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EXHIBIT 10.5
WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT
THIS WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT (this "Waiver and
First Amendment") is dated as of the 16th day of October, 1998 among MEDAPHIS
CORPORATION (the "Borrower"), DLJ CAPITAL FUNDING, INC., as the Syndication
Agent (the "Syndication Agent"), WACHOVIA BANK, N.A., as Administrative Agent
(the "Administrative Agent"; the Syndication Agent and the Administrative Agent
are, collectively, the "Agents") and DLJ CAPITAL FUNDING, INC., WACHOVIA BANK,
N.A., CREDITANSTALT and TRANSAMERICA BUSINESS CREDIT CORPORATION, as the Lenders
(collectively, the "Lenders");
W I T N E S S E T H:
WHEREAS, the Borrower, the Syndication Agent, the Administrative Agent
and the Lenders executed and delivered that certain Credit Agreement, dated as
of February 13, 1998 the "Credit Agreement");
WHEREAS, the Borrower has requested that the Agents and the Lenders
grant certain waivers under the Credit Agreement, and the Agents and the Lenders
have agreed to grant such waivers, subject to the terms and conditions hereof,
including the agreement of the Borrower as to the amendments to the Credit
Agreement contained herein;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrower, the Agents and the
Lenders hereby covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein, each term
used herein which is defined in the Credit Agreement shall have the meaning
assigned to such term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Credit Agreement shall from and after the date hereof refer to the Credit
Agreement as amended hereby. The term "Effective Date" means the date set forth
above, but only upon satisfaction of the conditions set forth in Section 15.
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2. Waivers Concerning Settlement of Government Investigations.
(a) Description of the GFS Investigation. The Borrower has
indicated to the Agents and the Lenders that, as disclosed in the Borrower's
filings with the Securities and Exchange Commission provided to the Agents and
the Lenders pursuant to the Credit Agreement, the Borrower has been the subject
of an investigation by the United States Department of Justice and the United
States Attorney's office in Grand Rapids, Michigan with respect to Xxxxxxxx'x
Financial Services, Inc. (the "GFS Investigation"). Xxxxxxxx'x Financial
Services, Inc.* ("GFS") is a wholly-owned subsidiary of the Borrower and a
Subsidiary Guarantor under the Credit Agreement. The Borrower advises the Agents
and the Lenders that it has reached preliminary agreement with the United States
Department of Justice and the United States Attorney's office in Grand Rapids,
Michigan to settle the GFS investigation, which settlement covers all federal
and state claims and will involve the payment by the Borrower of from $15 to $17
million, of which $8 to $10 million will be payable in 1998, with the balance
payable at $3.5 million in each of 1999 and 2000. The Borrower further advises
that an additional payment, anticipated by the Borrower to be less than $50,000,
will be required to pay statutory legal fees in the qui tam litigation
underlying the GFS Investigation.
(b) Description of California Investigation. The Borrower advises the
Agents and the Lenders that it is in active negotiations, and believes that it
is close to reaching agreement, in connection with the investigation conducted
by the United States Attorney's office in Los Angeles, California (the
"California Investigation"), and that the basic terms of the proposed settlement
are:
Payment of $1.5 million to the United States in settlement of
various civil False Claims Act claims;
Payment of $60,000 to the State of California in
settlement of various civil False Claims Act claims;
Payment of $800,000 to one of the qui tam Relators and her
attorneys in settlement of all civil False Claims Act claims,
all employment related claims and all statutory attorneys'
fees and in return for a general release of all claims, known
and unknown, of the Relator against the Borrower or its
subsidiaries; and
A plea by CompMed (a company acquired by the Borrower and
later merged into Medaphis Physician Services Corporation) to
one felony count, payment of a fine of
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*As the Borrower has notified the Agents and the Lenders
previously, GFS's name was changed to Medaphis ER Physicians
Services, Inc. on September 29, 1998
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approximately $380,000, establishment of a restitution fund in
the amount of $650,000 to provide refunds to private carriers,
with any balance after 6 months going to the United States and
the State of California.
