September 28, 2000
HealthAxis, Inc.
0000 XxXxxx Xxxx
Xxxx Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Board of Directors
Gentlemen:
This letter will set forth the mutual understanding of XxxxxxXxxx.xxx,
Inc., a Pennsylvania corporation ("XX.xxx") and HealthAxis, Inc., a Pennsylvania
corporation ("HAI"), concerning the terms and conditions of certain financing
accommodations to be extended by XX.xxx to HAI.
1. Secured Revolving Line of Credit.
1.1. From and including the date hereof to but not including the Termination
Date, XX.xxx agrees, on the terms and conditions set forth in this
Agreement, to make loans ("Revolving Credit Loans") to HAI from time to
time in an aggregate amount not to exceed $1,100,000 at any one time
outstanding (the "Aggregate Commitment"). For purposes hereof, the
"Termination Date" shall mean the first to occur of (a) March 31, 2001
or (b) effectiveness of the Reorganization contemplated by that certain
Amended and Restated Agreement and Plan of Reorganization by and
between XX.xxx and HAI.
1.2. HAI's obligation to pay the principal of, and interest on, the
Revolving Credit Loans shall be evidenced by a Revolving Credit Note in
the form attached hereto as Exhibit A. Although the Revolving Credit
Note shall be dated the date of the initial Revolving Credit Loan,
interest in respect thereof shall be payable only for the periods
during which the Revolving Credit Loans evidenced thereby are
outstanding and, although the stated amount of the Revolving Credit
Note shall be in the amount of the Aggregate Commitment, the Revolving
Credit Note shall be enforceable, with respect to HAI's obligation to
pay the principal amount thereof, only to the extent of the unpaid
principal amount of the Revolving Credit Loan at the time evidenced
thereby.
1.3. Revolving Credit Loans shall bear interest, payable in a lump sum at
the Termination Date, at the per annum rate of 12%. Interest shall be
computed on the basis of a year of 360 days and the actual number of
days elapsed.
1.4. HAI may from time to time pay, without penalty or premium, all
outstanding Revolving Credit Loans.
1.5. Revolving Credit Loans shall be due and payable upon the first to occur
of (i) the Termination Date or (ii) upon a merger, change of control or
sale of all or substantially all of the assets of HAI.
1.6. Revolving Credit Loans shall be secured by a perfected first security
interest in and to shares of XX.xxx common stock, pledged to XX.xxx in
accordance with and subject to the terms of the Stock Pledge and
Security Agreement attached hereto as Exhibit B and made a part hereof
(the "Security Agreement"). Upon the making of any Revolving Credit
Loan advanced on any Funding Date, HAI shall deliver to XX.xxx in
accordance with the terms of the Security Agreement a certificate or
certificates (accompanied by an executed stock power in blank)
representing the number of shares of XX.xxx common stock equal to (a)
the amount of the Revolving Credit Loan divided by (b) 1.3 times the
Average HAI Trading Price. All such shares of XX.xxx common stock so
delivered shall be free and clear of any and all liens, claims, charges
or encumbrances whatsoever. For purposes hereof, the "Average HAI
Trading Price" shall mean, as of the date of funding of any Revolving
Credit Loan, the average closing price per share of HAI common stock as
quoted on the Nasdaq National Market (or on such other market as shares
of HAI are then quoted) for the 10 consecutive trading days immediately
preceding such date of funding; provided, however, that the Average HAI
Trading Price shall be deemed to be not less than $3.00 per share and
not greater than $5.00 per share.
1.7 The proceeds of Revolving Credit Loans shall be used solely to fund (a)
fees and expenses associated with the Reorganization, including legal
fees, accounting fees, SEC registration and filing fees, investment and
commercial banking fees, (b) interest when due on HAI's Convertible
Debentures and (c) certain HAI operating expenses and costs through the
close date of the Reorganization as generally described in Schedule A
attached thereto (collectively "Permitted Uses"). HAI shall deliver
once each month to the HAI Board of Directors and to the XX.xxx Board
of Directors a schedule setting forth all such expenses and draws that
occurred that month with appropriate detail to tie such report back to
the cash flow projection schedule the parties used to negotiate the
Revolving Credit Loan.
1.8 XX.xxx's obligations to fund the initial Revolving Credit Loans shall be
subject to the satisfaction of the following conditions:
1.8.1 No event shall have occurred which shall reasonably be expected to
have a material adverse effect on the properties, business,
operations, condition (financial or otherwise), liabilities or
capitalization of HAI;
1.8.2 No default or event which, with notice or lapse of time or both,
would constitute a default shall have occurred and be then
continuing with respect to any indebtedness of HAI, or agreement
governing such indebtedness, then outstanding;
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1.8.3 Each of the representations and warranties made herein by HAI
shall be true and correct in all respects;
1.8.4 The parties thereto shall have executed and delivered to XX.xxx
a Subordination Agreement, substantially in the form as
attached hereto as Exhibit C and made a part hereof;
1.8.5 HAI shall have executed and delivered to XX.xxx the Security
Agreement,
1.8.6 XX.xxx shall have received a properly executed Borrowing
Certificate containing the information as prescribed in Section
1.10.
