be kept confidential by
the party to which furnished and shall be used only upon such terms as may be
agreed upon in writing by the Furnishing Party. For purposes of this Article,
Information pertaining to HPS shall mean proprietary materials such as
underwriting, claims, administration, compliance and rate manuals, as well as
information regarding the financial
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operation, position or condition of HPS unrelated to the business of Midwestern,
but shall not include the systems and procedures established at Midwestern with
the assistance of HPS or general and specific information relevant to
Midwestern's business practices or to its insured or is contained in or
comprises all or part of any form or report Midwestern may receive, distribute,
or utilize in the ordinary course of business.
ARTICLE XII
AMENDMENTS
This Agreement may be amended at any time but only by any instrument in
writing and signed by the parties.
ARTICLE XIII
TERM AND TERMINATION
A. TERM. The term of this Agreement shall commence on January 1, 1998
and shall terminate on December 31, 2000, and thereafter shall be renewed
automatically for successive terms of one (1) year unless terminated in
accordance with this Article XIII.
B. TERMINATION. Any party may terminate this Agreement for any reason
upon two hundred seventy (270) calendar days written notice (inclusive of any
applicable state and federal notification requirements) to the other parties. In
the event that a party serves a notice of termination, the parties shall meet
within fifteen (15) calendar days of receipt of such notice and discuss an
appropriate transition strategy, consistent with Article XIII.D. On or before
the date of such meeting, Midwestern shall notify HPS and CGLIC in writing
whether it intends to withdraw its Group Policies.
1. WITHDRAWAL BY MIDWESTERN. If Midwestern elects to withdraw
its Group Policies and HPS and CGLIC are unable to identify and
contract with a replacement carrier on or before the effective date of
termination, then the parties will commence with the non-renewal of
Group Policies, as applicable, and as allowable under state law. The
parties agree that Midwestern shall have elected to withdraw from the
market as primary carrier no later than twenty-one (21) months, or
longer if required by law, after the date of the written notification
of desire to terminate referred to above, at which time the obligations
of all parties hereto shall terminate.
2. NO WITHDRAWAL BY MIDWESTERN. If Midwestern does not elect
to withdraw its Group Policies, all duties and obligations of HPS and
CGLIC shall terminate two hundred seventy (270) days after the notice
provided for herein.
C. REMEDIES. Midwestern and CGLIC shall not, and hereby waive any right
to, pursue any right or remedy at law or equity to recover any losses, costs,
claims, demands, damages, or attorneys' fees arising out of or caused by (i) any
breach (other than an intentional breach) of this Agreement or (ii) any other
occurrence relating to this Agreement, including any negligent act or omission
by HPS, except as provided in the indemnification provisions
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above. The remedies available to Midwestern and CGLIC pursuant to the
indemnification provisions of this Agreement shall be the sole remedies
available to Midwestern and CGLIC with respect to any losses, costs, claims,
damages, or attorneys' fees arising out of this Agreement. Notwithstanding the
foregoing, Midwestern and CGLIC do not waive their rights to pursue the remedies
available to it in law or equity for an intentional breach of this Agreement by
HPS.
D. TRANSITION. HPS, Midwestern, and CGLIC agree that they will
cooperate and assist each other upon termination for any reason to the degree
possible consistent with the intent of this Agreement. It is the intent of the
parties that there be an orderly transition with no gaps in administration or
reinsurance. Such cooperation and assistance shall include, without limitation,
taking all necessary actions to transfer in an orderly way, if applicable, HPS'
duties and obligations arising hereunder to another third party administrator to
be identified by Midwestern and CGLIC.
E. POST-TERMINATION. After termination of this Agreement for any
reason, HPS shall continue to bill and receive Premiums and pay agent
commissions in accordance with, and shall continue to retain a service fee and
collect other fees in accordance with, with respect to any policy and any
renewal or other continuation of such policy provided that HPS continues to
provide services in accordance with Article XVII.
ARTICLE XIV
NON-SOLICITATION AND NON-COMPETITION
A. Commencing on the date hereof and continuing for a period of one (1)
year following the expiration or termination of this Agreement, Midwestern shall
not, without the prior written consent of HPS, either itself or through any
third party, directly or indirectly, solicit, entice, or persuade or attempt to
solicit, entice, or persuade any employee of or consultant to HPS or any present
or future parent, subsidiary, or affiliate of HPS to leave the service of HPS or
any such parent, subsidiary or affiliate for any reason.
B. Commencing on the date hereof and continuing for a period of one (1)
year following the expiration or termination of the Agreement, HPS shall not,
without the prior written consent of Midwestern, either itself or through any
third party, directly or indirectly solicit, entice, or persuade or attempt to
solicit, entice, or persuade any employee of or consultant of Midwestern or any
present future parent, subsidiary, or affiliate of Midwestern to leave the
service of Midwestern or any such parent, subsidiary, or affiliate for any such
parent, subsidiary, or affiliate for any reason.
C. Commencing with the expiration or earlier termination of this
Agreement, and continuing for twelve months thereafter, neither HPS or, at its
direction, through any third party, shall knowingly solicit, entice, persuade,
induce, or attempt to solicit, entice, persuade, or induce any insured under any
Group Policy to cancel or terminate such policy or purchase a policy from a
company other than Midwestern in lieu of such Group Policy.
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D. HPS will take all reasonable steps to assure (it being understood
that HPS cannot prohibit certain Master Broker conduct) that no current Master
Brokers within the Select Brokerage Services System, a division of HPS, sell,
market, or distribute any group health care product on behalf of any group life,
or AD&D, or health insurer that competes with Midwestern within any territory or
jurisdiction in which HPS acts on behalf of Midwestern pursuant to the terms of
this Agreement. Notwithstanding anything contained herein to the contrary, and
consistent with Exhibit "E," this Section XIV.D. shall not apply with respect to
any HMO product, nor to any other health care product HPS currently sells,
markets, or distributes; it shall also not apply with respect to any health care
product HPS wishes to sell, market, or distribute in the future to the extent
that:
1. HPS desires to sell, market, or distribute such product in
a state in which Midwestern is either not licensed to conduct business
or is not willing to conduct business; or
2. Midwestern does not meet specifications for a particular
health insurance product offering which HPS desires to sell, market, or
distribute or with regard to a similar product that HPS desires to
sell, market, or distribute, and Midwestern, after receiving a right of
first refusal, releases HPS from the obligations contained in this
Section XIV.D.; or
3. HPS has asked Midwestern to supply such product or service
in connection with a marketing opportunity, and Midwestern either
declines to make the product available.
E. In return for the exclusive provided in Section XIV.D., Midwestern
grants an exclusive to HPS that Midwestern will only market first dollar small
employer group health care indemnity products through HPS and HPS Distribution
Force.
ARTICLE XV
[INTENTIONALLY DELETED]
ARTICLE XVI
[INTENTIONALLY DELETED]
ARTICLE XVII
RUN OUT PERIOD
Upon termination or expiration of this Agreement, at the option of
Midwestern and/or CGLIC, HPS shall continue to administer all Group Policies and
claims emanating from the Group Policies issued prior to such termination or
expiration in accordance with all duties and obligations undertaken by HPS
pursuant to this Agreement. HPS' obligation to administer all such claims shall
continue until such time as all Group Policies have expired and until all claims
have been fully and finally resolved to the satisfaction of Midwestern and CGLIC
(the "Claims Run Out Period").
27
<PAGE>
ARTICLE XVIII
EXPENSES
Except as otherwise provided herein, each party to the Agreement shall
bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the transactions contemplated
hereby including, without limitation, all fees and expenses of agents,
representatives, counsel, actuaries, and accountants. No brokerage, commissions,
finders, nor other fees, respecting this Agreement are owed by any party to any
third person or organization, other than as herein described; and each party
indemnifies and holds the other parties harmless, including, without limitation,
payments to Security Life of Denver Insurance Company by CGLIC.
ARTICLE XIX
AMENDMENTS AND WAIVER
This Agreement may be amended, and the terms hereof may be waived, only
by a written instrument signed by all parties, or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power, or privilege hereunder shall operate as a continuing waiver
thereof, nor shall any waiver on the part of a party of any such right, power,
or privilege, nor any single or partial exercise of any such right, power, or
privilege preclude any further exercise thereof or the exercise of any other
such right, power, or privilege.
ARTICLE XX
BENEFIT OF AGREEMENT
This Agreement shall bind and inure to the benefit of the respective
parties and their successors and permitted assigns and does not confer any
right, benefit, or privilege upon any person or entity that is not a signatory
to the Agreement. This Agreement is not for the benefit of any third party.
ARTICLE XXI
ASSIGNMENT
No party may assign its rights, interests, or obligations hereunder
without the prior written consent in each such instance of the other parties.
ARTICLE XXII
ARBITRATION
A. Any dispute or other matter in question between Midwestern and HPS
arising out of or relating to this Agreement shall be settled by arbitration. In
order to initiate an arbitration, Midwestern or HPS (as the case may be) shall
deliver a written notice of demand for arbitration to the other party.
28
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B. HPS and Midwestern shall each appoint an individual as arbitrator
and the party arbitrators so appointed shall then promptly appoint an umpire. If
any party refuses or neglects to appoint an arbitrator within forty (40)
Business Days of receipt of a written notice of demand for arbitration, any
other party may appoint the missing arbitrator. If the two arbitrators do not
agree on an umpire within forty (40) Business Days of their appointment, each of
the arbitrators shall, at the end of such period, nominate three individuals as
umpires. Each arbitrator shall, on or before the tenth Business Day after such
nomination, decline two of the nominees presented by the other arbitrator. On
the fifth Business Day after the last nominee has been so declined, the umpire
shall be chosen from the remaining two nominees by drawing lots. Each
party-appointed arbitrator and the umpire shall be active or former officers of
an insurance or reinsurance companies or Lloyd's of London Underwriters, and
shall not have personal, financial, or other conflicts of interest in the result
of the arbitration. In addition, the umpire shall be impartial.
C. The situs of the arbitration shall be Denver, Colorado; however,
upon the mutual consent of the parties or upon the order of the arbitration
panel, meetings and hearings related to the arbitration may be held elsewhere.
Each party shall submit its case to the arbitrators within sixty (60) Business
Days of the selection of the umpire 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 Midwestern. Such decision
shall be a condition precedent to any right of legal action arising out of the
arbitrated dispute which HPS and Midwestern may have against each other.
Judgment upon the award may be rendered in any court of competent jurisdiction.
D. HPS and Midwestern shall pay (i) the fees and expenses of its own
arbitrator, (ii) one-half of the fees and expenses of the umpire and (iii)
one-half of the fees and expenses that HPS and Midwestern jointly incur directly
related to the arbitration proceeding. Other than as set forth above, HPS and
Midwestern 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 Midwestern incur to prepare for
such arbitration.
E. CGLIC may join or initiate or be joined in any arbitrated dispute
arising under this Agreement. Moreover, in the event that a dispute arises
between Midwestern and HPS relating to the operation of this Agreement, and
Midwestern elects not to commence arbitration in accordance with this Article,
CGLIC may, solely at its election, commence or defend arbitration in the name
and on behalf of Midwestern, pursuant to the terms and conditions of this
Article.
F. Arbitrators are directed to seek efficiencies in both time and
expense, for example, to limit the use of discovery and not follow strict rules
of evidence.
29
<PAGE>
ARTICLE XXIII
PUBLICITY
No party to this Agreement shall issue any press release or make any
public announcement concerning the Agreement or the transactions contemplated
hereby without the prior written approval of all other parties.
ARTICLE XXIV
BOOKS AND RECORDS
HPS shall maintain at its administrative office for the duration of the
Agreement and seven (7) years thereafter, or such longer period of time as may
be required under the Employee Retirement Income Security Act of 1974, adequate
books and records of all transactions, including without limitation all claim
files, underwriting files, premium and loss information, producer information,
state insurance department documents, GAAP accounting documents, tax documents,
accounting, and letters of complaint from any Midwestern insured, among
Midwestern, CGLIC, HPS, participant employers, and insured persons. Such books
and records shall be maintained in accordance with prudent standards of
insurance record keeping.
ARTICLE XXV
NOTICES, GOVERNING LAW, ENTIRE AGREEMENT
A. Any notice which may or must be sent hereunder shall be in writing
and shall be given to the party to whom it is addressed by delivery by a
nationally recognized overnight delivery service providing a receipt for the
deliveries, by certified or registered U.S. mail, or by telecopier transmission
to the following addresses:
If to HPS: HealthPlan Services, Inc.
3501 Frontage Road
Tampa, FL 33607
Attn: Chief Counsel
If to Midwestern: Midwestern United Life Insurance Company
Suite 1000
1290 Broadway
Denver, CO 80203-5699
Attn: Gene Copeland, Esq.
General Counsel of Reinsurance
If to CGLIC: CGLIC/CIGNA Reinsurance
900 Cottage Grove Road
Hartford, Conn. 06152
Attn: Karen Boisvert
30
<PAGE>
or at such other address as the party may specify for that purpose by notice to
the other party. A notice shall be deemed given and received (a) if delivered by
messenger, when receipted for by the addressee; (b) if delivered by a nationally
recognized overnight delivery service, when the notice is delivered, as
evidenced by records or receipts provided by such service; (c) if delivered by
certified or registered U.S. mail when received by the addressee, as evidenced
by a return receipt card, or (d) if made by telecopy of facsimile transmission,
when such transmission is electronically confirmed and a copy of the notice is
mailed.
B. This Agreement shall be governed and interpreted by the laws of the
State of Colorado, except for conflicts of laws.
C. In the event that any provision of this Agreement or the application
thereof shall be unenforceable in any respect, then the provision shall be
deemed deleted, but the rest of this Agreement shall nevertheless remain in full
force and effect.
The parties hereto acknowledge and agree that: (i) each party and its
counsel reviewed and negotiated the terms and provisions of this Agreement,
including all addenda thereto and have contributed to its revision; (ii) the
rule of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of the Agreement shall be construed fairly as
to all parties hereto, and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of the Agreement.
D. This Agreement and the Exhibits annexed hereto, and schedules
constitutes the entire Agreement between the parties with respect to its subject
matter and supersedes all prior agreements, commitments, and negotiations on the
same subject matter.
E. Notwithstanding anything contained herein to the contrary,
Midwestern and CGLIC hereby expressly acknowledge that the relationship between
HPS and its master brokers and agents is that of an independent contractor.
ARTICLE XXV
At the request of Midwestern or any of its affiliates, HPS may contract
with agents of Midwestern or its affiliates as HPS agents or, in its sole
discretion, Master Brokers, to market Group Policies.
[Remainder of Page Intentionally Left Blank]
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed in duplicate to be effective of the date specified above.
MIDWESTERN UNITED LIFE INSURANCE COMPANY
By: /s/ E. L. COPELAND
------------------------------------------
Name: E. L.COPELAND
-----------------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------------
Date: 2/28/98
-----------------------------------------
HEALTHPLAN SERVICES, INC.