Payment of $187,500, plus legal fees estimated at $200,000, to
the second qui tam Relator and its attorneys in settlement of
all civil False Claims Act claims and all California insurance
claims and in return for a general release of all claims.
The Borrower advises that in connection with the proposed settlements
of the GFS and California Investigations, the Office of the Inspector
General of Health and Human Services has agreed with the Borrower that
the Borrower and its subsidiaries will not be excluded from
participation in the Medicare/Medicaid system.
(c) Waivers Concerning the GFS Investigation and the California
Investigation.
(i) Section 7.2.2 of the Credit Agreement prohibits
the Borrower from creating or incurring any indebtedness,
subject to certain exceptions. Section 7.2.2(1) excepts
Indebtedness "the terms and conditions of which shall have
been approved by the Required Lenders and, unless otherwise
approved by the Required Lenders, the Net Debt Proceeds
resulting therefrom are applied in accordance with clause (c)
of Section 3.1.1." As of the Effective Date, the Agents and
the Lenders hereby (x) approve the deferral under the
settlement proposals and (y) acknowledge that they believe
that the proposed settlement will constitute Permitted
Indebtedness within the meaning of the Credit Agreement, for
purposes of Section 7.2.2 of the Credit Agreement.
(ii) Section 7.1.1(e) of the Credit Agreement
requires that the Borrower give the Administrative Agent
notice of "the occurrence of any adverse development which
could reasonably be expected to have a Material Adverse Effect
with respect to any litigation, action or proceeding described
in any filing of the Borrower...filed with the SEC prior to
February 13, 1998... .". As of the Effective Date, the Agents
and the Lenders hereby acknowledge that neither the settlement
of the GFS Investigation nor the settlement of the California
Investigation is an adverse development within the meaning of
Section 7.1.1(e) of the Credit Agreement.
(iii) Section 6.5(c) of the Credit Agreement contains
a representation and warranty by the Borrower that "no
Development has occurred since December 31, 1997 that has
resulted, or could reasonably be expected
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to result in, a Material Adverse Effect". As a condition
precedent to any Credit Extension, Section 5.2.1(a) of the
Credit Agreement requires, among other things, that such
representation and warranty be true and correct in all
material respects as if made both immediately before and after
giving effect to such Credit Extension; and Section 5.2.2 of
the Credit Agreement indicates that the delivery of a request
for a Credit Extension and the acceptance of the benefits
constitutes a representation and warranty that such condition
is satisfied in all material respects. As of the Effective
Date, the Agents and the Lenders hereby acknowledge that (x)
neither of such settlements would be considered a development
that could reasonably be expected to have a Material Adverse
Effect within the meaning of Section 6.5(c) and (y) the
settlement of either of such investigations would not result
in (1) the failure of the condition precedent to Credit
Extensions set forth in Section 5.2(a) to be satisfied in
connection with any Credit Extension or (2) the making by the
Borrower in connection with a Credit Extension of a materially
inaccurate representation and warranty that constitutes an
Event of Default under Section 8.1.2 of the Credit Agreement.
3. Waiver Concerning Financial Covenants.
(a) Description of Anticipated Breach of Financial Covenants. The
Borrower advises the Agents and the Lenders that, based upon current forecasts,
it is possible that the Borrower will not meet the financial covenants set forth
in Section 7.2.4 of the Credit Agreement. The financial covenants include a
maximum Leverage Ratio, minimum Interest Coverage Ratio, minimum EBITDA and
minimum Net Worth. The Borrower advises that if the proposed settlements of the
GFS Investigation and the California Investigation were to be accrued in the
third quarter, it is possible that the Borrower would not meet the financial
covenants regardless of third quarter performance.
(b) Waiver of Anticipated Breach of Financial Covenants. As of the
Effective Date, the Agents and the Lenders hereby (i) waive compliance with the
financial covenants of Section 7.2.4 for the Fiscal Quarter ended September 30,
1998 and (ii) agree that, as a result of such waiver, such non-compliance will
not constitute a Default or an Event of Default under Section 8.1.3 of the
Credit Agreement for such Fiscal Quarter.