1.9 XX.xxx's obligations to fund subsequent Revolving Credit Loans shall be
subject to satisfaction of the following conditions:
1.9.1 No event shall have occurred which shall reasonably be expected
to have a material adverse effect on the properties, business,
operations, condition (financial or otherwise), liabilities or
capitalization of HAI or its subsidiaries;
1.9.2 No default or event which, with notice or lapse of time or
both, would constitute a default shall have occurred and be
then continuing with respect to any indebtedness of HAI, or
agreement governing such indebtedness, then outstanding;
1.9.3 Each of the representations and warranties made herein by HAI
shall be true and correct in all respects; and
1.9.4 XX.xxx shall have received a properly executed Borrowing
Certificate containing the information as prescribed in Section
1.10.
1.10 Revolving Credit Loans shall be made in minimum draws of $25,000, upon
notice delivered to XX.xxx not less than five days prior to the
applicable funding date (the "Funding Date"). All Revolving Credit
Loans shall be made against delivery of a written borrowing certificate
(a "Borrowing Certificate") executed by Xxxxxxx Xxxxxx (President and
Chief Executive Officer of HAI) or, in Xx. Xxxxxx'x absence, a majority
of the disinterested members of the Board of Directors of HAI, which
certificate shall set forth (a) the amount of the Revolving Credit Loan
to be advanced on the applicable Funding Date, (b) the anticipated use
or uses of proceeds of such Revolving Credit Loan, which uses shall
consist solely of Permitted Uses, and (c) certify that all conditions
to the making of such Revolving Credit Loans have been satisfied on
such Funding Date.
1.11 The form of Revolving Credit Note evidencing Revolving Credit Loans
shall contain such provisions respecting defaults and remedies as are
usual and customary in commercial financing transactions of the type
herein described, including appropriate cross default provisions.
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2. Secured Hanover Re Loan
2.1. Reference is made to that certain Guaranty, dated as of December 29,
1998, as amended, among HAI, Hannover Life Reassurance Company of
America (former Reassurance Company of Hannover) and Central Reserve
Life Insurance Company (the "Hannover Guaranty"). Against delivery to
XX.xxx of a copy of an unconditional release of HAI from any and all
obligations under the Hannover Guaranty, XX.xxx agrees, on the terms
and conditions set forth in this Agreement, to loan to HAI an amount
equal to the lesser of (a) the difference between $4.25 million and 90%
of the appraised value of the HAI headquarters building located in East
Norriston, Pennsylvania, and (b) $1.0 million (the "Secured Hanover Re
Loan").
2.2. HAI's obligation to pay the principal of, and interest on, the Secured
Hannover Re Loan shall be evidenced by the Secured Promissory Note in
the form attached hereto as Exhibit D.
2.3. The Secured Hannover Re Loan shall bear interest, payable in a lump sum
at the Termination Date, at the per annum rate of 12%. Interest shall
be computed on the basis of a year of 360 days and the actual number of
days elapsed.
2.4. HAI may from time to time pay, without penalty or premium, the Secured
Hannover Re Loan.
2.5. The Secured Hannover Re Loan shall be due and payable upon the first to
occur of (i) the Termination Date or (ii) upon a merger, change of
control or sale of all or substantially all of the assets of HAI.
2.6. HAI may from time to time pay, without penalty or premium, the Secured
Hannover Re Loan.
2.7. XX.xxx's obligations to fund the Secured Hannover Re Loan shall be
subject to the satisfaction of the following conditions:
2.7.1. No event shall have occurred which shall reasonably be expected
to have a material adverse effect on the properties, business,
operations, condition (financial or otherwise), liabilities or
capitalization of HAI;
2.7.2. No default or event which, with notice or lapse of time or
both, would constitute a default shall have occurred and be
then continuing with respect to any indebtedness of HAI, or
agreement governing such indebtedness, then outstanding;
2.7.3. Each of the representations and warranties made herein by HAI
shall be true and correct in all respects;
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2.7.4. The parties thereto shall have executed and delivered to XX.xxx
the Subordination Agreement; and
2.7.5. HAI shall have executed and delivered to XX.xxx the Security
Agreement.
2.8. The Secured Hannover Re Loan shall be secured by a prior and perfected
first security interest in and to 200,000 shares of XX.xxx common
stock, pledged to XX.xxx in accordance with and subject to the terms of
the Security Agreement. Upon the making of the Secured Hannover Re
Loan, HAI shall deliver to XX.xxx in accordance with the terms of the
Security Agreement a certificate or certificates (accompanied by an
executed stock power in blank) representing 200,000 shares of XX.xxx
common stock, which shares shall be free and clear of any and all
liens, claims, charges or encumbrances whatsoever.
2.9. The Secured Promissory Note evidencing the Secured Hannover Re Loan
shall contain such provisions respecting defaults and remedies as are
usual and customary in commercial financing transactions of the type
herein described, including appropriate cross default provisions.