By: /s/ PHILLIP S. DINGLE
------------------------------------------
Name: PHILLIP S. DINGLE
-----------------------------------------
Title: SENIOR VICE PRESIDENT, SECRETARY
AND CHIEF COUNSEL
----------------------------------------
Date: 2/13/98
------------------------------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/ FAZLI M. DATOO
------------------------------------------
Name: FAZLI M. DATOO
-----------------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------------
Date: 2/17/98
-----------------------------------------
32
<PAGE>
LIST OF EXHIBITS
Exhibit A Definitions
Exhibit B Compensation
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
33
EXHIBIT 10.21
ADMINISTRATION SERVICES AGREEMENT
THIS AGREEMENT is made as of the 1st day of July, 1997 (the "Effective
Date"), between Seaboard Life Insurance Company (USA) (hereinafter referred to
as "Seaboard Life"), and HealthPlan Services, Inc., a Florida corporation
(hereinafter referred to as the "Administrator"). In consideration of their
mutual undertakings contained herein, the parties agree as follows:
ARTICLE I
PURPOSE; DEFINITIONS
It is the intention of the parties to provide for the terms under which
the Administrator will: (i) provide certain reporting and funds transfer
services for Seaboard Life with respect to policies for which Seaboard Life has
agreed to provide reinsurance pursuant to either the Reinsurance Agreement
between United HealthCare Insurance Company and Seaboard Life dated September
29, 1997 or the Reinsurance Agreement between The Travelers Insurance Company
and Seaboard Life dated September 29, 1997 (each such policy hereinafter
referred to as a "UHI Policy"); and (ii) provide administration services for the
Seaboard Policies. For purposes of this Agreement, capitalized terms used in
this Agreement that are not otherwise defined herein shall have the meanings
ascribed to them in EXHIBIT A, which is attached hereto and incorporated herein
by reference.
ARTICLE II
INDEPENDENT CONTRACTOR
The relationship of the Administrator to Seaboard Life with respect to
administrative services is that of an independent contractor. The
Administrator's authority shall be limited to that which is expressly stated in
this Agreement, and nothing in this Agreement will be construed as creating any
other relationship between the parties.
ARTICLE III
DUTIES OF THE ADMINISTRATOR
SECTION 3.A. SEABOARD POLICY ADMINISTRATIVE SERVICES
The Administrator agrees to perform the services described below for
the Seaboard Policies on behalf of Seaboard Life, in accordance with guidelines
reasonably required by Seaboard Life:
<PAGE>
1. The Administrator shall support agent sales and marketing
activities.
2. The Administrator shall process requests for participation.
3. The Administrator shall arrange for the collection and
remittance of premiums pursuant to SECTION 3.C below.
4. The Administrator shall prepare premium reports and other
reports as agreed to between the parties.
5. The Administrator shall maintain all records necessary for
the proper administration of premium collection.
6. The Administrator shall underwrite all Enrollees in
accordance with Seaboard Life's reasonable and lawful instructions.
Seaboard Life will retain final decision-making authority with respect
to underwriting pursuant to SECTION 3.I below.
7. The Administrator shall process enrollment of new Enrollees
as they become eligible and maintain eligibility records.
8. The Administrator shall arrange for the printing and
delivery of all certificates of coverage issued by Seaboard Life (see
SECTION 3.D below).
9. The Administrator shall perform any other general services
required for the efficient marketing and administration of the
insurance provided under the Seaboard Policies as may be agreed to
between the parties.
10. In accordance with reasonable Seaboard Life guidelines,
the Administrator shall verify that all agents are properly licensed
for states in which products are sold and shall appoint and terminate
agents on behalf of Seaboard Life. The Administrator shall provide
Seaboard Life with appropriate agent appointment materials that the
Administrator receives from any agent in a timely fashion. As of the
date of the Administrator's execution of this Agreement, the
Administrator has provided Seaboard Life with a copy of its form agent
agreement. On behalf of Seaboard Life, the Administrator will pay all
expenses relating to such agent contracting, appointment, and
termination. As reimbursement for the Administrator's payment of such
agent expenses, the Administrator shall retain the Agent Appointment
Amount from the portion of Gross Seaboard Premium it transfers to the
Seaboard Premium Account pursuant to SECTION 3.C below.
11. The Administrator shall develop standard forms of Seaboard
Policies for issuance by Seaboard Life, subject to Seaboard Life
approval. On behalf of Seaboard Life, the Administrator shall file such
Seaboard Policies, provisions, and other materials with appropriate
regulatory authorities. The Administrator also shall monitor
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<PAGE>
relevant legislative and regulatory activity and shall use best efforts
to (i) timely notify Seaboard Life when changes are required in
Seaboard Policy forms, and (ii) make necessary Seaboard Policy form
changes. The Administrator shall assist Seaboard Life in the
preparation of all necessary insurance department and other regulatory
filings.
12. The Administrator shall develop pricing methodologies and
rates for Seaboard Policies, subject to Seaboard Life approval, based
upon the Administrator's data base and other information available to
the Administrator, all of which data and information shall be made
available to Seaboard Life upon request.
13. The Administrator shall enforce all Seaboard Policies in
accordance with their provisions and reasonable Seaboard Life
guidelines.
14. The Administrator shall arrange for and manage subrogation
services, preferred provider network access, utilization review, case
management, overpayment collection, and other services that relate to
the Seaboard Policies and that will be provided by third parties
approved by Seaboard Life. Seaboard Life shall bear all costs relating
to such services. The Administrator shall not be obligated to arrange
for coverage under the Seaboard Policies by any conversion carrier,
reinsurer, or other entity. The Administrator shall pay such third
parties other than the Conversion Carrier from the Seaboard Claims
Account. The Administrator shall pay the Conversion Carrier on behalf
of Seaboard Life. The Administrator shall retain the Conversion Fee
Amount from the portion of Gross Seaboard Premium it transfers to the
Seaboard Premium Account pursuant to SECTION 3.C below.
15. The Administrator shall provide information to and monitor
the performance of each third party vendor and the Conversion Carrier.
The Administrator's performance of services with respect to third party
vendors and the Conversion Carrier will be in accordance with written
guidelines approved by Seaboard Life that (i) identify each third party
vendor and the Conversion Carrier, and (ii) specify the information and
payments to be provided to such vendor and/or Conversion Carrier and
the services of such vendor and/or Conversion Carrier to be monitored
by the Administrator. Seaboard Life will provide the Administrator with
ninety (90) calendar days written notice of any change in vendor or
Conversion Carrier and sixty (60) calendar days written notice of any
other change in its instructions with respect to the Administrator's
services relating to any vendor or Conversion Carrier. As requested by
Seaboard Life, the Administrator shall arrange for such third-party
services on behalf of Seaboard Life. Notwithstanding any of the
foregoing or any other provision of this Agreement, the Administrator
shall have no authority to enter into any contract or agreement in the
name of, or on behalf of, Seaboard Life, without Seaboard Life's
advance written consent.
16. The Administrator shall review the appropriateness of
participation by Seaboard Life in state-sponsored reinsurance pools and
provide recommendations for
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<PAGE>
Seaboard Life to review with respect to such participation. If Seaboard
Life elects to participate in a state-sponsored reinsurance pool, the
Administrator shall coordinate Seaboard Life's participation in
accordance with procedures reasonably required by Seaboard Life. Such
coordination shall include but not be limited to assisting in
preparation of participation applications, identifying candidates for
inclusion in such pools, and submitting claims to such pools, subject
to Seaboard Life's approval. The Administrator shall monitor the status
of any claim submitted to any such reinsurance pool and provide
Seaboard Life with reports of such status, as reasonably required by
Seaboard Life.
SECTION 3.B. CLAIMS SERVICES
3.B.1. CLAIMS ADJUDICATION. During the term of this Agreement, the
Administrator will be responsible for performing the following claims
adjudication services with respect to the Seaboard Policies (and such additional
policies as may become included with the Seaboard Policies by written agreement
of the parties) in accordance with guidelines reasonably required by Seaboard
Life:
(a) The Administrator shall receive notices of claims.
(b) The Administrator shall prepare and distribute
identification cards and respond to questions from Covered Groups,
policyholders, and health care providers regarding the eligibility of
Covered Persons under the Seaboard Policies.
(c) The Administrator shall review, calculate, and process
claims submitted by Enrollees in accordance with the Seaboard Policies
and reasonable claims paying standards that are established under state
and federal law and industry fair claims practices and procedures and
that are included in the claims guidelines approved by Seaboard Life.
(d) The Administrator shall decline non-covered claims.
(e) The Administrator shall issue benefit checks from the
Seaboard Claims Account.
(f) The Administrator shall make determinations regarding
collection of any overpayments and subrogation recoveries and arrange
for the collection of such overpayments and subrogation recoveries, at
Seaboard Life's expense.
(g) The Administrator shall administer cost containment
measures as reasonably required by Seaboard Life including, but not
limited to, coordination of benefits procedures.
(h) The Administrator shall provide assistance as requested by
Seaboard Life to research and resolve aged outstanding checks
including, but not limited to, making inquiries of claimants.
4
<PAGE>
(i) The Administrator shall refer requests for ERISA review of
denied claims to Seaboard Life.
(j) The Administrator shall provide required certificates of
creditable coverage in accordance with HIPAA or any amendment or
successor thereto.
(k) The Administrator shall arrange for repricing of claims by
a third party at Seaboard Life's expense in accordance with the fee
schedules agreed to between the Administrator on behalf of Seaboard
Life and any network of health care providers.
(l) The Administrator shall respond to questions from
Enrollees regarding Seaboard Policy benefit checks and explanation of
benefit statements.
(m) The Administrator shall provide Seaboard Life and the
Reinsurer with certain information including, without limitation,
certain claim, actuarial, and medical management information, as
instructed by Seaboard Life, subject to the terms set forth in this
Agreement. As of the Effective Date, Seaboard Life instructs the
Administrator to provide the Reinsurer designated by Seaboard Life with
information as set forth in SECTION IV.A. of the Major Medical Quota
Share Reinsurance Contract effective July 1, 1997 issued to Seaboard
Life Insurance Company (USA) by the subscribing reinsurers thereto (the
"Reinsurance Contract"). The Administrator shall comply with any
reasonable changes in the foregoing obligations in this SECTION
3.B.1(M) due to amendment of the Reinsurance Contract effective as of
July 1, 1997, or any subsequent date, or any other reason, provided
that Seaboard Life provides the Administrator with written notice of
such change at least thirty (30) calendar days prior to the date on
which the Administrator is required to provide reports under such new
obligations. Upon agreement by Seaboard Life and the Administrator to
the terms of the Major Medical Quota Share Reinsurance Contract
effective July 1, 1998, the parties agree to enter into an addendum to
this Agreement setting forth the specific information to be provided by
the Administrator to Seaboard Life and the Reinsurer.
(n) The Administrator shall refer all claims which contain
evidence of misrepresentation that may be grounds for rescission of
coverage to Seaboard Life. Such information shall be accompanied by
appropriate documentation. Seaboard Life shall have sole authority to
exercise any and all rescission rights under any Seaboard Policy, and
except to the extent otherwise provided herein shall be responsible for
notification of rescissions to the claimants and the Administrator.
(o) The Administrator shall develop and employ appropriate
investigational techniques and tools to detect, redress, and report
health care and other claim fraud, subject to Seaboard Life approval.
5
<PAGE>
3.B.2. REPORTING TO SEABOARD LIFE.
(a) The Administrator will submit reports and data on its
activities in a form, medium, and time frame agreed upon by Seaboard
Life and the Administrator. The reports shall include, but not be
limited to, those details, as specified by Seaboard Life, of each check
issued, within five (5) Business Days of issuance.
If the Administrator submits to Seaboard Life report
data that fails to meet agreed-upon criteria, then the Administrator
will make every effort to resubmit the data in the proper format within
one (1) Business Day after Seaboard Life provides the Administrator
with notice of such failure.
If Seaboard Life changes its required format for data
reporting, the Administrator will exercise reasonable efforts to comply
with such changes upon notification from Seaboard Life, provided that
Seaboard Life provides the Administrator with at least ninety (90)
calendar days notice of such changes and that such changes do not
result in unreasonable costs. The Administrator also shall respond to
such other requests for reports and data as Seaboard Life shall
reasonably request.
(b) The Administrator shall conduct quality assurance reviews
in accordance with the criteria agreed to by the parties. As reasonably
requested by Seaboard Life, the Administrator shall make copies of
reports created in connection with quality assurance reviews available
to Seaboard Life.
3.B.3. HANDLING OF CHECKS.
(a) The Administrator shall make payments for claims using
checks drawn on the Seaboard Claims Account. The Administrator shall
designate in writing to Seaboard Life the names of those persons
authorized to sign such checks and provide sample signatures. The
Administrator shall promptly notify Seaboard Life of any changes in the
list of persons so designated. The Administrator also shall notify
Seaboard Life of the names of those persons responsible for the
security of the check stock and the signature plate, if applicable.
Seaboard Life shall have the right at any time to approve or disapprove
persons authorized by the Administrator to sign checks. The
Administrator shall consider using Automated Clearing House transfer
for claims payments in the future.
(b) Seaboard Life will be responsible for determining the
banking specifications, printing specifications, and instrument number
of checks. Check printing and testing will be the responsibility of the
Administrator. However, subject to the approval of Seaboard Life, the
Administrator may arrange to have the checks printed by another check
printing vendor, at the expense of Seaboard Life. All checks,
regardless of vendor, shall be tested and approved by Seaboard Life.
(c) The Administrator shall employ security procedures which
meet with the approval of Seaboard Life with respect to the handling of
checks and drafts. The
6
<PAGE>
Administrator shall immediately report to Seaboard Life any loss or
destruction of checks or any unauthorized use of checks.
SECTION 3.C. PREMIUM COLLECTION AND REMITTANCE
3.C.1. SEABOARD PREMIUM BILLING. On behalf of Seaboard Life, the
Administrator shall bill each Covered Group for Seaboard Premium amounts owed by
such Covered Group to Seaboard Life, in accordance with guidelines reasonably
required by Seaboard Life. "Seaboard Premium" shall mean any amount that
Seaboard Life charges any Covered Group for coverage under a Seaboard Policy.
"Seaboard Premium" shall not include any Administration Fee or other fee that
the Administrator charges a Covered Group, Enrollee, or Covered Individual,
which fee shall be stated as a separate charge on any billing.
3.C.2. RECEIPT OF SEABOARD PREMIUM PAYMENTS. On behalf of Seaboard
Life, the Administrator shall receive and credit all Seaboard Premium payments
made by Covered Groups, and shall make all cash adjustments for Seaboard Premium
refunds and other required cash transfers with respect to such Seaboard Premium
payments, in accordance with procedures reasonably required by Seaboard Life.
Any Seaboard Premium payments that are received by the Administrator shall be
deemed to have been received by Seaboard Life, but the payment of return
Seaboard Premium amounts by Seaboard Life to the Administrator shall not be
deemed payment to an insured or claimant until such payment is received by such
insured or claimant. Nothing in this SECTION 3.C.2 shall limit any right of
Seaboard Life against the Administrator resulting from the Administrator's
failure to make payments to Seaboard Life or to any insured claimant.
3.C.3. SEABOARD PREMIUM REMITTANCE. The Administrator shall immediately
remit each Seaboard Premium payment it receives from a Covered Group to Seaboard
Life by depositing such payment in an interest-bearing Seaboard Life account at
a bank selected by the Administrator (the "Seaboard Deposit Account"). The
Administrator shall have sole and exclusive authority to make withdrawals from
the Seaboard Deposit Account.
3.C.4. SEABOARD PREMIUM RECONCILIATION. On or before the thirty-first
calendar day after the close of each month (or, if such day falls on a day other
than a Business Day, then on the first Business Day thereafter), the
Administrator shall deliver to Seaboard Life and the Reinsurer a reconciliation
report relating to Seaboard Premium payments it received in the Seaboard Deposit
Account in the previous month (the "Seaboard Reconciliation Report"), which
Seaboard Reconciliation Report shall set forth the Gross Seaboard Premium for
such month and the following amounts with respect to such Gross Seaboard
Premium:
(a) NET SEABOARD PREMIUM, which shall be equal to the difference
between:
(i) the Gross Seaboard Premium; and
(ii) the sum of: (a) the Administrator Service Fee with
respect to such Gross Seaboard Premium; (b) the Agent
Appointment Amount with respect to such
7
<PAGE>
Gross Seaboard Premium; and (c) the Conversion Fee Amount with
respect to such Gross Seaboard Premium.