4. Sale of MSC.
(a) Description of Proposed Sale of MSC. The Borrower advises the
Agents and the Lenders that it is considering the sale of its Medaphis Services
Corporation ("MSC") subsidiary for cash. If a decision is made to proceed with
such sale, the Borrower would anticipate closing the sale during the fourth
quarter of 1998. Section 7.2.12 of the Credit Agreement
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prohibits the sale of assets in excess of $5 million, subject to certain
exceptions, none of which is applicable to the sale of MSC. The Borrower
anticipates a sales price for MSC exceeding $100 million.
(b) Consent to Sale of MSC. As of the Effective Date, the Agent and the
Lenders (i) consent to the proposed sale of MSC and (ii) waive compliance with
Section 7.2.12 so as to allow the sale, for cash, of MSC and subsequent
application of proceeds to pay down the Credit Facility, and (iii) agree that in
connection with such sale, the Administrative Agent shall release MSC from the
Subsidiary Guaranty and release MSC's assets and the capital stock in MSC from
the Collateral; provided that (x) the Net Disposition Proceeds be used
immediately upon closing of the sale to pay in full all Obligations under the
Credit Facility, (y) on the date of such payment, the Commitments of all Lenders
other than Wachovia Bank, N.A. be terminated, and that the Commitment of
Wachovia Bank, N.A. be reduced to an amount acceptable to Wachovia Bank, N.A.,
in its sole and absolute discretion, and (z) from and after the date of such
sale, until all Letters of Credit are surrendered for cancellation or expire,
the Borrower shall maintain with the Administrative Agent at all times cash
collateral in an amount not less than the undrawn amount of all Letter of Credit
Outstandings (and to the extent of any drawings under the Letters of Credit, the
Administrative Agent is expressly authorized, without notice to the Borrower, to
apply such cash collateral in payment of the related reimbursement obligation).
5. Amendment to Section 1.1. As of the Effective Date, Section 1.1 of
the Credit Agreement hereby is amended by deleting the definition of "Applicable
Margin" and substituting the following therefor:
"Applicable Margin" means at all times during the applicable
periods set forth below:
(a) with respect to the unpaid principal amount of each Loan
maintained as a Base Rate Loan, 1.75% per annum; and
(b) with respect to the unpaid principal amount of each Loan
maintained as a LIBO Rate Loan, 3.0% per annum.
6. New Section 8.1.11. As of the Effective Date, a new Section 8.1.11
hereby is added to the Credit Agreement, as follows:
SECTION 8.1.11. Failure to Sell MSC. Either (i) the Borrower fails to
close a sale of Medaphis Services Corporation for cash, as contemplated
in Section 4(a) of the Waiver and First Amendment by and among the
Borrower, the Agents and the Lenders dated as of October 16, 1998, or
(ii) any of the conditions set forth in the proviso contained in
Section 4(b) of such Waiver and First Amendment shall not be
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satisfied in connection with such sale, in each case on or before
December 15, 1998.
7. Restatement of Representations and Warranties. As of the Effective
Date, and after giving effect to the terms hereof, the Borrower hereby restates
and renews each and every representation and warranty heretofore made by it in
the Credit Agreement and the other Loan Documents as fully as if made on the
date hereof and with specific reference to this Waiver and First Amendment and
all other loan documents executed and/or delivered in connection herewith.
8. Effect of Amendment. Except as set forth expressly hereinabove, all
terms of the Credit Agreement and the other Loan Documents shall be and remain
in full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only, unless otherwise specifically
stated herein.
9. Ratification. The Borrower hereby restates, ratifies and reaffirms
each and every term, covenant and condition set forth in the Credit Agreement
and the other Loan Documents effective as of the date hereof.
10. Counterparts. This Waiver and First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument.
11. Section References. Section titles and references used in this
Waiver and First Amendment shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreements among the parties
hereto evidenced hereby.