3. Unsecured Past Advance Loan
3.1. XX.xxx has advanced to HAI from time to time to date the aggregate
amount of One Million Three Hundred Four Thousand Five Hundred
Eighty-Nine Dollars ($1,304,589). To evidence such advances, XXX agrees
to execute and deliver to XX.xxx, upon the execution of this Agreement,
an Unsecured Promissory Note in the form attached hereto as Exhibit E
in the principal amount of $1,304,589.
3.2. The Unsecured Past Advance Loan shall bear interest, payable in a lump
sum at the Termination Date, at the per annum rate of 12%. Interest
shall be computed on the basis of a year of 360 days and the actual
number of days elapsed.
3.3. HAI may from time to time pay, without penalty or premium, the
Unsecured Past Advance Loan.
3.4. The Promissory Note evidencing the Unsecured Past Advance Loan shall
contain such provisions respecting defaults and remedies as are usual
and customary in commercial financing transactions of the type herein
described, including appropriate cross default provisions.
4. Representations and Warranties of HAI. HAI hereby represents and warrants to
XX.xxx as follows:
4.1. HAI is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania, and has
full power and authority to own, lease and operate its properties and
assets and to conduct its business as presently conducted, and to enter
into this Agreement and to carry out the transactions contemplated by
this Agreement.
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4.2. The execution, delivery and performance by HAI of this Agreement have
been duly authorized by all necessary corporate action, and this
Agreement has been duly executed and delivered by HAI. This Agreement
and the Notes constitute the valid and binding obligations of HAI
legally enforceable against HAI in accordance with their respective
terms. HAI has obtained all material consents, authorizations and
approvals of, and has made or will make all material declarations and
filings with, all federal and state governmental authorities required
on the part of HAI in connection with the consummation of the
transactions contemplated by this Agreement.
4.3. The execution of and performance by HAI of its obligations under this
Agreement will not violate any provision of law or governmental rule or
regulation, and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default
under (i) HAI's Certificate of Incorporation, (ii) HAI's by-laws as
currently in effect (the "By-laws"), (iii) any judgment, decree or
order to which HAI is bound or (iv) any agreement, contract, lease,
indenture or other instrument to which HAI is bound.
5. Indemnification. HAI shall indemnify and hold harmless XX.xxx from and
against any losses, claims, damages or liabilities, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon (a) the falsity or incorrectness in any material respect
as of the Closing Date of any representation or warranty of HAI contained in
or made pursuant to Section 3 hereof, or (b) the existence of any condition,
event or fact constituting, or which with notice or passage of time, or
both, would constitute a default or breach in the observance of any of HAI's
undertakings or covenants hereunder or under any of the documents executed
in connection herewith. HAI shall also pay all attorneys' fees and costs and
court costs incurred by XX.xxx in enforcing the indemnification provided for
in this section.
6. All notices, requests, consents and other communications provided for herein
(except as stated in the last sentence of this section) shall be in writing,
and shall be mailed by certified mail, postage prepaid, delivered by Federal
Express or similar overnight courier, or personally delivered, as follows:
If to HAI:
Xxxxxxx Xxxxxx
President & CEO
HealthAxis, Inc.
0000 XxXxxx Xxxx
Xxxx Xxxxxxxx, XX 00000
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If to XX.xxx:
Xxxxxxx Xxxxxx
President & CEO
XxxxxxXxxx.xxx, Inc.
0000 X. X'Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
cc: Xxxxxxx X. Xxxxxxxxx, General Counsel
or such other addresses as each of the parties hereto may provide from time
to time in writing to the other parties. For purposes of this Agreement (i)
in the case of communications sent by mail, the date of mailing shall be
deemed to be the delivery date and (ii) in the case of communications sent
by overnight courier, the date next succeeding the date of transmission
shall be deemed to be the delivery date.
7. Modifications; Waiver. Neither this Agreement nor any provision hereof may
be changed or waived unless effected by a writing executed and delivered by
the parties hereto.
8. Entire Agreement. This Agreement, including the Exhibits hereto, contain the
entire agreements between the parties with respect to the transactions
contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties, commitments, whether in writing or oral, prior
to the date hereof.
9. Execution and Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
an original, and such counterparts together shall constitute one instrument.
10. Governing Law and Severability. This Agreement shall be governed by the laws
of the State of Texas as applied to agreements entered into and to be
performed entirely within the State of Texas. In the event any provision of
this Agreement or the application of such provision to any party shall be
held by a court of competent jurisdiction to be contrary to law, the
remaining provisions of this Agreement shall remain in full force and
effect.
11. Headings. The descriptive headings of the Sections hereof and the Exhibits
hereto are inserted for convenience only, and do not constitute a part of
this Agreement.
[Rest of Page Left Intentionally Blank]
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Please acknowledge the agreement of HAI to the foregoing by signing and
returning to the undersigned the enclosed copy of this letter.
Very truly yours,
XXXXXXXXXX.XXX, INC.
By: /s/ Xxxxxxx X. Xxxx
------------------------------
Xxxxxxx X. Xxxx
Chair, Special Merger Committee
Board of Directors
Xxxxxx and acknowledged this 29th day of September 2000
HEALTHAXIS INC.
By: /s/ Xxxxxxx Xxxxxx
--------------------------
Xxxxxxx Xxxxxx
President & CEO
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