(b) AGENT APPOINTMENT AMOUNT, which shall be equal to .15% of such
Gross Seaboard Premium.
(c) CONVERSION FEE AMOUNT, which shall be equal to 0.4% of such Gross
Seaboard Premium.
(d) GROSS CLAIMS AND ADJUSTMENT EXPENSE, which shall equal the sum of
the aggregate amount of all claims paid during such month and all other
amounts incurred for such month in connection with claims adjudication,
including amounts incurred pursuant to SECTION 3.B.1 and SECTION 3.A.14
above.
3.C.5. REMITTANCE. Within forty-five (45) calendar days after the close
of each month, the Administrator shall transfer to the Seaboard Premium Account,
by Automated Clearing House transfer, an amount (the "Seaboard Life Amount")
which shall be equal to: (i) the Net Seaboard Premium for such month; minus (ii)
any Start-up Expenses incurred by the Administrator for which the Administrator
is entitled to reimbursement, subject to the limitations set forth in SECTION
8.D below. The Administrator shall adjust the amount transferred to the Seaboard
Premium Account in any month as necessary to reflect adjustments to
reconciliations for previous months. The Administrator may use the funds that
are deposited in the Seaboard Deposit Account, including but not limited to any
accrued interest thereon, for the Administrator's own purposes, subject to the
Administrator's obligation to transfer funds pursuant to this Agreement. The
Administrator may offset the Seaboard Life Amount for each month by any amount
that Seaboard Life owes to the Administrator pursuant to this Agreement. In the
event of such offset, the Administrator shall indicate the nature and amount of
such offset in the applicable Seaboard Reconciliation Report. Notwithstanding
any other provisions in this SECTION 3.C, for each of the first ten (10) months
for which the Administrator provides Seaboard Life with a Seaboard
Reconciliation Report pursuant to this Agreement, the Administrator shall
provide the Seaboard Reconciliation Report and shall transfer funds in
accordance with this SECTION 3.C.5 as soon as reasonably possible, but shall not
be required to provide such Seaboard Reconciliation Report or complete such
funds transfer within the time periods specified in this SECTION 3.C.
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3.C.6. SEABOARD PREMIUM REPORTS. In addition to the information
required pursuant to SECTION 3.C.4 above, the Administrator shall provide such
other information on the Reconciliation Report as is reasonably required by
Seaboard Life in writing. In addition to the Seaboard Reconciliation Reports
described in SECTION 3.C.4 above, the Administrator shall provide Seaboard Life
and/or the Reinsurer with such reports regarding Seaboard Premium billing and
remittance as are reasonably required by Seaboard Life in writing, in a format
and on a timetable to be mutually agreed upon by the parties. The Administrator
shall maintain records of cash receipts and disbursements relating to the
Seaboard Policies as required by laws and regulations applicable to third party
administrators, and shall assist Seaboard Life in preparing any reports required
by such laws and regulations.
3.C.7. RECEIPT AND TRANSFER OF UHI REMITTANCE; REPORTING.
(a) UHI REMITTANCE AND REMITTANCE REPORT. On behalf of
Seaboard Life, the Administrator will accept the UHI Remittance for
each month and the UHI Remittance Report for such month. For purposes
of this Agreement, "UHI Remittance" shall mean the total amount that is
payable by United Healthcare Insurance Company ("UHI") to Seaboard Life
pursuant to the Reinsurance Agreement between UHI and Seaboard Life
dated September 29, 1997 and the Reinsurance Agreement between The
Travelers Insurance Company and Seaboard Life dated September 29, 1997
(the "UHI/Travelers Reinsurance Agreements"), as indicated on the
applicable UHI Remittance Report. For purposes of this Agreement, "UHI
Remittance Report" shall mean, with respect to any month, a report
provided by UHI that sets forth information regarding: (i) the total
amount of premium that UHI received with respect to the UHI Policies in
such month, as adjusted for premium refunds and other required cash
transfers; (ii) the amount of such UHI premium retained for commissions
and administrative expenses payable to the Administrator, premium
taxes, conversion fees, utilization review, network access, and other
fees pursuant to SECTION 7 of each UHI/Travelers Reinsurance Agreement;
(iii) claims paid by UHI with respect to the UHI Policies; (iv)
interest due from UHI to Seaboard with respect to such collected UHI
premium; (v) any other amount included in calculation of the UHI
Remittance for such month; and (vi) the UHI Remittance for such month.
(b) FUNDS TRANSFER. Within one (1) Business Day after the
Administrator receives the UHI Remittance and a complete UHI Remittance
Report with respect to such UHI Remittance for any month, the
Administrator shall forward the UHI Remittance Report to Seaboard Life
and the Reinsurer and shall transfer to the Seaboard Premium Account,
by Automated Clearing House transfer, an amount equal to the UHI
Remittance for such month minus any Start-up Expenses incurred by the
Administrator for which the Administrator is entitled to reimbursement
pursuant to SECTION 8.D below.
3.C.8. SEABOARD PREMIUM ACCOUNT. As requested by Seaboard Life, and
subject to Seaboard Life's obligations to indemnify the Administrator pursuant
to SECTION 9.D below, the Administrator shall implement transfers from the
Seaboard Premium Account in accordance with
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the terms of this SECTION 3.C.8 and the reasonable written instructions of
Seaboard Life. As reasonably requested by Seaboard Life in writing, the
Administrator will effect cash transfers from the Seaboard Premium Account as
follows: (i) within two (2) Business Days after the Seaboard Premium Account is
credited with a transfer of funds by the Administrator pursuant to SECTION 3.C.5
above, the Administrator will submit written instructions to the Seaboard Bank
to transfer an amount designated in writing by Seaboard Life from the Seaboard
Premium Account to a Reinsurer account designated by Seaboard Life; and (ii)
within two (2) Business Days after the Seaboard Premium Account is credited with
a transfer of funds by the Administrator pursuant to SECTION 3.C.7 above, the
Administrator will submit written instructions to the Seaboard Bank to transfer
an amount designated by Seaboard Life in writing from the Seaboard Premium
Account to a Reinsurer account designated by Seaboard Life. Seaboard Life shall
ensure that the Administrator has signature authority to transfer funds from the
Seaboard Premium Account.
3.C.9. DEPOSITS. To the extent requested by Seaboard Life, any Seaboard
Premium payment received from a group prior to the final coverage determination
with respect to such group (any "Deposit") shall not at that time be deemed to
be a "Seaboard Premium" for purposes of this SECTION 3.C.9 or any other
provision of this Agreement. As reasonably required by Seaboard Life, the
Administrator shall place each group's Deposit in a suspense account until such
group is accepted for coverage under a Policy in accordance with the terms of
this Agreement, at which time the Deposit will be deemed to be a "Seaboard
Premium" for purposes of this Agreement. In the event that such group is not
accepted for coverage under a Policy, then the Administrator shall return the
Deposit to such group in accordance with procedures reasonably required by
Seaboard Life.
SECTION 3.D. DELIVERY OF DOCUMENTS. Any policies, certificates,
booklets, booklet-certificates, termination notices, or other written
communications delivered by Seaboard Life to the Administrator for delivery to
the policyholders, participant employers, or insureds shall be delivered by the
Administrator promptly after receipt of instructions from Seaboard Life to do
so.
SECTION 3.E. INSURANCE.
SECTION 3.E.1. FIDELITY. It shall be the duty of the Administrator to
maintain fidelity coverage, including bonding of its employees, in an
amount of at least Five Million Dollars ($5,000,000).
SECTION 3.E.2. ERRORS AND OMISSIONS. The Administrator also shall
maintain an errors and omissions liability policy in an amount of at
least Five Million Dollars ($5,000,000) to cover any loss arising as a
result of any real or alleged negligence on the part of the
Administrator, its agents, or its employees in any aspect of the
performance of the Administrator's duties under this Agreement.
SECTION 3.E.3. EVIDENCE OF COVERAGE. The Administrator shall cause the
issuer(s) of the fidelity and errors and omissions coverage described
in this SECTION 3.E to deliver
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to Seaboard Life a certificate or certificates evidencing such
coverage. The policies evidencing such coverage shall provide at least
thirty (30) calendar days written notice prior to the cancellation of,
or any material change in, such coverage. If the coverage is canceled,
substitute coverage shall be obtained and shall be effective prior to
the effective date of cancellation.
SECTION 3.F. LEGAL PROCEEDINGS; REGULATORY COMMUNICATIONS. If the
Administrator receives any notice of the commencement of any legal proceeding
involving any Covered Group or Covered Person or any communication from any
Insurance Department or other administrative agency or any other person
identifying a complaint by a Seaboard Life insured (including a Covered Person's
initiation of a grievance procedure or an appeal from any managed care decision)
or calling a hearing involving any Seaboard Life insuring practice, the
Administrator shall immediately advise Seaboard Life of the proceeding. The
Administrator at its own expense shall immediately thereafter forward any
correspondence or necessary files in its possession to Seaboard Life for
determination of appropriate handling. If Seaboard Life receives any notice of
the commencement of any legal proceeding involving the Administrator, or
Seaboard Life receives any communication from any Insurance Department or other
administrative agency or any other person identifying a complaint against the
Administrator or calling a hearing involving the Administrator, Seaboard Life
shall immediately advise the Administrator of the proceeding. Seaboard Life at
its own expense shall immediately thereafter forward any copies of necessary
correspondence or files in its possession to the Administrator.
SECTION 3.G. BOOKS AND RECORDS. The Administrator shall maintain at its
principal administrative office, in original form or on electronic media,
adequate books and records of all claim records for Seaboard Policies and other
transactions among Seaboard Life, the Administrator, Covered Groups, and Covered
Persons, for a period of seven (7) years, or such longer or shorter period
required under applicable law. Such books and records shall be maintained in
accordance with prudent standards of insurance record-keeping. All books and
records pertaining to such transactions shall be maintained by Seaboard Life at
its offices in like fashion.
SECTION 3.H. COMPLAINT LETTERS. The Administrator shall maintain a file
containing any letters of complaint received by the Administrator from Seaboard
Life insureds, policyholders, or service providers for a period of six (6) years
from receipt of the complaint letter, or such longer or shorter period of time
as may be required under ERISA or applicable state law.
SECTION 3.I. UNDERWRITING. The Administrator shall conform to the
underwriting and other guidelines agreed to by Seaboard Life. The Administrator
may presume that its reasonable interpretation of Seaboard Life's underwriting
and other guidelines is acceptable to Seaboard Life and in conformance with its
guidelines unless notice to the contrary is received from Seaboard Life.
Seaboard Life expressly retains sole authority and sole discretion to establish
written underwriting guidelines for approval of applicants for coverage under
the
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Seaboard Policies. Seaboard Life shall provide such underwriting guidelines
to the Administrator. The Administrator shall have authority to implement and
apply Seaboard Life's underwriting guidelines, but may not modify any term or
condition of any Seaboard Policy or waive any provision thereof except to the
extent required or directed by Seaboard Life. The Administrator shall refer any
questions regarding interpretation or implementation of Seaboard Life's
underwriting guidelines to Seaboard Life.
SECTION 3.J. COMPLIANCE WITH LAW. The Administrator shall use best
efforts to become fully informed and at all times remain fully informed with
respect to all laws, regulations, and administrative rulings regarding the
subject matter of this Agreement, and shall use best efforts to ensure that all
of its actions in connection with this Agreement will be consistent with and
appropriate under all such laws, regulations, and rulings. The Administrator
shall use best efforts to ensure that all forms and policies created and
maintained by the Administrator for Seaboard Life pursuant to this Agreement are
and will be in compliance with state and federal law as well as all regulations
and administrative filings. The Administrator shall advise Seaboard Life in
writing of any contact with any regulatory authority that is other than routine
or with respect to which Seaboard Life may reasonably be expected to have an
interest. The Administrator shall resolve any doubts in favor of notifying
Seaboard Life.
SECTION 3.K. THIRD PARTY ADMINISTRATOR REGULATIONS. In the conduct of
its business and in the performance of its obligations under this Agreement, the
Administrator shall comply with all statutes, ordinances, rules, and regulations
of any and all federal, state, and municipal regulatory authorities that are
applicable to third party administrators. If required by state law, the
Administrator shall hold a certificate of registration as a third party
administrator (or such other licenses, permits, or registrations required for
the performance of the Administrator's duties and obligations hereunder) from
the Department of Insurance or other regulatory body having jurisdiction and
post any bond required by any such regulatory body.
ARTICLE IV
STANDARD OF PERFORMANCE
The Administrator represents to Seaboard Life that it is experienced in
the field of group insurance administration.
ARTICLE V
RESTRICTION ON PERFORMANCE
SECTION 5.A. PATIENT CONFIDENTIALITY. Each party shall ensure that the
collection, review, and disposition of all Covered Person records by its
employees, agents, and representatives shall be undertaken with due regard for
rights of privacy and in accordance with all applicable patient confidentiality
laws.
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SECTION 5.B. SUBCONTRACTING. The Administrator may subcontract any of
its administrative functions, duties, or responsibilities under this Agreement;
PROVIDED, HOWEVER, that the Administrator shall not, without Seaboard Life's
written consent, subcontract the performance of any services hereunder requiring
direct Enrollee contact, except to a corporate affiliate of the Administrator.
The Administrator shall remain liable for the performance of any service
subcontracted hereunder.
SECTION 5.C. MARKETING.
5.C.1 LICENSING AND FORM APPROVAL. There will be no marketing
or issuance of Seaboard Policies in states in which Seaboard Life is
not licensed or does not have policy form approval.
5.C.2 ISSUANCE AND RENEWAL. Seaboard Life may cease issuing
and renewing coverage in a particular market or markets, in compliance
with the notice requirements set forth in HIPAA and applicable state
laws, provided that Seaboard Life notifies the Administrator in writing
of such cessation on or before the earlier of (a) one hundred eighty
(180) calendar days before such cessation, or (b) ninety (90) calendar
days prior to the deadline for notifying employer groups or others of
such cessation as may be imposed by HIPAA or applicable state law.
Unless required to do so by any state regulatory authority, Seaboard
Life may not provide notice to the Administrator under this SECTION
5.C.2, or otherwise invoke its rights under this SECTION 5.C.2, prior
to April 1, 1999. The decision of Seaboard Life to cease issuing or
renewing coverage in any particular market or markets shall not affect
the duties and the responsibilities of the Administrator as set forth
in ARTICLE III above or as otherwise required under this Agreement.
ARTICLE VI
AUDIT AND ACCESS RIGHTS
SECTION 6.A. AUDIT. To the extent required by law or deemed necessary
or prudent in its complete discretion, Seaboard Life shall conduct on-site and
other audits of the books and accounts of the Administrator relating to all
transactions subject to this Agreement. Upon reasonable prior written notice,
Seaboard Life shall have the right to conduct periodic audits of Seaboard Policy
administration, including procedures relating to check controls and check stock,
at the offices of the Administrator. Seaboard Life shall have the right of
access to the Administrator's premises at any time during normal business hours
of any Business Day for such purpose. The Administrator shall exercise best
efforts to cooperate to the fullest extent in any such audits. If Seaboard Life
chooses to conduct an audit at its own offices, the Administrator shall, upon
request, ship all necessary records (or complete and accurate copies thereof) to
the designated Seaboard Life office. Seaboard Life shall reimburse the
Administrator for all copying and other costs associated with any such copying
and shipment of records. Seaboard Life shall provide the Administrator with a
written report outlining the
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findings of any audit, including a description of any operational deficiencies
or errors or omissions of the Administrator found by Seaboard Life. To the
extent any of the deficiencies and/or errors or omissions are, in the reasonable
judgment of Seaboard Life, material, Seaboard Life shall include such judgment
in its written audit report. The Administrator shall respond in writing to
Seaboard Life with respect to any alleged deficiencies, errors, or omissions
noted in the Seaboard Life audit report within thirty (30) calendar days of
receipt of such audit report. Such response shall propose corrective action for
any operating deficiencies to the extent that the Administrator has determined
that operating deficiencies exist. If the parties cannot agree with respect to a
corrective action plan, or cannot agree with respect to whether a corrective
action plan is necessary, then either party may terminate this Agreement
pursuant to SECTION 12.D below.