12. No Default. To induce the Agents and the Lenders to enter into this
Waiver and First Amendment and to continue to make credit accommodations
available to the Borrower pursuant to the Credit Agreement, the Borrower hereby
acknowledges and agrees that, as of the Effective Date hereof, and after giving
effect to the terms hereof, there exists (i) no Default or Event of Default and
(ii) no right of offset, defense, counterclaim, claim or objection in favor of
the Borrower arising out of or with respect to any of the Loans or other
Obligations of the Borrower owed to the Lenders under the Credit Agreement.
13. Further Assurances. The Borrower agrees to take such further
actions as the Agents shall reasonably request in connection herewith to
evidence the amendments herein contained to the Borrower.
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14. Governing Law. This Waiver and First Amendment shall be governed by
and construed and interpreted in accordance with, the laws of the State of New
York.
15. Conditions Precedent. This Waiver and First Amendment shall become
effective only upon (i) execution and delivery of this Waiver and First
Amendment by the Borrower, the Agents and the Required Lenders, (ii) execution
and delivery of the Consent and Reaffirmation of Guarantors at the end hereof by
each of the Guarantors, (iii) the payment to the Administrative Agent, for its
own account, of a waiver and amendment structuring and processing fee, and
reimbursement to the Administrative Agent for reasonable attorney's fees and
expenses incurred by it in connection with this Waiver and First Amendment,
pursuant to the letter agreement between the Borrower and the Administrative
Agent dated as of October 16, 1998, and (iv) the payment to the Administrative
Agent, for the ratable account of the Lenders, of a waiver and amendment fee of
$250,000.
[SIGNATURES CONTAINED ON NEXT PAGE]
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IN WITNESS WHEREOF, the Borrower, the Agents and each of the Lenders
has caused this Waiver and First Amendment to be duly executed, under seal, by
its duly authorized officer as of the day and year first above written.
MEDAPHIS CORPORATION,
as Borrower (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent and
as a Lender (SEAL)
By: /s/ XXXX X. XXXXX
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Title: Vice President
WACHOVIA BANK, N.A.,
as Administrative Agent and
as a Lender (SEAL)
By: /s/ XXX X. XXXXXXX
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Title: Assistant Vice President
CREDITANSTALT,
as a Lender (SEAL)
By: /s/
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Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
as a Lender (SEAL)
By: /s/ XXXXX XXXXXXXX
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Title: Senior Vice President
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CONSENT AND REAFFIRMATION OF GUARANTORS
Each of the undersigned (i) acknowledges receipt of the foregoing Waiver
and First Amendment to Credit Agreement (the "Waiver and First Amendment"), (ii)
consents to the execution and delivery of the Waiver and First Amendment by the
parties thereto and (iii) reaffirms all of its obligations and covenants under
the Subsidiary Guaranty dated as of February 13, 1998 executed by it, and agrees
that none of such obligations and covenants shall be affected by the execution
and delivery of the Waiver and First Amendment. This Consent and Reaffirmation
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same instrument.
IMPACT INNOVATIONS GROUP, INC.
(formerly known as BSG Government
Solutions, Inc.) (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
CONSORT TECHNOLOGIES, INC. (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
MEDAPHIS ER PHYSICIANS SERVICES, INC.
(formerly known as Gottleib's
Financial Services Inc.) (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
HEALTH DATA SCIENCES CORPORATION (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
MEDAPHIS HEALTHCARE INFORMATION
TECHNOLOGY COMPANY (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
MEDAPHIS SERVICES CORPORATION (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
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MEDAPHIS PHYSICIAN SERVICES CORPORATION (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
NATIONAL HEALTHCARE TECHNOLOGIES, INC. (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
ASSETCARE, INC. (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
AUTOMATION ATWORK (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
IMPACT INNOVATIONS GROUP, INC.
(formerly known as BSG Alliance/IT, Inc.) (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
IMPACT INNOVATION HOLDINGS, INC.
(formerly known as BSG Corporation) (SEAL)
By: /s/ XXXXX X. XXXXXX
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Title: EVP and CFO
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