SECTION 6.B. ACCESS TO RECORDS. At all times during the term of this
Agreement and following its termination for any reason, Seaboard Life shall have
access to all records of Seaboard Policies for so long as maintained by the
Administrator pursuant to SECTIONS 3.G and 3.H above. Seaboard Life shall, at
its own expense, be entitled to obtain copies of any and all such records at any
time during the term of this Agreement. Upon termination of this Agreement, as
reasonably required by Seaboard Life and at Seaboard Life expense, the
Administrator shall transfer all records relating to Seaboard Policies, to
Seaboard Life or a party designated by Seaboard Life, within a reasonable time
after termination. Notwithstanding the foregoing, the Administrator shall bear
up to TEN THOUSAND DOLLARS ($10,000) in expenses with respect to such transfer.
The Administrator may retain at its discretion copies of all or a portion of
such records, subject to the terms of this Agreement, and shall have continuing
access to such records to fulfill obligations to insured parties, claimants, and
Seaboard Life. Upon the reasonable request of Seaboard Life, and at Seaboard
Life's expense, the Administrator shall destroy all or part of the records,
except to the extent prohibited by applicable law.
ARTICLE VII
DUTIES OF SEABOARD LIFE
SECTION 7.A. ADMINISTRATIVE SUPPORT. Seaboard Life will provide the
Administrator with the following in connection with the Seaboard Policies:
1. Seaboard Life will take all steps necessary to establish
and maintain in good standing its status as a licensed insurer.
Seaboard Life will advise the Administrator in writing of all
limitations under federal, state, or local authorities on its authority
to underwrite insurance business.
2. Seaboard Life shall provide the Administrator with
necessary forms for enrolling new Enrollees and maintaining Enrollee
records. The Administrator shall arrange for, and bear the cost of,
printing such forms on behalf of Seaboard Life.
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3. Seaboard Life shall provide the Administrator with
reporting guidelines needed by the Administrator for the preparation
and filing of statutory statements required by any state regulatory
authority. It is understood that these guidelines will change subject
to requirements imposed by applicable regulatory authorities.
4. Seaboard Life shall prepare and file all tax returns
required under state or federal law and shall pay all premium, income,
and any other applicable taxes imposed on Seaboard Life based on
Seaboard's receipt of revenues from the Seaboard Policies and the UHI
Policies.
5. Seaboard Life shall provide the Administrator with ninety
(90) calendar days advance written notice of any change in new business
rates and ninety (90) calendar days advance notice of any rate changes
for Seaboard Policies. Such notices will specify the percentage change
in both instances.
SECTION 7.B. INSURANCE DEPARTMENT FILINGS. Seaboard Life shall provide
to the Administrator with the form for all required booklet-certificates and
enrollment materials. The Administrator shall arrange for the printing of such
materials at the Administrator's expense.
SECTION 7.C. CONFLICT. If there is a conflict between any guidelines or
instructions provided by Seaboard Life and this Agreement, the terms of this
Agreement shall control.
SECTION 7.D. PRODUCT DESCRIPTIONS. Subject to Seaboard Life's prior
written consent, which consent shall not be unreasonably denied, Seaboard Life
will allow descriptions of other products offered by the Administrator through
other carriers to be included in the marketing brochures featuring Seaboard Life
products. Such consent shall be assumed if Seaboard has not objected to a
description within fifteen (15) calendar days of receipt thereof. Seaboard Life
will not use such consent right to prevent the Administrator from packaging
Seaboard Life products with those of any other carrier, provided that such
carrier has a rating equal or superior to Seaboard Life as determined by the
BEST rating system (or, if there is no BEST rating system, then a successor or
substantially similar system).
SECTION 7.E. COMPLIANCE WITH LAW; LIABILITY. In the conduct of its
business and the performance of its obligations under this Agreement, Seaboard
Life warrants and represents to the Administrator that it is in compliance with,
and shall continue to comply with, all applicable law (including but not limited
to all state law requirements that Seaboard Life be authorized and approved to
conduct its business and to issue the Seaboard Policies). Except as otherwise
specifically provided in ARTICLE IX below, Seaboard Life shall be solely liable
for all aspects of the design and administration of the Seaboard Policies,
including but not limited to (i) agent appointment (including all fees
associated therewith), (ii) underwriting criteria, (iii) the disposition of
Seaboard Premium amounts prior to final coverage determinations, (iv) the rights
or obligations of Covered Groups, Enrollees, or Covered Persons, (v) the scope
of benefits under the Seaboard Policies, (vi) Seaboard Premium rates, (vii) the
content of participation documents, group contracts, Seaboard Policies, and
certificates, (viii) claims adjudication determinations,
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including determinations regarding whether health care services provided to a
Covered Person are covered under the applicable Seaboard Policy, (ix)
utilization review and case management criteria, (x) compliance with applicable
law related to the Seaboard Policies, (xi) the procedures applicable to
potentially fraudulent or improper billing practices, and (xii) determinations
with respect to participation in state reinsurance pools. Seaboard Life shall
provide the Administrator with written guidelines setting forth procedures
applicable to these matters. The Administrator may presume that its reasonable
interpretation of Seaboard Life's claims payment and other guidelines is
acceptable to Seaboard Life and in conformance with Seaboard Life guidelines
unless notice to the contrary is received from Seaboard Life.
SECTION 7.F. CLAIM CORRESPONDENCE. Seaboard Life will send to the
Administrator copies of all claim correspondence that shall be necessary for the
Administrator to perform its obligations under this Agreement, and which has
been received by Seaboard Life.
SECTION 7.G. NOTICES AND CORRESPONDENCE. Seaboard Life will promptly,
on days on which Seaboard Life is open for business, forward to the
Administrator all notices of claims and other relevant correspondence from
Covered Groups and Covered Persons that Seaboard Life may receive during the
term of this Agreement.
SECTION 7.H. NOTICE OF CHANGES. In addition to its other notice
obligations pursuant to this Agreement, and except as provided in SECTION
3.B.1(M) hereof, Seaboard Life shall provide the Administrator with written
notice of any changes to Seaboard Life polices, procedures, guidelines,
benefits, or forms applicable to the Administrator's performance of services
hereunder, at least sixty (60) calendar days prior to the date on which Seaboard
Life requires the Administrator to implement such change.
ARTICLE VIII
COMPENSATION
SECTION 8.A. SERVICE FEE. As compensation to the Administrator for the
services that the Administrator provides pursuant to this Agreement, and in
addition to the other amounts to be paid by Seaboard Life to the Administrator
hereunder, Seaboard Life shall pay the Administrator the Administrator Service
Fee calculated in accordance with the terms of EXHIBIT B attached hereto. The
Administrator may retain the Administrator Service Fee from the portion of Gross
Seaboard Premium funds it transfers to the Seaboard Premium Account pursuant to
SECTION 3.C above.
SECTION 8.B. EXPENSES. Except as otherwise provided herein, the
Administrator's office and operational expenses are its sole responsibility.
SECTION 8.C. ADMINISTRATION FEES. The Administrator may charge Covered
Groups, Enrollees, and/or Covered Persons additional administrative fees with
respect to certain products or services (any such fee hereinafter referred to as
an "Administration Fee"), subject
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to restrictions imposed by applicable law. The Administrator may also charge
additional fees to Covered Groups, Enrollees, and/or Covered Persons as needed
to compensate vendors.
SECTION 8.D. START-UP EXPENSE REIMBURSEMENT. Seaboard Life agrees to
reimburse the Administrator for those expenses associated with assisting in the
creation of the Seaboard Life medical products, as well as the systems and
infrastructure needed to support those products upon implementation (such
expenses hereafter referred to as "Start-up Expenses"). Start-up Expenses will
include, but not be limited to, expenses and billable hours attributable to this
project and related to staffing and training, product development and consulting
services, marketing and promotion, systems and software, compliance, and the
creation of policy forms, rate development, and the creation of workflows and
procedures needed to support the Seaboard Policies. Reimbursement of the
Start-up Expenses shall be limited to a maximum of Two Hundred Thousand Dollars
($200,000). Pursuant to SECTION 3.C above, the Administrator may retain a
portion of any Start-up Expense to which it is entitled to reimbursement from
the portion of any Gross Seaboard Premium funds or UHI Remittance that the
Administrator transfers to the Seaboard Premium Account; PROVIDED, HOWEVER, that
for purposes of reimbursement of Start-up Expenses, the Administrator may only
retain (i) up to seventy-five percent (75%) of the Seaboard Policy Underwriting
Profit with respect to Gross Seaboard Premium for any month; and (ii) up to
seventy-five percent (75%) of the UHI/Seaboard Life Underwriting Profit with
respect to any UHI Remittance. For purpose of this Agreement, "Seaboard Policy
Underwriting Profit" shall mean an amount equal to (i) the Gross Seaboard
Premium for such month, minus (ii) the sum of the Administrator Service Fee, the
Conversion Fee Amount, the Premium Tax Amount, the Gross Claims and Adjustment
Expense, the Carrier Fee Amount, and the Claims Reserve Amount with respect to
such Gross Seaboard Premium. For purposes of this Agreement, "UHI/Seaboard Life
Underwriting Profit" shall mean an amount equal to: (i) the UHI Remittance for
such month; minus (ii) the sum of the amount to be transferred to the Reinsurer
with respect to such UHI Remittance and the Claims Reserve Amount with respect
to such UHI Remittance.
SECTION 8.E. AGENT COMMISSIONS. On behalf of Seaboard Life, the
Administrator shall pay agent commissions owing with respect to any Gross
Seaboard Premium for which the Administrator has retained an Administrator
Service Fee.
SECTION 8.F. CHANGES IN ADMINISTRATOR SERVICE FEE. If in any Contract
Year the Administrator determines that the aggregate Administrator Service Fee
retained by the Administrator with respect to the Gross Seaboard Premium for
such Contract Year is likely to exceed twenty-three and one-half percent (23.5%)
of the Gross Seaboard Premium for such Contract Year, then the Administrator
shall provide Seaboard Life with written notice of such potential excess, and
the parties shall negotiate in good faith to take steps that will increase the
likelihood that the aggregate Administrator Service Fee retained by the
Administrator with respect to the Gross Seaboard Premium for such Contract Year
shall not exceed twenty-three and one-half percent (23.5%) of such Gross
Seaboard Premium.
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SECTION 8.G. RECONCILIATION OF ADMINISTRATOR SERVICE FEE. The
Administrator will provide written reconciliation of the aggregate Administrator
Service Fee retained by the Administrator with respect to the Gross Seaboard
Premium for each fiscal quarter of the Administrator on or before the sixtieth
(60) calendar day following the completion of such quarter. Unless Seaboard Life
objects in writing to such written reconciliation within thirty (30) days after
the date the reconciliation is delivered to the Administrator in accordance with
this Agreement, the reconciliation shall be deemed conclusively correct for
purposes of this SECTION 8.G. If the aggregate Administrator Service Fee for the
quarter subject to such reconciliation report (the "Reported Quarter") exceeds
twenty-three and one-half percent (23.5%) of the Gross Seaboard Premium for such
Reported Quarter, then the Administrator and Seaboard Life shall negotiate in
good faith to take steps that will increase the likelihood that the aggregate
Administrator Service Fee retained by the Administrator for both the Reported
Quarter and the seven quarters subsequent to the Reported Quarter does not
exceed twenty-three and one-half percent (23.5%) of the aggregate Gross Seaboard
Premium for such quarters.
ARTICLE IX
INDEMNIFICATION
SECTION 9.A. NEGLIGENCE; MISCONDUCT. The Administrator agrees to
indemnify and hold Seaboard Life harmless from any and all liability, loss,
damage, fines, punitive damages, penalties and costs, including expenses and
attorneys fees, which result from any negligence, criminal, fraudulent, or
willful misconduct in carrying out its responsibilities in accordance with the
standards set forth in this Agreement, or which result from any action which
exceeds its authority under this Agreement.
Seaboard Life agrees to indemnify and hold the Administrator harmless
from any and all liability, loss, damage, fines, punitive damages, penalties and
costs, including expenses and attorneys fees, which result from any negligence,
criminal, fraudulent, or willful misconduct in carrying out its responsibilities
in accordance with the standards set forth in this Agreement, or which result
from any action which exceeds its authority under this Agreement.
SECTION 9.B. ACTIONS IN ACCORDANCE WITH GUIDELINES. Seaboard Life will
indemnify the Administrator against any and all loss, damage, liability,
judgment, awards and expense, including court costs and attorneys fees resulting
from any act of any officer, employee, representative, or agent of the
Administrator which is performed reasonably in accordance with the instructions,
manuals, or guidelines agreed to by Seaboard Life and which is performed in good
faith and without gross negligence or willful misconduct.
SECTION 9.C. LAWSUIT. In the event that the Administrator is named as a
defendant in a suit arising out of the administration of a Policy, Seaboard Life
agrees to defend and hold harmless the Administrator from the judgment, the
costs, and defense expenses of such litigation, provided that the Administrator
was acting reasonably in accordance with the
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provisions of this Agreement or the instructions manuals or guidelines of
Seaboard Life and in good faith without gross negligence or willful misconduct.
SECTION 9.D. SEABOARD PREMIUM ACCOUNT. In addition to its other
obligations under this Agreement, Seaboard Life agrees to indemnify, defend, and
hold harmless the Administrator, and its parents, subsidiaries, affiliates,
directors, officers, agents, and employees, from and against any and all losses,
costs, claims, demands, and damages, including but not limited to attorneys'
fees, arising out of or caused by any act done or alleged to have been done by
the Administrator or Seaboard Life, or any omission made or alleged to have been
made by The Administrator or Seaboard Life, in connection with the carrying out
or performance of its respective obligations pursuant to SECTION 3.C.8 of this
Agreement or otherwise with respect to the Seaboard Premium Account, including
but not limited to any negligent action or inaction by the Administrator, or any
action or inaction by the Administrator that constitutes a breach (other than an
intentional breach) of this Agreement, or any action or inaction that is taken
or not taken at the direction or request of Seaboard Life.
ARTICLE X
USE OF INFORMATION
Any confidential information, including but not limited to data,
business information, technical information, legal information, specifications,
forms, computer programs and documentation, written, oral or otherwise
("Information") owned and furnished by either party ("Furnishing Party") to the
other party hereunder or in contemplation hereof shall remain the property of
the Furnishing Party. All copies of such Information in written, graphic, or
other tangible form, including computer systems, discs and tapes, shall be
returned to the Furnishing Party upon request at any time during or after the
term of this Agreement. Notwithstanding the foregoing, "Information" shall not
include information that (i) was previously known to be free of any obligation
to keep it confidential, (ii) has been or is subsequently made public, or (iii)
is required by law to be disclosed by a party. Any Information received by a
party shall be kept confidential by the party furnished such Information, and
shall be used only to carry out obligations under this Agreement or upon such
terms as may be agreed upon in writing by the Furnishing Party. The party
furnished such Information shall use best efforts to ensure that its employees,
agents, and representatives comply with the terms of this ARTICLE X. Each party
hereto acknowledges and agrees that money damages would not be a sufficient
remedy for any breach of this ARTICLE X by any party and that, in addition to
other remedies, each party shall be entitled to specific performance and
injunctive or other equitable relief for any such breach. Each party agrees to
be responsible for any breach of this ARTICLE X by any of its employees, agents,
or representatives.
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ARTICLE XI
AMENDMENTS
SECTION 11.A. WRITTEN INSTRUMENT. Except as otherwise provided herein,
this Agreement may not be amended except by an instrument in writing and signed
on behalf of both parties.
SECTION 11.B. CHANGES IN LAW. If any applicable law requires the
parties to amend this Agreement, then the parties shall negotiate in good faith
to amend this Agreement in order to comply with such applicable law. If the
parties cannot reach agreement with respect to an amendment of this Agreement
pursuant to this ARTICLE XI, then either Party may terminate this Agreement
pursuant to SECTION 12.D below.
ARTICLE XII
TERMINATION
SECTION 12.A. TERM AND TERMINATION. The term of this Agreement shall
commence on July 1, 1997, and shall continue in effect for five (5) years,
unless earlier terminated as set forth herein. This Agreement shall terminate on
the occurrence of any of the following events:
1. by mutual consent of the parties; or
2. by either party by written notice to the other party
upon the occurrence of fraud or embezzlement by such
other party.
If Seaboard Life terminates this Agreement pursuant to this ARTICLE XII
and Seaboard Life or any successor or assignee of Seaboard Life continues to
provide coverage under the Seaboard Policies after termination, then Seaboard
Life shall pay the Administrator three percent (3%) of gross collected premium
received with respect to each Seaboard Policy in effect on the effective date of
termination, during the remaining term of such Seaboard Policy and one
additional renewal term thereof.
SECTION 12.B. TERMINATION FOR BREACH. Should either party become aware
of a material breach of this Agreement by the other party, the non-breaching
party must notify the breaching party of the breach and provide thirty (30)
calendar days to correct such breach. This Agreement shall terminate at the
close of such thirty-day period unless the breach is cured at that time.
Notwithstanding the foregoing, if the breaching party made a reasonable effort
to cure such breach during such initial thirty-day period, the breaching party
shall have an additional thirty-day period to correct the breach. Termination
shall take effect on the last day of the additional thirty-day period if the
breach is not corrected on or before that date.
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SECTION 12.C. TERMINATION WITHOUT CAUSE. Either party may terminate
this Agreement for any reason upon fifteen months' written notice to the other
party.
SECTION 12.D. TERMINATION UPON FAILURE TO AGREE. If the parties are
unable to reach agreement with respect to: (i) any matter set forth in SECTION
8.F, SECTION 8.G, ARTICLE XI, or EXHIBIT B of this Agreement; or (ii) any other
matter about which the parties are required to agree pursuant to this Agreement,
then either party may terminate this Agreement upon thirty (30) calendar days
notice to the other party, unless the parties reach agreement with respect to
such amendment or such matter within the thirty-day notice period.
SECTION 12.E. SUPERVISION OF UNDERWRITING AUTHORITY. To the extent
required by applicable law, Seaboard Life shall have the right to suspend the
underwriting authority of the Administrator. Seaboard Life must fulfill any
lawful obligations with respect to policies affected by this Agreement,
regardless of any dispute between Seaboard Life and the Administrator.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.A. NOTICE. Any notice which may or must be sent hereunder
(i) shall be in writing, (ii) shall be given to the party to whom it is
addressed at the address set forth below, or at such other address as the party
may specify for that purpose by notice to the other party given pursuant to this
SECTION 13.A, and (iii) shall be sent by messenger, by a nationally recognized
overnight delivery service, by certified or registered U.S. Mail, or by
facsimile:
a) If to the Administrator:
HealthPlan Services, Inc.
Attention: Chief Counsel
If Delivered By Hand:
3501 Frontage Road
Tampa, Florida 33607
If Delivered By U.S. Mail:
P.O. Box 30098
Tampa, Florida 33630-3098
If Delivered By Fax:
813/287-6629
Telephone Number: (813) 289-1000
b) If to Seaboard Life:
Seaboard Life Insurance Company (USA)
Attention: Legal Counsel
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If Delivered By Hand:
525 S. Meridian Street
Indianapolis, Indiana 46225
If Delivered By United States Mail:
P.O. Box 6047
Indianapolis, Indiana 46206-6047
If Delivered By Fax:
317/238-5584
Telephone Number: (317) 238-5551
Each notice, demand, or other document that is delivered in the manner described
above shall be deemed to sufficiently delivered, given, served, sent, provided,
and received for all purposes at such time as it is delivered to the addressee
(with the return receipt, delivery receipt, affidavit of messenger or, with
respect to a facsimile transmission, the answerback being conclusive, but not
exclusive, evidence of such delivery), or at such time as delivery is refused
upon presentation.
SECTION 13.B. GOVERNING LAW. This Agreement shall be governed and
interpreted by the laws of the State of Florida.
SECTION 13.C. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties with respect to its subject matter and supersedes
all prior agreements on said subject matter.
SECTION 13.D. SURVIVAL. The applicable provisions of SECTIONS 3.F.,
3.G., 3.H., 5.A. ARTICLES VI, VIII, IX, and X, SECTION 12.A, and this ARTICLE
XIII of this Agreement shall survive termination hereof for any reason.
SECTION 13.E. OWNERSHIP OF MATERIALS. Any computer software produced by
the Administrator in connection with the performance of its services hereunder
shall be the sole property of the Administrator and shall remain the property of
the Administrator following the termination of this Agreement and all software
created by the Administrator prior to this Agreement shall remain its property.
All materials and records furnished by Seaboard Life to the Administrator and
all records related to Seaboard Life policies are to be and remain the sole
property of Seaboard Life and shall be returned to the Administrator after
termination or expiration of this Agreement within ninety (90) calendar days
after any request by the Administrator for such records. All compilations,
analyses, materials, and records furnished by the Administrator to Seaboard Life
or otherwise created by the Administrator in connection with the Seaboard
Policies are to be and remain the sole property of the Administrator and shall
be returned to Seaboard Life after termination or expiration of this Agreement
within ninety (90) calendar days after any request by Seaboard Life for such
records.
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SECTION 13.F. USE OF NAME; ADVERTISING MATERIALS. Neither party shall
use any written or oral advertising or other communication that bears the other
party's name, or any other name used by the other party to identify any services
it provides, including but not limited to any registered trademark or service
mark of the other party, without the other party's prior written consent. Such
consent shall be deemed to be given if the party from whom consent is requested
does not respond to such request within two (2) Business Days. To the extent
required by law, the Administrator shall keep a file of all advertisements used
by the Administrator in the performance of its obligations hereunder.
SECTION 13.G. SEVERABILITY. In the event that any court of competent
jurisdiction holds that a particular provision or requirement of this Agreement
is in violation of any applicable law, such provision or requirement shall be
enforced only to the extent it is not in violation of such law or is not
otherwise unenforceable, and all other provisions and requirements of this
Agreement shall remain in full force and effect.
SECTION 13.H. THIRD PARTY BENEFICIARIES. This Agreement shall not, and
is not intended to, confer upon any party, other than the parties hereto and
their successors and permitted assigns, any rights, remedies, obligations or
liabilities, except as expressly provided herein.
SECTION 13.I. FORCE MAJEURE. Neither Party shall be liable for any
delay or failure to perform its obligations under this Agreement arising out of
a cause beyond its control or without its fault or negligence. Such causes may
include, but are not limited to, fires, floods, and natural disasters.
SECTION 13.J. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
SECTION 13.K. EXHIBITS; ENTIRE AGREEMENT. All exhibits attached to or
referenced in this Agreement are hereby incorporated by reference into this
Agreement as if they were set forth at length in the text of this Agreement.
This Agreement constitutes the entire agreement and merges and supersedes all
prior agreements, understandings, and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement. This
Agreement shall not be altered or amended except by an instrument in writing
executed by the authorized representatives of the parties.
SECTION 13.L. HEADINGS. The captions and headings as set forth in this
Agreement are included for purposes of convenient reference only and shall not
affect the construction or interpretation of this Agreement.
SECTION 13.M. NON-WAIVER. No action or failure to act by any party
hereto shall constitute a waiver of any right or duty afforded under this
Agreement, nor shall any such action or failure to act constitute an approval of
or acquiescence in any breach hereunder, except as may be specifically agreed in
writing.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in duplicate to be effective as of the Effective Date.
SEABOARD LIFE INSURANCE HEALTHPLAN SERVICES, INC.
COMPANY (USA)
By: /S/ MICHAEL G. APOLSKIS By: /S/ JEFFERY W. BAK
--------------------------- --------------------------------
Title: ASST. VICE PRESIDENT Title: SENIOR VICE PRESIDENT, SALES
--------------------------- -------------------------------
ASSOC. GENERAL COUNSEL
---------------------------
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LSIT OF EXHIBITS
EXHIBIT A DEFINITIONS
EXHIBIT B COMPENSATION
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
EXHIBIT 10.22
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is entered into by and among
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY, a Pennsylvania corporation, and
PROVIDENT AMERICAN LIFE AND HEALTH INSURANCE COMPANY, a Pennsylvania corporation
(collectively, "Provident"), HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("HPC") and HEALTHPLAN SERVICES, INC., a Florida corporation
("HPS"), effective as of February 1, 1998 (the "Effective Date").
WHEREAS, Provident and HPS previously entered into a Services Agreement
effective as of July 19, 1996, which has governed the parties' relationship to
date and relates to certain business sold through HPS' distribution network (the
"First Agreement"); and
WHEREAS, Provident has developed another block of individual and
individually underwritten group association health insurance business, excluding
the True Small Group insurance business as hereinafter defined (the "Program")
(through its own distribution system of agents, subagents, and managing general
agents("MGAs")) which was not previously administered by HPS, and such block
includes the same or similar types of health insurance coverage to individuals
and group associations as is currently being administered by HPS pursuant to the
First Agreement; and
WHEREAS, Provident desires that HPS assist and otherwise provide
administrative and other services to Provident with respect to such block of
business and assist Provident in entering the small group market; and
WHEREAS, HPS desires to perform such services in accordance with the
terms of this Agreement, and to assist Provident in entering the small group
market by developing small group product and pricing.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Provident and HPS hereby agree as follows:
PART 1
DEFINITIONS
<PAGE>
Capitalized terms used in this Agreement shall have the meanings
ascribed to them in EXHIBIT A, which is attached hereto and incorporated herein
by reference.
PART 2
ADMINISTRATIVE SERVICES
2.1 PROCESSING APPLICATIONS. HPS shall process applications for coverage
under the Policy pursuant to the written guidelines that Provident provides to
HPS in accordance with this Agreement.
2.2 PARTICIPATION DOCUMENTS. HPS shall distribute Participation
Documents to Enrollees in accordance with the procedures set forth in PART 4
hereof.
2.3 Intentionally deleted.
2.4 CUSTOMER SERVICE. HPS shall maintain a full-time WATTS line on each
Business Day (from 8:00 A.M. to 8:00 P.M., Eastern Standard Time, Monday through
Thursday, and 8:00 A.M. to 7:00, P.M., Eastern Standard Time, on Fridays), to
respond to Provident (including agent access unit), agent and Enrollee requests
for information or assistance regarding Premium payments, administration,
claims, commissions, and other aspects of the Program, in accordance with
procedures reasonably required by Provident.
2.5 CLAIMS PROCESSING. HPS shall perform the claims services set forth
below on behalf of Provident in compliance with the Program and with Provident's
claim policy and procedures, as set forth in Appendix 2.10(B) to be mutually
agreed upon by the parties, using Provident approved forms:
(a) HPS shall receive and correlate all information
necessary to confirm eligibility for benefits and determine Program
benefits due to Enrollees, and transmit such information to Provident;
(b) HPS shall calculate Program benefits and pay Enrollee
claims by drafts drawn on a Provident bank account established for that
purpose, in accordance with written procedures and controls established
by Provident and submitted to HPS;
(c) HPS shall maintain claim records necessary for the
processing of
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claims in a manner reasonably satisfactory to Provident and, at a
minimum, compliant with regulatory market conduct standards;
(d) HPS shall refer to the group claim department at
Provident's home office in Norristown, Pennsylvania, or such other
location designated by Provident, any issue relating to claim handling
when HPS determines Provident's written claims payment guidelines are
not reasonably clear;
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(e) In the event any single claim transaction would result
in a benefit draft or drafts exceeding $20,000, HPS shall refer the
claim(s) to the claim department of Provident for prior approval; and
(f) Provident will make the final determination as to the
payment of any claim that is denied in whole or in part by HPS and with
respect to which a request for claim review has been made.
2.6 SPECIAL CLAIMS SERVICES. HPS shall provide the following services
(the "Special Claims Services") on behalf of Provident with respect to claims
submitted for health care services provided to any Enrollee, to the extent
reasonably required by Provident, and in accordance with the policies and
procedures reasonably required by Provident and provided to HPS, as set forth in
Appendices "A" and "B" and as mutually agreed upon by the parties:
(a) identifying certain claims that may be incorrectly
billed, using criteria developed by one or more recognized experts in
the health care field;
(b) investigating, within agreed upon parameters, certain
of such potentially incorrect claims and adjusting such claims if
appropriate;
(c) identifying potentially fraudulent practices and
referring such practices to Provident and other parties designated by
Provident; and
(d) identifying providers that may have improperly billed
for services, or participated in overutilization of services, and
implementing procedures to monitor such providers' future billing and
utilization practices.
(e) providing persons to testify as witnesses in
litigation involving the Program, at Provident's cost and expense.
2.7 GENERALLY ACCEPTED CLINICAL STANDARDS. To the extent reasonably
required by Provident, HPS shall utilize Generally Accepted Clinical Standards
in performing services pursuant to this Part 2. For purposes of this Agreement,
"Generally Accepted Clinical Standards" shall mean standards of clinical
practice regarding inpatient and outpatient utilization of health care services,
as assessed by one or more recognized experts in the health care field.
2.8 NO INCENTIVE PAYMENT. HPS agrees that it shall not enter into any
incentive payment agreement with a provider of health services that is based on
reduction of services or the charges thereof, reduction of length of stay, or
utilization of alternative treatment settings to reduce the amount of necessary
or appropriate medical care.
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2.9 LOSS RATIO MANAGEMENT ADVISORY SERVICES. Provident agrees that HPS
shall participate in its loss ratio management analysis during the first sixty
(60) months of the term of the Agreement, including but not limited to those
decisions relating to new business, in force rate adjustments, and plan
modifications. In that regard, Provident shall inform HPS of all decisions to be
made within 10 days prior to the proposed decision date, give HPS reasonable
access to relevant information connected with such decision, and give HPS a
reasonable opportunity to provide input.
2.10 PERFORMANCE STANDARDS. HPS shall perform its services hereunder
pursuant to the performance standards (the "Performance Standards") set forth in
Appendices 2.10(A), (B) and (C) attached hereto and incorporated herein by
reference. The performance standards fall into three categories:
(i) Those where Provident suffers indirectly when HPS
does not meet the Performance Standards set forth in Appendix 2.10(A)
hereto ("Quality of Service Standards");
(ii) Those where Provident suffers directly as a result
of HPS not implementing/executing the Performance Standards set forth in
Appendix 2.10(B) hereto ("Policy/Procedure Standards"); and
(iii) Those where Provident suffers indirectly when HPS
does not meet Performance Standards set forth in Appendix 2.10(C) hereto
("Data Warehouse Standards").
The following penalties shall apply for non-compliance with the above
Performance Standards:
(a) $10,000 per infraction, to a maximum of $85,000 per
month (on a prorata basis depending upon when in the month following the
60-day cure period that such infraction is cured) and $360,000 per year
for any "Quality of Service Standard" or any Data Warehouse Standard"
violations unremedied for more than 60 days after the date Provident
notifies HPS of such violation in writing.
(b) Any and all losses, damagesand costs in excess of
$20,000 per claim, for any "Policy/Procedure Standard" violation; and
(c) Provident may terminate this Agreement and receive
liquidated damages equal to 200% of the "direct costs" referred to in
Section 17.8 hereof, for any "Quality of Service Standards" or any "Data
Warehouse Standard" violation which is unremedied for more than 120 days
after the date Provident notifies HPS of the violation in writing.
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All penalties assessed herein shall be paid to Provident on the 15th day
of the month following the later of receipt of notice of violation or the end of
the applicable cure period, and the amount shall be calculated back to the end
of the applicable cure period.
The parties hereto agree that drafts of Appendices 2.10(A), (B) and (C)
as of the date of this Agreement shall be finalized within four (4) weeks of the
date of this Agreement. Such finalized Appendices shall be mutually agreed upon
and shall include, at a minimum, information on the drafts as of the date of
this Agreement. In the event that the parties cannot agree within four (4) weeks
of the date of this Agreement as to the form of Appendices 2.10 (A), (B), and
(C), the draft forms attached hereto shall be applicable until agreement is
reached.
2.11 DATA WAREHOUSE REQUIREMENTS. HPS agrees to comply with the data
warehouse requirements set forth in Appendix "2.10(C)" hereto.
PART 3
MARKETING ASSISTANCE SERVICES
3.1 MARKETING. Provident shall be responsible for all marketing services
and materials provided hereunder.
PART 4
PARTICIPATION DOCUMENTS
4.1 PREPARATION AND DISTRIBUTION OF PARTICIPATION DOCUMENTS. Provident
shall prepare, at its own cost, the layout, design, and copy of all
Certificates, booklets, identification cards, and other written documents
relating to participation in the Program to be delivered to any Agent and/or
Enrollee (each a "Participation Document"). HPS shall distribute and pay the
cost of the distribution of the Participation Documents to Agents and/or
Enrollees as reasonably required by Provident, in accordance with a schedule to
be mutually agreed upon by the Parties.
4.2 PRINTING/DELIVERY. To the extent reasonably required by Provident,
HPS shall arrange for the printing of all or part of the Participation
Documents. In the event that Provident requires such printing service, then
Provident shall deliver to HPS a camera-ready copy of the prototype of such
Participation Documents, and a copy stored on a 3 1/2" standard computer
diskette in an American standard code for information interchange, at least
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twenty-five (25) Business Days before the first date on which HPS is required to
distribute such Participation Documents pursuant to Section 4.1 above. HPS shall
arrange for the printing of such Participation Documents, and HPS shall be
responsible for the cost of such printing. In the event that Provident does not
require HPS to arrange for printing any Participation Documents, then Provident
shall make deliveries to HPS, on a schedule to be mutually agreed upon by the
Parties, of sufficient Participation Documents to allow HPS to maintain a
three-month supply of such Documents.
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4.3 DISTRIBUTION. HPS shall promptly distribute the Participation
Documents in accordance with this Part 4 at no cost to Provident.
Notwithstanding the foregoing, if a change in any Participation Documents
results in a redistribution of such Participation Documents, then Provident
shall reimburse HPS for the total postage and other direct costs associated with
such redistribution, except to the extent that the change is required as a
result of an error that is solely the responsibility of HPS.
4.4 VENDOR MATERIALS. Notwithstanding anything contained in this Part 4
to the contrary, Provident shall be responsible for procuring all vendor
materials, including but not limited to PPO directories, managed care cards
(other than policy issue I.D. cards which are the responsibility of HPS and
shall be at HPS's cost), pharmaceutical cards, and other vendor cards and
materials. HPS shall be responsible for mailing all vendor materials and the
mailing cost.
PART 5
PREMIUM COLLECTION AND COMMISSION PAYMENTS
5.1 BILLING AND COMMISSION PAYMENTS. On behalf of Provident, HPS, at its
cost, shall bill each Enrollee for Premium amounts and other amounts owed by
such Enrollee to Provident, calculate commissions to agents, prepare and
distribute commission statements, and distribute commissions to agents (funded
by Provident), in accordance with Provident's policy and procedure, subject to
mutual agreement (as previously referred to).
5.2 RECEIPT OF PREMIUM PAYMENTS. On behalf of Provident, HPS shall
receive and credit all Premium payments and other payments made by Enrollees,
and shall make all cash adjustments for Premium refunds and other required cash
transfers with respect to such payments, in accordance with Provident's policy
and procedure. Any Premium payments that are received by HPS shall be deemed to
have been received by Provident, but the payment of return Premium amounts by
Provident to HPS shall not be deemed payment to an insured or claimant until
such payment is received by such insured or claimant. Nothing in this Section
5.2 shall limit any right of Provident against HPS resulting from HPS' failure
to make payments to Provident or to any insured claimant.
5.3 REMITTANCE. HPS shall immediately deposit each Premium payment or
other payment it receives from an Enrollee into a separate custodian account in
trust for Provident (the "Custodial Account") at First Union National Bank, or
at such other financial institution as the parties may agree. The parties agree
that funds flowing in and out of the Custodial Account shall be limited as
follows:
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(a) On or before the seventh (7th) calendar day of each
month (or if the seventh (7th) falls on a day other than a Business Day, then on
the first Business Day thereafter), HPS shall initiate, with Provident's joint
signature, the transfer by Automated Clearing House Transfer ("ACH") to an
account designated by HPS an amount equal to the Remittance Due. The term
"Remittance Due" shall be an amount equal to the HPS compensation for the prior
month, commissions paid during the prior month, all investment earnings
generated by the Custodial Account and other reimbursable items that may
include, but not be limited to, premium refunds, attending physician statements,
PPO Directories, and third party vendor payments, all such amounts may be
estimated as necessary with an adjustment in the following month for any over
payment or under payment.
(b) On or before the fifteenth (15th) calendar day of each
month (or if the fifteenth (15th) falls on a day other than a Business Day, then
on the first Business Day thereafter), HPS shall initiate, with Provident's
joint signature, the transfer by ACH to an account designated by Provident an
amount equal to all premiums deposited in the Custodial Account during the prior
month, minus the Remittance Due (as described in Section 5.3(a) above).
(c) The Parties agree that the foregoing procedures must
be reflected in an appropriate
agreement with First Union National Bank or such other financial institution as
the Parties may agree, the Parties will use their best efforts to promptly
complete such agreement, it being understood that the account shall require an
authorized signature from both HPS and Provident, with such signatures to not be
unreasonably withheld, in order to make any withdrawals from the account. In the
event that on or after the fifteenth, HPS refuses to authorize the withdrawal
within forty-eight (48) hours after written notice thereof by Provident,
Provident may independently initiate withdrawals from the Custodial Account
provided that such withdrawals do not reduce the balance of the Custodial
Account below $12,000,000, it being understood that the distribution of funds in
excess of $12,000,000 of Collected Funds in any one month shall be subject to
the sole signatory of Provident.
5.4 RECONCILIATION. On or before the seventh calendar day of each month
(or, if the seventh falls on a day other than a Business Day, then on the first
Business Day thereafter), HPS shall deliver to Provident a reconciliation report
of the Custodial Account for the previous month (the "Reconciliation Report"),
which Reconciliation Report shall set forth (i) the total amount of Premium and
other payments deposited into the Custodial Account during such month, as
adjusted for Premium refunds and other required cash transfers with respect to
such Premium payments (the "Collected Funds"), and (ii) the Remittance Due.
5.5 REPORTS. Subject to the terms of Section 3.4 above, HPS shall
provide Provident with such reports regarding Premium billing and remittance as
are reasonably required by Provident, in a format and on a timetable to be
mutually agreed upon by the Parties. HPS shall maintain records of cash receipts
and disbursements relating to HPS'
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performance of services under the Program, as required by laws and regulations
applicable to third party administrators.
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5.6 DEPOSITS. Any Premium payment received from an individual prior to
the final coverage determination with respect to such individual (any "Deposit")
shall not at that time be deemed to be a "Premium" for purposes of this Section
5 or any other provision of this Agreement. As reasonably required by Provident,
HPS shall place each individual's Deposit in the Custodial Account until such
individual is accepted for coverage under the Policy in accordance with the
terms of this Agreement, at which time the Deposit will be deemed to be a
"Premium" for purposes of this Agreement. In the event that such individual is
not accepted for coverage under the Policy, then HPS shall return the Deposit to
such individual in accordance with procedures reasonably required by Provident.
PART 6
RECORDS
6.1 RECORD RETENTION; DATA. During the term of this Agreement and for a
period of seven (7) years after termination hereof, HPS shall maintain at its
principal administrative office, in original form or on electronic media,
adequate books and records of all transactions between HPS, Provident, and
Enrollees (the "Records"), in accordance with all rules and regulations of
regulatory authorities applicable to third party administrators (including but
not limited to state laws requiring that HPS provide state officials with access
to such books and records). HPS and Provident may use the data recorded on such
Records for any purpose, subject to the provisions of this Agreement and
Applicable Law (including laws protecting confidential Enrollee information).
HPS shall retain full ownership rights over all compilations, analyses, and
reports generated by HPS, as well as all proprietary technology, software, and
other data utilized by HPS in the performance of its obligations under this
Agreement. Such ownership rights shall include, but are not limited to, all
rights associated with publication, trade secrets, copyrights, trademarks, and
patents.
6.2 PROVIDENT ACCESS. Provident is the legal owner of the Records and
retains the right to continuing access to the Records needed by Provident to
fulfill all its obligations to Enrollees, subject to the terms of this
Agreement, Applicable Law, and laws, rules, and regulations applicable to third
party administrators. All Records maintained by HPS hereunder shall be used by
HPS solely for the day-to-day operational purposes contemplated by this
Agreement and shall be made available to Provident during normal business hours
of any Business Day for review, inspection, examination, and, reproduction,
provided that Provident provides HPS with reasonable notice of its intention to
inspect the Records, and provided that Provident reimburses HPS for HPS'
reasonable cost of reproduction. If HPS is required to disclose any of such
Records to any third party pursuant to Applicable Law or any law, rule or
regulation applicable to third party administrators, such disclosure shall be at
the expense of Provident. Upon termination of this Agreement, as reasonably
required by Provident and at Provident's expense, HPS shall transfer the Records
within a reasonable time after termination.
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HPS may retain at its discretion copies of all or a portion of the Records,
subject to the terms of this Agreement. Upon the reasonable request of
Provident, and at Provident's expense, HPS shall destroy all or part of the
records, except to the extent prohibited by applicable law.
PART 7
OTHER PROVIDENT RESPONSIBILITIES
7.1 NOTICE OF CHANGES. Provident shall notify HPS of any change in
benefits, rates, forms, commission schedules, or other aspects of the Program:
(i) at least ninety (90) calendar days (or up to 12 months in the event
Provident's proposed changes fundamentally alter the Program) before the date on
which Provident requires HPS to include such change in renewals or proposals
issued in accordance with Section 3.1 above; and (ii) at least thirty (30)
Business Days before Provident requires that HPS notify Enrollees of such change
(whether or not such notice is required by Applicable Law). In the event that
Provident does not provide HPS with notice as required in the previous sentence
with respect to any rate change, then the rates that were applicable before such
change shall apply. The provisions of this Section 7.1 shall not limit any other
remedies that may be available to HPS in the event that Provident fails to
comply with the terms hereof.
7.2 Intentionally deleted.
7.3 PROVIDENT AGENTS. Notwithstanding anything contained herein to the
contrary, Provident shall be responsible for all interface and relationship
management for both sales and service with respect to the agents, subagents, and
MGAs identified by Provident in its list of Agents and subagents. Provident
shall also be financially responsible for paying all Agents' commissions payable
in connection herewith and which are distributed by HPS.
7.4 ATTENDING PHYSICIAN FEES. Provident shall be responsible for and pay
all attending physician fees incurred in connection with the underwriting
process.
7.5 MISCELLANEOUS. Provident shall be responsible for all PPO network
contracting, managed care contracting, vendor fees, agent appointment fees, and
all other fees except for third party administrator licensing fees.
7.6 PROVIDENT ENTERING SMALL GROUP BUSINESS. During 1998, provided HPS
provides assistance in developing the True Small Group market, Provident shall,
with the assistance of HPS, use its best efforts to enter the True Small Group
market, and HPS shall serve as the exclusive administrator of such business on
such terms as the Parties hereto may mutually agree. The exclusivity herein
provided shall become non-exclusive if after ninety (90) days' written notice by
Provident, HPS shall not agree to provide the service, product
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design and distribution of products in the True Small Group market.
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7.7 QUARTERLY MEETINGS. At HPS's request, the Chairman and CEO of
Provident agree to be available to meet quarterly with HPS to discuss the
business being transacted pursuant to this Agreement, future direction, and
profitability.
PART 8
AUDIT
Provident shall have the right to audit the books and accounts of HPS
relating to all transactions subject to this Agreement, in accordance with
Applicable Law and subject to the terms of this Agreement. Such audits shall be
conducted in a reasonable manner.
PART 9
UNDERWRITING
HPS shall perform underwriting services as requested by Provident.
Provident expressly retains sole authority to establish underwriting rules for
approval of applicants for coverage under the Program. The establishment of such
rules shall be solely within the discretion of Provident and will be contained
in written underwriting rules provided to HPS. HPS shall have authority to
implement and apply Provident's underwriting guidelines but may not modify any
term or condition of any Certificate or waive any provision thereof except to
the extent required by Provident. HPS shall refer any questions regarding
implementation of Provident's underwriting guidelines to Provident. Provident
shall provide designated HPS employees with sufficient training with respect to
the Provident underwriting guidelines. Such training shall include but not be
limited to (i) at least five (5) Business Days of training at HPS offices by a
senior Provident underwriter prior to the date on which HPS begins underwriting
the Program, (ii) during the first six (6) months after HPS begins underwriting
under the Program, monthly training sessions at HPS offices by senior Provident
underwriters, and (iii) annual training sessions at HPS offices by senior
Provident underwriters. On sixty (60) days advance written notice to HPS,
Provident may assume responsibility for underwriting (with a corresponding
reduction in the Additional Service Fees).
PART 10
ADVERTISING
10.1 ADVERTISING MATERIALS. HPS shall not use any written or oral
advertisement that bears Provident's name unless HPS has obtained Provident's
prior written approval of
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such advertisement. To the extent required by Applicable Law, HPS shall keep a
file of all advertisements used by HPS in the performance of its obligations
hereunder.
PART 11
COMPENSATION
11.1 SERVICE FEE. As compensation to HPS for the services that HPS
provides hereunder, and in addition to the other amounts to be paid by Provident
to HPS hereunder, HPS shall retain as a service fee (the "Service Fee,"
specifically defined to include both a Base Service Fee and an Additional
Service Fee) a portion of each Premium payment it receives pursuant to Section 5
hereof. The Service Fee shall be calculated in accordance with the terms of
Exhibit B attached hereto. Notwithstanding anything contained herein to the
contrary, HPS agrees that it shall not price its services for Provident at a
rate any greater than fees charged by HPS to any other carrier for similar
services, regardless of scale.
11.2 HPS ADMINISTRATION FEES. To the extent permitted by Applicable Law,
and approved by Provident, HPS may charge each Enrollee late fees, insufficient
funds fees, and other penalty charges associated with the Premium amounts to be
received by HPS in accordance with this Agreement and Applicable Law. Fees
collected by HPS pursuant to this Section 11.2 will be deposited in the
Custodial Account.
PART 12
RELATIONSHIP OF PARTIES
12.1 CONTRACTUAL RELATIONSHIP. The only relationships between HPS and
Provident are the contractual relationships referred to in this Agreement.
Nothing contained in this Agreement shall be construed to create the
relationship of employer and employee or principal and agent, or to create a
partnership or joint venture relationship, between Provident and HPS. Each
Party's authority shall be limited to that which is expressly stated in this
Agreement. Except as specifically provided elsewhere in this Agreement, neither
Party shall exercise any control over the hours, office location, rentals, or
employees of the other.
12.2 SUBCONTRACTS. HPS may subcontract for the performance of services
which HPS is to provide hereunder; provided, however, that HPS will not, without
Provident's prior written consent, subcontract, except to a Corporate Affiliate
of HPS, for the performance of any services hereunder requiring direct contact
with Enrollees.
12.3 CHANGES IN OBLIGATIONS. In the event that any mandate of a
regulatory body
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having jurisdiction over the Parties hereto, any Applicable Law (as defined in
Exhibit A hereto), any law or regulation applicable to the parties hereto or the
transactions herein contemplated, or any change in the Program results in a
material change in the nature or financial impact of either Party's obligations
or compensation hereunder ("Material Change"), then such Party may provide the
other Party with notice of such Material Change, and the Parties shall negotiate
in good faith an amendment to this Agreement that shall set forth the terms
under which the Parties shall perform such new obligations. In the event that
the Parties cannot reach agreement on an amendment to this Agreement within
thirty (30) calendar days after the delivery of a Material Change notice
pursuant to this Section 12.3, then either Party may terminate this Agreement in
accordance with Section 17.4 below.
12.4 AMENDMENT OF AGREEMENT. In the event that any mandate of a
regulatory body having jurisdiction over the Parties hereto, any Applicable Law,
or any law or regulation applicable to the parties hereto or the transactions
herein contemplated, requires the Parties to amend this Agreement, then the
Parties shall negotiate in good faith to amend this Agreement in order to comply
with such law or regulation. In the event that the Parties cannot reach
agreement with respect to an amendment of this Agreement pursuant to this
Section 12.4, then either Party may terminate this Agreement pursuant to Section
17.5 below.
12.5 HPS SALES OF INDIVIDUAL GROUP ASSOCIATION PRODUCTS. For a period of
one (1) year from the Effective Date of the Agreement (and during the remaining
term of this Agreement, provided the annualized premium administered by HPS for
Provident exceeds $65,000,000 and does not fall below such amount for two
consecutive quarters), HPS agrees not to sell any individual or group
association health insurance products on behalf of payors other than Provident
if such products directly compete with the individual products sold by Provident
in connection herewith. Individual or group association products do not include
True Small Group which, by definition, may include individuals. Notwithstanding
anything contained herein to the contrary, this Section 12.5 shall not apply
with respect to any HMO health care product HPS currently sells, markets, or
distributes, or wishes to sell, market, or distribute in the future, or to the
extent that:
(a) HPS desires to sell, market, or distribute an individual or
group association health insurance product in a state in which Provident
is either not licensed to conduct business or is not willing to conduct
business;
(b) Provident (or another fronting carrier acceptable to HPS, in
its sole and absolute discretion) does not meet specifications for a
particular health insurance product offering designed by a non-carrier
which HPS desires to sell, market, or distribute directly to the
consumer, without the involvement of independent agents and/or brokers
(because, for example, of Provident's A.M. Best rating);
(c) HPS desires to sell, market, or distribute an individual or
group
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association health insurance product for or on behalf of any of its
current customers, for which HPS currently sells individual or group
association health insurance products; or
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(d) HPS has asked Provident to supply an individual or group
association health insurance product in connection with a marketing
opportunity which will not involve any independent MGAs, and Provident
either declines or fails to make the product available within a
reasonable time frame.
Further, HPS may perform any and all administration, risk management, and other
back office services for any and all carriers, whether or not such carriers
currently have a business relationship with HPS.
12.6 OTHER VENDORS. Provident shall not engage a third party
administrator other than HPS for the services and Program which are the subject
of this Agreement for the term of this Agreement.
12.7 FIRST AGREEMENT AMENDMENTS. The parties hereto agree to negotiate,
in good faith, an amendment to the First Agreement, only with regard to Part 5,
Premium Collection and Commission Reports, and adjustments that may be necessary
to compensate HPS in connection therewith.
PART 13
COMPLAINTS AND LITIGATION
13.1 NOTICE OF REGULATORY ACTION. Each Party shall promptly notify the
other Party of any complaint to or from any federal or state regulatory agency
of which such Party becomes aware in connection with any transaction covered by
this Agreement. In the event that HPS receives a complaint letter from any state
insurance department, then HPS shall forward such complaint letter, together
with its file and a detailed report on the matter, to Provident promptly by
express delivery.
13.2 NOTICE OF LITIGATION. Each Party shall promptly notify the other
Party of any litigation or attorney's letter threatening litigation of which
such Party becomes aware in connection with any transaction covered by this
Agreement. Each Party shall forward to the other Party promptly by express mail
any summons or complaint received by such Party in connection with any matter
covered by this Agreement.
13.3 DEFENSE COSTS. Except as provided in Part 14 below, each Party
hereto shall be responsible at its own expense for defending itself in any
litigation brought against it, whether or not the other Party hereto is also a
defendant, arising out of any aspect of activities engaged in connection with
this Agreement.
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PART 14
INDEMNIFICATION AND INSURANCE
14.1 HPS INDEMNIFICATION OF PROVIDENT. Except as set forth in Section
14.2 below, and as provided in Section 2.10, HPS agrees to indemnify and hold
harmless Provident, and its parents, subsidiaries, affiliates, officers, agents,
and employees, from and against any and all losses, costs, claims, demands, and
damages, including but not limited to attorneys' fees, arising out of or caused
by any act or omission which is an intentional breach of this Agreement, or
proven gross negligence, proven fraudulent conduct, or embezzlement of HPS, its
officers, agents, or employees.
14.2 PROVIDENT INDEMNIFICATION OF HPS. Except as set forth in Section
14.1 above, Provident agrees to indemnify and hold harmless HPS, and its
parents, subsidiaries, affiliates, officers, agents, and employees, from and
against any and all losses, costs, claims, demands, and damages, including but
not limited to attorneys' fees, arising out of or caused by:
(a) any act done by Provident, or any omission by
Provident, in connection with the carrying out or performance of its
obligations in connection with the Program or this Agreement, or any
action or inaction by HPS that was taken or not taken at the direction
or request of Provident (or in accordance with Provident's underwriting,
administration, and claims guidelines, rules, policies, or procedures as
set forth herein); and
(b) intentional breach of this Agreement, proven gross
negligence, proven fraudulent conduct or embezzlement attributable to
Provident, its officers, agents, or employees.
14.3 INSURANCE. During the term of this Agreement HPS shall maintain, at
HPS expense, insurance in effect that covers loss by reason of acts of fraud or
dishonesty, fidelity and errors and omissions. Such insurance shall be in an
amount of no less than $2,000,000 and shall list Provident as a named insured to
the extent of its interest therein. HPS shall cause the issuer of each insurance
policy to deliver to Provident evidence of the existence of such policy and
shall require the insurer to give Provident thirty (30) calendar days written
notice prior to cancellation of, or any material change in, the policy. HPS
shall provide Provident with prompt notice of any such change. The Parties
hereto acknowledge that pursuant to that certain HPC Executive Protection Policy
(#8142-20-00), specifically Section 12 thereof, HPC, as the first named insured
therein has various rights and is subject to certain restrictions contained
therein. Any losses or other payments received by HPC thereunder, to the extent
of Provident's interest therein, shall be forwarded to Provident by HPC within
five (5) days of receipt by HPC.
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PART 15
REGULATORY AND OTHER LIABILITY
15.1 HPS WARRANTIES, REPRESENTATIONS, AND COMPLIANCE. In the conduct of
its business and the performance of its obligations under this Agreement, HPS
(a) warrants and represents to Provident that it is in compliance with, and
shall continue to comply with, all Applicable Law, all applicable statutes,
ordinances, rules, and regulations of any and all federal, state, and municipal
regulatory authorities specifically applicable to third party administrators
(including but not limited to applicable bond requirements). Except as otherwise
specifically provided in this Agreement, HPS shall be solely responsible for,
and, shall comply with all Applicable Law with respect to the services it is
performing hereunder. Where required by state law or regulation, HPS shall hold
a certificate of registration as a third party administrator issued by the
Department of Insurance or other regulatory body. To the extent required by (and
in accordance with the requirements of) laws applicable to third party
administrators, HPS shall provide written notice to Enrollees of the terms of
this Agreement. At Provident's reasonable request, HPS shall provide Provident
with any HPS records evidencing compliance with third party administrator
regulations; and (b) warrants to Provident that (i) HPS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and (ii) this Agreement constitutes a valid and binding obligation of
HPC and HPS enforceable against HPC and HPS in accordance with its terms. The
undersigned officers have the full power and authority to execute and deliver
this Agreement and perform the obligations of HPS hereunder, and no further
action or authorization is necessary on the part of HPS or the undersigned
officers in order to consummate the transaction herein contemplated.
15.2 PROVIDENT WARRANTIES, REPRESENTATIONS, AND COMPLIANCE. In the
conduct of its business and the performance of its obligations under this
Agreement, Provident (a) warrants and represents to HPS that it is in compliance
with, and shall continue to comply with, all Applicable Law, all statutes,
ordinances, rules and regulations of any and all federal, state, and municipal
regulatory authorities. Except as otherwise specifically provided in this
Agreement, Provident shall be solely responsible for, and shall comply with all
Applicable Law with respect to, all aspects of the design and implementation of
the Program, including but not limited to (i) Agent appointment and licensure
(including all fees associated therewith), (ii) underwriting criteria and
coverage determinations, (iii) the disposition of Premium amounts prior to final
coverage determinations, (iv) the rights or obligations to Enrollees, (v) the
scope of benefits under the Certificates, (vi) Premium rates, and (vii) the
content of the Policy, the Materials, Participation Documents, group contracts,
and Certificates. At HPS' reasonable request Provident shall provide HPS with
written guidelines setting forth procedures applicable to these matters.
Provident shall notify HPS of any Provident obligation under Applicable Law that
HPS is required to perform on behalf of Provident in accordance with this
Agreement; and (b) warrants to HPS that (i) each of Provident American
Corporation and Provident American
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Life and Health Insurance Company are corporations duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, (ii) this Agreement constitutes a valid and binding obligation
against each of them enforceable against each of them in accordance with its
terms. The undersigned officers have the full power and authority to execute and
deliver this Agreement and perform the obligations of hereunder, and no further
action or authorization is necessary on the part of either of them or the
undersigned officers in order to consummate the transaction herein contemplated,
and (iii) PILIC is the owner of 100% of the issued and outstanding shares of the
capital stock of PALHIC.
PART 16
CONFIDENTIAL AND PROPRIETARY INFORMATION
16.1 CONFIDENTIAL INFORMATION. For purposes of this Agreement,
"Confidential Information" of a Party shall mean any confidential and/or
proprietary information belonging to such Party, including but not limited to
information concerning (i) the terms of this Agreement and discussions of the
matters described herein, and (ii) the business and operations of such Party,
such as all information regarding Participating Agents, the costs to each Party
of performing its obligations under this Agreement, insureds, Agents,
policyholders, products, Agent lists, distribution strategies, loss ratio
information, and marketing programs, and information regarding Provident
insureds, including Enrollees. Notwithstanding the foregoing, "Confidential
Information" shall not include:
(a) information that, at the time of disclosure to the
Party receiving the information (the "Receiving Party"), is in the
public domain;
(b) information that, after disclosure, is published or
otherwise becomes part of the public domain through no fault of the
Receiving Party;
(c) information that was in the Receiving Party's
possession or the possession of an affiliate of the Receiving Party at
the time of disclosure to the Receiving Party;
(d) information that is received by the Receiving Party in
good faith from an independent source that has no duty of nondisclosure
with respect to the information (or, if such source does have a duty of
nondisclosure, the Receiving Party was unaware of or had no reasonable
basis for knowing of such duty); or
(e) information that a Party is required by Applicable Law
to disclose to a third party, to the extent of such disclosure.
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16.2 PROTECTION OF CONFIDENTIAL INFORMATION. Except as otherwise
specifically provided in this Agreement or as otherwise required by Applicable
Law, each Party (a) shall hold in confidence any and all Confidential
Information which belongs to the other Party and shall take such precautions
with respect to such Confidential Information as it normally takes with its own
confidential and/or proprietary information, and (b) shall not use the
Confidential Information of the other Party (including any information relating
to Agents or Enrollees) for any purpose other than the performance of its
obligations under this Agreement. In particular, HPS agrees that it shall not
disseminate or utilize Provident's database of MGAs, Agents or subagents
(although Provident expressly acknowledges that HPS may currently use the
services of certain individuals contained on such databases, and nothing herein
shall prohibit HPS from continuing to use such individuals, it being the
objective of this provision to prevent HPS' dissemination or use of "the
database," (particularly in a manner which competes with Provident's
distribution) not HPS' use of specific individuals named therein).
16.3 JUDICIAL PROCEEDINGS. Each Party shall endeavor to keep and assist
the other Party's keeping the Confidential Information confidential in judicial
or administrative hearings or proceedings, and shall provide assistance in
obtaining confidential treatment under applicable laws, statutes, or
regulations. If a Party finds it necessary to disclose any Confidential
Information in any such judicial or administrative hearing or proceeding, the
Party shall immediately notify the other Party and shall attempt to disclose
such Confidential Information "in camera" or subject to "protective order" or on
some other non-public basis.
16.4 ENROLLEE INFORMATION. HPS shall not supply information regarding
any Enrollee to any Party that is not affiliated with HPS or Provident, except
as may be required by this Agreement or Applicable Law, or as permitted in
writing by such Enrollee.
PART 17
TERM AND TERMINATION
17.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue in effect until December 31, 2002 unless terminated in
accordance with the provisions of this Part 17. The term shall automatically
renew for successive one (1) year terms unless either Party provides the other
with 180 days advance written notice of its intent not to renew.
17.2 Intentionally deleted.
17.3 TERMINATION FOR CAUSE. In the event that a Termination Event has
occurred with respect to a Party (the "Defaulting Party"), then the other Party
may terminate this Agreement upon thirty (30) calendar days written notice to
the Defaulting Party. Such notice
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shall be given within a reasonable time after the occurrence of the Termination
Event, and shall describe such Termination Event in reasonable detail. For
purposes of this Agreement, the occurrence of any of the events specified below
in this Section 17.3 shall constitute a "Termination Event" with respect to a
Party.
(a) BREACH OF AGREEMENT. A Termination Event shall be
deemed to occur with respect to a Party if such Party breaches this
Agreement, and the Breach continues for a period of sixty (60) calendar
days after such Party receives written notice of the Breach from the
other Party. Notwithstanding the foregoing, if such Breach is not
reasonably susceptible to correction within such sixty-day period, then
a Termination Event shall not be deemed to have occurred if the Party in
Breach commences and diligently pursues corrective action within such
sixty-day period, and the Breach is cured within a reasonable time
thereafter.
(b) DISSOLUTION; INSOLVENCY. A Termination Event shall be
deemed to occur with respect to a Party upon the occurrence of any of
the following:
(i) the entry of a decree or order for relief of
such Party by a court of competent jurisdiction in any
involuntary case involving such Party under any bankruptcy,
insolvency, or other similar law now or hereafter in effect, or
the filing with respect to such Party of a petition in any such
involuntary bankruptcy or similar case, which petition remains
undismissed for a period of ninety (90) calendar days;
(ii) the appointment of a receiver for such Party
or substantially all the assets of such Party; or
(iii) the commencement by such Party of a
voluntary case under any bankruptcy or insolvency law (or other
similar law now or hereafter in effect), or the dissolution of
the business and operations of such Party necessary for such
Party to perform its obligations hereunder.
17.4 TERMINATION UPON MATERIAL CHANGE. In the event that a Material
Change Termination Event has occurred, then either Party may terminate this
Agreement upon thirty (30) calendar days written notice to the other Party. For
purposes of this Agreement, a "Material Change Termination Event" shall be
deemed to have occurred if the Parties have been unable to negotiate an
amendment to this Agreement within thirty (30) calendar days after delivery of a
Material Change notice pursuant to Section 12.3 above.
17.5 TERMINATION UPON FAILURE TO AGREE. In the event that the Parties
are unable to reach agreement with respect to an amendment of this Agreement in
accordance with Section
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12.4 above, then either Party may terminate this Agreement upon thirty (30)
calendar days notice to the other Party, unless the Parties reach agreement with
respect to such amendment within the thirty-day notice period.
17.6 SUSPENSION OF UNDERWRITING AUTHORITY. To the extent required by
law, Provident shall have the right to suspend the underwriting authority of HPS
during the pendency of any dispute between the Parties regarding the cause for
termination of this Agreement. Provident shall fulfill all of Provident's lawful
obligations with respect to the Enrollees, regardless of any dispute between
Provident and HPS, and HPS shall cooperate with Provident in this regard.
17.7 NOTICE TO STATE REGULATORS. Provident shall provide the Director of
Insurance of the State of Arizona with fifteen (15) calendar days prior written
notice of termination or cancellation or any other change in this Agreement.
17.8 REMEDIES OF PROVIDENT. Except as set forth in Section 2.10 and
Section 14.1 hereof, Provident shall not, and hereby waives any right to, pursue
any right or remedy at law or equity to recover any losses, costs, claims,
demands, damages, or attorneys' fees arising out of or caused by (i) any Breach
(other than an intentional Breach or as a result of gross negligence or fraud)
of this Agreement or any other Termination Event relating to HPS' performance of
services pursuant to this Agreement, (ii) any Material Change, or (iii) any
other occurrence relating to HPS' performance of services pursuant to this
Agreement. The rights and remedies available to Provident pursuant to Part 14
and Section 2.10 of this Agreement shall be the sole rights and remedies
available to Provident with respect to any losses, costs, claims, damages, or
attorneys fees arising out of this Agreement. Notwithstanding the foregoing,
Provident does not waive its rights to pursue the remedies available to it in
law or equity for an intentional Breach of this Agreement by HPS, gross
negligence, or proven fraud, or as a named insured under the insurance policy or
policies required to be provided pursuant to Section 14.3 hereof.
17.9 REMEDIES OF HPS. Except with regard to remedies available under
Section 11.1 and as set forth in Section 14.2 hereof, HPS shall not, and hereby
waives any right to, pursue any right or remedy at law or equity to recover any
losses, costs, claims, demands, damages, or attorneys' fees arising out of or
caused by (i) any Breach (other than an intentional Breach or as a result of
gross negligence or fraud) of this Agreement or any other Termination Event
relating to Provident's performance under this Agreement, (ii) any Material
Change, or (iii) any other occurrence relating to Provident's performance of
services under this Agreement. The rights and remedies available to HPS pursuant
to Part 14 of this Agreement shall be the sole rights and remedies available to
HPS with respect to any losses, costs, claims, damages, or attorneys' fees
arising out of this Agreement. Notwithstanding the foregoing, HPS does not waive
its rights to pursue the remedies available to it in law or equity for an
intentional Breach of this Agreement by Provident, gross negligence, or proven
fraud. Notwithstanding the foregoing, in the event the Agreement is terminated
for any reason other
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than as provided in Section 17.12 hereof during the first forty-eight (48)
months of the term hereof, Provident agrees to pay HPS the sum of all remaining
Base Service Fee payments (identified in Exhibit B) through the end of the sixty
month term hereof and shall reimburse HPS for all direct costs incurred by HPS
in connection with its effort to undertake the business contemplated hereby on a
pro rated basis. HPS shall have the right to receive such payments in all events
and shall be able to pursue any and all remedies available with respect thereto.
Direct costs shall be formally communicated by HPS in writing within six (6)
months of the Effective Date, for purposes of calculating pro-rata costs over
the sixty (60) month term of this Agreement.
17.10 TRANSITION. Notwithstanding the inherent implied duty of good
faith of the Parties with respect to this Agreement, HPS and Provident agree
that they will cooperate and assist each other upon termination of this
Agreement for any reason to the degree possible consistent with the intent of
this Agreement.
17.11 POST TERMINATION. In the event Provident requires HPS' continued
service for a period of six (6) months after the effective date of termination
of this Agreement for any reason other than a termination by Provident pursuant
to Section 17.3 hereof, Provident shall pay HPS no greater than $6 per claim
incurred before but administered by HPS after such termination date, to the
extent requested by Provident.
17.12 RECAPTURE; RETURN. Notwithstanding any provision to the contrary
in this Agreement:
(a) Provident shall have the right to recapture from HPS
the administrative services of the Program to be performed by HPS hereunder, and
upon the completion thereof to terminate this Agreement. In the event that
Provident desires to exercise the rights granted hereunder, it shall give six
(6) months' written notice thereof to HPS. Upon the termination of this
Agreement as herein provided, Provident shall pay to HPS an amount equal to (i)
Base Service Fee payments for the remainder of the initial term of the Agreement
as set forth in Exhibit "B", in a lump sum, and (ii) a Recapture/Return Fee.
(b) HPS shall have the right to cease providing the
administrative services of the Program and return the administrative services of
the Program to Provident, and upon the transition thereof, to terminate this
Agreement. In the event that HPS desires to exercise the rights granted
hereunder, it shall give six (6) months' written notice to Provident. Upon the
termination of this Agreement as herein provided, HPS shall pay to Provident a
Recapture/Return Fee. In which event, Provident shall pay the Base Service Fee
payments for the remainder of the initial term of the Agreement as set forth in
Exhibit "B".
PART 18
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MISCELLANEOUS PROVISIONS
18.1 IDENTIFICATION OF SERVICES. HPS shall use its best efforts to
perform, whenever possible, the administrative services hereunder on behalf of
Provident under the name of Provident such that Provident's Agents,
policyholders, insureds, Enrollees, and providers shall maintain
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identification with Provident and shall not be provided with any identification
to HPS or any of its subcontractors.
18.2 GUARANTEE BY HPC. As an inducement to Provident to enter into this
Agreement, HPC guarantees the prompt and timely performance by HPS of the
obligations of HPS as set forth in this Agreement.
18.3 MODIFICATION; WAIVERS. No modification, amendment or waiver of this
Agreement, or any part of it, shall be valid unless in writing, signed by the
Party sought to be charged therewith. No waiver of any Breach or condition of
this Agreement shall be deemed to be a waiver of any subsequent Breach or
condition, whether of like or different nature.
18.4 GOVERNING LAW. This Agreement shall be subject to and construed
under the laws of the Commonwealth of Pennsylvania (but not including the choice
of law rules thereof). The parties hereto agree to consent to the jurisdiction
and venue of the courts of the Commonwealth of Pennsylvania located in
Montgomery County, Pennsylvania, and of the United States District Court for the
Eastern District of Pennsylvania, and agree that all disputes between the
parties shall be litigated only therein.
18.5 REFERENCES AND SECTION HEADINGS. Any reference to the singular
shall include reference to the plural, and vice versa. Part and section headings
are intended for the purpose of description only and shall not be used for
purposes of interpretation of this Agreement.
18.6 SEVERABILITY. In the event any court of competent jurisdiction
holds that a particular provision or requirement of this Agreement is in
violation of any Applicable Law, such provision or requirement shall be enforced
only to the extent it is not in violation of such Applicable Law or is not
otherwise unenforceable, and all other provisions and requirements of this
Agreement shall remain in full force and effect.
18.7 NOTICES. Any notice, demand or other document required or permitted
to be delivered hereunder shall be in writing and shall be (i) mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, (ii) delivered in person, by reputable delivery service, (iii) sent by
telegram, or (iii) transmitted by facsimile, and shall be addressed to the
recipient Party at the address indicated below, or at such other address as such
party shall indicate in a notice to the other Party sent in accordance with this
Section 18.7:
(a) If to HPS:
HealthPlan Services, Inc.
Attention: Phillip S. Dingle
Senior Vice President & Chief Counsel
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<PAGE>
If Delivered By Hand:
3501 Frontage Road
Tampa, FL 33607
If Delivered By U.S. Mail:
P.O. Box 30098
Tampa, FL 33630-3098
If Delivered By Fax:
813/287-6629
(b) If to Provident:
If Delivered By Hand or By U.S. Mail:
James O. Bowles, President and Chief
Operating Officer
Provident Indemnity Life Insurance Company
2500 DeKalb Pike
Norristown, PA 19404-0511
If Delivered By Fax:
610/279-1486
(c) With a copy to:
M.F. Beausang, Jr., Esq.
Butera, Beausang, Cohen & Brennan
630 Freedom Business Center
Suite 212
King of Prussia, PA 19406-1331
Each notice, demand or other document that is delivered in the manner described
above shall be deemed to be sufficiently delivered, given, served, sent,
provided, and received for all purposes at such time as it is delivered to the
addressee (with the return receipt, delivery receipt, affidavit of messenger or,
with respect to a facsimile transmission, the answerback
-28-
<PAGE>
being conclusive, but not exclusive, evidence of such delivery), or at such time
as delivery is refused upon presentation.
18.8 ENTIRE AGREEMENT. This Agreement and the attached Exhibits and
Appendices hereto contains the whole of the understanding between the Parties
hereto relating in any manner of its subject matter, and any representation,
warranty, covenant, understanding or agreement not contained or incorporated in
it by reference shall be of no force or effect. As of the Effective Date, this
Agreement supersedes all prior proposals, discussions, writings, and agreements
between any of the parties to this Agreement relating the subject matter hereof.
18.9 BINDING AGREEMENT: ASSIGNMENT. This Agreement and all the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their permitted assigns. Neither this Agreement nor any other rights,
interests, or obligations hereunder my be assigned by either Party without the
prior written consent of the other Party hereto, which consent will not be
unreasonably withheld. Any assignment in violation of this Agreement shall be
void and to no effect. Notwithstanding the foregoing, upon sixty (60) days'
prior written notice to such effect, HPS may assign its rights and obligations
hereunder to a Corporate Affiliate.
18.10 THIRD PARTY BENEFICIARIES. This Agreement shall not, and is not
intended to, confer upon any party, other than the Parties hereto and their
successors and permitted assigns, any rights, remedies, obligations or
liabilities, except as expressly provided herein.
18.11 FORCE MAJEURE. Neither Party shall be liable for any delay or
failure to perform its obligations under this Agreement arising out of a cause
beyond its control or without its fault or negligence. Such causes may include,
but are not limited to, fires, floods, and natural disasters.
18.12 SURVIVAL. Each applicable provision of Section 2.10, Part 5 (for
payments owed to Provident hereunder) Part 6, Part 8, Parts 14 through 16, and
Sections 17.8, 17.9, 17.10 and 17.12 of this Agreement, as well as any other
provision applicable to the implementation of such provisions, shall survive
termination of this Agreement for any reason, and for a period of one (1) year
thereafter, unless by its terms it is no longer applicable.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date set forth hereunder.
HEALTHPLAN SERVICES, INC.
Dated: 10/16/97 By: /s/ TIMOTHY T. CLIFFORD
------------------ --------------------------------
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<PAGE>
Timothy T. Clifford
Chief Operating Officer,
Small Group Business
HEALTHPLAN SERVICES
CORPORATION
Dated: 10/16/97 By: /s/ TIMOTHY T. CLIFFORD
------------------ --------------------------------
Timothy T. Clifford
Chief Operating Officer,
Small Group Business
PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY
Dated: 10/16/97 By: /s/ JAMES O. BOWLES
------------------ --------------------------------
James O. Bowles, President
and Chief Operating Officer
PROVIDENT AMERICAN LIFE AND
HEALTH INSURANCE COMPANY
Dated: 10/16/97 By: /s/ JAMES O. BOWLES
------------------ --------------------------------
James O. Bowles, President
and Chief Operating Officer
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<PAGE>
LIST OF EXHIBITS
EXHIBIT A GROUP POLICIES
EXHIBIT B TREATY
EXHIBIT C HEALTHPLAN SERVICES CASH HANDLING AND FINANCIAL SETTLEMENT
PROCEDURES
EXHIBIT D MASTER BROKER AGREEMENTS
EXHIBIT E RELEVENT MARKETS
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
EXHIBIT 21.1
HEALTHPLAN SERVICES CORPORATION (DE)
SUBSIDIARIES
HEALTHPLAN SERVICES, INC. (FL)
(D/B/A HCI HEALTHPLAN SERVICES; HCI HEALTHPLAN SERVICES, INC.;
HPS SELECT BROKERAGE SERVICES; HARRINGTON BENEFIT SERVICES;
R. E. HARRINGTON)
AMERICAN BENEFIT PLAN ADMINISTRATORS, INC. (CA)
CENTRA HEALTHPLAN LLC (DE) (50.1%)
EMPLOYEE BENEFIT ADMINISTRATORS INSURANCE AGENCY, INC. (MA)
HARRINGTON SOUTHWEST, INC. (MO) (1/3)
HEALTHPLAN SERVICES INSURANCE AGENCY, INC. (MA)
HEALTHPLAN SERVICES INSURANCE AGENCY OF ILLINOIS, INC. (IL)
MONTGOMERY MANAGEMENT CORPORATION (PA) (80%)
PROHEALTH, INC. (DE)
(D/B/A HARRINGTON PROHEALTH OR PROHEALTH COMPCARE IN SEVERAL
STATES)
REH AGENCY OF MISSOURI, INC. (MO)
RETAIL CARD L.L.C. (DE) (50%)
SOUTHERN NEVADA ADMINISTRATORS, INC. (NV)
NATIONAL PREFERRED PROVIDER NETWORK, INC. (NY)
NATIONAL NETWORK SERVICES, INC. (NY)
QUALITY MEDICAL ADMINISTRATORS, INC. (NY)
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, 333-07641,
33-97048, 333-31913, 333-31915, and 333-00150) 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 19, 1999, appearing on page F-1 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
March 29, 1999
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 15,995
<SECURITIES> 0
<RECEIVABLES> 24,433
<ALLOWANCES> (2,599)
<INVENTORY> 0
<CURRENT-ASSETS> 42,841
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<DEPRECIATION> (24,705)
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0
0
<COMMON> 152
<OTHER-SE> 91,500
<TOTAL-LIABILITY-AND-EQUITY> 276,805
<SALES> 0
<TOTAL-REVENUES> 289,247
<CGS> 0
<TOTAL-COSTS> 254,110
<OTHER-EXPENSES> 11,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,643
<INCOME-PRETAX> 18,381
<INCOME-TAX> 8,683
<INCOME-CONTINUING> 9,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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